In Re: Treasure Isles V. ( 2011 )

ELECTRONIC CITATION: 2011 FED App. 0011P (6th Cir.)
File Name: 11b0011p.06
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
In re: )
Treasure Isles HC, Inc., )
)
Debtor. )
__________________________________________)
)
Cousins Properties, Inc., )
Appellant, )
) No. 10-8075
v. )
)
Treasure Isles HC, Inc., Treasure Isles, Inc., and )
Pasta Isles, Inc., )
Appellees. )
__________________________________________)
Appeal from the United States Bankruptcy Court
for the Eastern District of Kentucky
Case No. 10-50304
Argued: August 16, 2011
Decided and Filed: September 29, 2011
Before: FULTON, HARRIS, and SHEA-STONUM, Bankruptcy Appellate Panel Judges.
____________________
COUNSEL
ARGUED: Brian D. Huben, KATTEN MUCHIN ROSENMAN LLP, Los Angeles, California, for
Appellant. Laura Day DelCotto, DelCOTTO LAW GROUP PLLC, Lexington, Kentucky, for
Appellees. ON BRIEF: Brian D. Huben, KATTEN MUCHIN ROSENMAN LLP, Los Angeles,
California, Adam R. Kegley, FROST BROWN TODD LLC, Lexington, Kentucky, for Appellant.
Laura Day DelCotto, Christina E. Hayne, DelCOTTO LAW GROUP PLLC, Lexington, Kentucky,
for Appellees.
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____________________
OPINION
____________________
THOMAS FULTON, Bankruptcy Appellate Panel Judge. Appellant appeals the bankruptcy
court’s September 22, 2010 order (the “Appealed Order”), which held that the deadline set forth in
11 U.S.C. § 365(d)(4) for assuming a nonresidential real property lease is satisfied upon the debtor
filing a motion to assume the lease. For the reasons that follow, we AFFIRM the Appealed Order.
I. ISSUES ON APPEAL
Is the deadline set forth in 11 U.S.C. § 365(d)(4) for assuming a nonresidential real property
lease satisfied by the filing of a motion to assume the lease or must the court order approving the
motion be entered prior to the deadline?
II. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit (the “BAP”) has jurisdiction to decide
this appeal. The United States District Court for the Eastern District of Kentucky has authorized
appeals to the BAP.
We must first address whether the Appealed Order is final and appealable by right under
28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it “ends the litigation on the merits
and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United
States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations and internal quotation marks
omitted). “‘[T]he concept of finality applied to appeals in bankruptcy is broader and more flexible
than the concept applied in ordinary civil litigation.’” Millers Cove Energy Co. v. Moore (In re
Millers Cove Energy Co.), 128 F.3d 449, 451 (6th Cir. 1997) (quoting 16 Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 3926.2 (2d ed. 1996)). The finality requirement
is considered “in a more pragmatic and less technical way in bankruptcy cases than in other
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situations. In bankruptcy cases, a functional and practical application [of Section 158] is to be the
rule.” In re Dow Corning Corp., 86 F.3d 482, 488 (6th Cir. 1996) (citations and internal quotation
marks omitted). In bankruptcy cases, an order that finally disposes of discrete disputes within a
larger case may be appealed immediately. Id. This relaxed rule avoids the “waste of time and
resources that might result from reviewing discrete portions of the action only after a plan of
reorganization is approved.” In re Dow Corning Corp., 86 F.3d at 488 (citations and internal
quotation marks omitted).
There is case law stating generally that an order addressing the assumption of a lease under
11 U.S.C. § 365(d)(4) is reviewable as a separate and discrete matter in a bankruptcy case. See
Arizona Appetito’s Stores, Inc. v. Paradise Village Inv. Co. (In re Arizona Appetito’s Stores, Inc.),
893 F.2d 216, 218 (9th Cir. 1990) (citing Turgeon v. Victoria Station Inc. (In re Victoria Station
Inc.), 840 F.2d 682, 684 (9th Cir. 1988)). Both of those cases, however, involved appellate review
of denials of motions to assume as untimely. Thus, absent appellate review, the parties’ respective
rights regarding their leases were fully resolved–the leases were deemed rejected.
