656 B.R. 205
Bankr. E.D. Mich.2023Background
- John and Shirley Schlicht, joint Chapter 13 debtors, and their corporation Maeleigh, Inc., operated the Union Lake Golf Course under a lease with Union Lake Golf Club, LLC (Union Lake).
- The Schlichts previously held a land contract to buy the property, but this was terminated in 2013 when they defaulted and executed a quitclaim deed back to Union Lake.
- After termination of the land contract, the parties entered into a lease, including Paragraph 29, which entitled the plaintiffs to a contingent share of sales proceeds if Union Lake sold the property during the lease term.
- Plaintiffs filed an adversary complaint in bankruptcy court seeking to compel sale of the property based on Paragraph 29 of the lease and sections 363(f), 363(h), and 363(j) of the Bankruptcy Code.
- Defendants moved to dismiss the complaint and sought sanctions under Rule 9011.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Schlichts can force sale of the property under lease | Lease gives right to share proceeds, implying sale right | Only owner (Union Lake) can decide to sell; lease gives no such right | NO – Lease gives no right to compel sale |
| Whether Paragraph 29 of lease carries forward land contract rights | Paragraph 29 carries over prior equitable/property rights | Lease is not a land contract; rights under land contract terminated | NO – Lease is not a land contract; only payment right possible |
| Whether plaintiffs have estate interest enabling §363(f), (h) sale | Lease rights or payment share constitute property interest | Only Union Lake owns property; lease is not an ownership interest | NO – No bankruptcy estate interest in property |
| Whether James Galbraith is a proper defendant | Named in complaint | Galbraith never owned or held interest in property | NO – Not a proper defendant, summary judgment granted |
| Whether sanctions under Rule 9011 should be imposed | N/A | Plaintiffs’ claims frivolous | NO – Procedural, substantive grounds lacking for sanctions |
Key Cases Cited
- Zurcher v. Herveat, 605 N.W.2d 329 (Mich. Ct. App. 2000) (explains distinction between land contracts and leases, and rights of vendees under Michigan law)
- Stenke v. Masland Dev. Co., Inc., 394 N.W.2d 418 (Mich. Ct. App. 1986) (option to purchase does not create legal or equitable interest in land)
- Coates v. Bastian Bros., Inc., 741 N.W.2d 539 (Mich. Ct. App. 2007) (unambiguous contract language must be enforced as written)