In re Re-Trac Corp., Bankruptcy No. 4-85-1433 (M-1).
| Decision Date | 07 April 1986 |
| Docket Number | Bankruptcy No. 4-85-1433 (M-1). |
| Parties | In re RE-TRAC CORPORATION, Debtor. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
Dennis M. Ryan, Minneapolis, Minn., for movant.
Larry B. Ricke, Minneapolis, Minn., for debtor.
ORDER GRANTING TERMINATION OF AUTOMATIC STAY
This matter came on for final hearing on March 7, 1986, on the Motion for Surrender of Nonresidential Real Property or Termination of the Automatic Stay filed by Wickes Manufacturing Company and on the Motion to Approve Assumption of an Executory Lease of Nonresidential Real Property filed by Re-Trac Corporation (Debtor). Wickes was represented by Dennis M. Ryan. The Debtor was represented by Larry B. Ricke. Based upon the evidence, testimony, memorandum and argument of counsel, and all of the files and records, I make the following:
MEMORANDUM ORDERPursuant to 11 U.S.C. § 365(d)(4), Wickes seeks to have the Debtor immediately surrender certain leased premises, or, in the alternative, have the automatic stay of 11 U.S.C. § 362(a) modified so as to permit Wickes to take action to evict the Debtor from the premises. The Debtor seeks approval of its assumption of the lease for the same premises pursuant to 11 U.S.C. § 365(a). The Bankruptcy Court has jurisdiction under 28 U.S.C. §§ 1334(b) and 157(a) and Local Bankruptcy Rule 103(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (G).
1. The Debtor is a Minnesota corporation engaged in the manufacture and sale of truck mirrors, with corporate offices in Minneapolis, Minnesota, and a manufacturing facility in Glasgow, Kentucky.
2. On August 14, 1984, the Debtor entered into a sublease of certain real property with Gulf & Western Manufacturing Company as sublessor, and the Debtor as sublessee. The Sublease related to approximately 35,400 square feet in a commercial building located at 1115 Cleveland Avenue, Glasgow, Kentucky (the Leased Premises). Gulf & Western was the lessee of the entire building pursuant to a lease from Central Glasgow Corporation.
3. The Sublease commenced on November 1, 1984, and ran through September 30, 1987. Under the Sublease, the Debtor had the option to renew for an additional term from October 1, 1987, the November 29, 1990, by giving notice to Gulf & Western. For the period November 1984, to September 1985, rent was set at $5,310.
4. In January 1985, the Debtor physically moved its manufacturing operations from Minneapolis, Minnesota to the Leased Premises and began operations there. The Debtor claims that the expenses incurred in this move were a significant factor in its filing for protection under Chapter 11.
5. In March 1985, the Debtor and Gulf & Western entered into an amendment to the Sublease (Amendment) which gave the Debtor an additional 19,000 square feet in the Leased Premises. The Amendment was for the same term and renewal period as the Sublease. Commencing May 1, 1985, through September 30, 1985, rental payments were increased to $8,160. From October 1, 1985, to September 30, 1987, rental payments were to be $8,613.33 per month. Upon execution of the Amendment, the Debtor was required to deliver a security deposit of $2,850 to Gulf & Western, with an additional security deposit of $453.33 due on October 1, 1985.
6. On July 23, 1985, the Debtor filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, District of Minnesota, and is presently operating as debtor in possession.
7. The Debtor has remained in possession of the Leased Premises from July 23, 1985. The Debtor did not file on or before September 22, 1985, a motion to approve assumption of the Sublease and the Amendment under 11 U.S.C. § 365(a), nor did the Debtor seek to extend the period to assume or reject the Sublease as allowed under 11 U.S.C. § 365(d)(4).
8. No rent was tendered by the Debtor to Gulf & Western in July 1985. Three checks in the amount of $8,310 were tendered by the Debtor and deposited by Gulf & Western on the following dates: Check dated August 5, 1985, deposited August 16, 1985; check dated October 31, 1985, deposited November 13, 1985; check dated December 11, 1985, deposited December 18, 1985.
9. Wickes is presently holding two checks from the Debtor: one dated January 10, 1986, in the amount of $17,226.66, and denominated "Dec. & Jan. rent"; and the other dated February 7, 1986, in the amount of $8,613.33, denominated "Rent payment for February." Additionally, the Debtor has tendered a rent check for March 1986.
