Braniff Airways, Inc., Matter of

• Decision Date: 05 March 1986
• Docket Number: No. 84-5018,MEMPHIS-SHELBY,84-5018
• Citation: 783 F.2d 1283
• Parties: 14 Collier Bankr.Cas.2d 453, 14 Bankr.Ct.Dec. 317, Bankr. L. Rep. P 71,045 In the Matter of BRANIFF AIRWAYS, INC., Debtor.COUNTY AIRPORT AUTHORITY, Plaintiff-Appellee, v. BRANIFF AIRWAYS, INC., Defendant-Appellant. Fifth Circuit
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1283

783 F.2d 1283

14 Collier Bankr.Cas.2d 453, 14 Bankr.Ct.Dec. 317,

Bankr. L. Rep. P 71,045

In the Matter of BRANIFF AIRWAYS, INC., Debtor.

MEMPHIS-SHELBY COUNTY AIRPORT AUTHORITY, Plaintiff-Appellee, v. BRANIFF AIRWAYS, INC., Defendant-Appellant.

No. 84-5018.

United States Court of Appeals,Fifth Circuit.

March 5, 1986.

Arnold & Porter, Daniel M. Lewis and Richard P. Schifter, Washington, D.C., for debtor/defendant-appellant.

Laughlin, Halle, Clark, Gibson & McBride, Michael P. Coury, and Apperson, Crump, Duzane & Maxwell, John L. Ryder, Memphis, Tenn., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before WISDOM, POLITZ and TATE, Circuit Judges.

TATE, Circuit Judge:

The Memphis-Shelby County Airport Authority applied to the Bankruptcy Court for the Northern District of Texas to receive administrative rent under section 503 of the Bankruptcy Code of 1978, 11 U.S.C. Sec. 101 et seq. ¹ The bankruptcy court, applying the doctrine of res judicata, dismissed the Airport's claim, holding that an earlier proceeding had already disposed of it. The district court reversed, finding that the bankruptcy court's decision was clearly erroneous. We affirm the district court's decision, and remand the case to the bankruptcy court for evidentiary proceedings based on the Airport's administrative expense claim.

I.

Beginning in 1962, the Memphis-Shelby County Airport Authority entered into a series of leases for space and facilities at the Memphis International Airport with Braniff Airways, Inc., the appellant in this action. In May of 1982 Braniff filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. In addition to the automatic stay provided as a matter of course by section 362 of the Bankruptcy Code, Braniff sought and obtained a preliminary injunction restraining the Airport and others from interfering with its leasehold interests at the Memphis Airport.

Approximately three months after the petition was filed, the Airport commenced an adversary proceeding against Braniff seeking that the court lift the automatic stay and order Braniff to (1) either assume or reject the Airport leases within a certain time period; (2) pay for the reasonable use of the premises from the date on which the petition was filed until the date on which the leases are assumed or rejected; and (3) pay all rent it received from its sublessees to the Airport as adequate protection.

After an October 5th hearing on the Airport's complaint, the bankruptcy judge entered an order on October 27th requiring Braniff to assume or reject the leases within sixty days and to pay over to the Airport all sums received from sublessees until the date of assumption or rejection.

Braniff eventually rejected the leases effective March 1, 1983, ² and the Airport applied to the bankruptcy court to receive the full contract rental rate as a cost of administration pursuant to section 503 of the Bankruptcy Code. Braniff filed no written response to the Airport's application. Instead, it moved orally at a subsequent hearing to dismiss the application, contending that the court's October 27th order had disposed of the administrative rent issue and barred its relitigation. After a hearing, the bankruptcy judge concluded that the issue of administrative rent had already been decided and dismissed the Airport's application. The Airport appealed the decision to the district court. After carefully reviewing the record, the district court reversed the bankruptcy judge, holding that his decision that res judicata barred the Airport's claim for administrative rent was clearly erroneous. This appeal by Braniff ensued.

II.

The parties' positions can be summarized as follows. Braniff asserts that the Airport's request that Braniff pay for its "use and occupancy" of the leased premises in the first proceeding before the bankruptcy judge represented a claim for administrative rent, which claim was fully and finally disposed of by the bankruptcy judge in his October 27th order. The Airport contends, however, that in its first proceeding it requested only adequate protection and that Braniff accept or reject the leases in controversy. The Airport also asserts that, as the district court found, the parties used the phrase "use and occupancy" during the proceedings before the bankruptcy judge only in a non-technical sense to describe Braniff's presence at the airport in connection with the Airport's claim, and not as a claim for administrative rent.

III.

