IN RE GOODY'S FAMILY CLOTHING, INC. (Bankr.D.Del. 12-1-2010)

ee will promptly cure, such default . . ." Thus, the threshold issue is when the obligation to pay the 2008 Taxes arose under the Leases.

Id. at § 365(b)(1)(A).

As this Court stated in In re Goody's Family Clothing, Inc., "[i]t is well settled in this Circuit that, in the context of section 365(d)(3), the plain meaning of `obligations' is `something that one is legally required to perform under the terms of the lease.' Moreover, an obligation only arises when a party becomes legally obligated to perform it." As stated above, each of the Leases provides that the tenant is required to pay the property taxes "when due," directly to the relevant taxing authority. Therefore, the obligation to pay the 2008 Taxes arose when the 2008 Taxes came "due" under Tennessee law.

In re Goody's Family Clothing, Inc., 392 B.R. 604, 609 (Bankr. D. Del. 2008) (quoting CenterPoint Properties v. Montgomery Ward Holding Corp. (In re Montgomery Ward Holding Corp.), 268 F.3d 205, 209 (3d Cir. 2001)); see also In re Sportsman's Warehouse, 436 B.R. 308, 316 (Bankr. D. Del. 2009) ("Under well-settled law, whether the real estate taxes for the pre-petition period are payable as an administrative expense under section 365(d)(3) rises or falls on when the debtor's obligation to pay those taxes.").

Mot. to Compel, Ex. 1 at 4 [D.I. 1315]; see also Mot. to Compel, Ex. A at 4, Case No. 09-10124 [D.I. 654].

A. When the 2008 Taxes Came "Due"

Tennessee law is somewhat ambiguous on the issue of when property taxes are due, but the weight of authority strongly suggests that property taxes are due on the first Monday in October. The ambiguity arises from the Tennessee Code's inconsistent use of the words "due" and "payable." Tenn. Code Ann. § 67-1-701(a) provides:

(a) All taxes, state, county, and municipal, to be collected under this part, parts 10, 15 and 16 of this chapter, and chapter 5, parts 18-20 of this title shall be payable the first Monday in October in each year, except taxes of municipal corporations that, under existing laws, are authorized to collect their own taxes on property and privileges; provided, that, whenever, under any plan or program of consolidation of governmental functions of county offices with comparable facilities provided under any municipal charter, it is expedient to fix different due dates than those established in this subsection (a), in order to avoid the destruction of existing municipal fiscal policies, the county trustee of any county, by and with the consent of a majority of the members of the county legislative body of the county, may establish due dates other than those set forth in this subsection (a).

Because § 67-1-701(a) states that property taxes "shall be payable the first Monday in October" rather than "shall be due the first Monday in October," SJW contends that the true due date must be after the first Monday in October. To determine the due date, SJW looks to Tenn. Code Ann. § 67-5-2010(a)(1), which states that property taxes become delinquent on March 1st "following the tax due date." This, SJW reasons, suggests that February 28th is the true due date. In other words, SJW argues that under Tennessee law, property taxes are payable from October 1st to February 27th, due on February 28th, and then delinquent on March 1st.

Id.

Id.

There are several reasons why SJW's argument rests on an improper reading of Tennessee law. First, while Tenn. Code Ann. § 67-1-701(a) does say that property taxes "shall be payable the first Monday in October," it also later refers to "due dates other than those set forth in this subsection (a)." The only date established — or even mentioned — in subsection (a) is the first Monday in October. Therefore, the "due date" to which statute is referring must be the first Monday in October. Second, Tenn. Code Ann. § 67-1-702(a), which is titled "Date and place of payment," states that property taxes "shall be due and payable on the first Monday in October of each year." Perhaps most importantly, the 2008 Property Tax Notices sent to SJW by the Knox County Trustee each state prominently that "taxes are due and payable on October 1, 2008 and must be paid by February 29, 2009." Finally, multiple Tennessee Attorney General Opinions state that property taxes are both "due and payable" on the first Monday in October.

Tenn. Code Ann. § 67-1-701(a).

Objection of Debtor II, Ex. A, Case No. 09-10124 [D.I. 723].

