In re Rickel Home Centers, Inc., 92-96-JJF.
| Decision Date | 06 March 1999 |
| Docket Number | No. 92-96-JJF.,92-96-JJF. |
| Citation | 240 BR 826 |
| Parties | In re RICKEL HOME CENTERS, INC., Debtor. |
| Court | U.S. District Court — District of Delaware |
COPYRIGHT MATERIAL OMITTED
Laura Davis Jones and Brendan Linehan Shannon, of Young, Conaway, Stargatt & Taylor, Wilmington, Delaware, Robert E. Gerber and Matthew Barr, of Fried, Frank, Harris Shriver & Jacobson, New York City, for debtor and debtor-in-possession.
Norman Pernick, of Saul, Ewing, Remick & Saul, Wilmington, Delaware, Patrick P. DiNardo and Deborah A. O'Malley, of Sullivan & Worchester, LLP, Boston Massachusetts, for Staples, Inc.
Douglas P. Bartner and Frederic Sosnick, of Shearman & Sterling, New York City, for Vornado, Inc.
Stephen M. Miller, of Smith, Katzenstein & Furlow, LLP, Wilmington, Delaware, Richard J. Mason, P.C., and Brian L. Shaw, of Ross & Hardies, Chicago, Illinois, for Net Realty Holding Trust.
William L. Witham, Jr. and Patricia Pyles McGonigle, of Prickett, Jones, Elliott, Kristol & Schnee, Wilmington, Delaware, Barry W. Frost and Donna Markey DeGrezia, of Teich, Groh and Frost, Trenton, New Jersey, for L.R.S.C. Co.
Presently before the Court are three objections to the Motion For An Order Pursuant To Sections 363, 365(a) and 365(f) Of The Bankruptcy Code And Bankruptcy Rules 6004 And 6006 Authorizing The Debtor-In-Possession To Assume (Where Applicable) And Sell And Assign Nonresidential Real Property Leases filed by Rickel Home Centers, Inc. (the "Debtor") (D.I.1275). Objections have been raised by Vornado, Inc. ("Vornado")1, Net Realty Holding Trust ("Net") (D.I.1299) and L.R.S.C., Co. ("LRSC") (D.I.1300). For the reasons set forth below, the Court will overrule the Objections.
In its Motion, the Debtor seeks an order authorizing it to sell 41 of its leases to Staples, Inc. ("Staples"), or its nominee, and to assume (where applicable) and assign the selected leases that Staples desires to have assigned to it, pursuant to an agreement between the Debtor and Staples. Under the terms of this agreement, Staples has agreed to pay the Debtor $35.5 million in exchange for the leases. To secure its performance under the Agreement, Staples has posted a $3 million deposit, which is currently being held in escrow.
In addition, the Agreement provides that Staples may assign its rights under the Agreement to any nominee. The Debtor and Staples have represented that they expect such nominee to be a Staples affiliate. In the event of an assignment by Staples to its nominee, Staples has agreed to unconditionally guarantee all of its obligations under the Agreement.
Although numerous objections were initially raised to the Motion, Staples and the Debtor have negotiated settlement agreements with all but three of the objecting parties. The remaining objections have been filed by Vornado, Net and LRSC.
Vornado is the owner of a shopping center known as the Bradlees Shopping Center, on Hackensack Avenue, Hackensack, NJ (the "Hackensack Shopping Center"). Pursuant to the terms of a lease (the "Hackensack Lease") dated November 1, 1982, between Vornado and Grace Retail Corporation, Vornado agreed to lease a 41,000 square foot store (the "Hackensack Store") in the Hackensack Shopping Center to Grace, the predecessor of Channel Home Centers, Inc., for the purposes of Operating a Channel Home Center. In 1994, Channel was acquired by Rickel Home Center, Inc., who continued to operate the Hackensack Store as a home improvement store until it completed its "going out of business" sales. Staples has represented that it intends to open a 24,000 square foot Staples Store in the former Rickel's store and sublet the remaining 17,000 square foot store to another entity.
Vornado objects to the Debtor's Motion on both constitutional and statutory grounds. With respect to the constitutional aspect of its objection, Vornado contends that the Debtor's Motion deprives Vornado of its due process rights because, to the extent that the Debtor is seeking to modify the Hackensack Lease in its Motion, the Motion fails to specify the provisions the Debtor seeks to modify.2 With respect to the statutory grounds raised, Vornado raises three specific objections premised on Section 365(b)(3) of the Bankruptcy Code: (1) that the Debtor and Staples should not be permitted to disregard the use restrictions in the lease; (2) that Staples' need to paint and subdivide the Hackensack Store will violate provisions in the lease concerning alterations to the property; (3) that Staples' proposed use of the Hackensack Store will disrupt the tenant mix in the Hackensack Shopping Center; and (4) that any modifications to the lease, including the excise of the provisions and restrictions discussed above and certain provisions pertaining to future assignments of the lease, should not be permanent.
