472 B.R. 666
S.D.N.Y.2012Background
- Leases at Allaire Village Plaza, including Pathmark as anchor, were assigned to Androse after Pathmark’s acquisition; lease term is 25 years at $470,630 annual rent and Pathmark operated then went dark around 2009.
- Appellees (A&P and affiliates) filed for chapter 11 and obtained an $800 million DIP facility; they sought to assume 205 leases and 98 subleases, including the Allaire Village Plaza lease, after a thorough internal review.
- Appellees adopted a systematic process to decide which leases to assume or reject, considering cure costs, store viability, and potential savings; they sought to preserve value to the bankruptcy estate.
- Androse objected to the Assumption Motion, arguing inadequate assurance of future performance and potential shopping-center implications, and contended that the lease for Allaire Village Plaza was not adequately analyzed.
- Bankruptcy Court held a hearing, determined Appellees had conducted a thorough process, adequately cured defaults, and that the Lease was of value to the estate; it granted the Assumption Motion and entered the Final Order, which the district court later affirmed.
- Pathmark remaining dark and the shopping-center implications were central to the 365(b)(3) analysis, but the court did not need to conclusively decide whether the lease was a shopping-center lease because adequate assurances were satisfied under 365(b)(1).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the decision to assume the Lease was proper business judgment. | Androse argues the court substituted its own judgment. | Appellees contend their process and pari passu analysis show sound business judgment. | Yes; court affirmed, finding sound business judgment and no clear error. |
| Adequate assurance of future performance and cure under 11 U.S.C. 365(b)(1). | Androse claims inadequate assurances given cash liquidity and lack of guarantees. | Appellees assert substantial cash, DIP facility access, and potential estate value provide adequate assurance. | Yes; court de novo review found adequate cure and future performance assurances. |
| Shopping center analysis under 11 U.S.C. 365(b)(3). | Androse asserts lease qualifies as shopping center lease and requires heightened protections. | Appellees contend the court need not decide shopping-center status; only source of rent matters for adequate assurance. | Court declined to decide definitively shopping-center status, concluding §365(b)(1) adequacy sufficed. |
| Whether any error in applying §365(b)(3) to Pathmark’s tenancy affected the outcome. | Androse argues Pathmark’s dark status disrupts tenant mix and violates the lease spirit. | Appellees contend Pathmark’s status predated bankruptcy and is not affected by assumption. | Waived issues; court declined to address new arguments raised on appeal. |
Key Cases Cited
- In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir. 1993) (limits of debtor in possession’s business judgment; preservation of estate value)
- Allied Tech., Inc. v. R.B. Brunemann & Sons, Inc., 25 B.R. 484 (Bankr.S.D. Ohio 1982) (deference to debtor’s business judgment; not second-guess unless clearly erroneous)
- In re Penn Traffic Co., 524 F.3d 373 (2d Cir. 2008) (predecessor to reasonableness of assumption balancing non-debtor interests)
- In re Nat'l Gypsum Co. Settlement Trust, 208 F.3d 498 (5th Cir. 2000) (business judgment standard and adequate protections within 365)
- In re Westview 74th St. Drug Corp., 59 B.R. 747 (Bankr.S.D.N.Y. 1986) (adequate assurance pragmatic test; no absolute guarantees required)
- In re M. Fine Lumber Co., 383 B.R. 565 (Bankr.E.D.N.Y. 2008) (nonexclusive factors for adequate assurance)
- In re Ames Department Stores, Inc., 121 B.R. 160 (Bankr.S.D.N.Y. 1990) (burden on landlord to show shopping center status for §365(b)(3))
- In re Joshua Slocum Ltd., 922 F.2d 1081 (3d Cir. 1990) (shopping center concept under §365(b)(3))