HBL SNF, LLC
SEAN H. LANE
UNITED STATES BANKRUPTCY JUDGE
BACKGROUND
The Debtor is a 160-bedroom skilled nursing and rehabilitation facility located at 120 Church Street, White Plains, New York which opened in late 2019. See Declaration of Lizer Jozefovic Pursuant to Local Bankruptcy Rule 1007-2 and in Support of the Chapter 11 Subchapter V Petition and First Day Motions ¶ 7 (the “First Day Declaration“) [ECF No. 3]. In and around 2015, the Debtor entered into agreements with the Landlord for the construction and financing of the Debtor‘s care facility. Id. at ¶ 9. The Debtor and the Landlord entered into the Amended and Restated Operating Lease in November 2015. See Amended and Restated Operating Lease [ECF No. 58-6]. In furtherance of the Landlord‘s obligation to secure financing, the Landlord entered into a number of agreements with Security Benefit in August 2017, including a Construction Loan Agreement [ECF No. 72-1], a Mortgage, Assignment of
Prior to the bankruptcy, the Landlord filed litigation against the Debtor claiming that the Debtor‘s lease with the Landlord had already been terminated. After this bankruptcy filing, the lease litigation was removed to this Court. See Adv. Pro. No. 21-07096. Additionally, Security Benefit initiated two foreclosure proceedings in 2021 against the Landlord in New York State Supreme Court, Westchester County, both alleging the Landlord had defaulted on its loan obligations to Security Benefit. See Motion for Stay Relief ¶ 15. Both of those foreclosure cases wеre dismissed because of the foreclosure moratorium in New York State due to the COVID-19 pandemic. See id.
On November 1, 2021, the Debtor filed its petition under Chapter 11, Subchapter V of the Bankruptcy Code [ECF No. 1]. That same day, the Debtor filed the motion to approve debtor-in-possession (“DIP“) financing and authorize the Debtor‘s use of cash collateral [ECF No. 11]. After a first day hearing, the Court granted interim approval of the DIP financing motion and authorized the Debtor to: (1) obtain post-petition financing and grant security interests and super-priority administrative expense status with respect to the DIP collateral; (2) make use of cash collateral to the extent that it is necessary; (3) modify the automatic stay; and (4) schedule a final hearing on the DIP financing motion. See Order, dated Nov. 8, 2021 [ECF No. 34]. In advance of the final hearing on the DIP financing motion, the Debtor filed the proposed final DIP financing order that provided that all of the Debtor‘s lease obligations—i.e., the rent—would be paid going forward to Security Benefit based on the Assignment of Leases and Rents Agreement.
DISCUSSION
A. Extension Motion
The Debtor here seeks an additional 90 days until May 2, 2022 to file its plan in the Subchapter V case. See Extension Motion ¶ 16. As explained in the Debtor‘s Extension Motion, the ongoing dispute between the Debtor and the Landlord concerning the Debtor‘s lease is one of the main reasons that the Debtоr filed this bankruptcy. See Extension Motion ¶ 8 (citing the First Day Declaration). That litigation has now been removed to this Court, discovery has been conducted, and the Landlord‘s motion for summary judgment on the lease issue is scheduled to be heard on March 24, 2022. See Adv. Pro. No. 21-07096. The Debtor contends that resolution
The Landlord opposes the Extension Motion [ECF No. 103]. The Landlord contends that: (1) the Debtor has delayed adjudication of the lease termination issue; (2) the Debtor has failed to show under Section 1189 of the Bankruptcy Code that the delay is warranted; and (3) delay in this instance is inconsistent with Subchapter V and harms the Landlord. See Objection, at 3, 4, 6. The Debtor filed a Reply, together with a supporting Declaration of Lizer Jozefovic [ECF Nos. 107 and 108].
1. Applicable Legal Standard
In a Subchapter V case, a debtor is required to file a plan within 90 days after the order for relief is entered when the case is first filed.
On the other hand, courts have denied the request for an extension to file a plan where a Subchapter V debtor is relying on “a generalized excuse applicable to any business bankruptcy case.” In re Online King LLC, 629 B.R. at 351. In Online King, the debtor sought an extension because of delay caused by: (1) the work involved in proposing a plan; (2) competing demands upon the debtor; (3) the intervening rеligious holidays; and 4) the COVID-19 pandemic. Id. The court found these justifications unpersuasive. Id. at 352–353; see In re 5 Star Prop. Grp., Inc., 2021 WL 247782, at *1 (Bankr. M.D. Fla. Jan. 20, 2021) (setting the extension motion for a hearing but noting the debtor‘s request cited only the need for more time to complete certain calculations and finalize its plan, facts that did not appear to satisfy the conditions for an
2. An Extension Is Warranted
Applying all these principals here, the Court finds that the Debtor has satisfied its burden to show that an extension is appropriate. All parties agree that the status of the Debtor‘s lease with the Landlord is a threshold issue that must be resolved before any reorganization can occur. The parties differed as to whether discovery would be needed before deciding the merits of the lease issue and about how long such discovery should take. After hearing the parties’ views on these questions, the Court entered a schedule for prompt litigation of the complex questions about the lease, with a short period of time for discovery and a briefing schedule culminating in a hearing in March 2022. See Letter Setting Discovery Schedule, dated Dec. 7, 2021 [Adv. Pro. No. 21-07096, ECF No. 21]. Given that the Court determined the litigation schedule, it is hard to see how the Debtor could be blamed for unduly delaying adjudication of the lease issue. Like In re Baker, it does not appear practical, fair, or wise to require the Debtor to file a plan when the central issue of the lease remains unresolved. In sum, the facts justifying the extension are ones for which the Debtor should not be justly held accountable and are not the type of “generalized excuses” rejected by other courts as insufficient under Section 1189.
