MEMORANDUM OPINION AND ORDER
KRAM, District Judge.
FACTUAL BACKGROUND
Irving Trust Company (“Irving”) leased four floors in a commercial building located in Manhattan from Seymour B. Durst, Roy H. Durst, David M. Durst and Alma D. Askin for a 21-year term, ending in 1986. Pursuant to a sublease dated September 1, 1965, D.H. Overmyer Company, Inc. (“Ov-ermyer”), rented two of these floors from Irving for approximately fifteen years— from 1965 to 1980.
On November 16, 1973, Overmyer filed a bankruptcy petition under Chapter XI; on or about December 26, 1973, the bankruptcy court granted Overmyer’s application to reject and disaffirm its unexpired sublease with Irving. Irving then attempted to rer-ent the space vacated by Overmyer for $8.50 per square foot, which exceeded the $5.50 per square foot price which Over-myer had paid. Irving was unable to rer-ent the entire space and recouped only a portion of its damages. Irving subsequently filed a proof of claim for $650,272.99 (later amended to $476,043.93 at trial) for losses arising from Overmyer’s rejection of the lease.
Overmyer objected to Irving’s claim by Notice and Application dated November 24, 1976. On March 3, 1978, a trial of the objections was held before Bankruptcy Judge Roy Babitt. While this matter was
sub judice,
Bankruptcy Judge Joel Lew-ittes replaced Judge Babitt before the lat
ter had issued a decision. The parties agreed to allow Judge Lewittes to rule upon Irving’s claim without a further evi-dentiary hearing.
In his January 14, 1983 decision, Judge Lewittes ruled that Irving had not sustained actual damages as a result of Over-myer’s rejection of the unexpired lease agreement. The Court found that Irving failed to overcome the governing presumption that a landlord can rerent a premises at the same rate as is reserved under the lease. Thus, the Court ruled that the “survival clause”
contained in the sublease (which provided Irving with liquidated damages in the event that Overmyer breached the lease) should not be triggered to grant Irving its requested relief.
The bankruptcy court stated that the federal courts “uniformly follow” a rule for calculating damages in these situations. January 14, 1983 decision, at 12. This rule, established by the Supreme Court in
City Bank Farmers Trust Co. v. Irving Trust Co.,
299 U.S. 433, 57 S.Ct. 292, 81 L.Ed. 324 (1937), provides that damages for the breach of an unexpired lease in the bankruptcy context consist of “the difference between the present value of the rent reserved under the lease and the present fair rental value of the property for the remainder of the term, presumptively equal amounts.” January 14, 1983 decision, at 13.
The bankruptcy court stated that when applying this rule, a rebuttable presumption exists that the lessor can rerent the leased premises without incurring loss.
Id.
This presumption is rebutted if the landlord can show that despite “reasonable efforts,” he was unable to rerent at the lease amount.
Id.
at 27.
In reaching his decision, Judge Lewittes did not apply the damages formula established in
Irving Trust Co.,
but initially looked to the survival clause created by the parties.
However, before applying the survival clause the Court adopted the presumption that a landlord can rerent at the lease amount and inquired as to whether Irving made reasonable efforts to rerent the premises. The Court added:
While a state court would not require a landlord to make reasonable efforts to mitigate damages due under a survival clause, this Court must. And the reasonable efforts this Court requires should not differ depending upon whether a lease includes a survival clause or whether judicially determined measurements of rejection damages apply instead.
Id.
at 27. Thus, the Court determined that the reasonableness inquiry was necessary regardless of whether the Court applied the damages formula used by the federal courts or the survival clause appearing in the lease.
After analyzing Irving’s efforts to rerent the premises, the Court concluded that Irving failed to rebut the presumption that a landlord can rerent an unexpired lease term at the lease amount.
Id.
The Court reached this determination because Irving sought to rerent the space vacated by Ov-ermyer at its fair market value, which exceeded the amount provided in the lease.
In reaching this decision, the Court rejected the New York rule that a landlord need not use reasonable efforts to rerent a premises once the lease has been terminated, since it would lead to an unreasonable result.
Id.
at 16. The Court explained that this rule gave Irving the potential of a double recovery: Irving could collect three years rent from the debtor in a bankruptcy proceeding and rerent the premises to a third party.
