In re M & R Apparel, Inc.
| Decision Date | 10 November 1988 |
| Docket Number | Motion No. 5-88-0195-M.,Bankruptcy No. 5-88-00699 |
| Citation | 92 BR 565 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | In re M & R APPAREL, INC., Debtor. Samuel J. HEYMAN and Heyman Associates # 1, Movant, v. M & R APPAREL, INC., Respondent. |
Marc J. Kurzman, Levett, Rockwood & Sanders, P.C., Westport, Conn., for movant.
Matthew R. Woods, Gladstone, Schwartz, Baroff & Blum, Bridgeport, Conn., for respondent.
MEMORANDUM AND DECISION ON RELIEF FROM AUTOMATIC STAY UNDER CODE § 362(d)(1); § 365(c)(3)
ALAN H.W. SHIFF, Bankruptcy Judge.
Samuel J. Heyman and Heyman Associates # 11 move for relief from the automatic stay provided by Bankruptcy Code § 362(a) to evict the debtor, M & R Apparel, Inc., from retail space leased to M & R. M & R defends on the basis of its proposal to adequately protect Heyman by curing a nonpayment of rent default and assuming the lease under § 365(b)(1). The issue presented is whether there is cause for relief from the stay because under § 365(c)(3), the lease may not be assumed.
By a lease dated March 24, 1981, Heyman rented nonresidential real property in the Compo Acres Shopping Center, located in Westport, Connecticut, to Clothes Place of Westport, Inc., for a term commencing June 1, 1981 and terminating July 31, 1991. Paragraph Thirty-third of the rider provided that monthly rent was due on the first day of every month. Paragraph Forty-first of the rider related to the assignment of the lease and provided in part:
Tenant shall have the right, without the consent of landlord, to assign or sublet the premises to an affiliated corporation, or a parent corporation, or to a subsidiary corporation or in connection with a bona fide corporate merger, reorganization or sale of all its assets to a financially responsible entity provided that (i) the use or purpose to be made of the demised premises shall be compatible with then existing tenancies at the shopping center and that such use or purpose does not violate any provisions of any other lease then in effect at the shopping center, and (ii) such assignment or subletting shall not release or in any manner affect the liability of the tenant or of the Guarantor hereunder.
On August 1, 1984, Clothes Place assigned the lease to M & R pursuant to paragraph Forty-first. Neither Clothes Place nor M & R asked for Heyman's consent.
M & R failed to pay rent due on April 1, 1988. On April 13, Heyman received a letter from attorney Alexander Breiner on behalf of Trim Fashions, Inc., advising that Trim Fashions had agreed to purchase all of M & R's assets, including the lease, pursuant to paragraph Forty-first, as to which Breiner sought Heyman's consent. No evidence was offered that Heyman responded to the letter or that M & R ever communicated directly with Heyman regarding the proposed assignment. M & R failed to pay May rent.
Paragraph Third of the lease related to defaults and provided in part:
Paragraph Seventeenth of the lease related to notice and provided:
All notices and demands, legal or otherwise, incidental to this lease, or the occupation of the demised premises, shall be in writing. If Landlord or its agent desires to give or serve upon Tenant any notice or demand, it shall be sufficient to send a copy thereof by certified mail, addressed to Tenant at the demised premises. . . .
Paragraph Seventeenth of the rider also related to notice and provided:
Copy of all notices to David Rothstein, Esq., 60 State Street, Boston, MA 02109. The Landlord shall also send a copy of any notice of default by the Tenant to T.A.C. Group, Inc., 1274 Worcester Avenue, Natick, MA 01760 by certified mail. Said T.A.C. Group, Inc. shall have the right to cure any such default within the time specified in this lease.
On May 16, Heyman sent notice by certified mail of default to M & R which received it on May 17; David Rothstein, who received it on May 19; and T.A.C. Group, Inc., which never received it.
