Académique Documents
Professionnel Documents
Culture Documents
_________________________
No. 95-1575
IN RE:
Debtor.
_________________________
Appellee,
v.
Appellant.
_________________________
ERRATA SHEET
ERRATA SHEET
The opinion of
this court
issued on October
17, 1995,
is
corrected as follows:
On page
line
2, line 13;
10; page
365(c)(3)" to "
15,
19;
page
page 7, line
17, line
22
2; page 13,
change
365(d)(3)"
On page 7, line 11
change "
365(c)(4)" to "
365(d)(4)"
"
_________________________
No. 95-1575
IN RE:
Debtor.
_________________________
Appellee,
v.
Appellant.
_________________________
_________________________
Before
_________________________
whom
_________________________
_________________________
______________
*Of the District of Massachusetts, sitting by designation.
SELYA,
SELYA,
Circuit Judge.
Circuit Judge.
______________
This appeal
compels
us
to
appeals
divided.
has yet
spoken and
on which
lower federal
courts are
permits a Chapter 11
assume or reject
any unexpired
lease or
executory contract
to
in
existence
on
the
date
the
insolvency
proceeding
commences.
the
Code
leases or
treats nonresidential
leases
differently
than other
estate to continue
U.S.C.
365(d)(3), a
question arises:
Is court
approval a
nonresidential lease
sums
priced
which
can ride
lease.
This question
Time is money in
on how quickly
In this
date controls
carries with
it a
and substantial
jettison a high-
the determination of
swing of
approximately
$200,000.
The courts
be
answered.
rejection
The
bankruptcy
court
1994).
The
ruled
that
debtor's
on court approval.
B.R.
31 (Bankr.
the
See
___
D. Mass.
the rejection
was effective on the date that the debtor gave appropriate notice
of
182 B.R.
statute is
most
See
___
1995).
propitiously
Concluding,
read to
make
as we do,
court
that the
approval
I.
I.
BACKGROUND
BACKGROUND
The material
In 1990, Thinking
Cambridge,
Massachusetts,
from
Mellon
Financial
Services
Corporation
#1 ("Mellon").
Apparently,
the environs
were not
sufficiently
conducive to
fertile thought,
for, on
August 17,
the business as a
the demised
September
court
1101-1145.
debtor in possession.
13, 1994,
to approve
TMC filed
It
continued to occupy
a fraction
of the space.
motion asking
its decision to
On
the bankruptcy
The court
Three
possession
of
weeks
later,
the
premises
Mellon
and
moved
payment
for
of
immediate
$345,915.89
____________________
requirement that
election to
9014.
are at Rome
live in
the
I, I, 5
(representing administrative
rent accrued
at the
contract rate
approved the
parried
effective
this thrust
date
of
by touting
its
the motion
rejection (and,
filing date
therefore,
It
the
TMC
as the
outer
also tendered to
the
The bankruptcy
favor,
court had
approved it,
Mellon $210,150.26
under
the
by
October
the debtor)
charges.2
accordingly, the
lease through
previously made
maintenance
and that,
and
the
plus interest
in Mellon's
debtor owed
partial
payment
and common
area
at 34.
held that
motion
were
the
rejection occurred
filing date),
due.
and that,
on
September 13,
therefore, no
1994
It
(the
further payments
B.R. at 369.
This appeal
ensued.
II.
II.
STANDARD OF REVIEW
STANDARD OF REVIEW
by a district court
a bankruptcy
____________________
2We note
total claimed
the court
arrearage.
papers.
We
do not
This
appears to
pursue the
point,
be
court order,
See,
___
73 (1st Cir. 1995); In re G.S.F. Corp., 938 F.2d 1467, 1474 (1st
___________________
is in
here, as it
a statute.
v. Holmquist,
_________
115 S.
36 F.3d 154,
158 (1st
United States
_____________
Cir.
v.
III.
III.
ANALYSIS
ANALYSIS
We
with
organize our
analysis
nonresidential lease
in three
segments, dealing
rejection of a
calculus of relief.
A.
A.
Section
here,
that "the
365(a) states,
with
trustee, subject to
exceptions not
the court's
relevant
approval, may
debtor."
trustee
11
U.S.C.
365(a).3
This proviso
furnishes
the
____________________
3For ease in
trustees.
reference, we
in terms
of
conclusions,
context permitting,
Thus,
are equally
and
bankrupt
corporation.
prescribe
it
as an
On
the
emetic to
other
purge
hand,
business with a
the
trustee
the bankruptcy
may
estate of
Having
originally
the
potion.
