Filed: Apr. 13, 2007
Latest Update: Mar. 02, 2020
Summary: 05-6622-bk Adelphia Bus. Solutions, Inc. v. Abnos 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 4 August Term 2006 5 (Argued: October 11, 2006 Decided: April 13, 2007) 6 Docket No. 05-6622-bk 7 -x 8 ADELPHIA BUSINESS SOLUTIONS, INC., 9 Debtor-Appellee, 10 - v. - 11 NICHOLAS ABNOS, 12 Appellant. 13 -x 14 B e f o r e : JACOBS, Chief Judge, WALKER, Circuit Judge, and 15 O’CONNOR,* Associate Justice Retired. 16 17 Appeal from a judgment of the United States District Court 18 for the So
Summary: 05-6622-bk Adelphia Bus. Solutions, Inc. v. Abnos 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 4 August Term 2006 5 (Argued: October 11, 2006 Decided: April 13, 2007) 6 Docket No. 05-6622-bk 7 -x 8 ADELPHIA BUSINESS SOLUTIONS, INC., 9 Debtor-Appellee, 10 - v. - 11 NICHOLAS ABNOS, 12 Appellant. 13 -x 14 B e f o r e : JACOBS, Chief Judge, WALKER, Circuit Judge, and 15 O’CONNOR,* Associate Justice Retired. 16 17 Appeal from a judgment of the United States District Court 18 for the Sou..
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05-6622-bk
Adelphia Bus. Solutions, Inc. v. Abnos
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3
4 August Term 2006
5 (Argued: October 11, 2006 Decided: April 13, 2007)
6 Docket No. 05-6622-bk
7 -------------------------------------------------------x
8 ADELPHIA BUSINESS SOLUTIONS, INC.,
9 Debtor-Appellee,
10 -- v. --
11 NICHOLAS ABNOS,
12 Appellant.
13 -------------------------------------------------------x
14 B e f o r e : JACOBS, Chief Judge, WALKER, Circuit Judge, and
15 O’CONNOR,* Associate Justice Retired.
16
17 Appeal from a judgment of the United States District Court
18 for the Southern District of New York (Alvin K. Hellerstein,
19 Judge), affirming the bankruptcy court’s retroactive approval of
20 the decision of debtor-appellee Adelphia Business Solutions, Inc.
21 to reject under 11 U.S.C. § 365(a) an unexpired, nonresidential
22 lease with lessor Nicholas Abnos. On appeal, Abnos argues that
*
The Honorable Sandra Day O’Connor, Associate Justice (Retired)
of Supreme Court of the United States, sitting by designation.
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1 the bankruptcy court lacked equitable authority to make its
2 rejection order retroactive or, should we find that it had that
3 power, abused its discretion in doing so.
4 AFFIRMED.
5 MICHAEL P. RICHMAN, Foley & Lardner
6 LLP, New York, New York, for
7 Appellant.
8 JUDY G.Z. LIU, Weil, Gotshal &
9 Manges LLP, New York, New York, for
10 Debtor-Appellee.
11 JOHN M. WALKER, JR., Circuit Judge:
12 In this appeal from a November 15, 2005 judgment of the
13 United States District Court for the Southern District of New
14 York (Alvin K. Hellerstein, Judge), a bankruptcy court granted a
15 debtor’s motion to reject an unexpired commercial lease pursuant
16 to 11 U.S.C. § 365(a) nunc pro tunc to a date nearly three years
17 earlier when it first told the parties of its intention to make
18 the order retroactive. Under the circumstances of this case, we
19 hold that the bankruptcy court acted within its discretion.
20 BACKGROUND
21 Nicholas Abnos owns the “Historic Firestone Building,”
22 located in Kansas City, Missouri. On September 18, 2001,
23 Adelphia Business Solutions, Inc. (“Adelphia”) entered into two
24 companion leases for the Firestone Building. One lease pertained
25 to two floors of the Firestone Building (the “Building Lease”);
26 the other, to an annex of the same property (the “Annex Lease”).
