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HomeMy WebLinkAboutCOM 0441.003 2012-2014 TIMOTHY J. HOGAN 5312-0 ATTORNEY AT LAW 1050 Bishop Street, No.433 r Honolulu, Hawaii 96813 n Tel. No. (808) 382-3698 Fax No. (808) 356-1682 :==+ E-mail: tjh @timhogan.com Attorney for Trustee -:-.- DAVID C. FARMER © : IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF HAWAII In re ) CASE NO. 12-02279 ) (Chapter 11) ) ) HAWAII OUTDOOR TOURS, INC., ) ) ) Judge: Honorable Robert J. Faris ) Debtor. ) ) TRUSTEE'S MOTION FOR ORDER (A) AUTHORIZING THE ASSUMPTION OF CERTAIN UNEXPIRED NON-RESIDENTIAL REAL PROPERTY LEASES AND (B) ESTABLISHING CURE COSTS; DECLARATION OF DAVID C. FARMER; EXHIBITS "A" TO "C" David C. Farmer, the duly appointed Chapter 11 Trustee (the "Trustee") moves the Court for the entry of an order, pursuant to section 365 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code") and Rules 2002(a) and 9006(c) of the Federal Rules of Bankruptcy Procedure (the comm. �• Ref. To: U.S. Bankruptcy Court - Hawaii #12-02279 Dkt# 367 Filed 09/16/13 Ft gefitot 7 0 2 2013 Submitted by: Lincoln Ashida, Corporation Counsel "Bankruptcy Rules") (i) authorizing the Trustee to assume certain herein described unexpired non-residential real property leases with the State of Hawaii and the Eleanor Rose Benda Trust (ii) and establishing cure costs. In support of this Motion, the Trustee respectfully represents as follows: The Debtor commenced the instant case on November 20, 2012, by the filing of a voluntary petition under Chapter 11 of the Bankruptcy Code. Declaration of David C. Farmer ("Farmer Dec."), ¶ 1-2. At the time of the filing the Debtor was the lessee under three ground leases as follows: 1. The Eleanor Rose Benda Trust Lease, including First Amendment and Assignment (hereinafter referred to as the "Benda Trust Lease." Farmer Dec. Exhibit "A"; 2. State of Hawaii Department of Land and Natural Resources General Lease S-5844 (hereinafter referred to as "Naniloa Lease"). Farmer Dec. Exhibit "B"; 3. State of Hawaii Department of Land and Natural Resources General Lease S-5372 (hereinafter referred to as "Ka'u Lease"). Farmer Dec. Exhibit "C". 2 U.S. Bankruptcy Court - Hawaii #12-02279 Dkt# 367 Filed 09/16/13 Page 2 of 7 The Trustee is administering the Debtor's Estate and has been operating the Naniloa Volcanoes Resort Hotel and Golf Course. On Friday the 13th of September, the Board of Land and Natural Resources, State of Hawaii, determined that it would not permit any additional time to assume the State leases. Pursuant to the Stipulated Order to Extend Time for Trustee to Assume or Reject State of Hawaii and the Eleanor Rose Benda Trust Leases filed on June 4, 2013 (Docket No. 329),the Trustee has through and including Monday September 16, 2013 to seek to assume the unexpired leases. The Trustee hereby timely gives notice of the assumption of the Naniloa Lease, the Ka'u Lease and the Benda Trust Lease.' The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157. The relief sought in this Motion is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue of the Debtors' chapter 11 cases and this Motion is proper pursuant to 28 U.S.C. §§ 1408 and 1409 and Local Bankruptcy Rules Basis for Relief The Trustee hopes to have a stipulation to continue the date for assumption or rejection of the Benda Trust Lease entered prior to the expiration of the date for assumption or rejection and files this motion related to the Benda Trust Lease as a protective measure. 3 U.S. Bankruptcy Court - Hawaii #12-02279 Dkt # 367 Filed 09/16/13 Page 3 of 7 DISCUSSION Section 365(a) provides, in relevant part, that a trustee, "subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." 11 U.S.C. § 365(a). Section 365(a) does not supply a standard for determining when it is appropriate for a court to approve a debtor in possession's determination to assume, assign or reject an executory contract. Courts, however, in deferring to the business judgment test, routinely approve motions to assume, assume and assign, or reject executory contracts and unexpired nonresidential real property leases upon a showing that a debtor's decision to take such action will benefit the Estate and is an exercise of sound business judgment. See, e.g., In re Pomona Valley Medical Group, Inc., 476 F. 3d 665, 670 (9th Cir. 2007); In re Health Plan of Redwoods, 286 B.R. 779, 780 (Bankr. N.D. Cal. 2002); In re Centura Software, Corp., 281 B.R. 660, 672 (Bankr. N.D. Cal. 2002); NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984) (superseded by statute on other grounds); Lubrizol Ents., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1046-47 (4th Cir. 1985). If the Trustee has exercised sound business judgment, a Bankruptcy court should approve the proposed assumption or rejection. As a result, courts generally 4 U.S. Bankruptcy Court - Hawaii #12-02279 Dkt # 367 Filed 09/16/13 Page 4 of 7 will not second-guess a debtor or trustee's business judgment concerning the assumption or rejection of an executory contract or unexpired lease. See In re Pomona Valley, 476 F.3d at 670; Lubrizol, 756 F.2d at 1047. The Trustee, in his business judgment has determined that the assumption of the Naniloa and Benda Trust Leases are in the best interests of the Debtor's estate. Declaration of David C. Farmer¶¶ 3-9. The lessors will be adequately protected as a result of the assumption and the principal Secured Lender's mortgagee protection cure requirements and can show that they will have sufficient cash available from the principal secured creditor First Citizens Bank plus ongoing operations to meet the postpetition financial obligations under the Leases. The Estate's ongoing operations will support the monthly lease payments of the Benda Trust lease,just as it has throughout the Bankruptcy case. Overall, the assumption of the Leases provides a positive economic benefit to the Estate. Therefore, the Court should approve the assumption of the Leases. CURE COST Pursuant to section 365(b)(1)(A) of the Bankruptcy Code, the Debtor must "promptly cure" all defaults, including payment of the Cure Cost. Whether a proposed cure of prepetition default under lease qualifies as "prompt cure" 5 U.S. Bankruptcy Court - Hawaii #12-02279 Dkt # 367 Filed 09/16/13 Page 5 of 7 ultimately depends upon facts and circumstances of each case. See In re Embers 86th Street, Inc., 184 B.R. 892, 900-901 (Bankr. S.D.N.Y.1995). Courts generally review the following factors in determining whether the "prompt cure" requirement is satisfied: (i) the debtor's past financial performance; (ii) any inequitable acts by the non-debtor party; (iii) harm or prejudice suffered by the non-debtor party resulting from past defaults; and (iv) the term of the contract or lease. Id., at *2. In this instance, the Debtors believe that the Leases to be assumed are valuable estate assets, the ultimate treatment of which is addressed in a sale transaction. Therefore, the deferral of the payment of the Cure Cost should still be considered "prompt" under relevant case law. Case law interpreting the term "promptly cure" considers the circumstances of a particular situation. Here, the remaining term of the Naniloa Lease is 58 years so a "promp"" cure of several years may be appropriate. See, e.g., In re Coors of North Mississippi, Inc., 27 B.R. 918, 922 (Bankr. N.D. Miss.) (1983) ("in the context of this case, this court concludes that the proposed cure of the default within a period of three years meets the statutory requirement of a 'prompt cure' or 'adequate assurances of a prompt cure'."); In re Mulkey of Missouri, Inc., 5 B.R. 15, 17-18 (Bankr. W.D. Mo. 1980) (six- month period to effect a prompt cure). Moreover, the Lessor of the Naniloa Lease has, without seeking relief from the Automatic Stay, imposed an increase in the Estate's performance bond 6 U.S. Bankruptcy Court - Hawaii #12-02279 Dkt # 367 Filed 09/16/13 Page 6 of 7 requirement that constitutes a pre-petition debt and therefore the Trustee believes was subject to the automatic stay. The Trustee shall seek a Bankruptcy Court determination of the actual cure costs that are required under the Bankruptcy Code. Notice of this Motion has been given to the following parties or, in lieu thereof, to their counsel, if known: (i) the Office of the United States Trustee; (ii) counsel for the Official Committee of Unsecured Creditors; (iii) the Secured Lender's counsel; (iv) counsel for the State of Hawaii and the Benda Trust; and (v) all parties entitled to receive notice under Rule 2002 of the Federal Rules of Bankruptcy Procedure. The Trustee submit that, in light of the nature of the relief requested, no other or further notice need be given. DATED: Honolulu, Hawaii, September 16, 2013. /S/Timothy J. Hogan TIMOTHY J. HOGAN ATTORNEY FOR THE CHAPTER 11 TRUSTEE DAVID C. FARMER 7 U.S. Bankruptcy Court - Hawaii #12-02279 Dkt# 367 Filed 09/16/13 Page 7 of 7