IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: ZELIENOPLE INVESTMENT ) Bankruptcy No. 13-22522-CMB

CORPORATION, )

) Chapter 11

Debtor. )

) Related to Doc. No. 253

ZELIENOPLE INVESTMENT )

CORPORATION, )

)

Movant, )

)

v. )

)

STEVEN A. HYRE, d/b/a SENECA AUTO )

SALES, )

)

Respondent. )

Appearances: Samuel R. Grego, Esq. and Jason Ott, Esq. for Debtor/Movant, Zelienople 

 Investment Corporation

Gary Simone, Esq. for Respondent, Steven L. Hyre, d/b/a Seneca Auto Sales1

MEMORANDUM OPINION

The matter before the Court is the Motion to Reject Unexpired Lease and Executory 

Contract Under Section 365 of the U.S. Bankruptcy Code (“Motion”)2, wherein Debtor/Movant, 

Zelienople Investment Corporation (“Debtor”) seeks to reject its unexpired lease and, if 

applicable, right of first refusal to purchase with Respondent, Steven L. Hyre d/b/a Seneca Auto 

Sales, pursuant to 11 U.S.C. §365. Respondent argues that the lease and right of first refusal 

 

1

The Court notes that the caption of the Motion incorrectly identifies the Respondent as “Steven A. Hyre, d/b/a 

Seneca Auto Sales.” Since the Court does not correct captions, the Respondent will not be corrected in the caption 

herein. 

2

This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§157 and 1334. This is a core matter pursuant to 

28 U.S.C. §157(b)(2)(A) and (M), and the Court will enter final judgment. However, if the United States District 

Court determines pursuant to the rationale set forth in Stern v. Marshall, 131 S.Ct. 2593 (2011), that this Court does 

not have the authority to enter final judgment, then the Memorandum Opinion and Order entered shall constitute the 

Court’s proposed findings of fact and conclusions of law and recommendation to the District Court.

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cannot be rejected because the right of first refusal is non-executory and, as such, is not subject 

to rejection under §365. Respondent further avers that the right of first refusal cannot be severed 

from the lease rendering Debtor incapable of rejecting either.

Findings of Fact & Procedural History

Debtor is a Pennsylvania corporation which owns an approximately 3.5 acre parcel of

real property located off of Perry Highway, Jackson Township, Butler County, Pennsylvania. 

On or about July 7, 1988, Debtor executed a Lease and Option (“Lease”) with Roger Zeigler 

t/d/b/a R-K Courier Auto Sales (“Zeigler”). Under the terms of the Lease, Zeigler was leased 

one (1) acre (“Premises”) of Debtor’s approximately 3.5 acre parcel for a period of one year 

beginning retroactive to September 1, 1987, with an option to extend by five (5) one-year terms. 

Further, pursuant to paragraph 5 of the Lease, if Zeigler lawfully occupied the Premises beyond 

the one-year term, the Lease terms were enforceable “. . . for another year and so on from year to 

year as long as the relations of landlord and tenant continue[d].” As part of the Lease, Debtor 

and Zeigler also executed a Right of First Refusal to Purchase Leased Premises (“Option”), 

granting Zeigler a right of first refusal to purchase the Premises during the term of the Lease, or 

any extension thereof. No assignment of the Lease by Zeigler was permitted without first 

obtaining the consent of Debtor.

As of 2003, Seneca Auto Sales and Zeigler, two separate businesses, were operating on 

the Premises in a shared building. Steven L. Hyre, an employee of Seneca Auto Sales, became 

interested in acquiring Seneca Auto Sales from its owners and separately purchasing Zeigler’s 

rights to the Lease and Option. On November 8, 2003, a Consent to Assignment (“Consent”) was 

executed on Debtor’s behalf by James Marburger, identified in the Consent as Debtor’s 

“Owner.” Said Consent purported to provide permission to Zeigler to assign all rights and 

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interests in the Lease to Steven L. Hyre. At the evidentiary hearing held April 15, 2015, Robert 

E. Kennihan, current President of Debtor, testified that as of the date of the Consent, James 

Marburger was at most a minority shareholder of Debtor and as neither the owner of Debtor nor 

a member of its board of directors, did not have authority to enter into the Consent. Respondent 

testified that concurrent with the execution of the Consent by James Marburger, Respondent

purchased the buildings, Lease, and Option from Zeigler. No documents were provided at the 

hearing evidencing that an assignment of the Lease and Option from Zeigler to Respondent

occurred. Since 2003, Respondent has operated Seneca Auto Sales on the Premises.