See e.g., Tenn. Op. Atty. Gen. No. 04-149, at 1 (2004) ("As a general rule, county, school, and all property taxes are `due and payable on the first Monday in October of each year.'") (citing both Tenn. Code Ann. §§ 67-1-702(a) and 67-1-701(a)); Tenn. Op. Atty. Gen. No. 92-03, at 2 (1992) ("[B]y the express terms of both Tenn. Code Ann. §§ 67-1-701(a) and 702(a), the date upon which property taxes levied for both general purposes and education purposes become due and payable is the first Monday in October.").

In sum, the weight of authority strongly suggests that the 2008 Taxes came due on the October 1, 2008. In fact, regardless of how one interprets the precise language of Tenn. Code Ann. § 67-1-701(a), it is clear that Tennessee tax collectors, courts, and attorneys general have long interpreted Tennessee law to mean that property taxes are "due" on the first Monday in October. In light of the foregoing, the Court finds that the obligation to pay the 2008 Taxes arose on October 1, 2008.

After an exhaustive review, the Court has found no instance in which a Tennessee court, state agency, municipality, or county has ever interpreted Tennessee law to mean that property taxes are merely "payable," and not "due," on the first Monday in October. Indeed, the interpretation that property taxes are due on the first Monday in October appears to have spanned several decades. See e.g. Tenn. Op. Atty. Gen. No. 04-149, at 1 (2004) ("As a general rule, county, school, and all property taxes are `due and payable on the first Monday in October of each year.'"); Tenn. Op. Atty. Gen. No. 92-03, at 2 (1992) ("[B]y the express terms of both Tenn. Code Ann. §§ 67-1-701(a) and 702(a), the date upon which property taxes levied for both general purposes and education purposes become due and payable is the first Monday in October."); Marlowe v. Kingdom Hall of Jehovah's Witnesses, 541 S.W.2d 121, 124 (Tenn. 1976) (interpreting the former Tennessee code section 67-1-701 to mean that property taxes "are due and payable on the first Monday in October in each year").

B. Whether Debtor I Is Still Liable for the 2008 Taxes

The next issue is whether Debtor I is still liable for the 2008 Taxes. To answer this question, it is useful to track the liability for the 2008 Taxes chronologically. Jan. 1, 2008: In Tennessee, property taxes become a personal debt of the property owner on January 1 of the year for which the taxes are assessed. Therefore, on January 1, 2008, the property taxes became a personal debt of SJW. However, while SJW became liable to the State of Tennessee of January 1, 2008, Debtor I was not liable to SJW for the 2008 Taxes until October 1, 2008. As discussed above, under the terms of the Leases, Debtor I's obligation to pay the 2008 Taxes did not arise until October 1, 2008. Accordingly, from January 1, 2008 to October 1, 2008, SJW was solely liable for the 2008 Taxes. Oct. 1, 2008: The 2008 Taxes became "due" under Tennessee law. This, as discussed above, triggered Debtor I's obligation to pay the 2008 Taxes under the terms of the Leases. At this point, SJW was liable to the state of Tennessee for the 2008 Taxes, and Debtor I was liable to SJW for the taxes. Oct. 7, 2008: The Court entered the Confirmation Order, which approved the Debtor I Plan of Reorganization. The Confirmation Order stated that Debtor I had "provided adequate assurance of future performance with respect to the . . . unexpired leases to be assumed and/or assigned" under the Debtor I Plan, which included the Leases. The Debtor I Plan further provided that the Leases would be assumed and assigned upon entry of the Cure Order. Oct. 8, 2008: Debtor I's nonpayment of the property taxes meant that it was in default pursuant to section 9.1 of the Leases. Oct. 20, 2008: The Court entered the Cure Order, which fixed the cure amount for the Leases at $298,670.00. As the Second Circuit stated in In re Wireless Data, "[t]he resolution of these claims, generally referred to as `cure claims,' strives to restore the `debtor-creditor relationship . . . to pre-default conditions,' bringing the contract back into compliance with its terms." Thus, entry of the Cure Order wiped away Debtor I's default for failure to pay the 2008 Taxes, and brought the Leases back into compliance with their terms. Therefore, after entry the Cure Order on October 20, 2008, Debtor I was no longer liable to SJW for the 2008 Taxes. SJW, however, was still liable to the State of Tennessee for the taxes. Pursuant to the Confirmation Order, the Leases were assumed and assigned to Debtor II upon entry of the Cure Order. Assumption of an unexpired lease "acts as a renewed acceptance of the terms of the executory bargain." As Judge Walsh stated in In re Cellnet Data Systems, Inc., "[w]hen a bankruptcy court approves the assumption of an [unexpired lease], it necessarily finds that no uncured defaults exist." Accordingly, when Debtor I assumed the Leases on October 20, 2008, it was obligated under the (renewed) Leases to pay property taxes, but only when they came "due" under Tennessee law (i.e., October 1, 2009). SJW was still liable to the State of Tennessee for the 2008 Taxes, and because of the Cure Order, no longer had a claim on Debtor I for payment of the 2008 Taxes. Pursuant to the Confirmation Order, immediately following assumption, Debtor I was deemed to have assigned the Leases to Debtor II. Section 365(k) of the Code provides that assignment of a lease assumed by the debtor "relieves the trustee and the estate from any liability for any breach of such contract or lease occurring after such assignment." Moreover, The non-bankruptcy party to the lease has the burden to assert any defaults prior to assignment. Thus, upon assigning the Leases to Debtor II, Debtor I was relieved of all liability for property taxes under the Leases. SJW, however, was still liable to the State of Tennessee for the 2008 Taxes. As the above chronology demonstrates, SJW is ultimately responsible for the 2008 Taxes. Debtor I was liable for the 2008 Taxes when they came due on October 1, 2008, and was in default for failure to pay the 2008 Taxes on October 8, 2008. However, the Cure Order wiped away Debtor I's default. Debtor I then assumed and assigned the Leases to Debtor II, relieving Debtor I of liability for any subsequent defaults under the Leases.

