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In re Goody's Family Clothing Inc.

June 29, 2010

IN RE: GOODY'S FAMILY CLOTHING INC., ET AL., APPELLANTS


Appeal from the United States District Court for the District of Delaware (D.C. Civil Action No. 1-08-cv-00585/819/820) District Judge: Honorable Renee M. Bumb.

The opinion of the court was delivered by: Ambro, Circuit Judge

PRECEDENTIAL

Argued November 17, 2009

Before: AMBRO, ALDISERT, and ROTH, Circuit Judges

OPINION OF THE COURT

Goody's Family Clothing, Inc. and certain of its direct and indirect subsidiaries (collectively "Goody's" or "Debtors") appeal the judgment of the District Court affirming the Bankruptcy Court's decision to award "stub rent" as an administrative expense under 11 U.S.C. § 503(b) to three of the Debtors' landlords-Mountaineer Property Co. II, LLC, Stafford Bluffon, LLC, and Eastgate Mall, LLC (collectively the "Landlords"). "Stub rent" here is the amount due a landlord for the period of occupancy and use between the petition date and the first post-petition rent payment.*fn1 In deciding this issue, we construe further the meaning of 11 U.S.C. § 365(d)(3), first addressed in Centerpoint Properties v. Montgomery Ward Holding Corp. (In re Montgomery Ward Holding Corp.), 268 F.3d 205 (3d Cir. 2001). We hold that § 365(d)(3) does not supplant § 503(b) and the Landlords are entitled to "stub rent" as an administrative expense. We thus affirm the judgment of the District Court, and do so for essentially the reasons given by Judge Bumb in her excellent opinion.

I. Facts and Procedural Background

The relevant facts are undisputed. Goody's and the Landlords entered into leases for nonresidential real property in various shopping venues around the country. Each provided that rent would be paid in advance on the first day of every month during the term of the lease. Goody's was current on its rent obligations until June 1, 2008, when it did not pay rent due under the leases.

On June 9, 2008, the Debtors filed voluntary petitions for bankruptcy relief under the Bankruptcy Code. They simultaneously filed a motion with the Bankruptcy Court asking for permission to engage in various activities related to the closing of certain stores, including those leased from the Landlords, and the liquidation of the products in those stores. The store-closing sales were to be handled by an agent specifically hired to perform that task.

The Bankruptcy Court granted the motion, and a store-closing agent was hired soon thereafter. Goody's continued to occupy the properties owned by the Landlords, and the sales occurred on premises. The agent sold the merchandise in the designated stores, taking a portion for itself and turning over the balance of the proceeds to the estate. By Goody's own admission, the sale was "pretty successful" and brought in 105.4% of costs. Additionally, Goody's received from the agent an amount equal to per diem rent associated with use of the Landlords' property to conduct the closing sales, including the entire "stub rent" period.

Goody's, however, has not paid the Landlords for the post-petition occupancy of the stores from June 9 through June 30, 2008. In line with 11 U.S.C. § 365(d)(3), Goody's did pay, and the Landlords accepted, the rent due for the month of July on July 1, 2008. The "stub rent" for June remains in dispute.

The Landlords filed administrative expense claims under § 503(b)(1) for the "stub rent," characterizing it as unpaid, post-petition rent that was an actual, necessary cost and expense of preserving the estate. Goody's objected, arguing the "stub rent" was due under the Leases prior to the petition date, making it a general, unsecured pre-petition claim entitled to no special priority. Goody's further argued that § 365 was the exclusive source of obligations and remedies under unexpired leases, making any reference to § 503(b)(1) contrary to statutory text and controlling precedent.

The Bankruptcy Court heard argument on the Landlords' motions and granted them all as administrative expenses, but refused to require immediate payment. 392 B.R. 604 (Bankr. D. Del. 2008). An appeal was taken to the District Court, which affirmed.*fn2 401 B.R. 656 (D. Del. 2009). Debtors then appealed to our Court. The District Court had jurisdiction under 28 U.S.C. § 158(a)(1) over the appeal from the Bankruptcy Court, which had jurisdiction under 28 U.S.C. § 157(b). We have jurisdiction under 28 U.S.C. §§ 1291 and 158(d).

We exercise plenary review over the District Court's conclusions of law, including matters of statutory interpretation. In re Tower Air, Inc., 397 F.3d 191, 195 (3d Cir. 2005). Because the District Court sat as an appellate court to review the Bankruptcy Court, we review the Bankruptcy Court's legal determinations de novo, its ...


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