27 On March 27, 2002, Adelphia commenced voluntary proceedings under
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1 Chapter 11 of the Bankruptcy Code. On May 15, 2002, Adelphia
2 filed two motions: one seeking authorization to reject certain
3 unexpired leases of nonresidential real property pursuant to 11
4 U.S.C. § 365(a), and the other seeking an extension of the
5 deadline for assuming or rejecting other unexpired leases of
6 nonresidential real property pursuant to 11 U.S.C. § 365(d)(4).
7 In the motions, Adelphia only identified the address of the
8 Firestone Building, leaving unclear whether it was referring to
9 the Building Lease or Annex Lease.
10 On May 29, 2002, a hearing was held before the bankruptcy
11 court (Robert E. Gerber, Bankruptcy Judge). At around the same
12 time, Adelphia vacated the premises covered by the Building
13 Lease. At the hearing, Adelphia explained that it sought (1) to
14 reject the Building Lease and (2) extend the time for rejection
15 or assumption of the Annex Lease. Abnos objected, arguing that
16 the Building Lease and Annex Lease were actually a single lease
17 that had to be treated as a whole. The bankruptcy court,
18 declining to authorize the rejection of the Building Lease at
19 that time, decided to review the lease agreements and pleadings
20 to determine whether it could rule on the issue of whether the
21 two leases had to be treated as one for rejection purposes
22 without a further evidentiary hearing. The bankruptcy court
23 authorized the rejection of all the other leases listed in the
24 motion.
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1 During the hearing, the bankruptcy judge made oral
2 statements indicating that if he approved the rejection of the
3 Building Lease, his approval would be effective as of that
4 hearing date. The bankruptcy judge said, “If [Adelphia is] right
5 . . . justice would say that their clock should stop today
6 because they at least tried to reject today.” The judge also
7 said:
8 What I am of a mind to do is to deal with this as
9 quickly as I can . . . and if the Debtor is right, I
10 will tell you now I will stop their postpetition clock
11 today, and if they’re wrong, then you can collect from
12 them for the postpetition rent until we can get this
13 thing sorted out . . . . That’s what I’m inclined to
14 do to balance your needs for procedural due process and
15 to give [Adelphia] what it tried to achieve, which is
16 that if [Adelphia] is right . . . to stop their
17 postpetition rent clock on the [Building Lease]
18 starting today.
19
20 The bankruptcy court relieved Adelphia from its rent
21 obligation on the Building Lease pending its decision. The
22 bankruptcy judge also said, “I will try to give you folks a
23 decision as quickly as possible.” When Adelphia’s counsel asked
24 if it should keep the Building Lease rent in escrow, the judge
25 responded, “[I]f I get you the answer in a couple of weeks or
26 less, you don’t need that in escrow, do you?”
27 Regrettably, the pending motion to reject languished for the
28 next two years. On November 26, 2003, Abnos filed a claim with
29 Adelphia for administrative expenses for postpetition rent but
30 did not notify the bankruptcy court. Neither party took any
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1 action on the pending rejection motion until June 2004, when
2 Abnos raised its status with the bankruptcy court. On July 1,
3 2004, the bankruptcy court requested, and one month later
4 received, supplemental memoranda on the issue of whether the
5 Building Lease and Annex Lease constituted a single lease. In
6 January 2005, Abnos again asked the bankruptcy court about the
7 status of the motion.
8 Finally, on March 10, 2005 - more than thirty-three months
9 after the May 29, 2002 hearing - the bankruptcy court entered an
10 order that found that the Building Lease and Annex Lease were
11 separate contracts and authorized Adelphia to reject the former
12 and assume the latter. The order did not specify whether it had
13 retroactive effect.
