IN RE: Pinnacle Coating and Converting (2026)

Chapter 7

ORDER GRANTING IN PART AND DENYING IN PART APPLICATION FOR ADMINISTRATIVE EXPENSE

THIS MATTER came before the Court for a hearing on March 4, 2026, to consider the Motion for an Order Allowing the Administrative Expense Claims of National 212, LLC Pursuant to 11 U.S.C. § 503(b)(1) (the “Motion for Administrative Expenses”) filed by National 212, LLC (the “Landlord”)¹ and the objection thereto filed by Chapter 7 Trustee John K. Fort (the “Trustee”).² Appearances were made by the Trustee, Joshua J. Hudson for the Trustee, and Katherine E. Engels (“Engels”) for Landlord. Julie Hoskins (“Hoskins”) and Anthony Messina (“Messina”), employees of Landlord, testified, and exhibits were submitted into evidence. The Court finds as follows.

Findings of Fact

Prepetition, on June 28, 2023, Landlord and Debtor Pinnacle Coating and Converting, Inc. entered a Lease Agreement (the “Lease”).³ The Lease recites that Landlord purchased nonresidential real property located at 212 National Avenue, Spartanburg, SC 29603 and improvements thereon (the “Property”) from Debtor and that Debtor agreed to leaseback the Property from Landlord.⁴ The base rent was $30,395.25 per month (“original base rent”), and if the Lease was renewed, the rent would increase to $31,915.01 per month (“renewed base rent”). The term of the Lease was twenty-four (24) months, beginning on June 28, 2023, and expiring on June 28, 2025, unless renewed. However, the Lease further provided that if Debtor remained in possession of the Property after expiration of the initial term without Landlord's written consent, a month-to-month tenancy would be created under which Debtor would be obligated to pay one hundred and fifty percent (150%) of the original base rent, or approximately $45,592.87 per month.

Debtor was also required to make a security deposit of $60,790.50, “which represents the first and last months’ Base Rent” and could be applied by Landlord to compensate it for any damage caused by Debtor's default under the Lease. Debtor was responsible for payment of all utilities, real estate taxes, taxes on personal property located on the Property, and all maintenance and operating costs of the Property in the ordinary course of business, and for maintaining types and amounts of insurance in keeping with prevailing industry standards for the Property.⁵ Debtor agreed not to transfer or assign the Lease or to sublease the whole or any part of the Property without Landlord's written consent. In the event Debtor defaulted under the Lease, Landlord could, among other things, terminate the Lease and repossess the Property, and “all reasonable expenses of Landlord in repairing or restoring the [Property] to its condition as of” the beginning of the Lease “shall be charged to and be a liability of [Debtor].” Further, Debtor would be obligated to pay Landlord's reasonable attorney fees incurred in pursuing any of its default remedies and in collecting any rent due from Debtor. The Lease provided it was to be governed by the laws of the State of South Carolina.

The parties agree that the Lease was not renewed by June 28, 2025, and that Debtor continued to occupy the Property through a month-to-month tenancy after that date.

Hoskins testified Debtor paid Landlord the renewed base rent rate ($31,915.01) in July and August of 2025.

On September 4, 2025, Debtor and Bayou Trading, LLC (“Subtenant”) entered a month-to-month Sublease Agreement (the “Sublease”) for Subtenant's occupancy of the Property.⁶ The Sublease recites that Debtor had not paid Landlord all rent due under the Lease, that Debtor and Landlord had extended the term of the Lease “including to allow [Debtor] to sublease to [Subtenant] all of [Debtor's] rights under the” Lease, and that Landlord did not object to Debtor and Subtenant entering the Sublease. However, the parties agree, and Messina testified, that Landlord did not consent to the Sublease. Under the Sublease, Subtenant is required to pay Debtor or its designee monthly base rent of $31,915.01 (the same amount as the renewed base rent under the Lease), and is responsible for payment of utilities, taxes, maintenance and operating costs, and insurance. Debtor was permitted to store on the Property all assets then situated thereon. The Sublease provided it was to be governed by the laws of the State of South Carolina.

On the same date, Debtor and Subtenant entered a month-to-month Equipment Lease under which Debtor leased to Subtenant certain equipment located at the Property for $12,517.00 per month.⁷ The Equipment Lease provided the first payment would be due upon the lease's execution “and shall be prorated from the date of execution․through September 30, 2025.” The Equipment Lease recited that Debtor and Subtenant “have entered into, or intend to enter into, an Asset Purchase Agreement (the ‘APA’) by which [Subtenant] will have the right to purchase the equipment and other assets described in said APA”, and provided that Debtor's execution and performance of the APA is a condition precedent to Subtenant's obligations under the Equipment Lease.

