In re Kyle Trucking, Inc.

• Decision Date: 14 June 1999
• Docket Number: Bankruptcy No. 97-40841.
• Parties: In the Matter of KYLE TRUCKING, INC., Debtors.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana

239 B.R. 198 (1999)

In the Matter of KYLE TRUCKING, INC., Debtors.

Bankruptcy No. 97-40841.

United States Bankruptcy Court, N.D. Indiana, Hammond Division.

June 14, 1999.

COPYRIGHT MATERIAL OMITTED

David Rosenthal, Lafayette, IN, for Debtor.

Peter Velde, Indianapolis, IN, for Creditor.

DECISION

ROBERT E. GRANT, Bankruptcy Judge.

The debtor, Kyle Trucking, Inc., filed a voluntary petition for relief under Chapter 11 on September 15, 1997. As of that date, it was in possession of vehicles leased from Associates Leasing, Inc. ("Associates"). Despite the facial tenor of the contract, Debtor contended that its agreement with Associates was not a true lease but was, instead, a disguised financing device. As a result, it did not make any post-petition payments to Associates, see 11 U.S.C. § 365(d)(10), until after Associates had filed a motion for relief from stay. That motion resulted in an agreed order which provided for a partial payment of the rent otherwise due Associates, with the balance being placed in escrow pending the court's ruling concerning the nature of the agreement between them. See In re Elder-Beerman Stores, Corp., 201 B.R. 759, 764-65 (Bankr.S.D.Ohio 1996). The court resolved the lease/financing device question in Associate's favor and required the debtor to either assume or reject the leases. When it failed to do so, the leases were deemed rejected on January 13, 1999.

The funds placed in escrow have been paid over to Associates. Those funds, however, represent only the difference between the monthly rent due it and the monthly adequate protection payments it received from the debtor. They do not include any part of the lease payments which came due before March 1998 or other payments called for by the leases, such as taxes, late fees, attorney fees and costs. In an effort to recover these sums, Associates has filed a motion for an administrative claim, seeking $55,565.84. The issues raised by that motion have been submitted to the court for a decision based on stipulations of fact and the briefs of counsel.

Associates' motion is based upon 11 U.S.C. § 365(d)(10) which provides that "the trustee shall timely perform all of the obligations of the debtor . . . first arising from or after 60 days after the order for relief in a case under chapter 11 of this title under an unexpired lease of personal property . . . until such lease is assumed or rejected. . . ." Associates argues, however, that it is entitled to an administrative claim for all post-petition lease payments, taxes, late fees and attorney fees, regardless of whether a particular obligation arose before or after the 60 day period specified in § 365(d)(10).

The debtor initially contends that Associates is not entitled to any administrative claim because, in a motion for relief from stay filed on November 10, 1997, it previously asserted that the lease terminated pre-petition. The debtor is apparently suggesting that this assertion somehow judicially estops Associates from seeking an administrative claim for debtor's post-petition obligations.

Judicial estoppel prevents a party from taking one position in litigating a particular set of facts and then later reversing that position in subsequent litigation when it is in their interest to do so. Levinson v. United States, 969 F.2d 260 (7th Cir.1992); In re Cassidy, 892 F.2d 637 (7th Cir.1990). While no definitive test exists for determining when the doctrine applies, certain boundaries have been established. One of them is that the party must have persuaded the first court to accept its position. Levinson, 969 F.2d at 264-65; Davis v. Wakelee, 156 U.S. 680, 689, 15 S.Ct. 555, 558, 39 L.Ed. 578 (1895) ("Where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position.") (emphasis added). In this case, Associates never succeeded in maintaining its position that the lease had terminated; in fact, the issue was never addressed by the court. Therefore, Associates is not judicially estopped from seeking an administrative claim.

