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Case Title: IN RE: TANGO BRANDED ENTERTAINMENT,
LLC, Debtor. Type: Chapter 11 Case Number: 06-59217 Judge: Walter
Shapero Published: 04/12/2007
UNITED STATES BANKRUPTCY COURT EASTERN
DISTRICT OF MICHIGAN SOUTHERN DIVISION IN RE: TANGO BRANDED Case No.:
06-59217 ENTERTAINMENT, LLC, Chapter 11 Debtor. Honorable Walter Shapero
OPINION GRANTING IN PART DEBTOR’S MOTION TO EXTEND TIME TO ASSUME OR
REJECT LEASE Debtor’s primary, if not exclusive, business was
performing various services by way of a contract with Daimler Chrysler.
It did so out of premises sub-leased from Live Nation World Wide, Inc.,
(Lessor) located in New York City (“Lease”). Differences arose between
Debtor and Daimler Chrysler as the result of which the latter terminated
the contract. That resulted in a suspension of Debtor’s business
operations which in turn led to its filing of this chapter 11 bankruptcy
on December 26, 2006. The monthly rental under the Lease is
approximately $76,000 for the some 23,000 square feet of space involved.
The Lease has some seven or so years left to run. As of the
commencement of this case Lessor was holding a security deposit of about
$378,000. Pre-petition unpaid rentals were some $170,000. Post-petition
the rentals due for January, February, March, and April, have not been
paid. Debtor has few, if any, funds to pay any rentals. The total unpaid
rentals presently exceed the security deposit amount and the
differential between the amount of that security deposit and the
cumulative unpaid rentals will increase each month hereafter. Debtor’s
motion seeks an extension of the period within which it must assume or
reject the Lease to May 23, 2007, such being an extension of some 27
days from the end of the basic 120 day period (ending on or about April
26, 2 2007) which 365(d)(4) gives a debtor/lessee to make up its mind
whether to assume or reject the Lease. Extensions are permitted “for
cause.” The cause asserted by Debtor primarily consists of
its assertions that the Lease rental rate is some six to nine dollars
per square foot per year less than the current market rental rates in
New York City, and, that if so (and it is, and has been actively
engaged in marketing the Lease), it anticipates needing the indicated
additional time to make a deal with an entity to whom it can assign the
lease and realize that differential for the benefit of the
bankruptcy estate. If the differential were say, $5.00 per square foot,
the rent differential over seven years, for instance, would be a gross
of $800,000, over time - the present value of which would be
less. Debtor also asserts that it is in active negotiations with Daimler
Chrysler over the termination of the Debtor’s contract as well as an
issue of the ownership and value of certain intangibles involved in
the contract, with a real possibility of realizing a material sum for
the bankruptcy estate. Lessor objects, pointing to the unpaid rentals
for some seven months, those unpaid amounts being in excess of the
security deposit, and the speculative nature of Debtor’s only possible
sources of funds to eventually pay any of the unpaid rent over and above
the amount of the security deposit, as well as, the affirmative
obligation of Debtor under 365(d)(3) to pay the rent until the lease
is assumed or rejected. Aside from its defenses to Debtor’s motion,
Lessor has also filed a motion to compel Debtor to assume or reject the
lease, to compel adequate protection payments, and to modify the stay,
nunc pro tunc, for application of the security deposit to unpaid
pre-petition obligations. Lessor’s said motion has not yet been heard
though the issues it raises have been part of the arguments and
deliberations on Debtor’s motion extension. 3 The elements of “cause”
for an extension are set out Service Merchandise Company, Inc., 256 B.R.
744 (Bkrtcy.M.D.Tenn., 2000). One of them is whether, or the extent to
which, the Lessor will suffer damage that may not be compensable under
the Code. Id. at 748. That particular element is akin to and bound up
with Lessor’s argument that the failure of the Debtor to comply with
the mandate of 365(d)(3) either outweighs all other considerations, or
in and of itself affords a defense to any extension, regardless of any
other circumstances. The Court does not agree. Rather, this Court agrees
with that line of authorities epitomized by the Court of Appeals in In
re Southwest Aircraft Services, Inc., 831 F.2d 848 (9th Cir. 1987) where
the Court stated at page 854: We believe that Congress intended the
bankruptcy courts to have discretion to consider all of the particular
facts and circumstances involved in each bankruptcy case and to decide
whether the consequences of a violation of subsection (d)(3) should be
forfeiture of the unassumed lease, some other penalty, or no penalty at
all. Accordingly we hold that the failure to make payments
under subsection (d)(3) constitutes one element to be considered along
with all the other relevant factors, in determining whether cause
exists under subsection (d)(4) to extend the 60 day period for
assumption or rejection. (The Court concludes that the enactment of
BAPCPA does not change this analysis.) Aside from receiving its entitled
to rent under the Lease, (and if Debtor is right about current square
foot rental rates), Lessor obviously has a legitimate and strong
interest in having the lease terminated or rejected (and as quickly as
possible), so it, rather than Debtor, could capitalize on those
apparently increasing market rental rates. Properly evaluated for
purposes of this Motion, Lessor’s primary exposure and risk here is the
amount by which its unpaid Lease obligations will exceed its
security deposit. 4 The likelihood Debtor will continue its business is
relatively small so this case has most to do with the extent to Debtor
will be able to realize something material (that balances the Lessor’s
said risk) from an assumption and assignment of the lease and sale of
its intangibles. When that might occur is a monthly moving target. Time
is thus a crucial factor in this situation, as well as
verifiable authentication of the actuality and status of its indicated
ongoing Lease and asset marketing efforts. Taking into account the
potential gains to Debtor and its creditors (and indeed to Lessor to
some extent) versus the risks and potential loss to Lessor and the other
relevant factors, most of which favor the Debtor, at least for the
relatively modest extension sought, the Court concludes it will extend
the time for Debtor to assume or reject the lease to the requested date
of May 23, 2007, but, subject to it being shortened, and/or otherwise
dealt with, under the following terms and conditions: (1) An evidentiary
hearing will be conducted on April 25, 2007, at 1:30 p.m., to
hear evidence on the status of, and Debtor’s progress in marketing the
(and selling or liquidating any of its other assets or causes of
action); and, (2) If at the close of said hearing it does not appear
either (a) that Debtor has actually obtained an agreement to assign the
lease, or (b) there is substantial likelihood that Debtor will be able
to obtain such an agreement in sufficient time to enable it to file a
motion to assume and assign the lease by May 23, 2007, the Court may
take further action, including, but not limited to, (i) accelerating
termination or rejection of the Lease to a date prior to May 23, 2007,
(ii) requiring certain rental payments to be made to the Lessor as a
condition to having the extension continue to May 23, 2007; The Court
makes no ruling at this time relative to past, present or future use or
application of the security deposit. The referred to Lessor’s motion is
set for hearing at the April 25, 2007, hearing date and time above set
forth. Debtor shall promptly prepare an appropriate order. . Signed on
April 10, 2007 /s/ Walter Shapero Walter Shapero United States
Bankruptcy Judge
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