I N TH E UN I TED STATES COU RT OF APPEA LS F O R T H E F IF T H C IR C U IT

N o. 07- 41057

I n t he M a t t e ro f: ELDER CAR E PROPE RTI ES LT D D ebtor

--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- VAL L EYE DUC AT I ONA L F OUNDA T I ON, I NC Appe l l ant

v. ELDE RCA RE PRO PERTI ES LT D A pp el l ee

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C ons . W /08- 40244 I n t he M a t t e ro f: ELDER CAR E PROPE RTI ES LT D D ebtor

--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -- ELDE RCA RE PRO PERTI ES LT D Appe l l ant

v. VA L L EYE DUC AT I ONA L F OUNDA T I ON, I NC A pp el l ee United States Court of App eals Fifth Circuit 

### F I L E D May 13, 2009 Cha rl es R. F ulb ru g e II I ClerkN o. 08- 40244 C ons . w /07- 41057

The Honorab leS an draDayO’ C onnor , AssociateJu stic e of the United St ate s Suprem e * C ourt , (Ret .) , sittingbydesign ation , purs u ant to2 8U .S .C

. § 2 9 4 (a). 2 A pp eal s f

rom t h e U n i t ed S t ates D i st ri ctC ou rt f ort he Sout her n D i st r i c tof Texas

Be f o r e O ’ C ON N OR , As s o c i a t e J us t i c e (Re t
. ) , a ndW I EN ER an dST EW ART, * C i rcui tJu dg es. S A N D R AD AYO ’ C O N N O R , A ss o cia te J u stic e (R e tire d): Thes e c o ns o l i da t e d a ppe al s c o nc e r n t he v i t ali t y o f t he l e as e o f

anur s i ng h om e faci l i t y, V al l ey G ran d M an or. T h e l essor , V al l ey E du cat i on alF ou n da t i on ( “VE F” ) , a r gue s t hati tv ali dly t e r m i nat e d the l e as e i n J une 2 00 5, b e f o r e t he l e as e ’ s pr i m ar y t e r m e xp i r e d. I ta l s o a r gue s that i f the l e as e s urvive d the
a tte m p te dter m in a tion , th e les se e , E ld e rC a re P ro p e rtie s L td

. (“E ld e rC a re ”), fai l ed ef fect ivel y t o exerci se it s opt i on t o renew t h e l ease f or an ad di t i on alf

iveyear t erm a n d t h at the l ease consequ en t l y exp i red i n D ecem ber 200 6. E l derC are a r g u e s th a t V E F n e v e re ffe c tiv e ly te r m in a te dth e le a s e . A s to its fa ilu r e s tr ic tly t o c om pl y w i t h t he l ea se’ s r enew alt er m s, E l der C ar e c ont ends t hatTexas
com m on l aw pri n ci pl es of equ i t able i n t erventi on render i t s r en ew alef fect ive. Th e d i s p ut e ha s un f o l d e d i n t he c o ur s e o f El d e r Car e ’ s Cha p t er11 ban kru ptcy. Th e i ssue w h et h er th e l ease w as val i dlyte rm in ated arose w h en E l derC are’ s ban kru ptcy es t ate m ovedt o assum e t h e l ease i n order t o reor gan i ze for the s o l e pur po s e o f c o nt i nui ng t o o pe r at e t he nur s i ng ho m e . The U ni t ed S tates B a n k ru p tcy C ou rt f or th e S ou th ern D i stri ct of T ex a s s id e d w i th E l derC are an d all ow ed i tt o assum e t h e l ease, concl u di n g t h at th e l ease ha d n ot be e n t e r m i nat e d. The c o ur ta l s o o r de r e d the pa r t i e s t o m e di at e c e r t ai n o ngo i ng l e as e t e r m s . W hi l e t he m e di at i o n pr o c e s s unf o l de d, El de r Car e fail e d t o pr o vi deN o. 08- 40244 C ons . w /07- 41057

Weset forththe facts a s found bythe B ankruptcyC ourtinit s October 1 2, 2 006 , and 1 April 2 3, 2 007 , deci sion s. The former decision is reported at 200 6 WL 41 25 090 and will be cited as “AssumptionOrder, p.__, ¶__.” The latter i s reported at 200 7 WL 121 789 1 and will be cited as “Renewal Order, p.__ .”
3 t im e ly n o t i ce of

i t s i n t en tt o renew t h e l ease, an d V E F l atersough tt o evi ct El de r Car e , a r gui ng t hatt he l e as e ha d e xp i r e d whi l e t he pa r t i e s w e r e pur s ui ng
m edi at i on. A gai n t he B ankrupt c y Courts i ded w i t h E l der C ar e, i nvoki ng Texas
c om m on l aw pr i nci pl es of eq ui t abl e i nt ervent i on t o e xc use E l der C ar e’ s t ec hni c al
om i ss i on. The U ni t ed St at es D i st r i c tC our tf ort he Sout he rn D i st r i c tof Texas af f i r m ed the f

or m er c onc l usi on, but r eve r se d t he l at t er . I thel d: (I ) t he l eas e w as not t er m i nat ed i n June 2005 and w as t hus pro per l y as sum ed; an d (i i) Texas pri n ci pl es of

eq u i t y coul d n otexcuse E l derC are’ s fai l u re t o provi de ti m el y n ot i ce and as a r es ul tt he l eas e e xpi r ed i n D ec em ber2006. W e a gr ee w i t h t he B ankrupt c y C our ton bot h ques t i ons . W e c onc l ude t hat V E F fai l ed t o t er m i nat e the l eas e a nd t hatt he l eas e w as pr ope r l y as sum ed by E ld e r C a r e ’ s b a n k r u p tc y e s ta te
. W e fu r th e rco n c lu d e th a t p r in c ip le s o f e q u ita b le i n t erventi on un der T exas l aw are properly ap pl i ed i n t h e u n i qu e circum st an ces o f th is ca s e ino r d e rto re n d e re ffe c tiv e E ld e r C a r e ’ s fiv e -y e a rre n e w a l.

I . PE RTI NENT FA CT S AND PROC EDURAL HI S TORY 1 A. Bac kgr ound. V E F i s a non - prof

i torgan i zati on ow n ed byth e S even t h D ay A dv en t i st Churc h. W he n itr an i nt o dif f i c ul t y o pe r at i ng t w o nur s i ng ho m e s a nd a ret i rem en tfaci l i t y t h at i tow n ed, ita skedG l en H am el , a m em ber of t h e C h u rch
a n dth e o w n e ro f E ld e r C a r e , t o jo in V E F ’s b o a r da n dto o ffe rh e lp . W it h H a m e l’s
a s s is ta n c e , V E F s o ldo n e o f th e n u r s in gh o m e s a n d th e r e tir e m e n t fa c ility

. T h is di spu t e i n volves t h e rem ai n i n g n u rsi n g h om e, V al l ey G ran d M a n o r . U n der a
m a n a ge m en t con tract, E l d erC a re to ok con trol of t h a t fa ci l i ty’ s op era ti on s. In 1995, t he par t i es w ent a st ep far t her , c ons um m at i ng a l eas e of t he facil i ty toN o. 08- 40244 C ons . w /07- 41057

4 E l d erC a re. Inl i gh t of the ch u rch ’ s p oli cytha t its m em b ers sh ou l dn ot l i ti ga te ag ai ns to ne a no t he r , t he l e as e a gr e e m e ntin c lu d e ds e v e r alunc o m m o n pr o vi s i o ns
r e q u ir in gg o o dfa ith n e g o tia tio n s a n dm e d ia tio n ince r ta in co n te x ts
. 1. M ai nt enance of m i ni m um i nsur ance c over age. I n t w o pr o vi s i o ns , t he l e as e o bli ge d El de r Car e t o m ai nt ai n m i ni m um i n suran ce c overage. S ect i on 6. 07 set m i n i m u m coverage l evel s f or “cl ai m s f

or p erso n a l inj u ryor p rop ertyda m a ge u n d er a po l i cyof ge n era lpu b l i c l i a b i l i ty i n suran ce. ” S ect i on 6. 08 di d s o f or “ cl ai m s ari si n g ou tof m al practi ce. ” Sect i on 6. 16 o f t h e l ea se al sopr ovi ded f orr enego t i at i on o f

t he c ove r age m i ni m um s as f ol l ow s: I n t he e ve nt t hat e i t he r pa r t y s hall at any t i m e deem t he

l i m i t s of

t h e p er so n a l i n

ju ryorp rop er ty d a m age p u b lic lia b ili tyi n suran ce th en carr i ed to be ei t h er exc e ss ive or i n suff i ci en t , the pa rt i es sh al len dea vor to agree on t h e proper an d reason able l i m i t s f or s u ch i n suran ce . . . . If the p art i es s h a ll b e u n a b le to a g r e e t h e r e o n , th e p r o p e ra n dre a s o n a b le l i m i t s f ors uch i nsur ancet o b e c ar r i ed s hal l be det er m i ned by a m e di at o rj o i nt l y s e l e c t e d

. . . , pr o vi de d ho w e ve rt hatt he t erm s o f

t he und e r l yi ng Bas e Le as e s hallc o nt r o lt he m in im u m in s u r a n c e r e q u ir e m e n ts w h ic h [E ld e r c a r e ] is r e q u ir e dto p r o v id e h e r e u n d e r . 2 . R e n e g o t ia t io n o f r e n tte r m s . Bec aus e t he nur s i ng ho m e de r ive d asubstanti alpo r t i o n o f i t s r e ve nue f r o m M e di c ar e /M e di c ai d r e i m bur s e m e nt s ( m o r e t han 85 % b e f o r e 1 99 5) , t he pa rt i es, i n sect i on s 2. 07 and 14. 09 of t h e l ease, provi dedf or th e renegoti ati on of t h e rent t erm s i n t h e even tof substanti alchan ges i n t h ose program s: [V E F ] r e c o gni z e s t hatt he pr i m ar y s o ur c e o f r e ve nue f

o rt he F aci l i t y i s derived f

rom res i den t s f

rom w h om t h e pay er s ou rce i s eit he r M e d i c a i d o r M e d i c a r e . Thu s , s ho ul d t he r e b e subs t ant ive c hanges and/orr educ t i on s i n t he w ay t hat Me d i c a i do rMe d i c a r e a n d/o rt h e i rs u c c e s s o rp r o g r a ms r ei m burs e the Facil i t y f orpr ovi d i n g car e, [V E F] at [ El de r c ar e ] ’ s r e que s tw i l le nt e r i n t o g o o d fait h ne go t i at i o ns w i t h re spe c tt o the am ountof B as i cR entan d /orA ddi t i onalN o. 08- 40244 C ons . w /07- 41057

5 R en tt h at i s du e an d p aya bl e un der th e t erm s of t h i s Lea se A g r e e m e n t.

. . . . [VE F andEl de r c ar e ] a gr e e t hats ho ul d the r e b e s i gnif i c ant c hang e s i n t he M e di c ar e a nd/o rM e di c ai d r e i m bur s e m e nt m e t ho do l o gy , [t he y] w i l lpr o c e e d i n g o o d fait h t o a m e nd the t erm s o f t hi s Agr e e m e nt i n a m anne r t hat r e pr e s e nt s a r e a s o n a b le a c c o m m o d a tio n o f th e in te r e s ts o f e a c h p a r ty
. 3. D ef aul tby El der C ar e and V E F’ s r i ghtt o t er m i nat e. A r t i c l e 1 3 o f

t he l eas e a ddre ss ed de faul tand t er m i nat i on. Sec t i on 13. 01(b) p r o v id e dth a t itw o u ldb e “ d e e m e d[a n ] e v e n [t] o f d e fa u lt” b yE l d e r C a r e if E l derC are “fail [ e d] t ocom pl y w i t h an y t erm , provi si on , or covena n tof t h [ e] L ease

