Tigr Restaurant v. Rouse SI Shopping Center

• Decision Date: 24 November 1987
• Docket Number: No. CV 86-3763 (RJD).,CV 86-3763 (RJD).
• Citation: 79 BR 954
• Parties: TIGR RESTAURANT, INC., Appellant, v. ROUSE S.I. SHOPPING CENTER, INC., Appellee.
• Court: U.S. District Court — Eastern District of New York

79 B.R. 954 (1987)

TIGR RESTAURANT, INC., Appellant, v. ROUSE S.I. SHOPPING CENTER, INC., Appellee.

No. CV 86-3763 (RJD).

United States District Court, E.D. New York.

November 24, 1987.

Siegel, Sommers & Schwartz (Lawrence C. Gottlieb and Jay R. Indyke, of counsel), New York City, for debtor-appellant.

Paul, Weiss, Rifkind, Wharton & Garrison (Robert L. Laufer and Jeffrey B. Sklaroff, of counsel), New York City, for lessor-appellee.

MEMORANDUM AND ORDER

DEARIE, District Judge.

This appeal from the Bankruptcy Court raises a novel question of interpretation of § 365(d)(4) of the Bankruptcy Code.

I. FACTUAL BACKGROUND

The debtor-appellant in this case, Tigr Restaurant, Inc. ("Tigr"), operates a Ground Round restaurant in leased space in a shopping center owned by lessor-appellee Rouse, S.I. Shopping Center ("Rouse"). Tigr filed a voluntary petition under Chapter 11 of the bankruptcy code on May 20, 1986. It continues to occupy and operate its restaurant in the space leased from Rouse.

Tigr's lease, which has approximately seventeen more years to run, is the debtor's most, and perhaps only, valuable asset. Although Tigr had accumulated substantial arrears in rent payments pre-petition, since filing Tigr has paid rent. Tigr disputes its obligation to pay the arrears, and asserts that it can, if released from that obligation, assume the lease for the remaining term. Alternatively, Tigr asserts that it could sell the lease to any of several interested parties.

11 U.S.C. § 365(d)(4) ordinarily gives debtors 60 days, after an order for relief is issued, to decide whether to assume or reject commercial leases. On July 3, 1986, 44 days after filing its bankruptcy petition, Tigr requested an extension of time to decide whether it would assume or reject the lease.

The Bankruptcy Court, Judge Holland, granted Tigr a 90-day extension. Tigr subsequently filed suit in New York State Supreme Court, alleging that Rouse had violated certain restrictive covenants contained in the lease. A possible outcome of that action could be a judicial determination that Tigr is not required to pay its rent arrears. Claiming that the value of its lease to potential purchasers depended crucially on the resolution of the issues raised in the state lawsuit, Tigr moved the Bankruptcy Court for an additional extension of its time to decide whether to assume or reject the lease. This motion was made more than 60 days after the petition was filed but within the 90-day extension that had been granted by Judge Holland.

At the hearing on Tigr's motion, Judge Holland expressed sympathy for the substantive merits of Tigr's position: "If I read 365 to give me authority to grand sic that extension, . . . I would do it on the basis that it is my feeling that a lease which is the subject of a legal dispute . . . is less marketable than a lease which is not the subject of a legal dispute." Transcript of Hearing, Oct. 14, 1986, at 35 (Ex. A to Record on Appeal). However, the Bankruptcy Judge ruled that § 365(d)(4) denied him the power to issue any extension of the time to decide, no matter how well justified, once sixty days had elapsed from the original grant of relief. Accordingly, Judge Holland denied Tigr's motion. This appeal followed.

II. DISCUSSION

Section 365(d)(4) of the Bankruptcy Code provides:

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 is 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.

Bankruptcy Judge Holland refused Tigr's request for an extension because "this Court is without authority pursuant to § 365(d)(4), once the 60-day period which begins on the filing of the petition runs, to grant such a further extension." Order, October 24, 1986, at 2 (Ex. B to Record on Appeal). This decision was consistent with the Bankruptcy Court's rulings in In re Alba Press, Inc., 55 B.R. 127 (Bkrtcy.E.D. N.Y.1985), and In re House of Deals of Broward, Inc., 67 B.R. 23 (Bkrtcy.E.D.N.Y. 1986), that "such 60-day period" clearly and unambiguously referred to the first 60 days after the filing of the order for relief hereinafter "the initial sixty days" and that the court was therefore powerless to grant any extensions of time on or after the sixty-first day.

