Art and Architecture Books of the 21st Century and 400 S. La Brea, LLC, a California limited liabilit

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
In re
ART AND ARCHITECTURE BOOKS OF
THE 21st CENTURY,
Debtor.
Case No. 2:13-bk-14135-RK
Chapter 11
MEMORANDUM DECISION ON
MOTION OF AERC DESMOND’S
TOWER LLC TO: (1) COMPEL
IMMEDIATE PAYMENT BY DEBTOR
OF OUTSTANDING OBLIGATIONS
TO LANDLORD PURSUANT TO 11
U.S.C. § 365(d)(3); (2) MODIFY
ADEQUATE PROTECTION ORDER
BASED ON DEBTOR’S CONTEMPT
OF COURT AND OTHER
DEVELOPMENTS SUBSEQUENT TO
ITS ENTRY
The contested matter of the motion of AERC Desmond’s Tower, LLC (“Landlord”)
to: (1) compel immediate payment by Art and Architecture Books of the 21st Century
(“Debtor”) of outstanding obligations to Landlord under the Master Lease pursuant to 11
U.S.C. § 365(d)(3); (2) modify adequate protection order based on debtor’s contempt of
court and other developments subsequent to its entry, came on for hearing before the
undersigned United States Bankruptcy Judge on February 19, April 2, May 7 and 14,
October 14 and November 18, 2014. The motion is opposed by Debtor and the Official
FILED & ENTERED
NOV 26 2014
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	bakchell
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 1 of 42

2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Committee of Unsecured Creditors (“Committee”) in this case. Appearances were made
as noted on the record.
The court has jurisdiction over the instant motion under 28 U.S.C. § 1334. The
motion is a core proceeding under 28 U.S.C. §§ 157(a) and (b)(2)(A) and (M). Venue is
proper in this judicial district pursuant to 28 U.S.C. § 1409(a). As discussed herein, the
court determines that Landlord is entitled to immediate payment of outstanding
obligations arising postpetition as required under 11 U.S.C. § 365(d)(3) and under the
terms of the Master Lease and that the motion should be granted.1
I. Termination of the Master Lease Does Not Preclude Application of 11 U.S.C
§ 365(d)(3)
In the case at bar, the District Court on Landlord’s appeal of this court’s ruling on
Debtor’s motion to assume the Lease held that the Lease was terminated before the
commencement of the bankruptcy case when Debtor filed its voluntary petition for relief
under Chapter 11 of the Bankruptcy Code, 11 U.S.C., and remanded to this court to
determine whether Debtor would be entitled to relief from forfeiture under applicable state
law, and thus could nevertheless assume the Lease pursuant to 11 U.S.C. § 365. Exhibit
18 to Request for Judicial Notice in Support of Motion to: (1) Compel Immediate Payment
by Debtor of Outstanding Obligations to Landlord Pursuant to 11 U.S.C. § 365(d)(3); (2)
Modify Adequate Protection Order Based on Debtor’s Contempt of Court and Other
Developments Subsequent to its Entry, ECF 443. Landlord filed the instant motion to
compel immediate payment of outstanding obligations under the Lease pursuant to 11
U.S.C. § 365(d)(3) for the time period pending assumption or rejection of the lease, i.e.,
the period between the petition date and the date when the this court on remand ruled on
Debtor’s request for relief from forfeiture. Subsequently, this court has now denied relief
from forfeiture in its memorandum decision on Debtor’s request for relief from forfeiture in
1 The court makes no ruling as to the propriety of the additional requests contained in the Supplement to
Motion filed by Landlord November 18, 2014. ECF 756. Due to their very recent filing, those additional
requests may be subject to a supplemental motion pursuant to 11 U.S.C. § 365(d)(3).
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 2 of 42

3
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
furtherance of its motion to assume the master lease, and there is no longer an unexpired
lease. As discussed herein, this court should still rule on the instant motion pursuant to
11 U.S.C. § 365(d)(3) in the context of it being brought before the court’s determination
on relief from forfeiture, i.e. during the period pending assumption or rejection of the
lease. Accordingly, as discussed herein, the pre-petition termination of the Lease does
not preclude application of 11 U.S.C. § 365(d)(3), and the court may still rule on
Landlord’s motion for immediate payment.
a. Assumability of a Lease for Purposes of § 365(d)(3)
A bankruptcy trustee, or a debtor-in-possession exercising the rights, powers and
duties of a trustee under 11 U.S.C. § 1107, may assume or assign certain contracts or
leases, but their ability to assume leases is limited by 11 U.S.C. § 365(c)(3), which states
that “[t]he trustee may not assume or assign any executory contract or unexpired lease of
the debtor, whether or not such contract or lease prohibits or restricts assignment of
rights or delegation of duties, if…such lease is of nonresidential real property and has
been terminated under applicable nonbankruptcy law prior to the order for relief.” 11
U.S.C. § 365(d)(3). In construing 11 U.S.C. § 365(c)(3), the Ninth Circuit in In re Windmill
Farms, Inc., 841 F.2d 1467 (9th Cir. 1988) has stated:
Assumability of a lease by a trustee in bankruptcy, in the context of a
lease termination claim, involves a two-part test. The first part of the
test is to determine whether the lease terminated before the petition
in bankruptcy was filed. We have already discussed this. The
second part of the test requires the court to “determine whether the
termination could have been reversed under a state anti-forfeiture
provision or other applicable state law.”
841 F.2d at 1472 (citation omitted) (italics in original).
The determination of the two-part test of Windmill Farms has been completed in
this case. The District Court has determined the first part by holding that the lease
terminated pre-petition. This court has now determined the second part by holding that
the termination could not have been reversed under state law as Debtor had waived its
rights to seek relief from forfeiture of the lease.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 3 of 42

4
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
This apparently presents an unusual situation, as both parties now appear to seek
the opposite of their previous litigating positions in the case. Debtor had argued in its
Lease Assumption Motion that it was entitled to relief from forfeiture, and thus, that the
lease was assumable, and now argues that the lease should be deemed expired before
the petition date and never assumable afterwards from the date of pre-petition
termination for purposes of 11 U.S.C. § 365(d)(3). Landlord, which in the Lease
Assumption Motion had argued that Debtor waived its right to relief from forfeiture, and
thus that the lease was not assumable, now argues that the lease is to be deemed
rejected as of the date this court entered an order determining that Debtor had waived its
right to relief from forfeiture, thus implicitly arguing that the lease was capable of
assumption or rejection for purposes of 11 U.S.C. § 365(d)(3). This apparent turnabout
in litigating positions is probably explainable by the effect of the text in 11 U.S.C. §
365(d)(3), which provides in pertinent part: “The trustee shall timely perform all the
obligations of the debtor, except those specified in section 365(b)(2), arising from and
after the order for relief under any unexpired lease of nonresidential real property, until
such lease is assumed or rejected, notwithstanding section 503(b)(1) of this title.” 11
U.S.C. § 365(d)(3). Essentially this means that during the applicable option period for
assuming or rejecting a lease, the trustee of the bankruptcy estate (or a debtor-in-
possession) must timely perform all of a nonresidential tenant’s post-filing obligations as
they become due. 11 U.S.C. § 365(d)(3); see also, 11 U.S.C. § 1107 (such obligation
also applies to a debtor-in-possession in a Chapter 11 reorganization case); In re
Cukierman, 265 F.3d 846, 849 (9th Cir. 2001).
Debtor disagrees with this construction of 11 U.S.C. § 365(d)(3), citing to In re
Orvco, Inc., 95 B.R. 724, 726-727 (9th Cir. BAP 1989), and characterizing its holding as
“once [the] lease is rejected, § 365(d)(3) no longer applies to pre-rejection period.”
Debtor’s Second Supplemental Brief in Response to Court’s Order for Further Hearing,
ECF 689 at 4:20. It is unclear where in the Orvco opinion this proposition is supported,
but to the extent that it was the holding in Orvco, it was contradicted and overruled at
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 4 of 42

5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
least implicitly by the Ninth Circuit in In re Cukierman, 265 F.3d at 851, which held that 11
U.S.C. § 365(d)(3) requires a trustee or debtor-in-possession to perform all obligations
under an unexpired lease of nonresidential real property “pending the assumption or
rejection of the lease.”
Furthermore, as held in Cukierman, any obligation of a trustee or debtor-in-
possession under a non-residential lease of real property, whether or not related to
debtor’s use of the property, enjoys the administrative status and right to prompt
performance conferred by 11 U.S.C. § 365(d)(3), pending the assumption or rejection of
a lease. In re Cukierman, 265 F.3d at 850. Also, as held by the Ninth Circuit in
Cukierman and other cases, 11 U.S.C. § 365(d)(3) requires the payment of rent in the
amount required by the lease (not some other “fair value” amount based on the estate’s
actual use and occupancy of the premises), plus all other obligations of the tenant debtor
under the lease (e.g., common area maintenance charges). 11 U.S.C. § 363(d)(3); In re
Cukierman, 265 F.3d at 850-851; In re LPM Corp., 300 F.3d 1134, 1137 (9th Cir. 2002);
In re Pacific Atlantic Trading Co., 27 F.3d 401, 404-405 (9th Cir. 1994). This means in
this case that if 11 U.S.C. § 365(d)(3) applies, Landlord could seek, as it does,
administrative priority treatment of: (1) holdover rent as provided for in the lease; (2) late
charges provided for in Section 5.3 of the Master Lease; (3) attorneys’ fees under Section
16.2 in the lease; (4) replacement parking costs; and (5) subtenant rents.
b. Expiration and Termination are Not Synonyms in the Bankruptcy Code
In opposing the motion, Debtor, joined by the Committee, seeks to avoid the
application of 11 U.S.C. § 365(d)(3) in this case, and argues that the lease should be
deemed expired as of the petition date. According to Debtor, if the lease is deemed
expired as of the petition date, 11 U.S.C. § 365(d)(3) will no longer be in effect, as that
section only applies to “unexpired leases.” Debtor’s Second Supplemental Brief in
Response to Court’s Order for Further Hearing, ECF 689 at 4:110-11. The parties have
spent a significant amount of time in their respective papers discussing the difference
between “expired” and “terminated” as those terms are used to describe non-residential
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 5 of 42