An Involuntary Petition under Chapter 11 of the Bankruptcy Code was filed against 

Debtor on June 13, 2013. On June 28, 2013, after seeing a “for sale” sign on the Premises in the 

days prior, Respondent sent a letter to Debtor notifying Debtor that Respondent was exercising 

his right of first refusal under the Option. Having received no response from Debtor, Respondent 

thereafter instituted a civil action in the Court of Common Pleas for Butler County which was 

ultimately stayed by Debtor’s Suggestion of Bankruptcy filed April 11, 2014.

The Order for Relief was entered in the bankruptcy case on March 3, 2014. On December 

19, 2014, Debtor filed a Chapter 11 Plan and Disclosure Statement wherein Debtor proposed to 

reject all unexpired leases and executory contracts “to which it might be a party as of the 

Effective Date[ ]” of the Plan. Respondent objected to Debtor’s Plan averring that the Lease 

could not be rejected. Debtor filed the within Motion on March 25, 2015, to which Respondent 

filed a response on March 31, 2015. On April 6, 2015, Debtor provided Respondent with a 

notice of termination of the lease. The parties submitted briefs in support of their respective 

positions on April 14, 2015, and an evidentiary hearing was held April 15, 2015. 

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Applicable Standard & Discussion

“The policy behind Chapter 11 of the Bankruptcy Code is the ‘ultimate rehabilition of the 

debtor.’” In re Exide Technologies, 607 F.3d 957, 962 (3d Cir. 2010), as amended (June 24, 

2010)(citation omitted). In furtherance of this goal, Section 365 of the Bankruptcy Code permits 

a trustee to assume or reject any unexpired lease or executory contract, subject to court approval. 

See 11 U.S.C. §365(a). Said ability is extended to a Chapter 11 debtor-in-possession under 11 

U.S.C. §1107(a). Authorization of assumption or rejection of an unexpired lease or executory 

contract is determined by the business judgment standard. In re Tayfur, No. 14-3478, 2015 WL 

1219029, at *5 (3d Cir. Mar. 18, 2015).

In the within matter, Debtor seeks to reject its unexpired lease with Respondent pursuant 

to §365(a). Respondent defends against the action by arguing that its unexpired lease with 

Debtor, governed by the terms of the Lease described above, is un-severable from the Option, an 

un-rejectable, non-executory contract, rendering the Lease un-rejectable. Respondent avers that 

the Lease and Option govern his relationship with Debtor as Respondent is the assignee of such 

agreements. Debtor avers that no valid assignment of the Lease and Option exists and that James 

Marburger lacked corporate authority to execute the Consent on behalf of Debtor. Accordingly, 

Debtor argues that its lease with Respondent is an oral, month-to-month lease. Alternatively, 

Debtor argues that even if the Lease and Option were validly assigned, both are subject to 

rejection under §365 as the Option constitutes an executory contract.

“A corporation is a creature of legal fiction, and must ‘act’ through its officers, directors 

or other agents.” Lokay v. Lehigh Valley Co-op. Farmers, Inc., 492 A.2d 405, 408 ( Pa. Super.

Ct. 1985). In the absence of controlling by-laws, corporate authority to act is derived from 

resolutions or orders of a corporation’s board of directors. See 15 Pa.C.S.A. §1732(b).

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Corporations are bound by the acts of their representatives when such acts are performed without 

a corporate resolution or order but are within the apparent scope of the business with which the 

representatives are entrusted unless the representatives acted for their own benefit and there was 

no corporate ratification of the acts. Lokay v. Lehigh Valley Co-op. Farmers, Inc., 492 A.2d at 

409. See also Rinaldi v. Bd. of Vehicle Mfrs., 843 A.2d 418, 421 (Pa. Commw. Ct. 

2004)(citations omitted). “Principals are subject to liability for acts done by their agents that 

usually accompany transactions the agents are authorized to conduct, if the other party 

reasonably believes the agent is authorized to perform the acts and does not have notice that the 

acts are unauthorized.” Rinaldi v. Bd. of Vehicle Mfrs., 843 A.2d at 421. 

