In re Healthy Hut Inc.

506 B.R. 526, 2014 WL 896778, 2014 Bankr. LEXIS 869, 59 Bankr. Ct. Dec. (CRR) 61
CourtUnited States Bankruptcy Court, D. Hawaii
DecidedMarch 6, 2014
DocketNo. 13-00866
StatusPublished
Cited by1 cases

This text of 506 B.R. 526 (In re Healthy Hut Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Hawaii primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Healthy Hut Inc., 506 B.R. 526, 2014 WL 896778, 2014 Bankr. LEXIS 869, 59 Bankr. Ct. Dec. (CRR) 61 (Haw. 2014).

Opinion

MEMORANDUM OF DECISION ON OBJECTION TO CLAIM

ROBERT J. FARIS, Bankruptcy Judge.

This case requires me to decide the allowed amount of the claim of Historic Plantation, LLC, resulting from the debt- or’s breach of a commercial lease.

Facts

The debtor, Healthy Hut Incorporated (“Healthy Hut”), and the landlord, Historic Plantation, LLC, were parties to a four-year, commercial lease, dated November 28, 2011.1 The initial base rent was $3,465.00 per month, increasing to $3,568.95 in January 2013 and $3,676.01 in January 2014.2 It also required the debtor to pay 16.9% of the common area manage[529]*529ment (“CAM”) expenses.3 The lease provided for an award of attorneys’ fees in case of a breach.4 Finally, it defined “rent” as “[a]ll monetary obligations of Lessee to Lessor under the terms of this lease” except for the security deposit.5 The lease did not give the tenant the right to terminate the lease prior to the expiration of its stated term.

In December 2010, the landlord notified Healthy Hut that the landlord intended to treat the building for termites and offered to abate the rent for the three day period during which the building would be inaccessible.6 Healthy Hut objected that the compensation was inadequate and that the pesticide treatment might alienate its customers.7 The landlord cancelled the termite treatment.8

Beginning on October 5, 2011 and on multiple occasions thereafter, Healthy Hut told its landlord that its business was not viable and that it intended to close its shop on an unspecified date, but before the lease expired. In May 2012, Healthy Hut told the landlord that it planned to close on or around September 30, 2012.9 Although the parties exchanged demands and proposals, the parties never reached agreement and the landlord never agreed to waive its claims for future rent or other damages against Healthy Hut.

On August 22, 2012, the landlord gave notice of its intention to conduct termite treatment of the building on October 28, 2012, a date after Healthy Hut had told the landlord it would vacate the premises.10 Healthy Hut again objected to the termite treatment, telling the landlord that it expected to vacate the building in mid-November 2011. The landlord again delayed the termite treatment and did not perform the treatment until after Healthy Hut moved out.

On November 15, 2012, Healthy Hut left the space and sent the lessor a check for $490.70. The landlord retained Healthy Hut’s security deposit. Healthy Hut intended that both be used to satisfy the November 2012 rent.

After Healthy Hut left, the landlord found a new tenant, but at a lower rent than what Healthy Hut had agreed to pay. According to the record, the new tenant only began paying rent in October 2013. Therefore, the landlord collected no rent from December 2012-September 2013.

Healthy Hut would have paid $60,039.36 in rent in the one year following the termination of the lease.11 This amount includes the CAM charges and the base rent.

Healthy Hut filed for chapter 7 bankruptcy on May 23, 2013.

The lessor filed its proof of claim on September 13, 2013. Besides the lost rent, the lessor seeks payment for its broker’s fees and attorneys’ fees. The parties agree that the damages the landlord suffered because of Healthy Hut’s breach exceed the amount of rent Healthy Hut would have owed in the one year following its breach.

Healthy Hut now objects to the claim.

[530]*530Standard

A proof of claim is deemed allowed unless a party in interest objects to it.12 In order to prevail, the objecting party must “come forward with sufficient evidence and ‘show facts tending to defeat the claim by probative force equal to that of the allegations of the proofs of claim themselves.’ ”13

Discussion

The key facts are not in dispute. There was a valid lease, the terms of which are not in question. Healthy Hut vacated the leased premises in November 2012. It did not pay the remainder of the rent for the term of the lease. Finally, the parties do not dispute that the lessor had a duty to mitigate its damages, and that it found a new lessee, albeit for less than what Healthy Hut paid.

The main issues about which the parties disagree are 1) whether the lessor may assert a claim at all; 2) whether that claim is subject to section 502(b)(6)’s statutory cap on damages; and 3) the extent to which the landlord’s claim is allowed.

A. The Validity of the Landlord’s Claim

Healthy Hut argues that the landlord has no claim for two reasons.

First, Healthy Hut argues that the landlord breached the lease by giving notice of its intention to tent the building for termites. I do not agree with this argument. It is true that the landlord twice gave notice that it was going to tent the building, but both times the landlord delayed the treatment after Healthy Hut objected. It only tented the property after Healthy Hut moved out. There is no evidence that the notice of the intended termite treatment interfered with Healthy Hut’s use of the building. Thus, I find that the landlord did not breach the lease.

Healthy Hut also argues that the landlord agreed to accept the surrender of the property and that the lease was mutually terminated. I do not agree with this position either. The contemporaneous correspondence shows that the landlord never waived its right to future rent or damages. In fact, Healthy Hut stated that any proceeds from Healthy Hut’s clearance sale would go to compensate the landlord for damages incurred because Healthy Hut was leaving.14

B. Statutory Cap

The parties disagree about the maximum amount the landlord is entitled to recover. The landlord argues that it is entitled to the amount of damages that resulted from the breach, capped by section 502(b)(6), plus its attorneys’ and broker’s fees. In contrast, Healthy Hut argues that the landlord’s entire claim is subject to the cap.

Section 502(b)(6) caps a landlord’s claim “for damages resulting from the termination of a lease of real property” to any unpaid amounts owed as of the termination of the lease plus “the rent reserved by such lease” for the greater of (a) one year or (b) “15 percent, not to exceed three years, of the remaining term” of the lease.15 In this case, the one year period [531]*531applies. Therefore, the landlord’s claim “for damages resulting from the termination” of the lease is limited to one year’s rent.

Healthy Hut argues that the landlord’s entire claim, including its claim for attorneys’ fees and the expenses of relet-ting the property (primarily real estate broker’s fees), is subject to the cap. The landlord argues that the cap does not apply to the landlord’s attorneys’ fees and reletting expenses.

The controlling case interpreting section 502(b)(6) is El Toro,16

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526 B.R. 812 (N.D. California, 2014)

Cite This Page — Counsel Stack

Bluebook (online)
506 B.R. 526, 2014 WL 896778, 2014 Bankr. LEXIS 869, 59 Bankr. Ct. Dec. (CRR) 61, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-healthy-hut-inc-hib-2014.