In re Farley, Inc.
| Decision Date | 02 October 1992 |
| Docket Number | Bankruptcy No. 91 B 15610. |
| Citation | 146 BR 739 |
| Parties | In re FARLEY, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Herbert S. Edelman, Howard A. Becker, Kaye Scholer Fierman Hays & Handler, New York City, Mark K. Thomas, Katten Muchin & Zavis, Chicago, Ill., Kenneth Greenbaum, Farley, Inc., Chicago, Ill., Vice-President and Gen. Counsel, for debtor Farley.
Dean Harvalis, Office of the U.S. Trustee, Chicago, Ill.
John Kneafsey, Nisen & Eliott, Chicago, Ill., for U.S. Diecasting & Development Co., Inc.
This matter is before the Court on motion of Debtor Farley, Inc. ("Farley") for partial summary judgment pursuant to Fed.R.Civ.P. 56(d) (Fed.R.Bankr.P. 7056). Debtor seeks judgment limiting the amount U.S. Die Casting and Development Co. ("U.S. Die") can claim against Farley for damages resulting from termination of a lease agreement between them. The order is sought pursuant to 11 U.S.C. § 502(b)(6) of the Bankruptcy Code. For reasons set forth below, the request for final partial judgment must be denied. However, pursuant to Fed.R.Civ.P. 56(d), the undisputed facts will be found, based upon which the Court will enter an interlocutory order limiting the bankruptcy claim of U.S. Die to the statutory cap as computed under 11 U.S.C. § 502(b)(6).
This cap will apply to limit the U.S. Die bankruptcy claim in the event that Farley is found to be liable for damages arising out of the lease termination, in whatever forum such claim for damages is ultimately liquidated. Formal findings of facts as to which there is no genuine issue will be entered, facts on which the amount of the damage cap figure is based. Consequently, the U.S. Die bankruptcy claim is found to be subject to a statutory maximum of $5,779,000, pursuant to 11 U.S.C. § 502(b)(6).
Farley has submitted a statement of uncontested facts as required by Local District Court Rule 12 (), and U.S. Die has not challenged Farley's factual assertions in its Rule 12 response. The parties also filed a joint pre-trial Statement that corroborates the Rule 12 factual statements. In preparation for trial, the latter statement lists facts and documents which are stipulated to by the parties, as well as contested legal and factual issues for the court to decide. Based on the pre-trial statement and other submissions of counsel, certain facts are undisputed:
On April 1, 1989, U.S. Die leased a portion of an aluminum die casting plant in Sheffield, Alabama to Farley, Inc. The initial term of the lease was seven years. Lease ¶ 2, Joint Pre-trial Ex. F. Lessee was given a right to renew for an additional seven years, id., but a $10,000,000 penalty was added in the event that lessee did not exercise that right. Id.
As to rent due, the lease provided in relevant part:
The lease agreement also provided for the lessee Farley to incur other financial obligations. Paragraph 6 required it to dispose of all wastes that it generated, maintain the premises and all leased equipment therein, insure the premises against risk of personal injury or property damage liability, and pay taxes related to ownership of the property or operation of a business thereon. See, e.g., Id. at ¶ 6(b) (). The lease agreement also provided for lessee to make capital expenditures:
. . . It is expected and required that Tenant will make expenditures for capital improvements to the Leased Premises and Leased Equipment of a minimum of $2,000,000.00 per year. All such improvements will remain the property of the landlord . . . It is further understood by the parties that day-to-day normal reoccurring maintenance cost is excluded from the annual . . . ($2,000,000) expenditure requirement.
U.S. Die recognized the existence of environmental problems on the leased premises, and agreed to indemnify lessee for liability due to hazardous wastes that were deposited on the premises before the lease was executed. Id. at ¶ 7. U.S. Die further represented that these wastes were being treated in accordance with federal environmental protection laws. Id. at ¶ 9(e).
The parties agreed that the lease would be governed by Alabama law. Id. at ¶ 15(a).
On or about July 20, 1990, Farley entered into a lease assignment and assumption agreement with the Doehler-Jarvis Limited Partnership ("Doehler-Jarvis") with regard to this plant. Joint Pre-trial Ex. G.U.S. Die consented to this assignment on July 23, 1990. Joint Pre-trial Ex. I. However, its letter of consent stated that, "it is understood that by executing this Consent that the undersigned does not release Farley, Inc., the named Lessee, and the aforesaid Farley, Inc. remains bound and liable under all the terms and conditions of the aforesaid Lease." Id. Farley agreed to this condition by a letter to U.S. Die stating, "we hereby acknowledge that your consent to the assignment . . . will not release us from liability under said lease." Joint Pre-Trial Ex. K.
Doehler-Jarvis occupied the leased premises until February 29, 1992 when it vacated the premises and ceased making any payments to U.S. Die as required by the lease and assignment. U.S. Die has been in possession of the premises from that time. U.S. Die contends that the surrender of the premises constituted a breach of the lease agreement. It also alleges that Doehler-Jarvis "wrongfully and clandestinely removed from the premises, items of property belonging to plaintiff. . . ." Amended Proof of Claim at ¶ 24.
U.S. Die seeks to recover $41,579,412 plus attorneys fees and cleaning expenses from Farley as compensation for the alleged breach and conversion. U.S. Die reaches this figure by claiming the following damages:
1 month rent (end of year 2) $ 310,416
4 years minimum rent (to the end of the initial term) (4,000,000 × 4) 16,000,000
Required capital expenditures (less payments already made ($2,000
000/year × 7 years - payments (654,130 + 1,099,708))) 12,246,162
Penalty for non-renewal 10,000,000
Insurance ($30,000/year) 122,500
Utilities (for vacant building) ($13,000/month) 637,000
Reassembly of Equipment taken apart by Doehler-Jarvis 600,000
Equipment taken by Doehler-Jarvis 260,000
Security (35,000/year) 142,917
Maintenance (30,000/year) 122,500
Building Engineer (50,000/year) 204,167
Personal Property Taxes assessed by the state of Alabama 750,000
Rent Tax (45,000/year) 183,750
___________
$41,579,412
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This calculation includes all of the lessee's asserted obligations for the four years and one month between February 29, 1992 (when Doehler-Jarvis left the premises) and March 30, 1996 (when the lease expires by its terms). U.S. Die also contends that the penalty for non-renewal must be included as part of its damages.
On July 24, 1991, an involuntary petition under Chapter 7 of the Bankruptcy Code was filed against Farley in this Court. On September 24, 1991, Farley voluntarily converted the case to one under Chapter 11, and has continued to operate as debtor-in-possession from that date to the present.
On April 16, 1992, U.S. Die filed a two-count Amended Proof of Claim seeking to recover the above-listed damages. Count I alleges that Farley is liable for these damages as guarantor of Doehler-Jarvis' obligations under the assigned lease, and Count II alleges that Farley is liable for these damages as lessee.
Farley not only denies the damages, but pleads two affirmative responses to this claim. First, Farley alleges that U.S. Die misrepresented the extent of environmental hazards existing on this property when the lease was executed, and asserts that Doehler-Jarvis was entitled to terminate the lease when it discovered these hazards. Therefore, it denies having any liability under either count of the claim. Second, in the event that Farley is liable for the asserted breach, it seeks to limit the amount of damages allowable in bankruptcy by the statutory cap on damages provided in § 502(b)(6) of the Bankruptcy Code, Title 11 U.S.C. The instant motion rests on the latter theory.
On November 21, 1991, the Court granted Farley's...
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