In the within matter, Debtor avers that James Marburger lacked corporate authority to 

execute the Consent without which any assignment of the Lease and Option from Zeigler to 

Respondent would be improper. Debtor centers its argument on its averments that, at the time of 

the Consent, James Marburger was solely a minority shareholder of Debtor and not the “Owner” 

as represented in the Consent. Further, Debtor argues that no authorization to enter into the 

Consent was given to James Marburger by Debtor’s board of directors as evidenced by the 

absence of any discussion of the Consent in the board’s meeting minutes for the 2002-2003

calendar years. In support of Debtor’s argument, at the evidentiary hearing Robert E. Kennihan, 

current President and former Secretary of Debtor, credibly testified that the 2002-2003 Meeting 

Minutes (“Meeting Minutes”) were devoid of any record of a discussion regarding either the 

Consent or the lease with Respondent. Mr. Kennihan further testified that James Marburger 

lacked corporate authority to enter into the Consent and that he was not aware of any 

authorization given to James Marburger to enter into such an agreement. Though credible, the 

Court finds that Mr. Kennihan’s testimony, as well as any other evidence presented at the 

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hearing, is insufficient to demonstrate that James Marburger lacked corporate authority to enter 

into the Consent. In particular, although no mention of the Consent or lease agreement with 

Respondent appears in the Meeting Minutes, the Court finds that the Meeting Minutes were 

incomplete and lacked consistency in the matters recorded. As such, the mere omission of an 

event or discussion from the Meeting Minutes is not indicative of the event/discussion’s nonoccurrence. Additionally, Mr. Kennihan testified that Martin Marburger, President of Debtor 

until 20133, would authorize certain acts without approval of the board of directors and that he, 

Mr. Kennihan, was unaware if Martin Marburger, in his capacity as President, delegated 

authority to James Marburger to enter into the Consent on Debtor’s behalf. 

In response to Debtor’s averments, at the evidentiary hearing Respondent credibly 

testified that from the time he became an employee of Seneca Auto Sales in 1993 through the 

filing of the Bankruptcy Petition in 2013, the only individuals Respondent interacted with on 

behalf of Debtor were James Marburger and Carrie R. Marburger-Robb. Respondent testified 

that although he exclusively remitted his monthly rent payment to James Marburger or Carrie R. 

Marburger-Robb, both of whom Debtor alleges had no authority to transact with Respondent, 

said payments were routinely accepted by Debtor and no representative of Debtor ever contacted 

Respondent to inform him that James Marburger and/or Carrie R. Marburger-Robb were 

unauthorized to engage in dealings with Respondent. Respondent testified that, based on these 

interactions, he believed that James Marburger had corporate authority to enter into the Consent.

Weighing the credibility of the testimony and evidence, the Court finds that

unchallengable evidence exists to show that, if James Marburger lacked corporate authority to 

execute the Consent, there was no corporate resolution authorizing the Consent or corporate 

 

3 Mr. Kennihan testified that, although Martin Marburger passed away in either 2011 or 2012, Martin Marburger 

remained the named president of Debtor until Mr. Kennihan’s election to the position in 2013.

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ratification thereafter. However, it has not been shown that James Marburger either did or did 

not have delegated corporate authority to execute the Consent. Accordingly, this Court cannot 

find that James Marburger lacked corporate authority to enter into the Consent. 

In addition to the argument that no valid assignment of the Lease and Option existed due 

to James Marburger’s lack of corporate authority to execute the Consent, at the evidentiary 

hearing Debtor also averred that no valid assignment from Zeigler to Respondent existed as 

Respondent failed to produce any documentation evidencing that such assignment actually 

occurred. Respondent testified that he had signed a document assuming the Lease, but 

acknowledged that such document was not provided at the hearing. Instead, Respondent only 

provided the Consent. The Court has reviewed the Consent and finds that although the Consent 

provides permission on behalf of the Debtor for Zeigler to assign his rights and interests in the 

Lease to Respondent, the Consent itself does not operate as an assignment of said rights.

