Opinion ID: 3006049
Heading Depth: 3
Heading Rank: 2

Heading: Has IDEA made a strong showing of its

Text: likelihood of success on the merits? IDEA makes three arguments before us on the merits, but we need address only one: whether the Bankruptcy and District Courts erred in holding that Revel met one of § 363(f)’s statutorily enumerated conditions to sell its assets free and clear. Revel contends they didn’t err because IDEA twice sought to establish (via declaratory judgment actions) that it held a non-residential lease and Revel denied that IDEA had a lease. In Revel’s view, this proves that a bona fide dispute exists under § 363(f)(4), as “a declaratory judgment is only proper when an actual ‘case or controversy’ exists.” Revel Br. 34. We disagree yet again. 28 As an initial matter, the mere filing of a declaratory judgment action doesn’t itself create a bona fide dispute under § 363(f)(4), even if Article III’s “case or controversy” requirement has been met. The latter ensures only that the declaratory judgment plaintiff has standing and a redressable injury. Further, that IDEA alleged (and Revel denied) the former held a non-residential lease doesn’t mean there was a bona fide dispute as to the validity of its lease. “Bona fide dispute” in the § 363(f)(4) context means that there is an objective basis—either in law or fact—to cast doubt on the validity of IDEA’s purported lease. To satisfy that provision, Revel needed to show there was some factual or legal basis to deny that IDEA held a “true lease.” But it did nothing of the sort. First, a review of IDEA’s complaint makes plain that its principal (and only) purpose was to invoke its rights under § 365(h) and “clarify its appurtenant rights for,” among other things, “a utility easement,” not to litigate the nature of its interest. Reply Br. 6; see also Oral Arg. Tr. 15:14–15 (counsel for IDEA noting that its suit was meant only to have the Court “declare and enforce [IDEA’s] [] rights” under § 365(h)). The relevant paragraphs alleged the following: 125. [O]n or about May 12, 2012, [Revel] and IDEA . . . entered into a lease for nonresidential real property concerning certain premises at the Casino. 126. On August 28, 2014, [Revel] filed the Rejection Motion. 127. A hearing on the Rejection Motion is currently scheduled for October[]7, 2014. 29 128. If the Rejection Motion is granted, IDEA will have an opportunity to make an election under Section 365(h) of the Bankruptcy Code. 129. Section 365(h) . . . provides a lessee of real property under a rejected lease with the option of either retaining the estate, including, among other things, the continued right to possession or to treat the lease as terminated. 130. To the extent that IDEA elects to remain in possession, § 365(h) . . . allows it, despite rejection, to continue to enjoy its rights under such lease that are in or appurtenant to the real property, including the right to continued possession, utilities and necessary easements. Wherefore, [] IDEA seeks an order and judgment as follows:
Lease, . . . IDEA may continue to enjoy its right under the Lease, including the right to continued possession, utility service and necessary easements; and
Reply Br. 5–6 (emphasis omitted) (quoting Am. Compl. ¶¶ 125–30, IDEA Boardwalk, LLC v. Revel Entm’t Grp., LLC, No. 14-01756 (Bankr. D.N.J. Sept. 26, 2014), ECF No. 6). Moreover, even if IDEA had squarely put the validity of its lease at issue, nothing Revel said in response created an objective legal dispute. Revel’s only argument was that its agreement with IDEA doesn’t qualify as “a true lease” 30 because it “provides for ‘rent’ payments based entirely on a percentage of the revenue derived from [IDEA’s operations]” and contains “numerous [] examples of provisions atypical of true leases.” Mot. to Dismiss ¶ 31, IDEA Boardwalk, LLC v. Revel Entm’t Grp., LLC, No. 14-01756 (Bankr. D.N.J. Oct. 13, 2014), ECF No. 8. Yet Revel failed to cite a single authority suggesting that a percentage-lease clause disqualifies a purported lease from being one. To leave no doubt that a true lease exists, IDEA’s agreement with Revel bars any argument to the contrary. It provides that [n]othing contained in this Lease shall be deemed or construed as creating the relationship of . . . partnership or joint venture between the parties hereto, it being understood and agreed that neither the method of computing rent, payment of the Tenant Fees nor any other provision contained herein nor any acts of the parties hereto shall be deemed to create any relationship between the parties other than that of Landlord and Tenant. The provisions of this Lease relating to the Percentage Rent payable hereunder are included solely for the purpose of providing a method whereby adequate rent is to be measured and ascertained. Mot. to Dismiss Ex. A, at 56, IDEA Boardwalk, LLC v. Revel Entm’t Grp., LLC, No. 14-01756 (Bankr. D.N.J. Oct. 13, 2014) (Section 21.12 of the Lease Agreement), ECF No. 8. The only conclusion from this is that any dispute regarding the validity of IDEA’s lease was fanciful if not 31 disingenuous. 12 As such, we part ways with the District Court’s holding that IDEA’s declaratory judgment request “provides some objective basis, at a minimum,” of a “bona fide issue in dispute.” In re Revel, 525 B.R. at 29. Before we conclude, we would be remiss if we did not highlight the troubling consequences of Revel’s argument. If whenever a lessee attempts to invoke its rights under § 365(h) by asserting as a predicate that it holds a nonresidential lease, 12 Underscoring this is that, on June 24, 2015, the Bankruptcy Court, per another Judge, concluded that Revel’s agreement with IDEA constitutes a “true lease” under New Jersey law and that § 365(h) protects its right “to remain in possession for the balance of the terms set forth in the Agreement[], and any renewal or extension period.” In re Revel AC, Inc., 532 B.R. 216, 227, 229 (Bankr. D.N.J. 2015). As to whether the agreement was a true lease, the Court said the following: [Polo North] places before the Court ample case law supporting the contention that a court must not be swayed by “form over substance” when determining the existence of a true lease. While this maxim is accurate, at some point form becomes substance. We have reached that point. The express terms of the Agreement[], together with supporting affidavits, make it clear that [Revel] and [IDEA] had the unequivocal intention of entering into true lease agreements. Id. at 226. 32 every debtor would be well advised to file an answer denying that the lease exists. Revel’s only response is that, by filing a declaratory judgment action, IDEA is “affirmatively alleging, subject to Rule 11, that there is a dispute as to that issue,” as there needs to be “an actual case or controversy” in order to have a declaratory judgment action. Oral Arg. Tr. 70:10–17. That argument makes no sense. A declaratory judgment plaintiff does not fall afoul of Rule 11 by making an allegation in its complaint that it knows to be true. That rule comes into play only where a plaintiff files a complaint without basis in law or fact. Quite the opposite is what we have here.