In this case, the bankruptcy court did not address the merits of Appellee’s motion to assume
the lease in question. It only concluded that Appellee timely assumed the lease for purposes of
11 U.S.C. § 365(d)(4), reserving consideration of the merits of Appellee’s proposed assumption, and
Appellant’s substantive objections thereto, for an as yet undetermined hearing date. Thus, even if
we decide in Appellee’s favor here, Appellee would still have to persuade the bankruptcy court that
it is entitled to assume the lease under the substantive requirements of 11 U.S.C. § 365, including,
for example, 11 U.S.C. § 365(b). In that respect, the discrete issue of whether Appellee may assume
the lease is not fully resolved, rendering the Appealed Order interlocutory.
An interlocutory order may nevertheless be appealed with leave of court. 28 U.S.C.
§ 158(a)(3). While Appellant has not sought leave of court by filing a motion, in certain
circumstances, we may construe a timely filed notice of appeal as a motion for leave to appeal. See
Fed. R. Bankr. P. 8003(c); Simon v. Amir (In re Amir), 436 B.R. 1, 8 (B.A.P. 6th Cir. 2010). The
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decision to grant leave to appeal is a discretionary one which should be guided and instructed, but
not constrained, by the standards set forth in 28 U.S.C. § 1292(b). Id. (Panel is not constrained by
standards defining Courts of Appeals’ jurisdiction over interlocutory orders, but they are instructive).
The factors to be considered in determining whether to grant leave to appeal are: (1) the question
must be one of “law;” (2) it must be “controlling;” (3) there must be substantial ground for
“difference of opinion” about it; and (4) an immediate appeal must “materially advance the ultimate
termination of the litigation.” Id. (citing Cardwell v. Chesapeake & Ohio Ry. Co., 504 F.2d 444, 445
(6th Cir. 1974)).
We have considered these factors and the request of both parties in their letter briefs
submitted after oral argument to proceed so that this matter can be concluded as expeditiously and
inexpensively as possible, and grant leave to appeal in this case. Accordingly, we will consider the
merits of Appellant’s argument.
III. FACTS
The parties do not dispute the facts of this case. The Debtor1 filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code on February 1, 2010. Prior to the expiration of the
120-day deadline to assume or reject nonresidential real property leases provided for under 11 U.S.C.
§ 365, the Debtor obtained a 90-day extension of time to assume or reject leases, making August 30,
2010, the deadline to assume or reject nonresidential real property leases.
On August 13, 2010, the Debtor filed a second motion for an extension of time to assume or
reject nonresidential real property leases. Included in that second motion was a request to extend
the deadline with respect to a lease between Debtor Pasta Isles, Inc. and CP Venture Two, LLC for
the Debtor’s restaurant at the Greenbrier Market Center in Chesapeake, Virginia (“the Greenbrier
Lease”).
1
There are three debtor entities, Treasure Isles HC, Inc., Treasure Isles, Inc., and Pasta Isles,
Inc. Their cases have been consolidated for purposes of administration.
4
On August 26, 2010, Appellant as agent for the lessor filed an objection to the extension of
time to assume or reject the Greenbrier Lease. Since the lessor would not voluntarily agree to the
extension of the Greenbrier Lease and the Bankruptcy Code does not allow a second extension
without the consent of the lessor, the Debtor removed the Greenbrier Lease from the list of leases
for which it requested an extension.
Simultaneously with the Debtor’s removal of the Greenbrier Lease from the document
requesting the extension of time, the Debtor filed a motion to assume the Greenbrier Lease. That
motion was filed on August 27, 2010, three days prior to the deadline to assume or reject leases. A
hearing was set on the motion to assume the Greenbrier Lease for September 17, 2010.
On August 30, 2010, the Court entered an order, tendered by the Debtor, expressly extending
Debtor Pasta Isles’ time to assume or reject the Greenbrier Lease to September 17, 2010 (the “Bridge
Order”), the date of the hearing on the Debtor’s motion to assume the Greenbrier Lease.
