In re Atlantic Container Corp.

• Decision Date: 27 November 1991
• Docket Number: Bankruptcy No. 89 B 19710.
• Citation: 133 BR 980
• Parties: In re ATLANTIC CONTAINER CORP., an Illinois corporation, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

133 B.R. 980 (1991)

In re ATLANTIC CONTAINER CORP., an Illinois corporation, Debtor.

Bankruptcy No. 89 B 19710.

United States Bankruptcy Court, N.D. Illinois, E.D.

November 27, 1991.

Paul M. Bauch, Bell, Boyd & Lloyd, Chicago, Ill., for Trustee.

Daniel R. Madock, Fox and Grove, Chtd., Chicago, Ill., for LaSalle Nat'l Bank, as Trustee u/t/a dated 11/22/78 and known as Trust No. 10-34732-09.

Harry D. Lavery, Berger, Newmark & Fenchel, Chicago, Ill., for LaSalle Nat'l Bank, as Trustee u/t/a # 50630 dated 4/20/76 and Howard C. Bushnell, its beneficiary.

MEMORANDUM OPINION

DAVID H. COAR, Bankruptcy Judge.

This matter comes before the Court on cross-Motions for Partial Summary Judgment regarding the Trustee's Objections and Supplemental Objections to the Proofs of Claim and Requests for Payment of Administrative Expenses of LaSalle National Bank as Trustee under Trust No. 50630 and as Trustee under Trust No. 10-34732-09. The Court, having reviewed the record, now rules as follows.

FINDINGS OF FACT

On November 20, 1989, Atlantic Container Corp. the Debtor filed a petition for voluntary relief under Chapter 11 of the Bankruptcy Code. From November 20, 1989 through June 22, 1990, the Debtor operated its business and managed its property as Debtor-in-Possession pursuant to §§ 1107 and 1108 of the Bankruptcy Code. On June 22, 1990, the case was converted from a Chapter 11 reorganization case to a Chapter 7 liquidation case.

LaSalle National Bank, as Trustee under Trust No. 50630 LaSalle-North, is the legal title holder of certain real property located at 100 West North Avenue in Lombard, Illinois the LaSalle-North property. LaSalle-North leased this property to the Debtor pursuant to a Lease dated November 28, 1986, the term of which was extended through March 31, 1995 the LaSalleNorth Lease. LaSalle National Bank, as Trustee under Trust No. XX-XXXXX-XX LaSalle-Ridge, is the legal title holder of certain real property located at 1133 Ridge Avenue in Lombard, Illinois the LaSalleRidge property. LaSalle-Ridge leased this property to the Debtor pursuant to a Lease dated December 6, 1982, the term of which was extended through December 5, 1992 the LaSalle-Ridge Lease. LaSalleNorth and LaSalle-Ridge will be referred to collectively as "the Landlords." The two properties will be referred to collectively as "the Premises."

The LaSalle-Ridge Lease contains the following provision regarding the Debtor's obligation to repair and maintain the property:

Tenant covenants throughout the term of this Lease, at Tenant\'s sole costs and expenses, to keep and maintain the Leased Premises, the building (excepting only the roof, walls and structural members thereof and with respect thereto except for any damage caused by the act or neglect of Tenant, its employees, agents or representatives) and improvements now or hereafter located on the Leased Premises, . . . in good condition and repair. . . .

LaSalle-Ridge Lease, para. 9.1. In addition, the LaSalle-Ridge Lease obligated the Debtor to return the property in good condition upon termination of the Lease:

Upon the termination of this Lease . . . or upon the termination of Tenant\'s right to possession of the Leased Premises, Tenant will at once surrender and deliver up the Leased Premises, together with all improvements thereon, to Landlord in good condition and repair, reasonable wear and tear excepted.

LaSalle-Ridge Lease, para. 17.0. The LaSalle-North Lease contains similar provisions. See LaSalle-North Lease, para. 702, 704.

Between November 20, 1989 and June 22, 1990, the Debtor-in-Possession DIP sought and received three extensions of time to assume or reject the two Leases under § 365(d) of the Code, over the objections of the Landlords. During this time period, the DIP continued in possession of both the LaSalle-North and LaSalle-Ridge properties and made rental payments pursuant to the two Leases.

After the case was converted to a Chapter 7 liquidation case on June 22, 1990, the Trustee commenced occupancy of the Premises. The Trustee also sought an extension of the time to assume or reject both Leases under § 365(d). The Landlords objected, alleging, inter alia, that the Debtor and the Trustee had failed to repair and maintain the Premises as required by the Leases, creating a potential for damage to the Premises. On July 20, 1990, this Court denied the Trustee's Motion to Extend the Time to Assume or Reject the Leases. Because the Trustee declined to assume the Leases, the Leases were deemed rejected.¹ However, the Court authorized the Trustee to remain in possession of the Premises for 60 days, commencing on August 17, 1990, in order to sell and remove all of the estate's tangible personal property located on the Premises.