6
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
leases under the Bankruptcy Code. Debtor has argued that the lease should be deemed
expired as of the petition date, citing Windmill Farms for the proposition that a “California
lease is expired and non-assumable if before petition date it is terminated and no longer
subject to relief from forfeiture.” Debtor’s Second Supplemental Brief in Response to
Court’s Order for Further Hearing, ECF 689 at 4:12-14. It is not clear that Windmill
Farms supports this statement. As noted above, Windmill Farms sets forth a two-part
test to determine if a debtor can assume a lease. But termination is not synonymous with
expiration. This is made clear from the express language of 11 U.S.C. § 365(c)(3), which
says that the trustee may not assume an “unexpired lease” if that lease was “terminated
under applicable nonbankruptcy law. In other words, a trustee or debtor-in-possession
may never assume an expired lease, but the debtor may assume an unexpired lease so
long as that lease was not terminated.
Another implication of the text of 11 U.S.C. § 365(c)(3) is that a lease may be
simultaneously “unexpired” and “terminated.” See Super Nova 330 LLC v. Gazes, 693
F.3d 138, 142 (2d Cir. 2012) (“a lease that has been ‘terminated’ pre-petition can
nonetheless be ‘unexpired’ for purposes of Section 365(d)(3) if state law permits
reinstatement of the lease.”) (citing In re Stoltz, 197 F.3d 625, 629 (2d Cir. 1999). Section
365(c)(3) states that the trustee (or debtor-in-possession) may not assume an “unexpired
lease. . . if . . . such lease is of nonresidential real property and has been terminated
under applicable nonbankruptcy law prior to the order for relief.” 11 U.S.C. § 365(c)(3).
Here, “such lease” refers to an “unexpired lease of the debtor.” Id. Thus, the court
concludes that the Bankruptcy Code in the language of 11 U.S.C. § 365(d)(3) specifically
provides for the possibility that an unexpired lease may also be a terminated lease.
Landlord cites to In re Morgan, 181 B.R. 579 (Bankr. N.D. Ala. 1994), construing
Sections 365 and 1322(b)(7) of the Bankruptcy Code, 11 U.S.C., which offers a well-
reasoned explanation of the differences between the terms of “expired” and “terminated”
used in another provision of the Bankruptcy Code in 11 U.S.C. § 365(b)(1). Landlord’s
Supplemental Brief Re: (1) Order for Futher Hearing entered September 22, 2014; and
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 6 of 42

7
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
(2) Order Setting Hearing On Competing Forms of Judgment, entered September 25,
2014, ECF 688 at 6:9-7:23. Although the court in In re Morgan examined the assumption
of residential leases pursuant to § 1322(b)(7)subject to the restrictions of § 365(b)(1), the
court agrees with Morgan’s plain meaning analysis of the words “expire” and “terminate,”
and its analysis based on the language of the Bankruptcy Code, specifically determining
that § 365(c)(3) would be unnecessary if “expired” and “terminated” were synonymous.
181 B.R. at 583-584; contra, In re Moore, 290 B.R. 851, 873-882 (Bankr. N.D. Ala. 2003)
(disagreeing with Morgan, holding that “expired” and “terminated” are synonymous as
used in the Bankruptcy Code); see also In re Boll Weevil, Inc., 202 B.R. 762, 764 (Bankr.
S.D. Cal. 1996) (stating that “Bankruptcy law makes no distinction between the words
“terminated” and “expired” with respect to leases.”)
As in Morgan, the court considers it helpful in its statutory analysis to examine the
definitions of the words “expiration” or “expire” and “termination” or “terminate.” See In re
Morgan, 181 B.R. at 583-584. As defined in Black’s Law Dictionary, the word “expire”
means: “1. (Of an official document) to be no longer legally effective; to become null at a
time fixed beforehand. 2. (Of a period of time during which someone holds a position of
authority) to come to an end <the president’s term of office has expired> . . . .” Black's
Law Dictionary at 700 (10th ed. 2014). The Merriam-Webster Online Dictionary defines
“expire” to mean “to end; to no longer be valid after a period of time; to die.” Merriam-
Webster Online Dictionary, http://www.merriam-webster.com/dictionary/expire (2014)
(emphasis added). The court in Morgan cited Webster’s II New Riverside University
Dictionary for a definition of “expire,” defining it to mean “to come to an end.” 181 B.R. at
583, quoting, Webster’s II New Riverside Dictionary at 454 (1988). As noted by the court
in Morgan, “[t]he word expire, including all of its derivatives, is an intransitive verb” and
“[a]s such, it expresses an action or state which is limited to a subject, and does not
require a direct object to complete its meaning.“ 181 B.R. at 583; see also, Merriam-
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 7 of 42

8
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Webster Online Dictionary, http://www.merriam-webster.com/dictionary/expire.2 The
Morgan court further noted: “For example, ‘The lease has not expired,’ or ‘The unexpired
lease may be assumed.’” Id.
Black’s Law Dictionary defines the word “terminate” to mean “1. To put an end to;
to bring to an end. 2. To end; to conclude.” Black’s Law Dictionary at 1700. Similarly,
the Merriam-Webster Online Dictionary defines “terminate” to mean “to bring to an end:
CLOSE <terminate a marriage by divorce><terminate a transmission line>. Merriam-
Webster Online Dictionary, http://www.merriam-webster.com/dictionary/terminate. The
court in Morgan cited Webster’s II New Riverside University Dictionary for a definition of
“terminate,” which means “to bring to an end.” 181 B.R. at 583, quoting, Webster’s II
New Riverside Dictionary at 1194 (1908). As noted by the court in Morgan with respect
to the word “terminate” in comparison to the word “expire,” “[i]n contrast, the word
‘terminate’ is a transitive verb, which expresses an action between a subject and an
object and requires a direct object to complete its meaning.” 181 B.R. at 584. On the
other hand “[t]he word expire, including all of its derivatives, is an intransitive verb” and
“[a]s such, it expresses an action or state which is limited to a subject, and does not
require a direct object to complete its meaning.” Id.; see also, Merriam-Webster Online
Dictionary, http://www.merriam-webster.com/dictionary/terminate.3
The Morgan court draws a distinction between these words, expire and terminate,
and concludes that they are not precisely synonymous for purposes of the Bankruptcy
Code because to hold otherwise would render provisions of the Code superfluous. 181 B
2 The Merriam-Webster Online Dictionary in its definition of “terminate” states that the word “terminate” as
a verb has an intransitive form, which is similar to “expire,” including, to extend only to a limit (as a point
or line), to form an ending and to come to an end in time. However, the court agrees with the court in
Morgan that the dominant form of the word “terminate” as a verb is its transitive form, which is the form
recognized in Black’s Law Dictionary as discussed above, i.e., to bring to an end. In re Morgan, 181 B.R.
at 583-584; Black’s Law Dictionary at 1700.
3 The Merriam-Webster Online Dictionary in its definition of “expire” states that the word “expire” as a verb
has a transitive form, but for definitions not relevant here - to obsolete, to breathe from or as if from the
lungs or to emit. However, the relevant definition of “expire” here, i.e., to come to an end, is only in the
intransitive form
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 8 of 42

9
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
.R. at 583. Similar to the position taken by Debtor and the Committee in the case at bar,
in Morgan, a party, a lessor seeking relief from the automatic stay, had argued that “a
lease expires once it has been terminated under state law.” Id. As the court in Morgan
noted in addressing this contention, “[i]f Movant is correct and the words ‘expired’ and
‘terminated’ are precisely synonymous, then section 365(c)(3) would be unnecessary
since by definition a lease ‘terminated under applicable nonbankruptcy law’ could not be
an ‘unexpired lease.’” Id., citing, 11 U.S.C. § 365(c)(3). Moreover, as the Morgan court
stated: “For the same reason, the word ‘expiration’ in section 541(b)(2)(‘a lease of
nonresidential real property that has terminated at the expiration of the stated term of
such lease,’) and section 362(b)(10)(‘a lease of nonresidential real property that has been
terminated by the expiration of the lease,’) would be superfluous.” Id., citing, 11 U.S.C.
§§ 541(b)(2) and 362(b)(10). Based on its examination of various dictionary definitions of
the words “expire” and “terminate” as well as provisions of the Bankruptcy Code, the
court in Morgan observed:
The fact is that, while both terms denote an ending or cessation, they
otherwise have distinct meanings. To “expire” means “to come to an
end,” while the word “terminate” means “to bring to an end.”
Id., citing, Webster’s II New Riverside University Dictionary at 454 and 1194 (1988).
Derivatives of the words “expire” and “terminate” in the words “expiration” and
“termination” reinforce this interpretation. In re Morgan, 181 B.R. at 584. The word
“expiration” means “[t]he ending of a fixed period of time; esp. a formal termination on a
closing date <expiration of the insurance policy>---Also termed expiry.” Black’s Law
Dictionary at 700; see also, In re Morgan, 181 B.R. at 584 (examining substantially
identical definition in prior version of Black’s Law Dictionary). Black’s Law Dictionary
defines “termination” to mean: “1. The act of ending something; EXTINGUISHMENT
<termination of the partnership by winding up its affairs> . . . 2. The end of something in
time or existence; conclusion or discontinuance <the insurance policy’s termination left
the doctor without liability coverage> . . . .” Black's Law Dictionary at 1700; see also, In
re Morgan, 181 B.R. at 584 (examining substantially identical definition in prior version of
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 9 of 42

10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Black’s Law Dictionary). All of these definitions, both in a lay dictionary and in Black’s
Law Dictionary, accord with general intuitions about the meanings of these words – to
“terminate” means to actively cause something to end while to “expire” means that
something has ended in its natural course. In re Morgan, 181 B.R. at 583-584. The
analysis of the words “expire” and “terminate” and their derivatives in Morgan is correct
and is supported by the implicit holdings of Ninth Circuit precedent in Windmill Farms and
Cukierman - that under 11 U.S.C. § 365 a trustee or debtor-in-possession may seek relief
from forfeiture in order to assume an unexpired lease that has been terminated under
state law. Such assumption would not be possible if termination and expiration were
precisely synonymous. As the court in Morgan observed, “[i]n common parlance, and
when used as terms of art as well, the word ‘expired’ denotes the natural or inevitable
end to a contract or lease, by lapse of time, while the word ‘terminated’ denotes the
unnatural or premature end to a contract or lease as the result of breach or forfeiture.”
181 B.R. at 584. To hold that these two words are interchangeable would frustrate the
purpose and effect of provisions of the Bankruptcy Code, such as § 365. Id. Thus,
based on the ordinary meanings of these words, the court concludes that the Master
Lease did not expire upon its termination and was not expired pre-petition, having not yet
reached the end date provided for in the Lease.
c. The Lease is Rejected upon Denial of the Lease Assumption Motion
As can be seen from the discussion above, the date of rejection of the lease is
determinative of the treatment of Landlord’s claims under the lease. 11 U.S.C. § 365.
There is little clear guidance on the question of when is the date of rejection of a lease,
but decisions by the Ninth Circuit and other bankruptcy courts indicate that when a
trustee or debtor moves to assume a lease, the lease will be deemed rejected upon
denial of the motion. For example, in Cukierman, the Ninth Circuit stated that the lease in
that case was rejected upon denial of the debtor’s motion to assume. In re Cukierman,
265 F.3d at 849 (“[debtor] moved to assume the lease, but the bankruptcy court denied
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 10 of 42