. . . a n dd [id ] n o t c u r e t h e fa ilu r e w ith in t h ir ty( 3 0 ) d a y s a fte rw r itt e n n o tic e .” S ect i on 13. 02(a) gave V E F t h e opti on t o t erm i n ate t h e l ease up on t h e occ u rrence o f a n yd e fa u lt. 4. Ter m of

t he Lease . A rt i cl e 1 of t h e l ease set D ecem ber 31, 200 6, as t h e l ease’ s expi rat i on date. Ital so granted E ld e rC are an opti on t o ext en d the l ease f or an ad di t i on alf

iveye art e r m . I n o r de rt o e xerci se thato pt i o n, El de r Car e w as o bli ge d t o pr o vi de VE F w r i t t e n “ no t i c e o f i t s i nt e nt i o n t o do s o no t l at e r t han 30 da ys pr i o r t o t he expir at i on o f

t he Leas e t er m , ” on o rbe f or e D ec em ber1, 2006. B . V E F ’ s a p p e a l. 1. E l de rC are’ s f ai l u re t o m ai n t ai n t h e m i n i m u m i n suran ce cove r age a nd V E F’ s purpor t ed t er m i nat i on of t he l eas e. In 19 9 9 , m ed i ca lm a lp r a c ti ce ra tes for T ex a s n u rsingh om es sta rtedto cl i m b dram ati cal l y. Th e bu si n ess l an dscap e w as f u rt h er c om pl i cat ed bya ser i es of m aj orc hanges t o T exas’ s M edi c ar e/M edi c ai d pr ogr am t hatbe gan i n 2000. T h a t y e a r , E ld e r C a r e m a d e s e v e r a l p r e s e n ta tio n s to th e V E F B o a r dto e x p la in t h ese program chan ges an d thei r purp ort edl y ad verse i m p li ca t i on s f or E ld e r C a r e ’ s b u s in e s s . T h e p a r tie s s u b s e q u e n tlyh a d s e v e r a l d is c u s s io n s o n th is i s s ue . I n Augus t2 00 0, El de r Car e s o ugh tt o i ni t i at e a r e ne go t i at i o n o f t he r e ntN o. 08- 40244 C ons . w /07- 41057

6 te r m s p u r s u a n t t o § § 2 .0 7 a n d1 4 .0 9 o f th e le a s e , firs t a t a m e e tin ga n dth e n in
w r itin g . V E Fres pon ded w i t h a dem an d that E l derC are agree t o a host of
s u b s t a n t iv e c h a n g e s t o t he l e as e (b e y o n dt h e s c o p e o f r e n tt e r m s ) b e f

o r e VEF
w o u ldco m m e n c e re n e g o tia tio n s . V E F ’ s precondit i on alam en dm en t s w ere
m em ori al i zed i n a V E F B oard resol u t i on an d a l et t er t o E l derC are. E l derC are
r e fu s e dto a g r e e to th e a m e n d m e n ts , a n das ta le m a te e n s u e d

. F aci n g m ou n t i n g rat es, at t h e end of 200 0 E l derC are reduced it s insuran ce c o v e r a g e b e lo w th e le a s e m in im u m s . V E F di d notobj ec tt o El der C ar e’ s c ove r age l ev els f or p oli cyye a rs 2 0 0 1 , 20 0 2 , or 2 0 0 3
. In 2 0 0 3 , E l d erC a re w a s u n a b l e to obtai n m al practi ce i n suran ce. To s h i el d it sel f f rom l i abilit y, itsubleased V al l ey G r andM ano rt o ane w l y- c r e at e d c o r po r at i o n. The a r r ang e m e ntm i r r o r e d o ne V E F h a du s e db e fo r e le a s in gth e fa c ilityto E ld e r C a r e . W ith th is s u b le a s e in pl ace, E l derC are t erm i n ated i t s gen eralli abili t y coverage, bel i evi n g i tno l on ger faced gen erall i abili t y. E l derC are nev er soug h t V E F ’ s consen tan d V E F nev er obj ect ed t o t h e sub l ease arran gem en t
. F rom 200 3 t o 200 5, w h i l e t h e su bl ease
w as i n ef

fect , m ore t h an 50% of n u rsi n g h om es i n T exas carri ed n o m al practi ce c o v e r a g e . I n th e s u m m e ro f 2 0 0 4 , E ld e r C a r e m a d e as e r ie s o f p r e s e n t a t io n s to V E F ’s b oa rdan dthe pa rti es h eld se ve ra loth er m ee ti n gs . E l d erC a re en d ea v o red to
e xp l ai n it s di f

f i c ul t y s e c ur i ng i ns ur anc e co ve r ag e and s o ugh tt o re ne go t i at e t he l ease m i n i m u m s. V E F ref u sed t o n egoti ate to t h i s en d an d n ot i f i ed E l derC are of i t s posi t i on t h at E l derC are w as i n defa u lt. N evert h el ess, t h e parti es c o n tin u e dto d is c u s s th e is s u e ; V E F m a d e n o e ffo r t t o te r m in a te th e le a s e a n dit extend ed the t i m e f

or E l derC are t o com pl y. A t t h ese m eet i n gs, E l derC are al so
r ai s e d a ga i n t he c hall e nge s itfaced in l i ghto f t he c hang e s b e i ng m ad e t o t he Tex as M e di c ar e /M e di c ai d p r o gr am . El de r Car e s o ugh t r e ne go t i at i o n o f t he r e nt
a n dr e t r o a c t iv e a dj u s t m e n t s f o ro v e r p a y m e n twi t h o u ts u c c e s s . Ag a i n VEF i n si st ed upon ext ens ive am endm ent s t o t he l eas e as a pre c ondi t i on toN o. 08- 40244 C ons . w /07- 41057

7 r e n e g o tia tio n a n da g a in th e is s u e w e n t n o w h e r e . O n J anua r y 3, 2 00 5, El de r Car e no t i f i e d VE F of i t s b e l o w - m i ni m um gener all i abi l i t y c ove r age and i tfai l ed t o f urni sh pr oo f

of m al pra c t i c e c ove r age f or 2005
. V E F sen ta p u rport ed n ot i ce of defau l ton Ja n u ary 11, 200 5 ( “Jan u ary 11 l e t t e r” )

. I n pe r t i ne ntpa r t , t he l e t t e rs t at e d:

W e r ec eived t he [i nf

or m at i on yo u] s entt o us on Ja nuary 3, 2 0 0 5
. T h a n ky o u f

o rr e s p o n d i n gb yt h e d e a d l i n e , b u t we h ave severalconcerns abou tit
. T h e am ou n tof coverage f or t h e g en e r all i ab i l i t y do e s no tm e e tt he r e quir e m e nt s o f t he l eas e and t her e w as notany c ove r age f orm edi c al m al practice i n suran ce th at i s al so r equ i red by the l ease. T h ese are defaul t s acc ordi n g t o t h e l ease. I f you w an t t o ask t h e board f

or a possibl e reconsi derati on of t h e lea se in s u r a n c e re q u ir e m e n ts , E ld e r C a r e , In c . w ill n e e dto s u b m it l et t ers of

den i alof

coverage an d copi es o f qu ot es on i n sur anc e t h at m ak e itcos tprohibit ive, on or bef ore Jan u ary 21 , 2 0 0 5
. Th e V al l ey E du cat i on alB oard w i l lconsi der i n f orm ati on you su p p ly an d then w i l lgive you a res pon se. E ld e rC a re , In c. w ill n e e dto re sp o n dto th is lette r b y[bla n k ]. E l derC are res pon ded oral l y an d bys c h edu l i n g a m eet i n g, w h i ch took pl ace on J a n u a ry 1 9
. A t th e m ee ti n g, H a m el a n d E rrol E d er, V E F ’ s V ic e P resid en t, di scussed an ext en si on of t h e t i m e i n w h i ch E l derC are cou l d respond w i t h m ore i n f orm ati on an d the possibi l i t y of a renegoti ati on of

t h e i n suran ce m i n i m u m s. E l der C ar e l at ers entt o V E F e m ai l s m em or i al i zi ng i t s und er st andi ng t hatithad b e e ng ra n te da d d iti o n a l ti m e to r e sp o n d

. V E F d idn o t d isp u te E ld e r C a r e ’s
c h a r a c te r iz a tio n o f th e m e e tin g . S u b sequ en tcom m u n i cat i on s s u pp ort ed E l d erC a re’ s u n d e r stan d i n g th a t it fa cedn o im m ed i a te d ea d l i n e b y w h i ch to
s e c u r e in s u r a n c e co v e r a g e . O n M arch 1, E l derC are provi dedan ext en sive report to V E F ’ s l aw yer,
w hi c h i tu nder st oo d to sat i sf y t he i nf

or m at i onalrequir em entof the January 11 l e t t e r . VE F’ s Boa r d ne ve rr e c e ive d the r e po r t , a nd El de r Car e ne ve rr e c e ive d a response.N o. 08- 40244 C ons . w /07- 41057

8 I n M ay , VE F’ s Boar d vo t e d t o t e r m i nat e t he l e as e . On June1 0, VE F s e nt E l derC are a pu rport ed t erm i n ati on l et t er, w h i ch i den t i f i ed E l derC are’ s fai l u re t o sec u re m al practi ce i n suran ce as t h e t ri ggeri n g breach

. E l derC are conti n u ed t o searc h f

or i n suran ce an d obt ai n ed a n ew (bel ow - m i n i m u m ) m al practi ce pol i cy on June 25. V E F broug h ta f

orcibl e entry acti on in cou n t y court, an d a j u ry ret u rned
av e r d ic t in its fa v o r . O n O c to b e r2 5 , w h ile th a t ju d g m e n t w a s o n a p p e a l, E ld e r C a r e file daC h a p te r1 1 b a n k r u p tc yp e tit io n .
2. B a n k ru p tcy C o u rt pro ce ed i n g s. O nc e El de r Car e e nt e r e d b ank r upt c y, V E F f i l e d ac l ai m a ga i ns tt he ban kru ptcy es t ate s eeking da m a g e s r e su lti n gfro m E l derC are’ s pu rport ed breach
o f th e le a s e ’ s m in im u m in s u r a n c e co v e r a g e p r o v is io n s . E ld e r C a r e (a s d e b to rin posses s i o n) c o unt e r e d wi t h am o t i o n t o a s s um e t he l e as e i n b ank r upt c y under 1 1 U. S

. C. § 3 6 5 a n d wi t h o bj e c t i o n s t o VEF ’ s c l a i m , d e m a n d i n g o f fs e t s a nd
r e c o upm e nti n l i ghto f VE F’ s a l l e ge d b r e ac h o f i t s o bli ga t i o ns t o r e ne go t i at e t he
r e nt andc o ve r ag e l i m i t s . VE F o ppo s e d the m o t i o n t o a s s um e , a r gui ng t hatt he l e as e w as v ali dly t e r m i nat e d o n J une 1 0 andt hus no ta s s um ab l e . The B an kru ptcy C ou rth el d a t h ree- da y t ri al , d u ri n g w h i ch m ore th an 10 w i t n esses t e s t i f i e d a nd d o z e ns o f

e xhibit s w e r e i nt r o duc e d. ( a) The Bankr upt c y Cou rtg rant e d El de r Car e ’ s m o t i o n t o a s s um e t he l ease. Ith el d t h at V E F fai l ed ef fect ivel y t o t erm i n ate th e l ease f or th ree r eason s. Fir s t , t h e c o u r tc o n c l u d e dt h a ta f t e rs e n d i n gt h e J a n u a r y1 1 l e t t e r , VEF agreedt o an i n defi n i t e extensi on of t i m e f or E l derC are t o res pon d, an d i tnev er revoked t h at agreem en t
. T h e court f ou n d th at att h e Jan u ary 19 m eet i n g, “M r. H am eland M r . E derdi sc uss ed El der C ar e’ s r eques tf orm or e t i m e a nd t o de al
w i t h and do c um e nt t he c hangi ng i ns ur anc e m ar ke t and as w e l la s c hangi ng t he i n s u r a n c e r e q u i r e m e n t s u n d e r t h e Le a s e ” a n d t h a t “ Er r o l Ed e r o n b e h a l f o f VEFN o. 08- 40244 C ons . w /07- 41057

9 agreed t o i n defi n i t el y extend t h e dea dl i n e f or E l derC are t o obta in m a lp ract i ce i n sur a n ce .”Th e courtf u rt h er f ou n d that t h i s grant of an i n defi n i t e ext en si on
w as c onf

i r m ed byt he subse quentem ai lexc hanges bet w ee n t he part i es and by El de r Car e ’ s o ngo i ng e f f o r t s t o pr o vi de t he r e que s t e d i nf o r m at i on, w i t ho ut
o bj e c t i o n o rc l ar i f

i c at i o n f

r o m VE F. “VE F di d no tr e s po nd t o [ El de r Car e ] , ” t he
c o ur tf o und, “buta l l o w e d El de r Car e t o c o nt i nue t o b e l i e vet hatVE F wa s wo rki ng
w ith th e m o n th e in s u r a n c e is s u e w h ic h is w h a t E ld e r C a r e co n tin u e dto b e lie v e .” Se c o nd, t he c o ur the l d thatVE F’ s J anua r y 11 l e t t e r“w as no ts uf f i c i e nt
u n d er T e x a s co m m on l a w to t ri gg er [V E F ’ s] ri gh t t o term i n a te the L ea se w i th E l der C ar e. ” The c our tbas ed thi s c onc l usi on o n i t s f i ndi ng t hatt he January11 l et t er “ di d n otm ak e a dem an d f or perf orm an ce upon E l derC are” a n d “di d n ot i n f orm E l derC are t h at t h e L ease [coul d] be ter m i n ated un l ess [ E l derC are] t ook
a cti on to ob taini n su ra n ce a s ca l l edf or b y th e L ea se.” L astly, t h e B an kru ptcy C ou rtconcl u dedt h at V E F ’ s con du ctexcused El de r Car e ’ s fail ur e t o pe r f o r m i t s m i ni m um i ns ur anc e c o ve r ag e o bli ga t i o n s . The
c o ur the l d thatVE F br e ac he d it s o bli ga t i o n und er §6. 16 t o ne go t i at e ( and potenti al l y m edi ate) a redu ct i on i n t h e m al practi ce i n suran ce li m i t s f or pol i cy y e a r2 0 0 4

– 2 0 0 5 . T h e c o u r tfu r t h e rh e ld t h a tth is b r e a c h e x c u s e dE ld e r C a r e ’s fai l ure t o se c ure m al pra c t i c e c ove r age i n pol i c y year s 2004 and 2005. Si m i l ar l y, t h e courthel d that V E F ’ s fai l u re t o obj ectt o E l derC are’ s coverage l evel s i n pol i cy year s 2 0 0 0 , 2 0 0 1 , 2 0 0 2 , a nd 2 0 0 3 c o ns t i t ut e d a waiv e r o f a ny b r eac h by E ld e r C a r e inth o s e y e a r s . T h e courtal so c on cl u ded th a tE l derC are sat i sf i ed §36 5’ s c on di t i on s f or a s s u m p tio n . S ee 11 U

. S. C. § 36 5(b) ( 1) (“ I f t he r e ha s b e e n ade fault , ” t he l ease can n otbe assum ed u n l ess t h e deb t or: ( a) “ cures, or provi des ad equ ate ass u ran ce t h at th e t rustee w i l lprom ptly cure, such d efau l t ; ” (b) “ com pen sates , or provi des adequat e a ss uranc e that[i t] w i l lpr om pt l y co m pensa t e, . . . f orany ac t ual p e cu n ia rylos s;” a n d(c) “p ro v id e s a d e q u a te a ss u ra n ce of fu tu re p e rfo rm a n ce .”)

