Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 1 of 10

Desc Main

David F. Staber (SBN: 18986950) J. Machir Stull (SBN: 24070697) AKIN GUMP STRAUSS HAUER & FELD LLP 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 (214) 969-2800 (Telephone) (214) 969-4343 (Facsimile) Attorneys for Dr. Richard Malouf and the Richard J. Malouf 2008 All-Smiles Grantor Retained Annuity Trust; Camellia Family LP; and 2009 Strait Lane Family LP

IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION IN RE: ALL SMILES DENTAL CENTER, INC., et al.1 DEBTOR.

CASE NO. 12-32924-SGJ-11 Chapter 11 Jointly Administered

MOTION TO COMPEL IMMEDIATE PAYMENT OF STUB RENT OR, ALTERNATIVELY, TO COMPEL PAYMENT AS ADMINISTRATIVE EXPENSE NO HEARING WILL BE CONDUCTED HEREON UNLESS A WRITTEN RESPONSE IS FILED WITH THE CLERK OF THE UNITED STATES BANKRUPTCY COURT AT U.S. BANKRUPTCY COURT, NORTHERN DISTRICT OF TEXAS, 1100 COMMERCE STREET, ROOM 1254, DALLAS, TX 75242-1496 BEFORE CLOSE OF BUSINESS ON JUNE 22, 2012, WHICH IS AT LEAST 24 DAYS FROM THE DATE OF SERVICE HEREOF. ANY RESPONSE SHALL BE IN WRITING AND FILED WITH THE CLERK, AND A COPY SHALL BE SERVED UPON COUNSEL FOR THE MOVING PARTY PRIOR TO THE DATE AND TIME SET FORTH HEREIN. IF A RESPONSE IS FILED A HEARING MAY BE HELD WITH NOTICE ONLY TO THE OBJECTING PARTY. IF NO HEARING ON SUCH NOTICE OR MOTION IS TIMELY REQUESTED, THE RELIEF REQUESTED SHALL BE DEEMED TO BE UNOPPOSED, AND THE COURT MAY ENTER AN ORDER GRANTING THE RELIEF SOUGHT OR THE NOTICED ACTION MAY BE TAKEN. COMES NOW Richard J. Malouf, the Richard J. Malouf 2008 All-Smiles Grantor Retained Annuity Trust; Camellia Family LP; and 2009 Strait Lane Family LP (together,
1

The Debtors in these chapter 11 cases are All Smiles Dental Center, Inc. and AS Property Holdings, LLC.

1
202797636 v1

Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 2 of 10

Desc Main

Malouf), by and through the undersigned counsel, and hereby files this Motion to Compel Immediate Payment of Stub Rent or, Alternatively, to Compel Payment as Administrative Expense (the Motion). In support thereof, Malouf respectfully states as follows: I. 1. and 1334. JURISDICTION

This Court has jurisdiction to consider this Motion pursuant to 28 U.S.C. 157 Consideration of this Motion is a core proceeding pursuant to 28 U.S.C.

157(b)(2)(A) and (E). Venue is proper in this district pursuant to 28 U.S.C. 1408 and 1409. II. A. 2. The Bankruptcy On May 2, 2012 (the Petition Date), All Smiles Dental Center, Inc. (Inc.) and BACKGROUND

AS Property Management, LLC (together, the Debtors) each filed voluntary petitions for relief pursuant to chapter 11 of title 11 of the United States Code (the Bankruptcy Code).2 The

cases are being jointly administered. The Debtors continue to possess and manage their assets and operate their business as debtors-in-possession pursuant to 1107 and 1108. B. 3. The Events Prior to Bankruptcy Inc. is a Delaware corporation headquartered in Dallas, Texas and is a dental

practice management service organization (MSO) supporting thirty-three dental and orthodontic practices within Texas. The practices are at twenty-two different locations spanning the Dallas, Fort Worth and Houston metropolitan areas. All Smiles Dental Professionals, P.C. (PC) employs the clinical staff and provides all dental and orthodontic services at these practices.

Unless otherwise noted herein, all section () references are to the Bankruptcy Code.

2
202797636 v1

Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 3 of 10

Desc Main

4.

