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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
IN RE:
ITT EDUCATIONAL SERVICES, INC.
Debtor
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Case No. 16-07207-JMC-7A
MOTION OF LATHROP BUSINESS PARK, LLC FOR ALLOWANCE OF
ADMINISTRATIVE EXPENSE CLAIM PURSUANT TO 11 U.S.C. 503(b)(1)
Lathrop Business Park, LLC, (also known as Pacific Edge and Development, Inc.)
(hereinafter referred to as “LBP”), by and through its undersigned attorneys, hereby requests the
entry of an order, pursuant to 11 U.S.C. § 503(b)(1), allowing LBP an administrative expense
claim in the amount of Thirty Five Thousand Eight Hundred Fifty-Four Dollars and Eighty-Eight
Cents ($35,854.88) as and for necessary costs and expenses of preserving the bankruptcy estate
from the period of the bankruptcy filing on September 16, 2016, through the date the of rejection
of the non-residential lease with debtor ITT Educational Services, Inc. (hereinafter referred to as
“ITT”) on October 27, 2016. Alternatively, LBP, by and through its counsel, hereby requests the
entry of an order, pursuant to 11 U.S.C § 365(d)(3) requiring the bankruptcy trustee to perform
the obligations of ITT arising from the date of the order for relief on an unexpired lease of
nonresidential property until the date the lease was rejected on October 17, 2016. During this
period, ITT’s obligation to LBP totals $35,854.88. In support of its Motion, LBP states as
follows:
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I. JURISDICTION
1. On September 16, 2016, the above-captioned debtor, ITT, filed its voluntary
petition for relief under chapter 7 of title 11 of the United States Code (the “Bankruptcy Code”)
in the United States Bankruptcy Court for the Southern District of Indiana (the “Court”).
2. This Court has jurisdiction over this motion pursuant to 28 U.S.C. §§157 and
1334(b). This matter is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(A). Venue is proper
in this District pursuant to 28 U.S.C. §1408 and 1409.
II. BACKGROUND
3. ITT entered into a contractual agreement with LBP’s predecessor in interest on
April 3, 1997, to lease nonresidential real property. On November 8, 2007, LBP and ITT
executed a First Amendment to Lease, wherein LBP assumed said Lease, and the parties
extended the term of the Lease to September 2, 2013. On June 1, 2012, LBP and ITT executed a
Second Amendment to the Lease extending the term of the Lease to August 31, 2018,
(hereinafter, collectively referred to as the “Lease”). True and correct copies of the Lease and
the amendments thereto are attached as Exhibit A1 through Exhibit A3.
4. On September 16, 2016, (the “Petition Date”), ITT filed a voluntary bankruptcy
petition in this court for relief under chapter 7 of title 11 of the Bankruptcy Code (the “Petition”).
A true and correct copy of the Notice of Chapter 7 Bankruptcy Case is attached as Exhibit B.
5. On October 31, 2016, attorneys for the trustee of the Bankruptcy estate sent a
Notice of Rejection of the non-residential Lease to LBP which had an effective date of October
27, 2016 (the “Rejection Date”). A true and correct copy of the Notice of Rejection is attached
as Exhibit C.
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6. Pursuant to the operative terms of the Lease, as of September 1, 2016, and
through August 31, 2017, base rent payments were to be paid in full by ITT in monthly
installments on the first day of each month in the amount of Twenty-Six Thousand Two Hundred
Twenty-Eight Dollars and Eighty-Three Cents ($26,220.83) (“Base Rent”) per month. (Please
see Exhibit A3, page 1, ¶2.) ITT’s share of total monthly operating expenses as of September 1,
2016, and through August 31, 2017, were to be paid in full by ITT in monthly installments on the
first day of each month in the amount of Six Thousand Three Hundred Thirty-One Dollars and
Sixty-Seven Cents ($6,331.67) per month (see Exhibit A3, page 2, ¶4), and ITT’s pro rata share
of the cost of real estate taxes as of July 1, 2016, and through June 30, 2017, to be paid in
monthly installments in the amount of Three Thousand Three Hundred Two Dollars and Thirty-
Eight Cents ($3,302.38) (collectively “Additional Rents” unless specifically identified) per
month. A true and correct copy of the property tax information for the fiscal year 2016-2017 is
attached as Exhibit D. Please see also Exhibit A1, page 14, ¶2.02(b) which governs ITTs pro
rata share of the total property taxes. Furthermore, Exhibit E provides the square feet of the
Total Project, as the term is defined in the Lease, and the square footage of ITT’s leased
property.
