15-3074-hcm Doc#150 Filed 07/10/15 Entered 07/10/15 19:14:59 Main Document Pg 1 of IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS EL PASO DIVISION IN RE: EL PASO CHILDREN S HOSPITAL CORPORATION, CASE NO. 15-3074 DEBTOR. CHAPTER 11 EIN: 26-3075429 445 ALAMEDA AVENUE EL PASO, TEXAS 79905 DEBTOR S MOTION TO EXTEND TIME TO ASSUME OR REJECT LEASES OF NONRESIDENTIAL REAL PROPERTY This pleading requests relief that may be adverse to your interests. If no timely response is filed within twenty-one (21) days from the date of service, the relief requested herein may be granted without a hearing being held. A timely filed response is necessary for a hearing to be held. TO THE HONORABLE U.S. BANKRUPTCY JUDGE H. CHRISTOPHER MOTT: COMES NOW El Paso Children s Hospital Corporation ( EPCH and/or Debtor ), the Debtor-In-Possession in this case, by and through its proposed, undersigned counsel, and hereby files its Motion to Extend Time to Assume or Reject Leases of Nonresidential Real Property ( Motion ) and in support thereof, would respectfully show the Court as follows: I. INTRODUCTION 1. The Debtor herein seeks an extension of its time to assume or reject leases of nonresidential real property. The deadline for the Debtor to assume, assume and assign, or reject unexpired leases of residential real property is September 16, 2015. The Debtor herein seeks a ninety (90) day extension of time to assume, assume and assign, or reject the agreement with El Paso County Hospital District d/b/a University Medical Center ( UMC ) entitled Facility
15-3074-hcm Doc#150 Filed 07/10/15 Entered 07/10/15 19:14:59 Main Document Pg 2 of Lease Agreement relating to real property known and numbered as 445 Alameda Avenue, El Paso, Texas, 79905 ( Property ), and any other agreement between the parties that UMC believes is subject to 365(d)(4) ( Agreement ). The Debtor believes that the requested extension is necessary to permit it sufficient time to assess the Agreement, assess the value of the Agreement to the Debtor, particularly in relationship to its potential sale or transaction efforts, and make an appropriate determination as to the ultimate disposition of the Agreement in this case. II. JURISDICTION AND VENUE 2. This Court has jurisdiction over this matter pursuant to 2 U.S.C. 157 and 1334. This is a core proceeding pursuant to 2 U.S.C. 157(b)(2)(A) and (O). Venue of the Debtor s Chapter 11 case is proper in this district pursuant to 2 U.S.C. 140 and 1409. The relief requested in this Motion is sought pursuant to 11 U.S.C. 105, 365(d)(4) and Rule 6006 of the Federal Rules of Bankruptcy Procedure ( Bankruptcy Rules ). III. FACTUAL BACKGROUND 3. On May 19, 2015 ( Petition Date ), the Debtor filed its voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. 101, et seq. (as amended the Bankruptcy Code ). The Debtor is a debtor-in-possession pursuant to 1107(a) and 110 of the Bankruptcy Code. No request for the appointment of a trustee or examiner has been made in this bankruptcy case, and no committee has been appointed or designated. 4. A description of the background of the Debtor and the events leading up to the filing of the voluntary petition by the Debtor, is provided in the Declaration of Mark Herbers in Support of First Day Motions, which is incorporated herein by reference. - 2 -
15-3074-hcm Doc#150 Filed 07/10/15 Entered 07/10/15 19:14:59 Main Document Pg 3 of 5. The Debtor is an independent non-profit 501(c)(3) corporation that is governed by a board of directors ( EPCH Board ), the sole mission of which has been to provide care to the children of El Paso and the surrounding areas. The Debtor s primary operations have consisted of owning and operating a 122-bed children s hospital. 6. Days before opening its doors to patients, the Debtor entered into the Agreement with UMC. A true and correct copy of the Agreement is attached hereto as Exhibit A. The Agreement provides for a term of 360 months (or 30 years). See Ex. A, 1.3. The Property is the property upon which the Debtor conducts all of its operations and is located on the UMC campus. 