Thomas J. Tucker, United States Bankruptcy Judge.
Section 362(b)(10) of the Bankruptcy Code says that the automatic stay of
This case came before the Court for a hearing on May 17, 2018, on the motion filed by the Indianapolis Airport Authority (the "IAA"), entitled "Indianapolis Airport Authority's Motion for Relief From the Automatic Stay and for Other Relief" (Docket # 15, the "Motion"). The Debtor, Indiana Hotel Equities, LLC, filed an objection to the Motion, and then a concurrence in that objection was filed by a creditor, Indiana Hotel Ventures, LLC.
After the May 17, 2018 hearing, the Court entered an Order permitting briefing by the parties on a specific issue, having to do with Indiana law on collateral estoppel.
The Court has considered the post-hearing briefs filed by the parties.
For the following reasons, the Court will deny the Motion, without prejudice to the extent described below.
This Court has subject matter jurisdiction over this bankruptcy case and this contested matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This contested matter is a core proceeding, under 28 U.S.C. §§ 157(b)(2)(A) and 157(b)(2)(O).
In addition, this contested matter falls within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within either of these categories in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans-Industries, Inc.,) 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009). This is a proceeding "arising under title 11" because it is "created or determined by a statutory provision of title 11," see id., namely Bankruptcy Code §§ 362(b)(10) and 541(b)(2). And this is a proceeding "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only
Based on facts presented by the parties that are undisputed, the Court finds and concludes as follows.
The Debtor operates a hotel, located at 2500 South High School Road in Indianapolis, Indiana, near the Indianapolis airport. But the Debtor does not own the land or building where the hotel is located. That real property (the "Property") is owned by the IAA. The Debtor leased this Property from the IAA, beginning in January 2016.
The lease was first made in September 1960, between predecessors-in-interest of the IAA and the Debtor. Beginning in January 2016, the IAA as lessor, and the Debtor as lessee, were the parties to the lease, by virtue of an agreement called the "Lease Amendment," dated January 6, 2016. (A copy of this lease amendment, the "Lease Amendment," is included within Exhibit 6-A to the IAA's Motion. A copy of the entire Lease, including the Lease Amendment (the "Lease"), appears at Exhibit 6-A to the IAA's Motion).
Under the Lease Amendment, the stated term of the Lease was "for a term of seventy-two (72) years, commencing July 1, 1962, and ending on June 30, 2034."
By virtue of the Lease Amendment, the Lease contained certain requirements that the Debtor had to meet in order to avoid a default, and the Lease provided certain remedies to the IAA in the event of a default by the Debtor, including cancellation of the Lease. In a letter to the Debtor dated May 11, 2017 (the "May 11, 2017 Termination Letter"), the IAA stated that the Debtor had defaulted under the Lease, and purported, under "Section 15 of the Lease," to cancel the Lease "in its entirety effective at 12:00 midnight on July 11, 2017."
This led to litigation between the parties. The Debtor filed suit against the IAA on July 12, 2017, in the Marion County, Indiana Superior Court, in the case titled Indiana Hotel Equities, LLC v. Indianapolis Airport Authority, Case No. 49D01-1701-PL-027076 (the "Indiana Lawsuit").
Among other things, the State Court Decision ruled, in part expressly and in part by clear, necessary implication, that: (1) the Debtor defaulted under the Lease and Lease Amendment in certain specified ways; (2) the IAA had a right to terminate the Lease because of the Debtor's default; (3) the IAA did validly terminate the Lease, by means of the May 11, 2017 Termination Letter, effective (as that letter stated) at 12:00 midnight on July 11, 2017; (4) because of such termination of
The Debtor filed this Chapter 11 bankruptcy case on April 10, 2018, and remains in possession of the Property. Shortly before filing this bankruptcy case, the Debtor also filed, in the Indiana Lawsuit, a notice of appeal (filed April 6, 2018) and a motion for a stay pending appeal (filed April 10, 2018). The Indiana court has not yet ruled on the Debtor's motion for a stay pending appeal, presumably because of the Debtor's bankruptcy filing.
Although the IAA's Motion is labeled, in part, as a "Motion for Relief from the Automatic Stay," the Motion actually does not seek relief from the automatic stay. Rather, the Motion only seeks an order confirming that the automatic stay does not apply, with respect to actions the IAA wishes to take to obtain possession of the Property, based on Bankruptcy Code §§ 362(b)(10) and 541(b)(2). The Motion states:
The IAA's proposed order filed with the Motion is consistent with the foregoing Motion language.
Based on the language of Bankruptcy Code §§ 362(b)(10) and 541(b)(2), the issue now before the Court is this: whether, before the April 10, 2018 bankruptcy petition was filed, the Lease was "terminated" "at" or "by" "the expiration of the stated term of such lease." The Court will decide this issue in two parts.
