In Re Telephonics, Inc.

85 B.R. 312, 1988 Bankr. LEXIS 556, 1988 WL 37075
CourtUnited States Bankruptcy Court, E.D. Pennsylvania
DecidedApril 25, 1988
Docket19-11153
StatusPublished
Cited by20 cases

This text of 85 B.R. 312 (In Re Telephonics, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re Telephonics, Inc., 85 B.R. 312, 1988 Bankr. LEXIS 556, 1988 WL 37075 (Pa. 1988).

Opinion

OPINION

DAVID A. SCHOLL, Bankruptcy Judge.

The matters presently before us in the above-entitled case require us to consider, on one level, whether the debtor-tenant’s commercial lease has- been terminated; and, on the another level, what effect a determination on that issue in a state court landlord-tenant proceeding should have upon the result that we reach. While we conclude that the Debtor’s position appears to have substantive merit, we are reluctant to effectively invalidate a judgment of a court of another state which has a motion to reconsider its own decision terminating the lease before it. We shall therefore grant the landlord’s motion for relief from the automatic stay, but stay any execution upon the state court judgment for a ten-day period after the motion to reconsider is determined, either by the state court or by us if the state court action should be removed to our court. We shall defer ruling on the Debtor’s motion to assume the lease until the issue of whether the lease has been terminated has been firmly resolved.

The instant Chapter 11 bankruptcy case was filed on January 12,1988. The Debtor is a wholly-owned subsidiary of Ma & Pa Tel, Inc., the Debtor in Bankr. No. 85-00402K, filed in our court on February 6, 1985, (hereinafter the Debtor in that case is referred to as “the Parent”). 1 The filing of the case for this Debtor was the direct upshot of our decision denying the Motion of the Parent for a Preliminary Injunction in In re Ma & Pa Tel, Inc., Ma & Pa Tel, Inc. v. Lakeforest Associates, Bankr. No. 85-00402K, Adv. No. 87-1085S (Bankr.E.D. PaJan 6,1988) In that decision, we refused to extend a Temporary Restraining Order (hereinafter referred to as “TRO”) entered on December 29, 1987, by Chief Judge Thomas M. Twardowski, sitting as emergency judge in our absence. The relief granted per the TRO was an injunction preventing the Defendant-landlord (referred to hereinafter as “Lakeforest”) from interfering with the use and occupancy by the Plaintiff and the Debtor as tenants of a store owned by Lakeforest in the Lakefor-est Shopping Center in Gaithersburg, Maryland.

The significant issue in that proceeding was whether the Parent could obtain in-junctive relief from our court to prevent an eviction when the parties to the lease in question were Lakeforest and the Debtor. The Debtor at that time was a non-debtor, a wholly-owned subsidiary of the Parent which had been created solely for the purpose of rendering the lease-tenant a Maryland corporation at the behest of Lakefor-est. Since the tenant was not nominally the Parent, the latter had not filed a motion to assume the lease in its own bankruptcy case. However, in its Plan of Reorganization, filed July 9,1986, and confirmed by us on November 25, 1987, the Parent purported to assume this lease.

On December 9, 1987, a Maryland landlord-tenant court entered a judgment for possession against the Debtor. Although it had never mentioned the bankruptcy or the purported impact of the bankruptcy as to the lease to Lakeforest previously, the Parent suddenly argued that it had assumed the lease in its Plan and that the confirmation order triggered the automatic stay, rendering the judgment for possession void. On December 15, 1987, Maryland counsel for the Debtor filed a motion to alter or amend the December 9, 1987, judgment, which was scheduled for a hearing by the Maryland court which had entered the judgment on January 13, 1988.

At the Preliminary Injunction hearing, the Parent presented evidence of its need to retain the Lakeforest store and its willingness and ability to make past and future rental payments. However, the Debtor’s only proffered legal theory to support its request for relief was that this court could and should extend the automatic stay to *314 the Debtor subsidiary on the basis of 11 U.S.C. §§ 362(a)(3) or 105. In denying relief, we stated:

we are troubled by the [Parent’s] consistent course of conduct of treating the Lakeforest lease as separate and apart from the bankruptcy, and hence assumable even when the procedure of 11 U.S.C. § 365(d)(4) had been consciously ignored, and then making an about-face when the benefits of dealing with the lease separate and apart from the bankruptcy turned sour. While we discern no intentional pattern of deception here, a decision in favor of the [Parent] would practically allow a parent-debtor with subsidiary non-debtor tenants to completely eviscerate all of the unpleasant aspects of 11 U.S.C. § 365. The particular attention directed at shoppingcenter tenants in the 1984 amendments to 11 U.S.C. §§ 365(b) and (d) indicate, whether wisely or not, a Congressional focus upon such tenants which we can scarcely ignore, given this factual setting.
We are hence disinclined to exercise our extraordinary powers on behalf of [the Parent]. We also observe that relief for the [Parent] to preserve the lease in issue, which has an additional duration of but one year, may be forthcoming in the Maryland court, and we have no reason to suspect that this court will overlook the rather apparent equities in favor of the [Parent]. Failing there, the [Parent] would still appear to be able to preserve its tenancy by filing a bankruptcy on behalf of [the Debtor]. See In re Sudler, 71 B.R. 780, 785-86 (Bankr.E.D.Pa.1987); and In re Borbridge & DeSantis, 66 B.R. 998, 1003 (Bankr.E.D.Pa.1986).

The statement in the last sentence of this passage came back to haunt us in the form of this bankruptcy case. Shortly after the filing, Lakeforest filed one of the matters now before us, a Motion to terminate the stay arising from the Debtor’s bankruptcy, on February 16, 1988. The Debtor countered with a motion to assume its only raison d’etre, the Lakeforest lease, on February 23, 1988. Both matters were brought before us in a consolidated hearing on March 16, 1988. After a colloquy with counsel, we prepared an agreed order providing that the stay should remain in effect pending disposition of both motions and that the parties would simultaneously submit Briefs in support of their respective positions on or before April 11, 1988.

At the hearing of March 16, 1988, we incorporated the testimony of Jack Wein-stein, the President of the Parent and the Debtor, at the January 5, 1988, hearing. He also testified again and reiterated the Parent’s ability and willingness to pay all rents due and its need to retain this most profitable of its three locations to fulfill the terms of its confirmed Plan.

The Debtor also called as a witness Ann Romanczak, its Maryland district manager. Ms. Romanczak conceded that the final and fatal landlord-tenant proceeding, filed November 4,1987, was the sixth such proceeding brought against her employer by Lake-forest concerning delinquent rental payments in 1987. However, she stated that the rent had been paid prior to entry of a judgment for possession on each prior occasion.

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Cite This Page — Counsel Stack

Bluebook (online)
85 B.R. 312, 1988 Bankr. LEXIS 556, 1988 WL 37075, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-telephonics-inc-paeb-1988.