On September 9, 2010, Appellant filed an objection to the assumption of the Greenbrier
Lease, raising several substantive grounds for denial, and on September 13, 2010, Appellant filed
an emergency motion under Federal Rule of Bankruptcy Procedure 9023 asserting that the Bridge
Order improperly extended the deadline for the Debtor to assume or reject the Greenbrier Lease past
the date mandated by proper application of 11 U.S.C. § 365(d)(4).
On September 22, 2010, the bankruptcy court entered the Appealed Order, denying
Appellant’s emergency motion and upholding the Bridge Order because it found that the Debtor had
met the August 30, 2010 deadline to assume the Greenbrier Lease by filing its motion to assume the
lease on August 27, 2010. In so concluding, the bankruptcy court looked to the language of
11 U.S.C. § 365(d)(4) and both pre and post-BAPCPA cases to draw a distinction between motions
to extend the time to assume or reject and motions to assume. In the case of the former, the court
order granting the same must be entered before the deadline but in the case of the latter, only the
motion to assume need be filed prior to the deadline.
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IV. DISCUSSION
The substantive issue presented here boils down to this: What constitutes assumption of a
lease by a trustee for purposes of meeting the applicable deadline under 11 U.S.C. § 365(d)(4)? Was
the August 30, 2010 deadline for assuming the Greenbrier Lease satisfied by the Debtor filing its
August 27, 2010 motion to assume the Greenbrier Lease? Appellant asserts that, post-BAPCPA, not
only must a trustee file its motion to assume a nonresidential lease prior to the deadline, the
bankruptcy court must have granted the motion by the deadline for the lease not to be deemed
rejected by operation of 11 U.S.C. § 365(d)(4). Appellee asserts that, as consistently interpreted
before BAPCPA, 11 U.S.C. § 365(d)(4) only requires that a trustee file its motion to assume before
the deadline.
Appellee is correct that almost every pre-BAPCPA case addressing this issue holds that a
trustee need only file its motion to assume the lease prior to the deadline under 11 U.S.C. § 365(d)(4)
and does not have to obtain court approval of the same prior to the deadline to avoid having its
executory contract deemed rejected.2 See, e.g., In re Victoria Station Inc., 840 F.2d at 684; In re
Delta Paper Co., Inc., 74 B.R. 58 (Bankr. E.D. Tenn. 1987); By-Rite Distrib., Inc. v. Brierley (In re
By-Rite Distrib., Inc.), 55 B.R. 740 (D. Utah 1985).
Furthermore, and despite Appellant’s best efforts to distinguish them, post-BAPCPA cases
addressing this issue continue to hold that a trustee “assumes” a nonresidential lease for purposes
of meeting the applicable 11 U.S.C. § 365(d)(4) deadline simply by filing a motion to assume. See,
e.g., In re Akron Thermal, Ltd. P’ship, 414 B.R. 193 (N.D. Ohio 2009); In re Amerlink, Ltd., No. 09-
01055-8-RDD, 2009 WL 2497776 (Bankr. E.D.N.C. Aug. 12, 2009); In re R. Ring Enter., Inc., No.
08-44903 EDJ, 2009 WL 779800 (Bankr. N.D. Cal. Feb. 19, 2009). In essence, those cases hold
2
Indeed, as noted in In re The Casual Male Corp., 120 B.R. 256, 260 n.3 (Bankr. D. Mass.
1990), the only cases holding otherwise, including the only case directly on point cited by Appellant,
In re House of Deals of Broward, Inc., 67 B.R. 23 (Bankr. E.D.N.Y. 1986), had either been reversed
or overruled by the date of that opinion.
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that BAPCPA did not change the substantive language of 11 U.S.C. § 365(d)(4)(A) or 11 U.S.C.
§ 365(a) directing the trustee to assume or reject within the deadlines established by 11 U.S.C.
§ 365(d)(4)(A) and (B). BAPCPA simply set an outside limit on the amount of time by which a
bankruptcy court can extend the trustee’s original deadline to assume or reject.
Moreover, a comparison of the language of both versions of 11 U.S.C. § 365(d)(4) indicates
that pre-BAPCPA case law should continue to be followed. Prior to BAPCPA, 11 U.S.C.
