Stone Brothers and Key Plaza then appealed the bankruptcy court’s ruling to this Court,
raising the following issues for review:

1. Did [Kmart] meet its burden of establishing cause pursuant to 11 U.S.C. §

365(d)(4) to merit the [blankruptcy [c]ourt’s [one-year] extension of the deadline to

assume or reject its nonresidential real property leases with [Stone Brothers and Key

Plaza] from March 25, 2002 to March 31, 20037

2. Does 11 U.S.C. § 365(d)(4) require [Kmart] to establish “cause”... as to each of

its leases with [Stone Brothers and Key Plaza]?

3. Did the (b]ankruptcy [c]ourt err by extending [Kmart’s] time to assume or reject

{Stone Brothers’ and Key Plaza’s] leases for one year?

4. Did the Bankruptcy Court improperly shift the burden to [Stone Brothers and Key
Plaza] to prove why [Kmart] is not entitled to the extension?

(Appellants’ Joint Opening Br. at 2.)
LEGAL STANDARD

Lvidentiary rulings regarding the admissibility of evidence are reviewed only for an abuse
of discretion. Aetna Life Ins. Co. v. Wise, 184 F.3d 660, 665 (7th Cir. 1999). “Under [the abuse of
discretion] standard, the relevant inquiry is not how this court would have ruled... but[,] instead[,]
is ‘whether any reasonable person could agree with the [bankruptcy] court.’ Peate y, McCann, 294
F.3d 879, 884 (7th Cir, 2002) (quoting Deitchman v. E.R. Squibb & Sons, Inc., 740 F.2d 556, 563
(7th Cir, 1984)).

The Court reviews the bankruptcy court’s factual determination and application of legal
standards to a particular set of facts for clear error, McFarlane v. Life Ins. Co. of N. Am., 999 F.2d
266, 267 (7th Cir. 1993), and mixed questions of law and fact de novo. In re Ratner, 132 B.R. 728,
730 (N.D. ll. 1991).

A finding is clearly erroneous when although there is evidence to support it, the

reviewing court on the entire evidence is left with the definite and firm conviction

that a mistake has been committed, . . . If the bankruptcy court’s account of the
evidence is plausible, a reviewing court may not reverse even if it would have

4.



CONCLUSION
Based on the foregoing, the order of the bankruptcy court granting Kmart’s Motion for Order
Pursuant to 11 U.S.C, § 365(d)(4) Extending the Deadline to Assume or Reject Unexpired Leases

of Nonresidential Real Property is not appealable; and, therefore, these appeals are dismissed.

ITIS SO ORDERED.

ohn W. Darrah, Judge
ited States District Court

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proceeding, even though the administration of the debtor’s estate continues,” Ja re

Forty-Eight Insulations, 115 F.3d [at 1298]... ; or (3) “mark[s] the conclusion of

what, but for the bankruptcy, would be the equivalent of a stand-alone suit” by or

against the trustee. In re Klein, 940 F.2d 1075, 1077 (7th Cir, 1991)...

Carlson, 1997 WL 534500, at *3.

Based on the above standard, the Extension Order is not a final and appealable order. First,
the Extension Order has not resolved all contested issues on the merits and will not lead to a final
distribution of assets. The Extension Order has not ultimately determined Stone Brothers’ or Key
Plaza’s positions in the bankruptcy proceeding. The Extension Order does not dispose of the leases
but, rather, merely extends the time in which Kmart can decide whether to assume or reject the
leases. Finally, the Extension Order docs not mark the conclusion of the equivalent of a stand-alone
suit. The decision whether to extend a deadline is not the sort of issue that would be the basis of an
independent lawsuit against Kmart.

Section 158 also provides district courts with discretion to hear appeals “from other
interlocutory orders and decrees.” 11 U.S.C. § 158(a)(3). Courts usually use the standards sct forth
in 28 U.S.C. § 1292(b) in determining whether to exercise their discretion under § 158(a)(3).
Carlson, 1997 WL 534500, at *6. Section 1292(b) provides for appellate review of orders that are
not final when “the order involves a controlling question of law as to which there is substantial
ground for difference of opinion and that an immediate appeal from the order may materially
advance the ultimate termination of the litigation.” “Generally speaking, leave to appeal an
interlocutory order will not be granted ‘absent exceptional circumstances.’” In re Pullman

Construction Indus., Inc., 143 B.R. 497, 498 (N.D. Ill. 1992) (quoting Escondide Mission Village

LP. vy, Best Prods, Co., 137 B.R. 114, 116 (S.D.N.Y. 1992)).

