UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

COVINGTON DIVISION

IN RE:

COVINGTON LANDING LIMITED PARTNERSHIP CASE NO. 92-21467

DEBTOR

MEMORANDUM OPINION

This matter is before the Court upon issues arising from a Motion by the Creditor, City of Covington, for the Debtor to be Required to Assume or Reject the Mooring Lease filed in this proceeding on June 22, 1993.

This matter is a Chapter 11 proceeding filed by a limited partnership. The general partner of the partnership is BnW, Inc. The partnership owns and operates vessels anchored in the Ohio River at the City of Covington. Two of these vessels are the Spirit of America ("Spirit"), which is a recently built replica paddle-wheel steamboat (although it is not capable of motivation on its own) and a barge known as the "Wharf". These vessels are the result of several millions of dollars of investment by the Debtor partnership and are docked, pursuant to a lease (the "Mooring Lease") with the City of Covington (the "City"), at facilities specially developed by the City for use of such vessels. This docking facility and adjoining parking facilities were built at a cost of several millions of dollars expended by the City. The Spirit has been used as a restaurant and western nightclub, while the Wharf contains restaurants and various retail enterprises. The Debtor has operated several of these businesses located on the vessels and has leased space to other businesses. While these enterprises have been in operation for several years, apparently cash flow has not been sufficient to pay indebtednesses as they mature and on October 5, 1992, the partnership filed a voluntary petition under Chapter 11 in this Court.

On November 18, 1992, the United States Trustee filed his Notice of Appointment of a Committee of Unsecured Creditors. On February 2, 1993, the Debtor filed a Disclosure Statement and a Plan of Reorganization. On February 24, 1993, a motion was filed for the appointment of a limited partner's committee. A hearing was held thereon and an order sustaining that motion was entered on March 10, 1993 and a limited partners committee was appointed and has taken an active part in this proceeding. On March 19, 1993, the Debtor, having reached an agreement for the sale of the Spirit, filed its Motion to be Allowed to Sell Property of the Estate Outside the Ordinary Course of Business. A hearing was held upon this matter on April 12, 1993, at which time the Court sustained the Debtor's motion to sell the Spirit for $7.8 million to Sahara Resorts. Sahara Resorts apparently intends to move the Spirit to Missouri to be used for riverboat gambling. On April 12, 1993 also, an Agreed Order (the"Agreed Order") between the Debtor and the City concerning the Mooring Lease was tendered and was entered by the Court. The Agreed Order forms the centerpiece of the controversy presently before the Court.

On April 22, 1993 Debtor filed its First Amended Disclosure Statement and First Amended Chapter 11 Plan (the "Plan"). That Plan, in Article V, calls for the Debtor to assume the Mooring Lease but provides at 5.3, page 19, that

It shall be a condition precedent to the assumption of the Mooring Lease, if necessary for the subsequent operations of the Partnership, that the City of Covington and the Partnership [Debtor] enter into one or more amendments thereto which shall provide for the treatment of the waterfront area vacated by the sale of the Spirit of America, any such amendment to be on terms mutually agreeable to the parties...

The Court subsequently, on May 25, 1993, approved the Disclosure Statement. The Plan is pending before this Court and scheduled for a hearing on confirmation. The Plan has been amended pursuant to filings made with the Court on July 21, 1993. While various objections have been made to the Plan, the Debtor has negotiated with several of the creditors and satisfied several of the objections pending. The Plan proposes the sale of the Spirit in accordance with the Court's order approving the sale, the retention and continued operation of the Wharf and proposes to pay all creditors in full.

On June 22, 1993, the City filed its motion seeking an order setting a time within which the Debtor must assume or reject the Mooring Lease. A hearing was held on that matter on July 28, 1993 at which time the Court gave additional time to file supplemental memoranda and took the matter under submission.

Subsequent to the above hearing, upon motion filed by the Debtor on August 31, 1993, the Court conducted a hearing on September 10, 1993 on the Motion of the Debtor to Extend the Time for the Sale of the Spirit to the Buyer to February 1, 1994. That Motion was sustained by Order entered September 15, 1993.

This matter stands submitted to the Court for the Court's decision on the motion of the City for the Court to place a time limit upon the Debtor's assumption or rejection of the Mooring Lease and the Court's interpretation of the Agreed Order. The Mooring Lease is dated May 23, 1988 and is between the City and the general partner of the Debtor, BnW, Inc.

CONTENTIONS OF THE CITY OF COVINGTON

The City contends that the Debtor has or will fail to maintain a 550 seat restaurant facility as required by the Mooring Lease upon sale of the Spirit or closing the restaurant operation on the Spirit in preparation for sale and that, while it has waived any default as to the Wharf space, it has not done so with respect to the Spirit space and may relet that space as it desires. The City also cites other alleged defaults under the terms of the Mooring Lease, including non-payment of taxes by the Debtor. The City contends that the proper construction of the Agreed Order was that the City waived only its right to declare a default under the terms of the Lease with respect to removal of the Spirit from its waterfront mooring, that the only matters which this Court may consider with respect to modification of the Mooring Lease are those necessary to finalize a "Wharf only" lease and that the terms of the Agreed Order and statements of counsel should not be interpreted as reflecting any agreement to allow the Debtor continued use of the space occupied by the Spirit once it is moved after its sale.

