Opinion ID: 797372
Heading Depth: 2
Heading Rank: 3

Heading: Whether the Bankruptcy Court Abused Its Discretion

Text: 28 In an appeal from a district court's review of a bankruptcy court's decision, we review the decision of the bankruptcy court independently, accepting its factual findings unless they are clearly erroneous and reviewing its conclusions of law de novo. See Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir.2006). Assuming that the bankruptcy court had equitable authority to make its approval of rejection retroactive, we review the exercise of that equitable authority only for abuse of discretion. See Abrahamson v. Bd. of Educ., 374 F.3d 66, 76 (2d Cir.2004) (We review a district court's fashioning of equitable relief for abuse of discretion.); cf. Cushman & Wakefield of Conn., Inc. v. Keren Ltd. P'ship (In re Keren Ltd. P'ship), 189 F.3d 86, 87-88 (2d Cir.1999) (per curiam) (reviewing nunc pro tunc approval of professionals seeking to render services to a bankruptcy estate under 11 U.S.C. § 327(a) for abuse of discretion). We thus follow our sister circuits, which also review these retroactivity decisions for abuse of discretion. See At Home, 392 F.3d at 1072; Thinking Machs., 67 F.3d at 1028. 29 The procedural posture of this case presents us with an unusual situation: While we do not decide whether the bankruptcy court has equitable authority to make its approval of the lease rejection retroactive, we still must determine if the bankruptcy court abused its discretion in exercising a power that may not exist. We hesitate to fashion general rules guiding the exercise of a power that may be unfounded. Nonetheless, to provide guidance in future decisions, we explore the contours of this purported power based upon the decisions of other courts that have found it to exist or assumed its existence. A 2 30 The fault for the 33-month delay in deciding the rejection motion principally rested with the bankruptcy court (as it candidly conceded). However, the parties were not blameless: They remained quiescent even though they knew that the premises were vacant and the losses were accruing for someone. In assigning the risk of loss as an equitable matter, the bankruptcy court properly considered how the parties conducted themselves in the circumstances of this case. While neither party was more at fault than the other for the delay in deciding the rejection motion, we do not believe that the bankruptcy court abused its discretion in finding that the equities tipped in favor of the May 29, 2002 effective date. 31 Under the assumption that it could make its order retroactive, the bankruptcy court's pronouncement at the May 29, 2002 hearing put Abnos on clear notice of the possibility that an order approving rejection would be retroactive to the hearing date. We need not resolve the parties' dispute over whether the May 29, 2002 pronouncement somehow bound Abnos; at the very least, it notified Abnos of the proposed effective date and of the consequent risk to him—a risk that increased as time passed without any decision on the rejection motion. B 32 The bankruptcy court also properly considered that Adelphia had vacated the premises and thereby provided Abnos with the opportunity to lease the premises to another tenant, which he did not try to do. By reletting, Abnos could have mitigated the risk of which he was on notice. 3 This factor weighs in favor of granting retroactive relief here. See At Home, 392 F.3d at 1074 (holding that a bankruptcy court did not abuse its discretion in considering that the tenant vacated the leased premises). Compare In re Fleming Cos., 304 B.R. 85, 96 (Bankr.D.Del.2003) (permitting retroactivity where premises were surrendered), and In re Amber's Stores, 193 B.R. 819, 827 (Bankr.N.D.Tex.1996) (same), with In re Chi-Chi's, Inc., 305 B.R. 396, 399 (Bankr.D.Del.2004) (declining to order retroactivity when the premises were not surrendered), and In re Cafeteria Operators, L.P., 299 B.R. 384, 394 (Bankr.N.D.Tex. 2003) (ordering retroactive rejection of leases of vacated premises but not for occupied premises). 33 Abnos argues that he could not control when the bankruptcy court would issue its ruling and that he was barred from unilaterally reletting the premises because 11 U.S.C. § 362(a)(3) provides an automatic stay of any act to obtain possession of the property of the estate or of property from the estate. See also Smart World Techs., 423 F.3d at 174; Roslyn Savings Bank v. Comcoach Corp. (In re Comcoach Corp.), 698 F.2d 571, 573 (2d Cir.1983). However, Abnos very likely could have relet by requesting court-ordered relief from the stay. See 3 Collier on Bankruptcy ¶ 365.09[4] (proposing that bankruptcy courts grant relief from the automatic stay to allow a landlord to proceed in state court to regain possession of the premises); cf. In re Ames Dep't Stores, Inc., 306 B.R. 43, 52-53 (Bankr.S.D.N.Y.2004) (stating in dicta that if a debtor continued occupancy after rejection, the landlord might be entitled to relief from the stay to complete eviction). 34 Abnos also argues that reletting would have been inconsistent with his opposition to the rejection motion. But Abnos never presented this dilemma (if it is a dilemma) to the bankruptcy court, which could have fashioned relief pending the delay or issued its ruling more promptly. 35 We reject Abnos' argument that the debtor must bear the risk of delay in prosecuting its motion for approval of rejection unless the landlord was at fault for the delay or acted in bad faith. A bankruptcy judge must not be shackled with unnecessarily rigid rules when exercising the undoubtedly broad administrative power granted him under the Code, but rather must have substantial freedom to tailor his orders to meet differing circumstances. Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1069 (2d Cir.1983); see also At Home, 392 F.3d at 1075 (We likewise eschew any attempt to limit the factors a bankruptcy court may consider when balancing the equities in a particular case.). Section 105(a) grants broad equitable power to the bankruptcy courts to carry out the provisions of the Bankruptcy Code so long as that power is exercised within the confines of the Bankruptcy Code. See 11 U.S.C. § 105(a); Smart World Techs., 423 F.3d at 183-84. Assuming that the bankruptcy courts have the authority to issue orders like the one at issue, we must give them generous latitude to shape equitable relief under § 365, and see no reason to make landlord culpability a requirement for retroactivity. We note that numerous lower court decisions have made orders retroactive without considering whether the landlord acted in bad faith. See, e.g., Stonebriar Mall Ltd. P'ship v. CCI Wireless, LLC (In re CCI Wireless, LLC), 297 B.R. 133, 140 (D.Colo.2003) (holding that although the lessor did not cause delay, the bankruptcy court did not abuse its discretion in ordering retroactive relief where the debtor had not been in possession of leased premises since before filing for Chapter 11 protection); Amber's Stores, 193 B.R. at 827. 36 We are also unpersuaded by the proposition that because Abnos had no duty to mitigate his losses from breach of the lease under Missouri law, see JCBC, LLC v. Rollstock, Inc., 22 S.W.3d 197, 200-01 (Mo.Ct.App.2000)—which we assume governs the lease—the bankruptcy court should not have considered whether he could relet. Abnos was certainly free not to mitigate his damages, and under Missouri law he may be entitled to damages from the breach occasioned by the rejection without any penalty for not mitigating his losses. This rule of contract law, however, is beside the point; it does not affect the bankruptcy court's equitable consideration of the practical effect of Abnos' ability to protect himself by reletting the premises. See At Home, 392 F.3d at 1074 (Nothing in the statute, in the precedents, or in logic precludes the bankruptcy court from considering the practical effects of a tenant's lack of occupancy when balancing the equities in the context of § 365(d)(3).).