"The assertion in a judicial opinion that a statute needs no interpretation because it is `clear and unambiguous' is in reality evidence that the court has already considered and construed the act." 2A J. Singer, Sutherland Statutory Construction § 45.02. This court finds that § 365(d)(4) is not so unambiguous as the Bankruptcy Court believed, and, moreover, that the construction chosen by the Bankruptcy Court so frustrates the purposes of the Bankruptcy Code that it is untenable.

Section 365(d)(4) empowers the court to grant extensions of time during "such" 60-day period. "Such" could be read as referring only to the "60 days after the date of the order for relief." However, the court is also empowered to grant "such additional time" as it sees fit. In a case where the Court has actually granted "such additional time," "such 60-day period" could refer to sixty-day periods within the "such additional time."

This construction furthers the plain statutory purpose. Section 365(d)(4), part of the "Shopping Center Bankruptcy Amendments of 1984," was enacted primarily to protect the owners of and other retailers in shopping centers where one of the tenants had filed for bankruptcy. As Senator Hatch, in the only Congressional commentary on the purpose of the Amendments, noted, debtors often left stores wholly or partially vacant for months while they held on to valuable leases without fully operating their businesses nor making a commitment to assume the lease obligations. 1984 U.S.Code Cong. & Ad.News 576, 598. As a result, both the lessor and other retailers suffered economic harm.

Section 365(d)(4) was designed to minimize those harms by forcing debtors to make prompt decisions regarding their commercial leases. In re By-Rite Distributing, Inc., 55 B.R. 740, 742 (D.Utah 1985). The time during which stores could be left vacant and rent unpaid is limited. Some certainty is provided to lessors. Nonetheless, the statute provides flexibility to debtors who can show a need for a longer time to decide, thereby serving the rehabilitative goals of Chapter 11 as well as the general goal of the Code for equitable treatment of all creditors.

In light of the objectives and interests that Congress was attempting to balance, it makes sense to believe that the requirement that extensions be granted only "within such sixty-day period" was intended to protect lessors from retroactive grants of extended time. In re Unit Portions of Delaware, Inc., 53 B.R. 83 (Bkrtcy.E.D.N.Y.1985); In re Capellen, 39 B.R. 40, 40 (Bkrtcy.S.D.Fla.1984) (statutory purpose was to prevent retroactive grants made on retroactive applications by debtors; on application made within initial sixty days, court could in appropriate case grant extension after initial sixty days). A debtor who permits the initial sixty days to lapse is deemed to reject the lease, and that rejection is final. The leasehold interest reverts to the lessor and the situation may not be altered after the fact.

Within the initial sixty days, however, the debtor can seek more time to decide. If an extension is granted and is then allowed to lapse, the lease should likewise be deemed rejected with finality. However, the only sensible reading of the statute is that if the debtor, within the extended time, moves for a further extension, the court may grant that extension if it finds good cause. It does not make sense to believe that Congress intended to prevent a court from granting this relief, so long as the court avoids the retroactive effect of granting an extension after a previously allotted time has run.

This Court's reading of the statute protects lessors adequately while furthering the purposes of the Bankruptcy Code as a whole, and should obtain even if it is at odds with the "literal" meaning of the statute, which the Bankruptcy Court attempted to follow. "Interpretations of a statute which would produce absurd results are to be avoided if alternative interpretations consistent with the legislative purpose are available." Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 575, 102 S.Ct. 3245, 3252, 73 L.Ed.2d 973 (1982) (Rehnquist, J.); see also 2A J. Singer, Sutherland Statutory Construction § 45.12. This is particularly true when construing bankruptcy statutes, which should be read in harmony with general equitable principles. Securities and Exchange Commission v. United States Realty & Improvement Co., 310 U.S. 434, 60 S.Ct. 1044, 84 L.Ed. 1293 (1940); see also In re Maidman, 2 B.R. 569, 575 (Bkrtcy.S.D.N.Y. 1980) (Bankruptcy Act is remedial and should be accorded liberal interpretation), aff'd, 668 F.2d 682 (2d Cir.1982).

In the instant case, a rigid construction would be contrary to justice, to the general purposes of the Bankruptcy Code as a whole, and to specific provisions of the Code. First, there is no question that justice favors granting (or at least considering) Tigr's request for an extension. The merits of the request were noted by the Bankruptcy Court at the time the request was made. Rouse's repeated attempts to terminate Tigr's lease suggest that Rouse is trying to use Tigr's bankruptcy petition as an opportunity to secure a windfall to itself at the expense of Tigr and Tigr's creditors.¹ The Bankruptcy Code is not intended to provide such windfalls to debtors' lessors. In re Westview 74th Street Drug Corp., 59 B.R. 747 (Bkrtcy.S.D.N.Y. 1986).

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