616 B.R. 374
Bankr. N.D. Ill.2020Background:
- Debtor Hitz Restaurant Group filed Chapter 11 on February 24, 2020; rent under its nonresidential lease was due on the first of each month.
- Creditor Kass Management filed motions seeking (1) enforcement of Debtor’s obligation to pay post-petition rent under 11 U.S.C. § 365(d)(3) and (2) modification of the automatic stay under § 362(d)(1).
- March 1, 2020 rent fell after the petition date (post-petition); Debtor made no post-petition rent payments.
- Debtor invoked the lease’s force majeure clause based on Illinois Governor Pritzker’s March 16, 2020 executive order restricting on-premises restaurant service during COVID-19, and also alleged Creditor failed to repair the HVAC system.
- Court found the executive order constitutes governmental action triggering the lease’s force majeure clause, but only from March 16 forward (so it does not excuse March rent); the order did not bar take-out/delivery, so force majeure can only partially excuse rent.
- Court preliminarily fixed relief: Debtor must pay full March rent and at least 25% of base rent (plus proportional CAM/taxes) for April–June 2020 by June 16, 2020, or the Court will find cause to lift the stay; repair-related claims belong in state court.
Issues:
| Issue | Plaintiff's Argument (Kass) | Defendant's Argument (Hitz) | Held |
|---|---|---|---|
| Whether § 365(d)(3) requires timely payment of post-petition rent (including March 2020) | § 365(d)(3) mandates full, timely payment of post-petition rent (including March onward) | Lease defenses (force majeure, landlord breaches) excuse or reduce payments | March rent is post-petition and generally required; court ordered March paid in full by deadline, with adjustments for later months due to force majeure |
| Whether Governor Pritzker’s executive order triggers the lease’s force majeure clause | Clause not triggered; lack of money not grounds; Debtor could access SBA loans | Executive order is governmental action/order that proximately caused inability to operate on-premises and thus triggered force majeure | Executive order unambiguously triggered force majeure from its effective date; force majeure partially applies to rent after March 16, 2020 |
| Whether force majeure can partially excuse or proportionally reduce rent obligation | Force majeure not applicable or should not excuse rent | Force majeure justifies reduction because large portion of dining area was unusable; kitchen (take-out) remained usable ~25% | Force majeure can proportionally reduce rent; court accepts at least Debtor’s admission that 25% of space remained usable, so Debtor must pay at least 25% of rent for Apr–Jun 2020 |
| Whether landlord’s alleged failure to repair HVAC excuses rent or bars stay relief | Creditor seeks stay relief for nonpayment; repair issues irrelevant to stay hearing | Debtor alleges landlord breaches (HVAC) that excuse withholding rent | Repair/repair-breach claims are state-law matters inappropriate for stay-summary proceeding; Debtor has not provided adequate protection by paying post-petition rent; court set a payment deadline and will lift stay for failure to pay |
Key Cases Cited
- In re Handy Andy Home Improvement Ctrs., Inc., 144 F.3d 1125 (7th Cir. 1998) (§ 365(d)(3) payments are not ordinary administrative expenses and protect landlords during assumption/rejection period)
- In re Ha-Lo Indus., Inc., 342 F.3d 794 (7th Cir. 2003) (§ 365(d)(3) requires payment of post-petition rent even if estate is administratively insolvent)
- In re Consolidated Indus. Corp., 234 B.R. 84 (Bankr. N.D. Ind. 1999) (lease terms govern whether an obligation arises post-petition)
- Commonwealth Edison Co. v. Allied-General Nuclear Servs., 731 F. Supp. 850 (N.D. Ill. 1990) (force majeure clauses can supersede common-law impossibility)
- Northern Ill. Gas Co. v. Energy Co-op., Inc., 461 N.E.2d 1049 (Ill. App. Ct. 1984) (force majeure excuses performance only where the cited event is the proximate cause of nonperformance)
- In re Vitreous Steel Prods. Co., 911 F.2d 1223 (7th Cir. 1990) (stay-relief hearings are summary; issues beyond adequate protection/cause are for separate proceedings)