Source: http://mn.gov/law-library-stat/archive/ctapun/9807/253.htm
Timestamp: 2017-10-22 17:27:30
Document Index: 605244982

Matched Legal Cases: ['§ 365', '§ 365', '§ 349', '§ 365', '§ 365', '§ 349', '§ 349', '§ 349', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365', '§ 365']

Bankers Trust Company of California vs. Fankhanel et al., and Toberman vs. Gridley and Thompson, et al. C1-98-253, Court of Appeals Unpublished, July 21, 1998.
C1-98-253
Bankers Trust Company of California, N.A.,
as Trustee under that certain Pooling and
Servicing Agreement date as of July 1, 1992,
for RTC Commercial Mortgage Pass-Through
Certificates, Series 1992-C5,
Harry L. Fankhanel and James H. Fankhanel,
as Trustees of the Trust created by
Harry L. Fankhanel under Trust
Agreement dated June 8, 1984; et al.,
William H. Toberman and Barbara Toberman,
doing business as Towns Edge Terrace,
Sandra Gridley and Heidi Thompson,
as Co-Trustees of the Harold J. Ellsworth
Revocable Trust; et al.,
File No. C7-97-257
Robert D. Schwartz, Robert D. Schwartz Law Office, Suite 1720 IDS Center, 80 South Eight Street, Minneapolis, MN 55402; and
William J. Fisher, Gray, Plant, Mooty & Bennett, P.A., 3400 Multifoods Tower, 33 South Sixth Street, Minneapolis, MN 55401 (for appellants)
James A. Wellner, London, Anderson, Antolak & Hoeft, Ltd., 2250 One Financial Plaza, 120 South Sixth Street, Minneapolis, MN 55402 (for respondents William H. Toberman and Barbara J. Toberman)
Steven K. Champlin, Dorsey & Whitney, L.L.P., 1300 Pillsbury Center South, 220 South Sixth Street, Minneapolis, MN 55402 (for respondents Bankers Trust), and
Appellants argue that the district court erred when it granted summary judgment to respondents, ruling that the lease between the parties was not rejected in bankruptcy and that respondents did not breach the ground lease by assigning the lease without obtaining the landlord's prior consent. We affirm.
Respondent Bankers Trust Company of California brought an action against respondents William and Barbara Toberman in Ramsey County District Court, seeking to foreclose a mortgage on the Tobermans' interest in a ground lease dated October 21, 1968. The Tobermans commenced an action against appellants, seeking a declaratory judgment that the ground lease had not been rejected in an earlier bankruptcy proceeding or that the ground lease had not been assigned by the Tobermans to the Town's Edge Terrace partnership. The district court consolidated the two actions and granted the Tobermans partial summary judgment, ruling that the ground lease had not been automatically rejected in the earlier bankruptcy action and that the Tobermans did not make an assignment of their interest in the ground lease.
On appeal from summary judgment, this court asks (1) whether there are any genuine issues of material fact and (2) whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). This court "must view the evidence in the light most favorable to the party against whom judgment was granted." Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993). Summary judgment is appropriate only where is no genuine issue of material fact and either party is entitled to judgment as a matter of law. Minn. R. Civ. P. 56.03.
Appellants argue that during the bankruptcy proceeding the ground lease was automatically rejected pursuant to 11 U.S.C. § 365(d)(4) (1994) because the Tobermans did not assume the lease within 60 days of filing for bankruptcy. Under this section, a lease for nonresidential property under which the debtor is the lessee must be assumed by the trustee within 60 days of the bankruptcy filing or else it is deemed automatically rejected with the property being immediately surrendered to the lessor. 11 U.S.C. § 365(d)(4). The district court ruled that the ground lease is a lease of residential property because, as a mobile home park, people reside on the premises and thus the 60-day deadline did not apply.
The issue of whether the Tobermans rejected the ground lease is moot because the bankruptcy court dismissed the Tobermans' bankruptcy proceeding. The Bankruptcy Code provides that
[u]nless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title * * * revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title.
