In re Tobago Bay Trading Co., Bankruptcy No. A90-02195-SWC
| Decision Date | 20 December 1991 |
| Docket Number | Adv. No. 90-0252A.,Bankruptcy No. A90-02195-SWC |
| Citation | 142 BR 528 |
| Parties | In re TOBAGO BAY TRADING COMPANY, f/k/a World Bazaar, Inc., a/k/a World Bazaar and a/k/a Curious Cargo, Debtor. WB, LTD., successor in interest to JMB Income Properties, Ltd.-X, d/b/a Pasadena Town Square and d/b/a Collin Creek Mall, Plaintiff, v. TOBAGO BAY TRADING COMPANY, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
S. Jarvin Levison, Arnall, Golden & Gregory, Macon, Ga., for plaintiff.
Robert A. Bartlett, Darren K. Hensley, Hicks, Maloof & Campbell, Atlanta, Ga., for debtor/defendant.
Before the court are cross motions for summary judgment of plaintiff, WB, Ltd., successor in interest to JMB Income Properties, Ltd.-X ("JMB") (referred to collectively as "lessor"), and of defendant debtor, Tobago Bay Trading Company, ("debtor"). Plaintiff seeks an order requiring debtor to pay postpetition rent during the first 60 days of this case. In the alternative, plaintiff seeks allowance of such postpetition rent as an administrative expense. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). The cross motions are granted in part and denied in part based on the findings and conclusions set forth hereinafter.
The parties have stipulated the following facts. In 1988 debtor became lessee of certain nonresidential premises located in Pasadena, Texas pursuant to an assignment of a lease agreement (the "Pasadena Lease"). The Pasadena Lease provided that it would expire on July 31, 1994.
Lessor received a letter from debtor dated June 27, 1989, which stated that debtor wished to terminate the Pasadena Lease on July 31, 1989. Debtor offered to pay lessor base rent for a twelve month period as compensation for the termination. On July 10, 1989, lessor informed debtor that a termination of the Pasadena Lease would not be possible until a replacement tenant was located. On or about January 5, 1990, debtor vacated the premises, removed all of its personal property, cancelled all utility services, and returned the keys to lessor. On January 9, 1990, lessor acknowledged by letter its receipt of the keys and stated that debtor's surrender of possession did not constitute a termination of the Pasadena Lease. Lessor did not relet the premises within 60 days after debtor filed its Chapter 11 petition.
In 1988 debtor became lessee of certain nonresidential premises located in Plano, Texas pursuant to an assignment of a lease agreement (the "Collin Creek Lease"). The Collin Creek Lease provided that it would expire on October 31, 1993.
On January 9, 1990 debtor vacated the premises, removed all of its personal property, cancelled all utility services and returned the keys to lessor. Lessor was aware of debtor's abandonment at the time it occurred. Lessor accepted the keys, reentered the premises and placed a sign in the window inviting rental inquiries. Lessor never notified debtor that it would not accept the termination of the lease or that debtor would continue to be liable on the lease. Subsequently, lessor entered into a new lease with another tenant for a term which commenced on April 1, 1990.
On February 16, 1990, debtor filed its Chapter 11 petition. Thereafter, on March 12, 1990, debtor filed a motion to reject a number of unexpired leases, including the Pasadena and Collin Creek leases. At the hearing debtor agreed to withdraw its motion as to this lessor and to resolve their dispute in a separate adversary proceeding. The parties agreed that even though debtor was withdrawing its motion as to plaintiff, the debtor could still assert in this adversary that the motion to reject was effective at the earlier of the date the debtor communicated its intent to reject or the date that it filed its motion to reject. Transcript of hearing held May 3, 1990 at p. 14, In re Tobago Bay Trading Co. (No. 90-02195). Therefore, no determination of the legal effect of debtor's prepetition abandonment and surrender of either of these leases was made prior to or within 60 days after the order for relief in this Chapter 11 case. Likewise, neither of the leases were assumed by debtor. On May 1, 1990, this adversary proceeding was commenced and WB, Ltd. was thereafter substituted as plaintiff in this proceeding by consent order entered January 4, 1991.
Federal Rule of Civil Procedure 56, made applicable herein pursuant to Bankruptcy Rule 7056, provides for the granting of summary judgment if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The local rules require that a motion for summary judgment be accompanied by a statement of material facts not in dispute. L.R. 220-5, N.D.Ga. The stipulation of facts submitted by the parties shows that no material facts are in dispute. Therefore, this matter may be resolved on the cross motions for summary judgment.
