Williams, Matter of

• Citation: 144 F.3d 544
• Decision Date: 16 July 1998
• Docket Number: No. 97-2082,97-2082
• Parties: Bankr. L. Rep. P 77,695 In the Matter of Margaret WILLIAMS, Debtor-Appellee, Appeal of CHICAGO HOUSING AUTHORITY.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 544

144 F.3d 544

Bankr. L. Rep. P 77,695

In the Matter of Margaret WILLIAMS Debtor-Appellee Appeal of CHICAGO HOUSING AUTHORITY.

No. 97-2082.

United States Court of Appeals Seventh Circuit.

Argued Jan. 21, 1998.

Decided May 20, 1998.

Rehearing and Suggestion for Rehearing En Banc Denied July 16, 1998.

Nancy K. Laureto (argued), Scott E. Turner, Maria T. Olea Baguio, Chicago Housing Authority, Chicago, IL, for Appellant.

David Yen (argued), Lawrence D. Wood, Legal Assistance Foundation of Chicago, Chicago, IL, for Debtor-Appellee.

Before RIPPLE, MANION, and EVANS, Circuit Judges.

MANION, Circuit Judge.

Margaret Williams rented a subsidized apartment from the Chicago Housing Authority (CHA). After CHA filed a "forcible entry" action in an Illinois state court but before it got a judgment of possession, Williams filed a Chapter 13 bankruptcy petition. CHA asked the bankruptcy court to modify the automatic stay so that it could continue its state court action. The bankruptcy court agreed, but on appeal the district court reversed. Because we conclude that the bankruptcy court did not abuse its discretion in modifying the automatic stay to allow the state court to determine the right of possession, we reverse the district court's contrary holding.

I. Background

The record in this case is largely undeveloped, but the essential facts are not in dispute. Margaret Williams is a 43-year-old disabled woman whose only source of income seems to be federal SSI disability benefits of about $470 per month and $65 per month in food stamps. Williams first rented an apartment from CHA in November 1991. Her apartment is subsidized, so Williams' rent was based on a percentage of her income. (During the relevant period, her rent was $108 per month.) Williams could terminate the lease at any time by giving 15 days' notice. CHA could terminate the lease or refuse to renew it only for "good cause." If CHA terminated the lease for Williams' not paying rent, it had to give her 14 days' notice.

Williams did not pay any rent after March 1995 and by January 1996 she was $956 behind. On January 11, 1996, CHA served Williams notice demanding full payment of all rent then due. The notice stated that if Williams did not timely pay "[her] lease of said premises will be terminated on the day following the expiration of said 14 days after service of this Notice upon [her]." Williams did not pay, and on March 8, 1996, CHA filed an action under Illinois' Forcible Entry and Detainer Act, 735 ILCS 5/9-101 et seq., against Williams in the Cook County (Illinois) Circuit Court seeking to evict her. CHA filed a motion for summary judgment, which was set for a hearing on August 8, 1996. On August 5, Williams filed her Chapter 13 bankruptcy petition, and the automatic stay of 11 U.S.C. § 362(a) halted the state action. On August 19, CHA moved the bankruptcy court to modify the automatic stay to allow the state court action to continue in order to determine whether she had a right to retain possession. The bankruptcy court granted the motion, but Williams appealed and the district court reversed, reinstating the stay. CHA then timely appealed to this court.

II. Analysis

When a debtor files a bankruptcy petition, the automatic stay prohibits, among other things, "commencement or continuation ... of a judicial ... action or proceeding against the debtor." 11 U.S.C. § 362(a)(1). This stay covered CHA's pending forcible entry action. See Robinson v. Chicago Housing Authority, 54 F.3d 316, 317-18 (7th Cir.1995). Unless otherwise ordered by the bankruptcy court, the automatic stay continues until the property in question is no longer property of the estate, the case is closed or dismissed, or (for a Chapter 13 proceeding) a discharge is granted or denied. 11 U.S.C. § 362(c). But one need not wait until the stay expires on its own because 11 U.S.C. § 362(d) provides that:

On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a), such as by terminating, annulling, modifying, or conditioning such stay--

(1) for cause, including the lack of adequate protection of an interest in property of such party in interest....

