Whitehall Manor, Inc.

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

______________________________________

§

In re: § Chapter 11

§

Whitehall Manor, Inc., et al., § Case No. 25-15245 (PMM)

§

Debtors. § Jointly Administered

______________________________________ §

MEMORANDUM OPINION

I. INTRODUCTION

This is the latest battle between factions warring for control over two (2) personal care

homes (“PCHs”) serving the elderly in Lehigh Valley Pennsylvania. On one side are the four (4)

Debtors. These include Whitehall Manor, Inc. and Saucon Valley Manor, Inc. (the “Manors”).

Respectively, the Manors operate PCHs located at 1177 6th Street, Whitehall, Pennsylvania (the

“Whitehall Facility”) and 1050 Main Street, Unit #1, Hellertown, Pennsylvania (the “Saucon

Facility” and together with the Whitehall Facility, the “Facilities”). The other two (2) Debtors are

Whitehall Trust for Senior Care (“Whitehall Trust”) and Saucon Trust (the “Trusts”). Whitehall

Trust owns the Whitehall Facility. Saucon Trust owns the Saucon Facility. The Trusts leased the

Facilities to their namesake Manors pre-petition (the “Leases”). On the other side is Lehigh Valley

1, LLC (“Lehigh”), the Trusts’ mortgagee.

Presently at issue are the Debtors’ motions for: (1) Adequate Protection Modification, doc.

#206 (the “AP Motion”); and (2) Authorization to Enter Into and Perform Under Use and

Occupancy Agreements (the “U&O Agreements”), doc. #216 (the “U&O Motion,” and together

with the AP Motion, the “Motions”). Lehigh is the sole objector to the Motions, which were heard

on July 22, 2026 (the “Hearing”), argued on July 23, 2026, and then taken under advisement. After

review of the relevant facts and law, the Motions were granted on July 27, 2026. Doc. # 250.

Lehigh appealed from the associated Orders, which this Opinion supports. See Loc. Bankr. R.

8003-1.

II. BACKGROUND AND PROCEDURAL POSTURE

Historically, the Trusts’ sole source of income has been rent collected from the Manors (the

“Upstream Rent”) per the Leases, which were last amended in 2023 (the “2023 Amendments”).

The Manors’ primary source of income is rent collected from residents of the Facilities (the

“Downstream Rent”). Early in 2021, the Manors stopped paying all the Upstream Rent due under

the Leases. Accordingly, the Trusts were unable to voluntarily service their mortgages, which the

existing mortgagee accelerated and assigned to their guarantor: the United States Department of

Housing and Urban Development (“HUD”). HUD eventually auctioned the loans and associated

security interests to Lehigh’s parent company, which assigned them to Lehigh. Lehigh then filed

what became consolidated foreclosure suits against the Trusts in the United States District Court

for the Eastern District of Pennsylvania (the “District Court”). The District Court appointed a

receiver of the Facilities (the “Receiver”) and later voided the 2023 Amendments. The Debtors

filed these bankruptcies shortly thereafter.

Lehigh asserts liens on the Upstream Rent, the Downstream Rent, and the Facilities.

Lehigh has often agitated for adequate protection of its interests in those assets. And the Court has

ordered the Debtors to pay Lehigh fluctuating amounts of cash as a result. Lehigh also moved to

dismiss the Trusts on “business trust” ineligibility grounds under 11 U.S.C. §§109(b), (d) and

101(9)(A)(v). That motion was granted on March 19, 2026 (the “Dismissal Order”). The Court

later stayed the Dismissal Order pending the Trusts’ appeals therefrom (the “Stay Order”), which

were certified to the Court of Appeals under 28 U.S.C. §158(d).

Between the Dismissal and Stay Orders, Lehigh and the Receiver jointly moved, inter alia,

to lift the automatic stay and evict the Manors from the Facilities (the “Motion for Relief”). The

movants argued a lift-stay was warranted because the Leases expired pre-petition after the 2023

Amendments were voided by the District Court. Then, as now, the Debtors conceded that the

Leases expired by their terms pre-petition. Even so, the Motion for Relief was denied because the

movants lacked standing to prosecute it. That decision is currently on appeal in the District Court.

Thus, suffice it to say, these bankruptcies are in flux. Key unresolved issues include: the

Trusts’ eligibility; the status of the Leases; the parties’ rights thereunder; the basis for the Manors’

ongoing use and occupancy of the Facilities; the value of Lehigh’s asserted collateral interests; and

the proper amount of associated adequate protection payments—if any. The Motions are aimed at

addressing the latter three uncertainties, which stem from another question that needs resolving.

And that is: what are the Facilities worth? Accordingly, the Hearing presented competing

valuations of the Facilities and the rents they can generate in the market.

III. ARGUMENTS AND ISSUES PRESENTED

A. The Parties’ Arguments

The Debtors submit that their adequate protection payments are adjustable at any time.

Naturally, the Debtors support a downward adjustment in those payments. The Debtors contend

that such an adjustment is warranted because the current payments overprotect Lehigh’s interests

in the Debtors’ assets. This contention rests primarily on the proposition that there has been no

post-petition decline in the value of Lehigh’s collateral because: (1) the value of the Facilities is

not declining as the physical plants are operable and well maintained while post-petition taxes and

insurance thereon are current; (2) the value of the Downstream Rent is not declining as the

residents’ rental rates have increased post-petition while resulting income is funding operations

and being replenished monthly; and (3) any diminution in the Upstream Rent is addressable by the

occupancy charges contemplated in the U&O Agreements (the “U&O Fees”), which the Manors

propose to pay Lehigh on the Trusts’ behalf.

Indeed, the Debtors question whether Lehigh is entitled to adequate protection payments

vis-à-vis its interests in the Upstream Rent. Accordingly, the Debtors submit that the U&O Fees

may reduce Lehigh’s secured claim against the Trusts. And the Debtors stress that the U&O Fees

are reasonable because they are based on third-party appraised fair market rent values. Therefore,

the Debtors urge the Court to approve the U&O Agreements as sound exercises of the Debtors’

business judgement under 11 U.S.C. §363(b)(1). Despite all this, the Debtors propose to continue

making adequate protection payments to Lehigh to protect the value of its interest in the Facilities.

