In re OPM Leasing Services, Inc.
| Decision Date | 05 November 1987 |
| Docket Number | No. 86 Civ. 2957 (JMC).,86 Civ. 2957 (JMC). |
| Citation | 79 BR 161 |
| Parties | In re O.P.M. LEASING SERVICES, INC., et al, Debtors. |
| Court | U.S. District Court — Southern District of New York |
Louis Scarcella, Gerald C. Bender, Phillips, Nizer, Benjamin, Krim & Ballon, New York City, for appellant Occidental Petroleum Services, Inc.
Menachem O. Zelmanovitz, Peter M. Levine, Zalkin, Rodin & Goodman, New York City, for Trustee James P. Hassett.
Bankruptcy Judge Burton R. Lifland's Order of March 10, 1986, allowing the claim of Occidental Petroleum Services, Inc. in the amount of $214,674.40, is affirmed. 28 U.S.C. § 158(a).
The facts underlying this appeal from an Order of Bankruptcy Judge Burton R. Lifland are not in dispute. The debtor, O.P.M. Leasing Services, Inc. "O.P.M.", had been in the business of buying, selling and leasing new and used computer equipment. On May 26, 1977, O.P.M. entered into a Written Master Agreement of Lease "Master Agreement" with the appellant Occidental Petroleum Services, Inc. "Occidental". Pursuant to the Master Agreement, O.P.M., as lessor, and Occidental, as lessee, entered into Equipment Schedule No. 6 the "Schedule", dated September 10, 1978.
Under the Master Agreement and the Schedule, O.P.M. leased to Occidental certain computer equipment for a term of 84 months, due to expire on November 30, 1985. Occidental was obligated to make monthly payments for the length of the term, but had an option to terminate the Schedule after 36 months. At or about the time the Schedule was executed, O.P.M. sold the equipment to Lehman Brothers Kuhn Loeb, Inc. "Lehman Brothers", simultaneously leasing it back for a term of 108 months, due to expire on November 30, 1987. Under the terms of its agreement, O.P.M. assigned its interest in the payments due under the Schedule to Lehman Brothers. In order to finance its purchase of the equipment, Lehman Brothers entered into an agreement with Manufacturers Hanover Lease, Inc. "MHLC", granting MHLC a security interest in the equipment and an assignment of rights under the Schedule.
A provision in the Master Agreement required Occidental to make its monthly payments to MHLC, as assignee, regardless of any default or breach by O.P.M. In addition, if Occidental elected not to terminate the Schedule prior to the expiration of the 84-month term, it was obligated to make, on October 25, 1985, a termination payment to MHLC, as assignee, in the amount of $981,250 "termination payment". Under the Schedule, payment by Occidental on that date would trigger an obligation of O.P.M. to reimburse Occidental for a percentage of the termination payment, or approximately $392,500. The Schedule fixed the amounts of the termination and reimbursement payments.
On March 11, 1981, O.P.M. filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code the "petition date". On March 27, James P. Hassett was appointed trustee the "Trustee". By notice of motion and application dated February 14, 1984, the Trustee applied to the Bankruptcy Court for an order, pursuant to 11 U.S.C. § 365, approving his rejection of the Schedule as an unexpired lease affording no benefit to the estate of the debtor. Following a hearing, Judge Lifland entered an Order on March 6, 1984, granting the Trustee's application and directing any party alleging damages from the rejection of the Schedule to file a claim within thirty days. Subsequently, Occidental filed a claim for the $392,500 reimbursement due under the Schedule, and for various expenses and attorney's fees the "Occidental claim". Occidental later agreed to withdraw its claim for expenses and attorney's fees. On October 25, 1985, Occidental made the $981,250 termination payment to MHLC.
The Trustee filed an objection to Occidental's claim. He sought to have the amount of $392,500 discounted to its present value as of the date O.P.M. filed its petition. A hearing was held on March 5, 1986, at which time Judge Lifland sustained the Trustee's objection to the amount of Occidental's claim. On March 10, 1986, an Order was entered allowing the claim, but in the discounted amount of $214,674.40. Thereupon, Occidental commenced this appeal.
This appeal raises the sole issue of whether Judge Lifland erred in discounting Occidental's claim to its present value as of the date O.P.M. filed its petition in bankruptcy.
