Case KG Doc 946 Filed 12/09/15 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ) ) ) ) ) ) ) ) )

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1 Case KG Doc 946 Filed 12/09/15 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re HAGGEN HOLDINGS, LLC, et al., 1 Debtors. Chapter 11 Case No (KG (Jointly Administered Ref. Docket No. 871 LIMITED OBJECTION OF ZIAN LIMITED PARTNERSHIP TO DEBTORS' FIFTH (5 TH NOTICE OF REJECTION OF EXECUTORY CONTRACTS AND/OR UNEXPIRED LEASES [DOCKET NO. 871] ZIAN Limited Partnership, an Oregon limited partnership ("ZIAN", makes this limited objection to Debtor's Fifth (5 th Notice of Rejection of Executory Contracts and/or Unexpired Leases [Docket No. 871] (the "Rejection Notice". In this objection, ZIAN does not object to rejection of its lease (the "Lease", but it does object to the statement in the Rejection Notice that debtor-lessee Haggen, Inc. ("Haggen" vacated the leased premises on November 30, In fact, Haggen has not yet vacated the leased premises. Nor has it satisfied the other prerequisites imposed by the Court on lease rejection: vacating the premises and turning over to ZIAN all keys, key codes, and security codes. The Court should not enter an order approving rejection of the Lease unless and until those conditions are first satisfied. I. Facts A. The Procedures Order and the Rejection Notice On October 5, 2015, the Court entered its Order, Pursuant to Sections 105, 365(a and 554 of the Bankruptcy Code, and Bankruptcy Rules 6006 and 9014, Authorizing and Approving Procedures for Rejection of Executory Contracts and Unexpired Leases [Docket No. 277] (the "Procedures Order". In the Procedures Order, the Court authorized and approved Rejection Procedures in connection with the rejection of any contract or lease of the debtors 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number, are: Haggen Holdings, LLC (7558, Haggen Operations Holdings, LLC (6341, Haggen Opco South, LLC (7257, Haggen Opco North, LLC (5028, Haggen Acquisition, LLC (7687, and Haggen, Inc. (4583.

2 Case KG Doc 946 Filed 12/09/15 Page 2 of 7 during these chapter 11 cases. The Rejection Procedures include the following requirements: (1 a rejection notice must state (a whether the premises are subject to any sublease or license granted by a debtor and the identity of any subtenant or licensee and (b the date on which the debtors "will vacate (or have vacated the premises," and (2 the proposed effective date stated in a rejection notice "shall be the later of (x the date of filing of the Rejection Notice and (y the date the Debtors vacate the premises and turn over keys, key codes, and security codes, if any, to the affected Landlord, or such other date as may be agreed in writing between the affected Landlord and the Debtors." 2 On November 30, 2015, Haggen filed the Rejection Notice, in which Haggen and the other debtors gave notice of their intent to reject certain contracts and real-property leases. The leases to be rejected are listed in the first table in Exhibit 1 attached to the Rejection Notice. The final row in that table lists the Lease of real property at 8515 S.W. Tualatin-Sherwood Road, Tualatin, Oregon (the "Premises". In the third column of that row, the Rejection Notice states that the Premises are subject to a sublease or license, but nowhere in the Rejection Notice does Haggen identify any subtenant or licensee. In the final two columns of that row, the Rejection Notice contends that, with respect to the Premises, the "Date on Which Debtors Will Vacate or Have Vacated the Premises" and the "Rejection Date" are both November 30, The proposed order attached to the Rejection Notice would reject the leases described in the Rejection Notice effective as of the rejection date set forth in Exhibit A to that order, which is identical to Exhibit 1 attached to the Rejection Notice. In other words, the order would determine that Haggen had rejected the lease effective as of November 30, B. Haggen's failure to surrender the leased premises This objection is based in part on the accompanying Declaration of Robert Durgan in Support of Limited Objection of ZIAN Limited Partnership to Debtors' Fifth (5 th Notice of Rejection of Executory Contracts and/or Unexpired Leases [Docket No. 871] (the 2 Procedures Order at 2-3, 2.(a