The sum of those payments and the U&O Fees (the “Combined Payments”) is the amount of pre-

default debt service due on the loans.

Lehigh objects to the Motions on four (4) grounds. First, Lehigh argues that the Debtors

are estopped from relitigating the issues raised in the Motions because this Court and the District

Court have entered final judgments regarding the amount of rent due under the Leases and the

payments required to protect Lehigh’s interest in those rents. Second, Lehigh submits that the

U&O Agreements alter its rights under the Leases, thereby altering the status quo ante reimposed

under the Stay Order. Third, Lehigh contends that the Combined Payments inadequately protect

its collateral because: (1) these Payments are roughly half the value of the Upstream Rent due

under the Leases, which the Manors are required to pay as holdover tenants under federal and state

law; (2) Lehigh has not been fully compensated for the risk that it will be unable to collect

outstanding administrative rent if these cases collapse; (3) the U&O Fees do not reflect fair market

rent—rather, the Leases and/or Lehigh’s commissioned appraisal do; and (4) the value of the

Facilities is declining while the Manors defer substantial maintenance (i.e., roof replacement)

without funding sufficient replacement reserves. Fourth, the Combined Payments do not satisfy

the heightened standard for insider dealings under §363(b)(1), not least because the associated

reduction in occupancy costs runs entirely to the Manors’ benefit. The Court does not understand

Lehigh to argue that its interest in the Downstream Rent is inadequately protected.

The Debtors agree that heightened scrutiny of the U&O Agreements is appropriate. But

the Debtors contend that the U&O Agreements withstand such scrutiny. Moreover, the Debtors

stress that the Motions do not require adjudication of Lehigh’s right to administrative rent under

the expired Leases. Finally, the Debtors submit that the Stay Order did not render these cases un-

administrable. Instead, the Stay Order simply stayed the effect of the Dismissal Order: while that

Order remains on appeal, all interested parties are free to pursue their rights under the Bankruptcy

Code. And the Debtors submit that the Motions exemplify such pursuit.

B. The Issues Presented

The Debtors have the better frame of the issues presented. Lehigh cites administrative rent

cases in support of its argument that the Manors are holdover tenants required to pay the rent due

under the Leases as Lehigh construes them. See e.g., In re Sportsman’s Warehouse, Inc., 436 B.R.

308, 315 (Bankr. D. Del. 2009). But the Court is not presently faced with a claim for administrative

rent under 11 U.S.C. §503(a). Rather, the Motions are grounded mainly in 11 U.S.C. §§363(b)(1)

and 363(e). Broadly speaking then, the Motions present three issues: (1) whether the Motions are

justiciable; (2) whether the U&O Agreements should be approved under 11 U.S.C. §363(b)(1); and

(3) whether Lehigh is currently entitled to adequate protection of its interests in the Facilities and

Upstream Rent. Only the first two (2) issues are resolvable in the affirmative.

IV. DISCUSSION

A. The Motions Are Justiciable

1. The Debtors Are Not Collaterally Estopped from Prosecuting the Motions

A party asserting the preclusive effect of a prior federal ruling must establish that: (1) the

issue to be precluded is identical to one involved in the prior action; (2) the issue to be precluded

was previously litigated; (3) the issue to be precluded was resolved by a final judgment on the

merits; (4) resolution of the issue to be precluded was essential to the prior judgment; (5) the party

against whom collateral estoppel is asserted was a party or in privity with a party to the prior

action; and (6) the party against whom collateral estoppel is asserted had a fair opportunity in the

prior action to litigate the issue. In re Cowden, 337 B.R. 512, 530 (Bankr. W.D. Pa. 2006)

(collecting cases). Cf. In re Nat’l Med. Imaging, LLC, 439 B.R. 837, 844–45 (Bankr. E.D. Pa.

2009) (applying a similar formulation to a ruling in Florida state court).

Lehigh argues that the Debtors cannot relitigate the rent and adequate protection payments

owed post-petition because the Court already settled those issues by final judgments. For support,

Lehigh points to the Court’s May 26, 2026 Order denying the Debtors’ prior motion for downward

adjustment of their adequate protection payments. Lehigh submits that this denial affirmatively

settled the related valuation issues now before the Court. Lehigh is incorrect.

The May 26, 2026, Order denied the Debtors’ then-pending adequate protection motion

“for the reasons stated at” the May 26, 2026 hearing. Doc. # 161. There, the Court viewed the

adequate protection and cash collateral issues in these cases as flip sides of the same coin. May

26, 2026, Hr’g Tr. 8:6-10. The Manors’ counsel agreed, id. 8:25-9:2, and clarified that the Debtors

were not seeking a determination regarding the fair market rent for use of the Facilities. Id. 9:23-

24. The Court also clarified that it ordered escrow of the May Upstream Rent—as the Court

understood it to be due under the Leases after HUD sold them—because the Court “did[ not] have

any fair market rent valuation at that time.” Id. 26:12-18. Finally, after hearing testimony and

argument, the Court ordered adequate protection payments in the amount ultimately reflected in

the Sixth Interim Cash Collateral Order. Id. 85:4-10.

That oral ruling accords with an earlier one, in which the Court signaled that the issue of

adequate protection would remain open until the Facilities received current valuations. E.g., Jan.

27, 2026, Hr’g. Tr. 81:2-3 (opining that the Court was “having a hard time with [the issue of

adequate protection] because [the Court did not] know . . . the value . . . of the collateral”); id.

81:6-9 (“split[ting] the difference [in debt service payments] and requir[ing] a total of $70,000[.00]

. . . to be paid for adequate protection, at least for this interim” period until the next cash collateral

hearing (emphasis added)); id. 81:10-19 (indicating that adequate protection may be adjusted once

the Court was presented with appraised values of the Facilities).

Given the breadth of Lehigh’s collateral package, the absence of related valuations creates

uncertainty: without a clear picture of the Facilities’ value, the Upstream Rent and cash collateral

values are obscured; so too the requisite amount of adequate protection payments. That is why all

cash collateral Orders in these cases have been entered on interim bases—including the most recent

one, which will be revisited. Doc. # 250 ¶ k. This is standard procedure in a Chapter 11. It could

hardly be otherwise when courts rarely have a full grasp of collateral values in the early throes of

a reorganization. Even when such values are known, adequate protection may need adjusting if,

for example, the collateral begins to depreciate.