Pursuant to an agreed order entered on October 2, 1990, the Trustee paid LaSalleNorth and LaSalle-Ridge $43,944.45 and $40,914.34, respectively, for use and occupancy of the premises from July 21, 1990, through and including September 20, 1990. The order also authorized and directed the Trustee to pay $732.40 to LaSalle-North and $681.99 to LaSalle-Ridge for each day of use and occupancy from September 21, 1990 until the Trustee vacated the Premises. On or about October 13, 1990, the Trustee paid $16,845.20 to LaSalle-North and $15,685.77 to LaSalle-Ridge for use and occupancy of the Premises from September 21, 1990 through October 13, 1990. Thus, the post-petition payments for rent and for use and occupancy which the Landlords received from the Debtor as Debtor-in-Possession and the Trustee totalled $218,903.40 for LaSalle-North and $213,022.58 for LaSalle-Ridge.

The Trustee substantially vacated the Premises on October 13, 1990. Several drums of waste materials, however, remained on the Premises until May 7, 1991. The Trustee assumed the obligation and cost of removing and legally disposing of the drums and their contents.

LaSalle-North filed, then subsequently amended and reduced, a timely Proof of Claim with an attached Request for Payment of Administrative Expenses. In its final Proof of Claim, LaSalle-North claimed lease rejection damages of $252,939.74. In addition, LaSalle-North claimed $124,060.28 as an administrative expense, representing charges for use and occupancy of the LaSalle-North property for the period from October 14, 1990 through May 7, 1991, the time during which the Debtor's drums of hazardous materials remained on the property. LaSalle-North also asserted an unliquidated administrative expense claim for environmental damage to the property.² Finally, LaSalle-North claimed $170,326.31 for repair and maintenance expenses which it alleges will be required to remedy physical damage to the property caused by the Debtor's and the Trustee's failure to perform necessary maintenance. These costs were claimed alternatively 1) as pre-petition damages in their entirety; or 2) as $127,063.43 in pre-petition damages and $43,262.88 in administrative expenses, prorated according to periods of occupancy.

LaSalle-Ridge also filed a timely Proof of Claim and Request for Payment of Administrative Expenses. LaSalle-Ridge claimed $758,865.52 in lease rejection damages. In addition, LaSalle-Ridge claimed an unliquidated amount as an administrative expense for use and occupancy charges from October 14, 1990 through May 7, 1991, the period in which the Debtor's drums of hazardous materials remained on the property. Like LaSalleNorth, LaSalle-Ridge also asserted an unliquidated administrative expense claim for environmental damage to the property.³ Finally, LaSalle-Ridge asserted a $695,290.35 pre-petition damage claim for physical neglect and damage to the property which occurred before the filing of the bankruptcy petition, and a $414,754.32 administrative expense claim for physical neglect and damage to the property which occurred post-petition, as well as for postpetition real estate taxes and insurance premiums. LaSalle-Ridge alleges that some of the physical damage to the property resulted from willful neglect of repair and maintenance obligations and/or intentional infliction of injury. Response of LaSalle National Bank as Trustee, Under Trust No. XX-XXXXX-XX to Trustee's Objections and Supplemental Objection to Proofs of Claim for Prepetition Damages and Administrative Expenses Response, Trust No. 10-34732-09, at 9.

The Trustee filed Objections and Supplemental Objections to both Landlords' Proofs of Claim and Requests for Payment of Administrative Expenses, raising several factual and legal challenges to the Landlords' pre-petition damage and administrative expense claims. After exchanging briefs regarding these challenges, the Trustee and the Landlords filed cross-Motions for Partial Summary Judgment. The parties argue that the following legal issues presented in the Trustee's Objections and Supplemental Objections and the subsequently-filed briefs are appropriate for summary judgment:

1) whether the Landlords' pre-petition claims for physical damage to the Premises and for repair and maintenance expenses constitute claims for "future rent" or "lease termination damages," which are subject to the cap or ceiling of § 502(b)(6) of the Bankruptcy Code;

2) whether the Landlords' maximum allowable claim for lease termination damages, as computed under § 502(b)(6), must be reduced by the amount of money the Landlords received from the DIP and the Trustee for post-petition rent and for postpetition use and occupancy of the Premises;

3) whether the Landlords may assert administrative expense claims for physical damage to the Premises which occurred post-petition, and whether the Landlords may allocate their physical damage claims between pre-petition damages and administrative expenses based on periods of occupancy by the Debtor, the DIP and the Trustee.⁴

CONCLUSIONS OF LAW

The Court agrees that the three legal issues enumerated above may appropriately be resolved by summary judgment. Under Bankruptcy Rule 7056 and Rule 56 of...