UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION www.flsb.uscourts.gov In re:
CINEMEX USA REAL ESTATE Chapter 11 HOLDINGS, INC., CINEMEX
HOLDINGS USA, INC., and CB THEATER EXPERIENCE LLC,1
Case No. 20-14695-LMI (Jointly Administered) Debtors.
/
RESPONSE TO COBB LAKESIDE’S REPLY TO DEBTORS’ OMNIBUS OPPOSITION TO COBB LAKESIDE, LLC’S AND MISHORIM GOLD PROPERTIES, LP’S
MOTIONS TO COMPEL COMPLIANCE WITH 11 U.S.C. § 365(d)(3)
Cinemex USA Real Estate Holdings, Inc. (“Cinemex Real Estate”), Cinemex Holdings USA, Inc. (“Cinemex Holdings”), and CB Theater Experience LLC (“CB Theater” and, with Cinemex Real Estate and Cinemex Holdings, the “Debtors”) by and through their undersigned counsel, hereby file this response (the “Response”) to Cobb Lakeside’s Reply to Debtors’
Omnibus Opposition to its Motion to Compel Compliance with 11 U.S.C. § 365(d)(3) [ECF No.
474] (the “Reply”). In support of this Response, the Debtors state as follows:2
I. INTRODUCTION
1. The Debtors filed chapter 11 petitions on April 25 and April 26, 2020 (“Petition Dates”). Since the Petition Dates, the Debtors have rejected 17 leases, have entered into binding
1 The Debtors in these cases and the last four digits of each Debtor’s federal tax identification number are as
follows: (1) Cinemex USA Real Estate Holdings, Inc. (2194); (2) Cinemex Holdings USA, Inc. (5502); and (3) CB Theater Experience LLC (0563). The address for the Debtors is 175 South West 7thStreet, Suite 1108, Miami, Florida 33131.
2 All terms not defined herein have the same meaning as in the Omnibus Opposition to Cobb Lakeside,
LLC’s and Mishorim Gold Properties, LP’s Motion to Compel Compliance with 11 U.S.C. § 365(d)(3) [ECF No. 417] (the “Opposition”).
term sheets with eleven lessors to amend lease terms, and are close to reaching agreements with the remaining lessors for leases that have not been rejected to date.
2. Out of the 41 leases in this case, only two sought compel immediate payment of obligations under their leases—Mishorim, which holds a rejected lease, and Cobb Lakeside, which holds a lease that the Debtors have not yet decided whether to assume or reject.3 The Debtors are disputing their obligation to make payments under the leases and state law on various grounds, including the leases’ force majeure and condemnation clauses, and the doctrines of impossibility of performance and frustration of purpose. Cobb Lakeside, however, continues to insist on either receiving an immediate payment that it is not entitled to under the terms of its lease, or to force the Debtors to reject the lease even though their time to assume or reject the lease has not yet expired. For the reasons set forth below, Cobb Lakeside’s arguments should be dismissed.
II. RESPONSE
A. Cobb Lakeside’s Request Is Premature Because the Court Has Not Yet Determined Whether the Debtors Have Obligations Under the Leases
3. The Debtors explained in the Opposition that Cobb Lakeside’s request was premature because there is an active dispute as to whether the Debtors are required to make lease payments. If the Court agrees with the Debtors, then there is no obligation to pay postpetition amounts under those leases. More importantly, if the Court were to agree with the Debtors but still grant Cobb Lakeside’s Motion, it would effectively force the Debtors to pay money that they would be immediately entitled to claw back. There is simply no need to rule on the Motions
3 See 11 U.S.C. § 365(d)(4) (stating that an unexpired lease of real property will be deemed rejected unless
the trustee assumes or rejects within 120 days after the petition date, subject to a 90 day extension for cause); see also ECF 459 (Debtor’s motion to extend period to assume or reject certain leases).
until after the Court determines whether the Debtors must pay rent under the terms of the leases and state law.