7. In the interim of the Petition Date of September 16, 2016, and the Rejection Date
of October 27, 2016, LBP necessarily incurred costs to preserve the bankruptcy estate pending
the Trustee’s determination to assume or reject the lease, in the amount of the monthly Base Rent
and Additional Rents which came due in full on October 1, 2016, that is, $35,854.88.
8. LBP has submitted a Proof of Claim for the pre-Petition Date expenses incurred
and outstanding, that is, monthly Base Rent and Additional Rents which came due on September
1, 2016.
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9. As of the date of this Motion, LBP has not received payment for the cost and
expenses of preserving the estate for the period between the Petition Date and the Rejection
Date, which came due in full on October 1, 2016, as and for Base Rent and Additional Rents, nor
has LBP filed a Proof of Claim for this balance as of the date of this Motion.
III. RELIEF REQUESTED
10. LBP respectfully requests that this Court allow LBP’s administrative expense
claim in the amount of $35,854.88 for the necessary costs and expenses, including property taxes
in the amount of $3,302.38, of preserving the estate pursuant to sections 503(b)(1)(A) (actual and
necessary costs) and 503(b)(1)(B) (property taxes) of the Bankruptcy Code, or, alternatively,
pursuant to section 365(d)(3) of the Bankruptcy Code.
IV. BASIS FOR RELIEF
A. The Court Should Allow LBP an Administrative Expense Claim for Unpaid Post-
Petition Expenses Necessarily Incurred in Preserving the Estate
11. Section 503 of the Bankruptcy Code provides that, after notice and a hearing,
there shall be allowed administrative expenses, including the “actual, necessary costs and
expenses of preserving the estate . . . .” 11 U.S.C. § 503(b)(1)(A).
12. Section 503 of the Bankruptcy Code further provides that, after notice and a
hearing, there shall be allowed administrative expenses, including “any tax incurred by the
estate, whether secured or unsecured, including property taxes. . . .” 11 U.S.C. § 503(b)(1)(B).
13. Chapter 5 of the Bankruptcy Code, specifically section 503, is made applicable to
this Chapter 7 Bankruptcy proceeding under 11 U.S.C §103(a).
14. As is evident from the Bankruptcy Code’s “Rules of Construction,” the use of the
word “including”, as used in section 503(b)(1)(A), is not intended to be limiting. 11 U.S.C.
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§ 102(3). Thus, by implication, Congress did not intend the word “including” following the
words “actual, necessary costs and expenses of preserving the estate” of section 503(b)(1)(A), to
be exhaustive. Case law further supports this conclusion. “[T]he enumerated category for
administrative expenses does not necessarily preclude judicial construction to permit other
claims reasonably demonstrated to be ‘actual, necessary’ costs of administration….” (Varsity
Carpet Services v. Richardson (In re Colortex Industries) (1994) 19 F.3d 1371, 1377.)
The case of In re Pappas (2002) 277 B.R. 171, 176 further supports the conclusion that
the list in section 503(b)(1)(A) is not exhaustive. “The categories of administrative expense
listed in section 503(b) are intended to be illustrative, not exhaustive.” The Pappas court cited
11 U.S.C. § 102(3) which provides that the terms “includes” and “including” are not limiting.
Therefore, damages incurred by LBP as a result of ITT’s occupancy of the premises pending a
determination of whether to assume or reject the lease are a proper and necessary expense of
preserving the value of the bankruptcy estate, and as such, qualify for administrative expense
preference under 11 U.S.C. § 503(b)(1)(A).
15. Administrative expense damages incurred under 11 U.S.C. § 503(b) are further
entitled to priority under section 507(a)(2) of the Bankruptcy Code.
16. The case of In re HQ Global Holdings, Inc. (2002) 282 BR 169, 40 BCD 11,
specifically supports LBP’s position that landlords have administrative claims under 11 USCS
§ 503(b) for rent due post-petition and pre-rejection or assumption of a lease. The court relied on
section 503(b) of the Bankruptcy Code, stating:
“Section 503(b) provides in relevant part that: After notice and a hearing, there shall be allowed administrative expenses, . . . including-(1) (A) the actual, necessary costs and expenses of preserving the estate. 11 U.S.C. § 503(b). A lessor is generally entitled to an administrative claim under section 503(b) for the fair rental value of the lessor’s property actually used by the debtor.” Id. at 173.
