Opinion
No. 02-12098
November 20, 2002
Memorandum on Motion to Assume and Motion for Relief from Stay
In April, 2002, lessor BC Stadium, LLC, purchased a minor league baseball stadium from Flying Squirrel Entertainment, LLC, an entity related to the Chapter 11 debtor in this case, Flying Squirrel Sports, LLC. Under the terms of the agreement, BC Stadium agreed to lease the stadium to the debtor, which owns a minor league baseball team.
Under the terms of the lease, the debtor is obligated to maintain business interruption insurance for the baseball operations and workers' compensation insurance for the players. The debtor's principal, Bruce Portner, admits that the team played its 2002 season without such insurance. In addition, Portner lied to the representative of BC Stadium on numerous occasions regarding the insurance and even allowed the general liability insurance to lapse. If the debtor is unable to field a baseball team for the 2003 season, BC Stadium will lose a significant amount of revenue from stadium naming rights and risks reversion of the ownership of the property to the City of Vacaville.
On August 26, 2002, BC Stadium served a notice to quit. The debtor filed its Chapter 11 petition three days later. BC Stadium now seeks relief from the automatic stay in order to prosecute its unlawful detainer action in state court. The debtor has moved for assumption of the lease pursuant to its rights under § 365(a) of the Bankruptcy Code. The court will grant BC Stadium's motion and deny the debtor's motion, but on grounds different from those urged by BC Stadium.
BC Stadium makes two legal argument which appear incorrect. It argues that the lease in question is not subject to assumption by the debtor because it terminated when it gave the notice and that the debtor's breaches of the lease are incurable. The court finds little merit with these contentions.
While state law may provided that a lease is terminated upon the giving of a notice to quit or institution of unlawful detainer proceeds, in bankruptcy the lease may nonetheless be assumed upon the curing of any defaults and the provision of adequate assurance of future performance so long as under state law the time for the debtor to seek relief from forfeiture had not expired. In re Windmill Farms, Inc., 841 F.2d 1467, 1473-74 (9th Cir. 1988). Contrary to BC Stadium's argument, the state court does not have to actually grant relief from default; so long as the right to seek relief from default has not lapsed, the bankruptcy court can allow assumption. In re Waterkist Corp., 775 F.2d 1089, 1091-92 (9th Cir. 1985).
Relying on In re Claremont Acquisition Corporation, Inc., 113 F.3d 1029 (9th Cir. 1997), BC Stadium argues that the lease is not assumable as a matter of law because the debtor's breaches are not curable. However, several authorities have noted that if that case is read in such a way it conflicts with other Ninth Circuit decisions. See, e.g., In re Garcia, 276 B.R. 627, 638 (Bkrtcy.D.Ariz. 2002) (applying In re Entz-White Lumber and Supply, Inc., 850 F.2d 1338, 1341 (9th Cir. 1988), and holding that all defaults are curable). The leading treatise on bankruptcy law, citing the Ninth Circuit decision in In re Sigel Co., Ltd., 923 F.2d 142 (9th Cir. 1991), agrees that just about any default can be cured so long as the other party is compensated for any economic loss. 3 Collier on Bankruptcy (15th Ed. Rev.), ¶ 365.05[3][b].
The court will deny the debtor's motion not because it is legally impossible for the debtor to assume the lease with BC Stadium but because the debtor has not met the requirements for assumption. The debtor has not identified potential losses which might result due to its failure to have insurance, let alone proposed a cure.The debtor produced no financial records or any other credible evidence of its ability to field a team next season or otherwise assure BC Stadium of future performance. For these reasons assumption must be denied.
To the extent Portner testified that there were no such losses, the court does not believe him.
Since assumption is still possible as a matter of law, denial will be without prejudice in the event a very financially sound buyer for the team is found and the motion is made by a trustee.
The court finds cause for lifting the automatic stay based on the severe prejudice BD Stadium will suffer if there is no baseball played in its stadium next season, the dim prospects the debtor has for reorganization, and the lies told by Portner. Accordingly, it will grant BC Stadium relief from the automatic stay in order to prosecute its unlawful detainer action. Provided, however, that the court may re-impose the stay on the motion of a trustee if said trustee seeks assumption of the lease in order to assign it to a financially sound buyer.
A separate order will be entered as required by FRBP 9021.