On September 15, 2025, Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code, schedules, and statements to initiate the above-captioned case.⁸ An exhibit submitted by Landlord reflects that on the same date, Landlord charged and received $31,915.01 (the same amount as the renewed base rent) in rent for October 2025, even though the record indicates the Lease was continuing on a month-to-month basis at that point and therefore the holdover rate of 150% of the original base rent (approximately $45,592.87 per month) may apply pursuant to the Lease.⁹ Hoskins testified Debtor also paid Landlord $31,915.01 in September of 2025.

On September 22, 2025, the Trustee filed a Motion for Authorization to Operate a Business (the “Motion to Operate”) pursuant to 11 U.S.C. § 721 ¹⁰ reciting that he needed to continue the Equipment Lease and Sublease related to the Property “for the purpose of preserving the assets in anticipation of consummating a sale.”¹¹ On September 29, 2025, the Court set an objection deadline and a hearing on the Motion to Operate,¹² and entered an Order authorizing the Trustee to operate the Debtor's business on an interim basis until a hearing could be held.¹³ The Court is unable to determine if Landlord received notice of this Motion and Order.

On September 30, 2025, the Trustee filed a Motion to Sell all of Debtor's furniture, fixtures, and equipment other than a Jennerjahn Model JLS-135, and inventory to be designated by the purchaser to Subtenant for $932,906.00 for furniture, fixtures, and equipment, plus fifty percent (50%) of the book value of the inventory identified by purchaser prior to closing.¹⁴ Article 1 of the Asset Purchase Agreement attached to the motion indicated that the furniture, fixtures, and equipment were located on the Property, and Hoskins testified the same at the hearing. The Court is unable to determine if Landlord received notice of this Motion.

The parties agree that the Trustee paid Landlord $44,432.01 in October 2025.¹⁵ This amount is not equal to one hundred and fifty percent (150%) of the original base rent, which is approximately $45,592.87 per month, nor one hundred and fifty percent (150%) of the renewed base rent, which is approximately $47,872.52 per month.

At the hearing, the method and amount of payment was explained as follows: Subtenant paid the Trustee the rent charged under the Sublease ($31,915.01) plus the amount due under the Equipment Lease ($12,517.00), and the Trustee remitted that total amount ($44,432.01) to Landlord. The Trustee argued that the amounts he received pursuant to the Equipment Lease should not have been remitted to Landlord and Landlord should return those amounts. However, there is no indication in this record that the payments made to Landlord were designated as anything other than rent.

On October 20, 2025, the meeting of creditors pursuant to 11 U.S.C. § 341 was held, and the Trustee filed a Notice of Assets.

On October 22, 2025, a hearing was held on the Trustee's Motion to Operate, and the Court entered an Order authorizing the Trustee to operate Debtor's business for ninety (90) days from entry of that order, or until January 20, 2026, to “provide for an orderly liquidation of the estate.”¹⁶ The Court is unable to determine if Landlord received notice of this Order, and the record does not contain evidence indicating when operations ceased.

On October 28, 2025, the Court entered an Order granting the Trustee's Motion to Sell all of Debtor's furniture, fixtures, and equipment other than a Jennerjahn Model JLS-135, and inventory to be designated by the purchaser to Subtenant.¹⁷ As noted above, the record indicates that at least the furniture, fixtures, and equipment were located on the Property. The Trustee later filed a Report of Sale indicating the bankruptcy estate received net proceeds of $460,728.07.¹⁸ The Court is unable to determine if Landlord received notice of this Order and the Report of Sale.¹⁹

The parties agree that the Trustee made payments of $44,432.01 to Landlord in November ²⁰ and December of 2025.²¹ An entry dated November 18, 2025, on one of Landlord's exhibits reflects that Landlord charged $76,692.00 in 2025 property taxes for the Property, and funds received of $25,034.00 were applied by Landlord toward that amount.²² Hoskins testified that Landlord paid these taxes in lieu of Debtor paying them as required under the Lease, then charged Debtor, but Debtor never paid. The parties also agree that Landlord did not receive rent for January 2026.²³

On January 20, 2026, Landlord timely filed nonpriority, unsecured Claim No. 33-1 for $170,743.15 for prepetition amounts due under the Lease. This claim attached an itemization that includes rent through September 15, 2025, the unpaid portion of 2024 taxes, unpaid insurance, and pre-petition repairs.