Since
contained no temporal
assume
given
Chapter
11
trustees
broad
section
365(a),
as
initially
enacted,
a trustee had
to
to pay rent at
commercial
landlords
because,
unlike other
extending
credit to
reorganization
felt
themselves
unfairly
creditors, they
the
proceeding.
debtor
See
were forced
during
130
trustee equivocated,
the
Cong.
disadvantaged
to continue
pendency
Rec. 20084,
of
the
20088
___
(daily
1984), reprinted in
_________ __
of money
Spurred
by
financial
successfully
Amendments
for
(the
self-interest,
passage
of
the
"S/C Amendments")
the
landlords
so-called
as
part
lobbied
Shopping
of the
Center
Bankruptcy
98 Stat. 333.
The
S/C
significant respects.
Amendments
alter
First, they
the
direct
equation
in
the trustee,
two
in
under any
unexpired
lease of
nonresidential real
This
provision requires
the trustee,
11 U.S.C.
inter alia,
_____ ____
property,
365(d)(3).
to
pay rent
amounts to a preference
365(d)(3)
is
marked
departure
from
the
in the
Thus, section
tenet,
reflected
throughout the
administrative expenses
of
preserving
503(b)(1)(A).
the
[bankruptcy]
estate."
11
U.S.C.
court,
expenses
of the order
that juncture.
See 11 U.S.C.
___
365(d)(4).
These
solve,
that
modifications
several of
historically
ameliorate, but
the problems
have
related to
plagued
commercial
do
not entirely
tenant bankruptcies
landlords.
One
B.
B.
focusing
on
legislature.
according
the
language
Thus,
purposefully
deployed
statute ordinarily
will
be
by
the
construed
at 419;
Pritzker v. Yari,
________
____
cert. denied,
_____ ______
42 F.3d
53, 67-68
(1st Cir.
1994),
becomes
the policies,
order to
construe it.
Sullivan
________
that
courts
may
"look
See Pritzker,
___ ________
behind
42 F.3d at
the statute in
statutory
67; see
___
language"
when
also
____
the
trumpet").
Here,
the protagonists
assure us
that the
statutory
The debtor
The
landlord says
"plainly" cannot
(when
the
decision).
bankruptcy
The
interpretation of
court
authorities
the statutory
places
are
its
imprimatur
divided
as
to
language is appropriate.
on
the
which
Some
read,
be
judicial
approval as
independently
See, e.g.,
___ ____
N.D. Ill.
condition subsequent
effective rejection
of
to the
trustee's
nonresidential
lease.
58 B.R.
752, 755-56
(Bankr. D. Minn.
believe, as
1986).
as
Other
condition
should be read to
precedent
nonresidential lease.
to
an
overall)
effective
rejection
of
148 B.R. 307, 309 (S.D. Ind. 1992); In re Federated Dept. Stores,
_____________________________
Inc., 131 B.R. 808, 815-816 (S.D. Ohio 1991); In re Swiss Hot Dog
____
___________________
182 B.R.
540, 542
(Bankr. D.
Minn.
In re 1 Potato 2, Inc.,
_______________________
Stores, Inc., 109 B.R 264, 267 (Bankr. N.D. Ohio 1989).
____________
No court
In
our
judgment,
this
collision
of
viewpoints
underscores
the obvious:
although the
text of
section 365(a)
____________________
4Contrary
to
Mellon's
characterization,
In re Arizona
_______________
is not on
Id. at
___
here
section
rejection
is
365(a)
not whether
219-20 (dictum).
but
becomes legally
court
clearly, it
The statement
is
effective
secured.
10
approval
but
is required
whether a
before court
______
is
The
under
purported
approval
is
lease
to
whether that
subsequent
365(a)
to
approval constitutes
an effective
is ambiguous
in
a condition
rejection.
this respect.
precedent or
Consequently, section
v.
While
the
competing interpretations
proposed
by the
we
court approval a
condition precedent to
the effectiveness of
trustee's rejection
of a
nonresidential lease.
Therefore, the
We
Bankruptcy
Chapter
Code and
nature of
judicial
oversight in
rejection.
authorization to
Bankruptcy is inherently
be a condition
Norton,
(1994).
precedent to
a judicial process.
petition is filed
From
in the bankruptcy
C.
the
intended judicial
the
the
structure of the
See 1 William
___
3:2
to ensure that
supra,
_____
See 4 Norton,
___
77:4.
process takes
11
two
forms.