On May 23, Heyman served a notice to quit upon M & R. On June 6, Heyman commenced a summary process action in state court. Trial was scheduled for August 11, however, on August 10, M & R filed a voluntary petition under chapter 11 of the Bankruptcy Code. On August 18, Heyman filed the instant motion for modification of the automatic stay to permit continuation of the summary process action or, alternatively, for possession of the premises.2 On August 24, M & R filed a motion to assume and assign the lease. There has been no payment of rent since the notice to quit was served.
Code § 362(a)(3) provides that "a petition filed under § 301 . . . operates as a stay, applicable to all entities, of . . . any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate. . . ." Section 541(a)(1) provides that the estate is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." Section 541(a) was intended to be interpreted broadly. United States v. Whiting Pools, Inc., 462 U.S. 198, 204, 103 S.Ct. 2309, 2313, 76 L.Ed.2d 515 (1983); In re Texaco, Inc., 77 B.R. 433, 436 (Bankr.S.D. N.Y.1987); H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 367 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 82 (1978) U.S. Code Cong. & Admin.News 1978, pp. 5787, 5868, 6323 ").
Heyman contends that service of the notice to quit terminated the lease by operation of law, so that at the commencement of this case, the lease was not property of the estate, thus warranting relief from the automatic stay for cause. Section 362(d) provides:
It is well settled that where the debtor will be unable to assume a lease pursuant to § 365(a),3 there is cause for relief from the automatic stay. See In re Memphis-Friday's Assoc., 88 B.R. 830, 843 (Bankr.W.D. Tenn.1988); In re Future Growth Enterprises, Inc., 61 B.R. 469, 472 (Bankr.E.D. Pa.1986); In re 163rd Street Medical Corp., 47 B.R. 869, 871 (Bankr.S.D.Fla. 1985), aff'd, 67 B.R. 499 (S.D.Fla.1986); Kearny Mesa Crossroads v. Acorn Investments (In re Acorn Investments), 8 B.R. 506, 510 (Bankr.S.D.Cal.1981); Matter of Mimi's of Atlanta, 5 B.R. 623, 627 (Bankr. N.D.Ga.1980), aff'd, 11 B.R. 710 (N.D.Ga. 1980).
A two-part test is applied to determine whether M & R may assume the lease. First, it must be determined whether the lease was terminated under applicable state law before the petition was filed. Section 365(c)(3) provides that "the trustee may not assume or assign any executory contract or unexpired lease of the debtor . . . if . . . such lease is of nonresidential real property and has been terminated under applicable nonbankruptcy law prior to the order for relief." Second, it must be determined whether the termination would be reversed pursuant to applicable state anti-forfeiture law. Vanderpark Properties, Inc. v. Buchbinder (In re Windmill Farms, Inc.), 841 F.2d 1467, 1473 (9th Cir. 1988); City of Valdez, Alaska v. Waterkist Corp. (In re Waterkist Corp.), 775 F.2d 1089, 1091 (9th Cir.1985) (); In re Texaco, Inc., supra, 77 B.R. at 436. The second step "permits the debtor-in-possession the same opportunities to avoid forfeiture of a lease or executory contract that it would have received under state law absent the bankruptcy proceedings." City of Valdez, supra, 775 F.2d at 1091. The burden as to both prongs of the test is on M & R. 11 U.S.C.A. § 362(g) (West 1979 & 1988 Supp.).
Termination of the Lease
Arguing that T.A.C. Group never received notice of default and that David Rothstein received only four days notice, M & R contends that Heyman did not comply with the notice of default provision in the lease, which was a condition precedent to serving a notice to quit. Central to M & R's position is that notice had to be actually received rather than merely mailed in order to be effective.
Heyman's real estate manager testified that she interpreted the notice provision to mean that notice to quit could be served only after five days had passed from receipt of the notice of default. However, "in determining the meaning and effect of the controverted language in the lease, the inquiry must focus on the intention expressed in the lease and not on what intention existed in the minds of the parties." Hatcho Corp. v. Della Pietra, 195 Conn. 18, 21, 485 A.2d 1285 (1985). See also Robinson v. Weitz, 171 Conn. 545, 551, 370 A.2d 1066 (1976).
The plain language of the lease refutes M & R's...
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