Id.
The Court determined that this rule conflicted with bankruptcy policy and thus should not be followed.
Id.
The Court concluded that Irving failed to sustain actual damages and thus, was not entitled to the damages provided for in the survival clause.
After issuing this decision, Judge Lew-ittes resigned. Pursuant to this decision, Bankruptcy Judge John J. Galgay expunged Irving’s claim in an order dated June 8, 1988. In the instant motion, Irving appeals this order.
ISSUES PRESENTED
Irving argues that the bankruptcy court erred in failing to award damages as provided for in the survival clause of the sublease. Secondly, Irving maintains that the bankruptcy court should have applied New York law, which does not require a landlord to mitigate damages in a commercial setting.
Overmyer contends,
inter alia,
that Irving simply failed to prove that it sustained actual damages as a consequence of Over-myer’s rejection of the sublease and that the Court properly applied the federally created law of rejection damages.
THE LAW
Section 353 of the Bankruptcy Act, 11 U.S.C. § 753 (repealed),
provides a limitation of damages for landlords’ claims based on rejected unexpired leases. Under this provision, a landlord can prove his claim for losses resulting from the rejection of an unexpired lease of real estate but may only recover
an amount not to exceed the rent, without acceleration, reserved by such lease for the three years next succeeding the date of the surrender of the premises to the landlord ... plus unpaid accrued rent, without acceleration, up to the date of surrender.
Although Section 353 provides a limitation on the amount of damages a landlord can recover, it fails to include a method of calculating these damages.
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MEMORANDUM OPINION AND ORDER
KRAM, District Judge.
FACTUAL BACKGROUND
Irving Trust Company (“Irving”) leased four floors in a commercial building located in Manhattan from Seymour B. Durst, Roy H. Durst, David M. Durst and Alma D. Askin for a 21-year term, ending in 1986. Pursuant to a sublease dated September 1, 1965, D.H. Overmyer Company, Inc. (“Ov-ermyer”), rented two of these floors from Irving for approximately fifteen years— from 1965 to 1980.
On November 16, 1973, Overmyer filed a bankruptcy petition under Chapter XI; on or about December 26, 1973, the bankruptcy court granted Overmyer’s application to reject and disaffirm its unexpired sublease with Irving. Irving then attempted to rer-ent the space vacated by Overmyer for $8.50 per square foot, which exceeded the $5.50 per square foot price which Over-myer had paid. Irving was unable to rer-ent the entire space and recouped only a portion of its damages. Irving subsequently filed a proof of claim for $650,272.99 (later amended to $476,043.93 at trial) for losses arising from Overmyer’s rejection of the lease.
Overmyer objected to Irving’s claim by Notice and Application dated November 24, 1976. On March 3, 1978, a trial of the objections was held before Bankruptcy Judge Roy Babitt. While this matter was
sub judice,
Bankruptcy Judge Joel Lew-ittes replaced Judge Babitt before the lat
ter had issued a decision. The parties agreed to allow Judge Lewittes to rule upon Irving’s claim without a further evi-dentiary hearing.
In his January 14, 1983 decision, Judge Lewittes ruled that Irving had not sustained actual damages as a result of Over-myer’s rejection of the unexpired lease agreement. The Court found that Irving failed to overcome the governing presumption that a landlord can rerent a premises at the same rate as is reserved under the lease. Thus, the Court ruled that the “survival clause”
contained in the sublease (which provided Irving with liquidated damages in the event that Overmyer breached the lease) should not be triggered to grant Irving its requested relief.
The bankruptcy court stated that the federal courts “uniformly follow” a rule for calculating damages in these situations. January 14, 1983 decision, at 12. This rule, established by the Supreme Court in
City Bank Farmers Trust Co. v. Irving Trust Co.,
299 U.S. 433, 57 S.Ct. 292, 81 L.Ed. 324 (1937), provides that damages for the breach of an unexpired lease in the bankruptcy context consist of “the difference between the present value of the rent reserved under the lease and the present fair rental value of the property for the remainder of the term, presumptively equal amounts.” January 14, 1983 decision, at 13.
The bankruptcy court stated that when applying this rule, a rebuttable presumption exists that the lessor can rerent the leased premises without incurring loss.
Id.
