UNITED STATES BANKRUPTCY COURT
- Date
- 2024-06-10
Summary
Limited Objection of Quad DBC Holdings, LLC to the First Notice of Rejection of Certain Executory Contracts, filed October 11, 2024 as Doc 625 in In re Vyaire Medical, Inc., et al., Case No. 24-11217 (BLS), in the U.S. Bankruptcy Court for the District of Delaware. The landlord states it leases two buildings in Irvine, California to debtor Vyaire Medical Inc., and that the Debtors' rejection notice sets a rejection date of September 30, 2024. It states it does not object to rejection of the lease but argues the rejection date should occur only when the Debtors surrender the property, asserting they continue to use it pending the Zoll Sale and have paid no post-petition rent. The objection cites In re Chi-Chi's, Inc., 305 B.R. 396 and Section 365, and is signed by Damien Nicholas Tancredi of Flaster/Greenberg, P.C.
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Case 24-11217-BLS Doc 625 Filed 10/11/24 Page 1 of 6
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
VYAIRE MEDICAL, INC., et al.
Case No. 24-11217(BLS)
Debtors (Jointly Administered)
Related Docket Nos. 250, 575
LIMITED OBJECTION OF QUAD DBC HOLDINGS, LLC TO FIRST
NOTICE OF REJECTION OF CERTAIN EXECUTORY CONTRACTS
Quad DBC Holdings, LLC (“Landlord”), by and through its undersigned counsel, hereby
objects, on a limited basis, to the Debtors’ First Notice of Rejection of Certain Executory
Contracts [D.I. 575] (the “Rejection Notice”), and respectfully states as follows:
Background
1. Landlord and debtor, Vyaire Medical Inc., (“Tenant”) are parties to an unexpired
lease of two buildings of non-residential real property located at 510 Technology Drive and 520
Technology Drive in Irvine, California, (the “Lease”). On the Petition Date herein, Tenant was in
default under the Lease.
2. On June 10, 2024, the above captioned Debtors filed the Motion of Debtors for
Entry of an Order (1) Approving Bidding Procedures in Connection with the Sale of
Substantially All of the Debtors’ Assets, (II) Authorizing the Debtors to Enter into a Stalking
Horse Agreement and Provide Bid Protections, (III) Approving the Form and Manner of Notice
Thereof; (IV) Scheduling an Auction and Sale Hearing, (V) Approving Procedures for the
Assumption and Assignment of Contracts, (VI) Approving the Sale of the Debtors’ Assets Free
and Clear, and (VII) Granting Related Relief [Docket No. 16] (“Sale Motion”). Through the Sale
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Motion, Debtors sought this Court’s Approval of the sale of substantially all of their assets to one
or more to-be-determined purchasers.
3. On July 11, 2024, this Court entered the Order (I) Approving Bidding Procedures
in Connection with the Sale of Substantially All of the Debtors’ Assets, (II) Authorizing the
Debtors to Enter into a Stalking Horse Agreement and Provide Bid Protections, (III) Approving
the Form and Manner of Notice Thereof; (IV) Scheduling an Auction and Sale Hearing, (V)
Approving Procedures for the Assumption and Assignment of Contracts, (VI) Approving the Sale
of the Debtors’ Assets Free and Clear, and (VII) Granting Related Relief [Docket No. 249]
(“Sale Procedures Order”).
4. On July 11, 2024, pursuant to the Sale Procedures Order, the Debtors filed the
Frist Notice to Contract Parties of Potentially Assumed and Assigned Executory Contracts and
Unexpired Leases [Docket No. 256] (the “Cure Notice). The Cure Notice includes several
entries corresponding to the Landlord (“Landlord Listings”). All Landlord Listings propose cure
amounts of $0.00 (the “Proposed Cure Amount”).1
5. On August 1, 2024, Landlord filed the Objection of Quad DBC Holdings, LLC to
First Notice to Contract Parties of Potentially Assumed and Assigned Executory Contracts and
Unexpired Leases [Docket No. 346] (the “Cure Objection”). Through the Cure Objection, the
Landlord asserts that the actual cure costs were $713,051.00. See, Cure Objection at ¶ 7.
6. On August 15, 2024, the Debtors file a notice indicating that Zoll Medical
Corporation (“Zoll”) was the successful bidder for the Debtors’ ventilation business. [Docket No.
388] (the “Zoll Sale”).
1
Of the 8240 contracts identified in the Cure Notice, the Debtors identified a zero cure amount in all but
approximately sixty contracts. See, Cure Notice, Ex. A.
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7. Part of the Debtors’ ventilation business is located at the Landlord’s Property
subject to the Lease (the “Property”) in which the Debtors would utilize the space as a
laboratory. Landlord believes that Zoll will purchase the assets located inside the Property and
continue its operations uninterrupted on a smaller portion of the Property subject to a new lease
between Zoll and the Landlord.
8. Any new lease between Zoll and the Landlord is effectively only upon entry of an
Order rejecting the Lease and Zoll closing on the sale from the Debtors.