C. Excusable Neglect

SJW asserts that its failure to file a timely objection to the Cure Motion constitutes "excusable neglect" under Rule 9006(b)(1). Bankruptcy Rule 9006(b)(1) provides that "when an act is required . . . to be done at or within a specified period by these rules or by a notice given thereunder or by order of the court, the court for cause shown may at any time in its discretion . . . (2) on motion made after the expiration of the specified period permit the act to the be done where the failure was the result of excusable neglect." The party seeking relief bears the burden of proving excusable neglect by a preponderance of the evidence.

Reply of SJW at 16 [D.I. 1400].

Fed.R.Bankr.P. 9006(b)(1).

See e.g., Jones v. Chemetron Corp., 212 F.3d 199, 205 (3d Cir. 2000); In re Cable Wireless USA, Inc., 338 B.R. 609, 613 (Bankr. D. Del. 2006).

The seminal case on excusable neglect is Pioneer Investment Services v. Brunswick Associates. In Pioneer, the Supreme Court examined the "excusable neglect" standard and concluded that "the determination is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission." The Court then listed four factors for courts to consider in determining whether a party is entitled to relief for excusable neglect: (1) the danger of prejudice to the debtor; (2) the length of the delay and its potential impact on judicial proceedings; (3) the reason for the delay, including whether it was within the reasonable control of the movant; and (4) whether the movant acted in good faith.

507 U.S. 380 (1993).

Id. at 395.

Id.