First, the Court concludes that the Lease was indeed "terminated" before the April 10, 2018 petition date. The Court is bound to conclude this because of the March 28, 2018 State Court Decision, described above. That state court decision is a final judgment of the Marion County, Indiana Superior Court, and is conclusive
This Court previously has explained how collateral estoppel applies in bankruptcy cases, under the federal Full Faith and Credit Statute, 28 U.S.C. § 1738:
Taleb v. Kramer (In re Kramer,) 543 B.R. 551, 553 (Bankr. E.D. Mich. 2015) (footnote omitted) (quoting McCallum v. Pixley (In re Pixley,) 456 B.R. 770, 775-76 (Bankr. E.D. Mich. 2011)); see also Communitywide Fed. Credit Union v. Laughlin (In re Laughlin,) No. 3:13-CV-353 PS, 2014 WL 789127, at *5 (N.D. Ind. Feb. 25, 2014).
Under Indiana law, the State Court Decision must be given preclusive effect as to every issue it necessarily decided, under the doctrine of collateral estoppel, because all of Indiana's required elements for such issue preclusion are present. Under Indiana law,
Berry Plastics Corp. v. Illinois Nat'l Ins. Co., 244 F.Supp.3d 839, 846 (S.D. Ind. 2017); see also Tofany v. NBS Imaging Sys., Inc., 616 N.E.2d 1034, 1037 (Ind. 1993) ("Generally, collateral estoppel operates to bar a subsequent re-litigation of the same fact or issue where that fact or issue was necessarily adjudicated in a former suit and the same fact or issue is presented in the subsequent lawsuit."); Jones v. Am. Family Mut. Ins. Co., 489 N.E.2d 160, 165 (Ind. Ct. App. 1986) ("Issue preclusion ...`applies where the causes of action are not the same, but where some fact or question has been determined and adjudicated in the former suit, and the same fact or question is again put in issue in a subsequent suit between the same parties.'" (citation omitted)). Some cases indicate that under Indiana law the party to be precluded must have
In this case, both the Debtor and the IAA were parties to the Indiana Lawsuit;
As Indiana law makes clear, the State Court Decision has preclusive effect even though the Debtor is appealing it. The State Court Decision retains its full preclusive effect while the appeal is pending, and unless and until it is reversed or modified on appeal. See Daugherty v. Daugherty, 119 Ind.App. 180, 83 N.E.2d 485, 486 (Ind. Ct. App. 1949) ("It is a well-established rule that an appeal from the judgment of the trial court does not have the effect of vacating the judgment of the trial court.
As a result, this Court presently must take as a given that (1) the Lease was validly terminated by the IAA in July 2017, almost 9 months before the Debtor filed this bankruptcy case on April 10,
The second issue the Court must decide is whether this Lease that was terminated prepetition was terminated at or by "the expiration of the stated term of such lease" within the meaning of 11 U.S.C. § 541(b)(2) and 11 U.S.C. § 362(b)(10). The Court concludes that it was not.
These statutory provisions state:
11 U.S.C. § 541(b)(2) (emphasis added).
11 U.S.C. § 362(b)(10) (emphasis added).
The IAA and the Debtor disagree about the meaning of the phrase "terminated at the expiration of the stated term of such lease" in § 541(b)(2), and the nearly identical phrase "terminated by the expiration of the stated term of the lease" in § 362(b)(10), although they agree that the phrases should be accorded the same meaning.
The IAA argues that the "stated term of the lease" means not only "the calendar date specified [in the lease] as the end of the lease term," but also an earlier date on which the lease is terminated under the terms of the lease, under applicable non-bankruptcy law, due to the lessee's uncured default "`prior to the expiration of its stated term.'"
The Debtor disagrees, and argues that "[a]s noted by the leading treatises on bankruptcy law, `[e]xpiration of the stated term of the lease' means what it says, it
The Court agrees with the Debtor's statutory interpretation. In this case, the date of "the expiration of the stated term of the lease" was and is June 30, 2034, and obviously that date has not passed yet. So the expiration of the stated term of the lease did not happen before the filing of this bankruptcy case, and has not happened yet. For this reason, neither § 362(b)(10) nor § 541(b)(2) applies, and the IAA's Motion must be denied.
This conclusion is consistent with the language of the Lease in this case. Section 2 of the Lease, as amended by the Lease Amendment, explicitly and unambiguously defines the "Term" of the Lease as "a term of seventy-two (72) years, commencing July 1, 1962, and ending on June 30, 2034."
The Court is not persuaded by the IAA's statutory interpretation argument, and the Court respectfully disagrees with the cases that support the IAA's position. The IAA does not actually articulate why the Court should agree with its statutory interpretation. And neither do any of the cases cited by the IAA.
The Court concludes that under the only reasonable reading of the statutory language at issue, the lease termination in this case was a termination other than at or by "the expiration of the stated term of the lease." It clearly was a termination of the Lease earlier than at the end of the Lease's stated term, due to Debtor's default.