(Emphasis supplied.) Although this section is written in mandatory terms, the bankruptcy court has discretion whether and to what extent it will grant relief from the stay, so our review is limited to whether the court abused that discretion. See In re C & S Grain Co., 47 F.3d 233, 237-38 (7th Cir.1995); Mendoza v. Temple-Inland Mortgage Corp. (In re Mendoza), 111 F.3d 1264, 1270 (5th Cir.1997) ("bankruptcy courts should be afforded the latitude to fashion remedies they consider appropriate under the circumstances"). CHA argues that the bankruptcy court did not abuse its discretion in modifying the stay because Williams' lease had terminated, and so she had no interest that could be assumed as part of her bankruptcy estate. Williams argues that because her lease had not terminated with an order for possession, the bankruptcy court abused its discretion in modifying the stay. The parties' arguments are based on the ability of a trustee or Chapter 13 debtor to assume the debtor's lease. As we shall see, an unexpired lease is an assumable asset for the trustee (or Chapter 13 debtors) while an expired one is not. CHA's primary argument is that it was entitled to relief from the automatic stay because Williams' "lease" had no value to assume in her Chapter 13 plan. We begin our analysis by looking at the Bankruptcy Code's rules for assuming a lease.

Subject to the bankruptcy court's approval and with some exceptions, a bankruptcy trustee "may assume or reject any executory contract or unexpired lease of the debtor." 11 U.S.C. § 365(a). And a Chapter 13 debtor such as Williams may in the plan of reorganization, "subject to section 365 of this title, provide for the assumption, rejection, or assignment of any executory contract or unexpired lease of the debtor not previously rejected under that section." 11 U.S.C. § 1322(b)(7). A lease can be assumed only if it is "unexpired," which the Bankruptcy Code does not define, but presumably it includes a lease that retains some assignable value. In Robinson, we explained that "[i]n the usual interpretation of § 365(a), courts look to state law to determine whether the lease is 'unexpired.' The question is whether the lease has ended under state law." 54 F.3d at 319. The parties agree that Illinois is the applicable state law under which to analyze Williams' lease.

The parties' arguments assume that whether Williams' lease was "terminated" prior to her filing her bankruptcy petition is the sole and dispositive question in this appeal. Although that question is relevant, it is not dispositive. We are not reviewing a motion to confirm Williams' plan; thus the ultimate issue of whether the lease is "unexpired," and therefore assumable under § 365, is not before us. What we are reviewing is the bankruptcy court's modification of the automatic stay. To do that we have to determine if the open question of whether Williams' lease ended is "cause" for the bankruptcy court to modify the automatic stay under 11 U.S.C. § 362(d) to permit the state court to answer that question. Mendoza, 111 F.3d at 1271 (" 'desire to permit an action to proceed to completion in another tribunal may provide another cause [under § 362(d) ].' " (quoting H.R. Rep. 95-595 at 343 (1977))).

In Illinois, "[a] lease is an agreement which gives rise to the relationship of landlord and tenant. It is essentially a type of contract and, as such, it is governed by the rules which govern contracts generally." Midland Mgmt. Co. v. Helgason, 158 Ill.2d 98, 196 Ill.Dec. 671, 630 N.E.2d 836, 839 (1994) (citations omitted). And "[t]he principal function of the court in construing a lease is to give effect to the intention of the parties as expressed in the language of the document when read as a whole." Id. Thus, under Illinois law, when analyzing whether a lease has ended, the first and most important question is whether the lease ended under its terms. Williams' lease had. When Williams failed to pay her rent, the lease permitted CHA to terminate it by providing 14 days' notice, which CHA did. Williams does not dispute that the lease ended under its terms.

But Illinois, like many states, has enacted legislation to regulate landlord-tenant relations. Thus, under Illinois law, an important second question is whether CHA complied with the statutory requirements when it terminated Williams' lease. Where a landlord seeks to terminate a lease for nonpayment, the Forcible Entry and Detainer Act provides:

A landlord or his agent may, any time after rent is due, demand payment thereof and notify the tenant, in writing, that unless payment is made within a time mentioned in such notice, not less than five days after service thereof, the lease will be terminated. If the tenant does not, within the time mentioned in such notice, pay the rent due, the landlord may consider the lease ended, and sue for possession under the statute in relation to forcible entry and detainer....

735 ILCS 5/9-209. The 14-day notice that CHA gave Williams was longer than the minimum required by the statute, so that is no bar to ending her lease. But Williams' argument does not rely on whether CHA gave proper notice. Rather, she argues that until a landlord obtains a judgment of possession, the lease is not finally "terminated" under Illinois law. Therefore, for purposes of § 365, the lease is "unexpired" and so, theoretically at least, whatever value the lease has could be assumed as part of the Chapter 13 debtor's plan. To analyze this argument, we examine the Forcible Entry and Detainer Act and how it altered the common law.

Unless a lease ends, the tenant's leasehold gives her a right of possession superior to the landlord. See, e.g., First Nat'l Bank of Evergreen Park v. Chrysler...