The Demise Of Nunc Pro Tunc Lease Rejection

THE DEMISE OF NUNC PRO TUNC LEASE REJECTION[1]

Bankruptcy Code § 365(b) enables trustees and debtors in possession (“Trustees”) to “reject” or terminate pre-petition leases. This leaves the non-debtor lessor without a lessee and with a “rejection” claim for what may be less than the rent reserved under the balance of the lease.[2]

Before a lease is rejected, Trustees must pay and remain current on post-petition rent due under leases.[3] Unpaid post-petition rent is an “administration” claim with priority over unsecured claims and sharing estate assets with other administration priority claims, such as the Trustees’ professionals[4].

Trustees sometimes seek to reject leases with the date of rejection being “nunc pro tunc” or retroactive to an earlier date. This retroactive rejection reduces the Trustees’ and debtors’ estates’ obligations and exposure to landlords for post-petition lease obligations.[5] It’s not good for landlords.

Obtaining “nunc pro tunc” rejection required Trustees:

(1) moving to reject the lease promptly;

(2) promptly acting to set the motion for hearing;

(3) vacating the premises; and

(4) showing the Landlord had an improper motive in opposing rejection of the lease nunc pro tunc. [6]

The End of Nunc Pro Tunc

Recently, in Roman Catholic Archdiocese of San Juan v. Acevedo Feliciano, ––– U.S. ––––, 140 S. Ct. 696, 206 L.Ed.2d 1 (2020)(“Acevedo”), the United States Supreme Court, rejected the effectiveness of a nunc pro tunc order. It held:

“[f]ederal courts may issue nunc pro tunc orders, or ‘now for then’ orders, … to ‘reflect [ ] the reality’ of what has already occurred …. ‘Such a decree presupposes a decree allowed, or ordered, but not entered, through inadvertence of the court.’ … Put colorfully, ‘[n]unc pro tunc orders are not some Orwellian vehicle for revisionist history — creating ‘facts’ that never occurred in fact.”[7]

The End of Lease Rejections Nunc Pro Tunc

More recently, In re Donghia, Inc.,[8] applied Acevedo to decline making a lease rejection nunc pro tunc. Following Acevedo, that court, “[p]ut plainly, the court cannot make the record what it is not.”

Even if Trustees meet the standard for nunc pro tunc lease rejection, bankruptcy courts seem precluded from granting it by invoking “some Orwellian vehicle” to “make the record what it is not.”[9] Retroactive lease rejections, like Orwell’s Winston Smith,[10] may cease to exist.

Remember that the next time someone tries one you or your client.

References