The Restructuring Report

As witnessed repeatedly from countless national news sources, bankruptcy bulletins and scholarly articles, bankruptcies within the retail and restaurant industries have been booming. Within Fredrikson & Byron’s national practice alone, landlord and lessor clients found themselves wrapped up in many of these national bankruptcy cases, including those for CEC Entertainment, Inc. (better known as Chuck E. Cheese), Pier 1 Imports, Inc., and Vitamin OldCo Holdings, Inc., (f/k/a GNC Holdings, Inc.), amongst many others. Each of these representations, when combined with the always evolving complications from the continuing COVID-19 pandemic, gave rise to strikingly new and unique situations, and from these we have gained new perspective and lessons for the representation of landlord or lessor clients.

While pandemic-related complications to bankruptcy representation may fade in the near future with increased vaccinations and national herd immunity, the experience gained from these COVID-19 bankruptcy era cases will likely live on as clients, law firms and courts juggle the return to business as usual with new pandemic-related procedures and habits. It will therefore be crucial to keep these lessons learned, as outlined below, close to heart in order to continue to provide clients with effective bankruptcy representation in the fast-moving national cases of today and tomorrow.

1.  Clear Lines of Communication

Open and maintain a clear line of communication with the client. As clients and lawyers alike juggle working from home with family obligations, it is essential to establish a clear line of communication with the client to most efficiently receive notice of filings in national cases that may affect the client’s rights and require a response within days, gather information necessary from that client to draft such a response, and to quickly communicate with debtor’s counsel in negotiations while you have their limited attention. Whereas before the pandemic the client may have been easily available through their work number or by email during regular business hours, now client responses may be sporadic. It is consequently imperative to figure out when and how best to contact the client early on in the representation and keep them informed of when or how quickly a response from them may be needed.

2.  Identify Client Goals

Identify the client’s goal as to the lease or property early in the case. In order to create an effective case strategy protecting the client’s rights, it is imperative to determine from the client their exact goal as to their lease or agreement with the debtor, including but not limited to continuing on with the lease, agreeing to new terms with the debtor or moving on to a new tenant. For example, if the client wants to maintain its lease with the debtor, the case strategy may call for early negotiations with the debtor to insure the lease’s assumption, and all negotiations or filings done in the cases should be done with that goal in mind. Alternatively, if the client wishes to end its relationship with the debtor and lease its space to a new tenant, the case strategy may call for the seeking of relief to insure a timely rejection of the lease or objecting to any proposed assignment.

3.  Set Expectations

While creating your clear line of communication with the client, it is also important to set expectations for the client and flag future potential dates or events for the client early on in the representation that are important to the client’s goals. Landlords in the national retail and restaurant cases may start each case in limbo as to the status of their lease(s) with the debtor, which may continue on for months into the case. As such, the client should be put on alert to look out for any notices as to proposed assumptions or rejections of their leases or proposed cure amounts in order to provide enough time to their attorneys to review and respond as needed, particularly where the circumstances of the case require a response in only a few days’ time. Without such expectations, the client may unwittingly sit on a notice as the deadline passes, forfeiting their ability to best protect their rights.

4.  Prepare for Emergency Filings

As landlord’s or lessor’s counsel, an attorney should also be prepared to see and respond to emergency filings or early or multiple rounds of filings potentially affecting their client’s rights. For example, at least one national bankruptcy case, CEC Entertainment, Inc., provided notice of cure amounts in order to set known cure amounts for any prospective buyers under the debtors’ newly approved bidding procedures. However, this all occurred early on in the case before any bidder had been identified and before any actual notice of assumption or assignment had been served. A passive representation of a client could easily lead to the overlooking of any such notices (or the client failing to flag the notice for the attorney). These cases thus require an attorney to push traditional notions of complex bankruptcy cases to the back of his or her mind in order to tackle the newest obstacles to a client’s rights.

5.  Be Proactive

Be proactive in protecting the client’s rights. While all cases require an attorney to do his or her best to protect the clients’ rights, recent national retail or restaurant bankruptcy cases may require a doubling of efforts.  For example, to head off likely responses or requests for information from debtor’s counsel as to proofs of claim or objections to cure notices, the attorney should work diligently with the client to gather all supporting paperwork for the claim (including an invoice or line-by-line calculation of the amounts owed) to the claim forms or objections. In the event that debtor’s counsel informally or formally responds, the client’s rights will already be best protected and allow it to enter any negotiations on a stronger footing.

6.  Communicate with the Debtor

When in doubt, communicate with the debtor or debtor’s counsel. As part of these national retail and restaurant bankruptcies, it is entirely possible if not common for hiccups to occur, including late post-petition rent payments or uncertainty as to treatment of the client’s lease under recent case filings. Instead of seeking court relief or clarification, or starting a confrontation with opposing counsel, the attorney should not hesitate to reach out to debtor’s counsel directly or have their client reach out to their business contacts with the debtor. Not only will this approach cut down on unnecessary case expenses from attempting to decipher hundreds of pages of filings or preparing a responsive brief, this approach will also maintain an open line of communication with the debtor that the attorney can return to as needed to negotiate or resolve any actual issues now or later in the case.

Takeaways

While nowhere near a comprehensive list of lessons learned from the unprecedented past year within the COVID-19 pandemic, these lessons provided guidance to attorneys to most effectively protect their landlord or lessor clients across numerous cases and jurisdictions. As the pandemic still rages on, these lessons will continue to be important when practicing as part of these continuing national retail and restaurant cases. Even as both attorneys and clients begin to return to business as usual, it is imperative not to peg these lessons as relics of the pandemic and forget them. Instead, an attorney should continue to follow them as courts and clients incorporate their pandemic experiences into future work and in order to quickly adapt to any new obstacles that may arise in the industry.