In addition, on January 23, 2026, Landlord filed this Motion for Administrative Expenses requesting it be allowed an administrative expense claim of $128,467.45 pursuant to 11 U.S.C. § 503(b)(1).²⁴ The itemization attached to the motion indicates this amount consists of October 2025, November 2025, December 2025, and January 2026 rent in the amount of one hundred and fifty percent (150%) of the original base rent, 2025 taxes, and attorney fees,²⁵ less payments received October 15, 2025, November 10, 2025, and December 11, 2025.

On February 10, 2026, the Trustee filed an objection to the Motion for Administrative Expenses.²⁶ The Trustee argues that the Lease is excluded from property of the estate under § 541(b)(2) because it expired prepetition and that the estate did not receive a substantial benefit from the Property. The Trustee further asserts that the rent for the month-to-month tenancy—one hundred and fifty percent (150%) of the original base rent—is “a penalty” and unreasonable, and that the tax and attorney fee portions of the Landlord's requested administrative expense claim should not be allowed.²⁷

On March 4, 2026, the Court held a hearing on this matter. The record does not clearly reflect when the bulk of estate property was removed from the Property. As stated above, the Trustee was authorized to continue operations through January 20, 2026. Engels represented that Debtor retained keys to the Property until around the beginning of February 2026 and that Subtenant vacated the Property on February 27 or 28, 2026. Hoskins and Messina, employees of Landlord, testified. Hoskins testified that furniture, fixtures, and equipment of either Debtor or Subtenant were still in the Property as of January 1, 2026, and that she believed one piece of Debtor's equipment was still in the Property. Messina testified Debtor's furniture, fixtures, and equipment were on the Property until sometime in the week of February 23, 2026, and that there are still containers full of old equipment and chemicals at the Property that belong to Debtor. The status of the $60,790.50 security deposit was unclear, and is not determined by this Order.

The Court also held a hearing on March 4, 2026, on Landlord's Motion for Relief from Automatic Stay seeking relief from stay to pursue its remedies concerning the Property,²⁸ which was uncontested. On March 27, 2026, the Court entered an order granting that motion.²⁹

Conclusions of Law

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157, this matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), and the Court may enter a final order.

The commencement of a bankruptcy case “creates an estate․comprised of”, among other things, “all legal or equitable interests of the debtor in property as of the commencement of the case”, “wherever located and by whomever held”. 11 U.S.C. § 541(a)(1). However, “property of the estate does not include․any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease before the commencement of the case under this title, and ceases to include any interest of the debtor as a lessee under a lease of nonresidential real property that has terminated at the expiration of the stated term of such lease during the case”. 11 U.S.C. § 541(b)(2). The Trustee argues that, because the initial two-year term of the Lease expired prepetition, the Lease was never property of the estate subject to being assumed or rejected. However, after the expiration of the initial term, the Lease continued on a month-to-month basis. The Fourth Circuit has held that a debtor's interest as a lessee in a nonresidential real property lease whose initial term expired prepetition but continued on a month-to-month basis ceased to be property of the estate when the month-to-month tenancy expired postpetition. See In re Premier Auto. Servs., Inc., 492 F.3d 274, 282 (4th Cir. 2007) (“because Premier's month-to-month tenancy expired on May 1, 2005, the bankruptcy estate ‘cease[d] to include any interest’ that Premier had in the Lot 90 lease on that day.”). See also In re Van Vleet, 383 B.R. 782, 791 (Bankr. D. Colo. 2008) (concluding that a nonresidential real property lease whose original term expired prepetition and that continued postpetition on a month-to-month basis was “unexpired” within the meaning of § 365, as “there is nothing in the language set forth in 11 U.S.C. § 365(d)(3) to indicate that its protections are inapplicable to periodic tenancies or otherwise dependent upon the length of a periodic tenancy.”); S.C. Code Ann. § 27-35-30 (recognizing month-to-month tenancies by providing “All tenancies of real estate other than agricultural lands shall be deemed from month to month unless there be an agreement otherwise.”). The Court therefore concludes that Debtor's interest in the Lease became property of the estate upon the filing of the petition, and continued to be property of the estate during the pendency of this case as the Lease continued on a month-to-month basis. The estate also received compensation from Subtenant for that party's use of the estate's interest. The Court need not determine exactly when this month-to-month tenancy expired pursuant to 11 U.S.C. § 365(d)(1) as it would not affect the Court's analysis of this Motion.

