In re Kingway Logistics, Inc.
| Decision Date | 16 August 2006 |
| Docket Number | Bankruptcy No. 04-44028-DML-7.,Adversary No. 05-4243. |
| Citation | 348 B.R. 399 |
| Parties | In re KINGWAY LOGISTICS, INC., Debtor. LDS Express, Inc., Plaintiff, v. Shawn Brown, Chapter 7 Trustee, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
St. Clair Newbern, III, Law Offices of St. Clair Newbern III, P.C., Ft. Worth, TX, for Debtor.
Before he court is Plaintiff's Motion for Summay Judgment (the "Motion") filed by LDS Express, Inc. ("LDS," sometimes also referred to herein as Plaintiff) by which Plaintiff seeks judgment respecting (1) its Original Complaint filed against Shawn Brown (the "Trustee" or Defendant) in his capacity as chapter 7 trustee for Kingway Logistics, Inc. ("Logistics" or "Debtor"); and (2) LDS's motion for relief from stay (the "Stay Motion") filed by LDS on September 8, 2004. By agreement of the parties, the Stay Motion was consolidated with this adversary proceeding by order dated December 28, 2005.
Plaintiff has sought leave to amend its complaint to allege that Kingway International, Inc. ("International"), rather than Logistics, is the lessor under the Lease (as defined below). Although the court, at a hearing held June 29, 2006, deferred granting such leave until after hearing on the Motion, the court's decision respecting the Motion would not be different if Plaintiff's complaint had been so amended.
Both Plaintiff and Defendant1 filed briefs in support of their respective positions. The parties, at a hearing held on July 18, 2006, argued to the court. The parties also submitted summary judgment evidence to the court, which is identified as necessary below.
This matter is subject to the court's core jurisdiction. See 28 U.S.C. §§ 1334(a) and 157(b)(2)(A), (G), (K), (M) and (0). This memorandum opinion constitutes the court's findings of fact (in the context of summary judgment) and conclusions of law.
Debtor commenced this case by filing a voluntary petition under chapter 7 of the Bankruptcy Code (the "Code")2 on April 20, 2004. Defendant was appointed Debtor's trustee shortly thereafter.
The sole significant asset in Debtor's estate is a land tract of approximately 6.14 acres located in Sedgwick, Kansas, and a steel building located thereon (the "Property"). LDS is presently in possession of the Property and there operates a truck-washing facility. Because the truck-washing facility is approved for use by trucks that transport kosher food, it has unusual (if not unique) value for, inter alia, LDS. In the course of its operations at the Property, LDS has installed certain equipment (the "Equipment") for use in truck-washing.
LDS claims its right to possession of the Property pursuant to a lease dated August 24, 1999 (the "Lease"). Although Logistics is now, and at the time of execution of the Lease was, the owner of the Property, the Lease is between LDS as tenant and International as landlord. Although Logistics and International have a common owner (Dana King), LDS takes the position that, for the purposes of the Lease, at least, they should be treated as strangers to each other.
The term of the Lease is five years (Lease ¶ 2). The Lease gives LDS the option to extend its effectiveness for two additional five-year terms (Lease ¶ 3(a)), and LDS claims it has exercised the option and extended the Lease for an additional five years.
Logistics acquired the Property from Harley and Margaret Schmidt (the "Schmidts") in 1997. In connection with the purchase of the Property, Logistics executed a note to the Schmidts in the amount of $180,000 (the "Note"). The Note was secured by a mortgage of the Property (the "Mortgage"). The Note provided for periodic payments by Logistics to the Schmidts until November 1, 2002, at which time the balance of $122,620.60 would be due.
The latter balloon payment was not made by Logistics, and, on March 23, 2003, LDS purchased the Note and Mortgage from the Schmidts. Thereafter, LDS sued Logistics on the Note and Mortgage in Kansas District Court (the "Kansas Court")3 and, on February 24, 2004, the Kansas Court entered judgment in LDS's favor (the "Judgment"). The Judgment includes awards for (1) $122,620.60 plus interest at 10% per annum from November 1, 2002, until paid; (2) $250 for title insurance; (3) attorney fees of $3,000; and (4) court costs of $134.30. The Judgment also provides that the Mortgage "be and the same is hereby decreed foreclosed ..."