3 Case KG Doc 946 Filed 12/09/15 Page 3 of 7 "Durgan Decl.". Mr. Durgan is the development services representative of ZIAN and its manager for the shopping center containing the Premises. 3 Under the Lease, Haggen is obligated to pay ZIAN in advance rent and commonarea-maintenance charges on the first day of each month. The amounts due but unpaid from Haggen to ZIAN under the Lease include without limitation rent and common-area-maintenance charges, payment of which was due on December 1, 2015, for the month of December Although Haggen ceased doing ordinary retail business in the store at the Premises (the "Store" on or about September 27, 2015, it has continued since then to use and occupy the Store and has not vacated the Store. 5 On November 23, 2015, Mr. Durgan received a phone message asking him to call Dan Capestrain of Huntley, Mullaney, Spargo & Sullivan, Inc. Mr. Durgan called him, and he said he was representing Haggen regarding the disposition of the furniture, fixtures, and equipment ("FF&E" at Haggen's stores. Mr. Capestrain asked if ZIAN would be interested in a proposal, part of which was that Haggen would convey to ZIAN title to the remaining FF&E at the Store. Mr. Durgan said that he would not be able to make a recommendation to ZIAN unless he was able to inspect the FF&E that remained after an auction that Haggen had previously conducted at the Store. 6 Also on November 23, Mr. Durgan received a call from another tenant of ZIAN's shopping center that includes the Premises, notifying him that Haggen had turned off the lights in the center's shared parking lot. Those lights are controlled from one or more switches in the Store. ZIAN did not and does not have access to the Store and thus did not and does not have access to the light switches. Mr. Durgan called Mr. Capestrain and asked him to have Haggen turn the lights back on, because the absence of lighting was a fire and life safety issue for the local police. Messrs. Durgan and Capestrain also discussed the need for Mr. Durgan to inspect 3 Durgan Decl. at 1, 1. 4 Durgan Decl. at 1, 2. 5 Durgan Decl. at 2, 4. 6 Durgan Decl. at 2,

4 Case KG Doc 946 Filed 12/09/15 Page 4 of 7 the remaining FF&E before Mr. Durgan could make an informed decision about their value. Mr. Capestrain arranged for the lights to be turned back on. 7 On November 30, Mr. Durgan received an from Mr. Capestrain, asking if ZIAN had any interest in Mr. Capestrain's November 23 proposal. In an reply that Mr. Durgan sent Mr. Capestrain that day, Mr. Durgan responded that "[p]er our discussion I cannot make a recommendation to the partners w/o knowing what is in the store." Mr. Durgan made that statement to him because ZIAN did not then and still does not have any key to the Store. 8 On December 2, 2015, Mr. Durgan received an from Mr. Capestrain with codes for a key lockbox and alarm system at the Store so that ZIAN representatives could enter and inspect the Store. That day, one of ZIAN's partners, Steve Andersen, and Mr. Durgan visited and inspected the interior of the Store after obtaining the key in the lockbox by using the provided code. When Messrs. Andersen and Durgan completed their inspection that day, they put the key back in the lockbox. 9 The next day, on December 3, 2015, Mr. Andersen sent a construction crew to the Store to evaluate the costs and opportunities associated with the FF&E. Mr. Anderson telephoned Mr. Durgan and said the key was no longer in the lockbox, so the crew could not enter the Store. Later that day, Mr. Durgan ed Mr. Capestrain to report the absence of the key. On December 2, Mr. Durgan had received the Rejection Notice, which states that Haggen claimed to have surrendered possession of the Premises to ZIAN on November 30. So, in Mr. Durgan's December 3 , he also asked Mr. Capestrain when ZIAN would get the Store's keys. 10 On December 4, 2015, Mr. Capestrain responded to Mr. Durgan's to him of December 3, stating that he was trying to find out what happened to the key in the lockbox and 7 Durgan Decl. at 2, 6. 8 Durgan Decl. at 3, 7. 9 Durgan Decl. at 3, Durgan Decl. at 3,

