In re Malden Mills Industries, Inc.
| Citation | 303 B.R. 688 |
| Decision Date | 21 January 2004 |
| Docket Number | Bankruptcy No. 01-47216-JBR.,Bankruptcy No. 01-47217-JBR.,BAP No. MW 03-007.,BAP No. MW 03-003.,Adversary No. 02-4248-JBR.,BAP No. MW 03-004.,BAP No. MW 03-022.,BAP No. MW 03-006.,BAP No. MW 03-009.,Bankruptcy No. 01-47215-JBR.,BAP No. MW 03-005.,Bankruptcy No. 01-47214-JBR.,BAP No. MW 03-020.,BAP No. MW 03-008. |
| Parties | In re MALDEN MILLS INDUSTRIES, INC., et al., Debtors. Malden Mills Industries, Inc., et al., and the official Committee of Unsecured Creditors, Appellants/Cross-Appellees, v. Alfred G. Maroun, Appellee/Cross-Appellant. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, First Circuit |
Kevin J. Walsh, John T. Morrier, David Hadas, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, MA, on brief for Appellant/Cross-Appellee, Malden Mills Industries, Inc., et al.
Andrew Z. Schwartz, Richard W. Benka, Jessica M. Silbey, Foley Hoag LLP, Boston, MA, on brief for Appellant/Cross-Appellee, The Official Committee of Unsecured Creditors.
Michael B. Feinman, Stephen P. Shannon, Law Office of Michael B. Feinman, Andover, MA, on brief for Appellee/Cross-Appellant.
Before DE JESÚS, CARLO, and DEASY, U.S. Bankruptcy Appellate Panel Judges.
On February 1, 1990, Malden Mills Industries, Inc. (the "Debtor") and Alfred G. Maroun ("Maroun" or the "Landlord") entered into a lease (the "1990 Lease") pursuant to which the Debtor leased 40,000 square feet in a 250,000 square foot mill building in Lawrence, Massachusetts, built around 1910 and known as the Loomweve Building (the "Building"). Under the terms of the 1990 Lease, Maroun was responsible for making "all reasonably required non-structural repairs of the leased premises" and for maintaining "the structural integrity of the leased premises and the building which the leased premises are part, including without limitation, the integrity of the roof and its support structure." In 1996, the Debtor needed additional space for one of its divisions that was destroyed by fire in December 1995. Accordingly, the Debtor and Maroun agreed to amend the lease and the Debtor was allowed to take possession of the entire Building. In order to accommodate its operations, the Debtor needed to retrofit the Building which involved removing some interior partitions and walls, cutting holes in the second floor, upgrading the electrical and plumbing services, and installing a "tank farm," i.e., a series of tanks used to mix chemicals needed to process goods. Maroun consented to these modifications in writing. At the time of the lease amendment in 1996, the Debtor commissioned an appraisal of the Building which documented without specificity the poor condition of the Building at the time, including a leaking roof and rotting floors. The 1990 Lease, as amended, expired on August 31, 1999.
On November 1, 1999, the Debtor and Maroun entered into a new lease (the "1999 Lease"). Under the 1999 Lease, the responsibility for making structural repairs to the Building was assigned to the Debtor. The Debtor was required to maintain the Building "in as good a condition and repair as at the beginning of the Term, reasonable wear and tear only excepted." In the 1999 Lease the word "Term" is defined as the period "from November 1, 1999 and through October 31, 2006." As part of the 1999 Lease, the parties expressly agreed to rescind the 1990 Lease, the amendments thereto, and the Debtor's notice of its intention to exercise an option to purchase the Building contained in an April 4, 1996 letter.
On November 29, 2001, the Debtor filed a bankruptcy petition under Chapter 11. The Debtor promptly sought to reject the 1999 Lease. The Court approved such rejection effective January 28, 2002. Upon vacating the Building, the Debtor left personal property and debris in the Building. On January 29, 2002, in connection with the lease rejection proceedings, the Debtor notified Maroun of its intent to abandon personal property in the Building. On April 17, 2002, Maroun filed a motion seeking to compel the Debtor to pay postpetition use and occupancy charges related to the personal property left at the premises. Shortly thereafter, on April 22, 2002, the Debtor filed a motion to abandon such property.
On March 4, 2002, Maroun filed a proof of claim seeking $4,479,702.45. The claim consisted of two components: $1,965,918.45 for rent and taxes due through the end of the 1999 Lease term and $2,513,784.00 for damage to the Building resulting from alterations and deterioration. On August 2, 2002, the Debtor filed an objection to Maroun's claim.