i. Prejudice to the Debtor

As the party seeking to file a late objection to the Cure Motion, SJW bears the burden of proving a lack of prejudice to Debtor I. However, SJW conducts its prejudice analysis as if it were seeking to file an administrative expense claim, rather than a late objection to the Cure Motion. The only way for SJW to recover the 2008 Taxes is to seek permission to file a late objection to the Cure Motion, which proposed a Cure Amount that did include the 2008 Taxes. Merely filing an administrative expense claim for the 2008 Taxes under section 503(b)(1)(A) as an actual, necessary cost and expense of preserving the estate would not have been sufficient to recover the 2008 Taxes. The administrative claims bar date was December 4, 2008, which was 45 days after the Leases had been cured, assumed, and assigned pursuant to the Debtor I Plan. As the court noted in In re Cellnet, "[w]hen a bankruptcy court approves the assumption of an [unexpired lease], it necessarily finds that no uncured defaults exist." Consequently, Debtor I is no longer liable for pre-confirmation defaults. As to post-confirmation defaults, section 365(k) of the Bankruptcy Code expressly states that "[a]ssignment by the trustee to an entity of a contract or lease assumed under this section relieves the trustee and the estate from any liability for any breach of such contract or lease occurring after such assignment." Therefore, had SJW timely filed an administrative expense claim on December 3, 2008, for example, Debtor I could have correctly objected to the claim on the basis that the Leases has already been cured, assumed, and assigned.

In re KMart Corp., 381 F.3d 709, 714 (7th Cir. 2004); In re Cable Wireless USA, Inc., 338 B.R. 609, 614 (Bankr. D. Del. 2006).

Reply of SJW at 17 [D.I. 1400].

As stated above, Debtor I proposed fixing the Cure Amount at $298,670.00, which was the full amount of the stub rent sought by SJW in its proof of claim. To recover the 2008 Taxes, SJW would have needed to file an objection to the Cure Motion requesting that the proposed Cure Amount be increased to $507,264.55 (the 2008 Taxes plus the June 2008 stub rent). The deadline for filing objections to the Cure Motion was October 13, 2008.

Notice of (1) Effective Date (2) Bar Dates For Filing Administrative Claims, Professional Fee Claims And Contract/Lease Rejection Damages Claims and (3) Entry Of Order Confirming Second Amended Joint Plan Of Reorganization [D.I. 951]. The Leases were cured, assumed, and assigned to Debtor II on October 20, 2008. See Cure Order [D.I. 943].

In re Cellnet, 313 B.R. at 608; see In Re Lykes Bros. Steamship Co., 221 B.R. 881, 883 (Bankr. M.D. Fla. 1997) ("If prior to the assumption of any executory contract there is no allegation of any existing default, the order approving the contract determines that no default exists.").

11 U.S.C. § 365(k).

As a result, there can be little doubt that SJW has not carried its burden of proving a lack of prejudice to Debtor I.

ii. Length of the Delay

Courts should consider the length of the delay in absolute terms. Here, again, SJW conducts its analysis as if it were seeking to file an administrative expense claim rather than an objection to the Cure Motion. SJW argues that the length of the delay was only 3.5 months, as the administrative claims bar date was December 4, 2008, and it filed its Motion to Compel on March 24, 2009. However, the relevant deadline was the October 13, 2008 deadline for objections to the Cure Motion, not the administrative claims bar date. Thus, the true length of the delay was roughly 5 months. Courts have held that comparable delays weigh against the movant. In addition, the delay takes on added significance when a plan of reorganization was confirmed in the interim. In this case, the finality of the Cure Order was central to the Debtor I Plan — in fact, the Debtor I Plan became effective only when the Court entered the Cure Order. Therefore, this factor also weighs against SJW.

In re O'Brien, 188 F.3d at 130.

Reply of SJW at 17 [D.I. 1400].

See e.g., In re Enron Corp., 298 B.R. 513, 526 (Bankr. S.D.N.Y. 2003); ("length of delay in filing the Proof of Claim here is substantial, that is, it was filed more than six months after Bar Date."); In re XO Communications, 301 B.R. 782, 797 (Bankr. S.D.N.Y. 2003) (finding that a delay of four months weighed against permitting a late proof of claim).