Specifically, the Consent contains the following language acknowledging that the assignment is 

separate from the Consent: 

Lessor further agrees to release Zeigler from all duties, liabilities and obligations 

under the Lease from and after November 8, 2003 or such later date as the 

assignment and assumption take place (“the Closing Date”), including without 

limitation all obligations for rental payments due on or after the Closing Date.

(Emphasis added). As this Court has not been shown any written evidence of the alleged 

assignment of the Lease and Option from Zeigler to Respondent, this Court finds that no such 

assignment occurred.

Having determined that the lease between Debtor and Respondent was not governed by 

the terms of the Lease due to lack of assignment, the Court must next address what the terms of 

the lease agreement between the parties were as of the Petition date. Debtor has consistently 

argued that in the absence of a valid assignment of the Lease and Option to Respondent, the lease 

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agreement between the parties was an oral, month-to-month lease. In support of this averment,

Debtor argues that not only would such a lease be month-to-month under Pennsylvania law, but 

that the course of conduct of the parties evidences an intent for the lease to be month-to-month. 

Specifically, Debtor argues that the fact the rent was paid by Respondent on a monthly basis 

indicates an intent to treat the contract as month-to-month. Respondent failed to provide any 

argument regarding what terms would exist pursuant to the lease agreement between the parties 

if the Lease and Option were not validly assigned.4

In addressing the duration of a lease term in the absence of a defined tenancy, the Third 

Circuit has observed that:

“In Pennsylvania, if the landlord and tenant have failed to specify a definite 

period of time for the lease to continue, the court may imply the type of tenancy 

indicated by the conduct of the parties.” Ronald M. Friedman, Pa. Landlord–

Tenant Law and Practice § 1.10 (3d ed.2004). The tenants were required to pay 

about $500 to $600 monthly, and such monthly rental payments generally support 

the existence of a month-to-month tenancy. See Restatement (Second) of Property 

§ 1.5 (2003) (“Where the parties enter into a lease of no stated duration and 

periodic rent is reserved or paid, a periodic tenancy is presumed. The period thus 

presumed is equal to the interval for which rent is reserved or paid to a maximum 

periodic tenancy of year to year.”). However, “[t]he presumption that a periodic 

tenancy is intended may be rebutted by language or circumstances showing a 

contrary intent.” Id. 

Ruiz v. New Garden Twp., 376 F.3d 203, 206 (3d Cir. 2004).

Upon review of the evidence and testimony presented at the hearing, the Court finds that

the parties’ course of conduct evidences an intent for the lease between Debtor and Respondent 

to be treated as month-to-month. In the notice to Respondent from Carrie R. Marburger-Robb, 

 

4 At the evidentiary hearing, Respondent argued that the monthly payment of rent was not indicative of a month-tomonth contract and that the notice of rent increase issued by Carrie R. Marburger-Robb (Exhibit “F”)(“Notice”) was 

evidence of an increase in annual rent. However, said averments were raised in the context of demonstrating that the 

Debtor assented to an assignment of the Lease and Option despite James Marburger’s lack of corporate authority 

and not for the purpose of defining the relationship between the parties in the absence of a valid assignment of the 

Lease and Option. Nonetheless, even if the Court were to consider the Respondent’s arguments for the purpose of 

defining the lease terms between the parties, the Court finds said arguments unpersuasive as the Notice demonstrates 

an intent to treat the lease as a month-to-month agreement as further discussed in this Memorandum Opinion.

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admitted by the Respondent as Exhibit “F” (“Notice”), it was stated that: “Effective August 1, 

2006 your rent will be $948.00 per month.” As the Notice only specifies an increase in monthly 

rent with no allusion or reference to an annual obligation, this Court is persuaded that Debtor 

intended to treat the lease as month-to-month. Likewise, Respondent’s subsequent compliance 

with the terms of the Notice supports a finding that Respondent either intended to treat the lease 

as month-to-month, or at least assented to such treatment. This finding is further supported by

Respondent’s failure to present any evidence or argument demonstrating that, in the absence of a 

valid assignment of the Lease and Option, the lease was not month-to-month. Accordingly, the 

Court finds that the lease existing between the parties as of the Petition date was on a month-tomonth basis. 