10. Subsequent to the filing of the Chapter 11 petition, the Debtor's Chief Executive Officer, Patrick Jacobs, had a telephone conversation with John Rose of Gulf & Western. In that conversation, the Debtor informed Rose that the Debtor intended to continue to operate out of the Leased Premises. There was, however, no mention of assuming the Sublease.
11. On September 12, 1985, Gulf & Western was renamed Wickes Manufacturing Company after the Wickes Companies, Inc. acquired Gulf & Western from its parent corporation.
12. Wickes sent a letter dated January 16, 1986, demanding that the Debtor vacate and surrender the Leased Premises since the Debtor had failed to assume the Sublease within 60 days of filing its petition under Chapter 11 as required by 11 U.S.C. § 365(d)(4).
13. The security deposit of $2,850 due May 1, 1985, under the Amendment has not been made. The additional security deposit of $453.33 due October 1, 1985, has also not been made by the Debtor.
14. Responsibility for certain utility charges totaling $4,231.10 from the period November 1, 1984, to April 1, 1985, is disputed between Wickes and the Debtor.
Wickes alleges that because the Debtor did not file a motion to assume the Sublease, or file a motion requesting an extension of time prior to September 21, 1985, the Sublease is deemed rejected by operation of law under 11 U.S.C. § 365(d)(4). Section 365(d)(4) of the Code, which was added by the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333 (The 1984 Amendments), provides that:
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 was 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(d)(4) (1985).
The reference to the duty of the trustee specifically applies to a debtor in possession by virtue of 11 U.S.C. § 1107(a). The "date of the order for relief" is the date on which the debtor files a petition for relief, 11 U.S.C. § 301. Applying the requirements of § 365(d)(4) to this case, the issue is whether the Debtor assumed the Sublease prior to September 21, 1985.
Some courts have held that for a debtor to assume a lease under § 365(d)(4) the debtor must both file a motion for assumption of the lease and receive court approval within the 60-day period. See, In re Southwest Aircraft Services, Inc., 53 B.R. 805 (Bktcy.C.D.Cal.1985); In re ByRite Distributing, Inc., 47 B.R. 660 (Bktcy. D.Utah 1985). That interpretation of § 365(d)(4) is unduly harsh and is not dictated by the language of the statute or the legislative history. I agree with the rationale of the District Court in By-Rite Distributing, Inc. v. Brierley (In re By-Rite Distributing, Inc.), 55 B.R. 740 (D.Utah 1985), when it stated:
The District Court went on to discuss the Legislative intent behind the 1984 Amendments and concluded that by choosing language virtually identical to the old § 365(d)(1), which governed the assumption of leases in Chapter 7 cases, Congress must have intended Chapter 11 cases to be subject to the same time restrictions as Chapter 7 cases. Id. at 744. It is settled law that the 60-day limit of § 365(d)(1) applied only to the trustee's decision to assume, not to the court's approval of that decision. In re Ro-An Food Enterprises Ltd., 41 B.R. 416, 418 (E.D.N.Y.1984).
The District Court concluded that the "trustee assumes or rejects the lease within the meaning of § 365(d)(4) when he makes up his mind to do so and communicates his decision in an appropriate manner, such as by filing a motion to assume." By-Rite Distributing, Inc., 55 B.R. at 753. The Debtor argues that it has informally communicated its intention to assume the Sublease by its actions. In By-Rite, the court did not reach the question of what action short of filing a motion to assume would constitute assumption of the lease. Since the debtor had unequivocally expressed its decision to assume the lease by filing a motion to assume, the question was not before the court. Id. at 742, n. 5.
The test for assumption or rejection of an executory contract or unexpired lease under § 365 is whether the trustee or debtor-in-possession has indicated assumption or rejection of the executory contract or unexpired lease by an unequivocal act. In re 1 Potato 2, Inc., 58 B.R. 752 (Bktcy.D. Minn.1986); By-Rite Distributing, Inc., 55 B.R. at 742-43; In re Bon Ton Restaurant and Pastry Shop, Inc., 52 B.R. 850, 854 (Bktcy.N.D.Ill.1985). "An assumption may be shown by word or by deed...
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