Home/D. Massachusetts/In Re Mohawk Industries, Inc.

In Re Mohawk Industries, Inc.

54 B.R. 409, 1985 Bankr. LEXIS 5089
CourtUnited States Bankruptcy Court, D. Massachusetts
DecidedOctober 23, 1985
Docket19-10455
StatusPublished
Cited by7 cases

This text of 54 B.R. 409 (In Re Mohawk Industries, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Massachusetts primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re Mohawk Industries, Inc., 54 B.R. 409, 1985 Bankr. LEXIS 5089 (Mass. 1985).

Opinion

MEMORANDUM AND ORDER IN RESPONSE TO .RELATED INDUSTRIES, INC.’S REQUEST FOR ALLOWANCE OF ADMINISTRATIVE EXPENSE

PAUL W. GLENNON, Bankruptcy Judge.

This matter comes before the Court upon request of Related Industries, Inc. (“Related”) that this Court determine that Related has, pursuant to § 503 and § 507 of the Bankruptcy Code, 1 a first priority administrative expense as a result of the debtor’s, Mohawk Industries, Inc.’s (the “Debtor” or “Mohawk”), use of a four story factory building at 189 Beaver Street, North Adams, Massachusetts (the “Beaver Mill”). Related seeks to recover the fair rental value of the premises from January 13, 1984 through May 2, 1985 as well as reimbursement for gas and electric' expenses. Mohawk admits that Related is entitled to a first priority administrative expense; therefore, the sole issue to be determined by the Court is the amount of rent and utilities owed to Related.

FACTS

In 1981, Related entered into a lease with the Economic Development Commission (“EDC”) for the lease of approximately 93,-000 square feet at the Beaver Mill (the “EDC Léase”).

In January of 1983, Mohawk entered into a lease with Related for the use of 27,359 square feet of floor space at the Beaver Mill (the “Related Lease”). Mohawk used the rented space to manufacture tents for the Department of Defense. Under the terms of the Related Lease, the Debtor was to pay $3,419.88 monthly in rent and Related was to pay for the utilities necessary to the Debtor’s occupation of the leasehold.

Between July 1, 1983 and January 24, 1984 the Debtor entered into several oral agreements to rent an additional 30,193 square feet in the Beaver Mill, bringing the *411 total space rented to 57,552 square feet. 2 Under the terms of these oral agreements, the Debtor was to pay, $3,786.62 per month for the additional space, in addition to the $3,419.88 per month under the Related Lease, or a total monthly rental payment of $7,206.50. Related was to pay for the utilities necessary to the Debtor’s occupation of the additional space. 3

The Related Lease and the subsequent oral agreements were all rejected by the Debtor, effective October 31, 1984. The Court approved the rejection of the lease by the Debtor on November 20, 1984. At that time, Mohawk ceased it manufacturing operations. .

On January 13, 1984 when Mohawk filed its petition in bankruptcy under Chapter 11, Mohawk, as stipulated by the parties, was occupying 57,652 square feet of the Beaver Mill premises, or 62% of the space leased by Related under the EDC Lease. Between January 13, 1984 and approximately November 20, 1984, a period stipulated by the parties to represent 84% of the 1984 calendar year, Mohawk continued to use the leased premises for manufacturing purposes (the “Manufacturing Period”) and paid Related the stipulated sum of $52,-726.61 for rent. Thereafter, until May 2, 1985, Mohawk used the premises only for the storage of the equipment and inventory left behind when Mohawk shut down its manufacturing operation (the “Storage Period”). Mohawk left roll goods, lettings, hardware, burlap and tents throughout the 57,652 square feet that it had occupied under the Related Lease and the additional oral agreements. By May 2,1985, Mohawk had removed all of the inventory and delivered it to the United States Government. 4

DISCUSSION

Section 503(b)(1)(A) of the Bankruptcy Code provides that “necessary costs and expenses of preserving the estate” shall be allowed as administrative expenses. Rent, as one of the most common administrative expenses necessary to the preservation of the estate, is a frequently litigated expense. It is well established that when the debtor occupies premises as a tenant the reasonable value of the use and occupancy determines the amount of rent recoverable as an administrative expense, Philadelphia Co. v. Dipple, 312 U.S. 168, 61 S.Ct. 538, 85 L.Ed. 651 (1941); and that upon rejection of the lease, the debtor who occupies the premises as a tenant is liable for administrative rent from the filing of the petition until the surrender of the premises. In re Energy Resources, Inc., 47 B.R. 337 (Bankr.D.Mass.1985); In re Gourmet Gallery, Inc., 27 B.R. 912 (Bankr.D.Pa.1983); In re Royal International Corp., (30 B.R. 751 (Bankr.W.D.Ky.1983).

Two lines of cases have developed with respect to determining the “reasonable value of use and occupancy”. One line of cases, led by In re United Cigar Stores Company of America, 69 F.2d 513 (2d Cir.1934), cert. denied sub nom., Reisen- *412 webers, Inc. v. Irving Trust Co., 293 U.S. 566, 55 S.Ct. 76, 79 L.Ed. 665 (1934), 5 restricts a lessor’s claim to the value of the debtor’s actual use of property. The other line of cases, led by Kneeland v. American Loan and Trust Co., 136 U.S. 89, 10 S.Ct. 950, 34 L.Ed. 379 (1890), 6 measures the landlord’s claim by the reasonable value of the leased property without regard to the actual use by the debtor. Two recent Massachusetts cases, In re Energy Resources Co., Inc., 47 B.R. 337 (Bankr.D.Mass.1985), and In re GHR Energy Corp., 41 B.R. 668 (Bankr.D.Mass.1984), clearly indicate that Massachusetts’ bankruptcy courts, relying specifically on In The Matter of Fred Sanders Co., Inc., 22 B.R. 902 (Bankr.E.D.Mich.1982), subscribe to the Kneeland line of cases.

In conjunction with these principles, this Court in the absence of any convincing evidence to the contrary, will presume that the rental payment fixed in the lease is reasonable. See, e.g., S & W Holding Co. v. Kuriansky, 317 F.2d 666 (2d Cir.1963); In The Matter of North Atlantic and Gulf Steamship Co., 166 F.Supp. 29 (S.D.N.Y. 1958), aff'd sub nom., 120 Wall Associates v. Schilling, 266 F.2d 548 (2d Cir.1959); Green v. Finnigan Realty Co., 70 F.2d 465 (5th Cir.1934); In re Chase Commissary Corp., 11 F.Supp. 288 (S.D.N.Y.1935); In re Energy Resources Co., Inc. 47 B.R. 337 (Bankr.D.Mass.1985); In re GHR Energy Corp., 41 B.R. 668 (Bankr.D.Mass.1984). Furthermore, where the debtor continues to possess the premises, its liability for the lease payment rate is not affected by its purported use of the property for storage. In re Energy Resources Co., Inc., 47 B.R.

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Bluebook (online)
54 B.R. 409, 1985 Bankr. LEXIS 5089, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-mohawk-industries-inc-mab-1985.