Court Opinion

ID: 9465925
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:00:02.179193+00
Date Added: 2024-06-11T17:39:26.916151
License: Public Domain

MANSFIELD, Circuit Judge
(concurring):
I concur in Judge Feinberg’s carefully considered opinion.
Where rehabilitation of the debtor is contemplated, I agree that a Chapter XII trustee should be governed by the “business judgment” standard in determining whether burdensome executory lease provisions should be rejected. At the same time, as Judge Feinberg indicates, the standard governing the trustee should be whether there is a reasonable likelihood that general creditors will derive any substantial or significant benefit. If, for instance, the rejection would probably result in no benefit to general creditors or in recovery of only a few dollars for distribution to general creditors holding claims of many thousands of dollars and would result in the mortgagees gaining a windfall at the expense of the lessee, the trustee should not have the power to reject. In the latter case he would in effect be acting as a pawn for the mortgagees, benefiting them at the expense of the lessee, even though the mortgagees took their security with notice of the burdens involved *45(including the risk of higher utility costs), without any substantial resulting benefit to creditors generally.
As a representative of the bankruptcy court, which is a court of equity, the trustee should not play favorites between the lessee and secured creditors by manipulating the obligations affecting them, absent some significant benefit to the creditors generally. To do so would be inequitable. Although rejection of onerous lease obligations would increase the value of the mortgagees’ security, thereby reducing the size of any portion of their claims that could not be satisfied out of the security, it would simultaneously generate claims by the lessee against the estate for loss of his rejected executory rights.
In the present case all parties, including Bankruptcy Judge Saul Seidman, agree that the debtor is in liquidation, having long since lost any hope of rehabilitation.1 Counsel for the Trustee and the second mortgagee, Capital for Technology Corp., estimated that rejection of the Professional Park lease might increase the value of the property “by approximately $200,000.00,” and that “[a]s a result, there might be sufficient equity in the Professional Park property to pay the second mortgage indebtedness held by Capital for Technology Corp. in full and to provide additional funds to satisfy the third mortgage indebtedness to Hartford National Bank and Trust Company.” See “Appellees Supplementary Memorandum in Support of Bankruptcy Court’s Order Re: Rejection of Executory Lease Covenants as to Control Data Corporation” dated January 17, 1978. However, they refuse to give any opinion as to whether rejection would result in any overage at all for general creditors other than to say it would “enhance the possibility of recovery.” I do not think this is enough to justify rejection.
Accordingly, although I agree that a remand for the limited purposes of obtaining more specific findings on the issue of whether the general creditors would benefit from the rejection is appropriate, I would not favor rejection except upon a showing that it would result in some substantial or significant benefit to the creditors generally.

. This conclusion is implicit in Bankruptcy Judge Seidman’s memorandum opinion granting the motion to reject the lease covenants (at p. 12), where he refers to the arrangement providing for distribution of surplus proceeds following complete liquidation of the bankrupt’s property. The same plan was referred to by the Trustee’s attorney during the hearing before Judge Blumenfeld (tr. at p. 34). Appellee’s supplementary memorandum in support of the Bankruptcy Court’s order, filed in the district court, observes (at p. 4) that the proceeding in the bankruptcy court has been a gradual liquidation of the debtor’s assets.