IN RE: QUAKER COAL COMPANY, INC., et al.  CASE NOS. 00-51374 and 00-51376-00-51394  ORDER REGARDING FRANCIS LEASE

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 & B’s 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 & B’s 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 month’s 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.