Malouf founded Inc. in 2002 as All Smiles Dental Center, P.A., which he

converted to a Delaware corporation in 2008 to operate as an MSO, and then also formed PC to provide clinical services. At that time, Malouf held all Inc. and PC stock. 5. Pursuant to a Note and Stock Purchase Agreement (the NSPA), ASDC

Holdings, LLC (Holdings) acquired approximately seventy percent (70%) of the outstanding equity interest of Inc. In connection with the acquisition and in accordance with the NSPA, Inc. issued notes payable to Holdings in the original principal amount of approximately $54.4 million. PC is currently wholly owned by Adrian Codel, D.D.S. C. 6. The Prepetition Leases Malouf individually resigned from the Inc. board as of April 19, 2012.

Notwithstanding the resignation, Malouf, through various affiliated entities, remains the counterparty to various contracts with the Debtors, including: Debtor party Inc. AS Property Holdings, LLC AS Property Holdings, LLC AS Property Holdings, LLC 7. Counterparty 2009 Strait Lane Family LP Camellia Family LP Lease / Address of Property 4901 LBJ Freeway, Dallas, Texas (LBJ Lease) 2628 Matlock Rd., Arlington, Texas (Matlock Leases) 817 W. Jefferson Blvd., Dallas, Texas (Jefferson Leases) 2921 National Court, Garland, TX 75041 (Warehouse Lease) Monthly Rent $36,703.33

$12,300.00

Camellia Family LP

$10,250.00

Camellia Family LP

$5,125.00

As evidenced above, the LBJ Lease, the Matlock Leases, the Jefferson Leases and

the Warehouse Lease, (together, the Leases) were not rejected. However, the Debtors failed to pay rent for the month of May as required by the Leases. Malouf, as landlord, has been unable to take recourse against the recalcitrant tenants because of the automatic stay. In fact, if the

3
202797636 v1

Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 4 of 10

Desc Main

Debtors have their way, they will continue to occupy and operate the property rent free due to the request for waiver of the 506(c) surcharge outlined in the Debtors financing motion [Dkt. No. 17].3 III. 8. RELIEF REQUESTED

By this Motion, Malouf requests that, pursuant to 503(b), the Debtors pay

Malouf all stub rent at the contract rent in the Leases for thirty days in the month of May as an administrative expense. IV. A. 9. BASIS FOR RELIEF

Immediate Payment Pursuant to 365(d)(3) Stub rent has been described as the rent owed by a debtor to the landlord for the

period from the petition date until the first day of the following month. See 1 Collier Guide to Chapter 11: Key Topics and Selected Industries 20.06[6][a] (2010). There is split of authority regarding whether stub rent must be immediately paid under 365(d)(3). See In re Stone Barn Manhattan LLC, 398 B.R. 359, 365 (Bankr. S.D.N.Y. 2008) (holding rent arises on a daily basis and per diem stub rent arising post-petition entitled to timely payment under 365(d)(3)). See also In re Imperial Beverage Group, LLC, 457 B.R. 490, 5001 (Bankr. N.D. Tex. 2011) (stub rent is an administrative expense but not entitled to immediately payment under 365(b)(3)). Section 365(d)(3) provides, in relevant part, that: The trustee shall timely perform all the obligations of the debtor . . . arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected . . . 11 U.S.C. 365(d)(3). Payment of rent is clearly one such obligation. In re Compuadd Corp., 166 B.R. 862, 864 (Bankr. W.D. Tex. 1994) (Therefore, under 365(d)(3) the trustee must

Contemporaneous with the filing of this Motion, Malouf is filing an objection to the DIP financing motion, specifically objecting to, among other things, the 506(c) waiver.

4
202797636 v1

Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 5 of 10

Desc Main

make timely payment of rent under such leases. It is mandatory.) (emphasis in original). In other words, the Debtors are mandated to timely comply with all obligations of the debtor with regard to any unexpired leases of non-residential real property until it is assumed or rejected regardless of what 503 may require other claimants to do to establish an administrative claim. Id. 10. Here, the Debtors have failed to pay any rent, as required by the Leases, for the

month of May. The Debtors have taken the position that they do not have to pay any portion of the May rent under 365(d)(3) because the rent was initially due on May 1, 2012, the day before the Petition Date. However, the Debtors are receiving the full benefit of the Leases by

continuing to occupy the premises and operate businesses therein throughout the month of May. Accordingly, Malouf requests the immediate payment of all unpaid rent under the Leases (at the contract rate therein) for thirty days in the month of May. B. 11. Immediate Payment as Administrative Expense Pursuant to 503(b) Alternatively, the Debtors should immediately pay all unpaid May rent at the It is clear that the stub rent is, at least, an Moreover, the allowed

contract rate as an administrative expense. administrative expense.