CONTENTIONS OF THE DEBTOR AND LIMITED PARTNER'S COMMITTEE

The Debtor contends that, as an initial matter, the Mooring Lease contemplates one or both of the vessels ceasing operation and makes provision for this in Article 16 of the Lease and it is therefore not in default even if the Spirit is moved upon closing of the approved sale. Alternatively, the Debtor argues that by virtue of the Agreed Order the City waived any default based upon the departure of the Spirit and agreed to submit to the Court any issues which the parties could not resolve including the Debtor's retention, for some limited time, of an interest in the vacated Spirit space. The Debtor is supported in these contentions by the Limited Partners Committee who, it appears, have most to lose in this matter (along with the General Partner) since the Plan proposes to pay all creditors in full from the sale of the Spirit and the continued operation of the Wharf but leaves the recovery of the partners in doubt. Apparently the limited partners see retention of the Spirit space as critical if they are to have a meaningful recovery as a result of these proceedings.

As an initial matter, the Agreed Order of April 12, 1993 provides in paragraph 1 that the Debtor may have until the final hearing on confirmation of a plan within which to assume or reject the Mooring Lease. An agreed order is in the nature of a contract between the parties and, absent relief from such an order granted by the Court, it is binding on the parties. See In re Delaney's II, Inc., 1991 W.L. 337625 (N.D.Ill. 1991). This Court has seen nothing offered by the City that would constitute circumstances which would entitle the City to relief from an agreement that it voluntarily made and so, to the extent that the City's motion asks for a different date than the confirmation date for the assumption or rejection of the Mooring Lease, it should, and will, be denied.

More to the point of the City's motion is the question of the interpretation of the Agreed Order and specifically whether or not the Debtor retains rights to the space to be vacated by the Spirit upon its sale. All parties recognize that, while the sale is expected to close, nothing in commerce is certain and so this opinion must be taken as the Court's interpretation of the rights with respect to the Mooring Lease and the part which deals with the Spirit mooring space may become moot if events should develop that the Debtor should, for some reason, continue to use that space upon failure of the Spirit sale to close or replacement of the Spirit with a vessel which complies with the terms of the Mooring Lease.

The Debtor argues that by the terms of the Agreed Order the City waived any default resulting from the removal of the Spirit. To resolve this we must look at the specific language contained in that order. The portion of that order debated by the parties is as follows:

2. The parties recognize that the Debtor has filed herein its Motion pursuant to 11 U.S.C. '363 to sell its 3-story 47,818 sq. ft. structure known as the "Spirit of America" (the "Boat"), and the Debtor's Plan of Reorganization is and shall be premised upon the sale and removal of the Boat from the riverfront where it is currently moored pursuant to the Debtor's Mooring Lease with the City. The City agrees that it does not object to the sale and removal of the Boat upon the terms as have been approved by the Court, and agrees that the sale and removal of the Boat shall not constitute a breach under the Mooring Lease such as will result in the Debtor losing its rights under the Mooring Lease with regard to the Wharf and its operation.

3. The City and the Debtor have agreed that they will negotiate, in good faith, to reach by June 30, 1993, an amended and restated Mooring Lease modified to reflect the sale and removal of the Boat. Any amended and restated Mooring Lease shall be subject to approval by the Court. In the event no agreement is reached by June 30, 1993 as to an amended and restated Mooring Lease, the City and Debtor reserve all rights to such appropriate relief from the Court with regard to the ongoing terms of the Mooring Lease relative to the space formerly occupied by the Boat and its relationship to the space leased by the Debtor for the Wharf.

In an additional paragraph the parties agreed to an amendment to the amount of rental to be paid for the Wharf operation.

The Debtor argues that this language, when combined with comments of counsel appearing in the transcript of the hearing of April 12, 1993, constitute a waiver of any default as regards the Spirit mooring space and the parties had, from April 12, 1993 only to agree as to what period of time the Debtor would have to develop or surrender the Spirit space and the specifics thereof. The transcript of the April 12, 1993 hearing does support the contention of the Debtor that the Agreed Order in question was entered in the context of indications by the parties to the Court that the Debtor would have some period of time in which to make some use of the Spirit space. See Transcript of Hearing April 12, 1993 at pp. 60-63. While it is clear from remarks of various counsel at that hearing that the City was willing to agree to some extended time with respect to the Spirit space, it appears that, subsequently, the parties could not reach agreement as to how much time the Debtor would have. The Motion of the City and the subsequent arguments of counsel for the City now appear to take the position that the Debtor should not have any rights reserved for the Spirit space. What caused this apparent change of attitude by the City is not clear from the record.

It is equally clear from the Transcript of the April 12,1993 hearing that the Debtor's sale of the Spirit without the waiver of default would have endangered the Wharf operation and that the only prudent course for the Debtor was to secure the consent of the City for the proposed sale. In the course of those proceedings, the Debtor should be entitled to rely upon not only the specific language of the Agreed Order but the remarks of counsel for the City made upon the record in open court. Those remarks included the City's acquiescence to a period of 18 months for the Debtor "to find something else for the boat's space." Transcript, April 12, 1993, p.61. Clearly the Debtor relied upon these and other statements in securing this Court's permission to sell the Spirit and they became part of the entire transaction. The City is bound by the terms it agreed to the same as the Debtor.

Based upon the foregoing, the Court finds that the Debtor shall have a period of 18 months from and after April 12, 1993 within which to make use of the Spirit space. The Court must determine an appropriate rental for the Spirit space and other appropriate conditions during its continued use by the Debtor and it will be necessary for the Court to hear evidence to make such determinations. A separate order in conformity herewith will be entered.

Dated:__________________

By the Court,

_____________________

Copies to:

Debtor

John Sawyer, Esq.

Dennis Williams, Esq.

Joseph Condit, Esq.

Thomas Shore, Jr., Esq.

U.S. Trustee

James Dressman III, Esq.

Steve Wilson, Esq.

Jeffrey Marks, Esq.