11
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
the motion in November 1993. This amounted to a rejection of the lease, so the debtor's
obligations under the lease ceased at that point.”)
Deeming a lease rejected upon denial of a debtor’s motion to assume makes
sense given the underlying purpose of 11 U.S.C. § 365(d)(3) identified by the Ninth
Circuit in In re Cukierman. In Cukierman, the Ninth Circuit quoted the legislative history
of § 365(d)(3) and determined that the purpose of § 365(d)(3) was to ensure “that
trustees promptly perform lease obligations.” In re Cukierman, 265 F.3d at 850-851. To
deem the lease terminated and non-assumable pre-petition after denial of a lease
assumption motion would result in a “heads I win, tails you lose” proposition for a landlord
in facing a lease assumption motion in which either (1) the debtor succeeds in its lease
assumption motion; or (2) the lease assumption motion is denied, and the landlord’s
claims are not accorded administrative priority status. Such a result would contravene
the purpose of 11 U.S.C. § 365(d)(3) as identified by the Ninth Circuit in Cukierman, as
bankruptcy debtors would be able to delay performing lease obligations pending
resolution of a motion to assume, with the landlord left to render potentially
uncompensated services. Id. This is exactly the situation that Cukierman says that §
365(d)(3) was intended to remedy. The Ninth Circuit in Cukierman specifically cited the
legislative history of § 365(d)(3) in a statement by Senator Hatch made in submitting the
conference report on the bill containing the language of § 365(d)(3), describing the
problem the statute is meant to address: “[T]he landlord is forced to provide current
services---the use of its property, utilities, security, and other services---without current
payment. No other creditor is put in this position.” In re Cukierman, 265 F.3d at 851
(citing 130 Cong. Rec. S8887, 8895 (daily ed. June 29, 1984) (statement of Sen. Hatch),
reprinted in 1984 U.S.C.C.A.N. 576). As summarized by the Ninth Circuit in Cukierman
regarding the purpose of 11 U.S.C. § 365(d)(3),
Congress made the provision for trustee compliance broad,
extending it to cover all of the obligations under a lease. A broad
interpretation of this provision is consistent with the purpose of §
365(d)(3), which is to ensure immediate payment of lease obligations
so that the landlord is not left providing uncompensated services.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 11 of 42

12
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
265 F.3d at 850-851.
Debtor and the Committee rely heavily on In re Boll Weevil, which is factually
similar to this case insofar as the debtor had a lease that terminated pre-petition and a
potential right to relief from forfeiture. In re Boll Weevil, Inc., 202 B.R. 762 (Bankr. S.D.
Cal. 1996). The facts in Boll Weevil were that the debtor entered into a property lease
with a landlord. Id. at 763. Debtor also subleased the property to another party, and
after some time the sublessee and debtor as sublessor both failed to pay rent to the
landlord. Id. The landlord served a three-day notice to quit or pay rent, but again the
lessees failed to pay rent. Id. at 764. The landlord filed an unlawful detainer action, and
the debtor filed for bankruptcy before the unlawful detainer action went to trial in state
court. Id. The debtor received two extensions of time to assume or reject the lease, but
never actually moved to assume or reject the lease. Id. The landlord eventually obtained
relief from stay and continued its unlawful detainer action in state court. Id. The state
court ordered forfeiture of the lease and granted possession of the property to the
landlord. Id. The bankruptcy court analyzed whether the landlord was entitled to a
§365(d)(3) claim from the petition date to the date the debtor was no longer able to obtain
relief from forfeiture under California Code of Civil Procedure § 1179 and ultimately held
that the landlord’s claim for rent was not entitled to administrative priority because the
lease terminated under California law pre-petition. Id. at 765. In so holding, the court in
Boll Weevil stated, citing to Robinson v. Chicago Housing Authority, 54 F.3d 316, 320
(7th Cir.1995), that “[b]ankruptcy law makes no distinction between the words
‘terminated’ and ‘expired’ with respect to leases.” Id. at 764.4 The Boll Weevil court cited
to In re Windmill Farms to show that state law governs whether a lease is “terminated” for
purposes of a lease assumption motion, but then went on to hold that “the date of
termination is governed by what actions are taken in state court.” Id. at 765. But this
4 In Robinson, the Seventh Circuit reached this conclusion with respect to a noncommercial residential
lease, which is not the situation here involving a commercial nonresidential lease.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 12 of 42

13
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
holding does not take into account the full impact of the decision in Windmill Farms,
which held that the bankruptcy court is required to determine if the lease termination
could be reversed under applicable state law. In re Windmill Farms, Inc., 841 F.2d at
1472. The court recognizes that Boll Weevil does support the position of Debtor and the
Committee in arguing that Debtor does not have to pay rent as an administrative expense
claim for a lease terminated prepetition.
However, the court does not follow Boll Weevil because it is inconsistent with later
Ninth Circuit precedent, such as Cukierman, which hold that pursuant to 11 U.S.C. §
365(d)(3), a trustee or debtor-in-possession is obligated to pay rent as an administrative
expense for the post-petition period pending the assumption or rejection of a lease. 265
F.3d at 849. As discussed above, the court concludes that Boll Weevil should not be
followed in part because it holds that bankruptcy law does not distinguish between
“expired” and “terminated” commercial leases, at least as they are discussed in 11 U.S.C.
§ 365(c)(3) and (d)(3), which is incorrect. Moreover, regardless of the Boll Weevil court’s
determination of the meaning of “terminated” and “expired” or its interpretation of
Windmill Farms, that case is distinguishable factually because unlike here, the debtor did
not move to assume the lease and never attempted to obtain relief from forfeiture. See In
re Boll Weevil, Inc., 202 B.R. at 765.
As discussed above, the statutory purpose for 11 U.S.C. § 365(d)(3), as stated in
Cukierman, is to avoid forcing landlords to provide uncompensated services under a
lease which a debtor had not yet assumed or rejected. 265 F.3d at 850-851. Here, until
the outcome of Debtor’s motion to assume the lease is determined, Landlord is forced to
provide uncompensated services under the lease pending the assumption or rejection of
the lease, which is the situation covered by 11 U.S.C. § 365(d)(3). Id. Due to the
automatic stay, Landlord was not free to exercise its unfettered right under non-
bankruptcy state landlord tenant law to proceed in unlawful detainer in state court and
had to litigate its unlawful detainer claim before this court in connection with Debtor’s
motion to assume the lease. Thus, Landlord had to provide lease services to Debtor,
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 13 of 42

14
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
which it says was not fully compensated for as provided under the lease. The statutory
purpose of § 365(d)(3) is best accomplished by determining that a lease is deemed
rejected upon denial of a motion to assume the lease. In re Cukierman, 265 F.3d at 848.
In this case, the Master Lease was rejected upon the court’s denial of Debtor’s motion to
assume it. Id.
II. Landlord Is Entitled to Immediate Payment of Outstanding Obligations
Arising Post-Petition as Required under 11 U.S.C. § 365(d)(3)
A. Under 11 U.S.C. § 365(d)(3), Landlord Is Entitled to Payment of Holdover
Rent, Late Charges, Attorneys’ Fees, and Replacement Parking Losses
Incurred by the Landlord, but Not Subtenant Rents
The Ninth Circuit has held that any obligation of a debtor-in-possession under a
non-residential lease of real property, pending assumption or rejection of the lease,
whether or not related to debtor’s use of the property, enjoys the administrative expense
status and right to prompt performance conferred by 11 U.S.C. § 365(d)(3). In re
Cukierman, 265 F.3d at 850. Section 365(d)(3) requires the payment of rent in the
amount required by the lease (not some other “fair value” amount based on the estate’s
actual use and occupancy of the premises), plus all other obligations of the tenant debtor
under the lease (e.g., common area maintenance charges). 11 U.S.C. § 363(d)(3); In re
Cukierman, 265 F.3d at 850-851; In re LPM Corp., 300 F.3d at 1137; In re Pacific Atlantic
Trading Co., 27 F.3d at 404-405; Friedman, Garcia & Hagarty, California Practice Guide:
Landlord-Tenant, ¶ 10:253 (2014 online ed.). Thus, a trustee or debtor-in-possession’s
statutory obligation as tenant to timely perform its obligations under an unexpired
nonresidential lease extends to all obligations under the lease regardless of whether
those obligations are related to the debtor’s use of the premises. In re Cukierman, 265
F.3d at 850, cited in Friedman, Garcia & Hagarty, California Practice Guide: Landlord-
Tenant, ¶ 10:253. Debtor argues that Landlord’s demand for immediate payment of
administrative rent is premature. Debtor’s Opposition to Motion to Compel Immediate
Payments, ECF 452 at 14. But, as noted in the Landlord’s Motion to Compel Immediate
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 14 of 42

15
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Payments, 11 U.S.C. § 365(d)(3) as recognized in Ninth Circuit precedent of Cukierman
requires the “immediate payment” of lease obligations pending assumption or rejection of
a lease. 265 F.3d at 849-851. As such, any argument by Debtor and the Committee that
the payments due pursuant to 11 U.S.C. § 365(d)(3) need not be made immediately are
unavailing. Id.
In calling for “timely” payment, 11 U.S.C. § 365(d)(3) was intended to grant
landlords preferential creditor treatment for their claims for payment of obligations under
the lease while a determination of an assumption or rejection of a lease is pending. In re
Cukierman, 265 F.3d at 846; In re Pacific Atlantic Trading Co., 27 F.3d at 403-404;
Friedman, Garcia & Hagarty, California Practice Guide: Landlord-Tenant, ¶ 10:261. As
such, a landlord’s claim for pre-assumption/rejection payments is automatically entitled to
“priority” status as against other administrative expense claimants. Id. (citing In re
Pacific-Atlantic Trading Co., 27 F.3d at 404-405). Thus, in determining Debtor’s
obligations under 11 U.S.C. § 365(d)(3), the court must decide whether such obligations
include holdover rent, late charges, attorneys’ fees, replacement parking losses as
claimed by Landlord, or subtenant rents received by Debtor under the Lease as now
claimed by Landlord in its motion.
1. Debtor Is Obligated Under Section 21.2 of the Lease to Pay Holdover Rent
Pending assumption or rejection of a lease, a debtor-in-possession must make
rent payments at the rate specified in the lease, even if the fair market rental rate is
lower. 11 U.S.C. § 365(d)(3); see In re Pacific-Atlantic Trading Co., 27 F.3d at 402-403;
In re Cukierman, 265 F.3d at 850. Although 11 U.S.C. § 365 does not specify the
consequences of the trustee’s/debtor-in-possession’s failure to perform postpetition
obligations accruing under a lease pending assumption or rejection, case law has
established that the lessor is entitled to an administrative claim at rate specified in the
lease. In re Pacific-Atlantic Trading Co., 27 F.3d at 402-403. The landlord’s
administrative expense claim is for the full contract rental rate (i.e., the rental rate
stipulated in the lease). Id. at 404; see also, Friedman, Garcia & Hagarty, California
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 15 of 42