At the hearing, Vornado took the position that the Court could appropriately waive all of the provisions and restrictions in the lease, with the exception of the alterations provision, on a "one-time" basis for the purposes of allowing the Debtor to assign the lease to Staples for the operation of an office supply store. However, because Staples will only be operating a Staples Store in 24,000 square feet of the space and intends to sublet the remaining portion of the store, Vornado directs its objections to that portion of the Hackensack Store which Staples intends to sublet.
Net is the landlord under a lease (the "Bethlehem Lease") pertaining to the Debtor's store located in the Lehigh Shopping Center in Bethlehem, Pennsylvania (the "Lehigh Shopping Center"). Presently, the Lehigh Shopping Center has two vacant stores, a 48,000 square foot store formerly occupied by Rickel (the "Bethlehem Store") and a 60,000 square foot store formerly occupied by a department store. Staples has represented that it intends to operate a 24,000 square foot Staples Store in the store formerly occupied by Rickel and sublet the remaining 24,000 square foot store to another entity.
Although Net raises several objections to the Debtor's Motion, for purposes of discussion, these objections can be categorized into four grounds: (1) Staples should not be permitted to occupy only a portion of the space and sublet the remaining space; (2) the tenant mix of the shopping center will be affected by the assignment to Staples, because the store will "go dark" for a period of time; (3) the percentage rent at the shopping center will be affected; and (4) the Debtor and Staples have not provided sufficient evidence of what Staples intends to do with the Bethlehem Store (i.e. when Staples will commence operations, how much space Staples will occupy, leave dark or attempt to sub-let).3
LRSC entered into a lease agreement (the "Lawrence Lease") with the Debtor, as successor in interest after a series of assignments from Channel dated March 22, 1976, pertaining to Store No. 15 (the "Lawrence Store") at the Lawrence Shopping Center, Lawrence Township, Mercer County, New Jersey (the "Lawrence Shopping Center"). Since 1976, the Lawrence Store has been a home improvement store. The original term of the lease was for fifteen years, with three five-year options. Two of these three five-year options were previously exercised by Channel on January 29, 1991 and then by the Debtor on January 29, 1996.
With respect to the Lawrence Lease, a dispute arose concerning the Debtor's exercise of an option to renew the lease prior to the Debtor's assumption or rejection of the lease. On December 10, 1996, LRSC filed a motion for an order pursuant to § 365 of the Bankruptcy Code requiring the Debtor to assume or reject the lease within a shortened period of time and for an order declaring the Debtor's exercise of the option void. Prior to a hearing on LRSC's motion, the Debtor and LRSC settled the matter.
The Lawrence Store is approximately 38,000 square feet. As with the previous stores discussed, Staples has represented to the Court that it intends to operate a Staples Store in 24,000 square feet and sublet the balance. LRSC has represented to the Court that its intent, if successful in its objection, is to divide up the 38,000 square foot store into a series of smaller stores that will cater to home improvement needs, such as carpeting, kitchen cabinetry, wallpaper and window treatments.
LRSC objects to the Debtor's Motion on the grounds that: (1) the Debtor and Staples should not be permitted to disregard the use provision in the lease; (2) the Debtor and Staples should not be permitted to disregard provisions requiring landlord consent for assignment, requiring payment to landlord as a price of assignment and affecting forfeiture or modification of any tenants' rights or obligations under the lease; (3) the tenant mix at the Lawrence Shopping Center will be affected and (4) Staples and the Debtor have not provided sufficient evidence concerning the financial condition of Staples.
Both Vornado and LRSC object to the Debtor's Motion on the grounds that the proposed operation of a Staples Store in their respective shopping centers will violate use restriction provisions in their respective leases. Section 9.01 of the Hackensack Lease provides that the Hackensack Store shall only be used "for the purposes of a typical Channel Home Improvement Center and for no other purpose." Additionally Section 1.08(b) of the Hackensack Lease makes clear that the tenant's operation is to be a "Home Improvement Center." Similarly, Article 10 of the Lawrence Lease provides that the "tenant may use the Premises as a Channel Home Center similar in operation to a majority of the Channel Home Centers then in operation in New Jersey, and except as provided herein, for no other purpose." Both Vornado and LRSC contend that these restrictions are important to preserving the tenant mix in their shopping centers.
...
To continue reading
Request your trial