While the Seventh Circuit has not interpreted § 365(d)(10), its decision with respect to a very similar provision of the Bankruptcy Code, § 365(d)(3), is instructive. That provision addresses a debtor's post-petition obligations to lessors of non-residential real estate, pending assumption or rejection of those executory contracts, in much the same way that § 365(d)(10) does for the lessors of personal property. In Matter of Handy Andy Home Imp. Centers, Inc., 144 F.3d 1125 (7th Cir.1998), the Seventh Circuit observed that § 365(d)(3) allows landlords to collect the rent fixed in the lease during the post-petition/pre-rejection period. Id. at 1128. It also concluded that which post-petition obligations a debtor is required to perform is determined by the date liability accrues, rather than the date a bill is issued or the date upon which payment is due. Id. at 1127-28. As this court observed when it was called upon to apply the statute:

a convenient way of conceptualizing the issue is to ask whether, as of the date of the petition, debtor\'s liability to pay a particular obligation had already attached so that, if the lease had ended on that date, the obligation in question would have been a claim against the debtor. If so, § 365(d)(3) does not require it to be performed. If, however, the obligation would not represent a claim had the lease terminated on the date of the petition, § 365(d)(3) requires performance until the lease is assumed or rejected. Matter of Consolidated Industries Corp., 234 B.R. 84, 86-87 (Bankr.N.D.Ind.1999).

The same reasoning applies to § 365(d)(10). Like § 365(d)(3), it requires the timely post-petition performance of certain obligations of the debtor. The only meaningful difference between them is that for real property the time for performance begins after the order for relief, while for personal property it begins sixty days later.

Section 365(d)(10) clearly required the debtor to pay the contractually agreed upon rent which came due after 60 days following the order for relief. To the extent it failed to do so, Associates is entitled to an administrative claim.¹ Yet, Associates contends that it is also entitled to an administrative claim for the rent which came due during those first 60 days. This argument is contrary to the plain language § 365(d)(10), which specifies that the obligations to be performed are those which "arise from or after 60 days after the order for relief." 11 U.S.C. § 365(d)(10) (emphasis added). If Congress had intended to give priority to obligations arising during the first 60 days, it would not have limited § 365(d)(10) to the obligations arising after that time. Compare 11 U.S.C. § 365(d)(3) with 11 U.S.C. § 365(d)(10).

When it enacted § 365(d)(10), Congress was confronted with divergent views on the issue of a debtor's post-petition obligations to a lessor of personal property. One extreme required no post-petition payments, unless and until the lease was assumed. See, e.g., In re Mid-Region Petroleum, Inc., 1990 WL 506896 (N.D.Okla. 1990), aff'd, 1 F.3d 1130 (10th Cir.1993). The other required full payment from the date of the order for relief, until the lease was assumed or rejected. See, e.g., In re Fred Sanders, 22 B.R. 902 (Bankr. E.D.Mich.1982). In the middle was yet another view, which would allow the lessor an administrative claim based upon varying standards. See, e.g., In re Subscription Television of Greater Atlanta, 789 F.2d 1530 (11th Cir.1986) (actual benefit to the estate required); In re ICS Cybernetics Inc., 111 B.R. 32 (Bankr.N.D.N.Y.1989) (fair rental value of property actually used by debtor after date of petition); In re Litho Specialties, Inc., 154 B.R. 733 (D.Minn.1993) (no consideration of actual use). Congress obviously balanced and compromised these competing positions in crafting a statutory solution to the judicial debate. To allow an administrative claim for the rent coming due during the first 60 days following the order for relief would undermine that solution. Where a lease of personal property is assumed, any default in the obligations which were to be performed during the first 60 days following the petition will have to be satisfactorily cured in connection with the assumption. See 11 U.S.C. § 365(b). Where, as in this case, an unexpired lease of personal property is ultimately rejected, the obligations coming due during the 60 days following the order for relief will be included in the lessor's claim for damages arising from the rejection of the lease. Those obligations do not represent an administrative claim.

In addition to the lease payments, Associates is also seeking an administrative priority for other obligations included in the lease, such as late fees on the lease payments, taxes, and attorney fees.

The lease between debtor and Associates provides for a late fee, at a rate of 1.5% per month, on any delinquent rental payments. The debtor was undeniably late in making post-petition rental payments and Associates is entitled to late fees on the delinquency. Associates is not, however, as it...