16
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Practice Guide: Landlord-Tenant, ¶ 10:262. Postpetition “rent” claims under § 365(d)(3)
are entitled to administrative expense priority even if they exceed the reasonable value of
the debtor tenant’s actual use of the premises and are unrelated to the use and
occupancy. Id. at ¶ 10:261.
When the lease was terminated, Debtor became a tenant at sufferance. Colyear
v. Tobiner, 7 Cal. 2d 735, 742 (1936); Miller and Starr, California Real Estate, Tenancy at
Sufferance, § 19:32 (3d ed. 2014 online ed.). As Miller and Starr’s California Real Estate
observes,
Tenancies at sufferance are not mentioned expressly in the Civil Code. They arise
when a tenant goes into possession lawfully, the right to remain in possession
expires, and he or she continues to occupy the premises without the consent of
the owner.
Id., citing inter alia, Gartlan v, C.A. Hooper & Co., 177 Cal. 414, 425-426 (1918); see
also, id., Presumption of nature of holdover tenancy, §19:43 (a holdover tenant may
become a tenant at will when the landlord acquiesces and consents to the holding over
by accepting rent or otherwise, absent the agreement of the parties – here, in the lease,
there is an express agreement for no consent to holdover).
In Colyear v. Tobiner, the California Supreme Court addressed whether a landlord
can charge increased rent for a tenant holding over possession and held that in the
absence of an agreement, only reasonable rental value for such tenant’s use of the
leased premises may be charged for the holdover period. 7 Cal. 2d at 742. In discussing
this point, the California Supreme Court stated:
A tenant for a fixed term who holds over beyond the term after notice
of increased rental, in the absence of express or implied assent thereto
is not liable for the increased rent, but is a tenant at sufferance, who
must pay the reasonable value of the use of such time as he holds
over. [citations omitted] The tenancy at an increased rental cannot be
imposed upon the lessee without his consent, but must rest upon
agreement
Id. Colyear indicates that increased rent for a holdover tenant is not per se invalid or an
unenforceable penalty, but is permissible by agreement or consent, and otherwise,
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 16 of 42

17
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
holdover rent should be reasonable value. Id. In the case at bar, the increased rental
rate for Debtor as a holdover tenant is by agreement as set forth in the lease. Lease, §
21.2.
As discussed in Witkin’s Summary of California Law, one California appellate court
has determined that a lease provision fixing a sum as holdover rent to be paid if the
tenant holds over after expiration of the lease is not treated as a penalty, though much
greater in amount than that previously specified. 1 Witkin, Summary of California Law
(10th ed. 2005 and 2013 Supp.), Contracts, § 520 at 99, citing Vucinich v. Gordon, 51
Cal. App. 2d 434, 437 (1942)). In addressing the argument that holdover rent at an
increased rate was an unenforceable penalty, the court in Vucinich stated: “[The]
presence [of the holdover provision] in defendant’s lease suggest no reason for holding
that the rental fixed for the season of the hold-over provided for a penalty.” Id. at 437.
The court in Vucinich reasoned that upon the termination of the lease, a tenant has no
further right to remain upon the property except as he might choose to do so as a tenant
and under the terms to which he had subscribed.” Id. The holding in Vucinich reinforces
the point made in Colyear that holdover rent at a higher rate is not per se invalid, but may
be charged upon agreement of the parties as was the case here.
In the case at bar, Section 21.2 of the Lease provides:
Tenant will not be permitted to hold over possession of the
Premises after the expiration or earlier termination of the Term
without the express consent of Landlord, which consent
Landlord may withdraw in its sole and absolute discretion. If
Tenant holds over after the expiration or earlier termination of
the Term with or without the express written consent of
Landlord, then, in addition to all other remedies available to
Landlord, Tenant shall become a tenant at sufferance only,
upon the terms and conditions set forth in this Lease so far as
applicable (including Tenant’s obligation to pay all Additional
Rent under this Lease), but at a Monthly Base Rent equal to
one hundred fifty percent (150%) of the Monthly Base Rent
applicable to the Premises immediately prior to the date of
such expiration or earlier termination . . . “ Tenant shall be
liable, and shall pay to Landlord within ten (10) days of
demand, for all losses incurred by Landlord as a result of such
holdover, and provided that Landlord has provided Tenant
with no less than sixty (60) days prior notice that Landlord has
a replacement tenant for the Building or any portion thereof,
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 17 of 42

18
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Tenant shall indemnify, defend and hold Landlord and the
Landlord Parties harmless from and against all liabilities,
damages, losses, claims, suits, costs and expenses (including
reasonable attorneys’ fees and costs) arising from or relating
to any such holdover tenancy, including without limitation, any
claim for damages made by a succeeding tenant accruing on
the sixty-first (61st) day after Landlord provides such notice . . .
Lease, § 21.2. As discussed in the court’s prior memorandum decision on Debtor’s
motion to assume the lease, this lease was a commercial, nonresidential lease “‘heavily
negotiated by the Debtor and the Landlord, both of whom were represented by their
respective experienced and sophisticated real estate counsel in connection with such
negotiations’ and ‘numerous drafts of the lease were exchanged by the parties prior to its
execution, which indicates the consensual nature of the provision in the lease for
increased holdover rent.’” Memorandum Decision on Debtor’s Request for Relief from
Forfeiture and on Debtor’s Motion to Assume the Master Lease on Premises at 5500
Wilshire Boulevard, Los Angeles, California, entered on September 18, 2014, ECF 664 at
24, citing inter alia, Lease § 31.7 (“The parties hereto acknowledge and agree that each
has participated in the negotiation and drafting of this Lease. . . .”).
Landlord contends the outstanding incremental holdover rent as of May 6, 2014, is
$981,000. Landlord’s Proposed Findings of Fact and Conclusions of Law ¶ 32. Landlord
computes this amount based on § 21.2 of the Lease. Debtor does not object to this
computation. See Debtor’s Opposition to Motion to Compel Immediate Payments, ECF
452 at 15-16. While Debtor did not dispute Landlord’s computation of holdover rent, it
argues holdover rent is an unreasonable and unenforceable penalty set forth in the Lease
which has no rational relationship to any actual damages sustained by Landlord.
Debtor’s Proposed Findings of Fact and Conclusions of Law ¶ 29. Debtor further argues
Landlord’s demand for holdover rent arises from Debtor’s failure to surrender possession
of the Property after Landlord’s early termination of the Lease, and thus, the holdover
rent is a penalty resulting from a non-monetary default for not surrendering possession of
the Property. Debtor’s Proposed Findings of Fact and Conclusions of Law ¶ 30. Debtor
also argues that holdover rent is not chargeable against the debtor pursuant to 11 U.S.C.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 18 of 42

19
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
§ 365(d)(3), “because the only scenario where holdover rent may be charged (where the
lease at issue has expired), is not governed by 11 U.S.C. § 365(d)(3), which merely
requires payment of rent under the terms of the lease as unexpired.” Debtor’s Opposition
to AERC Desmond’s Tower, LLC’s Motion to: (1) Compel Immediate Payment by Debtor
of Outstanding Obligations to Landlord Pursuant to 11 U.S.C. § 365(d)(3); (2) Modify
Adequate Protection Order Based on Debtor’s Contempt of Court and Other
Developments Subsequent to its Entry, ECF 452 at 16 n. 6. Debtor also contends that
holdover rent and related charges are governed by 11 U.S.C. § 503(b)(1), not §
365(d)(3). Id.
The court rejects Debtor’s arguments because, as discussed above, this case
concerns a terminated lease, which was unexpired at the time that Landlord’s motion was
filed. The cases cited by Debtor and Creditors’ Committee in support of the argument
that holdover rent is governed by 11 U.S.C. § 503(b)(1) are inapposite because those
cases involve post-rejection damages, and do not relate to the situation here where the
holdover rent sought is postpetition and pre-rejection. Debtor’s arguments are also
incorrect because they are contrary to the plain language of 11 U.S.C. §365(d)(3), in
which “the ‘notwithstanding section 503(b)(1)’ proviso exempts the amount of lease
obligations that a trustee must timely pay under § 365(d)(3) from § 503(b)(1)’s limitation
of administrative expenses to the fair value of the debtor’s use of the property.” In re
Cukierman, 265 F.3d at 850.
In support of its argument that holdover rent is a penalty, Debtor relies heavily
upon the cases of In re RB Furniture, Inc., 141 B.R. 706 (Bankr. C.D. Cal. 1992) and
Harbor Island Holdings, LLC v. Kim, 107 Cal. App. 4th 790 (2003). However, RB
Furniture is distinguishable from the case at bar because that case was not a holdover
tenancy situation as it involved a post-petition default without a lease termination,
whereas this case was a holdover situation involving a termination of a lease which
occurred pre-petition. In RB Furniture, the lessor and the debtor/tenant in that case
agreed to renegotiate the lease and to abate past due rent, but the renegotiated lease
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 19 of 42

20
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
included a clause where a default and failure to cure by the debtor/tenant would result in
all of the abated rent coming due. 141 B.R. at 709. The court determined that when the
debtor later defaulted and cured the default, the revived abated past due rent was a
penalty and was not required to be paid immediately pursuant to § 365(d)(3). Id. at 712.
The holdover rent provision in the Master Lease in this case materially differs from the
penalty provision in RB Furniture because the provision in RB Furniture required
significant payment by the tenant upon default, and did not allow the tenant to avoid the
effect of the provision by vacating the premises. That is different from the case here,
where Debtor could avoid the increased holdover rent by vacating the Property.
Harbor Island is also distinguishable from the instant case because Harbor Island
also was not a holdover situation involving a tenant who stayed in possession after a
lease termination, but involved a lease amendment and extension with a penalty rate of
rent if the tenant defaulted on a contractual covenant to maintain and repair the premises.
107 Cal. App. 4th at 793-794. In Harbor Island, the landlord and the tenant agreed to
amend the lease whereby the lease term was extended on condition that the tenant
agreed to increased rent under a two-tier system based on the tenant’s performance of a
covenant to maintain and repair the premises, that is, for the extended term, the tenant
would be charged one rate for complying with the covenant and another rate for
noncompliance. Id. Under the lease amendment, he noncompliance rent for the
extended period was over three times the base rent of the original lease while the
compliance rent was only about 50% higher than the original base rent. Id. The way this
arrangement was structured was that the tenant would receive the compliance rental rate
by agreeing to the noncompliance rate, but would receive a “deferral” of the difference in
rates while in compliance, which would be “forgiven” if there was no covenant default. Id.
The court in Harbor Island held that this was an unenforceable penalty to compel
performance of a contract covenant because the amount of liquidated damages fixed for
breach of the covenant bore no reasonable relationship to the landlord’s damages for
breach. 107 Cal. App. 4th at 793-796.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 20 of 42

21
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Conceptually, Harbor Island and RB Furniture are similar because both forced the
tenant to pay a large lump sum amount upon breach. That is the essence of a penalty.
Although this sum was characterized as “rent,” it functioned more as a penalty, and the
courts in Harbor Island and RB Furniture recognized it as such.
This case is more similar to Vucinich than Harbor Island and RB Furniture
because the purposes of the increased rent provisions are different. The holdover rent
required under the Lease as in Vucinich is intended as payment for ongoing use of the
property, not as a penalty or estimation of damages resulting from breach as in Harbor
Island. There are no separate rates for the extended term based on breach or non-
breach of lease covenants as in Harbor Island. Moreover, as in Vucinich, Debtor was at
liberty to leave the premises in December 2012 following the termination of the Lease
and would not have incurred the obligation to pay higher holdover rent for the months
thereafter if it had vacated the premises. Thus, here, as in Vucinich, and consistent with
Colyear, the holdover rent provision is not an unenforceable penalty.
Even assuming arguendo that the holdover rent provision in the lease is some
form of liquidated damages as argued by Debtor and the Committee, the court notes that
such a contractual provision is valid under California law as California Civil Code §
1671(b) provides, with exceptions not applicable here, that “a provision in a contract
liquidating the damages for the breach of the contract is valid unless the parties seeking
to invalidate the provision establishes that the provision was unreasonable under the
circumstances existing at the time the contract was made.” As the California Supreme
Court has stated, “The amount set as liquidated damages ‘must represent the result of a
reasonable endeavor by the parties to estimate a fair average compensation for any loss
that may be sustained.’” Ridgley v. Topa Thrift & Loan Association, 17 Cal.4th 970, 977
(1998)(citation omitted). Here, the holdover provision rent alleged to be a penalty is only
50% more than the Monthly Base Rent, which is reasonable in comparison to Harbor
Island Holdings, where the amount of increased rent for breach of a lease covenant not
relating to holdover was triple the standard rent. The reasonableness of the lease
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 21 of 42

