In re Ind. Hotel Equities, LLC

• Decision Date: 18 June 2018
• Docket Number: Case No. 18–45185
• Parties: IN RE: INDIANA HOTEL EQUITIES, LLC, Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

586 B.R. 870

IN RE: INDIANA HOTEL EQUITIES, LLC, Debtor.

Case No. 18–45185

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed June 18, 2018

Robert N. Bassel, Clinton, Michigan, Attorney for Debtor Indiana Hotel Equities, LLC

Sherrie L. Farrell, Jong–Ju Chang, Dykema Gossett PLLC, Detroit, Michigan, R.C. Richmond, III, Taft Stettinius & Hollister LLP, Indianapolis, Indiana, Attorneys for Indianapolis Airport Authority

Morris B. Lefkowitz, Law Offices of Morris B. Lefkowitz, Southfield, Michigan, Attorney for Indiana Hotel Ventures LLC

OPINION REGARDING THE INDIANAPOLIS AIRPORT AUTHORITY'S "MOTION FOR RELIEF FROM THE AUTOMATIC STAY AND FOR OTHER RELIEF"

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

Section 362(b)(10) of the Bankruptcy Code says that the automatic stay of § 362(a) does not apply to any act by a lessor to obtain possession of property it leased to the bankruptcy debtor under a nonresidential lease of real property, if the lease "has terminated by the expiration of the stated term of the lease," either before the bankruptcy case was commenced, or during the case. And Bankruptcy Code § 541(b)(2) says that in that situation, any interest of the debtor under the lease is not property of the bankruptcy estate. This Chapter 11 case requires the Court to decide what it means to say that a lease of nonresidential real property has terminated by "the expiration of the stated term of the lease." Specifically, does this statutory phrase include a lease that has been terminated early , by the lessor's exercise of a right given in the lease to terminate the lease early, due to the debtor-lessee's default? The Court concludes that it does not.

This case came before the Court for a hearing on May 17, 2018, on the motion filed by the Indianapolis Airport Authority (the "IAA"), entitled "Indianapolis Airport Authority's Motion for Relief From the Automatic Stay and for Other Relief" (Docket # 15, the "Motion"). The Debtor, Indiana Hotel Equities, LLC, filed an objection to the Motion, and then a concurrence in that objection was filed by a creditor, Indiana Hotel Ventures, LLC.

After the May 17, 2018 hearing, the Court entered an Order permitting briefing by the parties on a specific issue, having to do with Indiana law on collateral estoppel.¹ The Order also scheduled a final hearing for June 13, 2018 (later adjourned to June 20, 2018), at which time the Order stated that the Court intends to issue an oral opinion on the Motion.

The Court has considered the post-hearing briefs filed by the parties.² And the Court has considered all of the oral and written arguments of the parties regarding the Motion, and the exhibits and other items filed in support of and in opposition to the Motion.³ The Court has decided to issue a written decision on the Motion, rather than give an oral opinion. This Opinion and the order to follow will constitute the Court's decision on the Motion, and the June 20, 2018 hearing will be cancelled, as no longer necessary.

For the following reasons, the Court will deny the Motion, without prejudice to the extent described below.

II. Jurisdiction

This Court has subject matter jurisdiction over this bankruptcy case and this contested matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This contested matter is a core proceeding, under 28 U.S.C. §§ 157(b)(2)(A) and 157(b)(2)(O).

In addition, this contested matter falls within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within either of these categories in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans-Industries, Inc. ), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009). This is a proceeding "arising under title 11" because it is "created or determined by a statutory provision of title 11," see id. , namely Bankruptcy Code §§ 362(b)(10) and 541(b)(2). And this is a proceeding "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." See Allard v. Coenen , 419 B.R. at 27.

III. Discussion

Based on facts presented by the parties that are undisputed, the Court finds and concludes as follows.

A. Background

The Debtor operates a hotel, located at 2500 South High School Road in Indianapolis, Indiana, near the Indianapolis airport. But the Debtor does not own the land or building where the hotel is located. That real property (the "Property") is owned by the IAA. The Debtor leased this Property from the IAA, beginning in January 2016.

The lease was first made in September 1960, between predecessors-in-interest of the IAA and the Debtor. Beginning in January 2016, the IAA as lessor, and the Debtor as lessee, were the parties to the lease, by virtue of an agreement called the "Lease Amendment," dated January 6, 2016. (A copy of this lease amendment, the "Lease Amendment," is included within Exhibit 6–A to the IAA's Motion. A copy of the entire Lease, including the Lease Amendment (the "Lease"), appears at Exhibit 6–A to the IAA's Motion).