Lessor asserts claims for postpetition rents under the leases for 60 days postpetition as an administrative expense pursuant to 11 U.S.C. § 365(d)(3). Debtor alleges that its prepetition abandonment and surrender of these leased premises terminated the leases, the leases never became property of the estate, and debtor is, therefore, not liable for any postpetition rent. In the alternative, debtor asserts that it rejected the leases postpetition either by conduct which demonstrated an unequivocal intent to reject or the filing of its motion to reject. In order to resolve these issues, the court must determine when the leases were rejected and the priority, if any, to be accorded to lessor's claim.
A debtor's estate is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). If debtor's abandonment and surrender of the leased premises terminated the leases, then the leases never became property of the estate. Under such circumstances, the estate would not be obligated to make any rental payments to the lessor.
The court must look to applicable state law to determine whether debtor's abandonment and surrender terminated the leases prepetition. Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979). Generally, a federal court must apply the law that would be applied by the courts of the state in which it sits. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). While these leases relate to Texas property, neither the lessor nor debtor has raised the choice of law issue or provided the court with any state statutes or case law relevant to the issue of debtor's prepetition termination. Therefore, the court will apply Georgia law. See Provau v. State Farm Mut. Auto. Ins. Co., 772 F.2d 817, 820 (11th Cir.1985). However, even if the court applied Texas law, its resolution of this issue would be the same.
Under Georgia law when a lessee abandons leased property without cause the lessor can either accept the lessee's offer to terminate the lease, in which case a rescission of the lease occurs, or the lessor can refuse to accept the offer to terminate and hold the lessee liable for its obligations under the lease. See Vaswani v. Wohletz, 196 Ga.App. 676, 677 (1990); Noble v. Kerr, 123 Ga.App. 319, 319-20 (1971). If by their communication and conduct both the lessee and lessor express a mutual desire to terminate the lease then, even in the absence of an express agreement to rescind, "a cancellation or rescission of the contract is effected by the implied agreement of the parties. . . ." Vineyard Village-Georgia, Inc. v. Crum, 136 Ga.App. 335, 337, 221 S.E.2d 208 (1975) (quoting Wright v. Kilgo, 212 Ga. 712, 713, 95 S.E.2d 7 (1956)).
An implied agreement to terminate was found where, after the lessee's abandonment, the lessor solicited the return of the keys from the lessee and, without notifying the lessee that it would be liable for rent for the remainder of the lease term, attempted to relet the premises. Ledsinger v. Burke, 113 Ga. 74, 76-77, 38 S.E. 313 (1901); see also Vineyard Village-Georgia, Inc. v. Crum, 136 Ga.App. 335, 337-38, 221 S.E.2d 208 (1975). The court found that the lessor's actions and lack of notice to the lessee demonstrated an intent to terminate the lease. Ledsinger, 113 Ga. at 76-77, 38 S.E. 313. However, in similar cases where the lessor notified the lessee that he intended to hold the lessee responsible for rent, the courts have consistently held that the lessor did not accept the lessee's surrender of possession even though the lessor retook possession of the property and ultimately relet it. Crolley, et al. v. Crow-Childress-Mobley # 2, 190 Ga.App. 496, 497, 379 S.E.2d 202 (1989); Kimber, et al. v. Towne Hills Dev. Co., 156 Ga.App. 401, 402, 274 S.E.2d 620 (1980) (citations omitted); Schachter v. Tuggle, Co., 8 Ga. App. 561, 562, 70 S.E. 93 (1911).
Application of Texas law to this issue would not lead to a different result because Texas case law also provides that a lease may be terminated by the mutual agreement or conduct of the parties. Whitman v. Cearley, 251 S.W.2d 960, 961 (Tex.Civ.App.—Galveston 1952); see also Blakeway v. General Electric Credit Corp., 429 S.W.2d 925, 928-29 (Tex.Civ. App.—Austin 1968); Walter E. Heller & Co., Inc. v. Allen, 412 S.W.2d 712, 720 (Tex.Civ.App.—Corpus Christi 1967). "A surrender by operation of law occurs (under Texas law) where the parties without express surrender do some act or acts from which it is necessarily implied that they have both agreed to consider the surrender as made-acts which are necessarily inconsistent with the continued relation of landlord and tenant." Barret v. Heartfield, 140 S.W.2d 942, 945 (Tex.Civ.App.—Beaumont 1940) (quoting 35 C.J. 1086). Thus, under both Georgia and Texas case law, an agreement to terminate a lease may be implied by acts of the lessor where surrender of the...
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