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Adamowicz v. Pergament (In re Lamparter Org.)

United States District Court for the Eastern District of New York

March 25, 1997, Decided ; March 26, 1997, FILED

96 CV 2059 (NG)

Opinion

 [*49] OPINION AND ORDER

GERSHON, United States District Judge:

The issue raised by this appeal under 28 U.S.C. § 158(a) is whether appellants' claim for future rent under a long-term lease entered into with a Chapter 11 debtor in possession constitutes an administrative expense to be given priority at the time of the distribution of the bankrupt's estate. For the reasons set forth below, I conclude that the future rent claim is entitled to administrative expense priority. Accordingly, the portion of the bankruptcy court's decision holding that future rent constitutes only a general unsecured claim for damages is reversed; and the matter is remanded to the bankruptcy court for further proceedings consistent with this opinion.

FACTS AND PROCEEDINGS

On November 2, 1988, debtor and appellants entered into a five-year lease for property in Farmingdale, New York, where debtor [**2]  set up the headquarters of its construction company. On May 12, 1992, more than a year before the expiration of the five-year lease, debtor filed a voluntary petition seeking relief under Chapter 11 of the Bankruptcy Code. Debtor, as debtor in possession, 1 continued to use and occupy its headquarters throughout its Chapter 11 proceeding, even after the expiration of the five-year lease on October 31, 1993.

In September 1994, debtor in possession and appellants negotiated a new, fifty-month lease agreement ("the 1994 lease") for the headquarters. Debtor in possession then, at appellants' insistence, sought an order from the bankruptcy court authorizing and approving the 1994 lease. After a hearing, the bankruptcy court issued an order authorizing debtor in possession to enter into the 1994 lease.

In May 1995, during the pendency of the 1994 lease, and after debtor in possession had defaulted [**3]  on its rent obligations under that lease, the bankruptcy court converted debtor's case to one under Chapter 7 of the Bankruptcy Code and appointed an interim trustee of the Chapter 7 estate. In June 1995, the bankruptcy court issued an order approving trustee's retention of an auctioneer to liquidate the estate's physical assets.  [*50]  An auction sale of the assets was conducted, and appellants regained full possession of the property in question on July 7, 1995.

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207 B.R. 48 *; 1997 U.S. Dist. LEXIS 7154 **

In re: THE LAMPARTER ORGANIZATION, INC., Debtor. MARY ADAMOWICZ and the ESTATE OF MICHAEL ADAMOWICZ, Appellants, - against - MARC A. PERGAMENT, as Chapter 7 Trustee of The Lamparter Organization, Inc., Trustee-Appellee.

Disposition:  [**1]  Reversed in part and case remanded.

CORE TERMS

lease, administrative expense, bankruptcy court, rent, debtor in possession, contracts, pre-petition, reorganization, post-petition, liquidation, landlord, newly, executory contract, conversion, damages, unpaid rent, appellants'

Bankruptcy Law, Judicial Review, Standards of Review, Clear Error Review, Civil Procedure, Appeals, De Novo Review, Procedural Matters, General Overview, De Novo Standard of Review, Clearly Erroneous Review, Unsecured Priority Claims, Administrative Expenses, Estate Preservation, Types of Claims, Priority, Claims, Definitions, Contracts Law, Types of Contracts, Lease Agreements, Administrative Powers, Executory Contracts & Unexpired Leases, Powers to Assume & Reject, Business & Corporate Compliance, Contracts Law, Standards of Performance, Creditors & Debtors, Defenses, Ambiguities & Mistakes, Governments, Legislation, Interpretation, Rejections