Thinking Machines Corp., In re

Decision Date13 September 1995
Docket NumberNo. 95-1575,95-1575
Citation67 F.3d 1021
Parties, 28 Bankr.Ct.Dec. 72, Bankr. L. Rep. P 76,667 In re THINKING MACHINES CORPORATION, Debtor. THINKING MACHINES CORPORATION, Appellee, v. MELLON FINANCIAL SERVICES CORPORATION # 1, Appellant. . Heard
CourtU.S. Court of Appeals — First Circuit

Kevin J. Simard, with whom Charles R. Bennett, Jr. and Riemer & Braunstein, Boston, MA, were on brief, for appellant.

Charles R. Dougherty, with whom Jonathan C. Lipson and Hill & Barlow, Boston, MA, were on brief, for appellee.

Before SELYA and STAHL, Circuit Judges, and GORTON, * District Judge.

SELYA, Circuit Judge.

This appeal compels us to address a nagging question of bankruptcy law on which no court of appeals has yet spoken and on which lower federal courts are divided. The problem relates to the operation of section 365(a) of the Bankruptcy Code, 11 U.S.C. Sec. 365(a) (1994), a statute that permits a Chapter 11 trustee, subject to certain conditions, to assume or reject any unexpired lease or executory contract in existence on the date the insolvency proceeding commences. Because the trustee's actions require court approval, and because the Code treats nonresidential leases differently than other leases or executory contracts, requiring the estate to continue paying rent at the contract rate until rejection takes effect, 11 U.S.C. Sec. 365(d)(3), a question arises: Is court approval a condition precedent or subsequent to the effective rejection of a nonresidential lease pursuant to section 365(a)? This question is of considerably more than academic interest. Time is money in the waiting game that Chapter 11 often entails, and substantial sums can ride on how quickly the trustee can jettison a high-priced lease. In this case, for example, the determination of which date controls carries with it a swing of approximately $200,000.

The courts below disagreed on how the question should be answered. The bankruptcy court ruled that the debtor's rejection of its lease took effect only on court approval. See In re Thinking Machines Corp., 178 B.R. 31 (Bankr.D.Mass.1994). The district court reversed, holding that the rejection was effective on the date that the debtor gave appropriate notice of its decision to reject. 1 See In re Thinking Machines Corp., 182 B.R. 365 (D.Mass.1995). Concluding, as we do, that the statute is most propitiously read to make court approval a condition precedent to an effective rejection of a nonresidential lease, we now reverse.

I. BACKGROUND

The material facts are undisputed. In 1990, Thinking Machines Corporation ("TMC" or "the debtor") leased a building in Cambridge, Massachusetts, from Mellon Financial Services Corporation # 1 ("Mellon"). Apparently, the environs were not sufficiently conducive to fertile thought, for, on August 17, 1994, TMC filed a voluntary petition seeking relief under Chapter 11 of the Code, 11 U.S.C. Secs. 1101-1145. TMC proceeded to operate the business as a debtor in possession. It continued to occupy the demised premises, using only a fraction of the space. On September 13, 1994, TMC filed a motion asking the bankruptcy court to approve its decision to reject the lease. The court granted the motion on October 4.

Three weeks later, Mellon moved for immediate possession of the premises and payment of $345,915.89 (representing administrative rent accrued at the contract rate through the date on which the bankruptcy court had approved the debtor's rejection of the lease, plus associated expenses). TMC parried this thrust by touting the motion filing date as the effective date of its rejection (and, therefore, the outer boundary of its liability under the lease). It also tendered to Mellon $143,326.45 (the amount due under the lease through the motion filing date).

The bankruptcy judge resolved the dispute in Mellon's favor, ruling that the rejection did not take effect until the court had approved it, and that, accordingly, the debtor owed Mellon $210,150.26 (the difference between the total amount due under the lease through October 4 and the partial payment previously made by the debtor) plus interest and common area maintenance charges. 2 See Thinking Machines, 178 B.R. at 34. When TMC appealed, the district court took a different slant. It held that the rejection occurred on September 13, 1994 (the motion filing date), and that, therefore, no further payments were due. See Thinking Machines, 182 B.R. at 369. This appeal ensued.