11 U.S.C. § 349(b)(3) (1994). Thus, the effect of the dismissal is to return the parties and property to the status they enjoyed before the petition for bankruptcy was filed.
The Fifth Circuit Court of Appeal's decision in In re Petty, 848 F.2d 654 (5th Cir. 1988), is persuasive. In that case, the debtor filed for bankruptcy under Chapter 11. Id. at 654. Among his assets, he listed a lease of rental apartments owned by the landlord. Id. The landlord moved to invoke the automatic rejection provision contained in 11 U.S.C. § 365(d)(4), arguing that the lease was covered under this section. Id. at 654-55. The bankruptcy court granted the debtor's motion to dismiss. Id. at 655. The court also denied the landlord's motion to declare the lease rejected. Id. The landlord appealed the bankruptcy court's decisions to the federal district court. Id. The district court upheld the denial of the landlord's motion to declare the lease rejected under 11 U.S.C. § 365(d)(4), ruling that section 365(d)(4) did not apply to leases of apartment buildings. Id.
The Fifth Circuit held that the bankruptcy court lacked jurisdiction to decide whether the lease was rejected under section 365 because the bankruptcy court had previously dismissed the bankruptcy proceeding. The court stated that
Title 11 U.S.C. § 349 describes the effect of dismissal in a bankruptcy case. Subsection (b)(3) states that a dismissal "revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title." Congress designed § 349(b) to "undo the bankruptcy case," restoring property rights to their pre-cause status.
* * * [I]t would be inconsistent with the language and express purpose of § 349(b), by which Congress sought to restore property rights to their pre-action status, if we were to allow the § 365(d)(4) motion to alter property rights after the dismissal.
Id. (quoting S. Rep. No. 95-989, at 49, reprinted in 1978 U.S.C.C.A.N. 5787,5835).
The Utah Supreme Court reached a similar result in First Sec. Bank v. Creech, 858 P.2d 958 (Utah 1993). In that case, the debtors filed for bankruptcy, and the bank, therefore, deemed them in default on a series of loan agreements. Id. at 961. Eventually the debtors' bankruptcy petition was dismissed by the bankruptcy court. Id. The state supreme court, in the bank's foreclosure action, held that the debtors' filing for bankruptcy could not be used as the basis to find the debtors' in default under the loan agreements. Id. at 964. The Utah Supreme Court stated
Thus, even if the [debtors] defaulted under the original agreements by filing for bankruptcy or failing to make payments during the bankruptcy--thereby losing their rights under the loan agreements and giving [the bank] the opportunity to foreclose--section 349(b)(3) returned the [debtors] to the same position they occupied prior to filing the petition.
Other courts have also concluded that a dismissal returns the parties to their pre-bankruptcy petition status. See In re Shea & Gould, 214 B.R. 739, 750 (Bankr. S.D.N.Y. 1997) (stating "[t]he effect of a dismissal of a case is 'to place the parties in the same position that they were in before the bankruptcy petition was filed'") (quoting 7 Collier on Bankruptcy |P 1112.09 at p. 1112-78 (Lawrence P. King ed., 15th ed. rev. 1997)); In re Scheierl, 176 B.R. 498, 504 (Bankr. D. Minn. 1995) (stating a dismissal "restores the full pre-petition status quo as to the debtor's property rights, and his creditor's competing claims against them").
Because the bankruptcy court did not decide the issue of whether the Tobermans accepted or rejected the ground lease and dismissed the bankruptcy proceeding, we conclude that the parties were returned to their pre-petition status and that the ground lease was not automatically rejected under 11 U.S.C. § 365(d)(4).