.N o. 08- 40244 C ons . w /07- 41057

10 (b ) T h e c o u r td is p e n s e dw it h V E F ’s b a n k r u p t c yc la im a n dE ld e r C a r e ’s
o bj e c t i o n s a n dd e m a n df o rs e t

- o f f b yc o n c l u d i n gt h a t “ [b ] o t h El d e r Ca r e a n dVEF b r e a c h e dth e L e a s e , b u t fa ile dt o p r o v e d a m a g e s o ra t b e s t [w e r e ] e n tit le do n ly to n om i n a lda m a ge s f or th eir m u tu a lbre a ch es.” 3. D i stri ct C o u rt pro ce ed i n g s. I n ab r i e f, o r alr ul i ng, t he D i s t r i c tCour ta do pt e d the r e as o ni ng o f t he B a n k ru p tcy C ou rt an daff i rm edits j u d gm en t.

C . E ld e r C a r e ’ s a p p e a l. 1. Th e negot i at i on of t he t er m s of

t he cour t - or der ed m edi at i on a n d E ld e rC a re ’ s fa il u re to p ro v id e tim e ly n o tice o f i ts in te n t to r enew t he l eas e. Th e Bank r upt c y Court ’ s O c t obe r1 2 , 2006, opi ni on al sohel d t hat El d e r Car e h a dar i g htt o m e d i a t e ne w i ns ur a nc e c o v e r a g e m i ni m um s wi t h VEF. To t hate nd, t he c o ur t ’ s N o ve m be r1 6 j udg m e nt“ O RD ER ED t hatEl de r Car e a nd VE F [ w ere] t o pr o m pt l y ar r ang e a nd p ar t i c i pa t e i n t hi s m e di at i o n. ” The ju d g m e n ta ls o r e fe r e n c e dap la n o f r e o rg a n iza tionth a t co n te m p la te dE ld e r C a r e ’s
con ti n u edop era ti on of th e V a l l eyG ra n dM a n or n u rsingh om e p u rsu a n t t o it s l ease w i t h V E F

. Si x da ys af t er th e B an kru ptcy C o u rt issued it s opi n i on , on O ct ober1 8, El de r Car e w r o t e t o VE F. The l e t t e rpr o po s e d ne w i ns ur anc e coverage m i n i m u m s an d, in the even ttheyw ere un acceptabl e t o V E F , requested
m e d ia tio n a n dp r o p o s e dam e d ia to r . De s p i t e El d e r Ca r e ’ s d i l i g e n c e , t h e pr o c e s s di dno tpr o c e e ds m o o t h l y . VEF
r e s po nde d o ve r a m o nt h l at e r , o n Dec e m be r5
. I ta s s e r t e d thatt he a ppo i nt m e nt of E l derC are’ s s u gges te d m edi ator“w ou l d n otbe app ropri ate, ” bu tdi d n ot propose an al t erna t ive can di da t e. I n ot h er r espect s, V E F ’ s r espon se f el lshort of w i l l i ng c oo per at i on. For exam pl e, V E F i nsi st ed t hat t her e w as “ [ a] need t o dev el op p rocedures w h i ch w ou l d all ow di scovery an d ot h er t radi t i on all i t i gati onN o. 08- 40244 C ons . w /07- 41057

11 st eps t o be i m pl em en t ed as a pred i cat e t o t h e [m edi ati on ]

. ” A n d V E F requi red El de r Car e t o pr o vi de e xt e ns ivei nf o r m at i o n b e f

o r e VE F w o ul d e ve n di s c us s t he p r o c e d u r e s a n d tim e ta b le fo r m e d ia tio n . T h r e e d a y s a fte r it re c e iv e d th is response, E l derC are i n di cat ed that itw ou l d f i l e a n em ergency m ot i on t o com pel
m e d ia tio n a n dfo rs a n c tio n s if V E F co n tin u e dn o t t o co o p e r a te
. In t he f oll ow i ng days , ex t ens ive negot i at i ons pr oc ee ded unsuc c es sf ul l y. VE F c ap i t ul at e d t o a di s c us s i o n of t he s ubs t anc e o f

am e di at i o n pl an, dr o ppi ng i t s de m andf

o rt he de ve l o pm e nto f “ pr o c e dur e s w hi c h woul d a l l o w di s c o ve r y and ot hert r adi t i onall i t i gat i on s t eps ” and f ort he pr ovi si on by E l der C ar e o f ex t ens ive i n form a ti on . H ow eve r , V E F ’ s p rop ose dm ed i a ti on term s w ere ag gr ess ive at be st. Fore xa m pl e , VE F propos e d t o e m po w e rt he m e di at o rt o r e vi s i tc e r t ai n o f t he Bankr upt c y Cour t ’ s c r i t i c alfac t ualf i ndi ngs and l e ga lc o nc l us i o ns . And its o ugh t t o dela yth e im p lem e n ta tion of m e d ia te dco v e ra ge m i n i m u m s un tilth e res olu ti on of i t s appealof

t he c our t ’ s as sum pt i on dec i si on. El der C ar e ul t i m at ely f i l ed an
em ergency m ot i on t o com pelm edi ati on , as prom i sed. T h e ban kru ptcy c ou rtset t hatm ot i on forh ear i ng on D ec em ber19. O n D ec em ber18, the day bef or e that h eari n g w as t o occ u r, V E F agreed to t h e process f or m ed iat i on an d E l derC are
w i th d rew i ts m oti on . U n d er th e term s of th a t ag ree m en t, the m ed i a ti on w a s to ta k e p la c e o n F e b r u a r y2 1 , 2 0 0 7
. Th atpl an w as s hor tl ived. Jus tovertw o w ee ks af t ert he agr ee m entw as
r eac hed, on Ja nuary 3, 2007, V E F i nf or m ed El der C ar e thatt he l ease had exp i red on J an u ary 1 becau se E l derC are ha d fai l ed to provi de w rit t en noti ce of i t s i n t en tt o renew b yD e ce m b e r 1, 200 6, as r equ i red by the l ease. V E F t h en file dam o tio n to co m p e l E ld e r C a r e to v a c a te th e p r e m is e s . 2. B a n k ru p tcy C o u rt pro ce ed i n g s. T h e B a n k ru p tcy C ou r t d en i edV E F ’ s m oti on . Itcon stru edT ex a s l a w to provi de f

or equ i t able i n t erventi on t o excuse a t echn i calfai l u re i n t h e exerci se of an opt i on “w hen t he del ay i n f ul f i l l i ng [t he] c ondi t i on pr ec ede nti n a l eas e hasN o. 08- 40244 C ons . w /07- 41057

12 be e n s l i ght , t he l o s s t o t he l e s s o r s m all , and t he fail ur e t o gr ant t he r e l i e f t o t he l essee w ou l d resul [ti n ] s u ch h ardsh i p as to m ak e itun consci on able t o enfor ce l i t er al l y t he c ondi t i on prec ede ntof the l eas e. ” R enew alO r der , p. 2 (c i t i ng J on es v. G i bbs , 130 S. W

. 2d265 , 271 (T ex. 193 9) )

. T h e court concl u dedt h at allt h ree fact ors w ere m et , an d i ti n t ervened to excuse E l derC are’ s t echn i calom i ssi on
u n der t h i s equit able doctr i n e. R evi ew i ng t he e vi denc e pr es ent ed, t he c our tfound t hat“ [ a] l t hough i tw as
n o t s e n tw rit t en notif i cat i on . . . , V E F w as notif i ed on m an y occasi on s of [ El de r Car e ] ’ s i nt e ntt o e xe r c i s e it s o pt i o n t o e xt e nd t h e L eas e , ” a nd itf o und
n o th in gth a t “in d ic a te d th a t V E F co n s id e r e dth e L e a s e te r m in a te do rth a t itd id
n ot be l i ev e [ E l d erC a re] i n ten d ed to ex ercise i ts op ti on to ren ew th e L ea se.” In
r e ac hi ng t hi s c o nc l us i o n, t he c o ur tno t e d thatitha d “or de r e d the D e bt o ra nd VE F t o e nt e ri nt o b i ndi ng m e di at i o n fo ri ns ur anc e r at e s a nd t o r e ne go t i at e t he Lea s e r at e . ” And its t r e s s e d thatt he “ [ n] e go t i at i o ns b e t w e e n [ El de r Car e ] a nd VE F r e ga r di ng t he t e r m s and c o ndit i o ns o f m e di at i o n, di s c o ve r y di s put e s , a nd rel ated procedu res conti n u ed p ast”t h e renew alnoti ce dead li n e. D u ri n g t h ese
n egoti ati on s, “V E F i n si st ed on t erm s, provi si on s, an d p rocedures f or m edi ati on an d rent renegoti ati on w i t h ou tev er m en t i on i n g t h at V E F consi dered the L ease t e r m i nat e d; ” VE F’ s “ c o m m uni c at i o ns , a gr e e m e nt s , c o ur tpl e ad i ngs , [ and]
r e pr e s e nt at i o ns t o t he Cour t” fail e d “ [t o ] i ndi c at [ e ] t hatVE F cons i de r e d the L ea se term i n a tedor th a t it did n ot b eli ev e [ E l d erC a re] i n ten d edto exe rcise its op ti on to ren ew the L ea se.” In p a rti cu l a r, V E F en tered in to a n ag ree m en t t o
m edi at e the i nsur ance i ss ue 1 8 days af t ert he dea dl i ne f

orr enew alnot i c e had pa s s e d, s c h e d u li n gth em e di at i o n t o t ak e pl ac e a ppr o xi m at e l y s i x w e e ks a f t e rt he
r e n e w a l te r m w a s to co m m e n c e . The c o ur the l d thatt h e del ayi n pr o vi di ng r e ne w alno t i c e w as s l i ght be c aus e El de r Car e “ ga vew r i t t e n no t i c e i m m e di at e l y (o ne da y) a f t e rdi s c o ve r i ng t h e oversi g h t a n d th e del ay w as only 33 day s af t er th e dead l i n e” — t h at i s,N o. 08- 40244 C ons . w /07- 41057

13 El de r c ar e g av e w r i t t e n no t i c e 3 3 da ys a f t e rt he D e c e m be r1 r e ne w alde ad l i ne andam e r e t hr e e da ys af t ert he l e as e ’ s D e c e m be r3 1 e xp i r at i o n. I ta l s o f o und th a t V E F “fail edto d em on strate th a t it[w ou l d ] be h a rm edbyall ow i n g e q u i ty to i nt e rve ne . ” “VE F’ s l o s s [w as ] s m all , c o ns i der i ng i tw as a c t ive l y ne go t i at i ng t e r m s o f

t he Le as e , pur s ui ng i t s a ppe alo f t he Cour t ’ s pr i or orde ra l l o w i ng as sum pt i on o f

t he Leas e, and behavi ng i n ev ery as pec tas if i tknew t hat [E ld e r C a r e ] in te n d e dto e x e r c is e th e e x te n s io n .” La s t l y , t h e c o u r th e l dt h a t“ [f ] a i l u r e t o e x t e n dt h e L e a s e . . . [wou l d]
crea t[ e] su ch a h a rd sh i p to [ E l d erC a re] t h a t it [w o u ld b e] un con scion a b l e to
en force th e term l i tera l l y.” E l d erC a re “i n ve stedov er $ 3 0 0 , 0 0 0 i n fee s an dcosts al on e i n p rovi n g t h at V E F d i d n otterm i n ate the L ease pre- peti t i on . ” Th i s ef f ort
w as “f or t h e sol e pu rpose of assum i n g t h e L ease an d reorgan i zi n g t h e bu si n ess
w h i ch n ecess ari l y dep en ded on the opti on bei n g exerci sed a n d the L ease e xt e nde d” b e c aus e t he l e as e w as “t he o nl y ba s i s ” fo rEl de r Car e ’ s “ c o nt i nu[ at i o n]
as a v i abl e b usi nes s. ” In shor t , the c our tex pl ai ned t hat“ [t] he e nt i r e c hapt er11
ca se . . . i n vo lve dan dreq u i red pr ese rv a ti on of th e L ea se o p ti on pe ri od

