Furniture Liquidation Warehouse, Inc.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
FURNITURE LIQUIDATION
WAREHOUSE, INC.
DEBTOR
CASE NO.
05-02203-5-ATS
ORDER ALLOWING MOTION TO EXTEND TIME
The matter before the court is the debtor’s motion to extend time
to assume or reject the lease of its warehouse premises at 2114
Atlantic Avenue, Suite 160, in Raleigh, North Carolina. A hearing took
place in Raleigh, North Carolina on August 11, 2005.
Furniture Liquidation Warehouse, Inc. filed a petition for relief
under chapter 11 of the Bankruptcy Code on May 25, 2005. On the same
day, the debtor filed an emergency motion to conduct a going-out-of-
business sale, which set forth the debtor’s plan to liquidate its
assets by October 2005. The court allowed the motion on June 13, 2005,
and approved an agreement between the debtor and a furniture
liquidation company to conduct the sale. The debtor leases its
warehouse premises at 2114 Atlantic Avenue, Suite 160, from Parker-
Raleigh Development XXVI, LP. On July 11, 2005, the debtor filed the
instant motion to extend the time to assume or reject its warehouse
lease with Parker Raleigh until the sale is complete, and on July 27,
2005, Parker Raleigh filed an objection.
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The debtor has two store locations and the furniture warehouse
that is the subject of the lease at issue. While it conducts its
going-out-of-business sale, the debtor is maintaining inventory in the
warehouse. It contends that it needs to remain in the warehouse
property until the sale is complete, and that if it is required to
vacate the property early, the sale will fail. If the sale is allowed
to run its course through October 2005, the debtor predicts that there
will be some distribution to unsecured creditors. If the sale is cut
short, it is possible that the debtor will have insufficient assets to
pay even administrative costs.
Parker Raleigh’s primary objection is that the motion to extend
time contends that the debtor needs additional time to "determine"
whether to assume or reject the lease, while the debtor actually knows
that it will reject the lease and simply wants more time to do so.
Parker Raleigh is not opposed in principle to the debtor’s remaining in
the premises until the sale is complete, except that Parker Raleigh
wants the flexibility to terminate the debtor’s tenancy if it finds a
new tenant who wishes to occupy the premises prior to mid-October 2005.
In addition, Parker Raleigh contends that the lease has already been
deemed rejected by operation of 11 U.S.C. § 365(d)(4).
In response to Parker Raleigh’s objection, the debtor contends
that the landlord received notice of the debtor’s motion to conduct a
going-out-of-business sale and the related order, both of which set
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forth the time line for the sale (through October 2005) and clearly
contemplated that the debtor would remain in the premises for the
duration of the sale. Parker Raleigh did not object to either the
motion or the order, and as a result, the debtor contends, Parker
Raleigh should be precluded from any effort to dispossess the debtor of
the premises prior to October 2005.
The court will first dispose of the technical argument advanced
by Parker Raleigh that the lease has been deemed rejected by §
365(d)(4). That section provides that if the debtor in possession does
not assume or reject an unexpired lease of nonresidential real property
within 60 days after the order for relief, "or within such additional
time as the court, for cause, within such 60-day period, fixes," then
the lease is deemed rejected. A literal reading of the statute
requires the court to enter an order extending the time prior to the
expiration of the 60 days from the order for relief. The majority of
courts, however, have held that the court can extend the time outside
of the 60 days if the motion is filed before the 60 days expires. See
In re Wedtech Corp., 72 B.R. 464, 468-471 (Bankr. S.D.N.Y. 1987). This
has been the practice of this court, and the policy implications
discussed in Wedtech are persuasive. Consequently, the court concludes
that because the motion was filed only 47 days after the order for
relief, the lease is not deemed rejected by operation of § 365(d)(4).
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The next question is whether "cause" exists to extend the time for
the debtor to assume or reject the lease. Though the "cause" advanced
in the motion is that the debtor needs additional time to decide
whether to assume or reject the lease, the real "cause" is that the
debtor needs possession of the property for additional time to complete
its sale. In cases in which a debtor knows from the outset that it
will be liquidating its assets, it also knows that it will ultimately
reject its commercial leases. "Where liquidation is the only
alternative for a debtor . . . , the Court should determine whether the
extension will result in a benefit to the estate that outweighs the
detriment to the landlords affected by the extension." In re Ernst
Home Center, Inc., 209 B.R. 974, 981 (Bankr. W.D. Wash. 1997).
The debtor needs to maintain the warehouse premises through the
term of its going-out-of-business sale in order to conduct the sale.
If the sale continues through October 2005, it is expected that there
will be a distribution to unsecured creditors. If the sale is halted,
there may be insufficient funds to pay administrative and priority
creditors, and additional claims could be advanced against the debtor
for breach of its contract with the furniture liquidation company
conducting the sale. On the other hand, the debtor is current with its
rent to Parker Raleigh and intends to remain current until the lease is
rejected. Thus, the only detriment to the landlord is the possibility
that it could obtain a long-term replacement tenant that wishes to take
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possession prior to mid-October 2005. The court can alleviate that
detriment by considering a motion to compel rejection on an expedited
basis if the landlord does find a new tenant. Consequently, the
benefit to the estate outweighs the detriment to the landlord in this
case, and the extension of time will be allowed.
Finally, the court has carefully reviewed the file in this case,
and it does not appear from the court record that Parker Raleigh
received the motion to conduct a going-out-of-business sale, notice of
that motion, or the order allowing the motion. Indeed, the court’s
record does not reflect that Parker Raleigh received any notice in this
case until the instant motion was filed. It may be that the debtor
advised Parker Raleigh of the proceedings, but there is nothing before
the court to confirm that Parker Raleigh had any earlier opportunity to
object to the debtor’s plans to remain in the premises through mid-
October. Accordingly, Parker Raleigh will not be penalized for its
failure to object to the motion or order regarding the going-out-of-
business sale and their effect on its lease.
Based on the foregoing, the debtor’s motion to extend time to
assume or reject its lease with Parker Raleigh is ALLOWED. The debtor
must file its assumption or rejection by Tuesday, October 31,
2005. If Parker Raleigh finds a replacement tenant that wishes to
occupy the premises before the debtor completes its
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sale, the court will consider a motion to compel rejection of the lease
on an expedited basis.
SO ORDERED.
DATED: August 19, 2005
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