Many
routine decisions
are
made by
the
trustee
without any specific clearance from the bankruptcy court, and are
is proposed
decisions
or when an
are
not
application for
effective
is
almost
judicial
Arranging
oversight,
condition
matters
Congress
formula.
would
in
We can
abruptly
More importantly,
wished to inaugurate
they
precedent
this
minimizes false
why
unless
In those instances,
invariably a
action.5
fees is filed).
judicial approval
to the
sequence
starts,
specifically
and
trustee's
facilitates
enhances the
depart
we are
so radical
are
Other
from
this tried-and-true
confident that if
a change, it
Congress
would have
taken
A second
365(a) to require
judicial
approval as
nonresidential
a condition
lease is
section 365(a) as
rooted
part of
precedent
to rejection
in history.
Congress
of a
enacted
of 1978,
making
____________________
5We
note
several
leasing property
examples.
of the
Before
estate outside
using,
selling,
or
of
Unless each
collateral
consents, the
entity that
trustee
has
may not
See
___
11 U.S.C.
an interest
use cash
collateral
U.S.C.
If the
363(2)(A),
(B).
post-petition financing,
See 11 U.S.C.
___
of
the
approval.
estate,
364(b).
even
See 11 U.S.C.
___
he
trustee seeks
must first
in cash
See
___
11
extraordinary
obtain court
approval.
12
without
obtaining
court
The
predecessor
to
section
to
365(a),
11 U.S.C.
section
70(b)
110(b) (repealed
of
the
1978), and
pursuant
a lease, and
many courts
of a trustee's rejection of
trustee, acting
alone,
(8th Cir.
1978).
actively
of
increased involvement
approval
as
a condition
more
is better
served by
precedent
to the
viewing judicial
effectiveness
of a
In
found
a related
support
precedent
to
for
vein, we
requiring
rejection
in
court
two
Revco, 109
_____
B.R. at 268.
trustee who
that
effect.
Read
approval
extant
rules
as
courts have
of
condition
bankruptcy
See, e.g.,
___ ____
require a
This,
too,
constitutes
an
innovation
for,
previously,
rejecting
the rules
leases.
did not
We think
become
formal
this is another
process,
valid rejection
13
lease.
involved
courts
precedent to
more
procedure for
intended
condition
to
provide a
in
of a
the
decisional
nonresidential
The
statute
in the
third reason
for
manner favored
our view
by the
is
that reading
district court
the
tends to
So
the rejection
process.
customarily important
means through
which courts
Advance Financial
_________________
Along
the
court's "valid,
182 B.R.
scenario,
off
post-petition
under the
place
contract rate
unexpired
the
district
Thinking Machines,
_________________
In the rejection
liability, imposed
is to cut
by
nonresidential lease.
section
If
the
from the
judicial approval
rejection
that
As
we think
bankruptcy court
the first
lines,
the debtor's
365(d)(3),
same
inception of the
will
always
be
insolvency proceeding.
the
last
step
in
the
14
court
has acted.
treating a
rejection as
"valid, but
concern that
motion
the complexities
of modern commerce.
If "valid,
but voidable"
were the rule, the parties could act on the trustee's notice, and
their
actions would
disagreed.
have
to
Traditionally,
be
undone
attempts
if
to
the
court
unwind
later
bankruptcy
re Stadium Mgmt. Corp., 895 F.2d 845, 849 (1st Cir. 1990); In re
_______________________
_____
Texaco, 92 B.R.
______
assume
that
Congress
intended
to
invite
these
myriad
complications.
This round
adopting
requirement of
court
assumed or rejected
approval,
In
Congress overruled
executory
upon informal or
equivocal rejections
problems attendant
relet
their property.
See
___
Gregory
G.
Hesse,
A Return to
_____________
15
9 Bankr.
(1993) (discussing
legislative history).
Treating
a trustee's
in
the
opposite direction,
promoting
uncertainty
rather than
dispelling it.6
language
used
in
section
365(a)
is
inserting
requirement of
actions.
after notice
TMC
and
visualizes
atypical.
Congress
court approval
court,
the Code.
