Buncher Co. v. Flabeg Solar US Corp. (In re Flabeg Solar US Corp.)

Citation: 499 B.R. 475Docket: No. 13-21415-CMB

Court: United States Bankruptcy Court, W.D. Pennsylvania; October 2, 2013; Us Bankruptcy; United States Bankruptcy Court

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The Court reviewed the Motion filed by the Buncher Company seeking a declaration that the automatic stay does not apply to their interests or, alternatively, requesting relief from the automatic stay. Flabeg Solar U.S. Corporation (Debtor) opposed this motion, supported by a Limited Response from UniCredit Luxembourg S.A., which represents a syndicate of lenders. The Court determined that while the automatic stay applies to the Debtor's interest in property it occupies, relief from stay is warranted.

The bankruptcy case began on April 2, 2013, with a Chapter 7 Involuntary Petition against Flabeg US, which was later converted to Chapter 11 on August 9, 2013. Buncher argues that the automatic stay does not protect the Debtor's alleged interest in property that it occupies under a sublease from Flabeg GmbH. Buncher seeks relief based on 11 U.S.C. § 362(d)(1) or (2). UniCredit does not oppose Buncher's motion but claims that the Debtor's reorganization is impossible. The Debtor argues that the stay is applicable and relief is not justified.

The Court held an evidentiary hearing on September 12, 2013, where depositions from various witnesses were introduced, but only the Debtor’s president, William Otto, testified. Following the hearing, both parties submitted post-hearing briefs for the Court's consideration. The Debtor is a Delaware corporation and a subsidiary of Flabeg US Holding, Inc., with ownership linked to a German entity, Flabeg GmbH. Buncher holds a ground lease for property located at 2201 Sweeney Drive, Findlay Township, Pennsylvania.

On November 20, 2008, Buncher and GmbH entered into a Lease Agreement for a Property, which includes provisions on assignment and subletting. The Lease allows GmbH to assign or sublet the Property to any subsidiary or affiliate without Buncher's consent, provided they notify Buncher in writing and the use is consistent with the Lease's permitted uses. GmbH subleased the Property to the Debtor on February 1, 2009, and both parties acknowledged that the Debtor qualifies as a subsidiary or affiliate. Although no written notice of the sublease was produced, it was represented that Buncher was aware of the sublease and that Debtor was operating on the Property. Nonetheless, Buncher did not sign the Sublease, and no contractual relationship between Buncher and Debtor was established.

On March 16, 2009, an amendment to the Lease was executed to correct a misunderstanding about the leased area. A similar amendment to the Sublease was also executed. Additionally, on October 1, 2012, a second amendment to the Lease was executed, which restructured rental payments, eliminated the security deposit, and included a restructuring fee of $1,100,000 paid by GmbH to Buncher. A corresponding second amendment to the Sublease was executed by the Debtor and GmbH on the same date.

An involuntary bankruptcy case against Flabeg US began on April 2, 2013, coinciding with GmbH's insolvency proceedings in Germany. On May 22, 2013, Buncher issued a notice to GmbH regarding unpaid rent and a notification of default under the Lease if payment was not made within ten days.

On June 7, 2013, Buncher notified GmbH of default under the Lease due to non-payment and exercised the right to accelerate rent payments. A subsequent notice on June 28, 2013, communicated the termination of the Lease and included a directive for GmbH to vacate the premises and remove its property. Despite these notices, GmbH remained on the property, and Buncher has not received rental payments since April 2013, including under the Sublease. The court is evaluating the applicability of the automatic stay under 11 U.S.C. § 362, which prevents creditors from obtaining possession of or exercising control over the debtor's property. The definition of "property of the estate" requires reference to 11 U.S.C. § 541(a)(1), which encompasses all legal or equitable interests of the debtor at the commencement of the case. The automatic stay is broadly interpreted, as established in Cuffee v. Atlantic Business and Community Development Corp. If the stay is applicable, creditors may seek relief under 11 U.S.C. § 362(d), which allows the court to modify or terminate the stay for cause, including inadequate protection of property interests. The statute does not define "cause," leaving it to the courts to assess based on the totality of circumstances. The opposing party carries the burden of proof on most issues, except the debtor's equity in the property, while the moving party must initially establish a prima facie case for relief from the stay.

Under § 362(d)(2), the movant must demonstrate that the debtor lacks equity in the property, while the opposing party must show a reasonable probability of successful reorganization within a reasonable time, per S. T Bank v. Garbinski. It is clarified that a hearing for relief from stay is not a confirmation hearing; rather, it requires evidence that a proposed plan is not inherently unconfirmable, referencing John Hancock Mut. Life Ins. Co. v. Route 37 Business Park Assocs.

Buncher argues that the automatic stay does not apply because its Lease was with GmbH, not the Debtor, and thus the termination of this Lease is not an action against the Debtor. Buncher seeks a ruling that § 362(a) does not impede its legal or equitable remedies since the Debtor has no interest in the Property. Alternatively, if the Court finds the Debtor has an interest, Buncher requests relief from the automatic stay under § 362(d). The Debtor contends that the stay does apply and opposes Buncher’s request.

The Court begins by addressing the applicability of the automatic stay, noting its extensive reach as established in In re 48th Street Steakhouse, Inc., which recognized that unexpired leasehold interests are considered property of the bankruptcy estate. In that case, the court ruled that terminating a prime lease would also terminate the debtor's sublease, thus violating the automatic stay. The facts in the current case are similar, as Flabeg US had possession under a sublease with GmbH that did not require Buncher’s approval, and the termination of the Lease with GmbH occurred after the involuntary petition and the stay's commencement.

The Court concludes that the termination of the Lease with GmbH violated the automatic stay, as such termination would have affected the Debtor’s sublease, which is part of the bankruptcy estate. Additionally, even if the termination were valid, a mere possessory interest in real property is enough to invoke the automatic stay's protections.

Not all courts in the Third Circuit have uniformly applied the stay under § 362. In *Twin Rivers Lake Apartments Horizontal Property Regime, Inc. v. Wallner*, the court noted differing interpretations of the Third Circuit’s *Atlantic Business* decision. The Third Circuit affirmed that a possessory interest in real property is included within the bankruptcy estate under Section 541, thus protected by the automatic stay of Section 362. The court emphasized that mere possession at the time of filing suffices to invoke the automatic stay. However, some courts require a debtor to have a colorable legal claim to the property to benefit from the stay, diverging from the broader interpretation. This court found that the Debtor had possession of the property at the bankruptcy case's commencement, supporting the application of the automatic stay. The court concluded that a possessory interest, even without a legal or contractual interest, is adequate to invoke the stay. The Debtor's situation was likened to that of a tenant at sufferance, which still provides protection under the automatic stay, as the Debtor had commenced lawful possession through a sublease that remained effective at the time of filing.

The automatic stay is applicable in this case, and the Court evaluates whether relief from the stay is warranted under § 362(d)(1), which allows for relief "for cause, including the lack of adequate protection." The analysis follows a totality of the circumstances approach, considering the unique facts of the case without precise standards. Key factors include the interests of the debtor and creditors, as well as Bankruptcy Code policies.

Buncher has not received rental payments since April 2013 and incurs ongoing expenses for the property, establishing a prima facie case for relief from stay. Consequently, the burden shifts to the Debtor to demonstrate a lack of cause. The relationship between Buncher and the Debtor is non-contractual, with the Debtor's occupancy deriving from a Sublease with GmbH, which is undergoing insolvency proceedings in Germany. The Court lacks information on how the German court will treat the Lease or Sublease.

The Debtor has not shown the capacity to make ongoing rental payments, arguing that a substantial security deposit from GmbH is sufficient protection for Buncher. The Court disagrees, noting that an amendment to the Lease eliminated the security deposit in October 2012 and that the Debtor failed to demonstrate that the former deposit would cover Buncher’s continuing expenses.

Given these circumstances, the Court finds adequate cause to grant relief from stay, concluding that the Debtor has not met its statutory burden. Thus, relief from stay is granted to Buncher, allowing it to pursue legal remedies concerning the property. The Court confirms its jurisdiction under 28 U.S.C. § 157 and 1334, categorizing this as a core matter under § 157(b)(2)(G). If the District Court determines that the Court lacks authority for final judgment, the Memorandum Opinion and Order will serve as proposed findings of fact and conclusions of law. Additionally, Mr. Jackovic's testimony regarding the notice of the Sublease does not convince the Court that Buncher was uninformed.

Buncher was aware that the Debtor occupied the space, and the Court confirmed that the outcome would be the same under Pennsylvania law as under New York law regarding the termination of a sublease upon the termination of the prime lease. The Debtor sought enforcement of the stay but did not request sanctions. The Debtor asserted that a German stay applied due to GmbH’s insolvency, claiming Buncher improperly terminated the Lease without first obtaining relief from the stay. The Court indicated it would not resolve the applicability of the German stay, noting that Buncher must comply with it or face consequences in the proper forum. GmbH had participated in the bankruptcy case but did not take a position on Buncher’s Motion. The Court is only addressing the relief against Flabeg US and noted that the Debtor claims GmbH agreed to assign its Lease to the Debtor, pending Court approval, but this assignment is not part of the current record. Although Buncher argued that the Debtor has no equity in the Lease, it did not challenge the Debtor’s interest in the Sublease, which was not terminated prior to the bankruptcy and may hold value. The Court found Buncher's termination of the Lease to be a violation of the stay and determined that the Debtor did not provide enough evidence to show that the property is necessary for an effective reorganization.