. ” W ei gh i n g t h e equ i t i es, t h e court reasoned t h at “ [ a] t best

. . . V E F asser t ed i t s t e r m i nat i o n a r gum e nto nl y af t e ritr e ali z e d t he r e w as no w r i t t e n no t i c e s e nt to i t. ” A n d“[ a ]tw o r s t, V E F l a i dbe h i n dthe l ogi n this case , con ti n u i n g to
n e g o tia te w ith [E ld e r C a r e ] r e g a r d in gL e a s e te r m s a n da p p e a r in ginC o u r t, a ll th e w h i le n o t p o in tin go u t t h a t t h e L e a s e w a s te r m in a te du n d e rits th e o r y .” U ndert hes e c i r c um st ance s, t he c our t c onc l uded t hat equi t abl e i nt ervent i on w as
w ar r ant e d. Rem ar ki ng t hat “ w hat ’ s s auc e f o r t he go o s e i s s auc e f o r t he ga nde r , ” t he B an kru ptcy C ou rtal so f ou n d that “t h e n o tice p rovi si on of t h e L ease [w as] i n capa bl e of

perf orm an ce because i trequi re[ d] n ot i ce t o be sent to an a dd ress not [p r o v id e d ].” F in a lly , a s a t h i r db a s is fo rd e n y in gV E F ’ s m o tio n , th e co u r t h e ld t h at itcoul d order t h e cure of E l derC are’ s fai l u re t o provi de rene w alnoti ceN o. 08- 40244 C ons . w /07- 41057

14 p u r s u a n t t o its a u th o r ityto e n fo r c e its a u to m a tic b a n k r u p tc ys ta y . 3. D i stri ct C o u rt pro ce ed i n g s. O n app eal , t h e D i st ri ctC ou rtrever se d the j u dg m en tof t h e B an kru ptcy Cour t
. I t s o pi ni o n was r e nde r e d i n ab r i e f, t e l e pho ni che ar i ng. As a r e s ul t , t he court’ s r eason i n g i s l ess t h an cl ear. Th e court “ [ di d not] t h i n k t h at [i t] as a C ou rt [ c o ul d]

. . . r e w r i t e t he l e as e unde r e quit ab l e pr i nc i pl e s . ” And ithe l d that“t he equ i t able pri n ci pl es here d[i d] n ot , as a m att er of l aw , al l ow . . . [th e courtt o]
ex cu se th e n on -com p l i a n ce of a v eryi m p orta n t pa rt of th[e] l ea se a gr ee m en t,
w hi c h was t he re ne w alnot i c e . ” The c o ur t“ as s um e [ d] t he s e [w e r e ] c o nc l us i o ns of l aw ; ” i t d i d n otc al li nt o q ues t i on any o f t he B ankrupt c y Court ’ s fac t ual fin d in g s . I I . DI S CU S S I ON W e h a v e j u risd iction to c o n sid e r th e se a p p e a ls u n d e r 2 8 U .S .C

. § 1 5 8 (d). W e a ppl y t he s am e s t and ar ds o f r e vi e w t o t he Bankr upt c y Cour t ’ s f i ndi ngs of fa c t a n d c o n c lu s io n s o f la w a s a p p lie db yth e D is tr ic t C o u r t. Nesc o A cce ptan ce Corp. v. Jay (

In reJay) , 4 3 2 F

. 3 d3 2 3 , 3 2 5 ( 5 t h C i r . 2 0 0 5 )

. Ac c o r d i n g l y , we
r e vi e w t he Bankr upt c y Cour t ’ s f i ndi ngs o f fac t f

o r c l e ar e r r o r andit s c o nc l us i o ns o f l a w de no vo . Id

. C l ear err or r evi ew i s “ especi al l y ri gorous” w h en w e revi ew a l ow er court’ s assessm en t of t ri al t est i m on y, “becau se t h e t ri er of factha s s een a n dju d ge dthe w i tn ess es.” Uni t e d St at e s v . Cas t e ne da , 951 F

. 2d 44, 48 ( 5th C i r. 19 92 )

. “ [ I ] n b ank r upt c y pr o c e e di ngs , c o ur t s o f a ppe al s l o o k t o s t at e l aw t o de c i de
con tract i ssu es.” R iv e rPro d . Co . v . W e b b (In reT

o p c o , In c .) , 894 F. 2d 727, 738 (5 th C ir . 1 9 9 0 ); seealso B u t n er v. Un i t ed S t ate s , 4 4 0 U .S

. 4 8 , 5 5 (19 7 9 ). A . V E F ’ s a p p e a l. V E F ch a l l en ge s th e B a n k ru p tcy C ou rt’ s g r a n t o f E l d erC a re’ s m oti on to
assum e t h e l ease, argu i n g t h at the l ease w as ef fect ivel y t erm i n ated an d thu s not
a ssu m a b l e. V E F also a rg u es t h a t th e B a n k ru p tcy C ou rt exce ed edi ts au th ority b yfo r e c lo s in g V E F ’ s r ig h t to a s s e r t in th e fu tu r e c la im s it w a s n o t ob lig e d to jo inN o. 08- 40244 C ons . w /07- 41057

15 in th e u n d e r ly in gb a n k r u p tc ylitig a tio n . W e reje c t b o th a r g u m e n ts
. 1. El der C ar e’ s as s um pt i on of t he l eas e. U n d e r 1 1 U .S .C

. § 3 6 5 ( a ), ad e b t o rin b a n k r u p t c y , “ s u bje c tto th e c o u r t ’s ap prova l , m ay assu m e . . . a n y executory c on t ractor u n exp i red l ease. ” H ow ever, t he deb t orm ay notas sum e al eas e if i t“i s of nonr es i dent i alr ealpr ope r t y and h as been t erm i n ate dun d er appli cablenon ba n kru ptcy law pri or t o [

ba n kru ptcy] .” § 3 6 5 (c ) (3 ) (e m p h a s is a d d e d). A s V E F ’ s b r ie f r e c o g n iz e s , “ [t] h e c a r d in a l is s u e in th i s m a tter h a s alw a ys be en w h eth er th e L ea se w a s term i n a tedpr i or to E l der C ar e’ s pet i t i on f orbankrupt c y. ” The B ank ru p t c y Courtc onc l uded t hat V E F fai l ed ef

fect ivel y t o t erm i n ate t h e l ease f or t h ree reasons: F i rst , i tconcl u ded t h a ta f t e rt h e J a n u a r y1 1 l e t t e r , V E F a g r e e dt o a n i n d e f i n i t e e x t e n s i o n o f

t i me f o rEl de r Car e t o r e s po nd, a nd VE F ne ve r r e vo ke d t hat ag r e e m e nt
. Se c o nd, t he B ankrupt c y Courthel d t hatt he January 11 l et t er w as i nsuf f i c i ent und erTexas
c om m on l a w to p r ovi de not i c e o f t er m i nat i on. Thi r d, t he c our thel d t hat E l der C ar e’ s fai l ure toperf or m i t s i nsur ancec ove r age obli gat i ons w as ex c use d by VE F’ s b r e ac h o f

i t s pr o m i s e t o re ne go t i at e t he co ve r ag e m i ni m um s i n g o o d fait h. W e af f i rm on the f

i rstbasi s, an d w e t h u s do not r each t h e ot h er t w o. As the Bankr upt c y Cour ts t r e s s e d, t he J anua r y 11 l e t t e rs e tf o r t h t he i n f orm ati on E l derC are w ou l d n eed to prov ide i n order “t o ask [V E F ] f or a possibl e rec on sid e ra tion of th e lea se in su ra n ce re q u ire m e n ts.” T h e lette r f u rth er provi ded t h at V E F “w [ ou l d] consi der [t h e] i n f orm ati on . . . sup pl [i ed] an d then
w [o u ld ] g iv e [E ld e r C a r e ] are s p o n s e .” In re s p o n s e to th is le tt e r , H a m e l p r o m p tly schedu l ed a m eet i n g w i t h E der, w h i ch t ook pl ace on Ja n u ary 19. H aving h eard te s tim o n yfr o m b o th H a m e la n dE d e r , t h e B a n k r u p tc yC o u r t fo u n dt h a t a t t h e ir
m e e t i ng t he y “ di s c us s e d El de r Car e ’ s r e que s t f o r m o r e t i m e . . . t o de alw i t h a nd docu m en tt h e cha n gi n g i n suran ce m arket an d as w el las c h an gi n g t h e i n suran ce req u ir e m e n ts u n d er th e L ea se.” A n d“E d er on be h a l f of V E F ag ree dto i n d efi n i tel y e xte n dth e d ea d l i n e for E l d erC a re to o b tainm a l p ra cti ce ins u ra n ce.”N o. 08- 40244 C ons . w /07- 41057

16 I n s u p p o r to f

t h i s f i n d i n g , t h e B a n k r u p t c yC o u r td i s c u s s e d Ha me l ’ s f o l l o wup s ho r t l y af

t e r t he m e e t i ng and VE F’ s r e s po ns e . O n J anua r y 27 , H am e ls e nt Edera n e m ailt hats t at e d:

Itw a s ap le a s u r e h a v in glu n c h w ith y o u la s t W e d n e s d a y . A s w e d is c u s s e dt h e r e h a s b e e n a s e ao f c h a n g e s inth e m a lpr ac t i c e /pr o fe s s i o nall i ab i l i t y i ns ur anc e m ar ke t s o ve rt he l ast few years. A s Iprom i sed a t o u r m eet i n g, Iha ve asked ou r i n suran ce carri er to provi de an ou t l i n e of t h ese c h an ges and how i thas ef

fec t ed Val l ey G r ande M anor . Al so , I a m seeki n g a w ay byw h i ch V a l l ey G ran de M an or c an procure professi on all i abili t y i n accor da n ce t o t h e spi ritof t h e l ease b e tw e e n V E F a n dV G M

. Y ou i n d i ca teda w i l l i n gn ess to all ow som e a d d i ti on a l ti m e to accom pl i sh thi s beyon d the da t e noted i n th e l et t er f rom J o h n P a g e w h ic h w a s d a te dJ a n u a r y1 1 , 2 0 0 5
. I w o u ld a n tic ip a t e b e in gb a c kinto u c h w ith y o u re g a r d in gth is m at t e rno l at e rt han m i d ne xtw e e k and w o ul d p r o ba bly l i ke to s c h e d u le ab r ie f m e e tin gw ith y o u a t t h a t t im e . T h an k you f

or th e m eet i n g an d I a p p re ci ate th e spi ritof c o o p e r a tio n th a t w a s e x h ib ite dino u rd is c u s s io n s . E d e r r espon ded t o t h e em ai l , “t h an x f or th e up da t e. ” N ei t h er “ [h e] , nor anyone f

r om V E F, r es ponded .

