Bankruptcy — leases

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United States Court of Appeals For the Seventh Circuit

Civil

Bankruptcy — leases

Where a debtor has strong arguments it did not reject its building leases, and the damages are irreversible, a stay of the lower courts’ holding that it did reject the leases is stayed pending appeal.

“There are powerful arguments in favor of A&F’s position. Chapter 11 is premised on giving debtors a full opportunity to reorganize, and provisions like § 365(d)(4) that limit this opportunity are the exception, not the rule. The franchise agreement is clearly the dominant contract and the focus of the parties’ bargaining, so prioritizing the lease lets the tail wag the dog. Furthermore, what little caselaw there is on this precise issue favors A&F’s position. Two bankruptcy courts have held on nearly identical facts that § 365(d)(4) does not apply to a lease that is so tightly connected to a franchise arrangement. In re FPSDA I, LLC, 450 B.R. 392 (Bankr. E.D.N.Y. 2011), petition for interlocutory appeal denied by 470 B.R. 257, 271 (E.D.N.Y. 2012) (finding that “there is not a substantial ground for difference of opinion as to whether [§ 365(d)(4)] is applicable” to a similar franchise-bound lease); In re Harrison, 117 B.R. 570 (Bankr. C.D. Cal. 1990). Though we are provisionally persuaded that A&F’s position has substantial merit, we emphasize that we aren’t deciding the issue today. IHOP leaned heavily on the text, and now that we’ve indicated that we don’t find the text conclusive, IHOP’s position may benefit from more extensive briefing on the merits.”

Reversed.

13-3192 In re: A&F Enterprises, Inc., II

Appeal from the United States District Court for the Northern District of Illinois, Kendall, J., Sykes, J.