4. Unable to conjure a response, Cobb Lakeside instead sets up a straw man, arguing that its Motion is constitutionally ripe. Reply ¶¶ 1-2. The Debtors never raised constitutional ripeness. Instead, the issue is whether the Debtors have obligations that they must perform under section 365(d)(3), an issue that was briefed and was awaiting decision. Cobb Lakeside itself acknowledges that there is a dispute as to whether the Debtors are required to pay rent under the leases at this time. Reply ¶ 4 (“[Cobb] Lakeside disputes the Debtors’ contention that a legally sufficient excuse exists as to their failure to comply with § 365(d)(3) and the Theater Lease.”);
see also id. ¶ 5 (stating that section 365(d)(3) requires “consideration of the lease’s terms”). It
does not make sense to grant relief under section 365(d)(3) to compel performance of the Debtors’ lease obligations when the Debtors maintain that the lease itself and applicable, non-bankruptcy law excuses the Debtors’ performance of the same lease obligations.4
B. The Motion Must Be Denied Because the Debtors Are Not Obligated to Pay Rent Under the Plain Language of the Lease and Applicable Law
5. To the extent that the Court intends to rule on the issues, the Debtors incorporate by reference their arguments that the doctrines of frustration of purpose, impossibility of performance and commercial frustration excuse the payment of rent under these leases. See ECF Nos. 92, 299, 379, 417. In addition, the Debtors rely on the Declaration of José Leonardo Martí
4 The cases cited by Cobb Lakeside are inapplicable here, as they either do not involve section 365 at all or
do not discuss the need to demonstrate underlying lease obligations before compelling rejection or payment under section 365(d)(3). In re Jacks, 642 F.3d 1323, 1332 (11th Cir. 2011); In re Moody Nat. SHS Houston H, LLC, 426 B.R. 667, 679 (Bankr. S.D. Tex. 2010). In any event, Moody goes against Cobb Lakeside’s position. In that case, the court held that in addition to not being ripe, it did not need to consider an issue raised by the parties because there was no harm to the parties in deciding the issue at a later time. Moody, 426 B.R. at 679.
in Support of Debtors’ Sur-Reply, filed at ECF No. 380. This Response addresses only the additional points raised by Cobb Lakeside in its Reply.5
i. Article 59 of the Lease Excuses Obligations Under the Lease, Including Failure to Pay Monies, When Occasioned by “Governmental Action”
6. Cobb Lakeside asserts that the Debtors are required to pay postpetition rent despite the COVID-19 pandemic and orders because Article 59 of the Theater Lease “demonstrates that the parties foresaw and allocated the risks associated with ‘governmental action’ and ‘other conditions similar to those enumerated in this Section beyond the reasonable control of the party obligated to perform.’” Reply ¶ 6. Cobb Lakeside posits that the Debtors must pay rent because Article 59 does not excuse “failure to timely pay monies required to be paid under this Lease.” Id. Cobb Lakeside’s construction of Article 59 is grammatically incorrect and violates that provision’s plain language.
7. Article 59 of the lease states:
If either party to this Lease, as the result of any (i) strikes, lockouts or labor disputes, (ii) inability to obtain labor or materials or reasonable substitutes therefor, (iii) the inability to obtain materials or labor at reasonable prices due to the occurrence of a hurricane or other nature disaster or due to terrorism; (iv) acts of God, governmental action, condemnation, civil commotion, fire or other casualty
,
or (v) other conditions similar to those enumerated in this Section beyond the reasonable control of the party obligated to perform (other than failure totimely pay monies required to be paid under this Lease)
,
fails punctually to perform any obligation on its part to be performed under this
5 Cobb Lakeside argues that “Congress has not modified” section 365(d)(3) “in response to the COVID-19
pandemic.” Reply ¶ 3. But the case it cites to support the proposition does not address whether performance under a lease is excused under its terms or state law—it only addresses whether a chapter 7 trustee could reject a lease retroactively as of petition date. In re Donghia, Inc., 2020 WL 2465503, at *4 (Bankr. D. Conn. May 12, 2020). In fact, that case undercuts Cobb Lakeside’s argument because the court specifically held that even though the trustee could not reject the lease retroactively under the facts, he could still advance arguments “with respect to the full allowance of administrative rent claims” which “can better and more fairly be addressed at a later date.” Id.