. . w i t h any obj ec t i on, cl ar i f i c at i on, or deni al , as to th e co n te n ts o f th e e m a il o rp r o v id e [d ] a n yn o tic e th a t t h e L e a s e w o u ld t e r mi n a t e i n a p p r o x i ma t e l y2 0 d a y s . ” A s s u mp t i o n Or d e r , p . 1 8 , ¶ 1 2 5
. O n F ebru ary 2, E l derC are again w rot e M r. E der at V E F t h at “ ou r i n suran ce broker i s w ork i n g d i l i ge n tly on ou rp r o fes sion a ll i a b i l i ty cov era ge . ” E d e ra g a in
r e s po nde d “Thanxf o rt he upd at e , ” a nd h e pr o m i s e d t o for w ar d the
c o r r e s p o n d e n c e to J o h n P a g e , th e a u th o ro f th e J a n u a r y1 1 le tt e r . The Bankr upt c y Cour tal so str e s s e d that H am e l be ga n t o pr o vi de t he i n f orm ati on requested. I n M arch h e “provi dedM r. E der w i t h t h e repo rts on pr o gr e s s i n o bt ai n i ng i nf o r m at i o n b y f

ur ni s hi ng c o pi e s o f

t w o l e t t e r s t hathe
r e c e iv e dfr o m h is in s u r a n c e a g e n ts r e fle c tin gt h e w o r kh is a g e n ts w e r e d o in ginN o. 08- 40244 C ons . w /07- 41057

17 a ttem p ti n g to fi n dpr ofession a ll i a b i l i ty cov era ge . ” I d. p .1 9 , ¶ 1 3 0
. T h e l et t ers H am e lpr o vi de d “ do c um e nt e d ov e ra doz e n i ns ur anc e co m pa ni e s t hatw e r e b e i ng contact ed to provi de the m a l practi ce i n suran ce and contai n ed the i n f orm ati on thatEl derC are un derst ood w as t o be f u rni shed t o V E F du ri n g t h i s s earch peri od. I d

. p .1 9 , ¶ 1 3 1
. In J u n e H a m e l c o n tin u e d to fu r n is h in fo r m a tio n a b o u t M e d ic a id
r e im b u r s e m e n t p r o b le m s . Th e Bank r upt c y Courtf ound t hat“ no ‘r es ponse ’w as e v e rg iv e n b yVEFt o t h e i n f o r m a t i o n a n dc o m m u n i c a t i o n s o f El d e r Ca r e t o VEF
c o n c e r n in gin s u r a n c e a n dn o n o tic e w a s g iv e n t h a t th e a g r e e d‘e x te n s io n ’o f tim e to com m u n i ca te an d‘ n eg oti a te’h a dex p i red

. ” I d. 20, ¶ 13 7. I n s u m , t h e Ba n k r u p t c yCo u r tf o u n d : W i t h i t s J a n u a r yl e t t e r , VEF exp l i cit l y i n vi t ed E l derC are t o pu rsue renegoti ati on an d t o provi de i n f orm ati on to tha t en d

. V E F also a gr ee dto resp on dto t h e inform a ti on pr ov i d ed

. In response, E l derC are prom ptly arra n g e d a m eet i n g, du ri n g w h i ch V E F agreed i n d efi n i tel y to ex ten dthe ti m e for E l d erC a re to p rov i d e th e req u i sit e i n form a ti on . E l d erC a r e “active l y a n ddil i ge n tly,” i d. p.17 , ¶ 1 1 9 , w ork edto
s e c ur e the n e c e s s a ryin f o r m a ti o n, a nd itpr o vi de d i nf o r m at i o n a s itw as o bt ai ne d. E l d erC a re’ s com m u n i ca ti on s refl ected the pa rti es’ag ree m en t ind efi n i tel y to
e xt e nd a ny de ad l i ne s , a nd VEF ne ve r m ad e a ny o bj e c t i o ns o rs ugg e s t i o ns t o t he contrary. V E F al so fai l ed to provi de t h e p rom i sed response t o t h e i n f orm ati on sub m i t t ed byE l derC are. T h ese fact u alf

i n di n gs am pl y sup port t h e B an kru ptcy C ou rt ’ s c on cl u si on t h a tV E F in d e fi n it e lye x t e n d e dth e ti m e fo rE ld e r C a r e to r e s p o n dto V E F ’s J a n u a ryl etter a n dtha t V E F didn ot rev ok e th a t exten sionbe fore p u rp ortingto t er m i na t e t he l e a s e f iv e m o nt hs a f

t e r i t s e nt t he J a nu a r y 1 1 l e t t er . That
c o nc l us i o n, i n t ur n, i s fat al t o VE F’ s c o nt e nt i o n t hat i te f fe c t ive l y t e r m i nat e d the le a s e b e fo r e E ld e r C a r e e n te r e db a n k r u p tc y . E

. g. , S m i t h v. Hu es , 540 S. W

. 2d 485 , 488 (T ex. C iv. A pp . — H ou st o n [1 4 t h D i st
. ] 197 6, w ritref ’ d n

. r. e. ) (“ [ E ] venN o. 08- 40244 C ons . w /07- 41057

18 w her e t i m e i s of

t he e ss enc e, [ a] s ti p u l at ed t i m e li m i tm ay beex t ended .

. . by
a g re e m e n t[. ]”). W e a r e n o tp e r s u a d e db yV E F ’s c o n t e n t io n th a tth e B a n k r u p t c yC o u r t ’s fa c tu a l fin d in g s w e r e cle a r lye r r o n e o u s . V E F m a k e s tw o a r g u m e n t s to th is
e f fe c t
. F i r st , i ta r g ue s t ha t“t he r e was n o e v i d e nc e a tt he Tr i a lt ha tVEF ever agreedt o i n defi n i te ly e x ten d the dea dl i n e f or E l derC are t o obtai n m al practi ce i n s ur anc e . ” Thi s ar gum e nt i s at be s t w i t ho ut m e r i t
. I t i gno r e s t he e nt i r e t y of th e B an kru ptcy C ou rt ’ s ana l ysi s. A s describedabove, t h e B an kru ptcy C ou rt expli c i t l y r ef

er enc ed t es t i m ony and exhibi t s t hatdi r ec t l y s upport ed it s fac t ual f i n di n gs. S e c o n d , V E F arg u es th a t “ [E l d erC a re] ad m i t[ted ] th a t no i n d efi n i te extensi on w as gran t ed. ” V E F prem i ses t h i s pu rport ed c o n cessi on on sh ort
e xc e r pt s o f H am e l ’ s t r i alt e s t i m on y andhi s J anua r y 27 e m ail

. VE F c i t e s t he f oll ow i ng exc hange duri ng H am el ’ s t es t i m ony:

Q : [ D ] i d y o u di s c us s w h et h e ro rno tt he de ad l i ne i n t he Jan u ary 11 l et t er w as i m portant to M r. E der t o enfor ce, or a n yth i n g to th a t ef

fect? A : I do n ’ t beli ev e itw a s d i scu sse di n tho se term s, bu t I

— Q : H o w w as i tdi s c us s e d? A : I i ndi c at ed t hatI w oul d l i ke t o sitdow n, w her e w e had t h e d e c i s i o n ma k e r s p r e s e nt , ge twh a t e v e rd o c u me n t s we n eed, t h at th ey n eed, the f i n an ci alinf

orm ati on . H e askedm e, “W i l lyo u brin g y ou r f i n a n ci a lin form a ti on ?” I said, “Y es.”I s a id , “L e t’s s c h e d u le am e e tin ga n dg e t t h is ta k e n ca r e o f.” And as w e lef

tthe m e e t i ng, Ir e m e m be rs hak i ng hi s ha nd, a n ds a id , “ E r r o l, y o u k n o w m yn u m b e r . G iv e m e ac a ll . L e t ’s g e t a m e e tin gs e t u p .” Q : N ow , w i t h re sp e ct t o t h e t i m e w i t h i n w h i ch to do thi s, w hatw as t he a gr e e m e ntt hatw as r e ac he d? A : T h ere w as no speci f i c t i m e. Q : Al lr i ght

. W as its o m e s o r to f o pe n- e nde d— A: I di d notb el i eve i tw as open- ended

. I tw as m y ho pe and i m pre ss i on t hatt hi s w oul d hap p en s oo nerr at hert han la te r. (e m p h a sis inb rie f).N o. 08- 40244 C ons . w /07- 41057

19 A s to th e J a n u a r y2 7 e m a i l, V E F h a r p s o n H a m e l’ s s ta te m e n t t h a t h e “w o u ld ant i c i pat e b ei ng bac k i n t ouc h .

. . r egar di ng t h[ e] m at t erno l at ert han m i d next
w e e k a n d w o u ldp r o b a b lylik e to s c h e d u le ab r ie f m e e tin g. . . a t t h a t t im e .” V E F’ s r eli ance on thes e e xc er pt s i s m i spl ac ed. W e thi nk t he t r i al t est i m on y u n derm i n es it s posit i on . I t ref l ect s t h at H am elan d E derdi d n ot “discu ss w h eth er orn ot the de a d l i n e in th e J a n u a ry11 l etter w a s i m p orta n t t o M r. E der t o enfor ce, or a n y th ing to th at ef fect
. ” To the contrary, t h e parti es di s c us s e d thatH am e lw o ul d “ [ g] e tw hat e ve rdo c um e nt s . . . t he y ne e d[ e d] ” a nd th en the y w ou l d“sch ed u l e am ee ti n g a n dg et [th e i ssu e] t a k en care of. ” D esp i te t hi s t es t i m ony, V E F u nder st ands H am el ’ s st at em ent s th a t he “ di d notbe l i eve [t he e xt e ns i o n o f

t i m e ] w as o pe n- e nde d” a nd thatitw as hi s “ho pe and i m pressi on t h at th is w ou l d h ap pen sooner rat h er th an l ater , ” as a concess i on t hatt he r e w as no ag r e e m e nt t o e xt e nd di s c us s i o ns . Thi s und e r s t and i ng s t r ai ns c r e d u li t y . I tis c le a rth a tH a m e l m e a n to n lyto a c k n o w le d g e t h a tV E F ’s
w i l l i n gn ess t o conti n u e di scussi on s w ou l d exp i re atsom e poi n tan d h i s r el ated h ope that t h e m atter w o u l d be resolvedexped i t i ou sly, i n t h e “ spi ritof
c o o p e r a tio n .” H e r e c o g n i z e dth a t t h e e x te n s io n w a s n o t “ o p e n -e n d e d ,” b u t d id
no ts u g g e s tt h a tad e a d l i n e wa s e v e re s t a b l i s h e d

. T h i s i s c o n s i s t e n twi t h t he Bankr upt c y Cour t ’ s f i ndi ng t hatt he pa r t i e s agreed i nde f i ni t e l y t o e xt e nd El de r Car e ’ s de ad l i ne , e s pe c i all y w he n t he t e s t i m o ny i s c o ns i de r e d i n l i ghto f t he
s ubs t ant i ale vi de nc e describe d abo ve . Cer t ai nl y, w e c anno tc o nc l ude t hatt he B an kru ptcy C ou rtcl earl y erred by decl i n i n g t o a d o pt V E F ’ s un derst an di n g of H am el ’ s t es t i m ony. Th e e xc erpt f

r om H am el ’ s January 27 e m ai li s si m i l ar l y unavai l i ng. H am elw rot e t h at he “ an t i ci pa t e[ d] bei n g back i n touch

. . . regardi n g t h i s m att er
n o l atert h an ” a w eek aft er s en di n g t h e em ai l

. V E F i n si st s t h at th i s anti ci pa t i on a m o u n te dto aco n c e s s io n th a t t h e r e w a s n o in d e fin ite e x te n s io n o f tim e . W e fa il to s e e h o w H a m e l’ s e s tim a tio n o f th e tim e re q u ir e dto co m p ile ce r ta inN o. 08- 40244 C ons . w /07- 41057

20 i nf o r m at i o n c o ul d r e f

l e c t a be l i e f t hat he w o ul d no t bea c c o r de d thatt i m e . And
w e fin ds ig n ific a n tlym o r e i l l u m in a tin gth e fa c ts th a t H a m e l c o r r e c te dh is opt i m i st i cant i c i pat i on by w r i t i ng t o E derw i t hi n a w ee k t o i nf or m E dert hat H a m el’ s tea m w a s “w ork i n g d i l i ge n tly” to re s p o n d ; tha t E d er d i dn ot obj ect to H am el ’ s t ardi n ess; an d that H am elul t i m ately provi dedt h e i n f orm ati on a p p rox i m a tel y o n e m on th l a te. If an yth i n g, th e p a rti es ’b eh a vior, de sp i te H am e l ’ s a nt i c i pa t i o n, b o l s t e r s t he Bankr upt c y Cour t ’ s c o nc l us i o n t hatt he p a r tie s a g r e e dto a n in d e fin ite e x te n s io n o f tim e , e s p e c ia llyw h e n co n s id e r e din l i ghto f t he sub s t ant i alev i de nc e des c r ibe d ab o ve . W e ca nno tc o nc l ude t hatt he B an kru ptcy C ou rtcl earl y erred by decl i n i n g t o ado p t V E F ’ s un derst an di n g of H a m e l’ s e m a il. W e f i n d n o err or i n t h e B an kru ptcy C ou rt ’ s c on cl u si on t h at V E F gran t ed E l derC are an indefi n i t e ex t en si on of t i m e i n w h i ch to respond t o V E F ’ s Jan u ary 11 l et t er and tha tV E F n ever revok ed t h at extensi on . O n t h i s basi s, w e af f i rm t he de c i s i o n o f t he D i s t r i c tCour ts us t ai ni ng t he Bankr upt c y Cour t ’ s j udg m e nt of N ovem ber 14, 200 6, al l ow i n g E l derC are t o assum e t h e l ease. 2 . T h e sc o p e o f th e B a n k ru p tcy C o u rt’ s J u d g m e n t. V E F also ch a l l en ge s th e sco p e of the B a n k r u p tcy C ou rt’ s j u d gm en t, argu i n g t h at iterr on eou sly “ proh ibi t ed V E F f rom bri n gi n g aga i n stE lderC are an y perm i ssive coun t ercl ai m s or an y u n rel ated cl ai m s itm i gh tha ve bu tw h i ch
we r e n o tt h e n b e f

o r e t h e Co u r t
. ” W e f i n ditd i f

f i c u l tt o c o n c e iv e ac l a i m VEF
m ig h t a s s e r t in t h e f u tu r e th a t w o u ldn o t q u a lifya s am a n d a to r yco u n te r c la im