14 On April 11, 2005, after the time for appeal of the order
15 had elapsed, Abnos moved for an order directing Adelphia to pay
16 $676,918.16 in administrative expenses under § 365(d)(3),
17 consisting of the unpaid rent under the Building Lease up to the
18 bankruptcy court’s approval of rejection on March 10, 2005. The
19 bankruptcy court noted that Abnos had been justified in filing
20 the objection to the rejection motion because whether the two
21 leases constituted a single lease was “fairly debatable.” On May
22 29, 2005, however, the bankruptcy court ruled that its March 10,
23 2005 decision to grant the motion to reject was retroactive to
24 May 29, 2002. The bankruptcy judge acknowledged that the
-5-
1 rejection motion “fell off [his] radar screen, as it apparently
2 fell off the radar screens of the two sides in this dispute as
3 well.” He concluded, however, that he had issued a “final
4 determination” on May 29, 2002 that if he ruled in Adelphia’s
5 favor, the Building Lease rejection would be retroactive to that
6 date and that nothing had transpired since then to justify its
7 alteration. The bankruptcy court reached this decision based on
8 several undisputed facts: It notified the parties on May 29, 2002
9 of its “final determination” on retroactivity; Abnos did not
10 object to that ruling; Adelphia surrendered the premises on or
11 about the date of the hearing; while neither party acted on the
12 pending motion, Abnos made no effort to alert the bankruptcy
13 court of the pendency of the rejection motion until June 2004 or
14 raise concerns about the timing of the approval until April 2005;
15 and, finally, Abnos did not attempt to relet the vacant premises
16 despite “little risk that [Adelphia] would have objected,”
17 “little chance” that Abnos would have thereby waived his
18 objection to rejection, and “no chance whatever” of any
19 forfeiture of rights “if he had explained his needs and concerns
20 to the Court.”
21 On November 8, 2005, the District Court for the Southern
22 District of New York found no abuse of discretion and affirmed
23 the bankruptcy court’s decision. The district court found
24 neither party at fault for the delay. Implicitly rejecting the
25 bankruptcy court’s view that the May 29, 2002 retroactivity
-6-
1 pronouncement was a “final determination,” the district court
2 nonetheless held that those statements put Abnos on “clear notice
3 that the bankruptcy judge, if he decided against Abnos, would
4 more likely than not, and maybe certainly, use the May 29 day for
5 stopping the clock.” With that in mind and noting that the
6 “debtor had quit the premises,” the district court concluded that
7 the risk should fall on the landlord because it was “more
8 incumbent on the landlord to seek out a new tenant or to obtain
9 permission to rent to a new tenant.”
10 Abnos timely appealed.
11 DISCUSSION
12 Abnos advances two principal arguments. First, he argues
13 that a bankruptcy court lacks equitable authority to make
14 retroactive its order approving a debtor’s rejection of an
15 unexpired nonresidential lease. Second, he contends that, even
16 if the bankruptcy court has this power, its exercise was an abuse
17 of discretion in this case. After initially reviewing the
18 mechanics behind lease rejection under 11 U.S.C. § 365, we will
19 address each argument in turn.
20 I. Rejection of Leases Under § 365 of the Bankruptcy Code
21 During a Chapter 11 reorganization, 11 U.S.C. § 365(a)
22 provides that “the trustee, subject to the court’s approval, may
23 assume or reject any executory contract or unexpired lease of the
24 debtor.” As a debtor in possession, Adelphia has essentially the
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1 same rights, powers, and duties as a trustee. See 11 U.S.C. §§
2 1107(a), 1108; see also Smart World Techs., LLC v. Juno Online
3 Servs., Inc. (In re Smart World Techs., LLC), 423 F.3d 166, 174
4 n.10 (2d Cir. 2005).
5 Before rejection or assumption, the debtor in possession has
6 certain obligations. Section 365(d)(3) states:
7 The trustee shall timely perform all the obligations of
8 the debtor, except those specified in section
9 365(b)(2), arising from and after the order for relief
10 under any unexpired lease of nonresidential real
11 property, until such lease is assumed or rejected,
12 notwithstanding section 503(b)(1) of this title.
13
14 11 U.S.C. § 365(d)(3) (emphasis added). This subsection
15 therefore requires continued performance under a lease until it
16 is assumed or rejected. Liona Corp. v. PCH Assocs. (In re PCH
17 Assocs.),
804 F.2d 193, 199 (2d Cir. 1986); Authentic Hansom
18 Cabs, Ltd. v. Nisselson (In re Fayolle),
300 B.R. 843, 849 n.4
19 (Bankr. S.D.N.Y. 2003).