II. STANDARD OF REVIEW

We afford plenary review to determinations of law made by a district court sitting in appellate review of a bankruptcy court order, ceding no special deference to the district court. See, e.g., In re Winthrop Old Farm Nurseries, Inc., 50 F.3d 72, 73 (1st Cir.1995); In re G.S.F. Corp., 938 F.2d 1467, 1474 (1st Cir.1991); In re Navigation Technology Corp. 880 F.2d 1491, 1493 (1st Cir.1989). This standard is fully applicable here, as it is in all cases in which we are asked to decipher the meaning of a statute. See, e.g., In re Jarvis, 53 F.3d 416, 419 (1st Cir.1995); United States v. Holmquist, 36 F.3d 154, 158 (1st Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 1797, 131 L.Ed.2d 724 (1995); United States v. Gifford, 17 F.3d 462, 472 (1st Cir.1994).

III. ANALYSIS

We organize our analysis in three segments, dealing with the statutory framework, the time when the rejection of a nonresidential lease becomes effective under that framework, and the implications of our exercise in statutory construction on the calculus of relief.

A. The Statutory Framework.

Section 365(a) states, with exceptions not relevant here, that "the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." 11 U.S.C. Sec. 365(a). 3 This proviso furnishes the trustee with a multipurpose elixir for use in nursing a business back to good health. On one hand, the trustee may prescribe the elixir as a tranquilizer to ease the fears of squeamish suppliers and customers so that they will continue doing business with a bankrupt corporation. On the other hand, the trustee may prescribe it as an emetic to purge the bankruptcy estate of obligations that promise to hinder a reorganization.

Having originally given Chapter 11 trustees broad latitude in dispensing the elixir, Congress subsequently diluted the potion. Since section 365(a), as initially enacted, contained no temporal boundaries within which a trustee had to assume or reject an unexpired lease, and did not require debtors to pay rent at the contract rate while the trustee equivocated, commercial landlords felt themselves unfairly disadvantaged because, unlike other creditors, they were forced to continue extending credit to the debtor during the pendency of the reorganization proceeding. See 130 Cong.Rec. 20084, 20088 (daily ed. June 29, 1984), reprinted in 1984 U.S.C.C.A.N. 590, 598-99 (statement of Sen. Hatch). Whether or not love of money is the root of all evil, it is at the least a powerful motivator. Spurred by financial self-interest, the landlords lobbied successfully for passage of the so-called Shopping Center Amendments (the "S/C Amendments") as part of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333.

The S/C Amendments alter the equation in two significant respects. First, they direct the trustee, in a timely fashion, to "perform all the obligations of the debtor ... under any unexpired lease of nonresidential real property, until such lease is assumed or rejected." 11 U.S.C. Sec. 365(d)(3). This provision requires the trustee, inter alia, to pay rent under the lease at the contract rate unless and until he rejects it, and gives the landlord what amounts to a preference--in the form of an administrative claim--for such avails. Thus, section 365(d)(3) is a marked departure from the tenet, reflected throughout the Code, that post-petition administrative expenses should be allowed only for "actual, necessary costs and expenses of preserving the [bankruptcy] estate." 11 U.S.C. Sec. 503(b)(1)(A). Second, if the trustee fails to take a position in regard to the lease within sixty days from the date of the order for relief under Chapter 11 (or within such longer period as the court, on application, may fix), the lease is deemed rejected at that juncture. See 11 U.S.C. Sec. 365(d)(4). This provision gives the bankruptcy estate a measure of protection against indecision or inadvertence on the trustee's part.

These modifications ameliorate, but do not entirely solve, several of the problems related to tenant bankruptcies that historically have plagued commercial landlords. One surviving problem concerns the rampant uncertainty as to whether a rejection will be deemed effective on the date of the trustee's decision or only when the court thereafter endorses the decision. It is to this question that we now turn.

B. When Is A Rejection Effective?

The best hope for capturing congressional intent is by focusing on the language purposefully deployed by the legislature. Thus, a statute ordinarily will be construed according to its plain meaning. See Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 112 S.Ct. 2589, 2594, 120 L.Ed.2d 379 (1992); In re Jarvis, 53 F.3d at 419; Pritzker v. Yari, 42 F.3d 53, 67-68 (1st Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 1959, 131 L.Ed.2d 851 (1995). But, when Congress' words admit of more than one reasonable interpretation, "plain meaning" becomes an impossible dream, and an inquiring court must look to the policies, principles and purposes underlying the statute in order to construe it. See Pritzker, 42 F.3d at 67; see also Sullivan v. CIA, 992 F.2d 1249, 1252 (1st Cir.1993) (explaining that courts may "look behind statutory language" when the legislature "blows an uncertain trumpet"). Congress, after all, does not legislate in a vacuum.

Here, the protagonists assure us that the statutory...