The typical remedy for a party to an unexpired lease who is suffering economic losses as a result of a bankruptcy is to move for an order compelling the bankruptcy trustee to assume or reject the lease within a certain time period pursuant to section 365(d)(2) of the Bankruptcy Code. See generally 2 Collier on Bankruptcy paragraphs 365.01-.03 (15th ed. & Supp.1985); Murphy, Creditors' Rights in Bankruptcy Sec. 9.07 (1985). ³ The trustee has a reasonable time in which to do this. 2 Collier on Bankruptcy p 365.03, at 365-24 to -25 (15th ed. & Supp.1985).

If the trustee assumes the lease, the debtor's estate becomes liable for the full rent accruing under the terms of the lease. In re Florida Airlines, Inc., 17 Bankr. 683, 684 (Bankr.M.D.Fla.1982). If the trustee ultimately rejects the lease the debtor's estate is liable only for the reasonable value of its use and occupancy of the premises. The lessor is entitled to receive administrative expense priority for that amount (see Secs. 503 and 507(a)(1) of the Bankruptcy Code) which is ordinarily presumed to be the contract rental rate, adjusted downward or upward to reflect the extent to which the debtor actually used the demised premises. In re Energy Resources Co., Inc., 47 B.R. 337, 338-39 (Bankr.D.Mass.1985); Dallas-Fort Worth Regional Airport Board v. Braniff Airways, Inc., 26 B.R. 628, 630-31 (N.D.Tex.1982) [hereinafter cited as DFW Regional Airport Board ]; In re Standard Furniture Company, 3 B.R. 527, 530 (Bankr.S.D.Cal.1980); see generally Fogel, Executory Contracts and Unexpired Leases in the Bankruptcy Code, 64 Minn.L.Rev. 341, 365-71 (1980).

Because this claim for use and occupancy is given administrative expense status, it is sometimes known as "administrative rent." DFW Regional Airport Board, supra, 26 B.R. at 630. A claim for administrative expense determines not only the sum to which the lessor is entitled, but also the priority to which he is entitled. If granted administrative expense priority, his claim will often disadvantage the general creditors of the estate. S & W Holding Company v. Kuriansky, 317 F.2d 666, 667 (2d Cir.1963).

The claim for administrative rent is generally made after the lease has been rejected, see, e.g., Standard Furniture, supra, 3 B.R. at 529, for that is when the actual benefit of the demised premises to the debtor lessee is most easily determined. This is logical, for if there is no benefit to the estate, the breach of an executory agreement or lease does not give rise to a claim for administrative expense, but only an unsecured breach of contract claim under section 502(g). In re Airlift International, Inc., 761 F.2d 1503, 1509 (11th Cir.1985). See also American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene, S.A., 280 F.2d 119, 124-25 (2d Cir.1960).

In appropriate cases, however, a court may order the trustee or debtor in possession to pay in advance "a reasonable sum to be treated as payment for use and occupation in the event the lease is rejected, or, on account of rent, in the event the lease is adopted." 2 Collier, supra, p 365.03 at 365-33 and cases cited. This is so even though "[a]s a matter of law, [an] administrative claim for rent does not accrue until the Court formally authorizes the rejection of the relevant lease." In re Destron, Inc., 40 B.R. 927, 928 (Bankr.N.D.Ill.1984) (dicta).

The other remedy that may be available to a lessor is to seek adequate protection of his interest ⁴ pursuant to sections 362(d) and 363(e) of the Bankruptcy Code. See generally 2 Collier, supra, p 363.06, at 363-27. A determination of adequate protection is made pursuant to section 361 of the Bankruptcy Code, which governs the forms that adequate protection may take. ⁵ The nature of the creditor's interest in the property, the potential harm to the creditor as a result of the property's decline in value and the method of protection are all to be considered. In re Alyucan Interstate Corp., 12 B.R. 803, 806-09 (Bankr.D.Utah 1981). Periodic rental payments compensating a creditor for use and occupancy of his premises may serve as adequate protection. In re Castle Tool Specialty Company, 22 B.R. 44, 45-46 (Bankr.E.D.Pa.1982).

The considerations involved in the granting of adequate protection differ markedly from those involved in an administrative expense determination. As has been thoughtfully expressed by one court:

Adequate protection is a device intended to provide additional protection against loss to a secured creditor arising from continuation of the automatic stay of 11 U.S.C. Sec. 362 as called for by the circumstances of the case. By its nature, adequate protection is not final unless all parties later treat it as final.

In re Nordyke, 43 B.R. 856, 860 (Bankr.D.Ore.1984). See also Alyucan, supra, 12 B.R. at 806. Thus, unlike the claim for administrative rent, which represents a final amount owing a lessor as a result of a lessee's use and occupancy of his premises under a rejected lease, the adequate protection provided to creditors by Chapter 11 is generally considered interim relief.

IV.

The doctrine of res judicata prevents the parties to an action from bringing a subsequent action if certain conditions are met. The parties must be identical in both actions, the prior judgment must have been final, on the merits, and rendered by a court of competent jurisdiction, and the same cause of action must have been involved...