Opinion ID: 725498
Heading Depth: 2
Heading Rank: 5

Heading: The District Court's Decision on the Third Extension Motion

Text: 28 After withdrawing the reference from the bankruptcy court, the district court proceeded to decide the merits of the third extension motion and gave Burger Boys an additional fifteen days in which to accept or reject the lease. In addition, the district court ordered that if Burger Boys decided to accept the lease, it would have an additional fifteen days thereafter to deposit with the court adequate security for the entire post-petition rent owed to South Street. Although we affirm the district court's decision to grant the third extension motion, we vacate the district court's decision to allow Burger Boys to assume the lease. 29 As we explained above, in deciding a motion for extension of time to assume or reject a lease, a bankruptcy or district court (when acting under its original jurisdiction) should weigh the factors we discussed in Theatre Holding before deciding whether to exercise its discretion in granting or denying the motion. Our review of the record of the hearing before the district court as well as the parties' submissions leaves us with no doubt that the lower court properly considered those factors. Indeed, the district court considered the need for payment of rent to South Street, but found that the time period allowed by the bankruptcy court was inequitable because there was a likelihood that Burger Boys would not owe any rent. Accordingly, we find no abuse of discretion in the granting of the third extension motion. 30 We vacate the district court's order, however, to the extent that it allowed Burger Boys to assume the lease without making a formal motion. Section 365(d)(4) provides only that a lease must be assumed or rejected within the applicable time period, but does not indicate how such assumption should occur. Section 365(a), however, states that the trustee may assume a lease only subject to the court's approval, and Bankr.R. 6006 provides that [a] proceeding to assume ... an ... unexpired lease ... is governed by [Bankr.R.] 9014, which in turn requires that [i]n a contested matter in a case under the Code not otherwise governed by these rules, relief shall be requested by motion, and reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought. We agree with the majority of other courts that have considered this issue and conclude that the assumption of a lease must be done, as suggested by the Bankruptcy Rules, through a formal motion to the court. See In re Lew Mark Cleaners Corp., 86 B.R. 331, 333 (Bankr.E.D.N.Y.1988) (collecting cases). By allowing Burger Boys to assume or reject the lease by filing an election and without providing an opportunity for South Street to oppose a motion to assume, the district court erred. 31 Burger Boys contends that South Street waived its right to be heard on the assumption by not asking for the right at the hearing before the district court and by not seeking a stay of the district court's order. This argument is specious. At the hearing, the district court made it clear that it had reached a final decision and even went so far as to say that the Court enjoins any interference with the subject matter of [the lease] by anybody having notice and no additional order to that effect is necessary. Afterwards, South Street timely prosecuted this appeal. Even if a party can waive its right to a formal motion for approval of the assumption of a lease, see In re J. Woodson Hays, Inc., 69 B.R. 303, 309 (Bankr.M.D.Fla.1987), we do not see how such a waiver occurred here, see In re THW Enters., 89 B.R. 351, 355-56 (Bankr.S.D.N.Y.1988) (noting that waiver requires the intention to relinquish a right). 32 Finally, we note that the orders of the bankruptcy and district courts referenced only post-petition rent payments. From the record, it appears that Burger Boys is in arrears as to pre-petition rent payments as well. It is our understanding that before Burger Boys can be allowed to assume the lease, it must cure[ ], or provide adequate assurance that [it] will promptly cure its failure to make both pre-petition and post-petition lease payments. 11 U.S.C. § 365(b)(1)(A); see also In re Superior Toy & Mfg. Co., 78 F.3d 1169, 1174 (7th Cir.1996) (holding that § 365(b) requires payment of all pre-petition and post-petition amounts due under an executory contract before assumption); 2 King, supra, p 365.04, at 365-48 (assuming that defaults under § 365(b) include both pre-petition and post-petition defaults). We therefore remand to the district court to decide what § 365(b)(1)(A) will require under the facts of this case.