American Healthcare Management, Inc., Matter of
| Decision Date | 11 May 1990 |
| Docket Number | No. 89-1125,89-1125 |
| Citation | 900 F.2d 827 |
| Parties | , 22 Collier Bankr.Cas.2d 1740, 20 Bankr.Ct.Dec. 812, Bankr. L. Rep. P 73,360 In the Matter of AMERICAN HEALTHCARE MANAGEMENT, INC., A Delaware Corporation, Debtor. CHAPMAN INVESTMENT ASSOCIATES, Appellant, v. AMERICAN HEALTHCARE MANAGEMENT, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Richard E. Kammerman, Adrian M. Overstreet, Stephen W. Sather, and D. Gregory Barbutti, Kammerman & Overstreet, Austin, Tex., for appellant.
Steven R. Smith and Robert D. Albergotti, Haynes & Boone, Dallas, Tex., for appellee.
Appeal from the United States District Court for the Northern District of Texas.
Before BROWN, REAVLEY and HIGGINBOTHAM, Circuit Judges.
This case requires us to interpret section 365(d)(4) of the Bankruptcy Code, which provides:
[I]n 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.
11 U.S.C. Sec. 365(d)(4). The bankruptcy court held that this section authorized it to grant a lessee, which within the initial sixty-day period had received an extension of time to assume or reject leases, additional extensions of time following the expiration of the sixty-day period but before the expiration of the time to assume or reject as extended. The court also held that, prior to granting motions for extensions of time in which to assume or reject leases, it was not required to give lessors notice of and an opportunity to challenge such motions. Chapman Investment Associates ("Chapman") appealed these rulings to the district court, which affirmed the bankruptcy court's holdings. Chapman now appeals to this court, and we affirm.
On August 7, 1987, American Healthcare Management, Inc. ("American") filed for relief under Chapter 11 of the Bankruptcy Code. At the time of its filing, American was the lessee of a number of parcels of nonresidential real property, including property in Orange County, California owned by Chapman. On September 9, 1987, thirty-three days after it filed for relief, 1 American filed a motion to extend the time during which it could assume or reject its leases. The bankruptcy court granted the motion on October 5, 1987, fifty-nine days after American filed for relief, and extended the time during which American could assume or reject to December 7, 1987.
On November 24, 1987, American filed a second motion to extend the time during which it could assume or reject its leases. The bankruptcy court granted the motion on December 2, 1987, extending the time to assume or reject to February 15, 1988.
American took no further action with regard to its leases prior to February 15, which happened to be a federal holiday--Washington's Birthday. On February 16, American, in open court, filed a third motion to extend the time during which it could assume or reject its leases. The bankruptcy court directed American to immediately file a motion to assume or reject its leases of nonresidential real property. American filed a motion to assume a number of leases, including the lease with Chapman. The bankruptcy court then entered an order extending the time during which American could assume or reject to the date of the hearing on American's motion to assume. All of this was done on February 16.
On June 17, 1988, the bankruptcy court held a hearing on American's motion to assume the lease with Chapman. At that hearing Chapman presented several theories in support of its contention that the lease with American had been rejected by operation of law. The court eventually held that American's motion to assume was timely and should be granted. The district court affirmed the bankruptcy court's decision in all respects. See Chapman Inv. Assocs. v. American Healthcare Management, Inc., 94 B.R. 420 (N.D.Tex.1989).
Chapman contends that section 365(d)(4) authorizes a bankruptcy court to grant an extension of time to assume or reject leases only within the sixty-day period following a filing for relief. The argument is based on the language requiring a lessee to assume or reject its leases "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." 11 U.S.C. Sec. 365(d)(4) (emphasis added). Chapman suggests that this language unambiguously prohibited the bankruptcy court from entertaining American's second motion for extension, which was filed approximately seven weeks after the expiration of the sixty-day period. If Chapman is correct, the bankruptcy court was without authority to grant the second motion for extension, American was required to assume or reject its leases by December 7, 1987, and American's failure to assume its leases by that date resulted in the lease from Chapman being deemed rejected.