To continue reading

Request your trial
106 cases
  • In re Malden Mills Industries, Inc.
    • United States
    • U.S. Bankruptcy Appellate Panel, First Circuit
    • 21 Enero 2004
    ...regarding removal and reimbursement. In Thinking Machines Corp. v. Mellon Fin. Servs. Corp. (In re Thinking Machines Corp.), 67 F.3d 1021, 1028 (1st Cir.1995), the Court of Appeals for the First Circuit held that bankruptcy court approval is a condition precedent to the effectiveness of a t......
  • In re Tudor, No. 03-68935.
    • United States
    • U.S. Bankruptcy Court — Southern District of Ohio
    • 9 Diciembre 2005
    ...to actions or determinations that are `not inconsistent' with the Bankruptcy Code."); Thinking Machs. Corp. v. Mellon Fin. Servs. Corp. # 1 (In re Thinking Machs. Corp.), 67 F.3d 1021, 1028 (1st Cir.1995) ("Of course, the equitable powers of bankruptcy courts are not unlimited. They can onl......
  • In re Player's Poker Club, Inc.
    • United States
    • U.S. Bankruptcy Court — Central District of California
    • 4 Febrero 2022
    ...). In an effort to reconcile these views, the First Circuit Court of Appeals held in Thinking Machs. Corp. v. Mellon Find. Servs. Corp. (In re Thinking Machs. Corp.), 67 F.3d 1021, 1029 (1st Cir. 1995) that "rejection under section 365(a) does not take effect until judicial approval is secu......
  • Morehead v. Atkinson-Kiewit, J/V
    • United States
    • U.S. Court of Appeals — First Circuit
    • 10 Octubre 1996
    ...First, though courts must attempt to discern legislative intent based on the statute as a whole, see Thinking Machs. Corp. v. Mellon Fin. Servs. Corp., 67 F.3d 1021, 1024 (1st Cir.1995), nothing in the LHWCA or its sparse legislative history provides conclusive support for the "evisceration......
  • Request a trial to view additional results
4 books & journal articles
  • Chapter Four Lease Rejection
    • United States
    • American Bankruptcy Institute Retail and Office Bankruptcy: Landlord/Tenant Rights
    • Invalid date
    ...lease." The court in In re Upper Crust, LLC310 stated: In Thinking Machines Corp. v. Mellon Fin. Servs. Corp. (In re Thinking Machines), 67 F.3d 1021, 1028 (1st Cir. 1995), the First Circuit Court of Appeals held "that a rejection of a nonresidential lease under section 365(a) becomes legal......
  • § 28.05 Rejection and Its Effect on Landlords and Tenants
    • United States
    • Full Court Press Negotiating and Drafting Commercial Leases CHAPTER 28 Bankruptcy
    • Invalid date
    ...In re W & L Associates, Inc., 71 B.R. 962, 967-968 (Bankr. E.D. Pa. 1987).[31] See: First Circuit: In re Thinking Machines Corp., 67 F.3d 1021 (1st Cir. 1995). Fifth Circuit: In re Cafeteria Operators, L.P., 299 B.R. 384, 394 (Bankr. N.D. Tex. 2003). Sixth Circuit: In re Revco D.S., Inc., 1......
  • CHAPTER 9 - § 9.10 • LEASES
    • United States
    • Colorado Bar Association Colorado Real Estate Practice (2023 ed.) (CBA) Chapter 9 When Dirt Goes To Bankruptcy Court
    • Invalid date
    ...a debtor's motion to reject, so an administrative priority claim for the rent accrues until that ruling. In re Thinking Machs. Corp., 67 F.3d 1021 (1st Cir. 1995). In In re CCI Wireless, LLC, 279 B.R. 590 (Bankr. D. Colo. 2002), on reh'g, 281 B.R. 319 (Bankr. D. Colo. 2002), aff'd in part, ......
  • Chapter 9 - § 9.10 • LEASES
    • United States
    • Colorado Bar Association Colorado Real Estate Practice (2022 ed.) (CBA) Chapter 9 When Dirt Goes To Bankruptcy Court
    • Invalid date
    ...a debtor's motion to reject, so an administrative priority claim for the rent accrues until that ruling. In re Thinking Machs. Corp., 67 F.3d 1021 (1st Cir. 1995). In In re CCI Wireless, LLC, 279 B.R. 590 (Bankr. D. Colo. 2002), on reh'g, 281 B.R. 319 (Bankr. D. Colo. 2002), aff'd in part, ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT