Court: United States Bankruptcy Court, W.D. Pennsylvania; May 9, 1996; Us Bankruptcy; United States Bankruptcy Court
On May 9, 1996, Bankruptcy Judge M. Bruce McCullough granted Stephen D. Tebo’s motion for a declaration that an unexpired lease with the debtor is terminated under 11 U.S.C. § 365(d)(4) and ordered for immediate possession of the leased premises. The court determined that § 365(d)(4) applies to Tebo's lease, as it aligns with Congress's intent that leases for business purposes fall under this section. The debtor retains significant interest as the sole lessee, and Tebo cannot seek satisfaction from a third party, Col-Han.
The court noted that the Chapter 7 trustee failed to assume the lease within the required 60-day timeframe following the bankruptcy relief order (October 26, 1995) or the amended schedules (February 2, 1996), leading to the lease's deemed rejection under § 365(d)(4). The court concluded that the lease is legally terminated concerning the debtor, referencing precedents establishing that a deemed rejection extinguishes the debtor's rights but does not necessarily affect the rights of nondebtor third parties unless explicitly stated.
Tebo's actions did not constitute a waiver of his rights under § 365(d)(4). His acceptance of rent payments prior to the deemed rejection does not undermine his claims, as permitted under § 365(d)(3). The court cited prior cases confirming that landlords may accept payments from holdover debtors post-rejection without forfeiting their rights under the lease.
The Court determined that communications from Tebo related to Col-Han and the debtor do not support a waiver or estoppel of Tebo’s rights under 365(d)(4). Col-Han had two months to act under the Bankruptcy Code, such as prompting the Chapter 7 trustee to abandon or assume the lease, which could have protected against Tebo’s motion. Since the debtor did not occupy the leased premises at the order for relief, the Chapter 7 trustee fulfills his duty to surrender by notifying Tebo of the lease’s rejection. The Court ruled that the sublease between the debtor and Col-Han is rejected due to the primary lease's deemed rejection, consistent with case law, which indicates cancellation of the prime lease discharges the sublessor from liability and terminates the sublease. Col-Han retains a right to possess the premises under 11 U.S.C. 365(h)(1)(A)(ii), provided such rights are enforceable under Colorado law, despite the debtor's lack of possession rights. Since the question of Col-Han’s remaining possessory interest involves state law, the Court will abstain from this dispute, recommending it be resolved in Colorado state court. The Court emphasizes expedited handling, the ease of interpreting state law, and the necessity for Tebo to seek state court assistance if Col-Han refuses to surrender possession.
The Court clarifies that it does not need to address whether a debtor must vacate leased premises without a state court ruling, as the debtor is not currently in possession. Tebo is prohibited from using self-help against a nondebtor subtenant despite the 'surrender' language in 11 U.S.C. § 365(d)(4). The automatic stay under 11 U.S.C. § 362(a) does not prevent Tebo and/or Col-Han from pursuing legal action in Colorado state court regarding state law issues, as such actions do not involve the debtor or property within the debtor’s bankruptcy estate. The Court indicates it would grant relief from the stay if invoked regarding these actions.
Declaratory relief concerning the automatic rejection of both the primary lease and sublease does not require a hearing, aligning with Congress's intention for quick resolutions for lessors and supported by the Court's authority under 11 U.S.C. § 105(a). The Court notes that Tebo’s request for repossession would necessitate an adversary proceeding if the debtor still possessed the property, which is not the case, as Col-Han currently holds possession. Consequently, Tebo’s motion to terminate the primary lease and surrender the premises is granted, but the Court abstains from deciding whether Col-Han retains possessory rights based on the primary lease or Colorado state law.