The IAA's interpretation of the statutory language is not reasonable. The IAA's interpretation would make the statutory wording at issue superfluous. In effect, it would read the following bolded wording out of § 362(b)(10):
(Emphasis added). So the IAA's interpretation would, in effect, read the statute as if it said this:
The same is true of the IAA's reading of the same language in § 541(b)(2).
Congress knew how to write a statute that applies broadly to all lease terminations, including early lease terminations. It did so in Bankruptcy Code § 365(c)(3), which states that a lease may not be assumed or assigned if "such lease is of nonresidential real property and has been terminated under applicable nonbankruptcy law prior to the order for relief." 11 U.S.C. § 365(c)(3). This provision was enacted as part of the 1984 amendments to the Bankruptcy Code, at the same time current §§ 362(b)(10) and 541(b)(2) were enacted. The limiting words in the latter sections, at or by "the expiration of the stated term of the lease," narrow the type of lease termination that is covered, to something narrower than terminations covered by § 365(c)(3), and must be given
Reading these statutes the IAA's way would be contrary to often-repeated instructions of the United States Supreme Court, which was repeated by the Supreme Court in a bankruptcy case decided earlier this month. See Lamar, Archer & Cofrin, LLP v. Appling, No. 16-1215, ___ U.S. ___, 138 S.Ct. 1752, ___ L.Ed.2d ___, 2018 WL 2465174, at *7 (U.S. June 4, 2018). In Lamar, the Supreme Court interpreted Bankruptcy Code §§ 523(a)(2)(A) and 523(a)(2)(B), and in doing so held, in part, that the interpretation argued by the debtor in that case "must be rejected, for it reads [the word] `respecting' out of the statute." Quoting TRW Inc. v. Andrews, 534 U.S. 19, 31, 122 S.Ct. 441, 151 L.Ed.2d 339 (2001), the Supreme Court held that "`[A] statute ought ... to be so construed that ... no clause, sentence, or word shall be superfluous, void, or insignificant' (internal quotation marks omitted)." Id.
The same reasoning applies here, and requires the Court to reject the IAA's statutory interpretation.
As indicated in Part III.B of this Opinion, the Court construes the IAA's present Motion as limited to only seeking an order confirming that the automatic stay does not apply, with respect to actions the IAA wishes to take to obtain possession of the Property, based on Bankruptcy Code §§ 362(b)(10) and 541(b)(2). Because the Court rejects the IAA's interpretation of §§ 362(b)(10) and 541(b)(2), the IAA's Motion must be denied.
It follows that the automatic stay does apply, and it prevents the IAA from taking any action to enforce the State Court Decision to dispossess the Debtor of the Property. See, e.g., 11 U.S.C. §§ 362(a)(1), 362(a)(2).
To the extent the IAA attempted, in its reply brief, or during the hearing on the Motion, to broaden its Motion to include seeking relief from stay, or to argue that its Motion actually sought relief from stay in the first place, the Court rejects this attempt. The Motion itself, to which the Debtor filed its written response, clearly did not seek relief from the automatic stay. And the Court agrees with the Debtor that it would be unfair and inappropriate for the Court to allow the Motion to be transformed into one seeking relief from stay. That would deprive the Debtor of a full and fair opportunity to file a written response to such a request for relief.
The complexity of the stay relief question arises, in part, because the Debtor has an appeal pending in the Indiana courts that could result in a reversal of the State Court Decision that the lease terminated, such that the Lease would no longer be deemed terminated. If the Debtor were to lose possession of the Property now, that could quickly ruin the Debtor's hotel business and destroy any chance of a successful reorganization, so that any later success by the Debtor in its state court appeal would be a useless victory. But if the automatic stay remains in place, the IAA may have valid arguments that some form of adequate protection must be ordered, to protect its ownership interest in the Property while the Debtor's state court appeal proceeds.
For all of these reasons, but especially because of the way the Motion is worded, the Court construes the present Motion as not seeking relief from the automatic stay. And it follows that the Court's denial of the present Motion will not preclude the IAA from filing a new motion that expressly seeks relief from the automatic stay.
For the reasons stated in this Opinion, the Court will enter an order denying the IAA's Motion, without prejudice to the IAA's right to file a new motion that seeks relief from the automatic stay based on one or more of the grounds under 11 U.S.C. § 362(d).
28 U.S.C. § 1738.
87 F.3d at 877 (citations omitted) (italics in original).
(Emphasis added).
Moore, 290 B.R. at 880. The court in Moore did not explain why it concluded that § 362(b)(10) "may be read" in these different ways. And the Court respectfully disagrees with Moore about this. And the Court notes that this part of Moore is dicta, because Moore was a Chapter 13 case involving a lease of residential real property, not a lease of non-residential real property. So § 362(b)(10) did not apply in Moore for that reason.
11 U.S.C. §§ 362(a)(1), 362(a)(2).