“ ari s[i n g] out of

t h e t ran sact ion or occurrence t h at [w as] t h e subj ectm att er” b e fo r e th e B a n k r u p tc yC o u r t. F ED
. R. C IV
. P . 1 3 (a )(1 )(a ); see, e .g., In cas & Mo n t e r eyPr i n t i ng& Pa c k ag i ng, L t d

. v . M/ V S A NG J I N, 74 7 F

. 2 d95 8 , 96 4 ( 5 th C i r . 1 9 8 4 ) (“U n d e r th e b r o a d te s t fo r R u le 1 3 (a ) a d o p te d b y th is C ir c u it, a
c o unt e r c l ai m i s c o m pul s o r y w he n t he r e i s a ny ‘ l o gi c al r e l at i o ns hi p’ be t w e e n t he
c l ai m and t he c ount er c l ai m . ” (c i t at i on om i t t ed) )

. C er t ai nl y, V E F fai l s t o de sc r ibeN o. 08- 40244 C ons . w /07- 41057

21 s u c h acla im

. W e th u s co n s id e rV E F ’ s a r g u m e n t la r g e lyth e o r e tic a l. N o ne t he l e s s , w e r ej e c ti t
. VE F’ s c o ns t ructi o n o f t he j udg m e nti s f

l awed. T h e j u dg m en tprovi des: “A l l rel i ef requ est ed i n the M ot i on or rel i ef t h at c ou l d or sh ou l dh a ve be en req u ested

. . . , an d n o t he reingra n ted , i s d en i ed

. ” W e
u n derst an d the ph rase “reli ef t h at coul d or shou l d h ave been requested” t o ref er t o the r eli ef

r el at ed t o the c l ai m s t he par t i es ac t ual l y as se r t ed, as ev i denc ed by t h e court ’ s r eference t o “ reli ef requ est ed i n t h e M ot i on . ” T h at i s, t h e B an kru ptcy C o u r t d i d n o td e n yr e l i e f s t e mmi n gf

r o m c la i mst hatc o ul d ha veb e e n asser t ed

. R ather, i tden i ed the rel i ef t h a tc o u l dh a v e b e e n request edi n the disp u te presented. Prop erly constr u ed, t h e j u dg m en tref l ect s no error . B . E ld e r C a r e ’ s a p p e a l. As d e s c r ibe d s upra , t h e B a n k r u p t c yC o u r tc o n c lu d e dth a tE ld e r C a r e ’s fai l ure s t r i c t l y t o c om pl y w i t h t he r enew alpr ovi si ons of t he l eas e s houl d be
e xc us e d un de rTe xa s c o m m o n l aw pr i nc i pl e s o f e quit ab l e i nt e rve nt i o n. The D i st ri ctC ou rtrevers ed that j u dg m en t , concl u di n g t h at equi t able i n t erventi on is n o t a v a ila b le u n d e rT e x a s la w . E ld e r C a r e c h a lle n g e s th is co n c lu s io n . W e h o ld th a t th e D i stri ct C ou rt’ s l eg a lde term i n a ti on w a s erro n eo u s, a n dw e a gr ee w i th th e B a n k r u p tc yC o u r t t h a t e q u ita b le in te rv e n tio n is a p p r o p r ia te inth is excepti on alcase. 1 . E q u i t a b l e i n t e r v e n t i o n u n d e rT e x a s l a w. Tex as l aw ge ne r all y give s e f fe c tt o apa r t y’ s e xe r c i s e o f an opt i o n o nl y i f

t he
e x e r c i s e i s “ u n q u a l i f

i e d , u n a mb i g u o u s , a n d s t r i c t l yi n a c c o r d a n c e w i t h t h e t e r ms of ag ree m en t. ” A t t erbury v. B ri son , 87 1 S. W

. 2d8 24 , 8 29 (Tex

. App.

— Tex ar ka na 1 9 9 4 , w r it d e n ie d); see Casa E l S ol

-A capu lco, S

. A

. v. F on t enot , 919 S. W

. 2d 709, 714 (Tex

. A pp . — H ou st on [14th D i st
. ] 1 996 , w ritd i sm ’ d) ( “ [T ] o ex t en d t h e pow er [to e x e r c is e a n o p tio n ] fo r a d a yis to co m p e l th e g iv in go f s o m e th in gfo rn o th in g .” (c ita tio n o m itt e d)); s e e a ls o Jo ne s v . G i bbs , 1 3 0 S .W .2d2 6 5 , 2 7 1 (T e x . 1 9 3 9 )

. Ther e i s no q ue s t i o n t hatEl derC are fail e d t o m e e tt hi s e xa c t i ng s t and ar d.N o. 08- 40244 C ons . w /07- 41057

22 B ecau se E l derC are d i d n otp rovi de t i m el y n ot i ce of it s i n t en tto extend t h e l ease, as requir ed byt h e contr act , i tdi d n otex erci se i t s opt i on “ st ri ct l y i n accor da n ce
w ith th e te r m s o f a g r e e m e n t.” H o w e ve r , i n J

on es , t h e T exas S u prem e C ou rtexpl ai n ed that t h e rul e of st ri ctcom pl i an ce i n t h e exerci se of an opti on “ i s not an absol u t el y i n f l exibl e one”
an d i tdescribedth e na rrow ci rcum st an ces i n w h i ch the “fai l u re of t h e opti on ee to co m p lys tr ic tlyw ith th e t e r m s o rco n d itio n s o f th e o p tio n w ill b e e x c u s e d .” Jon es , 1 3 0 S .W .2 da t 2 7 2
. Jon esconcernedt h e gran tof a deed t o G ibbs B rot h ers & C om pa n y t o cut an d rem ove pi n e t i m ber on a p arcelof l an d ow n ed byH el en M

. Jo nes . The dee d w as f ort en ye ar s, w i t h a f

ive- yearex t ens i on per i od atG ibbs B r ot her s & C om pany’ s opt i on, ex er c i sabl e b y t he c om pany’ s paym entof an a d d i t i o n a lfe e . Aft e rt h e d e e dwa s e x e c u t e d , J o n e s o b t a i n e dal o a n f r o m G. A. W yn n e t h at w as sec u red by the prop e rty . U n der t h e t erm s of t h at l oan , w h en Jo ne s f e l lb e hi nd o n he rt axl i ab i l i t y f o rt he pr o pe r t y, W ynn e pa i d t he t ax e s a nd
ac c o r di ngly adj us t e d the a m o unto w e d b y Jo ne s . J o ne s t he n di e d, a nd the p rop ertyen tered h er p rob a te esta te. L a ter, ina n eff ort to ex ercise i ts op ti on to ext end i t s t i m berdee d, G ibbs B r ot her s & C om p any pai d t he r equi r ed r enew al fee di rect l y t o W yn n e. Jones’ s es t ate s u bsequ en t l y soug h tto h a v e the ti m ber deed decl ared i n operative, argu i n gth at G ibbs B rot h ers & C om pa n y fai l ed st ri ct l y t o com pl y w i t h the d eed’ s r equ i rem en tt h at paym en tof t h e renew alfee be m ad e di rect l y t o Jon es orher heir s. R ej ect i n g t h at argum en t , t h e Jon esco ur tado pt e d t he t e s ts e tf o r t h b y t he Conne c t i c ut Supr e m e Cour ti n F. B . F o u n ta in Co . v . S tein , 1 18 A. 4 7, 5 0 ( Conn. 1 9 2 2 ). L ik e th is ca s e , F. B. F o u n t a i n Co

. concerned“ a requ i rem en tof [ a] l ease t h at [t h e l essee] give n ot i ce th i rt y da ys bef ore th e expi rat i on of

t h e t erm of

[i t s] d esire to ex ten dthe l ea se.” Jo n e s , 130 S. W

. 2dat 272
. Th e F. B. F o u n t a i n Co

. court recogni zed that t h e n ot i ce requ i rem en t w as “ a cond i t i on preceden tw h i ch [h a dto b e ] p e r fo r m e db e fo r e th e e x te n d e d o r r e n e w e d te r m c o u ld b e g in a n dh e ldN o. 08- 40244 C ons . w /07- 41057

23 t hatt he l e s s e e , no tha vi ng give n t he no t i c e w i t h i n the s t i pul at e d t i m e , ha d no
r i ghtt o r e l i e f

unl e s s i tc o ul d e s t ab l i s h .

. . s uc h fac t s a s w o ul d b r i ng i t w i t hi n t he p ow er of eq u i ty to reli ev e.” Id

. A s t h e Jon escourtw rot e:

In prescr ibi n g t h e condit i on s f or th e g ran t i n g of

reli ef up on equ i t able groun ds, t h e [F. B. Foun t ai n Co. ] c o u r t s a idin su b stan ce th a t, w h i l e reli ef can n ot be aff ord edif th e fail u re to g iv e n o tic e h a s b e e n d u e t o w illfu l o rg r o s s n e g le c t, e q u ityw ill rel i eve, i n t h e absen ce of s u ch neg l ect , w h en t h e fai l u re r e su l ts from frau d , su rp ri se, a cciden t or m i stak e. It s a id fu r th e r : “

In c ases of

m erenegle cti n f

u lf i l l i ng a cond i t i on prece d ent of

a lea se , w h i ch d o not f allw i t h i n acci d ent or m i st ak e, equity w i l lre l i eve w h en [(1)] t h e delay h as been sligh t, [(

2 )] th e lo ss to th e l e s s o r s m a ll, a n d[( 3 )] w h en n o t to g ra n t relief w o u ld re su lt in su ch h a rd sh ip to th e ten a n t a s to m ak e i tun consci on ab le to enf orcel i t eral l

y t h e c on d i t i on prece d ent of

t h e lease. ” Id

. ( quot i ng F

. B

. F ou n t ain Co. , 1 1 8 A. a t 5 0 ) ( e m p h a sis a d d e d). S eea lso id . (d is c u s s in gw ith a p p r o v a l X an t h ak ey v. Hayes , 1 40 A. 8 08 ( Conn. 19 28 ) , a no t he rc as e o f e quit ab l e i nt e rve nt i o n t o e xc use t he fail ur e t o pr o vi de
n o tic e o f ale a s e e x te n s io n , w h e r e “[t ]h e g is t o f th e d e c is io n [w a s ] th a t itw o u ld be unc o ns c i o nab l e t o e nf o r c e l i t e r all y t he c o ndit i o n f o rt he e xt e ns i o n when t o do
s o w o ul d c aus e t he l e s s e e , w ho had notbe e n gr o s s l y ne gli ge nt , t o l o s e t he v al ue o f

. . . i m pr o ve m e nt s and t he go o d w i l lof [i t s ] e s t ab l i s he d b us i ne s s ” )

. Applyi ng th e ru le o f F. B. F

o u n t a i n Co

. a nd s i m i l arpr e c e de nt s f r o m othe rSt at e s , t he Jon escourtconcl u ded t h at “ overrul i n g equ i t able rul es” excused G ibbs B rot h ers & Com pan y’ s fai l ur e t o a dhe r e t o t he de e d’ s s t r i c tr e quir e m e nt s f o re xt e ns i o n. I d. at273. VE F p r e s e n t s av e r yd i f fe r e n tv i e w o f

T e x a s c o mm o n l a w. I ta d v a n c e s t wo argu m en t s, b ot h of w h i ch w e rej ect
. F i rst , V E F su ggests tha tT exas l aw does not
reco gn i ze a n y eq u i tab l e ex cep ti on to th e req u i rem en t of stri ct com p l i a n ce w i th th e te rm s of a n o p tion co n tra ct. B u t o u r d iscu ss ion of Jon esm ak e s c l e art hatt he
c o nt e nt i o n i s w i t ho utm e ri t : I n c e r t ai n c i r c um s t anc e s , t he “fail ur e o f t heN o. 08- 40244 C ons . w /07- 41057

24 opt i onee t o c om pl y s t r i c t l y w i t h t he t er m s orc ondi t i ons of t he o pt i on w i l lbe
ex cu sed

. ” Id

. at272. VE F’ s s e c o nd ar gum e nt i s m o r e nuan c e d and w o r t hy o f g r e at e ra t t e nt i o n. W h atever t h e contours of equ i t able i n t erventi on un der T exas l aw , V E F asser t s, t h e State h as not r ecognized an excep t i on t o t h e rul e of st ri ct com pl i an ce i n cases of “ m ere n eg l ect. ” I

d. ( quo t at i o n o m i t t e d)

. The di s c us s i o n i n Jon esof t h e t h reefact or t estf

or t h e i n t erventi on of equ i t y i n cases of

m ere negl ect , V E F asser t s,
w as di c t a, and i t has no tb e e n s ubs e que nt l y ad o pt e d. VE F r e l i e s o n R eynoldsPen la n d Co . v . Hex ter& L o b ello , 567 S. W

. 2d 237 (Tex. C iv. A pp. — D al l as 1978,
w ritdi sm ’ d) f

or th i s c on t en t i on . Th e R ey no l ds

- Pe nland m aj o r i t y r e ad Jon esto concl u de that G ibbs B rot h ers & C om pa n y’ s paym en tt o W yn n e w as au t h ori zed by Jon es’ s es t ate andt h at th e pay m en tconsequ en t l y com pl i ed w i t h t h e st ri ct t erm s of

the l ease. O n this read i n g, the m aj orit y cha ract eri zed the t h ree- fact or equ i t able t es ti n Jon esf or c ases of

m ere negl ectas “ d icta[t hat]

. . . w as not
ess en ti a lto t h e d ecisi on . ” Id

. at 240
. In di ssent, C h i ef Ju dg e G u i t t ard concl u ded th a t Jon es“w a s e x p re ssly deci dedon the .

