Axton, In re
| Decision Date | 16 March 1981 |
| Docket Number | No. 77-3801,77-3801 |
| Citation | 641 F.2d 1262 |
| Parties | In re T. R. AXTON, Sr., Corporation d/b/a Hollandease Restaurant, a California Corporation, Debtor. NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin Corporation, Plaintiff-Appellee, v. T. R. AXTON, Sr., Corporation, d/b/a Hollandease Restaurant, a California corporation, Carlyle Michelman, Receiver, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Joel Mithers, Los Angeles, Cal., for defendant-appellant.
William A. Halama, Los Angeles, Cal., for plaintiff-appellee.
Appeal from the United States District Court for the Central District of California.
Before WRIGHT and WALLACE, Circuit Judges, and HOFFMAN, Senior District Judge. *
This is an appeal by the receiver and debtor-in-possession from an order of the district court affirming an order of the bankruptcy judge in a Chapter XI proceeding sustaining a motion for summary judgment in favor of Northwestern Mutual Life Insurance Company and dismissing the appellants' cross-claims for lack of jurisdiction.
The debtor, T. R. Axton, Sr., Corporation d/b/a Hollandease Restaurant, a California corporation, operated a restaurant at One Wilshire Boulevard, Los Angeles, California and, on some date prior to July 30, 1971, filed a Chapter XI arrangement proceeding. 1 Carlyle Michelman was appointed receiver. The original owners of One Wilshire Boulevard, namely, One Wilshire Company (later One Wilshire Financial Corp.), entered into a lease with the debtor's predecessors on September 9, 1966. The lease is not a part of the record on appeal and was not designated as such by the parties. However, from the briefs and uncontroverted statements contained in the papers, we are able to ascertain the pertinent provisions.
After the Chapter XI proceeding was filed, a controversy developed as to whether the then owner, One Wilshire Financial Corp., was entitled to the possession of its premises. By stipulation and order of the bankruptcy court, filed July 30, 1971, the owner, the debtor and its receiver agreed that the receiver could remain in possession upon the payment of specific sums through August 31, 1971, and beginning September 1, 1971 at a rate of $3352 per month, plus any amounts due under the percentage lease of 1966. The agreement further provided that the receiver would pay the additional sum of $1500 per month until the rental delinquencies due by debtor to owner, plus attorneys' fees, had been extinguished, reserving to any trustee in bankruptcy the right to claim such additional payments as voidable preferences. The stipulation stated that, if the agreed payments were not made, the receiver would surrender possession of the premises with a resulting dissolution of the temporary restraining order previously issued by the bankruptcy court. It further provided that the receiver would be liable for all rent accruing under said agreement during the time he had actual possession of the premises and the debtor would be liable for all delinquent rent owing as of July 30, 1971.
On September 30, 1976, the Northwestern Mutual Life Insurance Company, having acquired title to the property along with the lessor's interest in the 1966 lease and the stipulation and order of July 30, 1971, filed a document in the Chapter XI proceeding entitled "Complaint for Termination of Lease and Damages", alleging the foregoing facts and that neither the receiver nor debtor had paid any monthly installments of rent for any month in 1976, except the payment for the month of May, and the installment payments then due aggregated $26,816.00. 2 Additionally, Northwestern claimed, but did not seek judgment for, unspecified amounts due for tax escalations, operating escalations and other amounts for 1976 and prior years. The complaint alleged, as required by California law, that a three-day notice had been given to the receiver and debtor in possession stating the rent then due and requiring payment or possession of the premises within three days after service of the notice. The prayer for relief sought an order restoring possession of the premises, the sum of $26,816 for rent due "and for such further sums as may accrue to the rendition of judgment herein with interest thereon at the rate of 7% per annum", reasonable attorneys' fees and costs, a forfeiture of the lease, and a declaration that neither the receiver nor debtor is entitled to or has any right, title or interest in the premises.
