Court Opinion

ID: 9688484
Source: CourtListenerOpinion
Date Created: 2023-08-24 17:50:26.301447+00
Date Added: 2024-06-11T12:06:27.161607
License: Public Domain

JONES, Bankruptcy Judge,
dissenting:
I would find that § 365(d)(4) is inapplicable to the instant case, and that Waterfront’s failure to assume or reject within sixty days did not terminate the agreement (“the Agreement”) between Waterfront and Port. Alternatively, if the Agreement was found to be a lease, I would find that Waterfront’s failure to assume was merely an abandonment or breach, not a termination of all leasehold interests. Therefore, I respectfully dissent.
We should look to the economic substance of a transaction, not its label, to determine whether it is a lease. In re Harris Pine Mills, 862 F.2d 217, 220 n. 5 (9th Cir.1988); Moreggia, 852 F.2d at 1182. I believe, pursuant to Moreggia,1 that the instant transaction was not a § 365(d)(4) *381lease: (1) because it lacked the requisite landlord-tenant relationship; (2) because the Debtor had only de minimus executory burdens; (3) because the intent behind § 365(d)(4) was inapplicable; and (4) because of equitable considerations.
1. Landlord/Tenant Relationship
The Agreement taken as a whole shows an intent to impose obligations and confer rights significantly different from those arising from the ordinary landlord/tenant relationship. See Moreggia, 852 F.2d at 1184. In the ordinary lease, the landlord allows the tenant to use valuable property during incremental time periods in exchange for incremental payments. In the instant case the Port’s property had little if any value until improved by Waterfront. Those improvements had approximately a sixty year life — the term of the Agreement.
An agreement which requires the tenant to pay for the entire value of a fee interest in the property up front can hardly be called an ordinary lease. Furthermore, the Agreement is unlike a lease in that it is supported by collateral agreements providing that creditors can cure any default and create a new agreement with identical terms.
2. Executory Burdens
A typical lease provides ongoing exec-utory burdens requiring the lessee to make incremental payments and the lessor to provide incremental value. In the instant case the building of the Landing and the resulting contribution to the development and economic life of the waterfront community was the greater part of Waterfront’s bargained-for performance. Waterfront’s only continuing executory burden was to make minimal monthly payments which were de minimis when compared to the remaining possessory interest in the premises,2 just as in Moreggia.3
3. Intent Behind § 365(d)(J/.)
The Moreggia court asked whether the purposes underlying § 365(d)(4) would be served by including the agreement within its provisions. 852 F.2d at 1185. Congress enacted § 365(d)(4) because of concern over shopping center vacancies which often lasted until debtors were forced to assume or reject their leases. In re Arizona Appetito’s Stores, Inc., 893 F.2d 216, 220 (9th Cir.1990). The Moreggia court found § 365(d)(4) inapplicable to its facts because the complaining party had suffered no delay, uncertainty, or other harm as a result of the Debtor’s failure to assume or reject.
In the instant case Port suffered no delay, uncertainty, or other harm during the sixty days following Waterfront’s bankruptcy filing. Waterfront paid rent each month before and after the bankruptcy filing. It did not vacate the premises, and in fact indicated to Port representatives its plan to continue its relationship with Port under the Agreement. Therefore, the intent behind § 365(d)(4) to prevent delay and uncertainty would not be served by treating the Agreement as a bona fide lease.
4. Equitable Considerations
The Moreggia court examined equitable considerations and determined that the debtor had fulfilled all of its material obligations under the agreement and that forfeiture would be inequitable. In the instant case Port argues for a $3.5 million forfeiture under circumstances similar to Moreggia. Such a forfeiture would be grossly inequitable.4
*382In summary, the Agreement should not fall within the scope of § 365(d)(4) pursuant to the four criteria set up by Moreggia.
5. Lease Termination
Finally, even if the Agreement was a lease, and even if it was deemed rejected, it was not necessarily terminated as to all parties with leasehold interests. Rejection of an unexpired lease is an abandonment or a breach — not a termination. Section 365(d)(4) does not use the term “termination” of the lease, but rather requires immediate “surrender” of the leasehold. See 2 Collier on Bankruptcy ÍÍ 365.08 (15th ed. 1991). The majority believes that the Ninth Circuit held otherwise in Sea Harvest Corp. v. Riviera Land Co., 868 F.2d 1077, 1081 (9th Cir.1989). However, the instant case can be distinguished on its facts from Sea Harvest.
In Sea Harvest, a Chapter 11 debtor failed to make a proper motion to assume or reject its lease within 60 days as required by § 365(d)(4). But unlike the instant debtor, the debtor in Sea Harvest “was substantially in default on its annual rent payments.” See id. at 1080. Furthermore, the debtor in Sea Harvest surrendered the leased property, thereby effectively “terminating the enterprise that operates there.” Id. at 1080-81.
The entire enterprise of the debtor in Sea Harvest, including its value, was found in the real estate which was surrendered. In this case, the debtor, Waterfront, created the majority of value in the property and had a right to remove the improvements: Waterfront was not required to surrender the Landing for 90 days, during which time it could remove its improvements and otherwise remain in business. This distinction is also crucial. Sea Harvest holds only that surrender equals termination. A “deemed rejection” without surrender is simply an abandonment or a breach. 2 Collier ¶ 365.08.
Therefore, if there was a lease, it was not terminated but merely abandoned or breached by Waterfront’s failure to assume.5 Bank and City should be given the opportunity to cure the breach or reform the contract pursuant to the terms of the Agreement or related agreements.

. In Moreggia, businesses displaced by a city redevelopment project were granted twenty-year "leases” in a new area with options to extend for thirty more years. Monthly payments were set at $275 until the bonds sold to finance the project were paid in full. The Moreggia court found § 365(d)(4) inapplicable to its facts.

.The minimum monthly payment after construction was $1,500 or $18,000 per year. An additional amount was owed based on a percentage of income from leasing out the Landing. The cumulative minimum monthly payments total $1.08 million over sixty years, the present value of which is de minimis compared with the Landing’s present value of approximately $3.5 million.

. The Moreggia court found that the agreement in question no longer carried executory burdens — the remaining financial obligations of $275 per month being de minimis relative to the $210,000 value remaining in the property. 852 F.2d at 1184.

. Equitable arguments alone are not enough to warrant a new or different interpretation of § 365(d)(4). Sea Harvest, 868 F.2d at 1080. However, equitable arguments can be con*382sidered as one aspect of a total analysis in determining the inapplicability of § 365 pursuant to Moreggia.

. Waterfront could seek restitutionary recovery under an unjust enrichment theory if its failure to assume constituted a breach of the Agreement. Using a theory of quantum meruit, a breaching party can recover the value of a benefit conferred in excess of the non-breaching party’s damages.