In Re Streckrich Petro Corporation, 08-31860 - Eastern District of ...

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III. LEGAL ANALYSIS A.. The Agreement is a True Lease 1. The Bankruptcy Code requires SPC to assume or reject the Agreement only if the Agreement is a true lease for non-residential real property. Because it is SPC who argues that the Agreement is not a true lease, it is SPC who has the burden of proving that proposition. “As the one contending the agreement is something other than what it purports to be, the plaintiff bears the burden of proving that it is a disguised security interest rather than a lease.” In re Brankle Brokerage & Leasing, Inc., 394 B.R. 906, 909 (Bankr. N.D.Ind. 2008) (citing In re Pillowtex, Inc., 349 F.3d 711, 717 (3rd Cir.2003); In re QDS Components, Inc., 292 B.R. 313, 321 (Bankr.S.D.Ohio 2002); Auburndale State Bank v. Dairy Farm Leasing Corp., 890 F.2d 888, 893 (7th Cir.1989)). This issue was joined when the Creditors filed a motion to force SPC to assume or reject the Agreement under 11 U.S.C. § 365. Section 365(a) states that “the trustee, subject to the court’s approval, may assume or reject any . . . unexpired lease of the debtor.” Subsection (d)(4) of 365 states: (4)(A) Subject to subparagraph (B), an unexpired lease of nonresidential real property under which the debtor is the lessee shall be deemed rejected, and the trustee shall immediately surrender that nonresidential real property to the lessor, if the trustee does not assume or reject the unexpired lease by the earlier of-- (i) the date that is 120 days after the date of the order for relief; . . . (B)(i) The court may extend the period determined under subparagraph (A), prior to the expiration of the 120-day period, for 90 days on the motion of the trustee or lessor for cause. 10
11 U.S.C. §365(d)(4). SPC, as debtor-in-possession, has the authority to assume or reject a nonresidential lease just as a trustee could under §365(d)(4). See, 11 U.S.C. § 1107(a) (a debtor-in-possession has “all the rights . . . and powers, and shall perform all the functions and duties . . . of a trustee serving in a case under” Chapter 11). Section 365(d)(4) requires SPC to assume or reject the Agreement only if the Agreement is “an unexpired lease of nonresidential real property.” There is no dispute that the Four Properties at issue are gas stations and convenience stores in Missouri, and thus are non-residential real properties. (Ex. A to Ex. 5.) To determine whether § 365(d)(4) requires SPC to assume or reject the Agreement, then, the Court must determine whether the Agreement constitutes an “unexpired lease,” as the Creditors contend, or whether it is something else. 2. State law governs whether the Agreement is a true lease. State law controls whether the lease is a “true lease” or a security agreement in the Seventh Circuit. In United Airlines Inc. v. HSBC Bank USA, N.A., the Seventh Circuit held: Because nothing in the Bankruptcy Code says which economic features of a transaction have what consequences, we turn to state law. All of the states have devoted substantial efforts to differentiating leases from secured credit in commercial and banking law. Leases are state-law instruments, after all, and the norm in bankruptcy law is that contracts (of which leases are a species) and property rights in general have the same force they would have in state court, unless the Code overrides the state entitlement. 416 F.3d 609, 615 (7th Cir. 2005) cert. denied, 547 U.S. 1003, 126 S.Ct. 1465, 164 11
Page 1 and 2: UNITED STATES BANKRUPTCY COURT EAST
Page 3 and 4: Streckmann (“Streckmann”) are t
Page 5 and 6: hold the Four Properties. 3 (Hooser
Page 7 and 8: argued that if SPC chose to assume
Page 9: SPC responded that, if the Agreemen
Page 13 and 14: discussed other factors that a majo
Page 15 and 16: full); or (2) whenever the $2 milli
Page 17 and 18: as the result of a taking, then SPC
Page 19 and 20: d. The remaining facts support a fi
Page 21 and 22: properties upon reasonable notice t
Page 23 and 24: payments have a present value equal
Page 25 and 26: the Court concludes that the Agreem
Page 27 and 28: the question of whether there was a

In Re Streckrich Petro Corporation, 08-31860 - Eastern District of ...

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