The receiver answered the complaint and filed a cross-claim. 3 Claiming that the owner breached the terms of the 1966 lease which allegedly excused the receiver from making payment of rent, the cross-claim asserts:
(1) That a 1975 fire in the adjacent premises caused water damage to the restaurant premises requiring an expenditure of $29,000 which, although wholly or partially covered by the receiver's insurance carrier, remained an obligation of the owner to reimburse.
(2) That a pipe in the upstairs portion of the building broke in the spring of 1976, causing extensive water damage and necessary repairs and replacements, with no reimbursement by the owner.
(3) That by reason of the water damage mentioned in (2) above, the restaurant became infested with roaches and mice.
(4) The owner did extensive remodeling of the exterior of the premises, including the destruction of hardwood exterior placed thereon by the receiver or debtor at an expenditure of $6,000 and the remodeling operation interfered with the access of patrons.
(5) The owner has closed the doors of the restaurant, interfered and impeded traffic to the restaurant, and turned out the lights to the corridor between 6:30 and 7:00 in the evenings.
(6) The owner has sold the adjacent parking lot, thus denying the receiver and debtor access for the delivery of food and other supplies, thereby requiring deliveries at 3:30 or 4:00 A.M.
(7) That the actions of the owner have destroyed the receiver's operations to the extent of $7,000 per week.
The receiver requested a temporary restraining order, damages for loss of revenue in the sum of $280,000, reimbursement of $29,000 for water damage from the fire of the adjacent premises, reimbursement for water damage by reason of the broken pipe, and damages for loss of access for delivery of supplies.
Northwestern initially filed a motion to dismiss the counterclaims and cross-claim, as well as a motion to strike affirmative defenses. A few weeks later, Northwestern filed a motion for summary judgment.
When the matter was heard before the bankruptcy judge on January 21, 1977, the facts had been essentially resolved. The debtor and receiver were still in possession of the premises; it was conceded that neither paid any rent during 1976, except for the month of May. The bankruptcy court determined the eleven months' use and occupancy allowance at $36,872. The bankruptcy court, assuming as true for the purpose of the motion for summary judgment the facts pleaded by the debtor and receiver, found that the alleged breaches by Northwestern violated only the covenant of quiet enjoyment implied under the lease. Then follows the bankruptcy court's conclusions of law:
The issues presented by this appeal are as follows:
I. Under California law, in a commercial lease is the covenant to pay rent independent of the landlord's obligations to the extent that, if a tenant is dissatisfied with the condition of the premises, the tenant can refuse to pay rent and continue to occupy the premises?
II. In light of the written stipulation filed in the bankruptcy proceedings, is the relationship between the parties contractual or governed by a different set of rules?
III. Has Northwestern consented to the summary jurisdiction of the bankruptcy court by filing its complaint seeking the forfeiture of the lease and monetary damages?
IV. Is the lessee's claim for damages under the stipulation and agreement a compulsory cross-claim to a claim by lessor under said stipulation and agreement?
Appellant contends that the "Middle Ages" rule with respect to independent covenants in leases is outmoded and has been repudiated by the California Supreme Court. Reliance is placed upon Green v. Superior Court, 10 Cal.3d 616, 111 Cal.Rptr. 704, 517 P.2d 1168 (1974); Hinson v. Delis, 26 Cal.App.3d 62, 102 Cal.Rptr. 661 (1972); and Medico-Dental Co. v. Horton & Converse, 21 Cal.2d 411, 132 P.2d 457 (1942). Green and Hinson refer to residential properties having an implied covenant of habitability, with major violations of building codes which affected habitability. 4 Medico-Dental concerned a rental covenant together with an express covenant not to lease to a competitive business which, when violated by the landlord, justified an offset to the obligation to pay rent. 5
Appellee urges that Petroleum Collections Incorporated v. Swords, 48 Cal.App.3d 841, 122 Cal.Rptr. 114 (1975), is controlling. Appellant makes no mention of this case in its brief. Texaco leased to Swords a service station and a large "Modular" type elevated sign visible from Freeway 99. After the lease was signed and Swords took possession, the building inspector ordered that the sign be removed or altered as constituting a hazard. Texaco caused...
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