22
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
provision for holdover rent of 50% increase over standard rate is further established by
the fact that both parties have, at times, argued that the rental rate under the Lease is
below fair market value. See Testimony of Douglas Chrismas, Trial Transcript, August
19, 2013, ECF 332 at 190:11-15; Memorandum of Points and Authorities in Support of
Debtor’s Request for Relief From Forfeiture in Furtherance of Debtor’s Motion to Assume
the Master Lease (NNN) Re 5500 Wilshire Boulevard, Los Angeles, California, ECF 505
at 2:16; 6- 7; 12:25-13:1; Landlord’s Joint Opposition to Debtor’s and Committee’s
Motions for an Order Granting Stay of Further Hearings on Remand Pending Appeals to
the Ninth Circuit, ECF 730 at 12:20-25. If the rental rate under the lease is below fair
market value, then a 50% increase is more likely to represent a “fair average
compensation for any loss that may be sustained,” and therefore would satisfy the
reasonableness requirement of Ridgley to find that the provision is valid.
Section 21.2 of the Lease specifically applies following any expiration or earlier
termination of the Lease where debtor holds over. Because the agreement for holdover
rent is part of the lease contract, pursuant to 11 U.S.C. § 365(d)(3), Debtor must make
rent payments at the rate specified in the lease as held by the Ninth Circuit in In re
Pacific-Atlantic Trading Co., 27 F.3d at 402-403 and In re Cukierman, 265 F.3d at 850.
Citing In re National Refractories & Minerals Corp., 297 B.R. 614 (Bankr. N.D. Cal.
2003), Debtor and the Committee finally argue that Landlord has no right to holdover
rent, post-rejection, as an administrative expense claim. Committee’s Opposition to
Motion to Compel Immediate Payments, ECF 475 at 4-8. However, the National
Refractories case is inapplicable here because in that case the court carefully delineated
between pre- and post-rejection claims, and awarded administrative expense priority
status only to pre-rejection claims. Id. at 620. Here, Landlord’s motion seeks holdover
rent for post-petition and pre-rejection occupancy, not post-rejection, and following the
law of the circuit in In re Pacific Atlantic Trading Co., Landlord is entitled to an
administrative expense claim for the full amount of rent during the pre-rejection period.
27 F.3d at 405; accord, In re National Refractories & Minerals Corp., 297 B.R. at 617.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 22 of 42

23
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Therefore, the court determines that even assuming arguendo that the holdover rent
provision is a liquidated damages provision, the provision for the payment of holdover
rent in the Lease is not an unenforceable penalty, and that Debtor is obligated to pay
holdover rent as part of its outstanding obligations due pursuant to 11 U.S.C § 365(d)(3).
Although Debtor argues that it cannot be considered a “holdover tenant” from the date of
the entry of this court’s Lease Assumption Order in September 2013 through January 6,
2014, the date of entry of the District Court Judgment, Debtor’s Proposed Findings of
Fact and Conclusions of Law ¶ 12, this court rejects Debtor’s argument that the
uncertainty over the lease termination issues precludes payment of its outstanding
obligations under 11 U.S.C. § 365(d)(3). If a termination is valid, the lease is terminated
under California law when landlord, after complying with appropriate statutory notice
requirements, files unlawful detainer action in state court; termination of lease does not
occur only when there has been final judicial determination of validity of termination. See
Matter of Escondido West Travelodge, 52 B.R. 376, 379 (S.D. Cal. 1985). Thus, the
uncertainty over lease termination does not affect the outcome of whether holdover rent
is due under the Lease from the date of the petition.
Lastly, this court notes that it has not been asked to decide whether amounts of
holdover rent which Debtor is required to pay under 11 U.S.C. § 365(d)(3) is entitled to
“super-priority” status, and thus does not express any opinion on such. See In re LPM
Corp., 300 F.3d at 1137-1338. In addition, the parties in this case do not argue that there
are not enough assets to pay all administrative claims, including any claim under 11
U.S.C. § 365(d)(3), and as such, this court does not need to go into an analysis of
whether Landlord can compel immediate payment of outstanding obligations where a
debtor is administratively insolvent. Accordingly, the court holds that the holdover rent
for the period after the petition date and prior to the deemed rejection of the Lease upon
entry of the court’s October 27, 2014, Order and Judgment Denying Debtor's Request for
Relief from Forfeiture and Denying Debtor's Motion to Assume the Master Lease on
Premises at 5500 Wilshire Boulevard, Los Angeles, California is outstanding under the
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 23 of 42

24
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
lease as claimed by Landlord and must be paid by debtor as a claim for immediate
payment within the meaning of 11 U.S.C. § 365(d)(3).
2. Debtor Is Obligated Under Section 5.3 of the Lease to Pay Late Charges on
Incremental Holdover Rent
Section 5.3 of the Master Lease provides: “If Landlord does not receive Rent or
any other payment due from Tenant on this Due Date, then following ten (10) business
days notice to Tenant (and Tenant’s failure to pay within such ten (10) business days),
Tenant shall pay to Landlord a late charge equal to six percent (6%) of such past due
Rent or other payment . . . All interest, and any late charges imposed pursuant to this
Section 5.3, shall be considered Additional Rent from Tenant to Landlord under the terms
of this Lease.” Lease, § 5.3.
Landlord contends the outstanding late charges on incremental holdover rent as of
May 6, 2014, is $58,860. Landlord’s Proposed Findings of Fact and Conclusions of Law
¶ 32. Landlord has computed this amount based on § 5.3 of the Lease. Debtor’s
position remains that Landlord is not entitled to any holdover rent from Debtor, any late
charge, or any other penalties. Debtor’s Supplemental Brief in Opposition to AERC
Desmond’s Tower, LLC’s Motion to: (1) Compel Immediate Payment by Debtor of
Outstanding Obligations to Landlord Pursuant to 11 U.S.C. § 365(d)(3); and (2) Modify
Adequate Protection Order Based on Debtor’s Contempt of Court and Other
Developments Subsequent to its Entry, ECF 479 at 5. However, Debtor did not object to
Landlord’s computation of the holdover rent. See Debtor’s Opposition to Motion to
Compel Immediate Payments, ECF 452 at 14-16.
Because, as discussed above, 11 U.S.C. § 365(d)(3) requires the payment of rent
in the amount required by the lease, and late charges were contemplated in the Lease as
provided in Section 5.3, Debtor must make late charge payments at the rate specified in
the Lease. In re Cukierman, 265 F.3d at 850-851. Accordingly, late charges for the
period after the petition date and prior to the deemed rejection of the Lease upon entry of
the court’s October 27, 2014, Order and Judgment Denying Debtor's Request for Relief
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 24 of 42

25
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
from Forfeiture and Denying Debtor's Motion to Assume the Master Lease on Premises
at 5500 Wilshire Boulevard, Los Angeles, California remain outstanding under the lease
and must be paid by debtor pursuant to 11 U.S.C. § 365(d)(3) as an administrative claim.
3. Landlord Is Entitled to Payment of Attorneys’ Fees Under Section 16.2 of
the Lease
11 U.S.C. § 365(d)(3) is not limited to the payment of rent – it also extends to most
other contractual obligations under a nonresidential real property lease, e.g. repair
maintenance, taxes and attorney fees. 3 March, Ahart, & Shapiro, California Practice
Guide: Bankruptcy, ¶ 16:1130 (2013), citing, In re Cukierman, 265 F.3d at 852 (dictum
stating that 11 U.S.C. § 365(d)(3) may give Landlord the right to immediate payment of
attorney fees as administrative expense (but fees not granted under facts of case)). As
such, the Ninth Circuit has recognized at least in dicta that attorneys’ fees and expenses
may be subject to immediate payment under 11 U.S.C. § 365(d)(3). In re Cukierman,
265 F.3d at 852. Although the Ninth Circuit in Cukierman did not ultimately reach the
question of attorneys’ fees being part of a lease obligation requiring immediate payment
under 11 U.S.C. § 365(d)(3) because the contractual obligation to pay attorney’s fees had
not yet arisen at the time the lease was rejected, this court in In re Leather Factory Inc.,
475 B.R. 710, 719-720 (Bankr. C.D. Cal. 2012) subsequently held that attorneys’ fees
payable under a lease are subject to immediate payment under 11 U.S.C. § 365(d)(3).
Id. (holding that a landlord’s attorneys’ fees are entitled to payment under 11 U.S.C. §
365(d)(3)).
However, 11 U.S.C. § 365(d)(3) applies only to the trustee’s or debtor-in-
possession’s obligations arising under the lease until it is assumed or rejected. See
Friedman, Garcia & Hagarty, California Practice Guide: Landlord-Tenant, ¶ 10:261.
Thus, Landlord is entitled to treatment of its claims of attorney fees incurred in dealing
with the tenant debtor’s failure to meet its pre-rejection obligations under the lease as a §
363(d)(3) claim only if the obligation to pay the landlord’s attorneys’ fees arises under the
terms of the lease at the time the lease is assumed or rejected. Id.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 25 of 42

26
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Section 16.2 of the Lease provides: “Tenant shall be liable for, and shall
indemnify, defend, protect, and hold Landlord and the Landlord Parties harmless from
and against, any and all claims, damages, judgments, suits, causes of action, losses,
liabilities, and expenses, including without limitation, attorneys’ fees and court costs . . .
arising or resulting from . . . (b) any act or omission of Tenant . . . (d) any default by
Tenant as to any obligations on Tenant’s part to be performed under the terms of this
Lease or the terms of any contract or agreement to which tenant is a party or by which is
bound, affecting the lease or the premises including without limitation a violation of
section 20.7 . . .” Lease, § 16.2 (emphasis added). Landlord contends that it paid
attorneys’ fees and costs to enforce the Lease through March 31, 2014 in the amount of
$1,717,020.88. Landlord’s Proposed Findings of Fact and Conclusions of Law ¶ 32.
Landlord explicitly represents that it is not seeking attorneys’ fees under the prevailing
party provisions of Section 31.5 of the Lease. Landlord’s Proposed Findings of Fact and
Conclusions of Law ¶ 133 n. 33. Debtor contends Landlord is not entitled to recover its
attorneys’ fees and costs pursuant to Section 16.2 of the Lease. Debtor’s Proposed
Findings of Fact and Conclusions of Law ¶ 33. Specifically, Debtor and the Committee
have argued that this provision only applies to “third party claims” brought against the
landlord. Supplemental Brief of Official Committee of Unsecured Creditors Regarding:
(A) Debtor’s Request for Relief from Forfeiture of master Lease with AERC’s Desmond’s
Tower, LLC; and (B) AERC Desmond’s Tower, LLC’s “Motion to: (1) Compel Immediate
Payment by Debtor of Outstanding Obligations to Landlord Pursuant to 11 U.S.C. §
365(d)(3); (2) Modify Adequate Protection Order Based on Debtor’s Contempt of Court
and Other Developments Subsequent to its Entry, ECF 565 at 12-13.
The language of Section 16.2 of the Lease is not so limited by the express terms
of the Lease, and this provision applies to “direct” claims, thus specifically providing for
payment of damages resulting from the tenant’s default, and by its terms, is not limited to
“third party claims.” There is no language in Section 16.2 that limits Landlord’s claims for
attorneys’ fees to third party claims only. In contrast, Section 16.3, the provision in favor
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 26 of 42

