IN RE:
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LEXINGTON
IN RE:
QUAKER COAL COMPANY, INC., et al.
CASE NOS.
00-51374 and
00-51376-00-51394
DEBTORS
ORDER REGARDING FRANCIS LEASE
This case is before the court for decision following
argument on September 8, 2000 (See Document # 433) and supplemental briefing
(Documents # 457 & 464).
The issue presented is whether the debtor Branham &
Baker Coal Co., Inc. (B & B), Sublessee, must pay $50,000 Annual Minimum
Royalty to James D. Francis II and Nancy L. Francis (collectively Francis),
Sublessors, pursuant to a coal mining lease dated July 17, 1997. The parties agree on the relevant facts.
The Sublease Year in question is from June 16, 1999 to
and including June 15, 2000. Payment of the
Annual Minimum Royalty for this period was due July 1, 2000. Royalties provided for in the sublease were to be
credited against an Annual Minimum Royalty of $50,000.
B & B filed a petition for relief under chapter 11 of the U. S. Bankruptcy Code
on June 16, 2000 (Case no. 00-51385). At the
hearing on September 8, 2000, the court determined that the sublease had not terminated
prepetition. By Agreed Order of August 15,
2000 the debtor was granted an extension of time to and including September 15, 2000 in
which to assume or reject the lease. (Document
# 329). The debtor did not assume the lease
on or before the deadline of September 15, 2000; therefore, the lease is deemed rejected. 11 U.S.C. 365(d)(4). The debtor did no mining on the property during
any part of the lease, including the Sublease Year in question. With the exception of the Annual Minimum Royalty
payment due for the period in question, the debtor has made all required payments.
B & Bs obligation to pay $50,000 on July 1,
2000 was for the twelve-month period of June 16, 1999 through June 15, 2000, a period ending
just prior to B & Bs filing of its bankruptcy petition. The sublease provides that the Annual Minimum
Royalties and Tonnage Royalties are considered rent of the property. (Exhibit 1 to Document # 398).
Given these facts the case of In re Koenig Sporting
Goods, Inc., 203 F.3d 986 (6th Cir. 2000), is not controlling. Koenig, a case of first impression,
concerned month-to-month, payment-in-advance lease of commercial property used
to operate a sporting goods store. In that
case the court held that the lessor was entitled to a full months rent pursuant to
11 U.S.C. § 365(d)(3).
Likewise, the case of In re Vause, 886 F.2d 794
(6th Cir. 1989), is not controlling. Although
Vause is factually closer to this case in that it concerns annual rent payments in
arrears, rent payments due on a post-petition date for a period of time which occurred
prepetition, the case is decided under 11 U.S.C. § 502(b)(6)(B), Allowance of
claims or interests.[1] Further, the Koenig court acknowledges Vause
was decided under the unique facts of that case. Vause, also a case of first impression,
involved a farm lease in which each annual rent payment was payable after the harvest and
sale of crops.
It appears that 11 U.S.C. § 365(d)(3) was not intended
to cover the situation presented. This
conclusion is reenforced by the fact that the 1984 amendments to the Bankruptcy Code, the
amendments which added (d)(3) and (d)(4) to Section 365, are at times referred to as the
Shopping Center Bankruptcy Amendments. Legislative
history indicates these provisions were intended to address the special problems of
shopping centers. See 130 Cong. Rec.
S.8894-95 (Daily Ed. June 29, 1984) (Remarks of Senator Orrin Hatch), reprinted in 1984
U.S.C.C.&A.N. 576, 1984 WL 37391 (Leg.Hist.).
IT IS HEREBY ORDERED that the motion of Francis to
compel payment of the Annual Minimum Royalty under the Sublease Agreement between B &
B and Francis is denied.
Dated:
By the court
______________________________
JOSEPH
M. SCOTT, JR.
U.
S. BANKRUPTCY JUDGE
Copies to:
Tracey N. Wise, Esq.
Gregory R. Schaaf, Esq. - to
serve according to
the
official service list
[1] To date James D. Francis II and Nancy L. Francis
have not filed a proof of claim in this case.