Thus, it is easy to see why this Court held long ago that “under the [Bankruptcy] Code res

judicata and collateral estoppel are generally inapplicable to preclude redeterminations of the

value of property.” In re Vacuum Cleaner Corp. of Am., 33 B.R. 701, 704–05 (Bankr. E.D. Pa.

1983). Accordingly, the Court adopts that holding and extends it to the law-of-the-case doctrine—

which Lehigh also raised, but which is discretionary in any event. Centennial Plaza Prop., LLC v.

Trane U.S. Inc., 771 F. Supp. 3d 481, 487 n.10 (D.N.J. 2025). Lehigh cites no contrary authority.

Nor does Lehigh point to a District Court Order determining the fair market value of the Manors’

tenancies at the Facilities. Rather, the District Court’s voiding of the 2023 Amendments helped

set the table for precisely such a determination. Therefore, the Motions are neither collaterally

estopped nor barred by the law-of-the-case doctrine.

2. The Stay Order Does Not Bar the Debtors from Prosecuting the Motions

Staying a final order “suspend[s] judicial alteration of the status quo[.]” Ohio Citizens for

Responsible Energy, Inc. v. Nuclear Regul. Comm’n, 479 U.S. 1312, 1312 (1986) (Scalia, J., in

chambers). But a stay does not make time stand still. Nken v. Holder, 556 U.S. 418, 421 (2009).

Rather, “a stay operates upon the judicial proceeding itself. It does so either by halting or

postponing some portion of the proceeding, or by temporarily divesting an order of enforceability.”

Id. at 428 (emphasis added). See also id. at 429 n.1 (“The relief sought here is properly termed a

‘stay’ because it suspends the effect of the removal order.” (emphasis added)).

Here, the Stay Order temporarily divested the Dismissal Order of enforceability. No more,

no less. Lehigh has been understandably loath to accept this reality. Initially Lehigh’s position

was that the Stay Order only prevented foreclosure on the Facilities. Now Lehigh contends that

everything is stayed, including the Debtors’ ability to prosecute the Motions. This contention

conflicts with the Court’s holding (in a final judgment on the merits) that “the Trusts remain [single

asset real estate] debtors in possession while their dismissals are on appeal.” Doc. # 124 at 5. So

perhaps Lehigh is collaterally estopped from relitigating the stay issue.

For the sake of clarity, let it be understood that the Stay Order has not in any way frozen

the administration of these cases. All four (4) Debtors may assert their rights under the Bankruptcy

Code as they would have if Lehigh’s motion to dismiss the Trusts had been denied. That is what

the status quo means here. Absent a contrary order from this Court, that is what the status quo will

continue to mean during the initial phase of the Trusts’ appeals from the Dismissal Order.

Thereafter, if the Trusts are unsuccessful, or if only one succeeds, they will need to move the first

order appellate tribunal for any further stay of their dismissal(s). See Fed. R. Bankr. Proc.

8025(b)(1). Accord In re Kendall, 510 B.R. 356, 361 (Bankr. D. Colo. 2014) (“A Rule [8007] stay

pending appeal should not extend to an appeal of the district court or bankruptcy appellate panel

to the court of appeals.”).

Lehigh’s view that these cases are indefinitely backdated to March 18, 2026, is untenable.

Indeed, by that logic, the Court should direct Lehigh to return the “Good Shepherd rents,” see doc.

# 70 (entered on April 6, 2026), along with the heightened adequate protection payments received

under the Fifth and Sixth Interim Cash Collateral Orders. Perhaps by the same logic parties in

interest would be unable to pursue certain administrative expense claims. Surely Lehigh opposes

such a deep freeze of these cases. Accordingly, the Stay Order is no impediment to the Debtors’

prosecution of the Motions.

B. The U&O Agreements Withstand Heightened Scrutiny Under §363(b)(1)

The U&O Agreements license tenancies at sufferance, allowing the Manors to continue

their use and occupancy of the Facilities until the Agreements are terminated by any party thereto

on thirty days’ written notice. The U&O Agreements also obligate the Manors to cover all carrying

costs for the Facilities, including insurance, tax, and maintenance, consistent with triple-net

provisions in the Leases. But the primary sticking point is the U&O Fees; these are monthly

license fees of $27,625.00 and $34,937.50, respectively payable to Lehigh by Whitehall Manor

and Saucon Valley Manor, on behalf of the Trusts. Lehigh construes the Leases to require post-

assignment rent of roughly $140,000.00 per month, per Manor, net of carrying costs. Alternatively,

the appraisal Lehigh commissioned fixes monthly fair market rent at $88,333.00 for the Whitehall

Facility and $96,667.00 for the Saucon Facility. At the very least, Lehigh submits that its appraised

values should control. The Court disagrees.

1. The Legal Standard Governing Insider Transactions Under §363(b)(1)

Extraordinary pre-confirmation transactions involving estate property are governed by

§363(b)(1), which, in relevant part, simply states that: “The trustee, after notice and a hearing, may

use, sell, or lease, other than in the ordinary course of business, property of the estate[.]” 11 U.S.C.

§363(b)(1). The relevant standard has been fleshed out in case law. The resulting guideposts in

this Circuit are: (1) adequate consideration; (2) sound business purpose; (3) reasonable notice; and

(4) good faith. In re Indus. Valley Refrigeration & Air Conditioning Supplies, Inc., 77 B.R. 15, 21

(Bankr. E.D. Pa. 1987) (citing In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143 (3d Cir.

1986)); In re Exaeris, Inc., 380 B.R. 741, 744 (Bankr. D. Del. 2008).

The same formulation applies when the proposed transaction is between insiders.

However, transactions between insiders “must withstand heightened scrutiny before they can be

approved under §363(b).” In re Enron Corp., 335 B.R. 22, 28 (S.D.N.Y. 2005). Accord In re AIG

Fin. Prods. Corp., 651 B.R. 463, 476 n.81 (Bankr. D. Del. 2023) aff’d sub nom. In re AIG Fin.

Prods. Corp., 2024 WL 3967465 (D. Del. Aug. 28, 2024). In the case of such transactions, “the

purchaser has a heightened responsibility to show that the [transaction] is proposed in good faith

and for fair value.” In re Med. Software Sols., 286 B.R. 431, 445 (Bankr. D. Utah 2002) (citing

Indus. Valley Refrigeration, 77 B.R. at 17).