-6-



weighed the evidence differently as trier of fact.

SK-Palladin Partners, L.P. v. Platinum Entm’t, Inc., No. 01 C7202, 2001 WL 1593154, at *3 (N.D.
Tll. Dec. 13, 2001).

Factual findings, such as the credibility of witnesses, are reviewed for clear error only. G.
Heileman Brewing Co. v. Anheuser-Busch, Inc., 873 F.2d 985, 995 (7th Cir. 1989), This standard
is expressly set forth in Bankruptcy Rule 8013, which states:

On an appeal the district court or bankruptcy appellate panel may affirm, modify, or

reverse a bankruptcy judge’s judgment, order or decree or remand with instructions

for further proceedings. Findings of fact, whether based on oral or documentary

evidence, shall not be set aside unless clearly erroncous, and due regard shall bc

given to the opportunity of the bankruptcy court to judge the credibility of the

witnesses.

Fed,R.Bankr.P, 8013.
DISCUSSION

The Court must first determine whether it has jurisdiction over this appeal. Section 158 of
Title 28 provides that “[t]he district courts of the United States shall have jurisdiction to hear appeals
from final judgments, orders, and decrees.” 28 U.S.C. § 158(a)(1). An order is final if it “‘ends the
litigation on the merits and leaves nothing for the court to do but execute the judgment.” Carlson
y. Brandt, Nos. 97 C 2165, 96 B 9606, 97 C 3630, 1997 WL 5354500, at *3 (N.D. Ill. Aug, 22,
1997). Tn bankruptcy proceedings, the reviewing courts look at the finality of an order with a
“rolaxed eye” and interpret the finality requirement more liberally undcr § 158 than under 28 U.S.C.
§ 1291. In re Forty-Eight Insulations, Inc., 115 F.3d 1294, 1298 (7th Cir. 1997).

Even without a formal termination of the case, a bankruptcy court’s order is final and

appealable if it (1) “resolves all contested issues on the merits and leaves only the

distribution of the estate assets to be completed,” Jn re Wade, 991 F.2d 402, 406 (7th
Cir. 1992)... ; (2) “ultimately determine[s] a creditor’s position in the bankruptcy

5.



landlords would not be prejudiced by the grant of an extension and could seek a shortening of the
period, and (4) the evidence established that Kmart could meet its post-petition obligations during
the extension period, (Tr. at 107-109.)

Other bankruptcy courts have granted extensions under similar circumstances without
individual consideration of the objecting landlords’ leases. See In re Victoria Station, Inc., 875 F.2d
1380, 1385 (9th Cir. 1989) (affirming two extensions of thirteen months in total because “the process
is complicated by simultaneous evaluations of dozens of properties”); In re Service Merchandise
Co., inc., 256 B.R. at 749 (noting that “the process of assumption or rejection simply takes a little
longer in a case this size with the amount of money at issue and the number of leases to assess” and
that “[t]he landlords remain amply protected during this extension by the continued payment of rent
and all other post-petition obligations, and their right . . . to seek a shortening of the period for
cause”); In re Ernst Home Ctr., Inc., 209 BR. at 981-83 (granting additional fourtecn-month
extension to debtor-retail chain with over cighty stores to allow third party to market leases); Zn re
Musikahn Corp., 57 B.R. 942, 944 (Bankr, E.D.N.Y. 1986) (granting extensions of six months in

total for debtor to assess the results of the holiday season). Therefore, the Extension Order is not

appealable under § 158(a)(3).



Minute Onder Form (06097)

United States District Court, Northern District of [linois

N sig di Sitting Judge if Other

emeasAverouae | Jon W. Darra ta see

CASE NUMBER 02 C 4086 DATE 1/10/2003
CASE KEY PLAZA I, INC. vs. KMART CORPORATION
TITLE

Un the following box (a) indicate the party filing the motion, ¢.g,, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented, ]

MOTION;

DOCKET ENTRY:

ql) Oo Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) oO Answer briefto motion due_____. Reply to answer brief due__

(4) Oo Ruling/Hearingon_ssetfor__ at.