Lease, then such failure shall be excused and not be a breach of this Lease by the party in question, but only to the extent occasioned by such event.6
8. The plain reading of Article 59 when the triggering event is a “governmental action,” “condemnation,” or other “act of God” is as follows: “If either party to this Lease, as the result of … (iv) … condemnation, governmental action or act of God … fails punctually to perform any obligation on its part to be performed under this Lease, then such failure shall be excused and not be a breach of this Lease by the party in question, but only to the extent occasioned by such event.” There is no serious dispute that orders shutting down and later restricting the capacity of movie theaters are “governmental action[s]” or “condemnation” that the pandemic was an unforeseeable “act of God,” and that the Debtors’ inability to pay rent was caused by those external forces. Thus, it is clear that the Debtors are not required to pay monies under the lease at this time.
9. Cobb Lakeside adopts a strained and grammatically incorrect reading of Article 59 so that it can argue that the article does not excuse the failure to pay rent. It points to the phrase “(other than failure to timely pay monies required to be paid under this Lease)” (the “Limiting Phrase”) to argue that the parties placed the risk of loss on the lessee. But to rely on that Limiting Phrase, Cobb Lakeside must ignore the plain language of Article 59 and well established canons of contract interpretation.
10. The plain language of Article 59 demonstrates that the Limiting Phrase modifies only clause (v) of Article 59, and not clauses (i)-(iv). The reason is simple—there is no comma in clause (v) until after the Limiting Phrase, demonstrating that it modifies clause (v) only, not clauses (i)-(iv). In re NXXI Inc., 216 F. Supp. 3d 381, 393 (S.D.N.Y. 2016) (applying Florida law and holding that because there “is no comma after clause (iv) and before the Limiting Phrase
… the Limiting Phrase applies only to clause (iv)”); see Osorio v. State Farm Bank, F.S.B., 746 F.3d 1242, 1257–58 (11th Cir. 2014) (“Because the final comma emphasized in the above iteration does not appear in the statute, we conclude that the phrase “for which the called party is charged for the call” modifies only “any service” and not the other terms of the series.”); Penzer
v. Transp. Ins. Co., 29 So.3d 1000, 1007 (Fla. 2010) (“relative and qualifying words, phrases and
clauses are to be applied to the words or phrase[s] immediately preceding, and are not to be construed as extending to, or including, other more remote”); Jacques v. Dep't of Bus. & Prof'l
Regulation, Div. of Pari-Mutuel Wagering, 15 So. 3d 793, 796 (Fla. Dist. Ct. App. 1st Dist.
2009) (“a qualifying phrase is read as limited to the last item in a series when the phrase follows that item without a comma”).7 Therefore, the Limiting Phrase does not apply when the reason for failing to make payments under the lease is a government action.
11. As Cobb Lakeside acknowledges, when the terms of a contract are clear and unambiguous, the contracting parties are bound by those terms. Reply ¶ 8. Article 59 clearly states that failure to perform under the lease is excused when the failure is occasioned by a governmental action, condemnation or other act of God. Thus, even if parties foresaw the COVID-19 pandemic and the associated orders shutting down and later restricting the capacity of movie theaters (which they did not), they necessarily allocated the risk of that loss to Cobb Lakeside. Therefore, the Debtors performance under the Lease is excused, and the Motion must be denied.
7 Cobb Lakeside’s reference to Article 8 does not change the result. Reply n.4. Although Article 8 defines
“Force Majeure,” Article 59 does not use the term. Therefore, the definition of the term “Force Majeure” in Article 8 has no bearing on the plain reading of Article 59. Cobb Lakeside acknowledges as much when it states: “Article 59 applies [and] it is enforceable under Florida law ….” Reply ¶ 8.
ii. The Doctrine of Frustration of Purpose Excuses Performance Under the Lease
12. Cobb Lakeside next argues that the doctrines of impossibility of performance and frustration of purpose cannot apply because Article 59 is evidence that the parties foresaw a governmental action and allocated that risk to the lessee. Reply ¶¶ 11-12. That argument fails for two reasons.