2. Consideration

At the Hearing, the parties presented dueling valuations of the Facilities.. Richard F. Wolf,

MAI (“Mr. Wolf”)—of Lukens & Wolf, an affiliate of Valbridge Property Advisors (“Lukens”)—

testified in support of valuations commissioned by the Debtors’ principal (the “Lukens

Appraisals”). Alan C. Plush, MAI (“Mr. Plush”)—of Health Trust, LLC (“Health Trust”)—

testified in support of the valuations commissioned by Lehigh (the “Health Trust Appraisals”).

Upon review of these testimonies and Appraisals, the Court renders the following factual findings

and legal conclusions regarding the adequacy of the U&O Fees:

a. Findings of Fact

i. The Lukens Appraisals

Mr. Wolf has about thirty years’ experience appraising real estate; he has appraised seventy-

six senior living properties over the last thirteen (13) years. Mr. Wolf believes that the highest and

best use for the Facilities is continued senior housing. In valuing the Facilities, Lukens employed

the income capitalization and sales comparison approaches. Mr. Wolf’s analysis resulted in

appraised going concern and real estate only values pegged to the petition date. Mr. Wolf testified

that the income capitalization approach is well suited to valuing income-producing properties like

the Facilities because it effectively captures the income potential of the real estate.

Income capitalization involves projecting the subject’s effective gross income, or its gross

income net of collection loss and vacancy. Then the appraiser adjusts—or “stabilizes”—operating

expenses. For example, Lukens averaged the Facilities’ historical utilities costs before converting

them to stabilized (in this case elevated) expense estimates, which built on historic averages by

incorporating, inter alia, fuel inflation projections. Once stabilized in this way, the Manors’

expenses were tallied and subtracted from each Facility’s effective gross income figure, resulting

in stabilized net operating income (“sNOI”) of $790,920.00 and $609,863.00 for the Saucon and

Whitehall Facilities, respectively. This corresponds to respective expense ratios for the Facilities

of 91% and 93%: roughly 15% higher than the national average for senior living facilities operating

in Cushman & Wakefield’s lowest cost-efficiency decile.

Expense stabilization methods bear heavily on the appraised value of the subject real estate.

By way of illustration, Lukens divided each Facility’s sNOI by an 8% market capitalization rate

derived from national surveys of investors in senior living facilities. The result is respective

preliminary going concern values of $7,623,288.00 and $9,886,500.00 for the Whitehall and

Saucon Facilities. Thus—all things being equal—the larger the sNOI, the larger the going concern

values; and the inverse is true of capitalization rates.

Both Facilities’ roofs must be replaced. So, Mr. Wolf deducted the associated deferred

maintenance costs from the Facilities’ preliminary going concern values, thereby concluding final

going concern values of $6,900,00.00 and $8,800,000.00 for the Whitehall and Saucon Facilities,

respectively. Corresponding real estate only values of $5,100,000.00 and $6,450,000.00 could

then be derived net of the Manors’ businesses and their furniture, fixtures, and equipment. Lukens

next calculated per-unit real estate values of roughly $53,000.00 per Facility. These values are

about $36,000.00 below the lowest relevant decile for majority assisted living facilities. However,

Lukens also conducted sales comparison analyses, which developed separate real estate-only

values of $5,200,000.00 and $6,350,000.00 for the Whitehall and Saucon Facilities, respectively.

These data were derived from sales of comparative Pennsylvania facilities and closely correspond

to the Lukens Appraisals’ income capitalization values.

Finally, Lukens derived market rent values for the Facilities. Relevant to this derivation is

Lukens’s assumption that the market lease type is absolute net (i.e., one where the tenant pays base

rent plus carrying costs). Lukens determined that national lease data for skilled nursing facilities

with net leases implies a going concern-to-leased-fee compression of approximately 100 to 200

basis points for the Facilities. Lukens thereby concluded a leased-fee capitalization rate of 6.5%

for the Facilities. This rate was multiplied by the Facilities’ real estate only values, resulting in the

monthly rental values on which the U&O Fees are predicated.

Lukens utilized a leased-fee capitalization rate instead of market comparisons to determine

fair market rent because the Facilities are unique; one was converted from a school, the other from

a warehouse. Consequently, whereas most senior housing is purpose built, the retrofitted Facilities

feature an anomalous amount of functional obsolescence. Mr. Wolf testified that this distinction

helped explain the disparity in the Lukens Appraisals’ expense and per-unit values on the one hand,

versus Cushman & Wakefield’s nationwide deciles on the other. Mr. Wolf also attributed such a

disparity to above-average care and cleanliness levels at the Facilities.

In light of the Facilities’ relative obsolescence, Mr. Wolf assessed that although value could

be achieved by raising rents, occupancy levels would drop at those price levels.. Indeed, the

Debtors’ principal testified that the Manors must price aggressively because they face direct

competition from twenty (20) new purpose built senior living facilities. Essentially, the Manors’

business model is to attract residents by charging less for more services.

ii. The Health Trust Appraisals

March 10, 2026 is the valuation date for the Health Trust Appraisals; these, too, were

grounded exclusively in the income capitalization and comparable sales approaches. Mr. Plush is

the CEO of Health Trust, which specializes in healthcare (e.g., hospitals) and senior housing

appraisal. Health Trust typically appraises about 1,600 such facilities a year—60% to 70% of these

are senior housing. Mr. Plush has been a certified appraiser for forty years; he also develops and

invests in senior housing. Mr. Plush visited both Facilities on their valuation dates, spending

roughly forty-five minutes at each—ten to fifteen minutes canvassing the exteriors, and thirty to

thirty-five minutes walking the interiors. Like Mr. Wolf, Mr. Plush concluded that the Facilities’

highest and best use is senior housing.

Although Mr. Plush testified that Health Trust’s income capitalization technique is similar

to Lukens’s, there is a critical difference between them: Health Trust stabilized expenses with an

eye toward efficiencies achieved by senior housing operators elsewhere in the United States. Thus,

Health Trust downwardly stabilized the Manors’ expenses to a greater extent than did Lukens.