27
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
of Debtor as tenant, appears to be limited to third party claims. In interpreting the lease,
the court must interpret the Lease as a contract in accordance with the rules of
contractual interpretation under applicable California law. Specifically, California Civil
Code § 1638 provides: “The language of a contract is to govern its interpretation, if the
language is clear and explicit, and does not involve an absurdity.” See also, Pierce v.
Merrill, 128 Cal. 464, 472 (1900); Apra v. Aureguy, 55 Cal. 2d 827, 830 (1961); 1 Witkin,
Summary of California Law, Contracts, § 741 (Nature of Interpretation) (10th ed. 2005
and 2014 Supp.). The language of these attorneys’ fee provisions in the Lease here is
clear and unambiguous in awarding attorneys’ fees to Landlord in a broader range of
situations than it would to Debtor. While these provisions may seem imbalanced, they
are not absurd and must be interpreted as they are written. Furthermore, under
California law, “indemnity” is not limited to third party claims, and can also apply to direct
claims and losses resulting from a breach of contract. Zalkind v. Ceradyne, Inc., 194 Cal.
App. 4th 1010, 1026 (2011).
All of the fees requested by Landlord in its motion were incurred and billed after
the petition date and before the deemed rejection of the premises, and are thus
recoverable as an obligation under the Lease pursuant to 11 U.S.C. § 365(d)(3).
Accordingly, because the court determines that attorneys’ fees incurred by Landlord on
Debtor’s default under the Lease are included in Debtor’s outstanding obligations under
11 U.S.C. § 365(d)(3), the court must determine the reasonableness of the attorneys’
fees sought by Landlord.
a. Landlord's Requested Attorneys' Fees Are Reasonable Under California's
“Lodestar” Analysis
California law applies here because the Master Lease is governed by California
law. Master Lease § 31.2 (“This lease shall be governed by, and construed pursuant to,
the laws of the state in which the Building is located.”) The Supreme Court of California
has stated that a trial court has broad authority to determine the amount of reasonable
attorneys’ fees under a contract. PLCM Group, Inc. v. Drexler, 22 Cal.4th 1084, 1095
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 27 of 42

28
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
(2000). A “fee setting inquiry in California ordinarily begins with the “lodestar,” i.e. the
number of hours reasonably expended multiplied by the reasonable hourly rate.” Id. The
lodestar figure may be adjusted based on factors specific to the case. Id. The factors
considered can include “the nature of the litigation, its difficulty, the amount involved, the
skill required in its handling, the skill employed, the attention given, the success or failure,
and other circumstances in the case.” Id. at 1096, citing Melnyk v. Robledo, 64
Cal.App.3d 618, 623-624 (1976). Given the complexity of this case, which required
multiple supplemental briefings and hearings, as well as the obvious attention and skill
applied by all parties involved in this litigation, the court cannot apply a negative multiplier
to the lodestar in this case, especially considering the result achieved by Landlord’s
counsel. The court also takes into consideration, in determining whether to apply a
negative multiplier to the lodestar as applied to the entire request for fees, Landlord’s
counterpoint that Debtor’s counsel had incurred approximately $2 million in fees as of
March 18, 2014. Landlord’s Response to Debtor’s Specific Objections, ECF 554 at 4
(citing Debtor’s Disclosure Statement, ECF 492 at 17). Given the comparably high fees
incurred by Debtor’s counsel and counsel for the Committee on the other side of this
litigation, it is difficult to say that Landlord’s attorneys’ fees are inherently unreasonable.
This is not intended to be an approval of the amount of fees incurred by any of the
firms involved in this case. In fact, the court is currently undertaking its independent
evaluation of the interim fee applications by the attorneys for Debtor and the Committee
(requesting $1,968,062.00 and $1,183,726.30 in fees, respectively), and is somewhat
astonished by the sheer amount of fees and costs that will ultimately paid out of the
property of the estate in this case. That being said, the court acknowledges that there are
significant money and property interests at stake in this case, and that both sides have
vigorously and ably litigated very difficult and thorny legal and evidentiary issues raised
by these disputes.
Landlord seeks attorneys’ fees in the amount of $1,717,020.88. Landlord’s
Proposed Findings of Fact and Conclusions of Law ¶ 32. Landlord provided
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 28 of 42

29
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
substantiation of its claimed fees in the form of copies of invoices for post-petition
lodestar fees and expenses incurred by its counsel, the law firm of Jones Day, for the
period July 31, 2013 through December 31, 2013. Declaration of Sidney P. Levinson in
Support of Motion to: (1) Compel Immediate Payment by Debtor of Outstanding
Obligations to Landlord Pursuant to 11 U.S.C. § 365(d)(3); (2) Modify Adequate
Protection Order Based on Debtor’s Contempt of Court and Other Developments
Subsequent to its Entry (the “Levinson Declaration”), ECF 441, Exhibit B. Landlord also
submitted copies of invoices for post-petition fees and expenses for the services of
Stutman, Treister & Glatt (the “Stutman Firm”) through December 31, 2013, in the
amount of $876,491.27, and copies of invoices for post-petition fees and expenses for
the services of Elkins Kalt Weintraub Rebuen Gartside LLP from February 19, 2013
through December 31, 2013, in the total amount of $8,563.28. Levinson Declaration,
ECF 441, Exhibits C-D.
Pursuant to this court’s scheduling order of April 4, 2014, Debtor and the Creditors’
Committee filed and served detailed objections to Landlord’s requested attorneys’ fees
and expenses. Landlord then filed and served a response to the objections. Scheduling
Order on AERC Desmond’s Tower, LLC’s Motion to: (1) Compel Immediate Payment by
Debtor of Outstanding Obligations to Landlord Pursuant to 11 U.S.C. § 365(d)(3); (2)
Modify Adequate Protection Order Based on Debtor’s Contempt of Court and Other
Developments Subsequent to its Entry, ECF 518 (the “Scheduling Order”).
Debtor in its objections argued that the aggregate amount of Landlord’s attorneys’
fees incurred is on the whole unreasonable. Debtor’s Specific Objection to Landlord’s
Request for Legal Fees, ECF 529 at 3. Debtor contends the point of the objections was
not to challenge whether work was performed, or a task should have been completed in a
shorter period of time, or even whether an hourly rate is appropriate, but whether the
legal issues and circumstances warranted Landlord’s expenditure of more than
$2,000,000 in attorneys’ fees in opposition to Debtor’s efforts at assumption of the Master
Lease. Id. Debtor also objects to certain categories of work performed on behalf of
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 29 of 42

30
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Landlord not related to the Lease Assumption Motion. Id. at 4. Finally, Debtor objects to
Landlord’s claimed fees on grounds that excessive time was incurred by non-attorneys
billing for purely administrative work, the invoices include time spent on landlord’s
unrelated work (such as time spent objection to Debtor’s DIP Financing Motion and
certain of Debtor’s Motions to Extend the Exclusivity Dates), the invoices include time
relating to the parking dispute, and a number of entries which are unclear. Id. at 7-8. In
total, Debtor requests the court exclude from any fee award the aggregate sum of
$444,722.50. Id. at 9. The Creditors’ Committee filed a joinder in support of debtor’s
objections. Joinder of Official Committee of Unsecured Creditors in “Debtor’s Specific
Objections to Landlord’s Request for Legal Fees,” ECF 531.
In its reply to these objections, Landlord argues that Debtor is wholly to blame for
the attorneys’ fees and expenses incurred by Landlord in enforcing its rights under the
Lease, the attorneys’ fees and expenses incurred by Landlord are no greater in amount
than those incurred by Debtor and Committee, Landlord’s claim for attorneys’ fees are
reasonable under a lodestar analysis, Landlord is entitled to recover attorneys’ fees for all
categories of work, and reasonable attorneys’ fees also include paralegal services.
Landlord’s Response to Debtor’s Specific Objections to Landlord’s Request for Legal
Fees, ECF 429 at 1-9. Landlord subsequently provided further documentation to
substantiate its claim of attorneys’ fees and expenses in the form of copies of invoices for
post-petition lodestar fees and expenses incurred by Jones Day for the period January 1,
2014 through March 31, 2014, in the total amount of $407,052.58. Landlord asserts that
Jones Day agreed to limit or condition Debtor’s obligations to pay certain of those
amounts, and that for the same period, Landlord has paid $273,240.23 to Jones Day on
account of such fees and expenses. Supplemental Declaration of Sidney P. Levinson in
Support of Landlord’s Combined Brief Addressing Supplemental Issues on Remand and
Motion to: (1) Compel Immediate Payment by Debtor of Outstanding Obligations to
Landlord Pursuant to 11 U.S.C. § 365(d)(3); and (2) Modify Adequate Protection Order
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 30 of 42

31
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Based on Debtor’s Contempt of Court and Other Developments Subsequent to its Entry,
ECF 567, Exhibit A.
1. “Administrative” Paralegal Work is Compensable
Debtor objects to some fees incurred by Jones Day for “administrative work.” In
support of that objection, Debtor attaches Exhibit “1,” which interposes objections to
specific billing entries based on the general objection that “administrative work” is not
compensable. Debtor’s Specific Objections, ECF 529. The court finds that Mr.
Levinson’s testimony at trial on May 7, 2014, satisfactorily explains the nature and
purpose of such fees incurred for paralegal services which were necessary to support the
litigation and shows that the fees were generally reasonable and at lower cost compared
with attorney rates. Transcript of Proceedings on May 7, 2014, ECF 596 at 118-148.
The court also finds that fees incurred by paralegals here are not non-compensable
“overhead,” but are necessary legal work. See U.S. Trustee Guidelines for
Compensation, 28 C.F.R. Part 58, Appendix (defining overhead to include “word
processing, proofreading, secretarial and other clerical services”); In re Pacific Express,
Inc., 56 B.R. 859, 863 (Bankr. E.D. Cal. 1985). As such, the court overrules Debtor’s
objections to fees incurred by Jones Day for paralegal services, though the court
disallows some of these claimed fees as specified below.
2. All Fees Are Compensable, Not Only Those Related to the Lease
Assumption Motion
Debtor objects to all fees related to work not associated with the Lease
Assumption Motion. Exhibit “2” interposes objections to specific billing entries based on
that objection. Exhibit “4” similarly interposes specific objections to billing entries that are
related to the dispute over parking. Debtor’s Specific Objections, ECF 529.
The court determines that Landlord’s incurrence of attorneys’ fees and expenses
to enforce its rights against Debtor upon its default under the Lease was within Landlord’s
reasonable business judgment, and Debtor’s argument that the aggregate amount of
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 31 of 42

