In re Joseph C. Spiess Co.
| Decision Date | 01 October 1992 |
| Docket Number | Bankruptcy No. 91 B 27233. |
| Parties | In re JOSEPH C. SPIESS COMPANY, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Charles J. Myler, Myler, Ruddy & McTavish, Aurora, Ill., for plaintiff.
Leroy G. Inskeep, Rudnick & Wolfe, Chicago, Ill., for defendant.
This matter originates from Joseph C. Spiess Company's rejection of a non-residential realty lease with Rouse-Randhurst Shopping Center. The Court approved the rejection on March 9, 1992, but reserved ruling on the Debtor's request to authorize the rejection as of March 1, 1992. After reviewing the pleadings filed and considering the arguments of counsel, the Court hereby finds the effective rejection of a non-residential realty lease with Rouse-Randhurst Shopping Center occurred on March 1, 1992. Further, the Court denies Rouse-Randhurst Shopping Center's request to compel the Debtor's immediate payment of rental expense accrued post-petition.
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (M), and (O).
Sometime around October 1, 1986, Joseph C. Spiess Company ("Spiess" or "Debtor"), executed a lease of approximately 61,000 square feet of retail space at the Rouse-Randhurst Shopping Center, Mt. Prospect, Illinois (the "Premises") with LaSalle National Bank. Eventually, the Maryland Corporation of Rouse-Randhurst Shopping Center Inc. ("Rouse") succeeded to the interest of LaSalle National Bank. During the term of the lease, Spiess operated a retail department store at the Premises.
On December 23, 1991, Spiess filed a petition under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. (). Shortly thereafter, the Debtor held a going-out-of-business sale, ceased operations on January 31, 1992, and removed its fixtures and vacated the Premises on February 17, 1992. Pursuant to the Debtor's motion filed the next day, the Court extended until April 20, 1992, the time during which the Debtor had to assume or reject its executory contracts and leases. Less than two weeks later (February 29, 1992), the Debtor served Rouse with notice of the Debtor's intent to reject the lease of the Premises.
On March 9, 1992, the Court heard the Debtor's request to reject the lease, and granted relief of same, but reserved ruling on whether the Debtor's rejection should apply retroactively to March 1, 1992. In addition to arguing that the Debtor's rejection should not be retroactive, Rouse claimed that all rental payments accrued post-petition should be paid immediately as an administrative expense. Because this issue was not before the Court, the Court advised Rouse to file a motion requesting said relief. Rouse complied by filing a motion to compel compliance with 11 U.S.C. § 365(d)(3) which the Court heard on May 30, 1992. Both matters were thereafter taken under advisement.
The present dispute concerns the rejection of an unexpired non-residential lease. The Debtor contends that its rejection of same should operate retroactively to March 1, 1992, the date the Debtor served its motion to reject. The Debtor reasons that court approval is not a condition precedent to rejection, and further contends that a lessor should not be preferred by virtue of a delay in awaiting court approval. Rouse on the other hand argues that the Debtor's rejection should not be effective until the Court approves same, and thus concludes that this Court should find the actual date of rejection to be March 9, 1992.
As a separate matter, Rouse contends that the Debtor should make immediate payment of rent accrued post-petition through the effective date of rejection. Rouse relies upon the wording of Section 365(d)(3) which requires the trustee to make timely payments of rent. The Debtor counters by arguing that nothing compels it1 to make immediate payment of expenses accrued post-petition when the lease is rejected, but rather that it need only pay such expenses in accord with Section 507; otherwise, Rouse would receive an unintended super-priority.
Thus, the Court is faced with deciding two issues: (1) whether the effective date of the Debtor's rejection is the date the Debtor served its motion to reject, the date the Court heard Debtor's motion to reject or the date on which the Court entered its order approving said motion; and (2) whether the Debtor must immediately pay any or all of the rental expense accrued post-petition even though lease was rejected.
Section 365 governs the duties and obligations of the trustee with regard to executory contracts and unexpired leases. Section 365(a) provides:
(a) Except as provided in section 765 and 766 of this title and in subsections (b), (c), and (d) of this section, the trustee, subject to the court\'s approval, may assume or reject any executory contract or unexpired lease of the debtor.
Section 365(d)(3) provides:
The trustee shall timely perform all the obligations of the debtor, except those specified in section 365(b)(2), arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503(b)(1) of this title. The court may extend, for cause, the time for performance of any such obligation that arises within 60 days after the date of the order for relief, but the time for performance shall not be extended beyond such 60-day period. This subsection shall not be deemed to affect the trustee\'s obligations under the provisions of subsection (b) or (f) of this section. Acceptance of any such performance does not constitute waiver or relinquishment of the lessor\'s rights under such lease or under this title.
Finally, Section 365(d)(4) provides:
Notwithstanding paragraphs (1) and (2), in a case under any chapter of this title, 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 nonresidential real property to the lessor.
11 U.S.C. § 365(a), (d)(3) and (d)(4) (1988).
Whether Section 365 compels court approval as a condition precedent to the rejection of an unexpired lease
The Court finds neither the plain language of or past practice under Section 365(d), nor the policy underlying payment of an administrative expense support a finding that rejection of an unexpired nonresidential lease should be the date the court approves same. The Court's analysis begins with the plain language of Section 365(a).
Plain language
The U.S. Supreme Court has counseled that a court should read a statute according to its literal terms, e.g., United States v. Locke, 471 U.S. 84, 96, 105 S.Ct. 1785, 1793, 85 L.Ed.2d 64 (1985), unless such a reading would produce a result at odds with the Congressional intent. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989). The operative wording of Section 365 provides that "the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." 11 U.S.C. § 365(a) (emphasis added). Notably, nowhere does the plain language of Section 365(a) expressly require prior court authorization to assume or reject an executory contract or unexpired lease, as Rouse suggests.
Section 365 contemplates two distinct actions — one by the trustee and one by the court. The trustee assumes or rejects, and the court approves — nothing suggests the court authorizes. Although the Code does not specify how the trustee is to assume or reject a lease, it certainly makes clear that the trustee's actions are different from and independent of the court's. For example, Section 365(a) places the burden upon the trustee to ensure that a lease is assumed or rejected. If the trustee fails to take any action, then Section 365(d) treats the lease as rejected automatically after the sixtieth day. If the trustee takes affirmative acts to assume or reject a lease, however, such action is subject to court review to assure any such assumption or rejection is in the best interests of the estate.2 The plain language of Section 365(a), therefore, treats court approval not as a condition precedent to an effective assumption or rejection, but rather as a safeguard subjecting the decision of the trustee (and its business judgment) to review and possible reversal.
Past practice
In addition to the plain language, courts have long recognized that assumption or rejection of an unexpired lease may occur prior to court approval. Prior court construction plays an integral role in construing Code sections because "when Congress amends the bankruptcy laws, it does not write `on a clean slate.'" Dewsnup v. Timm, ___ U.S. ___, ___, 112 S.Ct. 773, 779, 116 L.Ed.2d 903 (1992) (citation omitted). Consequently, a review of preamendment practice provides informative interpretative assistance. See United States v. Ron Pair Enterprises, Inc. 489 U.S. 235, 244, 109 S.Ct. 1026, 1032, 103 L.Ed.2d 290 (1989) ().
Rejecting a lease, like assuming a lease, has been recognized as being effective on the day of notifying the lessor of such intent. Under pre-amendment Section 365(d)(1),3 the trustee had sixty days to assume or reject an executory contract or unexpired lease. Courts construed this time limitation as applying to only the trustee's decision to assume or reject, not to the court's...
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