After stabilizing expenses, Health Trust fixed Saucon’s sNOI and expense ratio at $1,505,342.00

and 85.4%, respectively. Meanwhile, Whitehall’s sNOI and expense ratio were fixed at $1,378,471

and 80.8%, respectively. Although these ratios are lower than those Lukens calculated, Mr. Plush

testified that they were higher than the national average given the age and functional obsolescence

of the Facilities. Health Trust applied a 9% capitalization rate, which is slightly higher than

Lukens’s. Health Trust also deducted the cost of the Manors’ deferred replacement of the

Facilities’ roofs. The result is direct capitalization values of $14,500,000.00 and $15,700,000.00

for the Whitehall and Saucon Facilities, respectively.

Like Lukens, Health Trust conducted comparable sales analyses. Unlike Lukens, Health

Trust’s comps are grounded in going concern (as opposed to real estate) value. But Health Trust

ultimately concluded that its direct capitalization approach was the most appropriate measure of

value. Health Trust also conducted fair market rent analyses for the Facilities. These hinged on

application of reconciled coverage ratios to sNOI. In both cases, the ratios were derived from lease

data associated with ten operators from outside Pennsylvania. Higher coverage ratios indicate

higher operational cash flows, lower risk to the landlord, and thus lower leased fees. The Manors

were assigned ratios at the ceiling for the lower end of the spectrum. Thus, Health Trust concluded

respective annualized fair market rent figures of $1,060,000.00 and $1,160,000.00 for the

Whitehall and Saucon Facilities.

Mr. Plush testified on cross-examination that Health Trust’s Whitehall appraisal was

founded on the erroneous belief that the Whitehall Facility has 148 units. In other words, Health

Trust concluded values for that Facility based on eighteen phantom independent living units

located in the basement—which Mr. Plush walked and testified was inconducive to senior living.

Mr. Plush believes that his firm’s Whitehall appraisal should stand despite this error because the

Facility’s valuation-date census (139 residents) is consistent with his firm’s projected occupancy

rate (90%). But that rate assumes no shared units, and Mr. Plush was not sure whether the unit

miscount was material.

Health Trust projects revenue for the Whitehall Facility that exceeds historic performance.

In fact, Health Trust’s appraisal of that Facility is premised on the assumption that its respective

assisted living and memory care unit occupancy rates will increase by roughly 15% and 30% above

those achieved in recent years. Meanwhile, Health Trust projects a roughly 15% rise in memory

care unit occupancy at the Saucon Facility. Mr. Plush testified that it was reasonable to pair these

projections with downwardly stabilized administrative, housekeeping, and nursing expenditures.

For instance, Health Trust stabilized administrative expenses for the Saucon Facility at about 36%

below the national median for such expenses. Furthermore, Health Trust nearly halved the Saucon

Facility’s housekeeping expense budget relative to the last three years. And the Facility’s stabilized

nursing expense was slightly below the actual figure for the prior year.

b. Conclusions of Law

Property valuation is a commonsense exercise. In re Swartz, 670 B.R. 750, 758 (Bankr.

E.D. Pa. 2025). It “is not an exact science, and a court has broad discretion in determining value.”

In re Lewisberry Partners, LLC, 664 B.R. 398, 400 (Bankr. E.D. Pa. 2024) (citing In re 210 Ludlow

St. Corp., 455 B.R. 443, 447 (Bankr. W.D. Pa. 2011)). Moreover, “when faced with conflicting

appraisal testimony, a court should consider ‘the appraiser’s education, training, experience,

familiarity with the subject of the appraisal, manner of conducting the appraisal, testimony on

direct examination, testimony on cross-examination, and overall ability to substantiate the basis

for the valuation presented.’” Swartz, 670 B.R. at 758 (quoting In re Gurnari, 664 B.R. 104, 111

(Bankr. M.D. Pa. 2024)).

There is no dispute that Mr. Wolf and Mr. Plush qualify as experts under Federal Rule of

Evidence 702. The Court finds both appraisers to be well qualified; their testimony was credible

and elucidating. Moreover, the Appraisals are both state of the art. Each employs similar industry-

standard valuation methodologies grounded in sophisticated datasets.

However, Health Trust’s appraisal of the Whitehall Facility is deficient; it miscalculates the

number of licensed independent living units. Although Health Trust accounted for 148 total units,

there are just 130. Mr. Plush testified that this miscalculation may be immaterial because there

were 139 residents at the Facility on Health Trust’s valuation date; this figure tracks with Health

Trust’s 90% projected occupancy rate for the Facility. Yet Mr. Plush also testified that the Health

Trust Appraisals assumed single occupancy across all units, which is not the case. Most

importantly, Mr. Plush was unable to assess the impact of this discrepancy on the veracity of his

firm’s Whitehall appraisal.

The Lukens Appraisals, on the other hand, are persuasive. Both experts testified to the

functional obsolescence of the Facilities. Mr. Wolf accounted for this in stabilizing expenses by

careful reference to cost efficiencies actually achieved by the Manors despite that obsolescence.

Still, the Lukens Appraisals do consider outside data. Utilities, for example, were stabilized by

reference to fuel inflation expectations. Lukens also incorporated national data into its coverage

ratios and capitalization rates. Indeed, Lukens’s direct capitalization rate is slightly lower (and

thus—all equal—more supportive of a higher valuation) than that which Health Trust applied.

Health Trust relied on what operators have achieved at other facilities in other states. The

result is expense ratios which are higher than the national average, yet consistent with those

achieved by operators in the lowest national expense efficiency decile. But the Court is unaware

of evidence that operators in the lowest efficiency decile disproportionately face similar headwinds

to those faced by the Manors. For instance, the Court is unaware of evidence that operators in that

decile are disproportionately saddled with functionally obsolescent facilities, relative to other

deciles. Even if there were such evidence, functional obsolescence surely varies within deciles by

degree. And the Court has no sense of whether such variation might render the lowest decile

inapposite. Likewise, there is no doubt that the Manors face stiff competition from purpose-built

competitors within their draw areas. Nor is there debate whether the Manors compete in those

areas by offering more services at lower prices; this helps explain their low margins.

