488 B.R. 74
Bankr. E.D. Pa.2013Background
- Graf & Graf objects to Brandywine’s Proof of Claim No. 4 for $1,071,024.53, arising from pre-petition breach of a 10-year commercial lease.
- The court must apply 11 U.S.C. § 502(b)(6) rent cap: rent reserved and any unpaid rent as of the Rent Cap Date; unrecoverable amounts beyond the cap are disallowed.
- The Rent Cap Date is the earlier of the petition date or surrender/repossession of the Premises; the court must decide if December 29, 2007 (surrender by LLC) or July 23, 2008 (petition date) governs.
- The court determines: (i) Rent Reserved is the greater of one year’s rent or 15% of the remaining term, (ii) Unpaid Rent is the pre-Rent Cap Date rent accrued and due, (iii) attorney’s fees and related costs are addressed separately from rent cap.
- The court finds December 29, 2007 constitutes a surrender under § 502(b)(6) and adopts Exhibit C‑l for pre-August 2007 unpaid rent; it excludes post-surrender accelerated rent, reletting costs, and mitigations from the cap, and allows attorney’s fees outside the rent cap.
- The result is an allowed claim of $400,171.94, comprised of Rent Reserved $175,434.18, Unpaid Rent $141,153.21, and Attorney’s Fees $83,584.55.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Rent cap applicability | Graf contends Brandywine’s claim exceeds § 502(b)(6) cap. | Brandywine asserts cap applies; calculation yields lower amount. | Rent cap applies; claim reduced to $400,171.94. |
| Rent Cap Date | Petition date should set cap date. | Debtor’s surrender before petition date sets cap date. | Rent Cap Date is December 29, 2007 (surrender). |
| Calculation of Rent Reserved | Rent Reserved should be based on lease for one year. | Agree with one-year measure; CAM and other components included. | Rent Reserved = $175,434.18; CAM included; interpretation stands. |
| Unpaid Rent and preclusion | Exhibit C-l proves unpaid rent amounts; issue preclusion applies to pre-August 2007. | State Court findings limited; need full recalculation. | Unpaid Rent as of Rent Cap Date determined; pre-August 2007 preclusive; August–Nov 2007 considered separately. |
| Mitigation and reletting costs | Mitigation credits should reduce damages. | Mitigation credits/costs should offset cap. | Mitigation costs and credits excluded from § 502(b)(6) calculation. |
| Attorney’s fees and costs | Fees are not rent but are part of the underlying debt. | Fees should be disallowed as non-rent. | Attorney’s fees and costs are allowed outside the rent cap; not subject to § 502(b)(6). |
Key Cases Cited
- In re Fifth Ave. Jewelers, 203 B.R. 372 (Bankr. W.D. Pa. 1996) (rent cap and related deductions consistent with cap purposes)
- In re McSheridan, 184 B.R. 91 (Bankr. N.D. Cal. 1995) (definition of rent reserved and CAM as rent-like charges)
- El Toro Materials Co., 504 F.3d 978 (9th Cir. 2007) (federal interpretation of cap scope; distinguish ‘rent’ from other damages)
- In re Best Products Co., Inc., 229 B.R. 673 (Bankr. E.D. Va. 1998) (cap purpose and damages subject to 502(b)(6))
- In re PPI Enterprises (U.S.), Inc., 324 F.3d 197 (3d Cir. 2003) (majority view on mitigation and cap interaction)