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The HQ Global Holdings Court went on further that where “rent for the entire month is
due on the first of the month and, if the Debtors occupy the premises on the first, they must pay
that entire sum.” Id. at 174.
17. As evidenced by the Lease Agreements and the First and Second Amendments
thereto, subsequent to the Petition Date, ITT owed LBP Base Rent and Additional Rents,
including property taxes, which came due in full on October 1, 2016, in the amount of
$35,854.88. The Lease was rejected by the Trustee on October 27, 2016. LBP had not, and to
date has not yet, received payment for the Base Rent or Additional Rents for the month of
October 2016, and is accordingly entitled to an allowed administrative expense claim against ITT
in the aggregate amount of $35,854.88.
B. Alternatively, the Court Should Mandate that the Trustee Perform Obligations of
the Debtor Arising After the Petition Date and Prior to the Rejection of the Lease
18. Section 365(d)(3) of the Bankruptcy Code provides that “[t]he trustee shall timely
perform all the obligations of the debtor … 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.”
19. Chapter 3, specifically section 365, is made applicable to this Chapter 7
Bankruptcy proceeding under 11 U.S.C §103(a).
20. Bankruptcy courts have held that “[s]ection 365 provides for administrative
priority for expenses incurred in performing obligations on a nonresidential lease of real property
postpetition while the debtor-in-possession decides whether to assume or reject a lease…”(In re
BH S&B Holdings LLC (2010) 426 B.R. 478, 482.) The court in that case further reiterated,
“between the filing of a bankruptcy petition and a debtor-in-possession’s decision whether to
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assume or reject an unexpired lease, section 365(d)(3) requires a debtor-in-possession to ‘timely
perform all the obligations of the debtor . . . notwithstanding section 503(b)(1) of this title.’
Expenses arising out of this performance are entitled to automatic administrative expense status.”
(Id. at 483.)
21. For these reasons, if the court denies LBP’s claim for October 2016 rent and
additional rents, including property taxes, as an administrative expense under section 503(b), the
court should alternatively provide administrative priority to this claim under section 365 of the
Bankruptcy Code.
C. The Court Should Compel Immediate Payment of LBP’s Administrative
Expense Claim
22. “Courts have discretion to determine when an administrative expense will be
paid.” HQ Global Holdings, Inc., (2002) 282 B.R. 169, 173. “In determining the time of
payment, courts consider prejudice to the debtor, hardship to the claimant, and potential
detriment to other creditors.” Id.
23. There is no valid reason to defer payment of LBP’s administrative expense claim.
Administrative claims are entitled to priority payment pursuant to 507(a)(2), second to only
domestic support, child support, and the trustee’s expenses of administering assets. Because ITT
is a legal entity with no children or spouse, administrative claims succeed only the Trustee’s
expenses. Accordingly, allowing immediate payment of the claim would not result in prejudice
to other creditors’ subordinate claims.
24. For these reasons, the Court should allow LBP’s administrative expense claim and
compel immediate payment thereof.
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V. RESERVATION OF RIGHTS
25. LBP reserves its right to assert claims against ITT for amounts not contemplated
by this Motion or allowed by the Court pursuant to section 503(b)(1) and to amend, modify
and/or supplement this request, as appropriate under the circumstances.
VI. NOTICE OF OPPORTUNITY TO OBJECT
YOU ARE NOTIFIED that your rights may be affected by this Motion. Parties in
interest have until January 4, 2017, at 4:00 p.m. (prevailing Eastern Time) to file an objection
to this Motion in accordance with L.R.S.D.Ind. B-9013-1. Objections must be in writing and
filed with the Bankruptcy Court Electronically (user account and password required) or, if not
permitted to file electronically, with the Clerk’s Office, 46 East Ohio Street, Room 116,
Indianapolis, Indiana 46204 and shall be served in time to arrive prior to the deadline set forth
above. Any objection must be served on the attorney for LBP at the address set forth below:
Steven A. Malcoun, Esq. MAYALL HURLEY, P.C. 2453 Grand Canal Boulevard, Second Floor Stockton, California 95207-8253 Telephone: (209) 477-3833 Facsimile: (209)473-4818 Smalcoun@mayallaw.com NOTICE IS FURTHER GIVEN that pursuant to Bankruptcy Rule 6006(c) and the
Notice, Case Management and Administrative Procedures approved by this Court on October 4,
2016, this Motion is scheduled for hearing on January 11, 2017, at 1:30 p.m. (prevailing
Eastern Time) at the United State Bankruptcy Court, Room 325, 46 East Ohio Street,
Indianapolis, IN 46204.
