In re Adelphia Business Solutions, Inc.

• Decision Date: 10 March 2005
• Docket Number: No. 02-11389 (REG).,02-11389 (REG).
• Citation: 322 B.R. 51
• Parties: In re ADELPHIA BUSINESS SOLUTIONS, INC., et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

322 B.R. 51

In re ADELPHIA BUSINESS SOLUTIONS, INC., et al., Debtors.

No. 02-11389 (REG).

United States Bankruptcy Court, S.D. New York.

March 10, 2005.

COPYRIGHT MATERIAL OMITTED

Weil Gotshal & Manges LLP, by Judy G.Z. Liu (argued), New York City, for debtor-tenant Adelphia Business Solutions Operations, Inc.

Halperin & Associates, by Donna H. Lieberman (argued), Mayer, Brown, Rowe & Maw LLP, by Michael P. Richman, Michelle R. Holl, New York City, Commercial Law Group, P.A., by Michelle M. Suter, Leawood, KS, for lessor Nicholas Abnos.

DECISION ON ASSUMPTION AND RJECTION OF UNEXPIRED LEAES OF NONRESIDENTIAL REAL PROPERTY AT 2001 GRAND BOLEVARD, KANSAS CITY, MO

ROBERT E. GERBER, Bankruptcy Judge.

In this contested matter in the jointly administered chapter 11 cases of TelCove, Inc., f/k/a Adelphia Business Solutions, Inc., and certain of its subsidiaries (collectively, the "Debtors"), Adelphia Business Solutions Operations, Inc. ("ABSO"), one of the Debtors, has moved pursuant to Bankruptcy Code section 365(a) and FRBP 6006 and 9014 to assume one, and reject another, of two undisputedly closely related leases. More specifically, ABSO has moved to assume the lease governing an annex (the "Annex Lease") and to reject the lease governing floors 2 and 3 of the building (the "Building Lease") at 2001 Grand Boulevard, Kansas City, Missouri. Lessor Nicholas Abnos ("Lessor") objects on the grounds that the two Leases constitute a single integrated contract that cannot be separately assumed and rejected.

Applying Missouri state law, the Court determines that the Leases are separate contracts that can be separately assumed and rejected. As a result, ABSO is permitted to assume the Annex Lease and reject the Building Lease.

BACKGROUND

On September 18, 2000, Lessor as owner, and ABSO as tenant, executed two leases relating to property situated at 2001 Grand Boulevard, Kansas City, Missouri— one Lease relating to the Annex and another Lease relating to floors 2 and 3 of the Building located at that address.¹ On March 27, 2002, the Debtors commenced voluntary cases in this Court under chapter 11 of the Code.² Then on May 15, 2002, ABSO filed the instant Motion for Authorization to Reject Certain Unexpired Leases of Nonresidential Real Property.³

On May 24, 2002, Lessor filed a Limited Objection to the Motion to Reject, seeking a clarification of ABSO's intentions with respect to the two leased premises.⁴ When this Court held a hearing on the motions, ABSO expressed its intention to assume the Annex Lease and reject the Building Lease.⁵ Lessor objected, stating it was his position that the Annex Lease and Building Lease were part of a single integrated transaction that could not be assumed and rejected separately.⁶ The Court took the matter under submission,⁷ and instructed ABSO to hold rental payments on the Building in escrow until a decision was reached.⁸

DISCUSSION

Sections 365 and 1107 of the Code provide that a debtor in possession may assume or reject any unexpired lease.⁹ Generally, in order for an unexpired lease to be assumed or rejected, the lease must be assumed or rejected in its entirety.¹⁰ Lessor argues that the Annex and Building Leases are "part of a single integrated contract that must be assumed or rejected in its entirety." ¹¹ ABSO argues that the Leases "are separate agreements that may be independently assumed or rejected. ¹²

For section 365 purposes, state law governs the interpretation of leases.¹³ The parties agree that Missouri law applies to this matter because the Leases contain Missouri choice of law provisions.¹⁴

Under Missouri law, "sjeveral instruments made at the same time, and relating to the same subject matter may be read together as one contract .... but it does not necessarily follow that those instruments are one contract."¹⁵ As a minimum prerequisite, "there must be some reasonable basis for finding that the parties so intended." ¹⁶

In determining the parties' intent as to the separateness of the Leases, the Court reviews all relevant evidence, including prior or contemporaneous negotiations and agreements.¹⁷ ABSO argues that Missouri's parol evidence rule would be violated if the Court considered anything beyond the four corners of the two Lease documents.¹⁸ But the purpose of Missouri's parol evidence rule is to preserve the sanctity of written instruments that are fully integrated.¹⁹ The parol evidence rule does not bar evidence relating to the threshold determination of whether the parties intended to integrate their agreements into a single contract.²⁰

Here, the relevant evidence includes the affidavit of Jeffrey Thomas Nodland submitted on behalf of ABSO (the "Nodland Affidavit") and the affidavit of Joyce Murray submitted on behalf of Lessor (the "Murray Affidavit").²¹ In reviewing the Affidavits, the Court determines that no material disputed issues of fact exist. Accordingly, the Court finds, as the parties agree, that an evidentiary hearing is not required.²² The uncontroverted material facts contained within the Affidavits are all taken as true. These material facts are set forth below.