. . groun d of equ i t able rel i ef

f rom unc o ns c i o nab l e ha r ds hi p s t at e d b y t he Conne c t i c utc o ur ti n [F

. B

. F ou n t ain Co. ]” I d. at 243 ( G u i t t ard, C

. J. , di ssenti n g)

. H e reasonedt h at “ [ a] l t h ou gh t h e [Jon es]
c our ts ai d t hatt he gr ant ee had s how n t hathe had notpai d t he w r ong par t y, th a t [w a s] n ot the m a i n gro u n don w h i ch the de ci sionrest[ed ]. ” Id

. W e c o nc l ude t hat the di s s e nti n R ey no l ds

- Pe nland presented the bett er re a d in gof Jon es . Th e J on escou rtd et erm i n ed t h at resol u t i on of t h e case di d n ot requ i re s u bm i ssi on t o a j u ry of t h e di spu t ed qu est i on w h et h er G ibbs B rot h ers & Com pa ny’ s pa ym e ntt o W ynn e w as a ut ho r i z e d byJo ne s ’ s e s t at e . I te xp l ai ne d:

“ I f t he undi sput ed e vi denc e do es notes t abl i sh, as w e b eli evei tdoe s, t he fac tt hat [t he paym entw as aut hor i ze d] , i t co ncl usively pr ove s atl eas tt hat[ G ibbs Bro t he r s & Com pa ny]

. . . a c t e d un de rt he hone s ta nd j us t i f i ab l e , if m i s t ak e n, beli ef t hat [t he paym ent w as aut hor i ze d]

. ” Jo n e s , 13 0 S. W

. 2da t2 71
. PutN o. 08- 40244 C ons . w /07- 41057

25 a n oth er w a y, “i f th e p a ym en t [w a s au th orized ], the re w a s com p l i a n ce . . . w i th t he pr o vi s i o ns o f

t he de e d f

o re xt e ns i o n of t h e t i m e f o rr e m o va l , ” b utif

t he paym entw as n otaut hor i ze d, “t her e w as no s uch c om pl i anceand t he t i m e w as
n o t e x te n d e d , u n lessb y r eason of t h e pec u l i ar f

act s andspec i al ci rcum st an ces equ i ty [ could] g ran trel i ef

from ali t eralenf

orce m ent of

t h e c on d i t i on s pre scr i bed by t h e deed

. ” I

d. ( e m p h a sis add ed). H aving so f ram ed the qu est i on , t h e court proceededt o a l en gthy d i scussi on i n w h i ch i tb ased i t s reason i n g on the threefa ct o rt e st o f F. B. F o u n t a i n Co . a n dh e ldth a tG ib b s B r o t h e r s & C o m p a n y ’s fai l ure t o c om pl y w i t h t he s t r i c tt er m s of t he l eas e w ou l d b e e xc use d by “ov erru l i n g e q u i ta b le r u le s . ” Id

. at 273. I n our est i m ati on , t h e Jon escourt cl ea rl y in ten d edto rea ch the i ssu e of eq u i tab l e interv e n tio n , a n dto ba se it s d i sposi t i on on that groun d. I n so doi n g, itadop t ed the t h ree- fact or F. B. Fo u n t a i n Co

. test f

or ca ses of m ere n eg l ect. W e ar e no t al o ne i n t hi s vi e w . The Tex as Supr e m e Cour tha s t w i ce ref erred t o Jon es ’s di scussi on of equ i t able i n t erventi on as l aw , an d w e are aw are of n o case i n w h i ch th e court cha ract eri zed th at di scussi on as di ct a or ot h erw i se cal l ed i n t o qu est i on t h e v i t al i t y of t h e Jon esru le

. Si r t ex O i lI ndu s . , I nc. v. Eriga n , 403 S. W

. 2d784 , 788 (T ex. 196 6) (consi deri n g w h en “ equ i t y shou l d aff ord
r eli ef ” a n d quot i ng Jon es ’ s s t atem en tof t h e t h ree- fact or t estf or c ases of
n e g lig e n c e ); Zeid m a n v . D a v is , 342 S. W

. 2d555 , 558 (Tex

. 196 1) ( di s c us s i ng “ t he
e quit ab l e r ul e a ppr o ve d b y t h[ e ] c o ur ti n Jon es ” )

. V E F urges us to i gn ore th ese c a s e s b e c a u s e n e ith e rre s te dits h o ld in go n a n a p p lic a tio n o f J o n e s . S ee R eynolds- PenlandCo. , 5 6 7 S .W .2da t 2 4 1 (“ S i rt ex[w as ]

. . . no ta ut ho r i t y”f o rt he appl i c abi l i t y of

eq ui t abl e i nt ervent i on i n ca se s of m er e ne gl ec tbe c ause “t hat d i scu ssion w a s n ot esse n ti a lto th e d ecisi on . ”)

. T h i s ar gu m en t m i sse s th e p oin t. Thes e c as e s m ayno tr e s t o n t he r ul e anno unc e d i n Jon es , butt hey as sum e that
r u le is p a r t o f T e x a s co m m o n la w . E .g ., Ze i dm an , 3 4 2 S .W .2 da t 5 5 7 ; seealso R eynolds- PenlandCo. , 5 6 7 S .W .2 da t 2 4 2 (G u itt a r d , C .J ., d is s e n tin g) (T h e ru leN o. 08- 40244 C ons . w /07- 41057

26 of i n t erventi on i n cases of m ere n egl ect“ha s been a dop t ed by t h e Su prem e C ou rt
o f T e x a s in

. . . S i rt ex .”)

. M a n yT e x a s in te r m e d ia te co u r ts h a v e d o n e th e s a m e . E

. g. , B e s t e m an v. P i t cock , 2 7 2 S .W .3d 7 7 7 , 7 9 0 (T e x . A p p .— T e x a rk a n a2 0 0 8 , n o p e t.) (Jon esi s t he “tou ch ston e ca se” fo re q u ita b le in te rv e n tio n ); Mo o sa v id ee n v. G a rr ett , ___ S. W

. 3d

___ , 2 0 0 8 W L 4 9 6 5 1 6 5 , a t * 1 5

– 1 6 (T e x . A p p .— H o u s to n [ 1 s t D is t.] 2 0 0 8 , n o p e t.) (c i t i ng as bi ndi ng aut hor i t y Jon es ’ s te s t fo re q u ita b le in te rv e n tio n ); Abr aha m Inv. Co. v. Payn e R an ch, I n c. , 968 S. W

. 2d 518, 527 (Tex. A pp. — A m ar i l l o 1 998, pet. den i ed) ( “ In t h e Jon esca s e , t he co ur te xp l i c at e d the g e ne r alr ul e r e ga r di ng e q u ita b le re lie f[.]” ); B uf f alo P i pel i n e Co. v. B ell , 694 S. W

. 2d 592, 598–99 (Tex. A pp . — C orpu s C h ri st i 198 5, w ritref ’ d n

. r. e. ) (“ T h e equ i t able consi derati on s s et f o r t h i n [Jon es ] a r e s im ila rt o t h o s e in th is ca s e a n dth e s e ‘ o v e r r u lin ge q u ita b le rul es’preven tt h e l i m i t ati on of ap pel l an t ’ s l ease. ” (cit ati on om i t t ed))

. A n d som e h a v e ex p re ss lyr ejec te dth e re a so n in gof R ey no l ds

- Pe nland

. F o re x a m p le , in C row n Con st rurct i on Co. v. Hu d d lest on , th e cou rt n oted tha t R ey no l ds

- Pe nland

“he l d the l ang uag e i n Jon esto b e d ic ta a n dre fu s e d t o a p p l yt h e d o c tr in e in si tu a ti on s i n w h i ch a l essee si m pl y n egl ect ed to exerci se it s r en ew alopti on on t i m e. ” 961 S

. W

. 2d552 , 558 (T ex. A pp . — S an A n t on i o 199 7, no p et
. )

. Th e Cro wn Co n s t r u c t i o n Co

. courtdi sagreed; itconcl u dedt h at “ [t] h e doct ri n e of
u n c o n s c io n a b le , in e q u ita b le , o rd is p r o p o r tio n a te fo r fe itu r e w a s e s ta b lis h e din [Jon es ]. ” Id . a t 5 5 8 ; seea lso, e. g. , In n of t h e Hi l ls, L t d

. v. S chu l gen & K ais er , 723 S. W

. 2d2 99 , 3 01 (Tex

. App.

— San Ant o ni o 19 87 , w r i tr e f ’ d n. r . e . )

. (“W e a do ptt he vi e w o f Chi e f Jus t i c e G ui t t ar d, e xp r e s s e d i n hi s di s s e nt i ng o pi ni o n i n R eynoldsPe nland [. ]”). O u r r evi ew of

t h ese c ase s b o lste rs ou r c on cl u si on t h at th e Jon escourt
a d op tedth e th ree -fa ctor test f or eq u i tab l e interv en ti on i n cas es o f m ere n eg l ect. W e proceed t o app l y t h at t estt o t h e fact s of t h i s c ase.N o. 08- 40244 C ons . w /07- 41057

27 2. E l der C ar e’ s f

ai l ure t o com pl y w i t h t he s t r i ct r enew al t er m s w as pr ope r l y e xc us e d bye qui t ab l e i nt e r ve nt i on. O n th e ba sis of th e B a n k ru p tcy C ou rt’ s fa ctu a lf i n d i n gs , w e a gr ee w i th its
c onc l usi on t ha t El der C ar e’ s fai l ure t o pr ovi de not i c e w as m er e ne gl ec tt hat shou l d be excusedu n der T exas’ s narrow equ i t able excepti on t o t h e rul e of st ri ct
e n fo r c e m e n t. F ir s t , E l d e r C a r e ’ s d e la yine x e r c is in gits o p tio n w a s re la tiv e ly sl i gh t
. I tprovi ded w rit t en noti ce app roxi m ately on e m on t h lat e, on e dayaf t er i tw as i n f

orm ed of

i t s negl i gen tom i ssi on . W e consi der t h i s a r e la tiv e l y m i n or del ay w h en c om par ed t o the l eas e’ s or i gi nalt en- yeart er m and i t s f ive- year
r e n e w a l te r m . A r g u in gto th e co n tr a r y , V E F re lie s o n as in g le ca s e , S cot t
- B u rr S t oresCorp. v. Wi lcox , 194 F

. 2d989 , 991 ( 5th C i r. 195 2) , i n w h i ch w e sust ai n ed a j u dg m en tagainsta l essee t h at del ivered i t s r en ew al n o tice ten hou rs l ate. T h a t r e lia n c e is m is p la c e d

. S cot t -B u rr S t oresCorp . concernedt h e qu est i on
w he t he rt he no t i c e o f r e ne w al w as i n fac tl at e . The c o ur tno t e d “t he a r gum e nt