Landlord seeks administrative expense priority pursuant to 11 U.S.C. § 503(b)(1), which provides, in relevant part, “after notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under Section 502(f) of this title, including․the actual, necessary costs and expenses of preserving the estate․” 11 U.S.C. § 503(b)(1)(A). “The Fourth Circuit has held that for costs to be actual and necessary for preservation of the estate, they must satisfy two criteria: (1) the costs must ‘arise from a post-petition transaction between the party claiming the administrative expense and the trustee’, and (2) the party requesting recovery of costs must have ‘provided consideration benefitting the bankruptcy estate.’ ” In re Copeland, No. 10-08956-DD, 2011 WL 2460852, at *2 (Bankr. D.S.C. June 16, 2011) (quoting In re Smoot, No. Civ. A. 305CV482-JRS, 2006 WL 848120, at *4 (E.D. Va. Mar. 30, 2006)). Landlord requests it be allowed an administrative expense claim for post-petition rent and associated expenses of $261,763.48 consisting of the following: October 2025, November 2025, December 2025, and January 2026 rent in the amount of $45,592.87 per month (one hundred and fifty percent (150%) of the original base rent for a total of $182,371.48); 2025 taxes in the amount of $76,692.00; and attorney fees of $2,700.00, less three payments of $44,432.01 received on October 15, 2025, November 10, 2025, and December 11, 2025 (for a total of $133,296.03), leaving a balance of $128,467.45.

The Court concludes Landlord's request should be granted in part and denied in part. Use of the Property post-petition provided a benefit to the bankruptcy estate, as furniture, fixtures, and equipment were stored there, the Trustee was able to complete a sale of assets located there, and the Trustee collected and forwarded rent received from the Subtenant. Therefore, the estate is obligated to pay the monthly rental—the question is what is that amount. The Court concludes the holdover rate of one hundred and fifty percent (150%) of the original base rent is unreasonable and does not represent an actual and necessary expense for the preservation of the estate. Relevant parties (Landlord, Debtor, Trustee, and Subtenant) showed through their conduct that they believed the correct, non-penalty, monthly amount was the renewed base rent of $31,915.01. While Landlord contends in the motion that one hundred and fifty percent (150%) of the original base rent was due postpetition, Hoskins’ testimony and Landlord's ledger indicate Landlord accepted the renewed base rent rate in July, August, October, and November of 2025, a total of four months after the initial term of the Lease expired. Further, Debtor charged Subtenant the renewed base rent rate under the Sublease, and the Trustee contends that his remittance of any amount above the renewed base rent rate to Landlord was in error. In other words, the parties apparently agreed that the renewed base rent rate was the reasonable value of the use of the Property, all things considered, including the fact that taxes, insurance, and maintenance would have to be paid separately. Given that the rent would presumably have been higher if the Lease provided Landlord was required to pay property taxes and that the Lease requires Debtor to pay such taxes, the Court concludes Landlord is entitled to a prorated amount for property taxes for the period during which the Property was used by the estate.

While it is unclear exactly when estate property left the premises or when the Property ceased to be useful to the estate, the Trustee was authorized to operate the business through January 20, 2026, based on a representation that the estate's interest in the Property would aid an orderly liquidation, and Landlord has not requested administrative expenses beyond January 2026. The Court therefore finds that January 20, 2026, is the relevant end date for the estate's use of the Property. Accordingly, Landlord is allowed an administrative expense of $31,915.01 per month for October 2025 to December 2025 ($95,745.03), with that amount prorated for January 2026 through January 20, 2026 ($20,590.33), for a total of $116,335.36 in rent. Regarding the 2025 property taxes requested in the Motion, the record reflects that Landlord paid $76,692.00 in lieu of Debtor fulfilling that obligation under the Lease. It is assumed that the 2026 property taxes will be in a similar amount. The prorated amount for property taxes for the period of the estate's use of the Property (September 15, 2025, to January 20, 2026) is $26,684.61.

Regarding attorney fees, there is no itemization in the record from which the Court can conclude when the amounts were incurred and for what purpose. Therefore, there is insufficient evidence to include that amount as an administrative expense.

In total, Landlord is entitled to an administrative expense of $143,019.97 pursuant to 11 U.S.C. § 503(b)(1), and Trustee has paid Landlord $133,296.03 post-petition, leaving a shortfall of $9,723.94. Any other claims the parties may assert against each other related to the security deposit are not specifically addressed by this Order.

