Victoria Station Inc., In re

• Citation: 19 B.C.D. 1090,875 F.2d 1380
• Decision Date: 22 May 1989
• Docket Number: No. 88-15047,88-15047
• Parties: 21 Collier Bankr.Cas.2d 483, 19 Bankr.Ct.Dec. 1090, Bankr. L. Rep. P 72,908 In re VICTORIA STATION INCORPORATED, Debtor. WILLAMETTE WATERFRONT, LTD., Appellant, v. VICTORIA STATION INCORPORATED, and Jerry W. Marlow, Esq., Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1380

875 F.2d 1380

21 Collier Bankr.Cas.2d 483, 19 Bankr.Ct.Dec. 1090,

Bankr. L. Rep. P 72,908

In re VICTORIA STATION INCORPORATED, Debtor.

WILLAMETTE WATERFRONT, LTD., Appellant, v. VICTORIA STATION INCORPORATED, and Jerry W. Marlow, Esq., Appellee.

No. 88-15047.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 17, 1989.

Decided May 22, 1989.

Thomas W. Sondag, Spears, Lubersky, Bledsoe, Anderson, Young & Hilliard, Portland, Or., for appellant.

Isaac M. Pachulski and Jeffrey C. Krause, Stutman, Treister & Glatt, P.C., Los Angeles, Cal., for appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel Ashland, Meyers and Mooreman, Judges, Presiding.

Before HUG, HALL and O'SCANNLAIN, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Appellee-debtor Victoria Station Incorporated and its affiliates operate a chain of boxcar restaurants which filed voluntary petitions for bankruptcy under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Sec. 101, et seq., on May 20, 1986. 11 U.S.C. Sec. 365(d)(4) obligates a debtor to assume or reject a lease on nonresidential real property no later than 60 days after the petition's filing unless the debtor moves within this 60-day period for an extension of time. Victoria Station filed a timely motion for an extension of time in which to assume or reject leases on 72 properties, including the property owned by appellant-lessor Willamette Waterfront Ltd. ("Willamette") in Oregon. The bankruptcy court granted an extension until December 31, 1986, but debtor moved for a second extension of time until March 31, 1987, which the bankruptcy court granted on December 22, 1986. This appeal centers on the validity under section 365(d)(4) of this second extension of time.

I

Willamette appeals from the Bankruptcy Appellate Panel's ("BAP") decision affirming the bankruptcy court's final order entered on May 21, 1987, approving the assumption and assignment of Willamette's lease. The bankruptcy court had jurisdiction under 28 U.S.C. Sec. 157. Willamette appealed to the BAP, which affirmed on June 23, 1988, 88 B.R. 231 (1988). Willamette filed its notice of appeal on July 22, 1988. A final order addressing the assumption of a lease pursuant to section 365(d)(4) is reviewable as a separate and discrete matter. In re Victoria Station, Inc., 840 F.2d 682, 683-84 (9th Cir.1988).

II

We interpret section 365(d)(4) de novo. See In re Southwest Aircraft Services, Inc., 831 F.2d 848, 849 (9th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 2848, 101 L.Ed.2d 885 (1988). Similarly, we interpret the demands of the due process clause de novo. See Ostlund v. Bobb, 825 F.2d 1371, 1373 (9th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 2016, 100 L.Ed.2d 603 (1988).

III

Victoria Station mailed a copy of its initial May 28, 1986, motion for extension of time to Willamette at an incorrect address. The letter was returned "addressee unknown." The bankruptcy court granted debtor's motion, extending the time for it to assume or reject the leases until December 31, 1986, without prejudice to any party to move to shorten or extend the time. Willamette became aware of the order granting the extension of time, believing it to extend the time until December 20, 1986. Willamette did not question the scope of the bankruptcy court's extension order.

Victoria Station moved for a second extension of time on November 24, 1986, which the court heard on December 22, 1986. Victoria Station did not attempt to serve Willamette with a copy of its second motion for an extension of time. In the interim, Willamette had served by mail on December 12, 1986, its own motion to compel assumption or rejection of the lease by December 20, 1986. Victoria Station received this motion before the scheduled hearing on its own motion for an extension of time, but did not inform Willamette of the upcoming hearing. In addition, debtor continued to make rent payments to Willamette at a correct address.