The Lukens Appraisals better account for the Facilities’ obsolescence and competition

because Lukens stabilized expenses to more closely reflect those the Manors have traditionally

borne in spite of those headwinds. True, the result is above average expense ratios. Perhaps this

indicates that other operators could wring higher margins out of the Facilities. But the Court is

concerned about what this would mean in practice. It is implausible that the Facilities—Saucon

in particular—could substantially increase their memory care rolls while cutting what seem to be

critical expenses (e.g., nursing, housekeeping, dietary, and administration) without sacrificing the

depth, breadth, and quality of services delivered.

Affected by the consideration of the appraisals and the outcome of the web of litigation

these cases have produced are vulnerable, elderly residents. These individuals are not accounting

abstractions. They are veterans, spouses, parents, and grandparents, whose family members invest

a great deal of their money and trust in caretakers like the Manors. In exchange, the Manors are

expected to provide relatively high levels of care. The Court is unwilling to sanction appraised

values that might disincentivize such a bargain—which the Lukens Appraisals best capture.

Therefore, the Court holds that the U&O Fees constitute fair consideration for use and occupancy

of the Facilities.

3. Business Purpose

“For a court to approve [a proposed transaction] under § 363(b), it must ‘expressly find

from the evidence presented before [it] at the hearing a good business reason to grant such an

application.’” Enron Corp., 335 B.R. at 27–28 (second alteration in original) (quoting In re Lionel

Corp., 722 F.2d 1063, 1071 (2d Cir.1983)). Several factors may help ballast the “business purpose”

inquiry under §363(b)(1). These include: (1) the value of the asset relative to the estate as a whole;

(2) when the transaction was proposed in relation to the petition date; (3) the likelihood that a plan

of reorganization will be proposed and confirmed in the near future; (4) the effect of the transaction

on future plans of reorganization; (5) the proceeds to be obtained relative to any appraisal(s) of the

property; and (6) whether the asset is increasing in value. Indus. Valley Refrigeration, 77 B.R. at

19–21 (citing Lionel Corp., 722 F.2d at 1071). This is a fact-specific inquiry entrusted to the sound

discretion of the bankruptcy court. Enron Corp., 335 B.R. at 32 (“The Bankruptcy Court’s tailoring

of its decision to the peculiar facts of the case in determining whether a good business reason

existed to approve the transaction is entitled to deference.”).

Lehigh argues that there is no business justification for the Trusts joining a Motion to

diminish the Upstream Rent. This argument fails for at least three (3) reasons. First, Lehigh

discounts the peculiar posture of these cases. Unlike the sale in Abbotts Dairies, the U&O Motion

was not suspiciously timed. To the contrary, the Motion was filed months after the petition date.

By then the Court had signaled that the Leases are likely not “unexpired” within the meaning of

11 U.S.C. §365(d)(2). Days later, the District Court identified an actual conflict of interest between

the Debtors and required them to retain separate counsel (whose signature is atop the block at the

bottom of the U&O Motion). Then this Court began extending the Debtors’ deadlines to file

Chapter 11 plans, which may require unwinding if the Dismissal Order is upheld.1 Thus, before

the Court are four (4) affiliated, yet conflicted, Debtors; two (2) may be unable to reorganize if the

other two are ineligible. It follows that plan confirmation is not in the immediate offing.. And the

Leases likely expired pre-petition. Given the uncertainty, it makes sense for the Trusts to seek

approval of interim occupancy agreements with their jointly administered tenants.

Second, the U&O Fees undergirding the proposed Agreements were not plucked from thin

air. Rather, those fees are predicated on the Lukens Appraisals, which this Court has determined

conclude fair market values of the Facilities and rents they can command at arm’s length; this helps

alleviate concerns about the insider nature of the deal. See In re Garbinski, 465 B.R. 423, 425

1 The appeal of the Dismissal Order is pending in District Court, the Third Circuit having denied direct

appeal. See Order in re Whitehall Trust & In re Saucon Trust, nos. 26-8020 and 26-8021 (3d Cir. Aug. 21, 2026).

(Bankr. W.D. Pa. 2012) (“[A] sale with . . . an insider, raises a red flag. But even under these

conditions a sale might be approved . . . if the Court were assured that [the proposed consideration]

is a fair price for the interests being sold[.]”).

Third, Lehigh’s administrative rent cases support the conclusion that the Trusts have sound

business reasons for joining in the U&O Motion. Lehigh cites those cases for the proposition “that

the rental value fixed in the lease will control, unless there is convincing evidence that such rental

rate is unreasonable.” In re F.A. Potts & Co., Inc., 137 B.R. 13, 18 (E.D. Pa. 1992) (emphasis

added). The Lukens Appraisals evidence the unreasonableness of rental rates fixed in the Leases.

Thus, the Trusts cannot demand payment in such amounts. Zagata Fabricators, Inc. v. Superior

Air Prods., 893 F.2d 624, 627 (3d Cir. 1990) (“[T]he landlord’s right to collect monetary relief is

somewhat curtailed: a debtor is generally required to pay only a reasonable value for the use and

occupancy of the landlord’s property, which may or may not equal the amount agreed upon in the

terms of the lease.”). It would be absurd to deny the U&O Motion on a holding that the Trusts’

sounder course of business is to demand Upstream Rent in impermissible amounts. Accordingly,

the Court holds that the Trusts’ business purposes are sound.

4. Notice

Section 363(b)(1) also requires accurate, fulsome notice of the proposed transaction. Indus.

Valley Refrigeration, 77 B.R. 15, 21–22 (Bankr. E.D. Pa. 1987). The adequacy of such notice

turns on several factors, “including the exigency of the circumstances and the effort to identify and

communicate with potential bidders.” Exaeris, 380 B.R. at 745. See also In re Scimeca Found.,

Inc., 497 B.R. 753, 776 (Bankr. E.D. Pa. 2013) (“[T]he fact that trustee proposes to sell the debtor’s

property for less than . . . appraised value does not demonstrate that the sale price is unreasonable,

so long as the trustee undertakes reasonable marketing efforts[.]”).

Here, the Trusts’ principal testified that he did not actively market the leaseholds. This

would likely prove fatal for the U&O Motion if the Trusts were seeking thereby to sell substantially

all of their assets. But this is not a free-and-clear sale. Instead, the Trusts only seek approval of

interim use and occupancy agreements, subject to immediate, unilateral termination by this Court.