20 The Bankruptcy Code imposes a time limit on the debtor in
21 possession’s ability to assume an unexpired lease. Section
22 365(d)(4)(A) states:
23 Subject to subparagraph (B), an unexpired lease of
24 nonresidential real property under which the debtor is
25 the lessee shall be deemed rejected, and the trustee
26 shall immediately surrender that nonresidential real
27 property to the lessor, if the trustee does not assume
28 or reject the unexpired lease by the earlier of--
29 (i) the date that is 120 days after the date of
30 the order for relief; or
31 (ii) the date of the entry of an order confirming
32 a plan.
33
-8-
1 11 U.S.C. § 365(d)(4)(A). The bankruptcy court may extend the
2 time limit under certain conditions. See 11 U.S.C. §
3 365(d)(4)(B).
4 Assumption of an unexpired lease by a debtor entitles the
5 lessor to assert its claims on a priority basis. Frito-Lay, Inc.
6 v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944, 955 (2d
7 Cir. 1993). Rejection of an unexpired lease, on the other hand,
8 is treated as a breach of the lease, see § 365(g)(1); Stoltz v.
9 Brattleboro Hous. Auth. (In re Stoltz),
315 F.3d 80, 86 (2d Cir.
10 2002); Med. Malpractice Ins. Ass’n v. Hirsch (In re Lavigne), 114
11 F.3d 379, 387 (2d Cir. 1997), allowing the lessor to seek damages
12 as a pre-petition claim.
Lavigne, 114 F.3d at 387. In such a
13 case, the lessor may seek allowance of its claim under 11 U.S.C.
14 § 502(g) with the same priority as a general unsecured creditor.
15 See 11 U.S.C. §§ 365(g), 502(g); N.L.R.B. v. Bildisco & Bildisco,
16
465 U.S. 513, 531 (1984) (“Damages on the contract that result
17 from the rejection of an executory contract . . . must be
18 administered through bankruptcy and receive the priority provided
19 general unsecured creditors.”).
20 From the foregoing, the importance of the lease rejection’s
21 effective date to the parties is obvious. Prior to that date,
22 Abnos is entitled to full administrative rent on a priority
23 basis; after that date, Abnos can only seek rent as an unsecured
24 creditor through a subordinated claim for damages, with the
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1 attendant risk that he will receive only a fraction of the rent
2 due under the lease.
3 II. The Bankruptcy Court’s Equitable Authority
4 Abnos contends that the bankruptcy court lacked equitable
5 authority to make retroactive its approval of rejection under 11
6 U.S.C. § 365(a). Abnos first argues that such equitable
7 authority would contravene Congress’s intent behind § 365(d)(3):
8 to assure landlords of post-petition, pre-rejection rent until
9 court-approved rejection. He further argues that this sort of
10 equitable power has no statutory authorization and is not within
11 the equitable authority conferred on the courts by the Judiciary
12 Act of 1789, 1 Stat. 73 (1789). For the latter point, Abnos
13 relies upon Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond
14 Fund, Inc., 527 U.S. 308 (1999), in which the Supreme Court held
15 that a preliminary injunction issued under Fed. R. Civ. P. 65 had
16 to be within the district court’s equitable authority under the
17 Judiciary Act of 1789, which conveyed only “an authority to
18 administer in equity suits the principles of the system of
19 judicial remedies which had been devised and was being
20 administered by the English Court of Chancery at the time of
21 separation of the two countries.”
Id. at 318-19 (internal
22 quotation marks omitted).
23 We have not ruled on the existence or scope of a bankruptcy
24 court’s equitable authority to order retroactive approval of
25 rejection under § 365, and there is no need for us to do so here.
