Cromwell Field Associates, LLP v. May Department Stores Co. ( 2001 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
CROMWELL FIELD ASSOCIATES, LLLP, 
Plaintiff-Appellee,
v.
 No. 00-1385
THE MAY DEPARTMENT STORES
COMPANY,
Defendant-Appellant.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
J. Frederick Motz, Chief District Judge.
(CA-99-3249-JFM)
Argued: December 6, 2000
Decided: March 2, 2001
Before TRAXLER and KING, Circuit Judges, and
Terrence W. BOYLE, Chief United States District Judge for the
Eastern District of North Carolina, sitting by designation.
Affirmed by unpublished opinion. Chief Judge Boyle wrote the opin-
ion, in which Judge Traxler and Judge King joined.
COUNSEL
ARGUED: David Engle Martin, Office of Legal Counsel, THE MAY
DEPARTMENT STORES COMPANY, St. Louis, Missouri, for
Appellant. Benjamin Rosenberg, ROSENBERG, PROUTT, FUNK &
GREENBERG, L.L.P., Baltimore, Maryland, for Appellee. ON
2 CROMWELL FIELD ASSOC. v. MAY DEPARTMENT STORES
BRIEF: C. Michelle Mitchell-Bromfman, Office of Legal Counsel,
THE MAY DEPARTMENT STORES COMPANY, St. Louis, Mis-
souri; Christopher R. Mellott, E. Anne Hamel, VENABLE, BAET-
JER & HOWARD, L.L.P., Baltimore, Maryland, for Appellant.
Douglas B. Riley, ROSENBERG, PROUTT, FUNK & GREEN-
BERG, L.L.P., Baltimore, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
BOYLE, Chief District Judge:
May Department Stores ("May") appeals from the district court’s
granting of summary judgment to Cromwell Field Associates, LLLP.
Cromwell Field originally brought this action to compel May, as
guarantor of a commercial lease, to perform its obligations under the
lease.
In 1985 Cromwell Field entered into a lease agreement with the
original lessee, Caldor, Inc., for a retail department store in Glen Bur-
nie, Maryland. May now holds the guaranty for that lease.* In Sep-
tember 1995 Caldor filed a voluntary petition for bankruptcy under
Chapter 11. In April 1999 Caldor complied with the Bankruptcy
Court’s order to reject the lease pursuant to § 365(a) of the Bank-
ruptcy Code and vacate the premises.
In July 1999 Cromwell Field elected to file a proof of claim for
*Caldor was a wholly-owned subsidiary of Associated Dry Goods,
Inc. ("ADG"). ADG executed a guaranty of the lease on behalf of Caldor.
During the following year May acquired all of the stock of ADG, and
ADG was eventually merged into May. Caldor was later sold off by
May. May does not dispute the fact that it is the successor and holder of
the guaranty on Caldor’s lease.
CROMWELL FIELD ASSOC. v. MAY DEPARTMENT STORES 3
"damages resulting from the termination" of the Lease, pursuant to
§ 502(b)(6) of the Bankruptcy Code. In its proof of claim, Cromwell
Field asked the Bankruptcy Court to award it over $1.4 million in
damages. May continued to pay all of the rent due under the lease
through August 1999 but has not paid any rent since. In November
1999 Cromwell Field filed suit against May for rent due under the
lease and also sought a declaratory judgment that May was obligated
to perform Caldor’s obligations under the lease for the remainder of
its term.
The district court granted summary judgment to Cromwell Field on
both issues. The district court held that Caldor’s rejection of the lease
in bankruptcy did not release May, as the guarantor, from liability and
that it was unnecessary to look at the terms of the lease to determine
the nature and scope of May’s liability. May was ordered to pay
$88,759.66 in delinquent lease payments for the months of September
and October 1999. The district court also entered a declaratory judg-
ment declaring that May was the guarantor of the lease for the
remaining 12-year term of the lease.
I.
May argues that Caldor’s rejection of the lease did not constitute
a termination of the lease and instead argues that Cromwell Field ter-
minated the lease by filing its claim for damages under § 502(b)(6)
of the Bankruptcy Code. While the courts are split on this issue as it
generally applies, see, e.g., Sea Harvest Corp. v. Riviera Land Co.,
868 F.2d 1077 (9th Cir. 1989), but see Matter of Austin Development,
19 F.3d 1077 (5th Cir. 1994), in the present context of a non-
residential lease in which the tenant must immediately surrender pos-
session upon rejection, the rejection of the lease is also a termination
of the lease. See In re Henderson, 245 B.R. 449 (Bkty. S.D.N.Y.
2000). As the Court in In re Henderson explained:
The effect of rejection is one of the great mysteries of bank-
ruptcy law. As a rule, the rejection of a lease gives rise to
a pre-petition breach, 11 U.S.C. §§ 365(g)(1), but does not
terminate the lease. See Medical Malpractice Ins. Ass’n v.