See In re Alexander's Inc., 176 B.R. 715, 722 (Bankr. S.D.N.Y. 1995) (highlighting that "the Proof of Claim was filed after the Debtors' Plan was formulated, negotiated and confirmed"); In re Drexel Burnham Lambert Group, Inc., 148 B.R. 1002, 1007 (S.D.N.Y. 1993) (noting the particular disruption that would result from allowance of a late claim "after consummation of a vigorously negotiated claims settlement and Plan of Reorganization . . . on which the creditors, the debtor and the stockholders reached their agreements.").

iii. Reason for the Delay

SJW claims that the reason it did not file an objection to the Cure Motion for the 2008 Taxes was that it "had no reason to believe the taxes would not be paid timely[,] as had been the case for over ten years." SJW noted that in years past, Debtor I had paid the property taxes at the end of February in the year following the due date. At the July 1, 2009 hearing, SJW emphasized this line of reasoning, and argued that the "course of performance" between the parties had amended the Leases under Tenn. Code Ann. § 47-1-303. However, the "course of performance" statute to which SJW cites is part of Tennessee's Uniform Commercial Code, which, of course, only applies to leases of goods. Real property leases are goverened by Tennessee property law, not Tennessee's UCC.

Reply of SJW at 17 [D.I. 1400].

Id. at 6.

Transcript of Omnibus Hearing on July 1, 2009 at 8 [D.I. 1414] (hereinafter "Hearing Transcript").

See generally Tenn. Code Ann. § 47-2A-102 (stating that "[t]his chapter applies to any transaction, regardless of form, that creates a lease."); Tenn. Code Ann. § 47-2A-103(j) (defining "Lease" as "a transfer of the right to possession and use of goods for a term in return for consideration") (emphasis added).

See generally Tenn. Code Ann. § 66-28-101 et seq. (2006).

Moreover, it was incumbent upon SJW to object to the Cure Motion. SJW received the tax bills for the 2008 Taxes on the very same day that Debtor I filed the Cure Motion, and the tax bills stated prominently that "[t]he 2008 taxes are due October 1, 2008." And not only did SJW's property manager receive the tax bills, she even forwarded them to Debtor I. SJW knew that the Leases were scheduled to be assumed and assigned as part of the Debtor I Plan. SJW received the Cure Notice, which prominently stated that,

See In re Diamond Mfg. Co., 164 B.R. 189, 199 (Bankr. S.D. Ga. 1994) ("The nonbankrupt party bears [the] burden to assert any defaults prior to assumption."); accord In re Cellnet, 313 B.R. at 608.

Reply of SJW, Ex. F [D.I. 1400].

In fact, SJW negotiated an amendment to the HQ Lease on October 3, 2008 — the day after it received the tax bills — in order to secure Debtor II's continued occupancy of the HQ property. Id. at Ex. D [D.I. 1400].

If you fail to respond in accordance with this notice, the court may grant the relief demanded by the motion without further notice or hearing, including setting the cure amounts sought by the motion.

SJW therefore should have realized that it needed to object to the Cure Amount to ensure that it included the 2008 Taxes. SJW simply failed to correctly calculate its own Cure Amount. As Judge Shannon stated in In re Pac-West Telecomm, "[t]he fact that both the Landlord and [the debtor] were mistaken as to the extent of [the debtor's] obligation does not change the point in time at which the obligation arose and became due." Similarly, the fact that SJW was mistaken as to the timing of Debtor I's obligation to pay the 2008 Taxes does not change the point in time at which the obligation to pay the 2008 Taxes arose and became due.

377 B.R. 119, 124 (Bankr. D. Del. 2007).

While the sequence of events in October 2008 was certainly complicated, based on a review of the docket, at least one other lessor in the same situation as SJW was able to file a timely objection to the Cure Motion. Centro Properties Group, the landlord for Goody's store #43, located in Greeneville, Tennessee, filed a timely objection to the Cure Motion based in part on unpaid property taxes for 2008. Thus, it seems clear that SJW

Centro Properties Group's Objection to Debtors' Motion to Approve Order Fixing Cure Amounts for the Debtors' Executory Contracts and Unexpired Leases Assumed Pursuant to the Plan [D.I. 893] (hereinafter "Centro Properties' Objection").

had sufficient time to file an objection to the Cure Motion before the October 13, 2008 deadline, but simply failed to do so. Therefore, this factor also weighs against SJW.

iv. Good Faith

Debtor I argues that SJW's "scattershot approach to litigation," in which it filed motions seeking payment for the 2008 Taxes in both the Debtor I and Debtor II cases, "suggests a lack of good faith by SJW." However, given the complexities of this case, and the labrynthine timeline, the fact that SJW was unsure whether it should seek recover for the 2008 Taxes from Debtor I or Debtor II is understandable, and does not suggest a lack of good faith.

