In re GHR Energy Corp.
| Decision Date | 13 September 1984 |
| Docket Number | Bankruptcy No. 4-83-0056-G. |
| Citation | 41 BR 668 |
| Parties | In re GHR ENERGY CORP., Debtor. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Stephen Gordon, McCabe/Gordon, Boston, Mass., for debtor, Good Hope Energy Corp.
Robert M. Gargill, Choate, Hall & Stewart, Boston, Mass., for Continental Illinois National Bank & Trust Co. of Chicago agent for debtors' secured bank creditors.
Sumner Darman, Silverman & Kudisch, Boston, Mass., for Creditors' Committee The GHR Companies.
Joseph Braunstein, Riemer & Braunstein, Boston, Mass., for Creditors Committee GHR Energy.
Van Oliver, Arkin, Gump, Strauss, Hauer & Feld, Dallas, Tex., for Creditors Committee GHR Pipeline Corp., Southern States, Inc., So. States Exploration, Inc. Stanley Epstein, Epstein, King & Isselbacher, Boston, Mass., for GATX.
On November 2, 1983, the Court issued a Memorandum and Order ("Memorandum") dismissing (without prejudice) the application of GATX Terminals Corp. ("GATX") seeking an order setting a date by which the debtor, GHR Energy Corp. ("GHR" or "debtor"), must either assume or reject certain leases ("leases"), pursuant to 11 U.S.C. § 365(d)(2) and requiring that the debtor pay $1,072,000 to GATX as a condition thereto. Left for the Court's determination was the resolution of the use and occupancy charges owed by the debtor to GATX during the period the debtor explored and evaluated the options available to it as respects the leases. The basic dispute is whether the use and occupancy charge should be calculated by applying the total number of barrels of shell capacity (GATX) or by applying the number of barrels of product actually in storage (GHR). One other matter, which has been under advisement, is the Application of GATX for Leave to Utilize Certain Petroleum Tank Storage Warehousing Facilities ("Application"). These matters will be taken up separately below. Most of the relevant facts are set forth in the Memorandum and will not be repeated herein, except where necessary. A copy of the Memorandum, is however, appended hereto for the convenience of counsel and to the extent applicable, the findings of facts are incorporated herein.
As set forth in the Memorandum (in greater detail) a Chapter 11 debtor, unlike a Chapter 7 debtor, is afforded a reasonable time within which to elect whether to assume or reject an executory contract or unexpired lease. Compare § 365(d)(1) with § 365(d)(2). See also, e.g., Theatre Holding Corp. v. Mauro, 681 F.2d 102 (2d Cir.1982). While a court may not order a debtor to either assume or reject an unexpired lease, see, e.g., In re Will, 33 B.R. 843 (Bankr.M.D.Fla.1983), pursuant to § 365(d)(2), a court, in its discretion, see, e.g., In re Braniff Airways, Inc., 26 B.R. 628 (N.D.Tex.1982), may fix a date for assumption or rejection of leases upon the expiration of a reasonable time. In fixing this date, a court must review the particular circumstances before it. In re Lionel Corp., 23 B.R. 224 (Bankr.S.D.N.Y.1982) and In re New England Carpet Co., 18 B.R. 514 (Bankr.D.Vt.1982). During the time the debtor is exercising its freedom to forestall making an election and is exploring the options available to it, it must compensate the lessor for using and occupying the leased premises. See, e.g., In re Attorneys Office Management, Inc., 29 B.R. 96 (Bankr.C.D.Cal.1983).
As of this date, GHR has neither assumed nor rejected the leases in question (and has made only minimal payments, for variable charges, to GATX). Consequently, GHR remains liable for "the reasonable value of the use and occupancy of the premises". 2 Collier on Bankruptcy ¶ 365.03 at 365-24 (15th ed. 1984); see also Philadelphia Co. v. Dipple, 312 U.S. 168, 61 S.Ct. 538, 85 L.Ed. 651 (1941); Palmer v. Palmer, 104 F.2d 161 (2d Cir.), cert. denied, 308 U.S. 590, 60 S.Ct. 120, 84 L.Ed. 494 (1939); In re Fred Sanders Co., 22 B.R. 902 (Bankr.E.D.Mich.1982); In re Rhymes, Inc., 14 B.R. 807 (Bankr.D.Conn. 1981); and In re Midtown Skating Corp., 3 B.R. 194 (Bankr.S.D.N.Y.1980). "As long as the debtor continues to receive benefits under the contract it must also bear the burdens or obligations imposed under the contract." In re Yonkers Hamilton Sanitarium Inc., 22 B.R. 427, 435 (Bankr.S.D. N.Y.1982), aff'd, 34 B.R. 385 (S.D.N.Y. 1983).