7. On May 19, 2015, the Debtor filed its Complaint and Application for Injunctive Relief against UMC, initiating Adversary No. 15-03005 ( UMC Adversary ). Among other things, in the Complaint, the Debtor sought to avoid the UCC-1 ( UMC Lien ) asserted by UMC pursuant to 547 and 54 of the Bankruptcy Code, and sought a declaratory judgment under both Federal law and Texas law concerning the Agreement.. On July, 2015, the Debtor filed its First Amended Complaint in the UMC Adversary ( Complaint ) [Adv. Dckt. No. 1], in which it also alleged that the Agreement should be recharacterized and requested reformation of the Agreement. The UMC Adversary is presently pending. No scheduling order has been entered, although a hearing has been set on July 14, 2015 on the Plaintiff s Motion for an Expedited Scheduling Order [Adv. Dckt. No. 3]. The parties each have filed their Notice of Proposed Scheduling Orders [Adv. Dckt Nos. 20 and 21]. IV. RELIEF REQUESTED 9. Pursuant to this Motion, the Debtor seeks the entry of an order extending the time within which the Debtor may assume or reject the Agreement for an additional ninety (90) days. - 3 -
15-3074-hcm Doc#150 Filed 07/10/15 Entered 07/10/15 19:14:59 Main Document Pg 4 of By operation of 365(d)(4), the statutory period for the Debtor to assume or reject the Agreement would expire on September 16, 2015. The Debtor herein seeks an order extending such time through and including December 15, 2015. 10. Section 365(d)(4) of the Bankruptcy Code provides, in relevant part, that an unexpired lease of nonresidential real property shall be deemed rejected if a debtor does not assume or reject the unexpired lease within 120 days after the date of the order for relief. GSL of Ill, LLC v. McCaffety Elec. Co. (In re Demay Int l LLC), 471 B.R. 510, 522 (Bankr. S.D. Tex. 2012) (addressing period of time granted by 365(d)(4) to permit debtor to assume or reject a lease of nonresidential real property). Section 365(d)(4) also provides that such period may be extended, prior to the expiration of the 120-day period, for ninety (90) days upon motion for cause. Whether to grant such an extension is committed to the discretion of the bankruptcy court. South Street Seaport Ltd. P ship v. Burger Boys, Inc. (In re Burger Boys, Inc.), 94 F.3d 755 (2d Cir. 1996). 11. Sufficient cause exists to support the Debtor s requested extension of time with respect to the operation of 365(d)(4) as to the Agreement. Courts generally consider several factors in determining whether cause exists to extend the period to assume or reject nonresidential real property leases. Such factors include the following: (1) whether the rent has been paid or is being paid; (2) whether the lease is a primary asset of the estate; (3) potential prejudice to the landlord from noncompensable damages; (4) whether the landlord would receive a windfall; (4) whether the case is unusually large or complex; and (5) whether the trustee or debtor in possession has had a reasonable period of time to analyze the estate and formulate a reorganization plan. Burger Boys, 94 F.3d at 761 (citing Theatre Holding Corp. v. Mauro, 61 F.2d 102, 105-06 (2d Cir. 192). The court may also consider a particular debtor s need for - 4 -
15-3074-hcm Doc#150 Filed 07/10/15 Entered 07/10/15 19:14:59 Main Document Pg 5 of more time in order to analyze leases in light of the plan it is formulating. In re Channel Home Ctrs., Inc.,99 F.2d 62, 69 (3d Cir. 1993); In re Unit Portions of Del., Inc., 53 B.R. 3, 5 (Bankr. E.D.N.Y. 195) (remarking that Congress recognized that there may be times when it is not possible for the trustee to make a careful and informed assessment of the benefits and burdens of the lease within this [statutory] period. Accordingly, it empowered the court to grant a trustee who demonstrates cause for extension additional time to make this assessment. ). The foregoing factors and considerations weigh in favor of granting the requested extension. 