In re Harrison, Bankruptcy No. LA 86-12502-JD.
| Decision Date | 16 July 1990 |
| Docket Number | Bankruptcy No. LA 86-12502-JD. |
| Citation | 117 BR 570 |
| Court | U.S. Bankruptcy Court — Central District of California |
| Parties | In re Donald L. HARRISON, Debtor. |
Goldman, Gordon & Lipstone, Los Angeles, Cal., for debtor.
Clark & Trevithick, Los Angeles, Cal., for Shell Oil Co.
This matter is before the court on an application filed by Shell Oil Company to compel the debtor to surrender two non-residential real properties, pursuant to 11 U.S.C. § 365(d)(4). The chapter 11 debtor and debtor in possession responded and has filed a cross-motion to assume executory contracts and unexpired non-residential leases and for relief from a forfeiture of the two non-residential leases under § 1179 of the California Code of Civil Procedure.
A hearing was held on the application on December 11, 1989, at the conclusion of which the court took the issues under advisement. The Bankruptcy Court has jurisdiction over the application for order to compel the debtor to surrender the nonresidential properties herein since the application concerns administration of the estate. 28 U.S.C. § 157(b)(2)(A).
The court has concluded that Shell Oil's Application to Compel the Debtor to Surrender the Non-residential Real Properties should be denied for the following reasons:
1.) The Motor Fuel Station leases were each executed contemporaneously with the respective dealer agreements and other related writings and those writings combined control the franchise relationship between Shell Oil and the debtor; therefore there is one agreement for each of the Shell Oil Franchises which pursuant to 11 U.S.C. § 365 are executory contracts.
2.) 11 U.S.C. § 365(d)(4) is not applicable to this case because each respective Motor Fuel Station Lease is integrated with the Dealer Agreements and other related writings to form one agreement for each franchise, and such agreements are not required to be assumed or rejected within 60 days of the order for relief.
On July 22, 1986, the debtor and debtor in possession, Donald Harrison hereinafter "Debtor", entered into a Dealer Agreement, Motor Fuel Station Lease and Auto Care Agreement with Shell Oil Company hereinafter "Shell Oil", effective December 1, 1986, for the real property known as Don's Shell No. 1, located at 12313 West Jefferson Blvd. Culver City, California. Although, these writings expired on November 30, 1989, Shell Oil and the debtor have agreed since that date to extend the terms on a month to month basis until a determination has been rendered on the dispute herein. The debtor also has a second facility known as Don's Shell No. 2, located at 1129 Sepulveda Blvd., Manhattan Beach, California. The Dealer Agreement, Motor Fuel Station Lease and Auto Care Agreement with Shell Oil and the debtor for this facility is effective May 1, 1988 through April 30, 1991.
On June 7, 1989, the debtor filed a voluntary petition for reorganization under chapter 11 of the Bankruptcy Code.1 On October 11, 1989, Shell Oil filed an application for an order to compel the debtor to surrender two non-residential real properties known as Don's Shell No. 1 and Don's Shell No. 2 because the debtor did not assume or reject the Motor Fuel Station Leases within 60 days of filing the chapter 11 case herein. Shell Oil has premised its application on 11 U.S.C. § 365(d)(4).
In response the debtor contends that the dealer agreements are the overall agreements between the debtor and Shell Oil; and that the dealer agreements include each respective Auto Care Agreement, Auto Care Limited Warranty, and Motor Fuel Station Lease. The debtor argues that all of these writings must be read as one agreement governing the conduct of the debtor with respect to the two non-residential real properties in question. In the debtor's response there is also a cross-motion for approval of the court to assume the Dealer Agreements, Motor Fuel Station Leases, Auto Care Agreements and Auto Care Limited Warranties.
This court is asked to resolve the question of whether the debtor in possession in the context of a franchise relationship, must assume or reject Motor Fuel Station Leases for two non-residential real properties within 60 days of the order for relief pursuant to 11 U.S.C. § 365(d)(4). Under 11 U.S.C. § 365(d)(4), it is provided in part as follows;
". . . if the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is the lessee within 60 days after the date of the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes then such lease is deemed rejected, and the trustee shall immediately surrender such non-residential real property to the lessor."
This subsection was expressly intended to lessen the problems caused by extended vacancies and partial operation of tenant space in shopping centers. 1984 U.S.Code Cong. & Admin.News 576, 590, 598-599; In re Southwest Aircraft Services, 831 F.2d 848, 857 (9th Cir.1987).
Unlike the shopping center enterprise, a petroleum products franchise presents a different model where there are leases as well as dealer agreements governing the relationship between the parties. Congress has regarded a franchise in the petroleum products industry as;
S.Rep. No. 731, 95th Cong., 2d Sess. 17 (1978), 1978 U.S.Code Cong. & Admin. News pp. 873, 875.
In June 1978, Congress enacted the Petroleum Marketing Practices Act2, hereinafter "PMPA", title I of which was designed to protect motor fuel dealers from arbitrary or discriminatory termination of their franchises. 15 U.S.C. § 2801; Fresher v. Shell Oil Co., 846 F.2d 45, 46 (9th Cir.1988); Khorenian v. Union Oil Co., of California, 761 F.2d 533, 535 (9th Cir. 1985). Under PMPA, a franchise is defined to include; (i) a lease between a dealer and a refiner or distributor pursuant to which the dealer occupies service station property for the purpose of sale of motor fuel under the refiner's trademark, and (ii) a contract pursuant to which the dealer purchases gasoline for resale under a trademark of a refiner. 15 U.S.C. § 2801(1)(A) (Supp. 1990).
Typically, under a dealer agreement the branded gasoline dealer sells gasoline purchased from a refiner pursuant to a Dealer's Agreement of specified term. The Dealer's Agreement commonly covers the price of gasoline purchased by the dealer, payment terms, use of the refiner's brand identification (including the refiner's...
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