See Imperial Beverage, 457 B.R. at 501.

administrative claim is the full contract rent. See Imperial Beverage, 457 B.R. at 502 (In determining the amount of [landlords] administrative expense claim for this period, the Court must determine the amount of benefit received by the estate, which is presumed to be the contract rate of rent.) (citing In re Sportsmans Warehouse, Inc., 436 B.R. 308, 315 (Bankr. D. Del. 2009)). Accordingly, in the event the Debtors are not statutorily compelled to immediately pay all May rent at the contract rate by 365(d)(3), Malouf respectfully requests that all postpetition unpaid rent required by the Leases be paid at the contract rate as an administrative expense. 5
202797636 v1

Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 6 of 10

Desc Main

12.

Immediate payment of the stub rent is appropriate in this case. The Imperial

Beverage court recognized that one of the purposes of enacting 365(d)(3) was to remedy an unfair situation where landlords were stuck with a debtor while it decided whether to assume or reject the lease, during which time the debtor was not paying rent and the landlord could not relet the space. 457 B.R. at 497. The Debtors interim president has testified that the issue of timing of May rent was one of the factors in deciding to wait until May 2 to file the voluntary petitions. The Debtors continued to use the leased properties for 30 days rent free while the landlords must wait until the end of the case to get paid, and hope that the case is not administratively insolvent. In this case, such administrative insolvency is highly likely because there are no unencumbered assets and the proposed insider financing contains a waiver of surcharge. The Debtors and their insider/secured creditor will receive the revenue from the leased premises for May without having to pay the May rent, unless this Court orders the immediate payment of such rent.

V.

CONCLUSION

WHEREFORE, Malouf prays that the Court (a) grant the Motion requiring the immediate payment of the post-petition portion of the May rent, and (b) grant such other and further relief as is just.

6
202797636 v1

Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 7 of 10

Desc Main

Dated: May 29, 2012 Respectfully submitted, AKIN GUMP STRAUSS HAUER & FELD LLP /s/ David F. Staber David F. Staber (SBN: 18986950) J. Machir Stull (SBN: 24070697) 1700 Pacific Avenue, Suite 4100 Dallas, Texas 75201 (214) 969-2800 (Telephone) (214) 969-4343 (Facsimile) Attorneys for Dr. Richard Malouf and the Richard J. Malouf 2008 All-Smiles Grantor Retained Annuity Trust; Camellia Family LP; and 2009 Strait Lane Family LP By:

CERTIFICATE OF SERVICE I hereby certify that, on May 29, 2012, a true and correct copy of the foregoing document was served via email through the Bankruptcy Courts Electronic Case Filing System on the parties that have consented to such service. /s/ J. Machir Stull J. Machir Stull

7
202797636 v1

Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 8 of 10

Desc Main

EXHIBIT A Proposed Order

202797636 v1

Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 9 of 10

Desc Main

IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION IN RE: ALL SMILES DENTAL CENTER, INC., et al.1 DEBTOR.

CASE NO. 12-32924-SGJ-11 Chapter 11 Jointly Administered

ORDER GRANTING MOTION TO COMPEL IMMEDIATE PAYMENT OF STUB RENT OR, ALTERNATIVELY, TO COMPEL PAYMENT AS ADMINISTRATIVE EXPENSE CAME ON before the Court the Motion to Compel Immediate Payment of Stub Rent or, Alternatively, to Compel Payment as Administrative Expense (the Motion) which was filed by Richard J. Malouf, the Richard J. Malouf 2008 All-Smiles Grantor Retained Annuity Trust, and 2009 Strait Lane Family LP. The Court finds that the Motion was properly served pursuant to the Federal Rules of Bankruptcy Procedure. This Court has jurisdiction and notice is proper in this case. Upon review of the pleadings on file, the record before this Court, and the arguments of counsel, the Court finds that good cause exists for the entry of this order.

The Debtors in these chapter 11 cases are All Smiles Dental Center, Inc. and AS Property Holdings, LLC.

202797636 v1

Case 12-32924-sgj11

Doc 95

Filed 05/29/12 Entered 05/29/12 15:54:04 Document Page 10 of 10

Desc Main

IT IS THEREFORE ORDERED that the Motion is hereby GRANTED and the Debtors shall pay Malouf all stub rent for thirty days in the month of May as an administrative expense within ten days of the entry of this Order. # # # END OF ORDER # # #

2
202797636 v1