In In re Tubular Technologies, LLC, Chapter 11 Case No. 06-00228 (Bankr. D. S.C. June 21, 2006) (click here for the opinion), the debtor filed a Chapter 11 petition on January 20, 2006. On May 12, 2006, 112 days after the petition date, the debtor moved, pursuant to 11 U.S.C. §365(d)(4), for an extension of time within which to assume or reject a lease of non-residential real property. The debtor did not seek an expedited hearing on the motion, and no order was entered prior to the 120 day time set forth in the statute. The lessor objected to the extension.
The court denied the motion for an extension of time. Section 365(d)(4) provides the following —
The court may extend the period determined under subparagraph (A), prior to the expiration of 120 day period, for 90 days on the motion of the trustee or lessor for cause.
The Court stated the following —
Section 365(d)(4), as revised by the BAPCPA, appears to be self-executing like the previous version of § 365(d)(4). … Debtor timely act under §365(d)(4)(A) and failed to timely obtain an extension under §365(d)(4)(B). The Court therefore finds that Debtor’s Motion should be denied as a matter of law because ther elief requested cannot be provided to the Debtor after the lapse of the applicable deadline pursuant to the plain language of §365(d)(4)(B)(i). This result is consistent with other changes to the Bankruptcy Code where Congress enacted self-executing provisions that deny a debtor relief if a debtor does not timely act.
Finally, the Court rejects Debtor’s excusable neglect argument. The Court is not aware of any case in this jurisdiction that applies an excusable neglect standard, which is primarily used for obtaining relief from a judgment, to extend what is essentially a statute of limitations preclusion for Debtor… The Court rejects Debtor’s excusable neglect argument, assuming it could apply, because §365(d)(4)(B)(i) provides that Debtor is required to obtain an order before the lapse of the deadline and it is Counsel’s responsibility to ensure that hearings are timely scheduled before the deadline lapses.
The Debtor subsequently moved for a stay pending appeal, and the Court again addressed the issue in In re Tubular Technologies, LLC, 348 B.R. 699 (Bankr. D.S.C. July 18, 2006) (click here for opinion) , stating as follows —
This revision by the Reform Act provides Debtor with additional time to make a decision with regard to its leases; however, it clearly provides that if any extension is desired, Debtor must obtain the extension by an order entered within the 120 day period prescribed. This provision encourages debtors to make a prompt decision about their leases and punishes debtors who fail to timely act… The legislative history supports this Court’s interpretation of the plain language of § 365(d)(4). Congress, in revising this section, "sought to establish a firm, bright line deadline by which an unexpired lease of nonresidential real property must be assumed or rejected. . . . An extension of time may be granted, within the 120 day period, . . . . This provision is designed to remove the bankruptcy judge’s discretion to grant extensions of time . . . ." H.R. Rep. No. 109-31(I), at 88 (2005). Though many of the provisions revised by the Reform Act have been criticized by various courts for lacking clarity, Congress was precise with this particular section. The plain language of the statute and the legislative history each unambiguously indicate that Debtor may not obtain an extension to assume a lease if the extension is not granted within the first 120 days of this case…
The language of revised § 365(d)(4) is so clear that during the hearing on Debtor’s Motion to Extend, Debtor admitted that § 365(d)(4) required the Court to enter an order extending the time to assume or reject a lease for a nonresidential real property before the 120th day after Debtor filed its bankruptcy petition. See 3 COLLIER ON BANKRUPTCY at P 365.04, at p. 365-47 (Lawrence P. King et al. eds., 15th ed. Revised 2005) ("The 2005 Act clarifies at least one ambiguity in the prior language. It is now clear that any order extending the initial 120-day period must be entered before the expiration of the deadline.").
At the hearing on the Motion to Extend the following exchange took place:
Court: So you concede the legal position that Mr. Beal’s taking … that it has to be within the time period the Order has to be entered.
Boudreaux: That’s correct… 365 has been amended to provide that the Order needs to be entered but 9006 would give the Court the authority to either extend that deadline or our request would be to enter the Order nunc pro tunc effective as of May 18, 2006, which would be within the 120-day period.
See Transcript of Hearing on Motion to Extend Time, pgs. 11-12.