9. The Court approved the Zoll Sale at a hearing on August 30, 2024. On September
4, 2024, the Court entered an order approving Zoll Sale [Docket No. 388].
10. On September 27, 2024, the Debtors filed the Rejection Notice [Docket No. 575].
The only leases identified in the Rejection Notice are contracts including the Landlord.
Importantly, the Debtors indicated a rejection effective date of September 30, 2024 (the
“Rejection Date”).
11. As set forth in the Emergency Motion of the Official Committee of Unsecured
Creditors Requesting a Status Conference Regarding the Zoll Sale Order and Asset Purchase
Agreement [Docket No. 611], no executed asset purchase agreement between the Debtors and
Zoll was filed on the docket. Furthermore, the closing date for the Zoll Sale was pushed back
from the approximately October 4th to October 11th. The Court has scheduled a status conference
regarding the Zoll Sale for October 15, 2024. See, Docket No. 616.
12. From the Petition Date to the present, the Debtors’ agents have continually
conducted business the Property. The Debtors’ equipment remains on the Property undisturbed,
and personnel are frequently entering and exiting the Property. As set forth in more detail in the
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Certification of David Udden (the “Udden Certification”),2 the Debtors have not vacated the
Property. In fact, the Debtors and Zoll have even placed new signage on the exterior doors
indicating that Vyaire and Zoll are conducting business on such Property.
13. The Debtors have not paid any post-petition rent to the Landlord. See, Udden
Certification.3 The Landlord intends to file a motion seeking allowance and payment of an
administrative expense at the appropriate time.
14. Furthermore, as set forth in the Udden Certification, the Debtors have not turned
over access of the Property to the Landlord. There are portions of the Property that remain
inaccessible to the Landlord, posing a substantial safety risk. The Debtors assured the Landlord
that they would receive the necessary codes and/or key fobs to gain access, but still have not
provided them to the Landlord, as of the filing of this Objection.
Objection
15. The Landlord does not object to the Debtors’ rejection of the Lease; however, the
Rejection Date should occur only when the Debtors no longer utilize the Property or have
otherwise surrendered possession. Presumably, this cannot occur until the Zoll Sale closes, and
the equipment and operations are transferred from the Debtors to Zoll. As set forth in the Udden
Certification, the Tenant is currently maintaining a continuance presence at the Property and
conducting business.
16. It appears that the Debtors seek to use the Property until the Zoll Sale closes and
then permit Zoll to continue operations uninterrupted. The Landlord supports this concept, but it
2
The Udden Certification is incorporated by reference as if it were fully restated herein.
3
The Debtors may attempt to argue that any proceeds of a pre-petition letter of credit draw down reduce the
Debtors’ liability for post-petition rent. However, as the Landlord is prepared to show that the letter of credit was to
be used exclusive for construction related to one of the buildings the Debtors rented and could not be used for rental
obligations. Furthermore, the proceeds of that draw are held in escrow pursuant to the Landlord’s agreement with its
secured lender.
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should not be required to provide free rent and/or storage in the gap between the proposed
Rejection Date and when the Zoll sale closes. The Landlord is entitled to be compensated for the
Debtors’ use.
17. Since the effective date of the new Zoll lease will not occur until: (i) the rejection
is approved by this Court, and (ii) the Zoll sale closes, the Debtors are effectively seeking this
Court’s permission to holdover on the Landlord’s Property until Zoll is formally operating at the
Property under an executed lease.
18. The appropriate rejection date is the when the debtor has surrendered control of
the property back to the landlord. In re Chi-Chi’s, Inc., 305 B.R. 396, 399 (Del. Bankr. 2004). In
Chi-Chi’s, this Court denied retroactive rejection nunc pro tunc to the petition date because the
debtor failed to surrender the property in question. The Court also observed that normally the
rejection date occurs when the rejection order is entered, but retroactive rejection can be the later
of when the rejection motion is filed or the property surrendered in certain circumstances. In re
Fleming Cos., 304 B.R. 85, 95-96 (Del. Bankr. 2003).
19. This Court should not permit retroactive rejection when the Debtors continue to
conduct business on the Property for their benefit, are holding the Debtors’ equipment until it can
be sold to Zoll, and have excluded the Landlord from access to portions of the Property.
20. Section 365 contemplates that rejection turns over the landlord’s property back to
it so can be utilized by the landlord for other reasons. Permitting the Debtors to occupy and use
the Property after the rejection date would create a windfall to the Debtors, be inequitable to the
Landlord, and violate the intention of Section 365.
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WHEREFORE, Landlord respectfully requests that this Court hold that the effective date
of the proposed Rejection be conditioned upon the date that the Debtors fully surrender the
Property, or otherwise no longer own any assets or conduct business activity on the Property.
Date: October 11, 2024 FLASTER/GREENBERG, P.C.
/s/ Damien Nicholas Tancredi
By: _______________________________
Damien Nicholas Tancredi (DE 5395)
221 W. 10th Street, 4th Floor
Wilmington, DE 19801
(215) 587-5675
damien.tancredi@flastergreenberg.com
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