. . . th a t [its] j u d gm en t [w a s] h a rsh an di n eq u i tab l e” Id

. at 991
. H ow ever, t h ere
w as “ no b as i s f

o rde t e r m i nat i o n b y [t he c o ur t] o f t he r e s pe c t i ve equ i t i es o f t he pa r t i e s ” b e c aus e “ no g r o unds f o re quit ab l e r e l i e f f

r o m t he l ap s e w e r e ur ge d i n t he tri a lC ou rt. ” Id

. at991. To t he c ont r ar y, her e a l lr ec ogni ze t hatt he not i c e w as l at e, and w e a r e c al l ed upon t o a ss es s t hatt ar di nes s i n l i ghtof “t he r es pec t ive eq u i ti es o f th e p a rti es.” Sc o t t
- Burr S t ores Corp . o ffe r s n o in s tr u c tio n o n th is que s t i o n. Se c o nd, VE F “fail e d t o de m o ns t r at e t hatit[w o ul d] b e ha r m e d b y all o w i ng e q u i t yt o i n t e rv e n e i n t h i s c a s e [t o ] e x t e n dt h e l e a s e . ” R e n e wa lOr d e r , p . 3
. O n a p p ea l , i t ha s ad va n ced on l y g en era l a rg u m en ts a b ou t th e sa n ctity of pro p erty
r ig h ts , e .g ., r e lia n c e o n “ th e m o s t b a s ice le m e n ts o f p r o p e r tyla w th a t r e p e a te d ly af f i rm t h e i m portance of property r i gh t s. ” A t best, t h ese c on t en t i on s es t abli sh
o n lya b s tr a c t, d e m in im ish a r m. W e f i nd m o s tc o m pe l l i ng t he t hi r d a nd f i nalfac t o r : “ [ N ] o tt o g r antN o. 08- 40244 C ons . w /07- 41057

28 [E ld e r C a r e ] r e lie f w o u ld r e s u lt in s u c h h a r d s h ip

. . . a s to m a k e it u n c o n s c io n a b le to en force l i tera ll y th e con d i ti on pr ece d en t of the le a se.” Jon es , 130 S. W

. 2d at 641 (i n t erna lqu ot ati on om i t t ed). A s t h e B an kru ptcy C ou rtst ress ed, t h e l ease is “t h e o n lyb a s is ” u p o n w h ic h E ld e r C a r e “c a n c o n tin u e a s av ia b le b u s in e s s .” R en ew alO rder, p. 3. For t h i s reason, E l derC are “i n vest ed over $30 0, 000 i n fees a n dc o s ts a lo n e in p r o v in gt h a t V E F d idn o t t e r m in a te th e L e a s e p r e -p e tit io n .” Id .; seeP a r t I I(A), sup ra . I t di d s o “f o r t he s o l e pur po s e o f

. . . r e o r ga ni z i ng t he bus i ne s s [ , ] w hi c h ne c e s s ar i l y de pe nde d o n t he o pt i o n b e i ng e xe r c i s e d a nd the Lea s e e xt e nde d. ” Ren e w alO r de r , p. 3. I n sho r t , “ [t] he ent i r e cha pt e r11 c as e a nd th e litig a tio n . . . in v o lv e da n dre q u ir e dp r e s e rv a tio n o f th e L e a s e o p tio n p e r io d .” Id

. T h e B an kru ptcy C ou rt ’ s O ct ober 18 or der al l ow i n g E l derC are t o t ak e on t he l e as e i n b ank r upt c y atl e as ti m pli c i t l y as s um e d the l e as e w o ul d b e r e ne w e d. Thatord erw as i s s ue d i n f ur t he r anc e o f

El de r Car e ’ s pl an o f r e o r ga ni z at i o n,
w h ic h co n te m p la te dth e le a s e o f V a lle yG r a n dM a n o ra s E ld e r C a r e ’ s o n ly
s i gnif i c anto ngo i ng as s e t
. And itw as i s s ue d t w o and oneha l f m o nt hs b e f

o r e t he l eas e’ s i ni t i alt en- yeart er m w as se tt o t er m i nat e. Sure l y, w hen on N ove m ber16 t h e c o u r to r d e r e dt h e p a r t i e s t o me d i a t e n e w i n s u r a n c e c o v e r a g e l i mi t s (t wo
w e e ks b e f

o r e t he r e ne w alno t i c e w as due ) , itha d i n m i nd m o r e t han t he
rem ai n i n g six w eeks of t h e l ease’ s pri m ary t erm . S u b seq uent eve nt s sugge st t hat t he par t i es so und er st oo d t he or der

. It t o o k E l de r Car e m o r e t han t w o m o nt hs t o se c ur e V EF ’ s co o pe r at i o n i n c ar r yi ng ou tt h e m edi ati on , f

rom early O ct ober t o m i d- D e c e m be r . O n l y E l derC are’ s r esort t o the B ankrupt c y Courtf oran or derc om pell i ng t he m edi at i on pr ove d ef fec t ive in g a in in gV E F ’ s “v o lu n ta r y” a g r e e m e n tt o t h e te r m s o f th e m e d ia tio n . Cf

. A s s u m p t i o n O r d e r , p p . 7

– 8 , ¶ 4 5 , ¶ 5 0 (“I n re s p o n s e to [E ld e r C a r e ’ s ] m u ltip le requ est s t o neg ot i ate th e ren tam ou n t , t h e V E F B oard” dem an dedt h at new p rov i sion s “be i n cl u d edi n a n ew L ea se o r a m en d m en t b efore itw ou l dn eg oti a teN o. 08- 40244 C ons . w /07- 41057

29 th e r e n t a m o u n t.” ). T h a t a g r e e m e n t w a s g iv e n in t h e m id d le o f D e c e m b e r , o n ly
one day be f

or e t he h ear i ng on E l der C ar e’ s m ot i on tocom pelw as toocc ur a nd 17 da ys a f t e rt he de ad l i ne f

o rEl de r Car e ’ s r e ne w alno t i c e ha d p as s e d. And t he
a gr ee m en t sch ed u l edthe pa rti es’m ed i a tion f or F eb ru a ry , m ore tha n a m on th af t ert he r enew alper i od w as s etto com m en ce. Bu tm edi at i on o f t he c ove r age l i m i ts w ou l dh a ve b e e n an ex ercise of ab su rd i ty i f E l d erC a re w a s to be h eld to t h e renew ald ead l i n e, w h i ch, a gain, h ada l readyp assed w h en t h e parti es agreed t o sc hedul e t he m edi at i on. Less t han t w o w ee ks af t er t hat agr ee m ent w as
r e ac he d, t w o da ys a f t e rt he r e ne w alt e r m w as t o com m e nc e a nd m o r e t han a
m on t h bef

ore th e m edi ati on w as t o occ u r, V E F notif i ed E l derC are of

it s fai l u re to com p l y w i th the ren ew a ln oti ce re q u i rem en t. A s di d the B an kru ptcy C ou rt , “ [ a] tbest [w e] assum [ e] t h at V E F asser t ed i t s t e r m i nat i o n a r gum e nto nl y af t e r i t r e ali z e d t he r e w as no w r i t t e n no t i c e s e nt t o i t.”R en ew alO rder, p. 3. U n t i lt h at r eal i zati on , V E F “beh av[ed] i n every as pec t as i f i t knew t hat [ E l der C ar e] i nt ended t o exe r c i se t he ext ens i on. ” Id

. T h a t V E F ’ s re a liz a tio n o c c u r r e ds o la te inth e g a m e , w h ile th e p a r tie s w e r e in f requ en tco nt ac tneg ot i ati n g t h e ong oi n g t erm s of t h e l ease, l en ds m u ch creden ce t o t he i de a t hatEl de r Car e ’ s o m i s s i o n i s b e s tund e r s t o o d i n li ghto f t he uni que c ir c u m s ta n c e s le a d in gu p to , a n dfo llo w in g , th e re n e w a l d a te
. S ee , e.g ., B uffa lo Pi p e l i n eCo

. , 6 94 S. W

. 2d at 59 9 ( gr ant i ng e quit ab l e i nt e rve nt i o n a nd s t r e s s i ng t h at aft er the pu rport ed fai l u re ef fect ivel y t o ren ew , the l essorsen tthe l essee a le tt e rinw h ic h it “d idn o t s ta te th a t th e le a s e h a d b e e n te r m in a te d” a n dth a t in ongoi ng c om m uni c at i ons t he l es so r“ di d not not i f y [t he l es se e] ” of

t he t ec hni c al d e fec t inth e re n e w a l). C on sci ou s of t h ese circum st an ces, w e cann otascr ibe E l derC are’ s om i ssi on t o s i m p l e “f

o r g e t f u l n e s s . ” No r d o we u n d e r s t a n dEl d e r Ca r e t o a r g u e t h a tVEF
w a s u n d er so m e obli ga ti on to a l ert E l d erC a re ab ou t th e O p ti on a n d th e n ee dto
exer c i se i t
. R at her , E l der C ar e sugge st s, and w e agr ee , t hat V E F’ s fai l u re toN o. 08- 40244 C ons . w /07- 41057

30 r a is e th e is s u e o f r e n e w a l d u r in gt h e p a r tie s ’o n g o in g , e x te n s iv e d is c u s s io n s is
afa c to rinth e a n a ly s is o f u n c o n s c io n a b ility

. Cf

. R en ew a lO rd er, p . 3 (“A t w orst, V E F laid b eh i n d the l og i n t h i s c ase, conti n u i n g t o neg ot i ate w i t h t h e D ebtor
r e ga r di ng Lea s e t e r m s a nd a ppe ar i ng i n Cour t , a l lt he w hi l e no tpo i nt i ng o ut t hatt he Leas e w as t er m i nat ed underi t s t heor y. ” ) ; A ss um pt i on O rd er, p. 19, ¶1 32 (“VE F di d no tr e s po nd t o [ El de r Car e ’ s pr o vi s i o n o f i nf o r m at i o n pe r t ai ni ng t o i t s i n s u r a n c e c o v e r a g e ] , b u ta l l o we dEl d e r Ca r et o c o n t i n u e t o b e l i e v e t h a tVEF
w as w o rk in gw it h t h em on the i n suran ce i ssue w h i ch i s w h at E l derC are c o nt i nue d t o b e l i e ve . ” )

. Rel at e dly, t he pa r t i e s w e r e no te nga ge d i n “ o ngo i ng ne go t i at i o ns ” a s t o t he e xt e ns i o n o f t he l e as e , a s VE F a rgues , b utne go t i at i o ns as t o the t er m s of

a cou rt

- or der ed m edi at i on i n t he c ont extof a Ch apt er11 reorganizat i on t h at r est ed on t h e perpetua t i on of t h e l ease. V E F ’ s r el i an ce on Hi l lhav e n, I

nc . v . Car eO ne, I

nc . , 62 0 S

. W

. 2 d78 8 (T ex . C iv. A p p .— F o r t W orth 1 9 8 1 , w ri t ref’ d n . r. e.) , i s th u s m i sp l a c e d

. S eeid . a t 7 9 3 (“[T h e le s s o r] d id not hi ng m or e than expr es s i nt er es ti n t he rec ei ptof the paym enttow hi c h i tw as en t i t l ed[. ] ” )

. L astly, w e f i n d too cl ever by h al f V E F ’ s argum en tt h at E l derC are
w ou l d su f

fer no ha rm up on ter m in a ti on of t h e l ease becau se “ [ E l derC are’ s]
une xe r c i s e d o pt i o n [w as ] no tapr e s e ntr i ghti n t he pr o pe r t y. ” T h ata r gum e nt proves t oo m u ch; i tw ou l d ap pl y i n every case. A n d i ti s no an sw er t o t h e years of l i t i gat i on and m or e than $300, 000 i n co st s and fee s t hatE l der C ar e has
u n dertaken i n order t o reor gan i ze as an on goi n g bu si n ess. W e c o nc l ude i tw o ul d be unc o ns c i o nab l e t o de pr iveEl de r Car e o f t he extend ed t erm of the lease. A n d i n the absen ce of coun t ervai l i n g consi derati on s,
w e h ol d th at i n t h i s extr aordi n ary case T exas l aw sancti on s t h e i n t erventi on of equ i t y t o excuse E l derC are’ s fai l u re t o provi de ti m el y n ot i c e . Becau se w e revers e t h e j u dg m en tof

th e D i st ri ctC ou rton thi s basi s, adop t i n g t h e B an kru ptcy C o u r t ’s d is p o s it io n o f t h e d is p u t e , w e n e e dn o tr e a c h th e B a n k r u p t c yC o u r t ’s alt e r nat iveho l di ngs t hat t he r e ne w alno t i c e r e quir e m e ntw as i nc ap ab l e o f b e i ngN o. 08- 40244 C ons . w /07- 41057

31 per f or m ed o rt hati t s j udgm entc ou l d be sus t ai ned on the bas i s of it s br oad
au t h orit y u n der t h e B an kru ptcy C ode. I I I . C ONC L US I ON F or th e for egoi n g reasons, t h e D i st ri ctC ou rt ’ s Sep t em ber 27, 200 7 order af f i r m i ng t he Bankr upt c y Cour t ’ s a s sum pti on o r de ri s AFF I RM ED

. The D is t r ic tC o u r t ’s F e b r u a r y2 5 , 2 0 0 8 , ju d g m e n t r e v e r s in g t h e B a n k r u p t c yC o u r t ’s
o r d e rth a t d e n ie dV E F ’ s m o tio n to co m p e lE ld e r C a r e to v a c a te th e p r e m is e s is RE VE RS ED

.