This concession, coupled with the plain language of § 365(d)(4), seriously undermines Debtor’s ability to prevail on the merits or to present or preserve a substantial question on appeal. At the hearing on the Motion to Extend, Debtor admitted to a view of the law that is contrary to the very argument it must advance on appeal to prevail. Debtor’s new argument on appeal and in its Motion for Stay, which is based upon pre-Reform Act law, appears to be barred by judicial estoppel and by the unambiguous language of revised § 365(d)(4).
In a related argument in its Motion for Stay, Debtor also cited to United States v. Stollings, 516 F.2d 1287 (4th Cir. 1975), for the proposition that a court may consider a timely request for certain substantive relief despite the expiration of the time prescribed for providing such relief. In Stollings, the Fourth Circuit determined whether a district court, under Rule 35 of the Federal Rules of Criminal Procedure ("Rule 35"), no longer had jurisdiction to address a motion for reduction of sentence at the expiration of an applicable 120 day period despite the fact that the party seeking relief filed the motion within the time prescribed by Rule 35. The Fourth Circuit held that the district court did not lose jurisdiction by concluding that the district court had jurisdiction to enter an order within a reasonable time after the expiration of the time prescribed by the rule. Debtor’s reliance on Stollings is misplaced. In this case, Debtor has made no showing that the failure to enter an order extending the time to assume or reject was due to factors outside of Debtor’s control, namely a delay caused by this Court while considering or entering an order. This Court frequently conducts hearings on an expedited basis upon the request of parties to accommodate their needs. Under the record of this case, Debtor made no such request. Furthermore, in United States v. Breit, 754 F.2d 526 (4th Cir. 1985), the Fourth Circuit appeared to narrow the application of Stollings in light of certain Supreme Court decisions, and it concluded that a district court did lack jurisdiction to act beyond such a prescribed deadline.
Addressing the arguments actually made by Debtor at the hearing on the Motion to Extend, Debtor also asserted that although the requirements of an extension of time under § 365(d)(4) has changed, the Court nevertheless had the ability to extend the time to assume or reject pursuant to Fed. R. Bankr. P. 9006 ("Rule 9006") and § 105 based upon Debtor’s excusable neglect or that S-2 otherwise lacked standing to oppose the extension of the deadline. n8 These arguments appear to lack merit and do not give rise to any substantial questions for appeal…
Section 105(a) provides that "the court may issue any order, process, or judgment that is necessary to carry out the provisions of this title." 11 U.S.C. § 105(a) (emphasis added). In this case, Debtor is asserting that the Court should use its authority under § 105 to undermine the requirement that an order extending the time to assume or reject must be entered before the 120th day after the petition date in order to obtain a ninety (90) day extension of time to assume or reject under § 365(d)(4)(B)(i). Under the circumstances, it is clear that using the Court’s § 105 powers to provide an extension of time to assume or reject under § 365(d)(4)(A) without complying with the requirements mandated by § 365(d)(4)(B)(i) is not a means to "carry out the provisions" of the Bankruptcy Code pursuant to the plain language of § 105(a). …An argument that Debtor may extend the deadline under § 365(d)(4) under a general theory of excusable neglect also appears to lack merit and proof. .. In this case, Debtor’s failure to have a timely hearing on its Motion to Extend was the result of its counsel’s failure to request a hearing within the first 120 days of the case. ..However, inadvertence, ignorance of the rules, or mistakes construing the rules do not usually constitute excusable neglect. . . . Also, under Pioneer, the client is held accountable for the mistakes or omission of counsel." … The few cases identified by the Court on this subject each indicate that excusable neglect of an attorney is not sufficient to extend a deadline under the Bankruptcy Code. ..This Court is also not aware of any controlling case that would allow Debtor to escape the self-executing provisions of § 365(d)(4) based upon counsel’s neglect and therefore the Court cannot find, under the circumstances of this case, that excusable neglect presents a substantial question for appeal. Furthermore, Debtor failed to present evidence to support a determination that the neglect was excusable and therefore failed to meet its burden of proof and persuasion.
(most citations and footnotes omitted). Thanks to Mike Haber, Esq. and John Christy, Esq. for identifying and discussing this case in a November 10, 2006 Georgia Bar CLE Program.