Sur-Reply at 9 [D.I. 1407].

v. Conclusion

SJW was aware of, or should have been aware of, the 2008 Taxes and the pending default when it received the Cure Notice. As evidenced by Centro Properties' timely objection to the Cure Motion, SJW was given sufficient time to file an objection to the Cure Motion before the October 13, 2008 deadline, but simply failed to do so. Therefore, the Court denies SJW's request for relief under Bankruptcy Rule 9006(b) for excusable neglect.

In light of the foregoing, the Court holds that Debtor I is not liable for the 2008 property taxes for the HQ, DC, or Vacant Leases. II. Debtor II

SJW is seeking immediate payment from Debtor II for the 2008 Taxes and the 2009 Taxes. The specific amounts that SJW is seeking from Debtor II are set forth below: Debtor II Lease Tax Period(s) Amount Claimed Due Vacant 2008 (Full) $7,349.78 DC 2008 (Full) $213,565.95 January — March 2009 $50,411.50 HQ January — February 2009 $27,707.30 Total $299,034.53 SJW argues that it is entitled to an administrative expense claim for the 2008 Taxes and the 2009 Taxes. Debtor II does not appear to contest its liability for either the 2008 Taxes or the 2009 Taxes. Instead, Debtor II argues that neither the 2008 Taxes nor the 2009 Taxes are entitled to administrative expense status, but are rather general unsecured claims.

Reply of SJW at ¶ 38, Case No. 09-10124 [D.I. 739].

The amounts differ slightly from the amounts asserted in SJW's filings because at the time of SJW's filings in this case, it had not yet paid the 2008 Taxes to the state of Tennessee, meaning they were still accruing interest. SJW finally paid the 2008 Taxes to the state on July 27, 2009. The amounts in the chart above represent the total amount, including penalties, that SJW paid for the 2008 Taxes, according to the Knox County Trustee's website.

Id.

Whether or not Debtor II ultimately should be liable for the 2008 Taxes, the fact remains that Debtor II has already admitted its liability for, and paid, the 2008 HQ Taxes. All three Leases contained identical language with regard to property taxes, and all three Leases were assumed and assigned to Debtor II together.

See Objection of Debtor II at 5-7, Case No. 09-10124 [D.I. 723].

A. 2008 Taxes

SJW argues that the 2008 Taxes are entitled to administrative expense status under either section 365(d)(3) or section 503(b)(1)(A). "Under well-settled law, whether the real estate taxes for the pre-petition period are payable as an administrative expense under section 365(d)(3) rises or falls on when the debtor's obligation to pay those taxes [arose]." "[A]n obligation only arises when a party becomes legally obligated to perform it." As established above, the obligation to pay the 2008 Taxes arose on October 1, 2008 — long before the January 13, 2009 petition date in the Debtor II case. Therefore, the 2008 Taxes are not entitled to administrative status under section 365(d)(3).

Reply of SJW at 12, Case No. 09-10124 [D.I. 739].

In re Sportsman's Warehouse, 436 B.R. at 316.

In re Goody's Family Clothing, 392 B.R. at 609.

In determining whether a claim is entitled to administrative status under section 503(b)(1)(A), courts apply a two-part test: "(1) there must be a post-petition transaction between the creditor and the debtor; and (2) the estate must receive a benefit from the transaction." In this case, the 2008 Taxes were not part of a post-petition transaction between SJW and Debtor II. Rather, both the transaction and the benefit which Debtor II received from the 2008 Taxes (namely, continued occupancy of the leased premises for the remainder of 2008) occurred prior to Debtor II's January 13, 2009 petition date. Thus, the 2008 Taxes do not satisfy either prong of the test.

In re Garden Ridge Corporation, 323 B.R. 136, 142 (Bankr. D. Del. 2005) (quoting In re Waste Systems Intern., Inc., 280 B.R. 824, 824 (Bankr. D. Del. 2002)).