Pursuant to 28 U.S.C. § 158(a), the district court has "jurisdiction to hear appeals from final judgments, orders, and decrees" of the bankruptcy court. Bankruptcy Rule 8013 provides that the district court "may affirm, modify, or reverse a bankruptcy court's judgment, order or decree or remand with instructions for further proceedings." Although a bankruptcy court's findings of fact should not be disturbed unless "clearly erroneous," its conclusions of law may be reviewed de novo. See In re New England Fish Co., 749 F.2d 1277, 1280 (9th Cir.1984); In re Dill, 731 F.2d 629, 631 (9th Cir.1984); In re Multiponics, Inc., 622 F.2d 709, 713 (5th Cir.1980) ().
Section 365(a) of the Bankruptcy Code provides that a "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). The trustee may elect to assume or to reject at "any time before the confirmation of a plan" of reorganization. Id. § 365(d)(2). Generally, a business judgment rule is used by the bankruptcy court in determining whether the trustee's assumption or rejection should be approved. See In re O.P.M. Leasing Services, Inc., 23 B.R. 104, 118 (Bankr.S.D.N.Y.1982). In addition, "the court, on the request of any party to such contract or lease, may order the trustee to determine within a specified period of time whether to assume or reject such contract or lease." 11 U.S.C. § 365(d)(2).
Under the Code, "the rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease . . . immediately before the date of the filing of the petition." Id. § 365(g)(1). The breach is treated as occurring "immediately preceding the date of the petition." See H.R.Rep. No. 595, 95th Cong., 1st Sess. 349 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6305; see also S.Rep. No. 989, 95th Cong., 2d Sess. 60 (1977), reprinted in 1978 U.S. Code Cong. & Ad.News 5787, 5846 ("The purpose of § 365(g) is to treat rejection claims as prepetition claims."); N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513, 530, 104 S.Ct. 1188, 1198, 79 L.Ed.2d 482 (1984) (); In re Davies, 27 B.R. 898, 900 (Bankr.E.D. N.Y.1983) ().
Section 502(a) of the Code provides for the allowance of a claim that arises from the rejection of an executory contract or unexpired lease. The trustee or another party in interest may file an objection to the claim. In that event, section 502(b) provides, in relevant part:
Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim . . . as of the date of the filing of the petition, and shall allow such claim in such amount. . . .
11 U.S.C. § 502(b) (emphasis added).
Section 502(b) makes specific reference to § 502(g). Section 502(g) deals with claims arising from the rejection of executory contracts and unexpired leases and provides that:
a claim arising from the rejection, under section 365 of this title . . . of an unexpired lease of the debtor that has not been assumed shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section . . . the same as if such claim had arisen before the date of the filing of the petition.
11 U.S.C. § 502(g) (emphasis added).
Occidental concedes that "the Code and accompanying legislative history make it clear that the postpetition rejection of an unexpired lease is considered a prepetition event, which for classification purposes renders the rejection damages claim a general unsecured one." Brief of Appellant at 20, 86 Civ. 2957 (JMC) (S.D.N.Y. June 6, 1986) "Appellant's Brief" (quoting In re O.P.M. Leasing Services, Inc., 56 B.R. 678, 682-83 (Bankr.S.D.N.Y.1986)).
Judge Lifland's March 10, 1986 Order was delivered from the bench. However, he stated at that time that his decision was "on all fours" with his previous decision in In re O.P.M. Leasing Services, Inc., 56 B.R. 678 (Bankr.S.D.N.Y.1986) "Northrop", a case which stemmed from the same bankruptcy proceeding as the instant one. In Northrop, the Trustee rejected a nearly identical unexpired lease entered into between O.P.M., as lessor, and Northrop, as lessee. O.P.M. had leased certain computer equipment to Northrop and then assigned to a third party its right to receive rental payments pursuant to a written "schedule" of dates and payments. Consequently, no payments were ever paid by Northrop to O.P.M. The Trustee elected to reject the O.P.M.-Northrop schedule, as it obligated O.P.M. to reimburse Northrop for monthly payments made pursuant to it, but which did not accrue to O.P.M.'s benefit. On December 29, 1983, Judge Lifland signed an order approving the Trustee's rejection.
A total of eleven monthly payments remained to be made on dates falling beyond the rejection date. Northrop made these payments. In total, Northrop made postpetition payments amounting to $812,788.37 and, subsequent to the Trustee's...
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