IT IS, THEREFORE, ORDERED the Motion for an Order Allowing the Administrative Expense Claims of National 212, LLC Pursuant to 11 U.S.C. § 503(b)(1) filed by National 212, LLC is granted in part and denied in part, and National 212, LLC is allowed an administrative expense claim of $143,019.97 pursuant to 11 U.S.C. § 503(b)(1), with only $9,723.94 remaining due after crediting post-petition payments to Landlord totaling $133,296.03.

FOOTNOTES

1.   ECF No. 54, filed Jan. 23, 2026.

2.   ECF No. 59, filed Feb. 10, 2026.

3.   Landlord's Ex. 1.

4.   A leaseback is “the sale of property on the understanding, or with the express option, that the seller may lease the property from the buyer, [usually] immediately after the sale.” Leaseback, Black’s Law Dictionary (12th ed. 2024).

5.   The Lease explicitly provides Debtor was responsible for some of these items during the “Lease Term” (the initial two-year term). See Sections 6 (utilities), 7.1 (real estate taxes), and 11 (insurance) of the Lease. For the other items, the Lease does not explicitly provide Debtor was only responsible for them during the initial term. See Sections 7.2 (personal property taxes) and 8 (maintenance and operating costs) of the Lease.

6.   Trustee's Ex. A.

7.   Trustee's Ex. B.

8.   ECF No. 1.

9.   See Landlord's Ex. 2 (entry dated Sept. 15, 2025).

10.   11 U.S.C. § 721 provides “the court may authorize the trustee to operate the business of the debtor for a limited period, if such operation is in the best interest of the estate and consistent with the orderly liquidation of the estate.”

11.   ECF No. 6.

12.   ECF No. 7.

13.   ECF No. 8.

14.   ECF No. 12.

15.   See Trustee's Exhibit to Monthly Operating Report for October 2025 (ECF No. 51, filed Dec. 29, 2025) (showing check from Trustee to Landlord dated October 15, 2025, in the amount of $44,432.01 with the notation “rent pass through for October”); itemization attached to Landlord's Motion for Administrative Expenses (reflecting $44,432.01 was received on October 15, 2025, and asserting $45,592.87—150% of the original base rent—was due). But see Landlord's Ex. 2 (reflecting that on October 15, 2025, Landlord charged and received $31,915.01—the same amount as the renewed base rent—in rent for November 2025).

16.   ECF No. 32.

17.   ECF No. 38.

18.   ECF No. 46, filed Nov. 18, 2025.

19.   The Trustee's Certificate of Service for the Order (ECF No. 39, filed Oct. 29, 2025) attests to service on Bridgeway Realty, which appears to be a servicer for Landlord (see Landlord's Ex. 2), but does not attest to service on Landlord. No Certificate of Service was filed for the Report of Sale, and it does not appear that any attorney for Landlord received a Notice of Electronic Filing for the report.

20.   See Trustee's Exhibit to Monthly Operating Report for November 2025 (ECF No. 52, filed Dec. 29, 2025) (showing check from Trustee to Landlord dated November 10, 2025, in the amount of $44,432.01 with the notation “November Rent”); itemization attached to Landlord's Motion for Administrative Expenses (reflecting $44,432.01 was received on November 10, 2025, and asserting $45,592.87—150% of the original base rent—was due). But see Landlord's Ex. 2 (entry dated Oct. 15, 2025, reflecting Landlord charged and received $31,915.01—the same amount as the renewed base rent—in rent for November 2025).

21.   Compare itemization attached to Landlord's Motion for Administrative Expenses (reflecting Landlord received $44,432.01 on December 11, 2025, and asserting $45,592.87—150% of the original base rent—was due) with Landlord's Ex. 2 (reflecting that on November 18, 2025, Landlord received $44,432.01 of the $47,112.64 it charged for December 2025 rent).

22.   See Landlord's Ex. 2 (entry dated November 18, 2025).

23.   See Landlord's Ex. 2 (entry dated December 15, 2025, reflecting that Landlord charged $47,112.64 in rent for January 2026, and received $0.00).

24.   ECF No. 54.

25.   No itemization of attorney fees was provided, but Hoskins testified they were incurred postpetition.

26.   ECF No. 59.

27.   The Trustee did not object to the reasonableness of the attorney fees, but asserts “attorneys’ fees incurred by a landlord enforcing lease rights are not compensable administrative expenses absent a showing of a benefit to the Estate.”

28.   ECF No. 58, filed Feb. 6, 2026.

29.   ECF No. 81.