§ 365(d)(4) read as follows:
Notwithstanding paragraphs (1) and (2), in a case under any chapter of this title, if the
trustee does not assume or reject an unexpired lease of nonresidential real property
under which the debtor is the lessee within 60 days after the date of the order for
relief, or within such additional time as the court, for cause, within such 60-day
period, fixes, then such lease is deemed rejected, and the trustee shall immediately
surrender such nonresidential real property to the lessor.
(emphasis added).
Post-BAPCPA, 11 U.S.C. § 365(d)(4) now reads as follows:
(A) Subject to subparagraph (B), an unexpired lease of nonresidential real property
under which the debtor is the lessee shall be deemed rejected, and the trustee shall
immediately surrender that nonresidential real property to the lessor, if the trustee
does not assume or reject the unexpired lease by the earlier of–
(i) the date that is 120 days after the date of the order for relief; or
(ii) the date of entry of an order confirming a plan.
(B) (i) The court may extend the period determined under subparagraph (A),
prior to the expiration of the 120-day period, for 90 days on the motion of the
trustee or lessor for cause.
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(ii) If the court grants an extension under clause (i), the court may grant a
subsequent extension only upon prior written consent of the lessor in each
instance.
(emphasis added). We note that both pre and post-BAPCPA versions of 11 U.S.C. § 365(d)(4)
expressly require that a bankruptcy judge approve extensions of the time in which the trustee may
assume or reject prior to the applicable deadline–the only real difference being that post-BAPCPA
11 U.S.C. § 365(d)(4) limits the extension to one 90-day period absent consent of the lessor. Both
versions of 11 U.S.C. § 365(d)(4) expressly direct the trustee to do exactly the same thing – “assume
or reject” the unexpired lease by the applicable deadline.
Finally, consideration of the stated legislative purpose of 11 U.S.C. § 365(d) supports the
Appellee’s position. As seen from the House and Senate Reports associated with the Reform Act
of 1978, the Reform Act of 1994, and BAPCPA, Congress was concerned with balancing the
interests of debtor lessees in having enough time to make “informed” decisions about leases against
the interests of lessors in not “being left in doubt concerning their status vis-a-vis the estate.” See
H.R. Rep. No. 95-595, at 348 (1977); S. Rep. No. 95-989, at 59 (1978); H.R. Rep. No. 103-834, at
31 (1994); H.R. Rep. No. 109-31, at 404 (2005). The changes brought by BAPCPA, in particular,
were designed to “remove the bankruptcy judge’s discretion to grant extensions of the time for the
retail debtor to decide whether to assume or reject a lease after a maximum possible period of 210
days from the time of entry of the order of relief.” H.R. Rep. No. 109-31, at 404 (emphasis added).
In Congress’s own words, the deadline provisions of 11 U.S.C. § 365(d)(4) are intended to
set a “bright line” regarding how much time the trustee has to decide whether to assume or reject a
lease. Congress does not specify the manner in which the trustee is to announce the decision,
although case law consistently holds that the mere filing of a motion to assume is sufficient. If we
were to adopt the Appellant’s interpretation of 11 U.S.C. § 365(d)(4), such certainty would be
destroyed. The period within which the trustee could consider assumption or rejection would vary
widely, depending on the vagaries of a particular bankruptcy court’s caseload and local procedures.
Theoretically at least, a trustee could file a motion to assume a lease on the day the debtor filed its
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bankruptcy petition and, because of events outside the trustee’s control, still fail to obtain court
approval of the motion before the deadline. Conversely, allowing trustees to signify their intentions
merely by filing motions to assume clearly satisfies the goal of 11 U.S.C. § 365(d)(4) to let lessors
know the trustees’ intention with respect to their property within a reasonable, certain time frame.3
V. CONCLUSION
For the foregoing reasons, we AFFIRM the Appealed Order.
3
Appellant appears to be concerned that trustees will file motions to assume in bad faith as
a means of prolonging their use of property without really intending to assume the leases. We
believe that existing safeguards such as Federal Rule of Bankruptcy Procedure 9011 and 11 U.S.C.
§ 105(a) are a better means of achieving the balance sought by Congress than a system that puts
trustees at the mercy of varying court caseloads and local practices.
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