Regardless of whether Respondent was validly assigned the Lease and Option by Zeigler, 

it is undisputed that some form of unexpired lease existed as of the Debtor’s Petition date. While 

Debtor argues, and the Court has found, that due to the lack of a valid assignment a month-tomonth lease existed between the parties, Respondent alleges that an unexpired lease existed 

under the terms of the assigned Lease and Option. Pursuant to 11 U.S.C. §365, either of these 

unexpired leases are subject to rejection. However, Respondent argues that as the Option is both

non-executory and un-severable from the Lease, the Lease is also not rejectable. Debtor counters

that since the Lease and Option were not properly assigned, the terms of the Option are 

inconsequential. Alternatively, Debtor argues that even if the Court finds that the Lease and 

Option were properly assigned, the Option is similarly subject to rejection as an executory 

contract.

At the outset, as the Court finds that there was no assignment of the Lease and Option, 

the terms of the Option have no effect on the lease existing between Debtor and Respondent as 

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of the date of the Bankruptcy Petition. Therefore, the unexpired, month-to-month lease existing 

between Debtor and Respondent as of the Petition date is rejectable under §365. However,

assuming arguendo that there was a valid assignment of the Lease and Option, this Court finds

that the Lease and Option would still be subject to rejection as the Option is an executory 

contract.

The Bankruptcy Code does not define “executory contract,” however “[r]elevant 

legislative history demonstrates that Congress intended the term to mean a contract ‘on which 

performance is due to some extent on both sides.” In re Exide Technologies, 607 F.3d at 962 

(citations omitted). Considering this intent, the Third Circuit has found that:

‘An executory contract is a contract under which the obligation of both the 

bankrupt and the other party to the contract are so far underperformed that the 

failure of either to complete performance would constitute a material breach 

excusing the performance of the other.[’] In re Columbia Gas, 50 F.3d at 239 

(alteration omitted) (quoting Sharon Steel Corp. v. Nat'l Fuel Gas Distrib. Corp.,

872 F.2d 36, 39 (3d Cir.1989)). [‘]Thus, unless both parties have unperformed 

obligations that would constitute a material breach if not performed, the contract 

is not executory under § 365.[’] In re Columbia Gas, 50 F.3d at 239. The party 

seeking to reject a contract bears the burden of demonstrating that it is executory. 

And [‘t]he time for testing whether there are material unperformed obligations on 

both sides is when the bankruptcy petition is filed.[’] Id. at 240.

In re Exide Technologies, 607 F.3d at 962 (footnote omitted).

Assuming the Option was properly assigned, as of the Petition date each party had 

unperformed obligations under the Option’s terms. Specifically, Debtor was obligated to notify 

the Respondent of any intent to sell or offer to purchase the Premises and to sell the Premises to 

Respondent if Respondent’s offer matched the appraised value of the Premises or the offer

received, whichever applicable. Respondent, in turn, was obligated to exercise his right of first 

refusal within fifteen (15) days of receipt of notice.

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In his pleadings and at the evidentiary hearing, Respondent argued that the parties’

unperformed obligations under the Option did not amount to material unperformed obligations. 

Instead, Respondent avers that his obligation required under the Option is merely a condition as 

in Enterprise Energy Corp. v. United States of America (In re Columbia Gas Sys. Inc.), 50 F.3d 

233 (3d Cir. 1995), and therefore the Option cannot be rejected as an executory contract. In 

Columbia Gas, the Third Circuit found that a condition existed where a court-approved 

settlement mandated that in order to receive settlement funds partially paid into escrow by the 

debtor, the appellant was required to execute a release of claims against the debtor. The Court 

has reviewed Columbia Gas, specifically its analysis determining that a condition was created by 

the settlement, and finds the facts and circumstances of Columbia Gas non-analogous to the 

matter herein. Instead, the Court finds In re Kellstrom Industries, Inc., 286 B.R. 833 (Bankr. 

D.Del. 2002), controlling on the issue of whether a right of first refusal to purchase property is 

executory. 

