In re Stoltz

• Decision Date: 01 August 1999
• Docket Number: Docket No. 98-5072
• Citation: 197 F.3d 625
• Parties: (2nd Cir. 1999) IN RE: LAURA STOLTZ, Debtor, BRATTLEBORO HOUSING AUTHORITY, Creditor-Appellant, JAN M. SENSENICH and OFFICE OF U.S. TRUSTEE, Trustees, v. LAURA STOLTZ, Debtor-Appellee
• Court: U.S. Court of Appeals — Second Circuit

Page 625

197 F.3d 625 (2nd Cir. 1999)

IN RE: LAURA STOLTZ, Debtor,

BRATTLEBORO HOUSING AUTHORITY, Creditor-Appellant, JAN M. SENSENICH and OFFICE OF U.S. TRUSTEE, Trustees, v. LAURA STOLTZ, Debtor-Appellee.

Docket No. 98-5072

August Term, 1999

UNITED STATES COURT OF APPEALS SECOND CIRCUIT

Argued: Oct. 18, 1999

Decided: Nov. 29, 1999

Appellant appealed from a judgment of the United States District Court for the District of Vermont, J. Garvin Murtha, Chief Judge, reversing the United States Bankruptcy Court's denial of Appellee's motion to assume a residential lease and grant of Appellant's motion for relief from automatic stay and co-debtor stay.

Affirmed and remanded for further proceedings.

[Copyrighted Material Omitted]

REBECCA A. RICE, Cohen & Rice, Rutland, VT, for Creditor-Appellant Brattleboro Housing Authority.

GEOFFRY WALSH, Vermont Legal Aid, Inc., Springfield, VT, for Debtor-Appellee Laura Stoltz.

Before: MINER, WALKER, and KATZMANN, Circuit Judges.

KATZMANN, Circuit Judge:

Brattleboro Housing Authority ("BHA"), creditor-appellant, appeals from a judgment of the United States District Court for the District of Vermont (J. Garvin Murtha, Chief Judge), reversing the decision of the United States Bankruptcy Court for the District of Vermont (Francis G. Conrad, Judge) which: (1) denied the motion of Laura Stoltz, debtor-appellee, to assume her residential lease pursuant to 11 U.S.C. 365(d)(2), and (2) granted BHA's motions for relief from stay and co-debtor stay pursuant to 11 U.S.C. 362(d). BHA contends that the district court erred in holding that a debtor who has a possessory interest in leased residential property on the date the debtor files a Chapter 13 bankruptcy petition has an "unexpired" lease that may be assumed under the Bankruptcy Code. For the reasons that follow, we affirm the judgment of the district court and remand to the bankruptcy court for further proceedings consistent with this opinion.

BACKGROUND

Stoltz lives with her children and Shane Farrell, the co-debtor in this case, in an apartment (the "Apartment") owned and operated by BHA, an entity that offers federally funded public housing in Brattleboro, Vermont. The lease on the Apartment (the "Lease") requires Stoltz to pay $560 per month in rent on or before the first day of each month. In addition, section 2 of the Lease provides, in relevant part:

MONTH-TO-MONTH LEASE. The terms of this lease shall commence on August 1, 1996, and shall continue for the remainder of said month of August and for the term of one month thereafter; provided, however, that in the absence of a notice to terminate, . . . the term of this lease shall be renewed for successive terms of one (1) calendar month upon payment each month of the rent . . . and upon compliance by the Tenant with all the provisions of this [l]ease.

Stoltz failed to pay the rent for July and August 1997. On or about August 5, 1997, BHA sent Stoltz and Farrell a "Notice to Quit/Non-Payment of Rent" (the "Notice"). The Notice advised them that:

[T]he Brattleboro Housing Authority is terminating its Lease Agreement with you effective September 1, 1997 for non-payment of rent. You may stop the proceedings if you pay the entire amount of arrears shown below on or before September 1, 1997.

When Stoltz did not pay the arrearage by September 1, 1997, BHA initiated eviction proceedings in the Windham Superior Court against her and Farrell. By Order dated December 22, 1997, the Windham Superior Court held that BHA was entitled to recover possession of the Apartment. The Order provided, pursuant to Vermont law, that a Writ of Possession was to be issued on December 31, 1997. SeeVt. Stat. Ann. tit. XII, 4854 ¹.

On December 26, 1997, after the judgment of possession was entered but before the writ of possession was issued, Stoltz filed a Chapter 13 bankruptcy petition in the United States Bankruptcy Court for the District of Vermont, thereby triggering an automatic stay of the eviction proceedings. See 11 U.S.C. 362(a).². In her bankruptcy plan, she proposed, among other things, to cure the default on her Lease by paying all back rent over a 36-month period beginning in January 1998, and then to assume the Lease. On January 14, she filed a motion to assume lease in the bankruptcy court. BHA objected to the motion on various grounds and then moved for relief from automatic stay ³. and co-debtor stay pursuant to 11 U.S.C. 362(d). ⁴.