E.g., doc. # 216-2 §§2, 13. Furthermore, the U&O Motion was served in accordance with the

applicable notice procedures. The proposed U&O Agreements were attached. They accurately

convey all material terms of the Agreements. Lehigh had ample opportunity to inspect and oppose

the Agreements, the initial versions of which were filed forty-three days in advance of the Hearing.

Nothing more is required on these facts. Therefore, the Court holds that the U&O Motion was

adequately noticed.

5. Good Faith

“[W]hen a bankruptcy court authorizes a sale of assets pursuant to section 363(b)(1), it is

required to make a finding with respect to the ‘good faith’ of the purchaser.” Abbotts Dairies, 788

F.2d at 149–50. Good faith concerns typically arise when the proposed transaction contemplates

lucrative sweetheart deals with insiders. See id. at 148 (remanding for finding of good faith where

debtor’s principal had bargained for lucrative employment agreement with proposed buyer); Indus.

Valley Refrigeration, 77 B.R. at 22 (disapproving sale of debtor’s assets because its principal and

his wife respectively received substantial pay raise and rental subsidy, the values of which totaled

more than half the proposed purchase price); Exaeris, Inc., 380 B.R. at 746 (refusing to find good

faith where proposed buyer contracted for release of the debtor’s claims against him).

The U&O Agreements clear this last hurdle. There is no indication that the Debtors’

principal is profiting directly from the Agreements. Nor will approval of the Agreements occasion

the release of claims against him. And the same holds for the other members of his family. For

these reasons, in addition to those discussed above, the Court holds that the U&O Agreement was

proposed in good faith.

C. Lehigh Is Not Currently Entitled to Adequate Protection Payments

1. The Legal Standard Governing Adequate Protection

Adequate protection of a creditor’s interest in the debtor’s property is required to maintain

the automatic stay of acts against such property. 11 U.S.C. §362(d)(1). Likewise, the debtor’s use,

sale, or lease of estate property is conditional upon the adequate protection of a creditor’s interest

in such collateral. Id. §363(e). Adequate protection is also required on behalf of an entity whose

lien is primed by another of equal or senior priority. Id. §364(d). The Bankruptcy Code lists three

(3)examples of adequate protection: (1) periodic cash payments; (2) replacement liens; or (3) the

“indubitable equivalent” of the creditor’s interest in its collateral. Id. §361. “The last possibility

is regarded as a catch all, allowing courts discretion in fashioning the protection provided to a

secured party. Therefore, a determination of whether there is adequate protection is made on a

case by case basis.” In re Swedeland Dev. Grp., Inc., 16 F.3d 552, 564 (3d Cir. 1994).

However, it is hornbook law that replacement liens on post-petition rents generally do not

adequately protect a lender holding a lien on pre-petition rents. Collier on Bankruptcy ¶ 361.03

(16th 2026). Provision of such replacement liens is statutorily prescribed, subject to a contrary

order “based on the equities of the case.” 11 U.S.C. §552(b)(2). And a lender whose cash collateral

is decreasing in value is not adequately protected by the provision of security to which the lender

is already entitled. Swedeland, 16 F.3d at 565 (holding that a lender whose lien was primed under

§364 was not adequately protected from the attendant loss in value by the payment of sale proceeds

on which the court had already granted the lender replacement liens).

Thus, adequate protection requires new consideration to offset post-petition diminution in

the petition-date value of a secured lender’s interest in collateral. See id. at 564–65 (agreeing that

“the bankruptcy court’s findings were clearly erroneous because [the Debtor] offered no new

consideration to [the secured lender] to offset its diminution of interest as a result of the

superpriority lien.”). See also In re Sears Holdings Corp., 51 F.4th 53, 58 (2d Cir. 2022) (defining

adequate protection as “a statutory right designed to preserve the Petition-Date value of a secured

creditor’s collateral.”); In re Heritage Highgate, Inc., 679 F.3d 132, 142 (3d Cir. 2012)

(“[B]ankruptcy courts are best situated to determine when is the appropriate time to value collateral

in the first instance. We, therefore, defer to their considered judgment.”).

That said, the post-petition diminution to be offset under §361 by periodic cash payments

must result from one (1) of three (3) things: (1) the continuation of the automatic stay under §362;

(2) the use, sale, or lease of collateral under §363; or (3) the grant of a priming lien under §364

(which is not at issue here). See 11 U.S.C. §361(1). Put simply, there must be a statutory basis

for a court to require adequate protection. Neither non-use/sale/lease-based diminution, nor the

mere potential for a related motion for relief, provides such a basis. Accord In re Gerke, 634 B.R.

104 109–111 (Bankr. D. Colo. 2021). Moreover, a secured lender is not entitled to adequate

protection of its interest in the lost pre-confirmation use value of collateral occasioned by the

automatic stay of acts against it. United Sav. Ass’n of Texas v. Timbers of Inwood Forest Assocs.,

Ltd., 484 U.S. 365, 371 (1988) (“[T]he ‘interest in property’ protected by § 362(d)(1) does not

include a secured party’s right to immediate foreclosure[.]”).

Regardless of how adequate protection is provided, or under which Code section the need

for it purportedly arises, the debtor bears the burden of proving that its secured lender’s interests

in collateral are adequately protected. See e.g., In re GVM, Inc., 605 B.R. 315, 325 (Bankr. M.D.

Pa. 2019) (“The burden of proof is on the debtor to demonstrate that the secured creditor is

adequately protected for the purpose of using its cash collateral.”).

2. There is Presently no Basis for Adequate Protection Under §362(d)(1)

Lehigh is only partially correct that “the burden of proof on adequate protection lies with

the party opposing relief from stay—namely, the Debtors.” Doc. # 219 ¶ 39 (citing see 11 U.S.C.

§363(p) and Swedeland, 16 F.3d at 564). The burden would lie with the Debtors if they opposed

relief grounded in §362(d)(1).. But no such motion has been filed. Rather, the Motion for Relief,

in which Lehigh and the Receiver joined, was grounded in one of §362(d)(1)’s non-enumerated

causes for relief: namely, the pre-petition expiration of the Leases and the Manors’ resulting

inability to assume or reject them under 11 U.S.C. §365(d)(2). See e.g., In re Turner, 326 B.R.

