469 B.R. 522
Bankr. D. Del.2012Background
- Montgomery Ward, LLC filed a second Chapter 11 to liquidate assets after a prior reorganization.
- State Farm, as Jolward’s assignee, held a secured mortgage claim and related unsecured claim arising from the Ground Lease and Sublease.
- Jolward leased land to Montgomery Ward to construct a Building for Montgomery Ward’s use; Jolward assigned its interest to State Farm for financing.
- The Ground Lease and Sublease were structured with State Farm providing non-recourse financing, securing the loan with Jolward’s and Montgomery Ward’s interests, and Montgomery Ward retaining ownership of the land.
- After the first bankruptcy, the Plan Administrator challenged the nature of the Ground Lease and Sublease, arguing they were not true leases but financing; remand followed the Third Circuit’s determination that res judicata did not bar such challenge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Ground Lease and Sublease are true leases or disguised financing. | Plan Administrator argues financing arrangement. | Dika-Ward contends true leases do not exist. | Summary judgment denied; material facts remain disputed. |
| Whether res judicata/equitable estoppel/waiver bars Plan Administrator's challenge. | Plan Administrator contends not barred by res judicata. | Dika-Ward contends prior judgments preclude challenge. | Plan Administrator not barred; remand warranted. |
| Whether Illinois law governs the true lease vs. financing analysis and supports a true lease finding. | Plan Administrator relies on economic substance and Illinois law. | Dika-Ward asserts either party’s characterization controls, with disputed economics. | Fact questions exist; court cannot grant summary judgment. |
Key Cases Cited
- United Airlines, Inc. v. HSBC Bank USA, N.A., 416 F.3d 609 (7th Cir. 2005) (distinguishing true leases from financing arrangements; economics govern)
- In re Pillowtex, Inc., 349 F.3d 711 (3d Cir. 2003) (burden on party challenging lease vs security interest)
- Lunan Family Restaurants (In re Lunan Family Restaurants), 194 B.R. 429 (Bankr. N.D. Ill. 1996) (presumption of true lease; economics govern)
- Dena Corp., 312 B.R. 162 (Bankr. N.D. Ill. 2004) (look to economic realities to determine lease vs financing)
- Hotel Syracuse, Inc. v. City of Syracuse Indus. Dev. Agency (In re Hotel Syracuse, Inc.), 155 B.R. 824 (Bankr. N.D.N.Y. 1993) (factors for determining financing vs true lease)
- In re UAL Corp. (United Air Lines, Inc. v. HSBC Bank USA), 307 B.R. 618 (Bankr. N.D. Ill. 2004) (financing vs true lease when ownership and risk shift)
- Resorts International, Inc. (Binder v. Price Waterhouse & Co., LLP), 372 F.3d 154 (3d Cir. 2004) (related-to jurisdiction and proceedings after plan confirmation)