This presumption is rebutted if the landlord can show that despite “reasonable efforts,” he was unable to rerent at the lease amount.
Id.
at 27.
In reaching his decision, Judge Lewittes did not apply the damages formula established in
Irving Trust Co.,
but initially looked to the survival clause created by the parties.
However, before applying the survival clause the Court adopted the presumption that a landlord can rerent at the lease amount and inquired as to whether Irving made reasonable efforts to rerent the premises. The Court added:
While a state court would not require a landlord to make reasonable efforts to mitigate damages due under a survival clause, this Court must. And the reasonable efforts this Court requires should not differ depending upon whether a lease includes a survival clause or whether judicially determined measurements of rejection damages apply instead.
Id.
at 27. Thus, the Court determined that the reasonableness inquiry was necessary regardless of whether the Court applied the damages formula used by the federal courts or the survival clause appearing in the lease.
After analyzing Irving’s efforts to rerent the premises, the Court concluded that Irving failed to rebut the presumption that a landlord can rerent an unexpired lease term at the lease amount.
Id.
The Court reached this determination because Irving sought to rerent the space vacated by Ov-ermyer at its fair market value, which exceeded the amount provided in the lease.
In reaching this decision, the Court rejected the New York rule that a landlord need not use reasonable efforts to rerent a premises once the lease has been terminated, since it would lead to an unreasonable result.
Id.
at 16. The Court explained that this rule gave Irving the potential of a double recovery: Irving could collect three years rent from the debtor in a bankruptcy proceeding and rerent the premises to a third party.
Id.
The Court determined that this rule conflicted with bankruptcy policy and thus should not be followed.
Id.
The Court concluded that Irving failed to sustain actual damages and thus, was not entitled to the damages provided for in the survival clause.
After issuing this decision, Judge Lew-ittes resigned. Pursuant to this decision, Bankruptcy Judge John J. Galgay expunged Irving’s claim in an order dated June 8, 1988. In the instant motion, Irving appeals this order.
ISSUES PRESENTED
Irving argues that the bankruptcy court erred in failing to award damages as provided for in the survival clause of the sublease. Secondly, Irving maintains that the bankruptcy court should have applied New York law, which does not require a landlord to mitigate damages in a commercial setting.
Overmyer contends,
inter alia,
that Irving simply failed to prove that it sustained actual damages as a consequence of Over-myer’s rejection of the sublease and that the Court properly applied the federally created law of rejection damages.
THE LAW
Section 353 of the Bankruptcy Act, 11 U.S.C. § 753 (repealed),
provides a limitation of damages for landlords’ claims based on rejected unexpired leases. Under this provision, a landlord can prove his claim for losses resulting from the rejection of an unexpired lease of real estate but may only recover
an amount not to exceed the rent, without acceleration, reserved by such lease for the three years next succeeding the date of the surrender of the premises to the landlord ... plus unpaid accrued rent, without acceleration, up to the date of surrender.
Although Section 353 provides a limitation on the amount of damages a landlord can recover, it fails to include a method of calculating these damages. Therefore, parties are free to create their own formulas for calculating damages in the lease provisions.
In Re City Stores Co.,
23 B.R. 201, 203 (Bkrtcy.S.D.N.Y.1982) (citations omitted). If parties fail to insert a damages provision in their lease agreement, or if such provision is unenforceable, the federal courts, as noted by the bankruptcy court, apply an established formula
for calculating damages.
See id.
Under this formula, the landlord’s damages are “the difference between the present lease value for the remainder of the term and the present fair rental value for the remainder of the term.”
In Re Fernandez Supermarkets, Inc.,
1 B.R. 249, 251 (Bkrtcy.D.Mass.1979) (citations omitted).
See also In Re W.T. Grant Co.,
36 B.R. 939, 941 (Bkrtcy.S.D.N.Y.1984) (“absent a specific damage provision in a lease, courts apply the rule enunciated by the Supreme Court in
City Bank Farmers Trust Co.
... that the measure of damages which the landlord may recover as a result of the tenant’s breach is ‘the difference between the rental value of the remainder of the term and the rent reserved, both discounted to present worth.’ ”) (citations omitted).
In applying this formula, a landlord may recover only “actual damages” suffered as a result of the tenant’s breach.
