Opinion ID: 2974625
Heading Depth: 3
Heading Rank: 2

Heading: Trial in the bankruptcy court

Text: Following the district court’s remand, the bankruptcy court conducted a trial on the issue of damages. In the Joint Pretrial Statement filed with the bankruptcy court, Queensgate claimed that the general provisions of the Lease supported its claim. Specifically, Queensgate referred to § 13(a) of the Lease, which provided that Regal must “maintain the Leasehold Premises in the same good and orderly condition in which it was delivered” and return it to Queensgate in the same condition, excepting ordinary wear and tear; § 14(a) of the Lease, which required Regal to remove “all alterations and improvements made during the Lease Term”; and § 17(a) of the Lease, which required Regal to return the premises to Queensgate “in as good order and condition as when -3- No. 06-5063 Queensgate Associates, LLC v. Regal Cinemas, Inc. received, ordinary wear and tear excepted.” The breach of these Lease provisions, according to Queensgate, resulted in damages of almost $1.2 million. Finally, Queensgate referred to ¶ 3(G) of the Addendum to the Lease (“Addendum”), which provides that [u]pon the expiration of the Lease Term or the Renewal Terms (or upon any earlier termination of the Lease), the Tenant shall, at the option of the Landlord, restore the floor of the Leased Premises to the condition of same as of the date of the Lease, including, but not limited to, removal of all theater seats, and removal of any elevated or graduated flooring . . . . Landlord shall give Tenant written notice if Landlord desires Tenant to restore the floor of the Leased Premises . . . within six (6) months after any termination of the Lease. Queensgate stated that the breach of this provision of the Lease caused it damages of “at least $739,298.00.” The hearing in the bankruptcy court included testimony from Michael Arkin, principal of Queensgate Associates; Jeffrey Packard, a construction estimator; and Matthew Laughlin, an employee of Regal who was the general manager of the theater located in the Queensgate Shopping Center. Michael Arkin testified that the condition of the premises following Regal’s departure was one of “intended destruction,” that the seats were removed, wires were pulled out from the wall, and trash strewn about. He testified regarding his desire to return the premises to a “vanilla box” condition suitable for general retail use and stated that he requested an estimate from Packard regarding the costs associated with converting the premises to vanilla box condition. Arkin also testified that the floors were never leveled because Queensgate was waiting for Regal to pay -4- No. 06-5063 Queensgate Associates, LLC v. Regal Cinemas, Inc. Queensgate’s claims, but also that another theater was currently operating on the premises. On cross-examination, Arkin stated that there were no receipts for any alleged damages to the premises because the space was leased to the new tenant in an as-is condition and that the new tenant made any necessary repairs. Regarding the repair estimate attached to Queensgate’s response to Regal’s objection filed with the bankruptcy court, Arkin acknowledged that there was nothing in the estimate to indicate that the cost of leveling the floors was a significant portion of the costs. When asked whether written notice was provided to Regal regarding the floors, Arkin testified that he did not send any notice, but that he asked his attorneys to do what was necessary in the bankruptcy case. When counsel for Regal asked Arkin whether Arkin offered to purchase the theater equipment from Regal, Arkin answered in the affirmative. Packard testified regarding the costs of restoring the leased premises to vanilla box condition. He detailed the necessary steps in restoring the floors to level condition and the steps taken in formulating an estimate. When asked about the related costs of restoring the floors, Packard went into detail about the process, specifically that once the floor elevation is changed, one must also deal with related repairs, to the walls, for example. On cross-examination by Regal’s attorney, Packard stated that he was not asked to submit an estimate regarding costs to repair damage or vandalism to the premises. Laughlin testified for Regal regarding Regal’s vacating of the leased premises. He testified that Regal removed and discarded the seats and the screens and removed the projection equipment. Laughlin said that wiring was capped-off with wire nuts when the poster cases were removed, and -5- No. 06-5063 Queensgate Associates, LLC v. Regal Cinemas, Inc. that there were holes in the walls where the screws holding up the poster cases had been removed. He stated that Regal left the premises in a clean condition. During closing arguments, counsel for Queensgate focused on Regal’s obligation to level the floors under ¶ 3(G) of the Addendum. He maintained that, because this was a Chapter 11 case, all Queensgate could do was reduce its claim to money damages, which it did. Counsel argued that Queensgate provided notice with the estimate attached to Queensgate’s response to Regal’s objection. Additionally, counsel for Queensgate argued that Regal failed to raise the issue of notice under ¶ 3(G) of the Addendum and that Regal could not at trial rely on such a defense. Finally, Queensgate pointed to Regal’s duties under § 14 of the Lease, which required Regal to remove alterations and improvements made during the Lease term, and Queensgate maintained that its claim was not capped by § 502(b)(6). Regal maintained in its closing argument that the issue of any duty to level the floors was not brought up until after the district court’s remand and that, in any event, § 502(b)(6) capped Queensgate’s claim. The bankruptcy court again denied Queensgate’s claim. In its memorandum opinion, the court rejected Queensgate’s argument that the general provisions of the Lease required Regal to restore the floors to a level condition. The bankruptcy court noted that the general provisions did not mention leveling the floors. Because ¶ 3(G) of the Addendum dealt specifically with the condition of the floors, the court reasoned, the general rule of construction that specific provisions -6- No. 06-5063 Queensgate Associates, LLC v. Regal Cinemas, Inc. control general provisions applied. The court stated that it was “undisputed that Queensgate gave no formal notice of its desire to have the floors leveled,” and rejected Queensgate’s argument that the proof of claim and response to Regal’s objection provided the required notice. The court pointed out that Queensgate consistently argued until trial that Queensgate offered to purchase Regal’s equipment so that Queensgate could continue to operate the premises as a theater and that neither Regal nor the court was on notice of Queensgate’s claim regarding the floors. Finally, the bankruptcy court held that Queensgate’s claim regarding the floors was subject to the cap in § 502(b)(6).