For the foregoing reasons, the Court finds that the 2008 Taxes and are not entitled to administrative status, but are instead general unsecured claims.

B. 2009 Taxes

SJW argues it is entitled to administrative expense claims, under section 503(b), for the 2009 Taxes as follows: Lease Tax Period(s) Amount Due HQ January — February 2009 $27,707.30 DC January — March 2009 $50,411.50 Total $ 78,118.80 With regard to the HQ Lease, SJW points to the Assumption Order, entered on March 31, 2009, authorizing the Second HQ Lease Amendment and approving Debtor II's assumption of the HQ Lease, as amended. The Assumption Order specifically states that "[t]he Debtors shall be responsible for performing all obligations under the HQ Lease, as amended, regardless of when such obligations arose, including payment of prepetition taxes." Moreover, SJW argues that under the terms of the Second HQ Lease Amendment, Debtor II was required to pay property taxes on a pro rata basis, and notes that Debtor II has paid the March, April and May 2009 taxes. Debtor II contends that it is "no longer obligated to pay the 2009 Taxes because each of the Leases

Assumption Order, Case No. 09-10124 [D.I. 551].

Id. at 3.

Reply of SJW at 12, Case No. 09-10124 [D.I. 739].

has been rejected or terminated prior to the 2009 Taxes becoming due." Debtor II reasons that the 2009 Taxes did not come "due" under the Leases until October 1, 2009. Debtor II rejected the DC Lease on March 31, 2009, and terminated the HQ Lease pursuant to its terms on May 31, 2009.

Objection of Debtor II at 6 [D.I. 723].

Id. at 3.

The Court addressed a similar set of facts just last year in In re Sportsman's Warehouse. The Court described the situation in that case as follows:

In re Sportsman's Warehouse, 436 B.R. 308.

[A]ll three landlords seek allowance of an administrative claim under section 503(b) for payment as additional rent of real estate taxes that accrued between the Petition Date and the rejection of the applicable lease. None of the landlords have been billed for the real estate taxes that have accrued.

Citing its recent opinion in In re Goody's Family Clothing, the Court held that "a debtor's use and occupancy of leased premises post-petition is an actual and necessary expense of preserving the estate." Because the debtors in In re Sportsman's Warehouse had been occupying all three landlords' premises post-petition, the Court held that, despite the fact that none of the landlords had been billed for the real estate taxes yet, the debtors' "use and occupancy of the premises gives rise to an actual and necessary expense of the estate" under section 503(b)(1). The Court did note that "while the rent is an actual and necessary expense, use and occupancy of the premises may provide little or no benefit to the estate." However, the Court made clear that "[t]he amount of the benefit to the estate is presumed to be the contract rate of rent."

Id. at 315; In re Goody's Family Clothing, 392 B.R. at 614 (citing Zagata Fabricators, Inc. v. Superior Air Prods., 893 F.2d 624, 627 (3d Cir. 1990)).

In re Sportsman's Warehouse, 436 B.R. at 316-317.

Id. at 315.

Id.

Similarly, in this case, Debtor II used and occupied the DC Lease premises through the end of March 2009, and the HQ Lease premises through the end of May 2009. As such, Debtor II received the benefit of 2009 Taxes, but now seeks to avoid paying for that benefit. In fact, with regard to the HQ Lease, Debtor II has paid the full 2008 Taxes, as well as the taxes for March, April, and May 2009. Allowing Debtor II to skip the payments for the January and February 2009 taxes, despite the fact that Debtor II continued to occupy and use the premises during that time, and despite the fact that Debtor II paid taxes for March, April, and May 2009, would be an inconsistent and inequitable result.

Thus, the Court concludes that SJW is entitled to administrative expense claims for the 2009 Taxes.