Id. See also In the Matter of D.H. Overmyer Co., Inc.,
10 Collier Bankr.Cas 17, 20-22 (Bankr.S.D.N.Y.1976) (Proof of actual damages is a prerequisite to recovery). A key presumption applies to this method of analysis: that in the event of a breach, the lessor can re-rent the leased premises for the amount of the reserved rent without loss or damage.
Matter of W.T. Grant Co.,
13 B.R. 198, 202 (Bkrtcy.S.D.N.Y.1981), aff
'd,
36 B.R. 939 (Bkrtcy.S.D.N.Y.1984). The landlord may overcome this presumption by showing that he is unable to re-rent the premises under equally advantageous terms.
Id.
DISCUSSION
This Court agrees with the result reached by the bankruptcy judge, but for a different reason. This Court finds that the survival clause located in Article 17 of the sublease does not apply in the bankruptcy context.
See W.T. Grant,
36 B.R. 939, 941 (Bkrtcy.S.D.N.Y.1984). Instead, either the federally created rule or Article 15 of the sublease (which provides for damages in the bankruptcy context)
govern this ac
tion. Since both formulas are identical and both indicate that Irving has failed to sustain actual damages, the determination by the bankruptcy court is AFFIRMED.
In
W.T. Grant,
the district court upheld the bankruptcy court’s finding that the survival clause in a lease agreement was inapplicable in the bankruptcy setting. The survival clause, which was similar to the survival clause in the instant action, provided that in the event of a default by the tenant and either termination of the lease or reentry by the landlord, the tenant remained responsible for the monthly payment of rental deficiencies.
Id.
at 942 n. 9. When the tenant entered into bankruptcy proceedings, the landlord filed a proof of claim against the estate.
When the landlord sought to invoke the survival clause, the bankruptcy court indicated that it did not apply in the bankruptcy context.
Id.
at 941. It also ruled that, in the absence of a provision in the lease governing damages recoverable in the bankruptcy context, the landlord could not recover since it had suffered no actual damage as a result of the tenant’s breach.
In affirming the bankruptcy court, the district court agreed that the survival clause, paragraph 17(a), was inapplicable:
While some courts have applied a provision such as paragraph 17a in a bankruptcy context where that provision was either made expressly applicable in the event of the tenant’s bankruptcy or the lease contained a separate bankruptcy provision which incorporated such a damage provision contained elsewhere in the lease ... neither circumstance exists in this case. Paragraph 17a does not refer to bankruptcy at all, and paragraph 17b —which expressly applies in the event that the tenant becomes bankrupt or insolvent — neither contains its own damages covenant nor incorporates the one contained in paragraph 17a.
Id.
at 942 (citations omitted). The Court concluded that since no specific damage provision in the lease controlled, the federally created rule should apply.
Id.
at 941.
In the instant action, Article 17, the survival clause, was not “made expressly applicable” to the bankruptcy context. Moreover, Article 15 of the sublease contained a separate damages provision which specifically applied in the bankruptcy context. Article 15 was triggered if Overmyer failed to secure a discharge within ninety days of filing the bankruptcy petition.
See
paragraph 15(b) of sublease. If Article 15 applied, the landlord could recover from the tenant “an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the term demised and the then fair and reasonable rental value of the Demised Premises for the same period.”
See
paragraph 15(c) of sublease.
Since the damages provision in Article 15 of the sublease is similar to the one established by the Supreme Court in
City Bank Farmers Trust Co.,
this Court need not determine which formula applies. Under either standard, it is evident that the bankruptcy court correctly determined that Irving did not suffer damages. The rental value of the premises remaining under the lease exceeded the rental value of the lease agreement. In such instances, the landlord has not sustained actual damages. As stated in
Third National Bank v. Winner Corporation,
29 B.R. 383, 388 n. 3 (Bkrtcy
M.D.Tenn.1982), where the present value of the term remaining under the lease is
greater
than the value reserved under the lease, the amount owed to the lessor is a negative amount. “No matter how great that negative sum, the Bankruptcy Court would find only zero damages.”
Id.
Accordingly, this Court agrees with the bankruptcy court that Irving sustained no actual damages. The bankruptcy court’s decision is AFFIRMED.
SO ORDERED.