Prior to the entry of the Judgment, LDS paid monthly rentals to, or at the direction of,4 International.5 Since commencement of its suit to foreclose the Mortgage, LDS has not paid rent for the Property, but rather has offset the rent specified in the Lease against amounts it asserts are due to it under the Judgment.6
Plaintiff asserts that the Motion presents the following issues (Plaintiff's brief, p. 4):
1. What amount is owed to LDS pursuant to the Judgment?
2. What is the fair market value of the Property?
3. Did LDS effectively exercise its option to extend the term of the Lease?
4. Does LDS own and can it remove the Equipment on the Property?
5. Can the Trustee reject the Lease?
6. Should the Stay Motion be granted?
LDS, however, has raised an additional question that will necessarily affect the answers to some of the six issues listed above. LDS contends that, because the Lease names International, not Logistics, as landlord, the Lease is not property of Debtor's estate and cannot be enforced by the Trustee. Although this question need not be (and will not be) disposed of to decide the Motion, because those issues numbered 1, 3, 4 and 5 (at least) require different answers depending on whether the Lease is a contract between Debtor and LDS, the court will also address this subject.
Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," when viewed in the light most favorable to the nonmoving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson, v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (internal quotations omitted). A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id. at 248, 106 S.Ct. 2505. In making its determination, the court must draw all justifiable inferences in favor of the nonmoving party. Id. at 255, 106 S.Ct. 2505.
Once the moving party has initially shown "that there is an absence of evidence to support the nonmoving party's case," Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), the nonmovant must come forward, after adequate time for discovery, with significant probative evidence showing a triable issue of fact. FED.R.CIV.P. 56(e); State Farm Life Ins. Co. v. Gutterman, 896 F.2d 116, 118 (5th Cir.1990). Conclusory allegations and denials, speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation are not adequate substitutes for specific facts showing that there is a genuine issue for trial. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428 (5th Cir.1996) (en banc); SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir.1993). To defeat a properly supported motion for summary judgment, the nonmovant must present more than a mere scintilla of evidence. See Anderson, 477 U.S. at 251, 106 S.Ct. 2505. Rather, the nonmovant must present sufficient evidence upon which a jury could reasonably find in the nonmovant's favor. Id.
The court notes that the Trustee seeks no relief at this time. Accordingly, while the court must determine each of the posed issues to the extent of whether or not to grant summary judgment in Plaintiff's favor, it is not called upon at this time to rule on any issue that the Trustee prevails. A determination that the Trustee wins on any issue must await trial.
The court is mystified why Plaintiff would insist that the Lease is not property of the Debtor's estate and so should be determined not to obligate it to the Trustee (standing in the shoes of Logistics)7 given that there is no dispute that Logistics is the owner of the Property. While a determination that the Lease is between LDS and International may relieve LDS of the requirement to pay rent as specified in the Lease to Logistics and, hence, to the Trustee, such a determination will also relieve the Trustee of any obligation to LDS as tenant of the Property. This would not only obviate the question of whether the Lease is subject to rejection under Code 365(a), but it would also make ineffective and unenforceable vis-à-vis the Trustee any provision of the Lease, including LDS's option to renew pursuant to paragraph 3(a).
Apparently LDS is of the view that the Lease validly placed it in possession of the Property and that it has all the tenant's rights respecting the Property that are provided in the Lease. Moreover, because International has forfeited its corporate charter, LDS seems to think there is no party that can assert obligations owed by it pursuant to the Lease or with respect to the Property.
This is, of course, utter nonsense. If the Lease does not obligate LDS to Logistics (and now the Trustee), neither does the Lease evidence any obligation of the Trustee to LDS. See Waechter v. Amoco Prod. Co., 217 Kan. 489, 531, 537 P.2d 228 (1975) (Schroeder, J., dissenting) () (internal quotations omitted). See also EEOC v. Waffle House, Inc., 534 U.S. 279,...
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