Southwest Aircraft Services, Inc., In re

• Decision Date: 29 October 1987
• Docket Number: No. 86-6520,86-6520
• Citation: 831 F.2d 848
• Parties: , 17 Collier Bankr.Cas.2d 976, 16 Bankr.Ct.Dec. 1143, Bankr. L. Rep. P 72,014 In re SOUTHWEST AIRCRAFT SERVICES, INC., Debtor and Debtor-in-Possession, Debtor. SOUTHWEST AIRCRAFT SERVICES, INC., Appellant, v. CITY OF LONG BEACH, and Atlantic Aviation, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 848

831 F.2d 848

56 USLW 2266, 17 Collier Bankr.Cas.2d 976,

16 Bankr.Ct.Dec. 1143, Bankr. L. Rep. P 72,014

In re SOUTHWEST AIRCRAFT SERVICES, INC., Debtor and Debtor-in-Possession, Debtor SOUTHWEST AIRCRAFT SERVICES, INC., Appellant, v. CITY OF LONG BEACH, and Atlantic Aviation, Appellees.

No. 86-6520.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 10, 1987.

Decided Oct. 29, 1987.

Richard K. Diamond, Danning, Gill, Gould, Diamond & Spector, Los Angeles, Cal., for debtor-appellant.

Robert H. Shutan, Sidley & Austin, Los Angeles, Cal., for appellees.

Appeal from the United States Bankruptcy Appellate Panel for the Ninth Circuit.

Before ANDERSON, SKOPIL and REINHARDT, Circuit Judges.

REINHARDT, Circuit Judge:

We are asked here to resolve a question of first impression in the circuit courts regarding the interpretation of section 365(d)(4) of the Bankruptcy Code. 11 U.S.C. Sec. 365(d)(4) (Supp.1985). ¹ The Code permits a debtor in bankruptcy to assume or reject any unexpired lease it may have. Id. Sec. 365(a). Under section 365(d)(4), a nonresidential lease is deemed rejected by a debtor-lessee unless that party assumes the lease within 60 days after filing for Chapter 11 protection or within such additional period as is fixed by the bankruptcy court. In the case before us, the debtor-lessee moved, before the initial 60-day period had expired, for an extension of time within which to assume or reject a commercial lease, but the bankruptcy court did not hear the motion until after that period had ended. The court held that the lease was deemed rejected immediately upon the expiration of the sixtieth day, and that it was without authority to grant the timely filed motion for extension. The bankruptcy appellate panel affirmed; we reverse.

I. Facts

Southwest Aircraft Services, Inc., is an aircraft maintenance company located at the Long Beach Airport. Southwest leases its business premises from the City of Long Beach under a long-term lease it assumed in 1976. Several years later, commercial jet flights into the airport increased, and Long Beach leased a vacant parcel adjoining Southwest's to Atlantic Aviation, which built a jet facility on the newly leased property. Evidently the existence of the new facility resulted in a significant increase in the value of Southwest's parcel.

Southwest filed for Chapter 11 relief on April 18, 1985, and received permission to operate its business as debtor-in-possession. It then closed its pre-bankruptcy checking accounts and opened a new one in its new capacity. The March and April 1985 rent checks, which were written on an old checking account, were returned to Long Beach unpaid. After filing for Chapter 11 protection, Southwest made no further rent payments to the city.

On June 14, 57 days after filing for Chapter 11, Southwest filed a motion to extend the 60-day deadline for assuming or rejecting its lease with Long Beach. The bankruptcy court did not hear Southwest's motion until July 17, 90 days after the bankruptcy filing, and 30 days after the 60-day period had ended. At the hearing, Southwest tendered checks to Long Beach for all outstanding rent, which the city refused.

While the bankruptcy judge declared that he would be inclined to grant the extension motion, he concluded that he no longer had authority to do so, ruling that the lease was deemed rejected pursuant to section 365(d)(4) of the Bankruptcy Code. The court found that in order for a debtor-lessee to obtain an extension of time under that section, not only must that party move for an extension within 60 days of filing for Chapter 11 protection, but the court must hear and grant the motion within that period. In re Southwest Aircraft Servs., Inc., 53 B.R. 805 (Bankr.C.D.Cal.1985). Under the bankruptcy judge's view, rejection was automatic since the 60-day deadline passed before he had held any hearing or issued any ruling on the motion. The Bankruptcy Appellate Panel affirmed, holding that the language of section 365(d)(4) "is precise and leaves no room for arguing that an extension may be granted or confirmed after 60 days have elapsed." In re Southwest Aircraft Servs., Inc., 66 B.R. 121, 123 (Bankr. 9th Cir.1986). Southwest promptly appealed.