In reaching its decision, the Court notes that an extension here does not unduly prejudice any party, including the Landlord. The lease litigation was, in fact, filed by the Landlord and thus the Landlord can hardly complain that аll parties are taking time in the bankruptcy case to resolve it. While the Landlord would like the schedule for the litigation to be different, the Court
While the Court overrules the Landlord‘s objection, the Court will grant the Debtor‘s Extension Motion only for a period of 60 days, rather than the requested 90 days. This result is consistent with the posture of the case. A 60-day extension will push the deadline past the summary judgment hearing on the lease issue, at which time the parties and the Court can assess the status of the case and rule on any further extension request, if necessary. Indeed, this incremental “wait and see” approach is sometimes used by bankruptcy courts when confronted with contested requests for an extension of a debtor‘s exclusivity period under
B. Motion for Stay Relief
The Court turns now to the Motion for Stay Relief filed by Security Benefit. As this Court explained above, Security Benefit and the Landlord entered into a number of agreements beginning in 2017 regarding the construction, financing, and leasе of the facility where the Debtor operates. Security Benefit alleges that the Landlord has defaulted under these agreements. See Motion for Stay Relief ¶ 13. Based on that alleged default, Security Benefit now seeks permission to pursue its remedies against the Landlord in state court and requests a ruling from this Court that the automatic stay does not prevent Security Benefit from doing so. Security Benefit argues that the automatic stay does not apply to actions against the Landlord because it is not the Debtor and because Security Benefit does not intend to seek any relief against the Debtor in state court. See Motion for Stay Relief ¶ 25; see also Amended Reply of Security Benefit, at 5–6 [ECF No. 110]. To the extent that the Court concludes the automatic stay does apply to the legal proceedings contemplated by Security Benefit, Security Benefit seeks alternative relief in the form of lifting the stay so that Security Benefit can pursue its remedies against the Landlord. See Motion for Stay Relief ¶¶ 29–38; see also Sonnax Indus., Inc. v. Tri Component Prods. Corp. (In re Sonnax Indus., Inc.), 907 F.2d 1280, 1286 (2d Cir. 1990) (setting forth the standard for stay relief).
Notably, the Debtor has not opposed Security Benefit‘s Motion for Stay Relief. But the Landlord has. See Objection to the Stay Relief Motion [ECF No. 103]. The Landlord argues that any action taken by Security Benefit against the Landlord will directly impact the Debtor‘s
The parties’ arguments on the Stay Relief Motion must be understood in the context of their dispute about the rent. The Debtor planned to pay the rent to Security Benefit, based on language in the relevant agreements that provides for an assignment of rents to Security Benefit. The Landlord disagreed, arguing that it was still entitled to receive the rent because Security Benefit had not taken sufficient affirmative steps to make the assignment effective. Notably, the discussion of affirmative steps centered around whether or not there was a pending foreclosure proceeding in state court by Security Benefit against the Landlord and if Security Benefit had taken steps to appoint a receiver to collect the rents. Ultimately, the Court ruled that Security Benefit had not taken sufficient affirmative steps to affect a successful assignment of rent such that Security Benefit was entitled to the rent. See Hr‘g Tr., dated Dec. 23, 2021, at 21 [ECF No. 81]. The Court noted, however, that the ruling was without prejudice to a further application by Security Benefit if there were changed circumstances. By filing this Motion for Stay Relief, Security Benefit is essentially asking for permission to take such affirmative steps now and change the circumstances for any future request.
1. Applicable Legal Standard
operates as a stay, applicable to all entities, of—
(1) the commencement or continuation, including the issuance of employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.