Maroun filed a motion for summary judgment on or about September 12, 2002, requesting that the bankruptcy court grant him summary judgment as to certain matters pending in an adversary proceeding between the parties, most importantly with respect to the Debtor's objection to Maroun's claim. The Debtor filed a cross-motion seeking summary judgment in its favor. On October 24, 2002, the bankruptcy court issued an order granting summary judgment in part to the Debtor and limiting Maroun's lease rejection damages to $413,176.08.
The bankruptcy court held an evidentiary hearing on December 2 and 6, 2002, on the remaining issues raised by the parties, specifically, the outstanding issues regarding the Debtor's objection to Maroun's claim, the Debtor's motion to abandon the personal property left in the Building, Maroun's motion to compel the Debtor to pay postpetition use and occupancy charges related to the ongoing presence of the personal property in the Building, and the Debtor's complaint against Maroun for turnover. On January 29, 2003, the bankruptcy court entered a series of orders that generated the appeals in these cases. The court reaffirmed its summary judgment findings on Maroun's lease rejection damages and capped them at $413,176.08. The court allowed Maroun's claim for damage to the Building in the amount of $2,513,784.00. The court entered an order allowing the Debtor's abandonment of the personal property left at the Building but ordered the Debtor either to remove the personal property from the Building or to reimburse Maroun for the cost of removal within thirty days of the court's order. Lastly, the court entered an order compelling the Debtor to pay Maroun use and occupancy charges of $200,002.001 for the period from January 28, 2002, the effective date of the lease rejection, through January 27, 2003, as well as an additional $547.93 per day until the personal property was removed from the Building. The court further determined that the Debtor did not possess an easement to use and maintain steam pipes that run through the Building and awarded $1.00 for use and occupancy of the Building by the steam pipes.
The Bankruptcy Appellate Panel (the "Panel") has jurisdiction to hear appeals from final orders of the bankruptcy court. 28 U.S.C. § 158(a). An order sustaining an objection to claim is such an order as are orders permitting abandonment and allowing lease rejection damages. See Neal Mitchell Assoc. v. Braunstein (In re Lambeth Corp.), 227 B.R. 1, 6 (1st Cir. BAP 1998) (citations omitted); see also In re Saco Local Dev. Corp., 711 F.2d 441 (1st Cir.1983) ().
We review factual findings for clear error and legal conclusions de novo. Werthen v. Werthen (In re Werthen), 329 F.3d 269, 272 (1st Cir.2003). A decision regarding abandonment is reviewed for abuse of discretion unless it is based upon a clearly erroneous finding of fact. LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 212 F.3d 632, 634 (1st Cir.), cert. denied, 531 U.S. 960, 121 S.Ct. 385, 148 L.Ed.2d 297 (2000); Johnston v. Webster (In re Johnston), 49 F.3d 538, 540 (9th Cir.1995).
The parties to these appeals have raised a number of interrelated issues involving the obligations of a chapter 11 debtor in possession and the claims of a lessor of nonresidential real property upon rejection of an unexpired lease and abandonment of personal property at the former leased premises. The Debtor and the official committee of unsecured creditors (the "Committee") as appellants and cross-appellees collectively raise four issues:
1. Whether the bankruptcy court erred in determining that the Debtor was liable to the Landlord for alterations and deterioration to the Building?
2. Whether the bankruptcy court erred in assessing damages for the alterations and deterioration of the Building at $2,513,784.00?
3. Whether the bankruptcy court erred in imposing use and occupancy charges and the costs of removal of abandoned personal property against the Debtor as administrative expenses?
4. Whether the bankruptcy court erred in ruling that the Debtor did not possess an easement to maintain a steam line in the Building?
The Landlord also raises four issues as appellee and cross-appellant:
5. Whether the bankruptcy court erred in limiting the Landlord's claim for breach of the 1999 Lease upon rejection to $413,176.08?
6. Whether the bankruptcy court erred in limiting the damages against the Debtor for continued use of the steam pipe to $1.00?
7. Whether the bankruptcy court erred in limiting the Landlord's claim for administrative use and occupancy charges for storage of abandoned personal property to only the portion of the Building in which such property is actually stored, rather than the entire Building?
8. Whether the bankruptcy court erred in allowing the Debtor to present the testimony of an expert as a rebuttal witness?
The factual and legal arguments surrounding these issues are interwoven in the fabric of this case and the provisions of the Bankruptcy Code.2 Accordingly, the Panel shall discuss these issues in the context of the...
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