13. First, that argument is wrong as a matter of law. As explained in the Opposition,
while some states hold that impossibility of performance may be superseded by an enforceable force majeure clause, Florida cases state that common law defense may be pleaded in the alternative to a force majeure clause. Opposition ¶ 12. Additionally, no case from any jurisdiction holds that a force majeure clause makes the defense of frustration of purpose unavailable. Id. Cobb Lakeside has not attempted to distinguish these cases, and has provided no authority to the contrary.8
14. Second, even if the Court were to accept Cobb Lakeside’s argument that the
parties foresaw the COVID-19 pandemic and associated orders,9 that argument only undercuts Cobb Lakeside’s position. As explained above, Article 59 excuses performance of all
8 All of the cases that Cobb Lakeside cites are distinguishable. In Amoco Oil v. Gomez, 125 F. Supp. 2d 492,
505-06 (S.D. Fla. 2000), a gasoline company filed a complaint against a gas station operator for failure to pay commissions to the company. The court held that the operator could not raise the defenses of impossibility and frustration based on defective fuel pumps because it knew about the problems with the pumps when it acquired the gas station. In Ferguson v. Ferguson, 54 So. 3d 553, 556 (Fla. Ct. App. 3d Dist. 2011), the court held that a decrease in the value of a property did not make performance under a marital settlement agreement impossible. In Home Design Ctr.--Joint Venture v. Cty. Appliances of Naples, Inc., 563 So. 2d 767 (Fla. Dist. Ct. App. 2d Dist. 1990), the court held that lessee’s failure to procure insurance did not meet the elements of impossibility or frustration because the inability to obtain insurance is a “basic business risk[].” In none of these case were the courts presented with facts similar to those here.
9 Cobb Lakeside’s suggestion that the parties “specifically bargained” for the COVID-19 pandemic and stay
at home language is disingenuous. Reply ¶ 12. Cobb Lakeside has presented no evidence, nor could it, that either of the parties foresaw a pandemic and governmental orders closing movie theaters when they entered into the Theater Lease.
obligations under the lease, including payment of monies, when occasioned by governmental action, condemnation or act of God.
iii. Cobb Lakeside’s Appeal to Equity Conflates State Law with the Bankruptcy Code
15. In a last-ditch effort, Cobb Lakeside appeals to equity. It argues that frustration of purpose is an equitable doctrine under Florida law, and asserts that it would be inequitable to apply frustration of purpose here because section 365(d)(3) is intended to protect commercial landlords. Reply ¶¶ 13-15. This argument lacks merit.
16. As an initial matter, Cobb Lakeside cites no cases holding that frustration of purpose is an equitable defense under Florida law.10 Florida cases hold that frustration of purpose is a legal defense. See, e.g., Delaura v. Lennar Homes, Inc., 2009 WL 2181251, at *2 (M.D. Fla. July 22, 2009).
17. But that is not the only problem with Cobb Lakeside’s argument. It asserts that it is inequitable to apply frustration of purpose here because section 365(d)(3) is intended to protect commercial landlords. By making this argument, Cobb Lakeside conflates nonbankruptcy law that applies to contracts and determines whether there is enforceable obligation in the first instance (frustration of purpose), with a bankruptcy statute that requires performance of enforceable obligations to the extent that they exist (section 365(d)(3)). Similarly, Cobb Lakeside ignores that section 365(d)(3) does not purport to create any obligations or define when those obligations are enforceable. Section 365(d)(3) only requires that the Debtors perform obligations due under the terms of the lease as interpreted under state law.11 As explained above,
10 All of the cases that Cobb Lakeside cites are from other jurisdictions. Reply ¶ 13.
11 The legislative history of the Bankruptcy Code cannot override its plain language. First Merchants
Acceptance Corp. v. J.C. Bradford & Co., 198 F.3d 394, 402 (3d Cir. 1999) (analyzing bankruptcy statutes and stating that “Supreme Court cases declaring that clear language cannot be overcome by contrary legislative history are legion”).
there is no “obligation” to pay rent under the lease at this time under the terms of the lease as interpreted under Florida law.