What is "the reasonable value of the use and occupancy of the premises" is subject to conflicting opinions. Courts which have addressed this question have not been in agreement as to whether a lessor's claim is based on the reasonable value of the property regardless of the use made of the property by the debtor or whether it is based solely on the value of the debtor's actual use of the property. The recent case of In re Fred Sanders Co., supra contains perhaps the most cohesive compilation and discussion of cases in this area.1 The facts of that case are enviously simple and are as follows: The debtor leased three vans from the creditor at a monthly rental of $966.18. After the debtor filed its Chapter 11 petition, the creditor filed an application requesting the court to set a date by which the debtor must assume or reject the lease. The debtor, creditor and creditors' committee agreed upon such a date, following the expiration of which, the debtor returned the vans to the creditor. This was approximately one year after the Chapter 11 petition was filed during which time the debtor made only "a" payment. The creditor then sought an administrative expense priority for its claim pursuant to 11 U.S.C. § 503(b)(1)(A). The debtor objected to the allowance of the claim on the grounds that the creditor had no claim since the debtor did not use the vans prior to rejecting the lease. The court held: "The lessor's claim should be based on the reasonable value of the property regardless of the purpose for which it was used by the debtor." Id. at 906. "The lessor has a right to assume that until a debtor rejects a lease, the leased property is being used for the purpose for which it was leased and that the debtor will pay the reasonable value of the property measured by such use." Id. at 907. The Court rejected those cases which hold that the debtor is liable only for the actual use made of the property2 and chose instead to follow those cases which hold that the lessor's claim is measured by the reasonable value of the leased property.3 The court recognized that minimizing administrative expenses is desirable but felt more strongly that claimants having valid charges against the estate should not be penalized because of thoughts of economy. "To permit a debtor to deprive a lessor of the use of his property and unilaterally dictate the amount of the lessor's claim does not comport with elementary notions of justice." Id. at 906. Furthermore, the court found that the debtor's obligation to pay the reasonable use value of the property is tempered by the debtor's § 365 rights which allow a debtor to assume or reject a lease and to assign a lease, even if the lease contains an anti-assignment clause. Finally, the court noted that by acting timely, a debtor would be in the position to control administrative expenses. "'The debtor is generally well aware in advance that a bankruptcy may be necessary and can plan ahead to decide which leases should be retained.'" In re Fred Sanders Co., supra, at 907 (quoting S.Rep. No. 527, 97th Cong. 2d Sess. 12 (1982)).
The Court finds the reasoning of In re Fred Sanders Co., supra, to be persuasive and accordingly chooses to follow that case and those relied upon by the Sanders4 court. GATX moved promptly for an order setting the date within which GHR must assume or reject the leases. The debtor contested GATX's application. While it became known, at least as early as the hearings on the use and occupancy question, that the debtor was only storing approximately three quarters to one and one quarter million barrels of petroleum products in the tanks and that this number was decreasing, the debtor was unwilling to reject the leases. GATX was never given orders by GHR to clean the residue out of any tanks. GHR did not show that it was possible to "share" the tanks with others. GATX was accordingly unable to relet the storage tanks to third parties. Contrary to GHR's assertions, GATX does not have to prove that there are available third parties who wish to rent the tanks nor is evidence of excess available tankage, alone, relevant. The interconnecting pipes among the storage tanks need to be dismantled before a tank can be relet to a third party, and the tanks themselves need to be cleaned, all at a hefty price. By refusing to elect whether to assume or reject the leases, the debtor effectively controls each tank covered by the leases no matter how many barrels of the debtor's product are actually stored therein, and the debtor should be charged for the number of barrels of shell capacity. This is not a case where the lessee has relinquished total control over an identifiable and individually usable portion of leased property.
The full shell capacity is approximately 4.5 million barrels. As the Court noted in the Memorandum, both GHR's and GATX's expert witnesses testified, that 15¢ per barrel is a reasonable rate for the storage of oil.5 This is very close to the contract rate. To the extent that some tanks have been returned to the control of GATX, the debtor will not be charged for them. The Court finds that 15¢ per barrel is a reasonable charge and that this should be multiplied by the total number of barrels of shell capacity up to the date the debtor rejects the leases to arrive at the proper use and occupancy charges.6 The Court also finds that the debtor has failed to rebut the presumption that the contract rate for the other fixed charges, i.e., land rent, fresh water fee and water treatment fees, is reasonable. The contract rate is presumed reasonable and is to be so taken unless...
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