Idea Boardwalk, LLC v. Revel Entertainment Group, LLC (In re Revel AC, Inc.)
532 B.R. 216
Bankr. D.N.J.2015Background
- Debtors (Revel AC, Inc. and affiliates) filed Chapter 11; they operated a large resort/casino with retail tenants (Amenity Tenants, LDV Tenants, and IDEA Boardwalk).
- Debtors shut down operations on September 2, 2014, and moved to reject tenant Agreements as of that Shutdown Date; tenants timely elected to retain possessory rights under 11 U.S.C. § 365(h).
- Debtors sold assets to Polo North under § 363; the Sale Order preserved the tenants’ possessory interests and reserved this Court’s jurisdiction over related disputes.
- Polo North (as successor) argues the Agreements are management/joint-venture agreements, not true leases, so § 365(h) does not apply; Tenants contend the Agreements are true leases and § 365(h) protects their right to remain in possession.
- The Court accepted documentary submissions and oral argument, ruled the Agreements are true leases, reaffirmed tenants’ § 365(h) rights despite the § 363 sale, and granted a preliminary injunction in part to protect IDEA’s access to premises infrastructure and utilities.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the Agreements "true leases" or management/joint-venture agreements? | Agreements are leases (use of terms tenant/lease/rent, quiet enjoyment, fixed term, exclusive possession). | Form masks substance: rent formula (percentage) and other deal aspects show non-lease commercial arrangements. | Held: Agreements are true leases under New Jersey law; form and conduct support landlord-tenant relationship. |
| Do tenants retain § 365(h) possessory rights after a § 363 sale? | § 365(h) grants lessees the option to retain possession after rejection; a § 363 sale cannot strip those rights. | A § 363(b)/(f) sale free and clear can extinguish interests; sale should prevail. | Held: § 365(h) rights survive the § 363 sale; the specific protection of § 365(h) controls over the general § 363 sale power. |
| Scope of tenant rights and landlord obligations after rejection and sale (utilities, access, easements)? | IDEA needs access to infrastructure/utilities to exercise quiet enjoyment and operate; court should enjoin interference. | Polo North should not be compelled to provide services or increased liability; any easements/licenses require separate proof. | Held: Tenants may remain in possession and exercise rights appurtenant to real property; court preliminarily enjoined Polo North from interfering with IDEA’s access to infrastructure/utilities but declined to create a new easement/license at preliminary stage. Polo North not required to provide services or incur costs beyond existing obligations. |
| Preliminary injunction to preserve possession/use while litigation proceeds? | IDEA will suffer irreparable harm (threat to business) without access to utilities and systems; likely to succeed on merits. | Injunction would burden Polo North and enhance tenant rights beyond § 365(h). | Held: Preliminary injunction granted in part—Polo North prohibited from interfering with IDEA’s access and quiet enjoyment (subject to compliance with laws); no affirmative creation of easement/license. |
Key Cases Cited
- Stoe v. Flaherty, 436 F.3d 209 (3d Cir. 2006) (bankruptcy jurisdiction framework).
- Thiokol Chem. Corp. v. Morris County Bd. of Taxation, 41 N.J. 405 (N.J. 1964) (factors and intent test for existence of a lease under New Jersey law).
- In re Flagstaff Realty Assocs., 60 F.3d 1031 (3d Cir. 1995) (rejection relieves debtor-lessor of ongoing service obligations).
- In re Crumbs Bake Shop, Inc., 522 B.R. 766 (Bankr. D.N.J. 2014) (specific § 365 protections govern over general § 363 sale power).
- Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (U.S. 1994) (ancillary jurisdiction principles).
- Packard Elevator Co. v. I.C.C., 782 F.2d 112 (8th Cir. 1986) (economic loss may be irreparable where it threatens the business’s existence).
- Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (U.S. 2015) (parties can consent to bankruptcy-judge adjudication of core matters).