The bankruptcy court granted Victoria Station's second motion for an extension of time at a hearing unattended by Willamette. The court enlarged the time for assumption or rejection until March 31, 1987, but as to the landlords who appeared at the hearing and objected to an extension, provided that no further extension would be granted. Willamette subsequently refused debtor's offer to be included among the landlords entitled to have their leases definitely decided upon by March 31, 1987.

Willamette's counsel learned of this second extension and moved to vacate on December 24, 1986. On February 4, 1987, the bankruptcy court held a telephone conference and rejected Willamette's motion to vacate, finding that it had the power to grant an ex parte extension of time. On February 27, 1987, Victoria Station filed for a third extension of time to assume or reject the leases, requesting until June 30, 1987. Meanwhile, Willamette withdrew its motion to compel, which the court had set for a hearing on March 6, 1987.

Willamette opposed debtor's third motion for an extension of time on the grounds that its lease should have been deemed abandoned on December 31, 1986. Willamette argued that the bankruptcy court did not have the power to grant consecutive extensions of time. The court granted the requested third extension of time. On April 7, 1987, debtor moved to assume the lease and to assign it to appellee Jerry Marlow. The court approved the assumption and assignment of the lease on May 21, 1987. Marlow is prepared to pay the estate $265,000 to assume the lease.

IV

Willamette made two principal arguments to the BAP which it renews on appeal. ¹ First, it argues that the second and third extensions of time for debtor to assume or reject its lease were impermissible under section 365(d)(4), because they were requested more than 60 days after the order for relief. ² Second, Willamette argues that the second extension was void as violating its due process right to notice and an opportunity to be heard on the issue. Consequently, Willamette contends that the lease should be deemed rejected on December 31, 1986, the expiration of the only valid extension of time.

A

Section 365(d)(4) 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.

11 U.S.C. Sec. 365(d)(4).

Willamette contends that section 365(d)(4) unambiguously prohibits a motion for an extension of time filed more than 60 days after a debtor files for Chapter 11 protection. In other words, Willamette's position is that section 365(d)(4) permits a bankruptcy judge to grant only one extension of time where a debtor moves for his second extension after the first 60 days.

In the Southwest case, the court addressed the question whether the clause "within such 60-day period" modified "for cause" or "fixes." The debtor in Southwest had moved for an extension of time within 60 days of filing for Chapter 11 protection, but the bankruptcy court had not heard and ruled upon the motion within this 60-day period. Southwest, 831 F.2d at 849. The bankruptcy judge and the BAP concluded that the court had no power to grant the extension because section 365(d)(4) required the bankruptcy court to fix the period of extension within 60 days. The Ninth Circuit reversed, holding that section 365(d)(4) only requires that cause for an extension arise within the first 60 days. Southwest, 831 F.2d at 853. The bankruptcy court can hear and rule on the motion any time thereafter. Id.

The holding of the Southwest court is not controlling because the debtor did not move for a second extension after the first 60 days, but its rationale is instructive. The court found that "the meaning of the words of section 365(d)(4) is not entirely clear." Id. at 849. Finding the statute ambiguous, the court turned to its legislative history. The court noted that before 1984, debtors in Chapter 11 had no fixed deadline to assume or reject a lease, but that any party could move for a time limit. Congress enacted section 365(d)(4) to address its concern about situations confronting shopping centers, where mall operators faced extended periods of vacancy due to a debtor's failure to decide whether to assume or reject the lease.

The Southwest court found no legislative history specifically stating that the bankruptcy court need not rule on a motion for an extension of time within 60 days. But the court stated that the landlord's proposed reading of the section would produce "arbitrary and fortuitous results." Id. at 852. The court found the debtor's interpretation "a more reasonable construction--a construction that is more consistent with the normal concepts that govern the functioning of the judiciary." Id. at 850. Accordingly, the court adopted a presumption that it would construe section 365(d)(4) to further the rehabilitative goals of the Code absent legislative history "clearly indicating" a contrary intention. Id. at 851. Failing to uncover such a clear intention to the contrary, the court adopted "[t]his more liberal reading of the statute [that] would allow the bankruptcy courts to operate with greater freedom and flexibility." Id.

The court in a case related to this appeal, In re Victoria Station, Inc., 840 F.2d 682 (9th Cir.1988), recently followed the Southwest court's practical construction of section 365(d)(4). The Southwest court stated that "implicitly the debtor must file its motion to show cause within that [60-day] period." Southwest, 831 F.2d at 850. The Victoria Station court held that the debtor had "made" a timely motion...