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1 The parties litigated this case in the district court on the
2 assumption that such authority existed: Abnos did not raise this
3 issue below in his brief and conceded at oral argument before the
4 district court that the bankruptcy court possessed the relevant
5 equitable power. In general, a federal appellate court refrains
6 from passing on issues not raised below. See Pease v. Hartford
7 Life Accident Ins. Co., 449 F.3d 435, 446 (2d Cir. 2006). We are
8 more likely to exercise our discretion to consider such issues
9 when, as here, they are purely legal and require no additional
10 fact finding. See Official Comm. of the Unsecured Creditors of
11 Color Tile, Inc. v. Coopers & Lybrand, LLP,
322 F.3d 147, 159 (2d
12 Cir. 2003); Baker v. Dorfman,
239 F.3d 415, 420 (2d Cir. 2000).
13 However, we decline to exercise our discretion; Abnos
14 affirmatively conceded the issue in the district court, and his
15 failure to raise the issue in the bankruptcy court deprived that
16 court of the opportunity to fashion relief such that no court
17 would have to decide the question in this dispute. Therefore, we
18 will assume, without deciding, that the bankruptcy court had
19 equitable authority to make its order retroactive.1
1
We note that two of our sister circuits have held that the
bankruptcy courts have this equitable authority, though without
considering Grupo Mexicano, see Pacific Shores Dev., LLC v. At
Home Corp. (In re At Home Corp.), 392 F.3d 1064, 1071 (9th Cir.
2004); Thinking Machs. Corp. v. Mellon Fin. Servs. Corp. (In re
Thinking Machs. Corp.), 67 F.3d 1021, 1028 (1st Cir. 1995), and
another has suggested that bankruptcy courts have this power, see
EOP-Colonnade of Dallas Ltd. P’ship v. Faulkner (In re
Stronebridge Techs., Inc.), 430 F.3d 260, 273 (5th Cir. 2005).
The Southern District of New York has held that a bankruptcy
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1 III. Whether the Bankruptcy Court Abused Its Discretion
2 In an appeal from a district court’s review of a bankruptcy
3 court’s decision, we review the decision of the bankruptcy court
4 independently, accepting its factual findings unless they are
5 clearly erroneous and reviewing its conclusions of law de novo.
6 See Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006).
7 Assuming that the bankruptcy court had equitable authority to
8 make its approval of rejection retroactive, we review the
9 exercise of that equitable authority only for abuse of
10 discretion. See Abrahamson v. Bd. of Educ.,
374 F.3d 66, 76 (2d
11 Cir. 2004) (“We review a district court’s fashioning of equitable
12 relief for abuse of discretion.”); cf. Cushman & Wakefield of
13 Conn., Inc. v. Keren Ltd. P’ship (In re Keren Ltd. P’ship), 189
14 F.3d 86, 87-88 (2d Cir. 1999) (per curiam) (reviewing nunc pro
15 tunc approval of professionals seeking to render services to a
16 bankruptcy estate under 11 U.S.C. § 327(a) for abuse of
17 discretion). We thus follow our sister circuits, which also
18 review these retroactivity decisions for abuse of discretion.
19 See At
Home, 392 F.3d at 1072; Thinking
Machs., 67 F.3d at 1028.
20 The procedural posture of this case presents us with an
21 unusual situation: While we do not decide whether the bankruptcy
22 court has equitable authority to make its approval of the lease
court may give retroactive effect to its approval of rejection
under § 365 at least where there is “unnecessary delay caused by
the creditor.” See Constant Ltd. P’ship v. Jamesway Corp. (In re
Jamesway Corp.), 179 B.R. 33, 39 (S.D.N.Y. 1995).
-12-
1 rejection retroactive, we still must determine if the bankruptcy
2 court abused its discretion in exercising a power that may not
3 exist. We hesitate to fashion general rules guiding the exercise
4 of a power that may be unfounded. Nonetheless, to provide
5 guidance in future decisions, we explore the contours of this
6 purported power based upon the decisions of other courts that
7 have found it to exist or assumed its existence.