The district court held that the meaning of section 365(d)(4) is not "entirely clear" and that a "liberal interpretation of the statute is necessary to effectuate the intent of Congress." Chapman Inv. Assocs., 94 B.R. at 422. Several other courts have reached the same conclusion. The Ninth Circuit recently held that, although section 365(d)(4) requires the lessee to assume or reject leases or file a motion to extend the time to assume or reject within the initial sixty-day period, the provision "simply does not speak to the ability of a debtor to move for a second extension of time subsequent to the first 60-day period but within the extended period of time provided for assumption or rejection." In re Victoria Station Inc., 875 F.2d 1380, 1385 (9th Cir.1989). The court apparently determined that a flexible interpretation of the statute would further congressional goals, and it thus held that "section 365(d)(4) permits the court to grant further extensions if cause justifies delay." Id. A federal district court reached the same conclusion, holding that
as long as a lease under Sec. 365(d)(4) has not been deemed rejected by the lapse of sixty days or a period extended by the Court, the Bankruptcy Court may grant the debtor additional time to decide to assume or reject a lease if the Bankruptcy Court finds cause to do so.
Tigr Restaurant, Inc. v. Rouse S.I. Shopping Center, Inc., 79 B.R. 954, 959 (E.D.N.Y.1987); see also In re Telemark Management Co., 51 B.R. 623, 626 (Bankr.W.D.Wis.1984) (). But see In re Coastal Indus., Inc., 58 B.R. 48, 51 (Bankr.D.N.J.1986) ().
It is now well-established that the primary purpose of section 365(d)(4) is "to protect lessors ... from delay and uncertainty by forcing a trustee or a debtor in possession to decide quickly whether to assume unexpired leases." Sea Harvest Corp. v. Riviera Land Co., 868 F.2d 1077, 1079 (9th Cir.1989); see In re Moreggia & Sons, Inc., 852 F.2d 1179, 1185 (9th Cir.1988); Tigr Restaurant, 79 B.R. at 956; In re Unit Portions, Inc., 53 B.R. 83, 85 (Bankr.E.D.N.Y.1985). Section 365(d)(4) accomplishes this goal by requiring the vast majority of bankrupt lessees to assume or reject their leases within sixty days of filing for relief. Congress also recognized, however, that in some cases sixty days will not be enough time for bankrupt lessees to decide whether to assume or reject leases. In those circumstances, upon adequate demonstration of cause, bankruptcy courts may grant lessees extensions of time in which to assume or reject.
Congress did not limit the permissible length of an extension. A bankruptcy court could grant an extension of sixty or one hundred and twenty days, or it might grant an indefinite extension, such as until the court rules on a motion to assume or until a reorganization plan is approved. The granting of open-ended extensions is likely to result in the type of delay and uncertainty Congress sought to eliminate in enacting section 365(d)(4). Yet, this would almost certainly be the result of a holding that the provision authorized only one extension. In contrast, if bankruptcy courts may grant multiple extensions they will be more likely to extend the time in which to assume or reject for discrete periods. To obtain additional extensions, lessees would have to return to court and again demonstrate cause justifying the extensions. This approach gives bankruptcy courts greater control over bankrupt lessees' actions and allows the courts to more closely monitor lessees' activities to ensure that they resolve the status of their leases in a diligent manner.
The interpretation of section 365(d)(4) adopted in Victoria Station and Tigr Restaurant, as well as in the district court's decision, reflects an appropriate balance between the interests of lessors and bankrupt lessees and will be most likely to result in expeditious decisions of whether to assume or reject leases. Thus, a bankruptcy court may grant multiple extensions of the time in which a lessee must assume or reject its leases of nonresidential real property so long as a motion to extend is brought prior to the expiration of the period as previously extended 2 and there is "cause" for granting the extension.
Chapman contends that its lease with American should have been deemed rejected as of February 15, 1988, the expiration date...
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