Hirsch (In re Lavigne), 114 F.3d 379, 386-87 (2d Cir. 1997)
(discussing the effect of rejection on executory contracts).
4 CROMWELL FIELD ASSOC. v. MAY DEPARTMENT STORES
This broad rule is nonetheless subject to a significant excep-
tion. Where the trustee rejects a non-residential real property
lease, he must immediately surrender the property to the les-
sor. 11 U.S.C. §§ 365(d)(1). In such a case, rejection is tan-
tamount to termination.
Id. at 453.
Under the Guaranty of Lease enacted between Cromwell Field and
May’s predecessor May unconditionally guaranteed the full perfor-
mance of the lease. The lease stated:
[T]he obligations of the Guarantor shall in no wise be termi-
nated, affected, or impaired by reason of . . . the relief of
Tenant from any of Tenant’s obligations under the Lease
whether by operation of law or otherwise (including, but
without limitation, the rejection of said lease in connection
with proceedings under the bankruptcy laws now or hereaf-
ter enacted). . . .
J.A. 94. May argues that its liability is co-extensive with Caldor’s
obligations and that, by filing its claim for damages, Cromwell Field
terminated further payments owed by May under the conditions of the
Lease. The filing of a proof of claim under 11 U.S.C. § 502(b)(6)
does not "cut off and extinguish the lessor’s claim for amounts in
excess of the amount chargeable to the debtor’s estate. . . . [T]hus, the
lessor can still look to the person or entity that guaranteed the debtor’s
lease obligations." In re Modern Textile, 900 F.2d 1184 (8th Cir.
1990). Cromwell Field has appropriately looked to May to fulfill Cal-
dor’s lease obligations. Article 8 requires that the tenant, (or May as
the guarantor) make all payments of rent even if the tenant vacates the
premises, unless Cromwell Field subsequently gives the tenant notice
that it is canceling the Lease. Cromwell Field has given no such
notice, and May remains liable for the rent payments during the
months of September and October 1999.
II.
May also contends that the district court erred when it granted a
declaratory judgment that the guaranty is enforceable against May.
CROMWELL FIELD ASSOC. v. MAY DEPARTMENT STORES 5
May argues that, under the Declaratory Judgment Act, 28 U.S.C.
§ 2201, there can be no "actual controversy" as to future rent owed
because, under Maryland law, future rental obligations do not consti-
tute a present debt and cannot give rise to an independent cause of
action. According to May, in finding that Cromwell Field need only
show that May has failed to pay rent or other charges when due to
obtain judgment of the amount due, the district court has effectively
entered a monetary judgment for the full future rent reserved under
the lease. Furthermore, a myriad of circumstances could arise (re-
letting, taking by eminent domain, destruction by fire) which could
materially affect the obligation to pay, and May could be prevented
from raising any defenses.
May is reading the declaratory judgment too broadly. The actual
holding of the court order is: "I can only resolve that the guaranty is
enforceable against May." Order and Memorandum, J.A. 241. The
district court simply declared the rights and legal relations of the par-
ties arising out of the guaranty. The declaratory judgment does not
mandate that May is liable for future rents, nor does it preclude future
changes in the obligations between the parties, and Cromwell Field
must still show that May has failed to comply with its obligations
under the guaranty in order to obtain a judgment.
III.
May’s final claim is that the district court abused its discretion by
not granting a continuance on Cromwell Field’s Motion for Summary
Judgment pending additional discovery. May requested a continuance
of Cromwell Field’s Motion for Summary Judgment, but the district
court denied this continuance, holding that there were "no material
facts that remain unknown." Order and Memorandum, note 1, J.A.
240. May sought additional discovery about the formation of the
guaranty and about Cromwell Field’s attempts to mitigate damages.
The review of a district court’s decision denying a request to con-
tinue is reviewed for an abuse of discretion. Nguyen v. CNA Corp.,
44 F.3d 234 (4th Cir. 1995). The district court did not abuse its discre-
tion by denying May’s request for a continuance. The facts on which
the district court relied to decide this case were not in dispute. The
facts that May sought under discovery were immaterial to the sum-
6 CROMWELL FIELD ASSOC. v. MAY DEPARTMENT STORES
mary judgment motion. Summary judgment was predicated on the
relationship of the parties under the lease and guaranty, not on the
actions that were undertaken to mitigate damages.
IV.
For the foregoing reasons, we conclude that the district court cor-
rectly determined that May was liable for the September and October
1999 rent under the guaranty, that the declaratory judgment stating
that the guaranty is enforceable against May was proper, and that the
district court did not abuse its discretion by failing to grant May a
continuance. We thereby affirm the district court’s granting of sum-
mary judgment.
AFFIRMED