(5) ia] Status hearing[held/continucd to] [set for/re-set for] on setfor at,
(6) a Pretrial conference[held/continued to] [set for/re-set for]on _—setfor_— at
(7) o Trial[sct for/re-set for]on, at

(8) oO [Bench/Jury trial] [Hearing] held/continued to, __at

(9) Q This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

COFRCP4(m) ClLocal Rule 41.1 OFRCP4I(a)\(1) CFRCP4I(a\(2).

co) so [Other docket entry] Enter Memorandum Opinion And Order. The order of the Bankruptcy Court
granting Kmart’s motion for order pursuant to 11 U.S.C. 365(d)(4) extending the deadline to assume or
reject uncxpired leases of nonresidential real property is not appealable; and, therefore, these appeals are

dismissed.
(il) [For further detail see order attached to the original minute order.
No notices required, advised in open court,
No nolices required, number vf notices
Notices mailed by judge’s staff. . :
yy judg JAN 4.3 7993
Notified counsel by telephone. dave docketed
Uv | Docketing to mail notices,
Mail AO 450 form serene dT S'f] Ay CA
Copy to judge/niagistrate judge.
. me)
ro ny . font i led notice
courtroam : te
LG deputy’s :
initials ——
Datertime teccived in
central Cletk’s Office uiling deputy inns



Stone Brothers and Key Plaza have not identified any substantial ground for diffcrence of
opinion in the controlling question of law or any “exceptional circumstances” that would justify an
exercise of jurisdiction over the bankruptcy court’s interlocutory order. The factors for consideration
in determining whether cause for an extension are well established. Courts look at:

(1) [w]hether the lease is the primary asset of the debtor;

(2) [wJhether the lessor has a reversionary intcrest in the building built by the debtor
on the landlord’s land;

(3) [whether the debtor has had time to intelligently appraise its financial situation
and potential value of its assets in terms of the formulation of a plan;

(4) [wJhcther the lessor continues to receive rental payments and whether the debtor
fails to pay the rent reserved in the lease;

(5) [w]hether the lessor will be damaged beyond compensation available under the
Bankruptcy Code due to the debtor’s continued occupation;

(6) (w]hether the case is exceptionally complex and involves a large number of
leases;

(7) [w]hether need exists for a judicial determination of whether the lease is a
disguised sccurity agreement,

(8) [w]hether the debtor has failed or is unable to formulate a plan when it has had
more than enough time to do so; and

(9) [a]ny other factors bearing on whether the debtor has had a reasonable amount of
time to decide to assume or reject the lease.

Escondido Mission Village, 137 B.R. at 117 (quoting Jn re Muir Training Tech., Inc., 120 B.R. 154,
158-59 (Bankr. S.D. Cal. 1990)); see, e.g., In re Service Merchandise Co., Inc., 256 B.R. 744, 748
(Bankr. M.D, Tenn. 2000); Jn re Ernst Lome Center, Inc., 209 B.R. 974, 980 (Bankr. W.D. Wash.
1997).

The extension is consistent with the factors listed in Escondido Mission Village. After the
presentation of witnesses and oral argument, the bankruptcy court judge granted the Extension
Motion based on the following facts: (1) the case was very large and complex due to the fact that
Kmart has 2,100 stores and 240,000 employees, (2) the performance of stores during the holiday

season was a crucial component in the formulation of an overall strategic business plan, (3) the

-7-



After oral argument by the parties, the bankruptcy court made the following findings.

Kmart is the nation’s second largest discount retailer. Kmart has approximately
240,000 employees. Kmart currently operates approximately 2,100 stores throughout
the United States, Puerto Rico, the U.S. Virgin Islands, and Guam. Kmart reported
that at the petition date it had approximately 17 billion in assets, and over $10 billion
in liability. Kmart reported annual sales of approximately $37 billion, Clearly, this
is a very large and complex case.