For
"the
a hearing,"
in
may authorize
the somewhat
different
particular
wording
of
section
risky
365(a) as betokening a
to
read too
formulation,
unwilling,
explicit
different mechanism.
much into
Congress'
use of
But it is
an alternative
without
more, to
construe
reference to securing
intentional departure
from the
the mere
We are
absence
of an
court approval in
advance as an
pattern of prior
court approval
6We do
it is any
real answer to
insinuate
support a
nonresidential
might suffer
particular
rejected
lease.
rejection after
premises,
Congress
unexpired
or
the
subsequently disapproved a
landlord
incurred
in adopting
date of a rejection.
intended to add an
the motion
We
diligently relet
substantial
unfairness inherent
scrap an
rehabilitate or
effective
trustee's desire to
expenses
the
to
as the
element of Russian
roulette to the
already
tumultuous effects
of
the
reorganization process
on
commercial landlords.
16
Next,
approval
burdens
respect,
as
TMC
the
the scarce
complains
termination
resources
section 365(a), in
that
date of
using the
of
court
nonresidential
lease
of bankruptcy
date
estates.
In this
that it
hinders
the trustee's
unnecessary
general;
instances.
baggage.
they are
efforts to
But
general themes
not necessarily
are, by
controlling in
estate of
definition,
all specific
We need go no
we
further.
limned above,
been obtained.
C.
C.
holding
today precludes
a bankruptcy
court, in
section 365(a)
nonresidential
an appropriate
a trustee's rejection
of a
We
explain briefly.
Bankruptcy courts
Chapter
11
295, 304-05
context,
they
(1939), and,
may
sometimes
17
see Pepper v.
___ ______
particularly in
abandon
the
mechanical
solutions in favor
bankruptcy
court,
fairness.
F.3d at 75
applying principles
of
(explaining that
equity,
See, e.g.,
___ ____
may in
its
preponderates in favor of
such remediation.
See In re Jamesway
___ _______________
court
can order
rejection retroactive
debtor for an
to an
earlier date
"to
by
154
(Bankr. D.D.C.
unfair
tunc
1990)
(suggesting that,
in the
B.R. 154,
absence of
setting the
approval);
see
___
motion filing
generally
_________
11
date as
U.S.C.
the effective
105(a)
date of
(authorizing
11).
Of course,
are
not unlimited.
service
They
can only
be brought
to bear
courts
in the
of bankruptcy
to,
and
advance the
purposes of,
specific provisions in
(Bankr. 9th
Cir. 1994)
the Code.
tunc order
that
18
contradicted
an
express
Code
provision).
There
is
little
long
as
it
promotes
the
purposes
of
section
365(a).7
equity
so dictate, may
approve a rejection
of a nonresidential
date.8
The fact
approve the
that the
trustee's rejection
of an
the power
to
unexpired nonresidential
salutary side
to cooperate
the
earliest practicable
retroactivity
Witness,
date.
Moreover,
the possibility
of
the district
ultimate
conclusion
that
the
rejection took
A close
reached its
effect
on the
____________________
that provision
stipulate
retroactively.
commands the
are
appeals from
trustee to
365(c)(3).
pay rent
that
rejection
cannot
be
made
at the
it does
to
apply
contradict
within
the
bankruptcy
a bankruptcy court's
court's
sound
discretion,
disposition of a
request for
See, e.g., Jarvis, 53 F.3d at 420; Grella v. Salem Five Cent Sav.
___ ____ ______
______
____________________
Bank, 42 F.3d 26, 30
____
19
basis
of
equitable, rather
date
than
statutory,
illuminating.
principles.
affirmative steps to
"apply retroactively to
an unexpired nonresidential
to the
could
The
a court-approved rejection of
on the
lease
can
fairly
be
recognizing
equitable
that
powers
read
as
an
retroactive
under
instance
of
approval
section
orders
365(a),
and
Thus, Spiess
______
bankruptcy
are within
acting
on
court
its
that
realization.
Reading
conflict
Spiess
______
in
this manner
the apparent
does
bridges
approving court
power, in suitable
cases, to
IV.
IV.
CONCLUSION
CONCLUSION
We reverse
its order, and direct that it remand the matter to the bankruptcy
court (which, if it
discretion reconsider
____________________
9Because
attempt to
no
spell
two cases
out
the
are
exactly alike,
range of
we
circumstances
eschew any
that
might
20
appellant.
appellant.
_________
Costs in favor of
Costs in favor of
___________________
21