8 A2
9 The fault for the 33-month delay in deciding the rejection
10 motion principally rested with the bankruptcy court (as it
11 candidly conceded). However, the parties were not blameless:
12 They remained quiescent even though they knew that the premises
13 were vacant and the losses were accruing for someone. In
14 assigning the risk of loss as an equitable matter, the bankruptcy
15 court properly considered how the parties conducted themselves in
16 the circumstances of this case. While neither party was more at
17 fault than the other for the delay in deciding the rejection
18 motion, we do not believe that the bankruptcy court abused its
19 discretion in finding that the equities tipped in favor of the
20 May 29, 2002 effective date.
21 Under the assumption that it could make its order
22 retroactive, the bankruptcy court’s pronouncement at the May 29,
2
Chief Judge Jacobs deems that the grounds discussed in Section
III.A are sufficient for affirmance and does not subscribe to
Section III.B.
-13-
1 2002 hearing put Abnos on clear notice of the possibility that an
2 order approving rejection would be retroactive to the hearing
3 date. We need not resolve the parties’ dispute over whether the
4 May 29, 2002 pronouncement somehow bound Abnos; at the very
5 least, it notified Abnos of the proposed effective date and of
6 the consequent risk to him – a risk that increased as time passed
7 without any decision on the rejection motion.
8 B
9 The bankruptcy court also properly considered that Adelphia
10 had vacated the premises and thereby provided Abnos with the
11 opportunity to lease the premises to another tenant, which he did
12 not try to do. By reletting, Abnos could have mitigated the risk
13 of which he was on notice.3 This factor weighs in favor of
3
We also note that if the bankruptcy court has equitable
authority to make its approval of rejection retroactive, the
landlord’s opportunity to relet arguably furthers § 365(d)’s goal
of, inter alia, preventing needless vacancies of real property.
The duties imposed by § 365(d)(3) (requiring the debtor to
perform his contractual obligations until rejection) and §
365(d)(4) (setting time limits on the debtor’s ability to assume
or reject) arose from the “Shopping Center Bankruptcy Amendments”
of the Bankruptcy Amendments and Federal Judgeship Act of 1984,
Pub. L. No. 98-353, 98 Stat. 333 (1984). Through these
amendments, Congress sought to “remedy the long-term vacancy or
partial operation of space by a bankrupt tenant.” At Home, 392
F.3d at 1068 (citing 130 Cong. Rec. S8891 (1984) (statement of
Sen. Hatch), reprinted in 1984 U.S.C.C.A.N. at 598). Congress
wanted to mitigate the problems faced by landlords and other
tenants in debtors’ buildings under the prior scheme: Landlords
lost money because they could not evict the debtors but had to
provide them with the properties and related services, and
debtors’ co-tenants lost money through decreased traffic and were
required to subsidize the debtors’ shares of common area charges.
Id. (citing 130 Cong. Rec. S8891 (1984) (statement of Sen.
Hatch), reprinted in 1984 U.S.C.C.A.N. 590, 598-99). The
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1 granting retroactive relief here. See At Home, 392 F.3d at 1074
2 (holding that a bankruptcy court did not abuse its discretion in
3 considering that the tenant vacated the leased premises).
4 Compare In re Fleming Cos.,
304 B.R. 85, 96 (Bankr. D. Del. 2003)
5 (permitting retroactivity where premises were surrendered), and
6 In re Amber’s Stores,
193 B.R. 819, 827 (Bankr. N.D. Tex. 1996)
7 (same), with In re Chi-Chi’s, Inc.,
305 B.R. 396, 399 (Bankr. D.
8 Del. 2004) (declining to order retroactivity when the premises
9 were not surrendered), and In re Cafeteria Operators, L.P., 299
10 B.R. 384, 394 (Bankr. N.D. Tex. 2003) (ordering retroactive
11 rejection of leases of vacated premises but not for occupied
12 premises).
13 Abnos argues that he could not control when the bankruptcy
14 court would issue its ruling and that he was barred from
15 unilaterally reletting the premises because 11 U.S.C. § 362(a)(3)
16 provides an automatic stay of “any act to obtain possession of
17 the property of the estate or of property from the estate.” See
18 also Smart World
Techs., 423 F.3d at 174; Roslyn Savings Bank v.