(Tr. at 107 IL. 2-11.) The bankruptcy court found that Kmart, through a financial matrix analysis,
identified the leases that were a cash drain on the company and required immediate action and closed
approximately 280 stores. (Tr. at 107 Il. 18-25.) The bankruptcy court found that:

The evidence indicates that the leases that survived the first cut were not identified
as being stores that needed to be closed, will not be considered on a leasc-by-Icase
basis but together as a package in conjunction with Kmart’s formulation of an overall
strategic business plan. A crucial component of the plan involves the results of the
upcoming holiday season. Holiday results are a key performance indicator of
formulating a strategic plan. It is an incorrect characterization of the evidence to say
that the leases of these three particular landlords were not reviewed. The evidence
indicates that these leases survived the first cut[;] and were not identified as leases
on stores which required closing, The landlords have not shown a particular
prejudice to them that outweighs the reasons to grant the extension, The evidence
demonstrates that Kmart can meet the post-petition obligations during the extended
period,

(Tr. at 108 Il, 5-25.)
‘The bankruptcy court further found that:

the landlords still retain the right to request a shortening of a deadline for cause based
on their particular circumstances. . . . Kmart has also demonstrated that the
March 31[], 2003 date is not an arbitrary date for the extension. Rather, the date was
selected because it will allow Kmart to review the holiday season results and the
performance of stores during that season, The Court agrees with the rationale of the
date and approves it as the date by which Kmart must decide to assume or reject non-
residential real property leases,

(Tr. at 109 Il, 1-15.) The bankruptcy court’s ruling also provided that Kmart had a right to seek

further extensions.

3.



Extension Motion.

Stone Brothers owns and operates a shopping center in Stockton, California, where Kmart
has been a lessee since 1968. Key Plaza is the lessor for a shopping center in Key West, Florida,
where Kmart has been a tenant since 1983. Both Kmart stores at these locations are still in
operation.

On April 24, 2002, a final hearing was held as to the three remaining objecting landlords,
including Stone Brothers and Key Plaza. An extensive hearing was held, covering more than ninety
pages of transcript. Kmart presented three witnesses: Ron Hutchinson (“Hutchinson”), Kmart’s chief
restructuring officer; Michael Deighan (“Deighan”), a principal of a real estate investment banking
firm that is advising Kmart; and John Foster (“Foster”), Kmart’s senior vice-president of real estate
management. The witnesses testified that an cxtension of the Lease Assumption or Rejection
Deadline was necessary to an intelligent decision-making process with respect to the disposition of
Kmart’s leasehold interests. The witnesses testified that Kmart needed to examine its operations and
make overall strategic decisions on where to concentrate its future business efforts. The witnesses
further testified that, in order to do this, Kmart needed to evaluate the results of the 2002 holiday
season and, thercfore, needed an extension unti! March 31, 2003.

Hutchinson testified that Kmart had over 2,100 stores and a large number of unexpired
leases. Hutchinson also testified that fifty-five percent of Kmart’s revenues are eamed during the
holiday shopping season and that such figures were necessary to evaluating whether to accept or
reject the lease. Foster testified that Kmart had sufficient funds to perform its financial obligations.

While Stone Brothers and Key Plaza cross-examined Kmart’s witnesses, they did not present

any evidence or witnesses.



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

KEY PLAZA I, INC.,
DOCKETES:
Plaintiff,
Case No. 02 C 4086 JAN 13 2003
v.
Hon. John W. Darrah
KMART CORPORATION,
Defendant.

STONE BROTHERS & ASSOCTATES,

Plaintiff,
Case No. 02 C 4087
ve

KMART CORPORATION,

wee Se ee Se Se eS eS ee eevee sw

Defendant.
MEMORANDUM OPINION AND ORDER

This matter comes before the Court on the appeal of an order of the bankruptcy court on
April 24, 2002, by Stone Brothers and Associates (“Stone Brothers”) and Key Plaza (“Key Plaza”).
For the rcasons that follow, these appcals are dismissed.

BACKGROUND

On January 22, 2002, Kmart Corporation (“Kmart”) filed a voluntary petition under Chapter
11 of Title 11 of the United States Code, On February 14, 2002, Kmart filed a Motion for Order
Pursuant to 11 U.S.C. § 365(d)(4) Extending the Deadline to Assume or Reject Unexpired Leases

of Nonresidential Real Property (“the Extension Motion”). About 120 landlords objected to the

-l-