32
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Landlord’s claimed professional fees and expenses are unreasonable per se should be
rejected.
Debtor’s argument that categories of work not related to the Lease Assumption
Motion are not recoverable should also be rejected because the express language of
Section 16.2 of the Lease entitles landlord to recover “all . . . losses . . . and expenses,
including, without limitation, attorneys’ fees and court costs . . . arising or resulting from
… any default by Tenant.” Lease, § 16.2 (emphasis added). Thus, Landlord is entitled
under the express terms of the Lease to recover fees of its legal professionals incurred
not just for responding to the Lease Assumption Motion, but for fees arising or resulting
from Debtor’s default under the Lease, including such categories of work billed for
bringing its motion for relief from the automatic stay and in opposing Debtor’s motion to
incur post-petition financing.
3. Landlord Has Adequately Explained, or Withdrawn, Impermissibly Vague
Billing Entries
Debtor objects to some fees based on vague or unclear billing entry task
descriptions. Exhibit “3” interposes objections to specific billing entries based on this
objection. Debtor’s Specific Objections, ECF 529. The court finds that Mr. Levinson’s
testimony at trial on May 7, 2014, satisfactorily explains the nature and purpose of such
fees incurred for any alleged unclear entries to show that the fees were generally
reasonable. Transcript of Proceedings on May 7, 2014, ECF 596 at 118-148. As such,
the court overrules Debtor’s objections to fees incurred by Jones Day for allegedly
unclear invoice entries, though the court disallows some of these claimed fees as
specified below.
Landlord has withdrawn certain of its claimed fees based on billing entries
discussed at the hearing on May 7, 2014, which the court disallowed on the record.
Transcript of Proceedings on May 7, 2014, ECF 596 at 147:
a) 1.3 hours by MJ Haas for “Attention to litigation.” Levinson Declaration at
Ex. B pg. 24 of 250.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 32 of 42

33
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
b) 1.5 hours by MC Schneidereit for “Research objection to bill of costs.”
Levinson Declaration at Ex. B pg. 58 of 250.
c) 0.8 hours by MC Schneidereit for “Distribute designations” Levinson
Declaration at Ex. B pg. 17 of 250.
d) 0.3 hours by MC Schneidereit for “Review motion to dismiss” Levinson
Declaration at Ex. B pg. 69 of 250.
Because there is no indication on the billing invoices as to the hourly rate of MJ
Haas, a partner at the Jones Day law firm, the hourly rate of MJ Haas was estimated for
calculation purposes to be the sum of $900 per hour because the hourly rate of Mr.
Levinson is $900 per hour. Thus, the court disallows the fees delineated above,
$1,170.00 for MJ Haas, and $1,820.00 for Mr. Schneidereit, for a deduction of the total
sum of $2,990.00, based on vague, insufficient description of the work performed.
4. Fees Expended by the Stutman Firm are Compensable
Debtor objects to fees incurred by the Stutman, Treister & Glatt (the “Stutman
Firm”), both because Debtor argues Stutman’s fees unrelated to the Lease Assumption
Motion are not compensable, and because it questions “whether the Landlord has even
paid the Stutman firm for any of the work outlined in Exhibit ‘5.’” Debtors Specific
Objections, ECF 529 at 6:13-24.
With respect to Debtor’s specific objections to the fees incurred by the Stutman
Firm, the court notes that Debtor objects to the majority of work performed by that firm on
the basis that its services were not related to the Lease Assumption Motion, and thus
contends the aggregate sum of $369,437.50 should be excluded from any award to
Landlord. Debtor’s Specific Objection to Landlord’s Request for Legal Fees, ECF 529 at
6. Debtor further argues that no award should be made because there is no showing that
Landlord has paid the Stutman Firm for any of the claimed work. Id. Landlord
satisfactorily addresses this concern in its response to debtor’s objections, stating that
“Landlord has in fact paid all of Stutman’s fees.” Landlord’s Response to Debtor’s
Specific Objections to Landlord’s Request for Legal Fees, ECF 554 at 8-9. Based on the
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 33 of 42

34
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
reasoning outlined above that Landlord is entitled to fees arising from Debtor’s lease
default, the court determines that Landlord may recover fees for work performed by the
Stutman Firm on its behalf arising or resulting from Debtor’s lease default, and not just for
work relating to Debtor’s Lease Assumption Motion. Accordingly, the court overrules
debtor’s objections to the fees incurred by the Stutman Firm.
5. Disallowed Fees
a) Unnecessary Time Billed for Associates Attending Trial
The billing entries and time charged for associates attendance at trial appears to
be duplicative and unnecessary because the court determines it was not reasonable or
necessary to have two attorneys, both Mr. Levinson, a Jones Day partner, and an
associate attorney, attend trial when only Mr. Levinson participated in proceedings and it
appears that it was unnecessary to have two attorneys present where one, Mr. Levinson,
was fully capable of handling the proceedings and the other’s presence was duplicative.
Thus, the court disallows the attorneys’ fees relating to the associate’s attendance at trial
of 42.5 hours at the rate of $700 per hour, for a reduction of the total sum of $29,750.00.
b) Negative Lodestar Multiplier for Associates
In setting the appropriate lodestar rate, the court must determine the “reasonable
hourly rate.” PLCM Group, Inc. v. Drexler, 22 Cal.4th at 1095. The lodestar figure may
be adjusted based on factors specific to the case. Id. The factors considered can
include “the nature of the litigation, its difficulty, the amount involved, the skill required in
its handling, the skill employed, the attention given, the success or failure, and other
circumstances in the case.” Id. at 1096, citing Melnyk v. Robledo, 64 Cal.App.at 623-
624. The court finds that $700 per hour for an associate attorney is not reasonable in this
case, given the nature of the work performed. In making this finding, the court takes into
account the substantial supervision of the associate, Mr. Schneidereit, undertaken by Mr.
Levinson, the partner, particularly at trial. The associate’s work at trial, for example,
consisted of note-taking and providing support for Mr. Levinson, who conducted the
examination of witnesses and made the oral arguments on matters before the court. This
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 34 of 42

35
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
was consistent with the overall pattern in this case that Mr. Levinson was primary counsel
for Landlord and handled all of the appearances on any matter of any consequence in
this case. The associate on several occasions appeared for Landlord on his own in court
on very minor matters, but in such instances, Mr. Levinson generally appeared by
telephone and intervened and took over the argument when Landlord’s position was in
jeopardy due to argument of opposing counsel and questions of the court, which
indicates to the court that his appearances to argue in court were more of a training
exercise rather than of a substantive nature. This indicates to the court that for the most
part, Mr. Levinson could have handled the representation of Landlord by himself with
some litigation support from the associate and the paralegal. Given the associate’s
subordinate and supportive role in this case, the court finds that his appropriate billing
rate is $500 per hour, which is in line with the associate rates charged by Debtor and
Committee’s counsel as prevailing market rate, and that it is not appropriate, particularly
in a fee-shifting situation as this one, to allow a premium rate of $700 per hour for his
services as an associate attorney in a junior role in the litigation and that therefore,
reasonable compensation at $500 per hour reflects the market rate for this attorney in
this court’s judgment. The court may rely on its own expertise and other factors in
determining the market rate for professionals in its jurisdiction. In re Narragansett
Clothing Co., 210 B.R. 493, 499 (1st Cir. BAP 1997) (citing cases); see also, First Interim
Fee Application of Debtor, ECF 723 at 451 (listing associate hourly rate at $430-465);
First Interim Fee Application of Committee, ECF 727, Exhibit 15 (listing associate hourly
rate at $460-490).
After deducting the 42.5 hours incurred by the associate attending trial, and the
2.6 hours of unclear billing entries withdrawn by Mr. Levinson, the associate worked
560.9 hours on this case. Levinson Declaration, ECF 441 Ex. B at 4, 48, 57, 64, 77, 88,
104, and 112. At $700 per hour this amounts to $392,630.00. At $500 per hour this
amount is reduced to $280,450.00. The difference is $112,180.00. The fees awarded to
Landlord are therefore reduced by $112,180.00.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 35 of 42

36
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
c) Unnecessary Time Billed for Mr. Floyd Attending Trial
The fees for time charged for the trial attendance of Mr. Floyd, a Jones Day
paralegal, also appear to the court to be unreasonable and unnecessary. Debtor
specifically objected that “it was unnecessary to have a team of 7 or 8 people including
this paralegal, four attorneys from Jones Day and two partners from Stutman who sat in
the audience attend trial.” Debtor’s Specific Objection to Landlord’s Request for Legal
Fees, ECF 429, Exhibit 1 at page 29 of 250. The court agrees with Debtor’s concern and
objection about entourage trial attendance by Landlord’s counsel and notes that although
paralegal fees are awardable as contributions to the work product for which an attorney
bills a client, the time billed by Mr. Floyd for attending trial did not contribute to any work
product which could be reasonably charged to Debtor. Thus, the court disallows the fees
relating to Mr. Floyd’s attendance at trial of 29.0 hours at the rate of $275 per hour, for a
deduction of the total sum of $7,975.00.
b. Conclusion
For the foregoing reasons, the court determines that fees of $1,717,020.88
reduced by the specifically disallowed fees of $152,895.00, for a total of $1,564,125.88,
to be reasonable fees incurred by Landlord through March 31, 2014 for purposes of 11
U.S.C. § 365(d)(3). The court has considered Debtor’s specific objections and finds
justifiable the remainder of the fees for services reflected on the billing entries for counsel
for Landlord. Accordingly, the court concludes attorneys’ fees of $1,564,125.88 must be
paid by debtor under 11 U.S.C. § 365(d)(3) as an administrative claim for pre-rejection
rent.
4. Debtor is Obligated to Pay Landlord’s Replacement Parking Costs and
Reimburse Landlord for Debtor’s Collection of Parking Proceeds
Landlord asserts an administrative expense claim for the full amount of all other
obligations under the lease. In re TreeSource Industries, Inc., 363 F.3d 994, 997-998
(9th Cir. 2004); In re Cukierman, 265 F.3d at 850; see also, Friedman, Garcia & Hagarty,
California Practice Guide: Landlord-Tenant, ¶ 10:262. If an unassumed and unexpired
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 36 of 42

