635 B.R. 725
Bankr. S.D.N.Y.2022Background:
- Debtor HBL SNF, LLC (a 160‑bed skilled nursing facility) filed Chapter 11 Subchapter V on Nov. 1, 2021; central to reorganization is a dispute over its lease with landlord White Plains Healthcare Properties I, LLC.
- In 2017 the Landlord obtained construction financing from Security Benefit and executed mortgage, assignment of leases & rents, and related security agreements; Security Benefit commenced foreclosure proceedings prepetition (later dismissed due to NY foreclosure moratorium).
- A contested DIP financing dispute arose over who was entitled to collect rent (Security Benefit via its claimed assignment vs. the Landlord); the Court ruled rent must be paid to the Landlord because Security Benefit had not taken sufficient affirmative steps to perfect the assignment, but left Security Benefit’s rights open to future changed‑circumstances applications.
- Debtor moved to extend the 90‑day Subchapter V deadline to file a plan (requested 90 days) because resolution of the adversary proceeding over lease termination (summary judgment hearing scheduled March 24, 2022) is critical to any viable plan.
- Security Benefit moved for a determination that the automatic stay does not bar its planned litigation against the Landlord or, alternatively, for relief from the stay to pursue foreclosure remedies; the Debtor did not oppose, but the Landlord objected.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Debtor is entitled to an extension of the 90‑day Subchapter V plan filing deadline under 11 U.S.C. §1189(b) | Debtor: lease litigation is a threshold issue necessary to propose a meaningful plan; delay is attributable to circumstances for which Debtor should not be held accountable | Landlord: Debtor delayed adjudication, failed to meet §1189’s stringent standard, and extension harms the Landlord | Court granted an extension but for 60 days (not the requested 90); facts justified delay and further extension may be sought later if needed |
| Whether the automatic stay bars Security Benefit from pursuing foreclosure/remedies against the non‑debtor Landlord | Security Benefit: stay generally limits to debtors; it will not name the Debtor or seek to terminate Debtor’s lease | Landlord: foreclosure would affect Debtor’s lease and purchase option, thereby impacting estate property and reorganization | Court held the stay does not bar action against non‑debtor Landlord here; granted relief (Security Benefit represented it will not terminate the Debtor’s lease and must return to court if it seeks relief affecting the Debtor) |
| If stay applied, whether cause exists to lift it under §362(d)(1) (Sonnax factors) | Security Benefit: Sonnax factors favor relief — state court expertise, primarily involves non‑debtors, no interference with the bankruptcy, judicial economy favors state forum | Landlord: litigation would prejudice Debtor/creditors and should await resolution of lease adversary | Even assuming stay applied, the Sonnax analysis favors lifting the stay: relief would resolve the dispute between Security Benefit and Landlord, not interfere with the bankruptcy, and is efficient |
Key Cases Cited
- Sonnax Indus., Inc. v. Tri Component Prods. Corp., 907 F.2d 1280 (2d Cir. 1990) (sets the Sonnax factors for deciding whether to lift the automatic stay)
- Teachers Ins. & Annuity Assoc. v. Butler, 803 F.2d 61 (2d Cir. 1986) (automatic stay does not generally apply to non‑debtor co‑defendants)
- Midlantic Nat’l Bank v. N.J. Dep’t of Env’t Protection, 474 U.S. 494 (U.S. 1986) (automatic stay is a fundamental debtor protection)
- In re Online King LLC, 629 B.R. 340 (Bankr. E.D.N.Y. 2021) (describes stringent §1189 standard for Subchapter V plan‑filing extensions)
- In re Baker, 625 B.R. 27 (Bankr. S.D. Tex. 2020) (example of a Subchapter V extension granted where circumstances altering plan feasibility were not the debtor’s fault)