19 Comcoach Corp. (In re Comcoach Corp.),
698 F.2d 571, 573 (2d Cir.
20 1983). However, Abnos very likely could have relet by requesting
21 court-ordered relief from the stay. See 3 Collier on Bankruptcy
amendments required that the debtor promptly determine what to do
with the unexpired lease. Id. at 1069. A bankruptcy court might
further § 365’s legislative purpose by using the spur of
retroactivity to motivate landlords to relet.
-15-
1 ¶ 365.09[4] (proposing that bankruptcy courts grant relief from
2 the automatic stay to allow a landlord to proceed in state court
3 to regain possession of the premises); cf. In re Ames Dep’t
4 Stores, Inc., 306 B.R. 43, 52-53 (Bankr. S.D.N.Y. 2004) (stating
5 in dicta that if a debtor continued occupancy after rejection,
6 the landlord might be entitled to relief from the stay to
7 complete eviction).
8 Abnos also argues that reletting would have been
9 inconsistent with his opposition to the rejection motion. But
10 Abnos never presented this dilemma (if it is a dilemma) to the
11 bankruptcy court, which could have fashioned relief pending the
12 delay or issued its ruling more promptly.
13 We reject Abnos’ argument that the debtor must bear the risk
14 of delay in prosecuting its motion for approval of rejection
15 unless the landlord was at fault for the delay or acted in bad
16 faith. A bankruptcy judge “must not be shackled with
17 unnecessarily rigid rules when exercising the undoubtedly broad
18 administrative power granted him under the Code,” but rather
19 “must have substantial freedom to tailor his orders to meet
20 differing circumstances.” Comm. of Equity Sec. Holders v. Lionel
21 Corp. (In re Lionel Corp.),
722 F.2d 1063, 1069 (2d Cir. 1983);
22 see also At
Home, 392 F.3d at 1075 (“We likewise eschew any
23 attempt to limit the factors a bankruptcy court may consider when
24 balancing the equities in a particular case.”). Section 105(a)
25 grants broad equitable power to the bankruptcy courts to carry
-16-
1 out the provisions of the Bankruptcy Code so long as that power
2 is exercised within the confines of the Bankruptcy Code. See 11
3 U.S.C. § 105(a); Smart World Techs., 423 F.3d at 183-84.
4 Assuming that the bankruptcy courts have the authority to issue
5 orders like the one at issue, we must give them generous latitude
6 to shape equitable relief under § 365, and see no reason to make
7 landlord culpability a requirement for retroactivity. We note
8 that numerous lower court decisions have made orders retroactive
9 without considering whether the landlord acted in bad faith.
10 See, e.g., Stonebriar Mall Ltd. P’ship v. CCI Wireless, LLC (In
11 re CCI Wireless, LLC),
297 B.R. 133, 140 (D. Colo. 2003) (holding
12 that although the lessor did not cause delay, the bankruptcy
13 court did not abuse its discretion in ordering retroactive relief
14 where the debtor had not been in possession of leased premises
15 since before filing for Chapter 11 protection); Amber’s Stores,
16 193 B.R. at 827.
17 We are also unpersuaded by the proposition that because
18 Abnos had no duty to mitigate his losses from breach of the lease
19 under Missouri law, see JCBC, LLC v. Rollstock, Inc.,
22 S.W.3d
20 197, 200-01 (Mo. Ct. App. 2000) – which we assume governs the
21 lease – the bankruptcy court should not have considered whether
22 he could relet. Abnos was certainly free not to mitigate his
23 damages, and under Missouri law he may be entitled to damages
24 from the breach occasioned by the rejection without any penalty
25 for not mitigating his losses. This rule of contract law,
-17-
1 however, is beside the point; it does not affect the bankruptcy
2 court’s equitable consideration of the practical effect of Abnos’
3 ability to protect himself by reletting the premises. See At
4 Home, 392 F.3d at 1074 (“Nothing in the statute, in the
5 precedents, or in logic precludes the bankruptcy court from
6 considering the practical effects of a tenant’s lack of occupancy
7 when balancing the equities in the context of § 365(d)(3).”).
8 CONCLUSION
9 For the foregoing reasons, the judgment of the district
10 court is AFFIRMED.
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