In Kellstrom, the court squarely addressed whether a right of first refusal constituted an 

executory contract subject to §365 where, as with the within matter, the terms of the right of first 

refusal obligated the debtor to give respondent notice of any offer to purchase and to sell the 

property to respondent if respondent matched the offer and the respondent was, in turn, obligated 

to exercise or waive its right of first refusal within a set period of time. The Kellstrom court

found that an executory contract was created under these terms. This Court agrees with the court 

in Kellstrom and similarly finds that, as neither party performed their respective obligation(s)

under the Option as of the date of the Bankruptcy Petition and said obligations were material, an 

executory contract existed. Thus, even if validly assigned, the Option is subject to rejection 

under §365.

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A trustee or debtor-in-possession’s ability to reject or assume an unexpired lease or 

executory contract is subject to court approval. 11 U.S.C. §365(a). The Bankruptcy Code “. . .

does not articulate a standard for when rejection is appropriate, therefore [the Third Circuit] uses 

the business judgment standard to make that determination. Under this standard, rejection is 

appropriate where it would benefit the bankruptcy estate.” In re Tayfur, No. 14-3478, 2015 WL 

1219029, at *5 (3d Cir. Mar. 18, 2015)(citations omitted). 

Debtor avers that rejection of its month-to-month lease with Respondent is in the best 

interest of the bankruptcy estate in that rejection would permit the bankruptcy estate to convey 

the entire 3.5 acre parcel free and clear of any interests thereby maximizing the realty’s purchase 

price. Debtor similarly avers that, in the event the Lease and Option were validly assigned, 

rejection would likewise benefit the bankruptcy estate through increased profits from the sale of 

the realty. In support of this averment, at the evidentiary hearing Debtor presented the credible

testimony of two real estate professionals, David E. Martin and Richard W. Stockard5, who both 

opined that the highest and best purchase price of the realty owned by Debtor would be obtained 

by selling the entire 3.5 acre property as a single parcel and not as multiple parcels as would be 

required for the Respondent to purchase the one-acre Premises under the Option.6 Respondent 

failed to provide any argument or evidence to dispute Debtor’s assertions that rejection of the 

month-to-month lease or, if applicable, the Lease and Option, is in the best interest of the 

bankruptcy estate. 

 

5 Mr. Stockard’s testimony was admitted via affidavit identified as Exhibit “4”.

6 Moreover, although not argued at the evidentiary hearing, the Court notes that subdivision of the Premises from the 

3.5 acre lot, as contemplated by the Option and demanded by the Respondent pursuant to his letter dated June 28, 

2013, would be an expensive endeavor to be incurred by the bankruptcy estate. Therefore, under the business 

judgment standard, it would greatly benefit the bankruptcy estate if the Lease and Option were rejected.

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The Court has weighed the testimony of the witnesses and evidence presented and finds 

that rejection of either the month-to-month lease or the Lease and Option would be in the best 

interest of the bankruptcy estate. Thus, the business judgment standard permits rejection of the 

Debtor’s lease with Respondent, whether or not the Lease and Option were assigned. 

Conclusion

For the foregoing reasons, Debtor’s Motion to Reject Unexpired Lease and Executory 

Contract Under Section 365 of the U.S. Bankruptcy Code is granted. While Debtor was unable 

to demonstrate an absence of corporate authority for James Marburger to enter into the Consent

on behalf of Debtor, Debtor was able to show that the Lease and Option were not validly 

assigned to Respondent and that rejection of the resulting unexpired, month-to-month lease is in 

the best interest of the bankruptcy estate. Accordingly, the unexpired, month-to-month lease 

between the parties is rejected pursuant to 11 U.S.C. §365.7 An appropriate Order will be 

entered consistent with this Memorandum Opinion.

Dated: April 24, 2015 /s/Carlota M. Böhm

Carlota M. Böhm

United States Bankruptcy Judge

MAIL TO:

Office of the United States Trustee

Samuel R. Grego, Esq.

Jason Ott, Esq.

Gary Simone, Esq.

 

7 Although the Court has found that rejection of the month-to-month lease between Debtor and Respondent is 

appropriate, the Court notes that the Respondent may still have possessory rights to the Premises under 11 U.S.C. 

§365(h)(1)(A)(ii) through the remainder of its commenced lease term. The Court observes, but does not find, that 

due to the month-to-month nature of the lease, as well as the notice of termination of the lease issued by Debtor on 

April 6, 2015, it appears that said term expires May 6, 2015.

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