13 B 36813
The Court held evidentiary hearings over three days on the objection of the successor lessor of a downtown commercial food court to the claims for rejection damages filed by certain food court tenants to determine the amount of damages due to them pursuant to 11 U.S.C. § 365(g) and (h). The Court also considered the good faith and fair dealing doctrine under Illinois contract law regarding the timing of the formation of the leases and the rejection of the leases under the Code as some of the leases were entered into within only a few months, weeks, or even days in the case of two tenants, before the motion to reject them was filed.
As of the petition date, Debtor Dearborn Retail, LLC, owned the food court space located at 201 N. Clark Street in Chicago. Subsequently, Garvey Court, LLC, an entity controlled by Bighorn Capital, Inc. acquired the property. The Court granted Debtor’s motion, in connection with the acquisition, to reject the leases of eighteen food court tenants. As part of the rejection order, Garvey Court agreed to assume the obligations, if any, to pay damages and/or termination fees that resulted from such rejections. Neither Debtor nor Garvey Court issued a notice of early termination pursuant to the leases.
Under the terms of an agreed claims resolution order, an evidentiary hearing was held to determine the amount of damages owed to tenants whose claims were not settled. Nine of the eighteen tenants filed proofs of claim, to which Garvey Court objected; one tenant settled before the hearing. The claimants generally sought damages for build-out costs, replacement rent, advertising/promotion for the new locations, moving costs, return of security deposits and attorneys’ fees. Garvey Court argued that the claimants could not recover any damages because of their failure to pay rent and the resulting termination of the leases because of such default. Alternatively, Garvey Court generally sought to limit the build-out and replacement rent damages to only a two-year period pursuant to the early termination provision.
The Court found that the rejection damages were not limited by the early termination provision because it was never triggered. The Court also found that build-out costs, replacement rent, etc. were the proximate result of the lease rejections. Individual orders were entered for each tenant.