In re D'lites of America, Inc., Bankruptcy No. A86-05785-WHD.
| Citation | 86 BR 299 |
| Decision Date | 27 May 1988 |
| Docket Number | Bankruptcy No. A86-05785-WHD. |
| Parties | In re D'LITES OF AMERICA, INC., Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia |
Barclay T. Macon, Jr., Gregory R. Crochet, Kutak Rock & Campbell, Atlanta, Ga., for Robin Roach and Morton H. Fleischer.
Schaune C. Griffin, Michael H. Shuster, Greene, Buckley, DeRieux & Jones, Atlanta, Ga., for debtor.
This case is before the Court on a Motion and Claim for Payment of Administrative Expenses filed by Robin Roach and Morton H. Fleischer ("Lessors"), as lessors under certain subleases entered into with the above-referenced debtor. The debtor filed an objection to the Lessors' motion and claim, and the Court conducted a hearing in this matter on January 25, 1988. The facts in this case are as follows.
In September of 1985 and January and February of 1986, the debtor entered into nine separate subleases with the Lessors for nine parcels of nonresidential real property on which the debtor operated nine D'Lites Restaurants. Five of the nine properties were located Florida, and four were in Georgia.
The debtor also leased certain equipment from the Lessors for use in its restaurants. The amount of monthly rental payments attributable to the lease of equipment, rather than real property, is represented by the monthly payments due under certain equipment notes admitted into evidence as plaintiff's (Lessor's) Exhibit 2A-2I. The evidence indicates that the monthly rental for the nonresidential real property and improvements, excluding the amounts due under the equipment notes, is $90,129.90. See Affidavit of Robin Roach; Transcript of January 25, 1988 Hearing at p. 22. This sum includes the amounts due for state lease taxes which were to be included as lease payments under the subleases.
As the debtor's financial difficulties increased in early 1986, principals of the debtor met with the Lessors in May to discuss a possible moratorium on rent payments under the subleases and various alternatives for dealing with the debtor's inability to meet its lease obligations.
Also, in May of 1986, the debtor's principals began developing a plan to close unprofitable stores, to rehabilitate the company, and to find an investor for the company. Pursuant to this plan, the debtor made attempts to market the nine subleased properties. The debtor also supplied the Lessors with financial information showing cash losses for most of the restaurants located on the subleased properties. One of the debtor's principals also provided a representative of the Lessors with documents which outlined the debtor's plan to consolidate its business and operate only nine restaurants, none of which were located on the subleased properties.
By July of 1986, the Lessors had given the debtor notice of default under the subleases. By letter dated July 1, 1986, the Lessors notified the debtor that immediate actions for possession would be commenced unless the debtor voluntarily and peaceably delivered possession without the necessity of filing such actions.
By letter dated July 10, 1986, the Lessors demanded all past due rentals, notified the debtor that failure to comply would result in the institution of actions for possession, and acknowledged that the Lessors understood that the debtor had ceased operations on and had no intention of re-entering six of the subleased properties.
On July 16, 1986, the debtor and the Lessors entered into a Turnover Agreement in which the parties acknowledged the debtor's breaches and defaults under the subleases, the Lessors' written demand for payment of all past due amounts or for surrender of possession, the Lessors' notification of their intent to institute legal actions for possession, and the debtor's desire to avoid having dispossessory proceedings brought against it. Pursuant to the Turnover Agreement, the debtor turned over possession and control of the nine properties to the Lessors. The Agreement provides in Paragraph 3 that the debtor's "relinquishment of possession of the Properties . . . is not and will not be construed as a surrender of any of the Properties or as a termination, cancellation, or rescission of any of the Subleases. . . ." Paragraph 3 further provides: "The terms and conditions of the Subleases . . . and the duties and obligations of D'Lites thereunder are not terminated by reason of this Agreement or the repossession of the Properties by the Lessors."
The Lessors seek as an administrative expense payment of the rental due under the nine subleases, excluding the amounts due under the equipment notes, for the sixty-day period commencing on the date the debtor filed its petition, August 7, 1986, and ending on October 6, 1986. The Lessors' claim for administrative rent totals $175,097.35 representing $90,129.90 monthly rental for two months, less one payment by the debtor on one property in the amount of $5,162.45.
The Lessors base their administrative claim upon § 365(d)(3) and § 365(d)(4) of the Bankruptcy Code. Code § 365(d)(3) provides that the trustee or debtor-in-possession shall timely perform all post-petition obligations under an unexpired lease of nonresidential real property until the lease is assumed or rejected. Code § 365(d)(4) provides that if the trustee or debtor-in-possession, as lessee, does not assume or reject an unexpired lease of non-residential real property within 60 days after the date of the petition, then the lease is deemed rejected.
The Lessors assert that they are entitled to their rentals under the subleases as an administrative expense under § 365(d)(3) from the date the debtor filed its petition, to the date, sixty days later, when the subleases were deemed rejected by the operation of § 365(d)(4), because the debtor took no action to reject the subleases prior to that date. The debtor filed no motion to either assume or reject the subleases during the sixty-day period, although it filed motions to reject other leases of real property during the period. The debtor also made no communication with the Lessors during the sixty-day period as to the debtor's intentions with respect to the subleased properties.
On December 10, 1986, after the expiration of the sixty-day period on October 6, the debtor filed a blanket notice of rejection of all leases of real property which had not previously been assumed by motion and order. On December 17, 1986, the...
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