Eighth Circuit Adopts Due-Date Test

Minnesota Bankruptcy Case: Eighth Circuit Adopts Due-Date Test for Post-Petition Rent Under § 365(D)(3) and Such Rent has Administrative Expense Priority

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Burival v. Roehrich (In re Burival), 2010 WL 2882222 (8th Cir. (Neb.) 7/23/10) (Benton, J.).

Case Summary:

Eighth Circuit Adopts Due-Date Test for Post-Petition Rent Under § 365(D)(3) and Such Rent has Administrative Expense Priority

The Eighth Circuit Court of Appeals affirms the BAP’s decision that reversed the bankruptcy court, holding that § 365(d)(3) requires payment of the full amount of rent that comes due post-petition. The debtors leased crop land with payments due in April and December of each year. They filed for bankruptcy protection in November, and the issues were whether they were required by § 365(d)(3) to pay rent in December for the full half year, and if rent was not paid, whether it had administrative expense priority. The debtors argued that rent was for crops already and grown and harvested, and was therefore a pre-petition obligation not payable post-petition. The bankruptcy court prorated the rent between the pre-petition and post-petition periods, but the BAP reversed. It adopted the “bright line” due date test: a debtor must pay any rent obligation that comes due post-petition, without regard to when the obligation accrues. On appeal, the Eighth Circuit affirms, finding the language of § 365(d)(3) unambiguous. Rent obligations must be performed when they arise after filing and before rejection. The Eighth Circuit also affirms the BAP panel’s majority holding that the rent claim has administrative priority status. Although § 365(d)(3) expressly preempts § 503(b)(1), it does not preempt the introductory authorization for administrative expense contained in § 503(b), and its use of the word “including” contemplates that § 365(d)(3) claims can have priority status.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.