Alternatively, the district court also did not err when it concluded that the lease was a lease of residential property and that 11 U.S.C. § 365(d)(4) does not apply. The majority of federal bankruptcy courts that have interpreted this section hold that the term "nonresidential" characterizes the actual use of the property and the purpose of the lease. See In re Bonita Glenn II, 152 B.R. 751, 754 (Bankr. S.D. Cal. 1993) (holding based on plain meaning of 11 U.S.C. § 365(d)(4), legislative intent, and majority of cases interpreting section, ground lease underlying apartment building is residential for purposes of 11 U.S.C. § 365(d)(4)); In re Lippman, 122 B.R. 206, 210-11 (Bankr. S.D.N.Y. 1990) (holding "for purposes of section 365(d)(4), the nature of the property, and not the nature of the lease, governs whether a lease is nonresidential" and lease of apartments residential even though debtor derives income from lease); In re Care Givers, Inc., 113 B.R. 263, 267 (Bankr. N.D. Tex. 1989) (holding section 365(d)(4) "applies only to property which is wholly nonresidential[;] [r]eal property which has both residential and nonresidential aspects is not 'nonresidential' within the meaning of § 365(d)(4)" and lease of nursing home is residential under this section).
For our purposes, leasing space in a mobile home park is little different from leasing space in an apartment complex. Although income is derived from the ground lease, the real property is being used for residential purposes. We conclude, as did the district court, that the use of the real property governs and that the real property in this case is being used for residential purposes. Therefore, under the holdings in Bonita Glen II, Lippman, and Care Givers, Inc., we conclude that the ground lease was not automatically rejected under 11 U.S.C. § 365(d)(4).
Appellants rely on the Minnesota Tax Court's decision in Three Rivers Partnership v. County of Dakota, No. C0-97-7287, 1997 WL 710937 (Minn. T.C. Nov. 12, 1997). This reliance is misplaced. In that case, the issue was whether a mobile home park constituted "residential * * * nonhomestead" property within the meaning of the Minnesota tax code. Id. at *1. The legislative purpose and history of the Minnesota tax code and the federal bankruptcy code are different. We decline to use a Minnesota Tax Court decision, interpreting Minnesota tax law on a different issue, to construe the purpose and meaning of language in the federal bankruptcy code.
Appellants argue that the Tobermans breached the anti-assignment provision of the ground lease when the Tobermans, in their submissions to the bankruptcy court, characterized their operation of the mobile home park as a partnership. Appellants claim that because the Tobermans characterized their relationship and operation of the mobile home park as a partnership in the bankruptcy proceeding, "a transfer had to have occurred." Therefore, according to appellants, the Tobermans breached the ground lease because the Tobermans assigned their interest to the partnership without their consent.
no particular form of words is required for an assignment, * * * the assignor must manifest an intent to transfer and must not retain any control or any power of revocation.
Minnesota Mut. Life Ins. Co. v. Anderson, 504 N.W.2d 284, 286 (Minn. App. 1993) (citing Guaranty State Bank v. Lindquist, 304 N.W.2d 278, 280-81 (Minn. 1980)), review denied (Minn. Oct. 19, 1993). The intent to transfer is indispensable and without it the assignment is fatally defective. Jackson Nat'l Bank v. Christensen, 146 Minn. 303, 306-07, 178 N.W. 494, 495 (1920) (holding assignment fatally defective where no intent to transfer manifested and assignor retains control over res); see also Hardle v. Preston Energy, Inc., 374 N.W.2d 807, 809 (Minn. App. 1985) (holding an assignment of lease did not occur where there was no evidence of alleged assignor's intent to transfer its interest in lease of premises or of the alleged assignor's relinquishment of control over premises).
Here, there is no record evidence that the Tobermans intended to transfer their interest in the ground lease to the partnership or that they relinquished control over their interest in the ground lease. There is no written assignment or agreement between the Tobermans and the partnership, and there was never any change in the mobile home park's operation by the Tobermans during the bankruptcy proceeding. When filing for bankruptcy, the Tobermans were required to characterize their operation of the mobile home park. They concluded that they had been operating as a partnership. This does not mean that a transfer of the Tobermans' interest in the ground lease occurred. The Tobermans simply characterized their relationship for the purposes of filing for bankruptcy. Without any evidence that the Tobermans intended to transfer their interest in the ground lease to the partnership or that they relinquished control over the mobile home park, there was no assignment as a matter of law.