At the same time bankruptcy filings are increasing, practitioners have had to learn how to adapt to a "new normal" in the wake of the pandemic. We have already seen this "new normal" begin to take shape—working from home, hearings over Zoom and even the inclusion of the COVID-19 crisis in motions and briefs. However, as to the last of these, the U.S. Bankruptcy Court for the District of Connecticut has made clear in a recent ruling, that COVID-19 does not change the law, see In re Donghia, Case No. 20-30487 (JJT), 2020 Bankr. LEXIS 1254 (Bankr. D. Conn. May 12, 2020). Indeed, practitioners would be wise to recognize that the global pandemic affects all parties in a bankruptcy case and not to inordinately rely upon its impact in framing requests for relief.

In Donghia, a Chapter 7 trustee sought authority to reject unexpired leases, nunc pro tunc to the debtor's petition date. The debtor was a high-end designer and fabricator of custom furniture and used showrooms across the country to display its products to would-be customers. The leases for such showrooms were a significant expense to the debtor. Thus, the trustee moved to reject the leases nunc pro tunc to the petition date. While the landlords to these leases did not oppose rejection, they did object to nunc pro tunc relief, which would deem rejection to have occurred effective as of the petition date (and, therefore, render all amounts due a general unsecured claim as opposed to a post-petition administrative expense claim).

The trustee argued that nunc pro tunc relief was justified because, while the debtor was able to vacate certain of the showrooms, "'due to widespread shutdowns of nonessential businesses as a result of the COVID-19 pandemic, the debtor was unable to remove or relocate the personal property at all of the showrooms before its filing … and that access to certain showrooms remains restricted due to the pandemic.'" The trustee emphasized the fact that the motion seeking nunc pro tunc relief was filed only a month after the petition date, when the debtor had the opportunity to review the leases and warned that without retroactive relief "'the bankruptcy estate may still face substantial, unnecessary administrative claims by landlords for post-petition use and occupancy of the showrooms and the office which provide no benefit to the estate.'"

Even in the face of the seemingly "extraordinary" circumstances of the COVID-19 pandemic, the court heeded the U.S. Supreme Court's warning in a recent ruling that "'nunc pro tunc orders are not some Orwellian vehicle for revisionist history—creating 'facts' that never occurred in fact. … Put plainly, the court cannot make the record what it is not,'" (quoting Roman Catholic Archdiocese of San Juan v. Feliciano, 140 S. Ct. 696, 701 (2020)). Indeed, the court recognized that the uses of its equitable powers must be connected to and advance specific provisions of the Bankruptcy Code. With that limitation in mind, the court analyzed the trustee's relief under the lens of four factors: whether the motion to reject the leases was filed promptly; whether the debtor promptly took action to set the motion for hearing; whether the debtor had vacated the premises; and whether the landlord had any improper motivation in opposing rejection of the lease nunc pro tunc.

The court squarely addressed the impact of the COVID-19 pandemic on the country and, specifically, in the realm of bankruptcy law, observing: "irrefutably, the current COVID-19 crisis has compounded the difficulties and challenges of all trustees in the administration of estates, especially in cases with this kind of complexity and where there is a lack of resources." Still, the court remained steadfast in its restraint, noting that even in these unprecedented times, Congress had made no modification to the Bankruptcy Code's mandate that a bankruptcy estate pay rent until a lease has been rejected or assumed. The court maintained this steely approach, even in light of direct testimony by the debtor and trustee. Those parties contended that significant efforts were made pre- and post-petition to vacate the leased premises, but such efforts were thwarted by the debtor's inability to access the showrooms—thus, much of the debtor's personal property remained at several locations. The trustee further asserted that any delay in filing the motion to reject the leases was excusable under the circumstances because she "was required, with little notice, to orient herself to various complex issues involving a business that has ceased functioning and that implicated creditors and third parties in varying locations across the country all during the height of the COVID-19 pandemic."

Though the court was sympathetic to the challenges confronting the debtor and the trustee, the fact remained that the debtor's business and property remained at several of the leased showrooms and, indeed, the landlords "bear no demonstrable culpability with regard to COVID-19 impediments nor has the trustee demonstrated bad motives or acts." Moreover, the court emphasized that even in the wake of the pandemic, the trustee was still responsible for the timing of the motion and still carried the burden to show nunc pro tunc relief was proper under the above-mentioned four factors—her inability to carry that burden was not excused in light of COVID-19. The court concluded that the use of nunc pro tunc relief would be a "blunt instrument" that would disregard the plain language of the Bankruptcy Code and would be inappropriate, as the circumstances surrounding rejection simply did not rise to the level of "exceptional."

The Donghia court's approach may, at first blush, appear harsh. The debtor and trustee were, after all, operating under extremely unique and difficult circumstances—in some cases, the debtor was legally not permitted to vacate the leased showrooms because of stay-at-home orders. Yet, as the court pointed out, the affected landlords were not responsible for—nor should they be penalized because of—the COVID-19 pandemic. In a case where all sides were affected by the impact of these unprecedented times, the court's seemingly cold adherence to the applicable four-factor test and governing legal standards ensured a fair result. This presents a salient lesson for bankruptcy practitioners who will be called upon to advocate for a client in a bankruptcy case impacted by the pandemic: COVID-19 affected your client, but it also affected your opponent, so while the pandemic may be a worthy inclusion in your argument, the focus should still be on the applicable law and why it is on your side. This is especially true when seeking extraordinary relief, such as a nunc pro tunc order. The trustee in Donghia was asking for more than authority to reject leases—it was asking the court to endorse a temporal fiction that would ultimately convert administrative expense claims to general unsecured status.  When making such a request, practitioners would be well-served to provide a justification that is more client-specific than a global health crisis that is affecting all parties.  In other words, you can't just cry "COVID!"

Francis J. Lawall, a partner in the Philadelphia office of Pepper Hamilton, concentrates his practice on national bankruptcy matters and workouts, including the representation of major energy and health care companies in bankruptcy proceedings and general litigation throughout the United States.

Kenneth A. Listwak is an associate in the corporate restructuring and bankruptcy practice group in the firm's Wilmington office.