Daily Development for Friday, July 6, 2001

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

BANKRUPTCY; LEASES; AFFIRMATION OR REJECTION:

Equity power permits nunc pro tunc extension of section 365(d)(4) deadline In re GST Telecom, Inc., No. 001982GMS, ___ B.R. ___, 2001 WL 686971, D.Ct. D. Del. (6/8/01) (Sleet, D.J.).

The Court held that section 365(d)(4) does not deprive it of the equitable power under section 105 to grant an untimely motion to extend the time to assume or reject an unexpired nonresidential real estate lease. The Court limited its holding to the facts of the case, where the debtor had obtained several previous extensions, the motion was filed only four days late, and the landlord was aware that the debtor would be seeking the extension.

The touchstone of the Court's analysis, however, was a balance of the prejudice to the landlord and the estate. In this balance, the direct prejudice to the debtor of losing at least $150,000 in valuable lease rights based on a technicality outweighs the landlord's general arguments regarding the importance of certainty. (The landlord established no specific prejudice from the delay.) Further, even if the motion had been timely filed, the Court would not have addressed it until the next omnibus hearing that was set after the date when the motion was actually filed. Compare, Harvest Corp. v. Rivera Land Co., 868 F.2d 1077, 1080 (9th Cir. 1989) (no equitable power to override section 365(d)(4) deadline). The Reporter for this DD was Professor G. Ray Warner of the UMKC Law School.

Editor's Comment: One person's technicality, of course, is another's "critical rule of procedure." If the bankruptcy courts were consistent in applying the "no harm, no foul" rule, then the parties can expect such results and make the necessary adjustments. What smarts, however, is when courts are inconsistent in their application of procedural requirements using them as walls to fend off an application that the court deems to be inconsistent with the court's view of right and justice, but opening the gates to those who's position the court favors.

This kind of inconsistency is at least as prevalent in the bankruptcy courts as it is in the NBA. Usually, courts are anxious to be involved in some heroic restructuring that salvages jobs and keeps the wheels of commerce running, and they often reshape procedural requirements and rulings to that end. Occasionally, however, courts smell "bad faith" in the debtor's efforts to keep going at the expense of creditors' claims, and then the procedural portals close for the debtor's side.

Perhaps it's acceptable for this kind of inconsistency to apply in these highly individualized bankruptcy disputes, where the rulings carry little presidential value (largely because each judge goes his or her own way) and parties in the courts understand that many of the judgments will be subjective. At least we're not transacting multimillion-dollar real estate interests on this uncertain foundation. Or are we?

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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