The automatic stay affords “one of the fundamental debtor protections provided by the bankruptcy laws.” Midlantic Nat‘l Bank v. N.J. Dep‘t of Env‘t Protection, 474 U.S. 494, 503 (1986); Cоllier on Bankruptcy ¶ 362.03 (16th ed. rev. 2013). The automatic stay is intended to “allow the bankruptcy court to centralize all disputes concerning property of the debtor‘s estate so that reorganization can proceed efficiently, unimpeded by uncoordinated proceedings in other arenas.” SEC v. Brennan, 230 F.3d 65, 71 (2d Cir. 2000) (internal quotation omitted). Thus, the automatic stay “promot[es] equal creditor treatment and giv[es] the debtor a breathing spell.” In re Pioneer Commercial Funding Corp., 114 B.R. 45, 48 (Bankr. S.D.N.Y. 1990); see Lawrence v. Motors Liquidation Co. (In re Motors Liquidation Co.), 2010 WL 4966018, at *5 (S.D.N.Y. Nov. 17, 2010). “[T]he automatic stay allows the bankruptcy court to centralize all disputes concerning property of the debtor‘s estate in the bankruptcy court so that reorganization can proceed efficiently, unimpeded by uncoordinated proceedings in other arenas.” In re Ionosphere Clubs, Inc., 922 F .2d 984, 989 (2d Cir. 1990). But it is well established that the automatic stay is generally “limited to debtors and do[es] not encompass non-bankrupt co-defendants.” Teachers Ins. & Annuity Assoc. v. Butler, 803 F.2d 61, 65 (2d Cir. 1986); Queenie, Ltd. V. Nygard Int‘l, 321 F.3d 282 (2d Cir. 2003).
If the automatic stay does apply, a party can request that the court lift it.
(1) whether relief would result in a partial or complete resolution of the issues,
(2) the lack of any connection with or interferеnce with the bankruptcy case,
(3) whether the other proceeding involves the debtor as a fiduciary,
(4) whether a specialized tribunal with the necessary expertise has been established to hear the cause of action,
(5) whether the debtor‘s insurer has assumed full responsibility for defending the action,
(6) whether the action primarily involves third parties,
(7) whether litigation in another forum would prejudice the interests of other creditors,
(8) whether the judgment claim arising from the other action is subject to equitable subordination,
(9) whether movant‘s succеss in the other proceeding would result in a judicial lien avoidable by the debtor,
(10) the interests of judicial economy and the expeditious and economical resolution of litigation,
(11) whether the parties are ready for trial in the other proceeding, and
(12) the impact of the stay on the parties and the balance of harms.
In re Sonnax Indus., Inc., 907 F.2d 1280, 1286 (2d Cir. 1990); In re N.Y. Med. Grp., PC, 265 B.R. 408, 413 (Bankr. S.D.N.Y. 2001). Not all of the Sonnax Factors are relevant in every case, and “cause” is a broad and flexible concept that must be determined on a case-by-case basis. Spencer v. Bogdanovich (In re Bogdanovich), 292 F.3d 104, 110 (2d Cir. 2002) (citing Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139, 143 (2d Cir. 1999)). Thе moving party bears the initial burden to demonstrate that “cause” exists to lift the stay. See Sonnax, 907 F.2d at 1285; Capital Comm. Fed. Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43, 48 (2d Cir. 1997). “If the movant fails to make an initial showing of cause, however, the court should deny relief without requiring any showing from the debtor that it is entitled to continued protection.” In re Sonnax, 907 F.2d at 1285.
The Court here looks first to whether the automatic stay bars the litigation contemplated by Security Benefit. Security Benefit seeks to pursue remedies against the Landlord for alleged breaches under the loan documents. The Landlord is not the debtor in this bankruptcy, and the automatic stay is generally “limited to debtors and do[es] not encompass non-bankrupt co-defendants.” Teachers Ins. & Annuity Assoc. v. Butler, 803 F.2d at 65; see In re Calpine Corp., 365 B.R. 401, 408 (S.D.N.Y. 2007). Neither the Debtor, nor the Landlord, has filed a motion asking the Court to extend the protection of the automatic stay to the Landlord. See A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986).
While it is true that the Debtor is the tenant on the property in question, Security Benefit argues they are not a necessary party to the foreclosure in New York. See Motion for Stay Relief ¶ 23 (citing KVR Realties, Inc. v. Treasure Star, Inc., 445 N.E.2d 641, 641–42 (N.Y. 1983)). In fact, Security Benefit has represented to the Court that it will not name the Debtor as a party to the foreclosure action against the Landlord. See Security Benefit‘s Amended Reply, at 5 ¶ 2.3 The Landlord nonetheless argues that Security Benefit‘s proposed course of action will run afoul of the stay. More specifically, the Landlord argues that a foreclosure of the property and subsequent removal of the Landlord will infringe on the Debtor‘s purchase option under the lease, thus impacting property of the bankruptcy estate. See Objection ¶¶ 23, 26 (citing Harsh Inv. Corp. v. Bialac (In re Bialac), 712 F.2d 426, 431 (9th Cir. 1983)). But Security Benefit has made it clear that this concern is a hypothetical rather than actual one. Security Benefit has specifically represented in writing and open court that it will not seek to terminate the Debtor‘s
Even if the automatic stay somehow would bar the foreclosure action contemplated by Security Benefit, this Court concludes that Security Benefit meets the standard for stay relief under
CONCLUSION
For the reasons set forth above, the Court grants the Debtor‘s Extension Motion and Security Benefit‘s Stay Relief Motion. The Court will enter separate orders on each motion cоnsistent with this Decision.
Dated: February 1, 2022
New York, New York
/s/ Sean H. Lane
UNITED STATES BANKRUPTCY JUDGE