563, 575–76, 78 (Bankr. W.D. Pa. 2005).

Yet the Manors’ ability to assume or reject the Leases has nothing to do with the diminution

of Lehigh’s interest in rents, nor the related question of whether that interest is being adequately

protected.

Relatedly, the Court is unwilling to order adequate protection payments on the basis that

Lehigh is not being fully compensated for the risk that it will be unable to collect outstanding

administrative rent—presumably the Upstream Rent—if these cases collapse. This argument fails

for two (2) reasons. First, it rings of the lost-use-value variety, which has no basis in law. Timbers

of Inwood, 484 U.S. at 371. Second, the only vehicle for such an argument would seem to be

§362(d)(1). And Lehigh has not moved thereunder on the ground that it has some kind of

cognizable interest in administrative rent apart from that which arises under 11 U.S.C. §503.

Consequently, moving forward, unless it is presented with a motion for relief on adequate

protection grounds under §362(d)(1)—or until the Debtors move for approval of super-priority

financing under §364—the Court will only entertain adequate protection requests specifically

predicated on asserted uses, sales, and/or leases of collateral under §363(e). And because Lehigh

has not moved for relief on adequate protection grounds, the Court holds that Lehigh is not now

entitled to adequate protection under §362(d)(1).

3. There is Presently no Basis for Adequate Protection Under §363(e)

To reiterate, the Court understands Lehigh only to be asserting a lack of adequate protection

of its interests in the Facilities and Upstream Rent. Recall also that Lehigh construes the Leases

to require Upstream Rent payments of roughly $140,000.00 per month, per Manor. Even assuming

that this figure is correct, Lehigh is not entitled to adequate protection of its interest in the Upstream

Rent unless and until there is some indication that those rents are being used, sold, or leased. In

fact, Lehigh has argued for months that adequate protection is required because the Upstream Rent

is not being paid. Meanwhile, Lehigh has not specified which Code section requires adequate

protection in these circumstances.

Surely, §363(e) cannot do the work. After all, which of the Debtors could be said to use,

sell, or lease the Upstream Rent apart from the Trusts contractually entitled to receive it? Yet no

one is suggesting that the Trusts have sold or otherwise assigned the Upstream Rent (at least not

to an entity other than Lehigh). And how could they have used that which they cannot even collect?

The Trusts are the emptiest of shells. They have no employees. They have no officers. They do

not even have bank accounts. In fact, when the Upstream Rent was being paid, it was collected

and apportioned by non-debtor affiliates. Even now, the Manors propose to make the Combined

Payments on the Trusts’ behalf. Thus, the Court holds that §363(e) currently provides no basis for

adequate protection of Lehigh’s interest in the Upstream Rent.

That leaves only Lehigh’s interest in the Facilities. This presents differently because the

Facilities are currently being used and leased. So, the burden falls squarely on the Debtors to prove

that the Facilities are not diminishing in value relative to the petition date. The Debtors meet that

burden. Mr. Wolf testified at the Hearing that he had no reason to believe that the value of the

Facilities was diminishing. In fact, Mr. Wolf’s impression was that the Whitehall Facility, which

he walked, was very clean. And Mr. Plush echoed this sentiment, which comports with other

testimony the Court has heard regarding the physical shape of the Facilities. For example, the

health care ombudswoman appointed for these cases testified that the Facilities were in good

condition. To be sure, this was after she filed a report indicating otherwise (the “Ombuds Report”).

Indeed, the Ombuds Report detailed, inter alia, roof leakage at the Saucon Facility. But the Court

was subsequently presented with evidence that the leak—which resulted from an ice dam after a

particularly harsh winter—had been repaired by maintenance staff at the Facility. And there has

been additional evidence that all other issues identified in the Ombuds Report have since been

resolved. Accordingly, the Court recently denied the United States Trustee’s associated Motion to

Dismiss the Manor Debtors.

Nevertheless, Lehigh contends that its interest in the Facilities is inadequately protected

because their roofs need to be replaced while the Manors’ cash reserves are insufficient to fund the

projected cost of such replacement. This argument fails for two (2) reasons. First, as the Lukens

Appraisal confirms, the Facilities’ roofs needed to be replaced on the petition date. Thus, the fact

that such a need remains is not evidence of post-petition-date diminution in the value of the

Facilities. Were it otherwise, every debtor that deferred pre-petition repairs of encumbered estate

property (e.g., real estate, vehicles, etc.) would be required to provide their secured lender(s) with

adequate protection until the repairs were completed. Such a rule would sweep in most, if not all,

Chapter 11 debtors and discourage reorganization. Not unsurprisingly, Lehigh cites no authority

supporting such a conclusion. Second, there is no evidence that the Manors’ cash reserves are

depreciating. If anything, the Manors’ reserves are appreciating. Compare Bankr. E.D. Pa. Case

No. 25-15241, doc. # 69-1 with Bankr. E.D. Pa. Case No. 25-15245, doc. # 249. Therefore, the

Court holds that §363(e) currently provides no basis for adequate protection of Lehigh’s interest

in the Facilities.

It follows that Lehigh is not currently entitled to adequate protection.. Of course, this does

not prevent the Debtors from voluntarily arranging to send Lehigh so-called “adequate protection”

payments equaling the pre-default debt service due on the Trusts’ mortgages. In other words, while

the Court will not require the Debtors to make payments aimed at staving off another motion for

relief, it may nonetheless be prudent for such payments to accrue.

IV. CONCLUSION

To summarize, the Debtors are not collaterally estopped from prosecuting the Motions.

Nor did the Stay Order prevent their prosecution. The U&O Agreements are approvable because:

(1) the U&O Fees are predicated on third-party appraised values of the Facilities and the rents they

can command in the market; (2) there are sound businesses justifications for the Agreements; (3)

the U&O Motion was properly noticed and describes these interim Agreements in sufficient detail;

and (4) there is no evidence that the Debtors’ principal will be unjustly enriched by the U&O

Agreements. Last, Lehigh is not entitled to adequate protection of its interests in the Upstream

Rent or Facilities because there is no statutory basis for such relief.

The Motions were granted for all these reasons.

_______________________________

Dated: August 26, 2026 Hon. Patricia M. Mayer

United States Bankruptcy Judge