The Affidavits

The Nodland Affidavit includes copies of the actual Leases. In addition, Mr. Nodland provides a short statement highlighting some of the features that distinguish the Leases, observing:

a) the titles of the two Leases differ in that one states "(ANNEX)" while the other states "(BUILDING)";

b) the leased premises are uniquely identified in each Lease, with each Lease corresponding to a separate location;

c) the Annex Lease has a primary term of 15 years while the Building Lease has a primary term of 10 years;

d) the "Net Rentable Footage" in each Lease is different;

e) the "Tenant's Percentage of Operating Costs" in each Lease is different;

f) the Building Lease contains a provision for Lessor to perform certain work on the leased premises prior to occupancy while the Annex Lease does not;

g) the Annex Lease contains a provision for signage while the Building Lease does not; and

h) the cross-default provision of the Annex Lease identifies the Building Lease while the Building Lease cross-default provision identifies the Annex Lease—presumably to suggest that the Leases operate separately enough to require such language.²³

Mr. Nodland also notes that ABSO planned to use the two locations for separate purposes.²⁴ "The Annex Lease location is used to house telecommunications equipment necessary for ABSO's service to its end users. The Building Lease location was intended to be used to conduct ABSO's sales operations in the Kansas City area."²⁵ In addition, Mr. Nodland explains that "ABSO has paid any and all amounts due to Lessor separately, with separate checks, for each of the Leases."²⁶

Nothing in the Murray Affidavit disputes the assertions contained in the Nodland Affidavit. Instead, the Murray Affidavit directs the Court's focus to negotiations that preceded the execution of the Leases. For example, Ms. Murray suggests, and it is not disputed, that ABSO pursued the Annex and floors 2 and 3 of the Building simultaneously.²⁷ In addition, a single lease document was drafted before the parties determined that two documents would be executed.²⁸ Ms. Murray observes that the two Lease documents "were copies of the original single lease document with a slight modification to the title and a few other provisions." ²⁹ When Ms. Murray suggested that the original single lease memorialize the single transaction, she learned that "the two documents were only requested for internal bookkeeping purposes of the tenant and that the overall transaction would not change."³⁰ According to Ms. Murray: "There was never any negotiation of or even a discussion of two different or distinct transactions. It was always a single transaction."³¹ Ms. Murray explains that the parties agreed to include cross-default provisions "to retain the overall transaction notwithstanding the use of two documents."³²

Ms. Murray also includes a copy of "the single Certificate of Insurance," presumably to suggest that a single insurance policy covered both leased premises.³³ But the Certificate appears to cover only the Building, not the Annex. According to its description, the Certificate concerns "Floors 2 and 3 of (14,785 sq. ft.) The Historic Firestone Building."³⁴ This supports the separateness of the Leases, not their integration.

As for the actual Leases, Ms. Murray notes the following features:

a) the Leases were executed by the same people, simultaneously;³⁵

b) a provision for varying the size of the leased premises refers to the leased premises as containing the cumulative square feet of both premises;³⁶ c) the initial rent charged and escalation in rent over the entire terms are identical;

d) the Operating Cost Charges are identical, including "an amount not to exceed three (3%) percent of gross revenues from the Building and the Annex for management and administrative costs incurred by Lessor in the management and administration of the Building and Annex";

e) the Permitted Uses and General Sales Office Uses in each are the same;

f) both Leases provide that the maintenance of the Annex is at the sole cost of ABSO;

g) both Leases state that "collocation of telecommunications equipment shall not constitute a sublease and additional rental shall not be due to Lessor for collocation profits received by ABSO";

h) both documents include a provision for the expiration or early termination of the Leases, holding ABSO responsible for restoring all portions of the facilities, including the roof, sprinkler system, and HVAC system in the Annex;

i) both Leases provide for electrical service to the Annex and the Building; and

j) "only one agency disclosure document was prepared and signed and copies of it were attached to the two documents."³⁷

In addition, the Court notes that both Leases contain the following integration clause:

Section 22.08. Entire Agreement. The Lease, the exhibits and

...