Opinion
Case Nos. 01-12264-SSM, 01-12265-SSM, (Jointly Administered)
March 11, 2002
Alexander M. Laughlin, Esquire, Gold, Morrison Laughlin, P.C., McLean, VA, Local counsel for the debtors in possession.
John J. Leidig, Esquire, Rifkin, Livingston, Levitan Silver, LLC, Baltimore, M.D., Malcolm Mitchell, Esquire, Vorys, Sater, Seymour Pease, L.L.P., Alexandria, VA, Local counsel for the Official Committee of Unsecured Creditors.
MEMORANDUM OPINION AND ORDER
A hearing was held in open court on March 7, 2002, on the objection filed by the debtors-in-possession on January 10, 2002, to Claim No. 163 filed by 11720 Sunrise Corp. L.L.C. ("Sunrise") in the amount of $15,020,023.30. The debtors in possession were present by counsel, as were the Official Committee of Unsecured Creditors and the United States Trustee. Sunrise did not file a response and was not present.
The claim is filed in the case of Pathnet, Inc. The objection is contained in an "omnibus" pleading that objects to a number of claims on various grounds.
Background
Pathnet, Inc. ("PNI") and five affiliates filed voluntary chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware on April 2, 2001. An order was entered for the joint administration of all six cases, which were thereafter transferred to this district. Subsequently, four of the cases were converted to chapter 7; however, PNI and its holding company, Pathnet Telecommunications, Inc. ("PTI"), remain in chapter 11 as debtors in possession.
Sunrise was the landlord of commercial office space that was leased by PNI in Reston, Virginia, under a ten-year lease that ran through March 31, 2010. To secure its obligations under the lease, PNI delivered to Sunrise a stand-by letter of credit issued by Crestar (now Suntrust) Bank in the amount of $1,821,000.00. Crestar in turn required that PNI post a certificate of deposit as collateral. Under the lease, PNI occupied space in the basement and on the first, second, fifth, and sixth floors. After the chapter 11 petition was filed, PNI rejected the lease but continued to occupy a portion of the premises (described by the debtor's comptroller as the "basement terrace") with respect to which it is paying $12,500.00 a month rent. The landlord drew down the full amount of the letter of credit, and Sun Trust in turn paid itself that amount from the certificate of deposit. The landlord has released the first floor (which constituted approximately one-third of the total floor area leased by PNI) to a new tenant which moved in on March 1, 2002.
The proof of claim filed by Sunrise assets a claim for "base rent" in the amount of $14,885,080.59 plus "signage consideration" in the amount of $134,942.71 plus "CAM charges, taxes, and other pro-rata charges due under the terms of the lease" in an "undetermined" amount. The objection asserts that § 502(b)(6), Bankruptcy Code, limits the landlord's claim to "approximately $2.1 million," which PNI asserts must then be reduced by the amount of any rents received for the space (including the $100,000.00 that has or will be paid by PNI for the basement terrace space) as well as the $1,821,000.00 drawn down under the letter of credit.
Discussion
It seems clear that a substantial portion of the Sunrise claim would have to be disallowed because of the cap imposed by § 506(b)(6), Bankruptcy Code, on a landlord's damage claim in bankruptcy. Specifically, such a claim is disallowed to the extent the claim exceeds
(A) the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of —
(i) the date of filing of the petition; and
(ii) the date on which such lessor repossessed, or the lessee surrendered, the leased property; plus
(B) any unpaid rent due under such lease, without acceleration, on the earlier of such dates[.]
Here the landlord's claim is based on the rents due for the entire remaining term of the lease. Whether the $1,821,000 draw under the letter of credit and the rents received from the releasing of the property are applied to the claim before or after it is capped are interesting questions. However, the court need not reach them at this time, because it does not appear that the objection to claim was properly served on Sunrise.
The proof of claim reflects the landlord's address as c/o Penzance Properties LLC, 5627 Potomac Avenue, N.W., Washington, DC 20016. It is signed by John J. Leidig, attorney for the creditor. Mr. Leidig's address is Rifkin, Livingston, Levitan Silver, LLC, Harbor Court, Suite 200, 575 South Charles Street, Baltimore, M.D. 21201. Neither the "omnibus" objection filed on January 10, 2002, nor the notice of hearing filed on February 5, 2002, were mailed to either address. Nor do the certificates of service attached to the objection and notice reflect any other form of service on Sunrise, such as on a registered agent. Without proper notice of the objection to claim and of the hearing at which the objection is to be heard, the court is without power to entertain the objection. Accordingly, it is
ORDERED:
1. The objection to Claim No. 163 of 11720 Sunrise Corp. LLC is continued for further consideration after the objection and at least 30 days notice of hearing are served on the creditor at the address shown on the proof of claim, with additional service on the attorney who prepared the claim.
2. The clerk will mail a copy of this memorandum opinion and order to the parties listed below.