Under the Lease Amendment, the stated term of the Lease was "for a term of seventy-two (72) years, commencing July 1, 1962, and ending on June 30, 2034."⁴ The Lease is a lease of "nonresidential real property" within the meaning of 11 U.S.C. §§ 362(b)(10) and 541(b)(2), quoted below.

By virtue of the Lease Amendment, the Lease contained certain requirements that the Debtor had to meet in order to avoid a default, and the Lease provided certain remedies to the IAA in the event of a default by the Debtor, including cancellation of the Lease. In a letter to the Debtor dated May 11, 2017 (the "May 11, 2017 Termination Letter"), the IAA stated that the Debtor had defaulted under the Lease, and purported, under "Section 15 of the Lease," to cancel the Lease "in its entirety effective at 12:00 midnight on July 11, 2017."⁵

This led to litigation between the parties. The Debtor filed suit against the IAA on July 12, 2017, in the Marion County, Indiana Superior Court, in the case titled Indiana Hotel Equities, LLC v. Indianapolis Airport Authority , Case No. 49D01–1701–PL–027076 (the "Indiana Lawsuit").⁶ The parties eventually filed cross-motions for summary judgment. On March 28, 2018, the court in the Indiana Lawsuit denied the Debtor's motion and granted the IAA's motion, thereby entering summary judgment for the IAA. The Indiana court did this by means of a 27–page written opinion and order, filed on March 28, 2018 (the "State Court Decision").⁷

Among other things, the State Court Decision ruled, in part expressly and in part by clear, necessary implication, that: (1) the Debtor defaulted under the Lease and Lease Amendment in certain specified ways; (2) the IAA had a right to terminate the Lease because of the Debtor's default; (3) the IAA did validly terminate the Lease, by means of the May 11, 2017 Termination Letter, effective (as that letter stated) at 12:00 midnight on July 11, 2017; (4) because of such termination of the Lease, the Debtor had no right to possession of the Property; and (5) the IAA's receipt and retention of monthly rent checks from the Debtor after the July 2017 Lease termination was neither a waiver of the IAA's right to terminate the Lease nor a waiver of the IAA's actual termination of the Lease. In addition to granting summary judgment for the IAA, the Indiana court ordered that the Debtor and the Debtor's hotel manager, Indiana Hotel Ventures, LLC, "shall vacate and turn over possession of the Hotel to the IAA by April 14, 2018."⁸

The Debtor filed this Chapter 11 bankruptcy case on April 10, 2018, and remains in possession of the Property. Shortly before filing this bankruptcy case, the Debtor also filed, in the Indiana Lawsuit, a notice of appeal (filed April 6, 2018) and a motion for a stay pending appeal (filed April 10, 2018). The Indiana court has not yet ruled on the Debtor's motion for a stay pending appeal, presumably because of the Debtor's bankruptcy filing.

B. The IAA's Motion

Although the IAA's Motion is labeled, in part, as a "Motion for Relief from the Automatic Stay," the Motion actually does not seek relief from the automatic stay. Rather, the Motion only seeks an order confirming that the automatic stay does not apply , with respect to actions the IAA wishes to take to obtain possession of the Property, based on Bankruptcy Code §§ 362(b)(10) and 541(b)(2). The Motion states:

The Indianapolis Airport Authority (the "IAA") ... hereby moves for an order, pursuant to section 362(d) of title 11 of the United States Code ("Bankruptcy Code") and Rules 4001(a) and 4001(d) of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"): (i) confirming that a certain lease (the "Lease") between the IAA and debtor Indiana Hotel Equities, LLC (the "Debtor"), which was terminated prepetition, is not property of the Debtor's bankruptcy estate pursuant to section 54l(b)(2); (ii) further confirming that the automatic stay does not apply pursuant to section 362(b)(l0) of the Bankruptcy Code so that the IAA is free to exercise its contractual and state law remedies with respect to the Lease and the subject property; and (iii) waiving the 14–day stay of any Order granting this Motion pursuant to Bankruptcy Rule 4001(a)(3).⁹

The IAA's proposed order filed with the Motion is consistent with the foregoing Motion language.

C. The parties' dispute about Bankruptcy Code §§ 362(b)(10) and 541(b)(2)

Based on the language of Bankruptcy Code §§ 362(b)(10) and 541(b)(2), the issue now before the Court is this: whether, before the April 10, 2018 bankruptcy petition was filed, the Lease was "terminated" "at" or "by" "the expiration of the stated term of such lease." The Court will decide this issue in two parts.

1. The Lease was terminated pre-petition.

First, the Court concludes that the Lease was indeed "terminated" before the ...