5 Case KG Doc 946 Filed 12/09/15 Page 5 of 7 would get back to Mr. Durgan as soon as he was able. Also on December 4, Mr. Durgan went to the Store, opened the key lockbox, and confirmed the key was missing. 11 On December 7, 2015, Mr. Durgan telephoned Mr. Capestrain and asked if he had any new information regarding the key. Mr. Capestrain told Mr. Durgan he had been in contact with a person and was trying to track down the key. Mr. Durgan has received no other information from Mr. Capestrain or any other Haggen representative regarding if and when Haggen will give ZIAN access to the Store. 12 Although Haggen ceased operating the Store on or about September 27, 2015, since then, Haggen has auctioned some, but not all, of the FF&E and other personal property there, stored the remaining FF&E and other personal property there, and marketed the lease for possible assumption and assignment. 13 With the exception of the temporary access that ZIAN received on one day to inspect the Store's interior, neither Haggen nor any representative of it has delivered to ZIAN keys to the Store or otherwise taken any steps to give ZIAN access to the Store to permit ZIAN to begin preparing it for re-tenanting. Haggen has not vacated the Premises and turned over to ZIAN keys, key codes, and security codes with respect to the Store. Nor has ZIAN has agreed with Haggen, in writing or otherwise, that the effective date of rejection of the Lease may be earlier than the date on which Haggen vacates the Premises and turns over keys, key codes, and security codes with respect to the Store. 14 The Rejection Notice states that the Premises are subject to a sublease or license, but nowhere in the Rejection Notice does Haggen identify any subtenant or licensee of the Premises, nor is Mr. Durgan aware of any such subtenant or licensee Durgan Decl. at 4, Durgan Decl. at 4, Durgan Decl. at 3-4, Durgan Decl. at 4, Durgan Decl. at 2,

6 Case KG Doc 946 Filed 12/09/15 Page 6 of 7 II. Discussion Until a lease is assumed or rejected, 11 U.S.C. 365(d(3 requires that a chapter 11 debtor in possession timely perform all the obligations of the debtor, except those specified in 11 U.S.C. 365(b(2, arising from and after the order for relief under any unexpired lease of nonresidential real property. In these cases, the Court has recognized the importance of correctly determining the time of rejection of a lease by requiring in the Procedures Order that a lease-rejection notice specify a rejection effective date no earlier than the date on which "the debtors vacate the premises and turn over keys, key codes, and security codes." Haggen's assertion in the Rejection Notice that it had "Vacated the Premises" as of November 30 has no basis in fact. As is clear from Mr. Durgan's declaration, Haggen has not, even as of December 7, 2015, vacated the Premises or turned over to ZIAN "keys, key codes, and security codes," as required by the Procedures Order as a prerequisite to rejection. Thus, the Procedures Order does not permit Haggen to reject the ZIAN lease as of November 30. If the Court were to enter the order that Haggen requests, ZIAN would be unfairly deprived of its rights under section 365(d(3 for the period from December 1, 2015, through the date on which Haggen actually vacates the premises and turns over to ZIAN all keys, key codes, and security codes to the Store. ZIAN would not object to rejection of the Lease if the rejection were consistent with the Procedures Order, i.e., rejection in which the "Rejection Date" is no earlier than the date on which Haggen has vacated the Premises and turned over to ZIAN all keys, key codes, and security codes to the Store. But it would be premature to enter such an order until those conditions have been satisfied. /// /// /// - 6 -

7 Case KG Doc 946 Filed 12/09/15 Page 7 of 7 III. Conclusion Haggen respectfully requests that the Court enter its order denying the Rejection Notice with respect to ZIAN's lease unless and until Haggen complies with the Procedures Order by first vacating the Store and turning over to ZIAN all keys, key codes, and security codes to the Store. DATED: December 9, 2015 MILLER NASH GRAHAM & DUNN LLP By: /s/ John R. Knapp, Jr. John R. Knapp, Jr., P.C., Del. I.D. No Alaskan Way, Suite 300 Seattle, Washington Telephone: ( Facsimile: ( Attorneys for ZIAN Limited Partnership - 7 -