12. First, the Debtor has made payments to UMC and is continuing to otherwise perform its other obligations under the Agreement. In addition, the Debtor s proposed extension of time to assume or reject the Agreement does not damage UMC, particularly in light of the fact that issues with the Agreement, including the amount of consideration that should be due from the Debtor to UMC, if any at all, given the Debtor s provision of care to the indigent population, are the subject of ongoing litigation in the UMC Adversary. 13. Additionally, the Agreement remains a valuable asset of the Debtor until it is determined that such will not be included as consideration in a potential transaction between the Debtor and a strategic partner. Given that the Debtor anticipates pursuing a transaction process, it is important that the Debtor be afforded sufficient time to evaluate the Agreement and potential alternatives. The Debtor should not be forced to incur administrative claims or reject what may later prove to be a necessary asset before it has had a full opportunity to evaluate same in the context of its bankruptcy case. 14. Moreover, the Debtor allocated much of its attention in the early days of this bankruptcy case to its participation in a three-day mediation (both in El Paso and Austin) with the hopes of reaching a resolution with UMC that unfortunately did not come to fruition. - 5 -
15-3074-hcm Doc#150 Filed 07/10/15 Entered 07/10/15 19:14:59 Main Document Pg 6 of The Debtor needs additional time to evaluate and assess the Agreement and whether reasonable alternatives exist so that it may assume and/or reject the Agreement in a manner that maximizes value for the Debtor s estate. The requested extension of time thus will facilitate the Debtor s efforts to maximize value by permitting the Debtor with sufficient and appropriate time to analyze the Agreement thoroughly, particularly in light of the litigation concerning the Agreement. 15. Abundant cause thus exists for the Court to extend the time within which the Debtor may assume or reject the Agreement for ninety (90) days through and including December 15, 2015, without prejudice to the Debtor s right to seek further extension of such deadline with the consent of UMC, as provided to the extent applicable, by 365(d)(4)(B)(ii) of the Bankruptcy Code. WHEREFORE, PREMISES CONSIDERED the Debtor respectfully requests that the Court extend the deadline under 365(d)(4) up through and including December 15, 2015 with respect to the Agreement. The Debtor also requests any such other and further relief to which it may be justly entitled. Dated: July 10, 2015. - 6 -
15-3074-hcm Doc#150 Filed 07/10/15 Entered 07/10/15 19:14:59 Main Document Pg 7 of Respectfully submitted, JACKSON WALKER L.L.P. 100 Congress Ave., Suite 1100 Austin, Texas 7701 (512) 236-2000 (512) 236-2002 - FAX By: /s/ Patricia B. Tomasco Patricia B. Tomasco State Bar No. 01797600 (512) 236-2076 Direct Phone (512) 691-443 Direct Fax Email address: ptomasco@jw.com Marvin E. Sprouse III State Bar No. 2400067 (512) 236-20 Direct Phone (512) 391-214 Direct Fax Email address: msprouse@jw.com Jennifer F. Wertz State Bar No. 2407222 (512) 236-2247 Direct Phone (512) 391-2147 Direct Fax Email address: jwertz@jw.com PROPOSED COUNSEL FOR DEBTOR- IN-POSSESSION - 7 -
15-3074-hcm Doc#150 Filed 07/10/15 Entered 07/10/15 19:14:59 Main Document Pg of CERTIFICATE OF SERVICE I hereby certify that on the 10th day of July 2015, a true and correct copy of the foregoing was served via the Court s CM/ECF electronic notification system on all parties requesting same. I further certify that on the 13th day of July 2015, a true and correct copy of the foregoing was served via United States first class mail, postage prepaid to the parties listed on the attached service list. UNITED STATES TRUSTEE Kevin Epstein, Trial Attorney 615 E Houston Street, Room 533 San Antonio, Texas 7205 /s/ Patricia B. Tomasco Patricia B. Tomasco 13996606v.1 14504/0000 - -