A Texas bankruptcy judge has determined that a landlord will not be entitled to an administrative claim for post-petition rent as it failed to file and prosecute a timely motion for allowance of the administrative rent claim holding that a previously and timely filed proof of claim is insufficient. In re: Taco Bueno Restaurants Inc., --- B.R --- (Docket No. 18-33678), 2019 WL 4010681 (Bankr. N.D. Tex. Aug. 23, 2019).

The Filing and Lease Rejection

Taco Bueno Restaurants, Inc., et al. (“Taco Bueno”) filed voluntary petitions under Chapter 11 of the Bankruptcy Code in November of 2018. The genesis of the filing was pressure from approximately 140 landlords who were threatening eviction of Taco Bueno involving profitable locations. The goal of the filing was to reduce Taco Bueno’s current lease footprint, renegotiate existing leases, and protect thousands of jobs for local and regional employees.

As part of that process, Taco Bueno quickly moved to approve expedited procedures for lease rejection which was granted by the bankruptcy court. This resulted in a lease rejection notice sent to Thomas Goodner Estate and Fallis A. Beall, dba Elk Plaza Shopping Center (“Elk Plaza”) which became effective on Dec. 3, 2018. This notice was sent to Elk Plaza via first class mail and served on its attorney via email through CM/ECF.

Notice of the Administrative Claims Bar Date

Taco Bueno filed a prepackaged plan on Dec. 18, 2018. The plan required administrative claims to be filed by the administrative claims bar date which was set to be 30 days after the effective date of the plan. A confirmation order followed on Dec. 19, 2018. The plan and confirmation order were also sent via first class mail to Elk Plaza and via email to its attorneys.

On Jan. 2, 2019, Taco Bueno filed a notice of plan confirmation and effective date stating that the effective date occurred on December 31, 2018 and further that the deadline for filing administrative claims would be Jan. 31, 2019. Again, Elk Plaza was sent a copy of this notice via first class mail and their attorney was served via email.

Assertion of the Claim and Objection

Elk Plaza filed a proof of claim on Official Form 410 on Jan. 18, 2019. Elk Plaza indicated in the proof of claim that $10,600.00 was entitled to § 507(a)(2) priority for post-petition rent. Elk Plaza then filed a request for allowance and payment of administrative expense claim on May 1, 2019 seeking similar amounts. The reorganized debtors objected to the request seeking to enforce the administrative claims bar date.

Elk Plaza asserted that its administrative claim was timely because it filed a proof of claim before the administrative claims bar date. The Court noted that Elk Plaza did not assert that it did not receive notice of the administrative claims bar date or that the Court should accept the late request for payment on the basis of excusable neglect. The reorganized debtors asserted that there was no “cause” to permit the late filed application and that a proof of claim is not a request for payment of an administrative claim.

The Application Was Untimely

The Court quickly resolved that Elk Plaza had multiple and adequate notices of the administrative claims bar date and found that Elk Plaza’s application filed on May 1 was approximately three months after the deadline. Thus, the application for payment of the administrative expense was untimely. As Elk Plaza had asserted no “cause” for allowing the untimely claim, the administrative claim was barred and could not be allowed.

A Proof of Claim Does Not Constitute a § 503(b) Application for Allowance of an Administrative Expense

Elk Plaza asserted that its proof of claim asserting a post-petition administrative claim constitutes a request for payment under the first clause of § 503(a) or should at least constitute cause to allow the late-filed application.

In rejecting this argument, the Court explained similar circumstances addressed in In re Jack Kline Co., 440 B.R. 712 (Bankr. S.D. Tex. 2010). The Jack Klein court first found that a creditor has an obligation to affirmatively request payment of administrative expenses from a due process standpoint which ensures proper notice to the debtor and other creditors and allows the court to test whether the claim is entitled to administrative status. Second, the Jack Klein court found that a proof of claim can only include pre-petition amounts because of the wording in the official form which explicitly states that it may not be used to make a request for payment of an administrative expense. Third, requiring a § 506(b) application properly places the burden on the creditor to file an application who bears the ultimate burden of proof. A proof of claim is prima facie evidence of the debt owed which places the burden on the party challenging the claim to overcome the presumption of validity. Finally, the Jack Kline court found that requiring an application is good public policy as it ensures that the bankruptcy court reviews such claims.

Although Jack Kline was a Chapter 7 case, the court found that many of the same concepts applied to the reorganized debtors’ Chapter 11 case and that the circumstances of potential prejudice to Chapter 11 debtors was even more profound as debtors need to be able to ascertain the amounts they need in cash to pay administrative expenses so that they can pay existing creditors on the effective date of the plan or soon thereafter.  Having such administrative claims in a different place than the claims register allows debtors to ascertain their administrative expense exposure.

Words Mean Something

By far the most overriding consideration by the court was the actual language found on Official Form 410 which provides a “conspicuous warning” to “not use this form to make a request for payment of an administrative expense.” The court pointed out these instructions are at the top of the form, right underneath the title, and in bold font. This type of language does not stretch application of the plain-meaning doctrine. The importance of this requirement is that utilizing the proof of claim form directly contradicts § 503(b)’s express requirement that an administrative expense be allowed after notice and a hearing. A proof of claim for which there is no objection is simply allowed.

Just Do It

Many creditors (some national level companies) attempt to side-step the administrative claim application process because of the expense involved in retaining local counsel to file and prosecute the claim. Some may have an understanding of the proof of claim bar date but become confused by the process which establishes the administrative claims bar date or do not have a system for calendaring administrative claims or pursuing them.  They end up having in-house employees file a proof of claim for these administrative expenses which will almost certainly result in an objection which will be sustained by the bankruptcy court.

Absent de minimus claim amounts, such creditors would be much better served hiring experienced Chapter 11 counsel who can monitor their claims on a national level and recommend when filing an application to approve an administrative expense claim makes sense. As we are talking about administrative claims which are regularly paid in full, the cost/benefit analysis of monitoring such cases weighs heavily in favor setting up systems and experienced counsel to avoid the loss of such claims.