37
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
lease requires the lessor to provide services and supplies incidental to the lease (e.g.,
janitorial services) and the lease is in default, the lessor need not provide the services or
supplies unless the trustee or debtor-in-possession compensates the lessor for those
services and supplies. See 3 March, Ahart, & Shapiro, California Practice Guide:
Bankruptcy, ¶ 16:1101, citing 11 U.S.C. § 365(b)(4); In re Monarch Capital Corp., 163
B.R. 899, 907 (Bankr. D. Mass. 1994). The requirement that the debtor-in-possession
compensate a lessor for supplies and services if the lease is in default extends to lease
of personal property as well as real property and to residential as well as nonresidential
leases. 3 March, Ahart, & Shapiro, California Practice Guide: Bankruptcy, ¶ 16:1103;
see 11 U.S.C. § 365(b)(4). Here, Exhibit C of the Master Lease, ¶ 11 provides: “If the
Lease terminates for any reason whatsoever, Tenant’s right to park in the parking
facilities shall terminate concurrently herewith.” Lease, Exhibit C.
Landlord contends that it is entitled to reimbursement for replacement parking
costs through April 30, 2014, in the amount of $260,220.76. Landlord’s Proposed
Findings of Fact and Conclusions of Law ¶ 32; Declaration of Lou Fatica in Support of
Motion to Compel Immediate Payments, ECF 442; Supplemental Declaration of Lou
Fatica re: Replacement Parking Costs, ECF 568 at 1. Landlord contends Debtor’s
collection of parking revenue is $117,463.19. Landlord’s Proposed Findings of Fact and
Conclusions of Law ¶ 32. Landlord asserts this amount has not been disputed by Debtor
and must be paid by debtor to Landlord as compensation for Debtor’s breach of the
lease. Landlord’s Proposed Findings of Fact and Conclusions of Law ¶ 116. In
response, Debtor asserts that Landlord is not entitled to recover any costs associated
with replacement parking, which is an obligation of Landlord under the Master Lease.
Debtor’s Proposed Findings of Fact and Conclusions of Law ¶ 34.
Debtor contends that the amount and adequacy of the replacement parking
provided by Landlord is an issue, and requested Landlord to provide back-up
documentation for costs incurred in providing Debtor with replacement parking, and
copies of any complaints received from tenants of the Wilshire Property with respect to
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 37 of 42

38
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
the adequacy of the replacement parking provided by Landlord. Joint Status Report
Pursuant to Order on AERC Desmond’s Tower, LLC’s Motion to: (1) Compel Immediate
Payment by Debtor of Outstanding Obligations to Landlord Pursuant to 11 U.S.C. §
365(d)(3); (2) Modify Adequate Protection Order Based on Debtor’s Contempt of Court
and Other Developments Subsequent to its Entry and Setting Further Proceedings, ECF
512 at 7. Landlord argued that any alleged inadequacy with respect to the quality of the
replacement parking provided by Landlord is irrelevant to determination of Debtor’s
obligation to reimburse Landlord for the costs actually incurred to provide such
replacement parking. Id. at 8.
Debtor is essentially arguing that should the court require it to pay replacement
parking costs, it should not be held accountable for the full amount of those costs given
the allegedly deficient nature of the replacement parking. The court observes that based
on the language of the Lease, if the Lease “terminates for any reason whatsoever,
Tenant’s right to park in the parking facilities shall terminate concurrently herewith.”
Lease, Exhibit C, ¶ 11. Because as previously discussed, the Lease was terminated, and
Landlord’s obligation to provide replacement parking to Debtor also terminated
concurrently. Accordingly, Landlord’s request for reimbursement of the costs actually
incurred to provide such replacement parking should be granted. The costs of
replacement parking in the amount of $260,220.76, and reimbursement of Debtor’s
collection of parking proceeds in the amount of $117,463.19, should be included as
tenant obligations to be paid immediately under 11 U.S.C. § 365(d)(3) to Landlord as an
administrative expense, but may be used to offset Debtor’s obligation to pay for
replacement parking since that was the purpose of the revenue to defray the cost of
providing parking to customers.
5. Debtor’s Obligations Under 11 U.S.C. § 365(d)(3) Do Not Include Subtenant
Rents
Landlord has an administrative expense claim for the full amount of all other
postpetition, pre-rejection obligations under the lease. In re TreeSource Industries, Inc.,
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 38 of 42

39
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
363 F.3d at 997-998; In re Cukierman, 265 F.3d at 850; see also, Friedman, Garcia &
Hagarty, California Practice Guide: Landlord-Tenant, ¶ 10:262. Section 20.5 of the
Lease expressly provides in relevant part:
In the event of any Default (as defined in Section 22.1) by
Tenant, Landlord may require that any Transferees remit
directly to Landlord on a monthly basis, all monies due Tenant
by said Transferee, and each sublease shall provide that if
Landlord gives said sublessee written notice that Tenant is in
default under this Lease, said sublessee will thereafter make
all payments due under the sublease directly to or as directed
by Landlord, which payments will be credited against any
payments due under this Lease. Tenant hereby irrevocably
and unconditionally assigns to Landlord all rents and other
sums payable under any sublease of the Premises; provided,
however, that Landlord hereby grants Tenant a license to
collect all such rents and other sums so long as no such
Default exists under this Lease . . .
Lease, § 20.5.
Although Landlord argued in its initial motion that Debtor must turn over sub-rents
collected from its subtenants in the amount of $820,193.79, it did not include any
outstanding amount of subtenant rents in its proposed findings of fact and conclusions of
law. Motion to: (1) Compel Immediate Payment by Debtor of Outstanding Obligations to
Landlord Pursuant to 11 U.S.C. § 365(d)(3); (2) Modify Adequate Protection Order Based
on Debtor’s Contempt of Court and Other Developments Subsequent to its Entry, ECF
440 at 13; Landlord’s Proposed Findings of Fact and Conclusions of Law ¶ 32. However,
Landlord did argue in its proposed conclusions of law:
Since Debtor’s license to collect subrents existed only “so
long as” no Default existed under the Lease – and given the
law of the case that a “Default” occurred in December 2012 –
it is clear that Debtor’s license automatically expired upon
such Default. E.g., Hamilton v. Dixon, 168 Cal. App. 3d 1004,
1007, 1013, 214 Cal. Rptr. 639 (1985), rev’d on other
grounds, 40 Cal. 3d 488, 220 Cal. Rptr. 818 (1985) (holding
that tenant’s interest in a sublease terminated upon the
landlord’s termination of the Lease, and affirming order that
landlord entitled to receive 12 months of rent deposited by
subtenant with Court subsequent to termination of lease and
prior to denial of petition for relief from forfeiture).
Accordingly, Landlord is entitled to apply subtenant rents
collected by Debtor against prepetition amounts due to
landlord.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 39 of 42

40
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Landlord’s Proposed Findings of Fact and Conclusions of Law ¶ 131.
Debtor contends that Landlord is thus claiming “it is entitled to ‘double dip’ and is
entitled to rent from both Debtor for the entire Mid-Wilshire property and to subtenant
rents for a portion of the Mid-Wilshire Property.” Debtor’s Supplemental Brief in
Opposition to AERC Desmond’s Tower, LLC’s Motion to: (1) Compel Immediate Payment
by Debtor of Outstanding Obligations to Landlord Pursuant to 11 U.S.C. § 365(d)(3); (2)
Modify Adequate Protection Order Based on Debtor’s Contempt of Court and Other
Developments Subsequent to its Entry, ECF 479 at 8. Because Landlord did not include
a request for subtenant rents in any amount in its proposed findings of fact and
conclusions of law, the court determines that Landlord has abandoned its request to
pursue an award of subtenant rents. Moreover, the court determines that any award of
subtenant rents to Landlord, or any application of those subtenant rents against
prepetition amounts due to Landlord, would be a windfall, or “double dip” in the context of
this court awarding Landlord amounts for holdover rent, late charges, attorneys’ fees, and
replacement parking because in effect, Debtor is being charged twice for the subleased
premises, that is, it is charged for these premises under the Master Lease and is not
compensated for the use of these premises by other parties who are using them rather
than it. Either Debtor should be allowed to retain the subrents or be allowed an offset
against any payment of the rent on the Master Lease for the subtenants. In any event,
at the hearing on November 18, 2014, counsel for Landlord clarified that Landlord is not
seeking the turnover, or payment, of subtenant rents paid to Debtor on top of the “full”
rent, including holdover rent, late charges and attorneys’ fee reimbursement as claimed
in its motion.
Accordingly, the court determines Debtor is not required to pay any subtenant
rents in satisfaction of its obligations under 11 U.S.C. § 365(d)(3).
///
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 40 of 42

41
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
III. Landlord’s Request to Modify Adequate Protection Order Based Should Be
Denied.
Landlord argues based on Debtor’s contempt of court, the Adequate Protection
Order should be modified to provide that any further breach of its terms shall compel
denial of the Assumption Motion and immediate surrender of the Wilshire Property by the
Debtor. Motion to: (1) Compel Immediate Payment by Debtor of Outstanding Obligations
to Landlord Pursuant to 11 U.S.C. § 365(d)(3); (2) Modify Adequate Protection Order
Based on Debtor’s Contempt of Court and Other Developments Subsequent to its Entry,
ECF 440 at 18. Landlord further argues the Adequate Protection Order should be
modified to require that any proceeds from the sale of Owned Inventory and parking be
segregated and made subject to the lien on Owned Inventory in favor of landlord. Id. at
19.
Debtor argues that since it is not in contempt of any court order, it is improper to
impose upon the debtor the requirement that any further breach of the terms of the
Adequate Protection Stipulation or Debtor-in-Possession Financing Order shall compel
denial or the Lease Assumption Motion and immediate surrender of the Mid-Wilshire
Property. Debtor’s Supplemental Brief in Opposition to AERC Desmond’s Tower, LLC’s
Motion to: (1) Compel Immediate Payment by Debtor of Outstanding Obligations to
Landlord Pursuant to 11 U.S.C. § 365(d)(3); (2) Modify Adequate Protection Order Based
on Debtor’s Contempt of Court and Other Developments Subsequent to its Entry, ECF
479 at 9.
Because the court has denied Debtor’s request for relief from forfeiture and motion
to assume lease, Landlord’s request to modify the Adequate Protection Order such that
any further violations by Debtor result in immediate surrender of the Lease, appears to be
moot because the Lease is terminated and not assumable. However, these rulings
unless stayed pending appeal apparently mean that Debtor as tenant under the Lease
has no right to further possession, and Landlord is entitled to immediate possession of
the premises.
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 41 of 42

42
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Conclusion
This memorandum decision constitutes the court’s findings of fact and conclusions
of law of the court in granting Landlord’s motion to compel immediate payment of lease
obligations pending assumption or rejection of the lease pursuant to 11 U.S.C. §
365(d)(3). Accordingly, Landlord may be also entitled to amounts due for pre-rejection,
postpetition lease obligations, which may not have been claimed in the moving papers
from the date the original motion was filed through the date of entry of the final order
denying Debtor’s motion to assume the lease, the date of deemed rejection of the lease.
The court hereby orders counsel for Landlord to submit a proposed order
consistent with this memorandum decision within 30 days of entry of this order. If
Landlord seeks other claims under 11 U.S.C. § 365(d)(3), Landlord should submit a
proposed order supported by a further declaration(s) as to what the additional amounts
are for holdover rent, late charges, attorneys’ fees, replacement parking costs, and
reimbursement of Debtor’s collection of parking revenue, consistent with this decision.
IT IS SO ORDERED.
###
Date: November 26, 2014
Case 2:13-bk-14135-RK Doc 784 Filed 11/26/14 Entered 11/26/14 16:11:53 Desc
Main Document Page 42 of 42