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NOTICE IS FURTHER GIVEN: IF NO OBJECTION IS TIMELY FILED, AN
ORDER MAY BE ENTERED BY THE COURT FOR THE RELIEF REQUESTED WITHOUT
FURTHER NOTICE OR HOLDING THE SCHEDULED HEARING.
WHEREFORE, for the reasons stated herein, LBP respectfully requests that the Court
enter an order, substantially in the form attached hereto as Exhibit F: (i) allowing LBP an
administrative expense claim in the amount of $35,854.88 for post-petition damages necessarily
incurred in preserving the estate; (ii) ordering the Trustee to pay LBP’s allowed administrative
expense claim immediately; and (iii) granting such other and further relief as the Court may
deem just and proper.
Dated: December 21, 2016 s/Steven A. Malcoun
____________________________________ Steven A. Malcoun California State Bar No. 084946 Mayall Hurley, PC 2453 Grand Canal Blvd. Stockton, CA 95207 (209)477-3833 (209)473-4818 smalcoun@mayallaw.com
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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION
IN RE: ITT EDUCATIONAL SERVICES, INC. Debtor
))))))
Case No. 16-07207-JMC-7A
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on the 22th day of December, 2016, a copy of the
Motion of Lathrop Business Park, LLC For Allowance of Administrative Expense Claim
Pursuant to 11 U.S.C. 503(B)(1) was served electronically upon the parties entered in the
Court’s electronic filing system as of that date.
The undersigned further certifies that on the 22nd day of December, 2016, a copy of the
Motion of Lathrop Business Park, LLC For Allowance of Administrative Expense Claim
Pursuant to 11 U.S.C. 503(B)(1) was mailed by first-class United States mail, postage prepaid
and properly addressed to all parties listed on the attached Exhibit A.
Dated this 22th day of December, 2016. /s/ Steven A. Malcoun Steven A. Malcoun California State Bar No. 084946 Mayall Hurley, PC 2453 Grand Canal Blvd. Stockton, CA 95207 (209)477-3833 (209)473-4818 smalcoun@mayallaw.com
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EXHIBIT A
Eboney Cobb Perdue Brandon Fielder Collins Mott LLP
500 E. Border Street, Suite 640 Arlington, TX 76010
Northwest Natural Gas Company 220 NW 2nd Ave.
Portland, OR 97209
Carl O. Sandin For clear Creek Independent
School District 1235 North Loop West, Suite 600
Houston, TX
Daniel Webster College, Inc. 20 University Drive Nashua, NH 03063
Rachel Obaldo Office of the Texas Attorney General
BK & Collections Division PO Box 12548
Austin, TX 78711-2548
McLintock & Associates, PC 1370 Washington Pike, Bridgeville, PA 15017
John P. Dillman PO Box 3064
Houston, TX 77253
Recovery Management System Corporation
For Synchrony Bank 25 SE 2nd Ave., Suite 1120
Miami, FL 33131-1605
Joseph A. Malfitano For Tiger Capital Group, LLC
747 Third Ave., 2nd Floor New York, NY 10017
ESI Service Corp 13000 N. Meridian Street Carmel, IN 46032-1404
Kevin Schwin Law Office of Kevin Schwin
1220 E. Olive Ave. Fresno, CA 93728
Jordan A. Lavinsky For Market-Turk Company
425 Market Street, 26th Floor San Francisco, 94105
T. Todd Egland
Belden Blaine Raytis, LLP PO Box 9129
Bakersfield, CA 93389-9129
TN Dept of Revenue c/o TN Atty General, BK Division
PO Box 20207 Nashville, TN 37202-0207
ITT Educational Service, Inc. 13000 N. Meridian Street
Carmel, IN 46032
Florida Department of Education Office of Student Financial
Assistance PO Box 7019
Tallahassee, FL 32314-7019
Tammy Jones Oklahoma County Treasurer
320 Robert S. Kerr, Room 307 Oklahoma City, OK 73102
Elizabeth Weller Linebarger Goggan Blair&
Sampson, LLP 2777 N. Stemmons Freeway,
Suite 1000 Dallas, TX 75207
Chris W. Halling For Solar Drive Business LLC 23586 Calabasas Rd., Suite 200
Calabasas, CA 91302
Paul Weiser Bachalter Nemer
16435 North Scottsdale Road, Suite 440
Scottsdale, AZ 85254-1754
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