C. Conclusion

For the reasons set forth above, the Court holds that SJW is only entitled to general unsecured claims against Debtor II for the 2008 property taxes on the DC and Vacant Leases. The Court further holds that SJW is entitled to administrative expense claims against Debtor II, under section 503(b)(1), for the 2009 property taxes on the HQ and DC Leases. SJW's claims against Debtor II are set forth below: SJW's Claims Against Debtor II Lease Tax Period(s) Amount Due (Priority) Vacant 2008 (Full) $7,349.78 (General Unsecured) DC 2008 (Full) $213,565.95 (General Unsecured) January — March 2009 $50,411.50 (Administrative) HQ January — February 2009 $27,707.30 (Administrative) Total General Unsecured $220,915.73 Total Administrative $78,118,80

CONCLUSION

For the reasons set forth above, the Court will deny SJW's Motion to Compel in the Debtor I case. The Court will also deny that portion of SJW's Motion to Compel in the Debtor II case seeking payment of the 2008 taxes as an administrative expense. SJW has an allowed general unsecured claim in the amount of $220,915.73 in connection with those taxes. The Court will, however, grant SJW's Motion to Compel in the Debtor II case as to the 2009 property taxes on the HQ and DC Leases. Thus, SJW has an allowed administrative expense claim in the amount of $78,118.80. Finally, the Court will deny SJW's request for immediate payment of its claims. An appropriate order will be issued.

SJW has failed to meet the standard for requiring such immediate payment. See generally In re Goody's Family Clothing, Inc., 392 B.R. 604, 614-617 (Bankr. D. Del. 2008).

Appendix I

Debtor I Pre-Petition 1/1/08 2008 Taxes become personal liability of SJW under Tenn. Code Ann. § 67-5-2101 Debtor I Post-Petition 6/9/08 Debtor I files for bankruptcy [D.I. 1] 8/26/08 Debtor I files the Debtor I Plan [D.I. 589] 9/26/08 Notice of (1) October 6 Confirmation Hearing; and (2) September 29 deadline for objections to the Plan [D.I. 595] 9/29/08 Deadline for objections to the Debtor I Plan [ see D.I. 584] 10/1/08 2008 Taxes due under Tenn. Code Ann. § 67-1-701(a) 10/2/08 Debtor I files Cure Motion, which includes the Cure Notice [D.I. 813] SJW receives 2008 Tax Bills, and notifies Debtor I via email that the 2008 Taxes are due 10/3/08 SJW and Debtor I execute First HQ Lease Amendment [D.I. 1400, Ex. D] 10/6/08 Confirmation Hearing [D.I. 845] 10/7/08 Court enters Confirmation Order [D.I. 849] confirming the Debtor I Plan [D.I. 847] 10/8/08 Debtor I is in default for nonpayment of the 2008 property taxes 10/13/08 Deadline for objections to Cure Motion (including Cure Amounts) [ see D.I. 813] 10/20/08 Court enters Cure Order [D.I. 943] Debtor I Plan Effective Date — SJW's Leases assumed and assigned to Debtor II Notice of Administrative Bar Date for Debtor I cases [D.I. 951] Debtor I Post-Confirmation/Debtor II Pre-Petition 12/4/08 Administrative Bar Date for Debtor I cases [D.I. 951] 12/31/08 Vacant Lease terminated [D.I. 1400, pg. 13] Debtor II Post-Petition 1/13/09 Debtor II files for bankruptcy [D.I. 1, Case No. 09-10124] 2/28/09 Last day before 2008 Taxes are delinquent under Tenn. Code Ann. § 67-5-2010(a)(1) 3/1/09 Penalty begins to accrue on unpaid 2008 Taxes under Tenn. Code Ann. § 67-5-2010(a)(1) SJW and Debtor II execute Second HQ Lease Amendment [D.I. 476, Case No. 09-10124] 3/16/09 Debtor II files Motion for Authorization of Second HQ Lease Amendment, and Assumption of HQ Lease, as amended [D.I. 476, Case No. 09-10124] 3/31/09 Assumption Order [D.I. 551, Case No. 09-10124] Debtor II cures HQ Lease default re: unpaid 2008 Taxes [D.I. 551, Case No. 09-10124] Debtor II assumes HQ Lease [D.I. 551, Case No. 09-10124] Debtor II rejects DC Lease [ see D.I. 723 at ¶ 7, Case No. 09-10124] 5/31/09 Debtor II terminates HQ Lease, pursuant to its terms [D.I. 723 at ¶ 7, Case No. 09-10124]