II. Legal Discussion

A. The Proper Interpretation of Section 365(d)(4)

The interpretation of a statute is a question of law which we review de novo. E.g., United States v. Roberts, 747 F.2d 537, 546 (9th Cir.1984). A court's objective in interpreting a federal statute is to ascertain the intent of Congress and to give effect to its legislative will. E.g., Philbrook v. Glodgett, 421 U.S. 707, 713, 95 S.Ct. 1893, 1898, 44 L.Ed.2d 525 (1975). The first place a court looks in determining legislative intent is the language of the statute itself. E.g., United States v. James, --- U.S. ----, 106 S.Ct. 3116, 3121, 92 L.Ed.2d 483 (1986); Blum v. Stenson, 465 U.S. 886, 896, 104 S.Ct. 1541, 1547, 79 L.Ed.2d 891 (1984).

Here, the meaning of the words of section 365(d)(4) is not entirely clear. The section is not plainly susceptible to only one interpretation, and bankruptcy courts are divided on how the statute should be applied. Section 365(d)(4) provides that any unexpired nonresidential lease is deemed rejected unless the debtor-lessee assumes it "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...." 11 U.S.C. Sec. 365(d)(4) (emphasis added). Under the section, the court's ability to extend the 60-day period is limited by a clause which includes three successive terms: "for cause," "within such 60-day period," and "fixes." It is not entirely clear whether the second term--"within such 60-day period"--modifies the term that precedes it or the term that follows it. If we read it as modifying "fixes", then a bankruptcy court would not under the literal words of the statute have the authority to grant a timely motion to extend after the sixtieth day. That is the interpretation advanced by Long Beach, as well as by some bankruptcy courts in this and other cases. See In re House of Deals of Broward, Inc., 67 B.R. 23, 24 (Bankr.E.D.N.Y.1986); In re Coastal Indus., Inc., 58 B.R. 48, 49 (Bankr.D.N.J.1986); In re Taynton Freight Sys., Inc., 55 B.R. 668, 671 (Bankr.M.D.Pa.1985). If, however, the 60-day term modifies "for cause," then while the cause must arise within 60 days (and implicitly the debtor must file its motion to show cause within that period), there is no express limit on when the bankruptcy court must hear and decide the motion. This more liberal reading of the statute would allow the bankruptcy courts to operate with greater freedom and flexibility. It is the one we adopt.

Several bankruptcy courts have held that the more restrictive interpretation of the statute would lead to arbitrary and fortuitous results and have rejected it for that reason. See In re Wedtech Corp., 72 B.R. 464, 468 (Bankr.S.D.N.Y.1987); In re Musikahn Corp., 57 B.R. 938, 942 (Bankr.E.D.N.Y.1986); In re Unit Portions of Del., Inc., 53 B.R. 83, 84 (Bankr.E.D.N.Y.1985). While we recognize that were we to look only to the face of the statute Long Beach's argument would by far be the stronger one, we cannot say with certainty that it is the only plausible interpretation of section 365(d)(4). There is another possible interpretation of the statutory language, one that permits a more reasonable construction--a construction that is more consistent with the normal concepts that govern the functioning of the judiciary. Thus, we turn to the legislative purpose and history for whatever guidance they may provide. See, e.g., Blum v. Stenson, 465 U.S. at 896, 104 S.Ct. at 1547. ²

Like the language of section 365(d)(4), the legislative purpose and history of the section do not provide a definitive answer to the question before us; however, they do offer some support for Southwest's view. Before 1984, debtors in Chapter 11 reorganizations had no fixed deadline to assume or reject unexpired leases, although any party could request the court to fix a time limit. 11 U.S.C. Sec. 365(d)(2) (1983). Congress became concerned about the practical consequences of Chapter 11 filings by tenants of shopping centers. It was particularly concerned that mall operators were facing periods of extended vacancies, that would last until such time as the bankruptcy courts would finally decide to take the initiative and force debtors to make a choice whether to assume or reject the leases. It was also concerned about the effects the extended vacancies were having on other tenants. See 130 Cong.Rec. S8891, S8894-95 (daily ed. June 29, 1984) (statement of Sen. Hatch), reprinted in 1984 U.S.Code Cong. & Admin.News 576, 590, 598-99.

To address this problem, Congress added two provisions dealing specifically with nonresidential leases in Chapter 11 proceedings. Subsection (d)(3) requires the debtor to perform all lease obligations while deciding whether to assume, but permits the court to delay the debtor's performance during the first 60 days after filing for reorganization. Subsection (d)(4) establishes the 60-day deadline for assumption or rejection, and imposes on the debtor the burden of petitioning the bankruptcy court for a change in the deadline.

According to the legislative history, the so-called Shopping Center Amendments were expressly intended to

lessen the problems caused by extended vacancies and partial operation of tenant space by requiring that the trustee decide whether to assume or reject nonresidential real property lease [sic] within 60 days after the order for relief in a case under any chapter. This time period could be extended by the court for cause, such as in exceptional cases involving large numbers of leases.

1984 U.S.Code Cong. & Admin.News at 599. This is the sole passage in the legislative history that addresses extensions of time. The second sentence discusses...