The bankruptcy court denied Stoltz's motion to assume lease on the ground that the Lease had expired according to its own terms when she fell behind on her rent payments and therefore, no lease existed that could be assumed. See In re Stoltz, 220 B.R. 552, 556 (Bankr. D. Vt. 1998). Finding that the sole purpose of Stoltz's Chapter 13 reorganization plan was the assumption of the Lease, the bankruptcy court also denied Stoltz's motion to confirm the plan. It then granted BHA's motions for relief from stay and co-debtor stay because it determined that neither Stoltz nor Farrell had any equity in the leased property and the property was not necessary to an effective reorganization.

The district court conditionally reversed. See Stoltz v. Brattleboro Hous. Auth. (In re Stoltz), 233 B.R. 280, 284 (D. Vt. 1998). To the extent that the bankruptcy court denied Stoltz's motion to assume lease on the ground that the Lease had expired before she filed her Chapter 13 petition, the district court reversed. See id. The district court ruled that while a debtor's residential lease may be terminated under Vermont law, it is not "expired" for purposes of Chapter 13 until the writ of possession is executed. See id. Where, as here, a debtor continues physically to occupy the leased premises, the debtor possesses an unexpired lease that may be assumed pursuant to 11 U.S.C. 365(d)(2). See id. However, the district court remanded this case to the bankruptcy court to determine whether alternative bases supported the denial of the motion to assume lease. See id. at 284 & n.1. To the extent the district court held that the Lease may be assumed, its decision implicitly reversed the lifting of the automatic stay and co-debtor stay by the bankruptcy court. On remand, the bankruptcy court construed the district court's ruling as a final judgment and adjourned the hearing on the confirmation of Stoltz's Chapter 13 plan pending the resolution of this appeal.

DISCUSSION

Orders denying relief from automatic stay are final. See FDIC v. Niagara Mohawk Power Corp. (In re Megan-Racine Assocs., Inc.), 102 F.3d 671, 675 (2d Cir. 1996); Shimer v. Fugazy (In re Fugazy Express, Inc.), 982 F.2d 769, 776 (2d Cir. 1992). We have jurisdiction to review such orders on appeal under 28 U.S.C. 158(d) and 1291. See In re Megan-Racine, 102 F.3d at 675 (exercising jurisdiction under 158(d)); In re Fugazy Express, 982 F.2d at 776 (recognizing jurisdiction under 1291); Sonnax Indus., Inc. v. Tri Component Products Corp. (In re Sonnax Indus., Inc.), 907 F.2d 1280, 1283 (2d Cir. 1990) (exercising jurisdiction under 1291). "An order of a district court functioning in its capacity as an appellate court in a bankruptcy case is subject to plenary review." See, e.g., Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139, 142 (2d Cir. 1999). Since the district court's reversal of the lifting of the automatic stay is contingent on its determination that the Lease was unexpired at the time Stoltz filed for Chapter 13 protection, we have pendent appellate jurisdiction to first consider that ruling. ⁵.

Section 541 of the Bankruptcy Code, 11 U.S.C. 541, enumerates the types of property interests that are included in the bankruptcy estate. The estate is defined broadly to include "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. 541(a)(1). "[U]nexpired leasehold interests . . . constitute property of the bankrupt estate." See 48th Street Steakhouse, Inc. v. Rockefeller Group, Inc. (In re 48th Street Steakhouse, Inc.), 835 F.2d 427, 430 (2d Cir. 1987). Subject to court approval and with some exceptions, a Chapter 13 debtor may assume an unexpired lease of residential real property at any time before the confirmation of a reorganization plan. See 11 U.S.C. 365(d)(2). ⁶. Only an "unexpired" lease may be assumed. The term "unexpired" is not defined in the Bankruptcy Code itself or in its legislative history. Instead, because property interests are created and defined by state law, federal courts have looked to state law to determine a debtor's interests, including leasehold interests, in the bankruptcy estate. See, e.g., Nobelman v. American Sav. Bank, 508 U.S. 324 329 (1993) (looking to Texas law); In re Williams, 144 F.3d 544, 546 (7th Cir. 1998) (looking to Illinois law); City of Valdez v. Waterkist Corp. (In re Waterkist Corp.), 775 F.2d 1089, 1091 (9th Cir. 1985) (looking to Alaska law); Gallatin Hous. Auth. v. Talley (In re Talley), 69 B.R. 219, 222-23 (Bankr. M.D. Tenn. 1986) (collecting cases relying on state law). Accordingly, we look to Vermont law to determine Stoltz's interests, if any, in her month-to-month tenancy.

Under Vermont law, a lease is "a contract between the landlord and the tenant wherein the landlord promises to deliver and maintain the demised premises in habitable condition and the tenant promises to pay rent for such habitable premises." Hilder v. St. Peter, 144 Vt. 150, 158-59, 478 A.2d 202, 208 (1984). Pursuant to Vermont statute, a landlord seeking to evict a residential tenant for failing to pay rent must: (1) give notice by certified mail or by having the notice served by a law enforcement officer at least fourteen days prior to the termination date in the notice; (2) wait for the termination date in the notice to pass; (3) obtain a judgment of possession by filing an action of ejectment; (4) obtain a writ of possession; and (5) execute the writ of possession. See Vt. Stat. Ann. tit. IX, 4467(a); Vt. Stat. Ann. tit. XII, 4854.

...