18. Cobb Lakeside next distinguishes Pier 1 by arguing that in that case, the debtors only sought to defer, not excuse, payment under the relevant leases. Reply ¶¶ 17-18.12 That argument misses the point entirely. The Debtors did not cite Pier 1 to discuss rent abatement. That is because Judge Huennekens never decided whether the debtors were required to pay monies under the leases based on the terms of the leases and applicable law. In fact, the bankruptcy judge expressly stated that the debtors could continue to raise those arguments in the future, which may reduce the amount of rent owed. See In re Pier 1 Imports, Inc., 615 B.R. 196, 201 (Bankr. E.D. Va. 2020) (“By granting the Motion, the Court made no determination as to the amount of rent that may be due from the Debtors under any applicable lease. The Court made no determination as to whether the government-mandated closures constitute a taking sufficient to merit the non-payment of rent.”). The only issue in that opinion was whether to extend the time period listed in section 365(d)(3).
19. Cobb Lakeside’s appeal to equity for an additional reason—it does not provide any evidence concerning any harm it will suffer if it were to comply with the plain language of the lease or applicable law, particularly given the clear language in Article 59 that excuses payment of monies under the lease when inability to perform is occasioned by a governmental action. To the contrary, the Debtors provide ample evidence of the harm to not only themselves, but also the public. See ECF No. 380.
12 Cobb Lakeside misleads the Court when it argues that the Debtors “heavily” rely on the Pier 1 decision
with respect to rent abatement. Reply ¶ 16. The Debtors cited Pier 1 only in connection with the issue of whether section 365(d)(3) requires immediate payment or payments at the same time as other administrative expenses. Opposition ¶¶ 17-20.
iv. Cobb Lakeside Is Not Entitled to an Administrative Claim or Immediate Payment
20. Last, Cobb Lakeside argues that it should be granted an administrative expense claim for full amounts due under the lease since the petition dates. Reply ¶ 21. That argument fails, because, for the reasons stated above, there is no obligation to pay monies pursuant to Article 59 of the lease, as well as the doctrines of impossibility and frustration.13
WHEREFORE, the Debtors respectfully request that the Court enter an Order denying
the Cobb Lakeside and Mishorim Motions and granting such other and further relief as is proper.
Dated: August 19, 2020.
Respectfully Submitted, BAST AMRON LLP
One Southeast Third Avenue, Suite 1400 Sun Trust International Center
Miami, Florida 33131 Telephone: 305-379-7904 Facsimile: 305-379-7905 Email: [email protected] Email: [email protected] Email: [email protected] By: /s/ Jeffrey P. Bast
Jeffrey P. Bast (FBN 996343) Brett M. Amron (FBN 148342) Jaime B. Leggett (FBN 1016485) -and-
QUINN EMANUEL URQUHART & SULLIVAN, LLP Juan P. Morillo (FBN 135933) 1300 I Street, NW, Suite 900 Washington, D.C. 20005 Telephone: 202-538-8000 Facsimile: 202-538-8100 Email: [email protected]
13 To the extent that the Court approves of an administrative claim, the Debtors agree with Cobb Lakeside
that it should be paid “with other similarly situated administrative expense claimants at the earlier of the time of assumption … or at confirmation of Debtors’ forthcoming Chapter 11 plan.” Reply ¶ 23.
-and-
Patricia B. Tomasco (admitted pro hac vice) 711 Louisiana Street, Suite 500
Houston, Texas 77002 Telephone: 713-221-7000 Facsimile: 713-221-7100
Email: [email protected] COUNSEL FOR CINEMEX USA REAL ESTATE HOLDINGS, INC., CINEMEX HOLDINGS USA, INC., and CB THEATER EXPERIENCE LLC
