Summary
comparing Form 10-Ks and per-store sales and profit
Summary of this case from MOAC Mall Holdings LLC v. Transform Holdco LLC (In re Sears Holdings Corp.)Opinion
M47 (DAB)
March 3, 2003
OPINION AND ORDER
Weymouth Shopping Center Associates/ABRO Corporation (the "Landlord"), Landlord of premises leased by Ames Realty II, Inc., one of the Debtors, moves this Court for emergency relief pursuant to Federal Rule of Bankruptcy Procedure § 8005 for a stay pending appeal of an Order, signed on February 28, 2003 by Honorable Robert E. Gerber, United States Bankruptcy Judge, approving the agreement for the assumption and assignment of the lease between Landlord and one of the Debtors.
I. BACKGROUND
Debtor Ames Department Stores moved pursuant to Sections 363 and 365 of the Bankruptcy Code to assume and assign the lease of its Store #740 (the "Lease") to the retailer Building 19, Inc. ("Building 19"). The landlord, Abro Corporation, a/k/a Weymouth Shopping Center (the "Landlord"), objected to the motion, contending that the Debtors and Building 19 failed to provide it with the adequate assurance of future performance to which the Landlord was entitled under Bankruptcy Code section 365(f), and, since the Lease was argued to be in a shopping center, under Section 365(b)(3). The Honorable Robert E. Gerber, United States Bankruptcy Judge, concluded that the Lease was a "shopping Center," and that Building 19 had satisfied the requirements of Section 365(f), and satisfied the requirements of Section 365(b)(3).
In its Motion for Emergency Relief before this Court, the Landlord argues that in the February 28 Order, Judge Gerber: 1.) "erroneously rel[ied] on a financial statement describing those financial conditions approximately ten (10) months after Ames Realty entered into the Lease, rather than a statement less than three (3) months before that date and completely ignor[ed] the financial information embodied in a stock offering prospectus dated within two (2) weeks of that date, based upon which the Debtors had a total value of approximately $1 billion;" and 2.) "erroneously applying financial aspects of that financial statement selectively so as to emphasize `similarity' while ignoring other aspects in which enormous differences in financial condition and operating performances were evident." (Motion at 2-3).
For the reasons set forth herein, the Landlord's motion is DENIED.
II. DISCUSSION
"In bankruptcy cases, the district court sits as an appellate court."Griggs v. 25 Realty Associates, 2002 WL 523391, *1 (S.D.N.Y.). The district court reviews the bankruptcy court's conclusions of law de novo, and its findings of facts under a clearly erroneous standard. See In re Ionosphere Clubs, Inc., 922 F.2d 984, 988 (2d Cir. 1990) (setting out standards) A finding of fact is clearly erroneous when, "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." In re The Singer Company N.V., 2000 WL 257138, *5 (S.D.N.Y.).
"The standard for granting a stay pending appeal has been set forth by the Second Circuit. To obtain such relief, the Court must consider: (1) whether the movant has demonstrated a substantial possibility, although less than a likelihood, of success on appeal; (2) whether the movant will suffer irreparable injury without a stay; (3) whether any party will suffer substantial injury if a stay is issued; and (4) whether public interests may be implicated." Id., citing Hirschfeld v. Board of Elections, 984 F.2d 35, 39 (2d Cir. 1993).
This Court does not find a substantial possibility that the Landlord could show clear error in Judge Gerber's finding of fact that Building 19, the lease assignee, met the requirements of section 365(b)(3). Section 365(b)(3) requires:
that the financial condition and operating performance of the proposed assignee and its guarantors, if any, shall be similar to the financial condition and operating performance of the debtor and its guarantors, if any, as of the time the debtor became lessee under the lease.
In determining the Debtor's "financial condition and operating performance," Judge Gerber reviewed the Debtor's 10-K statements dated January 31, 2000. The Landlord argues that the Judge should have reviewed instead the Debtor's January 31, 1999 10-K statements. The Debtor was apparently on a fiscal year ending January 1999. Accordingly, the 10-K statement dated January 31, 1999 covered the fiscal year from February 1, 1998 to January 31, 1999. "This period clearly does not encompass the date when Debtor became a lessee under the lease," which was April 26, 1999. (Motion at 3). By contrast, the 10-K statements for January 31, 2000, which Judge Gerber reviewed in establishing Debtor's financial condition and operating performance "as of the time the debtor became lessee under the lease," clearly incorporated Debtor's performance for the year in which the Debtor became a lessee under the lease. This Court finds Judge Gerber's review of the 10-K's for January 31, 2000 to have been appropriate on the facts, and therefore, not "clear error."
Similarly, this Court finds little likelihood that the Landlord could show clear error in Judge Gerber's lack of "reaction to" Debtor's 10-Q filing of May 1999 or a prospectus issued on May 19, 1999 by Debtor, since it was reasonable for Judge Gerber to find the quarterly filings unreliable because of seasonal variations, and these dates are after the lease was signed in April. (Motion at 9).
The Landlord further argues that Judge Gerber "erroneously appl[ied] financial aspects of [the May 19, 1999] financial statement selectively to emphasize `similarity' while ignoring other aspects in which enormous differences in financial condition and operating performances were evident." (Motion at 3). The Landlord argues that comparison of Debtor's "per-store sales and profit" to Building 19's "completely disregard[s] the incomparable difference in financial depth and resources which [Debtor] had." (Motion at 12). The Landlord goes on to argue that a finding of "similarity" under 365(b)(3)(A) requires that "big box" "tenants" should be replaced by other "big box" tenants. (Motion at 12).
The Landlord's argument finds no support in the case law. In support of its argument, Defendant cites language from In re Casual Male Corp., 120 B.R. 256 (Bankr. D. Mass. 1990), that the financial condition and operating performance of [the assignee] must be at least as strong as was the Debtors' [at the time the lease was executed]. But In re Casual Male Corp. does not stand for the proposition that a Bankruptcy Court cannot apply a proportional comparison of the financial health of the assignee and the Debtor; indeed, the Court in that case specifically compared the ratio of the assignee's assets to current liabilities at the time of the assignment to the Debtor's ratio of assets to liabilities on the date the Debtor acquired the lease. The court in In re Casual Male went on to hold that since the assignee was recently incorporated, its operating performance was dependent on the business experience of its sole owner and operator. Accordingly, the Court found the strength of the owner-operator's experience compared favorably to the actual strength of the Debtor's operations. Thus, the Casual Male court's determination of the similarity of profitability and operating performance in no way relied upon a construction of the statute to require the same gross profits and performance between assignee and Debtor in that case.
Thus, the one case the Landlord cites in support of its argument does not support its argument. In the absence of case law to support the Landlord's legal position, this Court cannot find any likelihood that the Landlord's argument would succeed on an appeal to a District Court, even given the de novo review that would be exercised by the District Court.
Upon careful review of the Petitioner's papers and exhibits, including an outline of the Bankruptcy Court's oral opinion, it is apparent to this Court that the Landlord has not established a substantial possibility of success on the merits sufficient to support the emergency relief for which Landlord moves this Court. Judge Gerber correctly construed the requirements of law under 11 U.S.C. § 365 (b)(3). In that this Court concludes that the findings of law and fact by Bankruptcy Judge Gerber were correct, the Landlord has little probability of success on the merits in any eventual appeal from Judge Gerber's Order of February 28, 2003. Accordingly, and for the reasons set forth herein, the Landlord's Motion for Emergency Relief is DENIED.
SO ORDERED.