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In Re: Radlax Gateway Hotel, LLC, et al. v. Radlax Gateway Hotel

January 26, 2012


The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:


LAX Enterprise, L.P., appeals from a bankruptcy court order denying its administrative claim against the Chapter 11 bankruptcy estate of debtors RadLAX Gateway Hotel, LLC and RadLAX Gateway Deck, LLC. LAX Enterprise seeks compensation for alleged losses sustained due to the debtors' occupation of an area over which LAX Enterprise claims it has an exclusive easement. For the reasons set forth below, the Court affirms in part and remands in part for further proceedings.


The Court takes the following facts from the parties' submissions in this appeal and before the bankruptcy court.

This dispute concerns a one-block parcel of land adjacent to Los Angeles International Airport. The land is divided into three sections, referred to by the parties as the office property, the hotel property, and the parking property. The names reflect the structures the properties contain. LAX Enterprise owns the office property and the office building thereon; Gateway Hotel owns the hotel property; and Gateway Deck owns the parking property. The office property benefits from an easement that gives LAX Enterprise the right to park vehicles on a portion of the parking property (the "parking easement area"). When Gateway Deck acquired the parking property, it contained a parking deck in which most of the spots in the parking easement area were located.

The parking easement area was originally established in 1963 through an agreement between Kratter Corp., which owned all three properties, and Airportel, Inc., which leased the parking and hotel properties. When Kratter constructed the office building, the two companies entered into an agreement referred to by the parties as the "1963 lease and easement." This document stated that "an area on the surface of the Parking Area [would] be set aside for exclusive motor vehicle parking facilities for the benefit of the Office Building Property." Appellant's Ex. 34 at LAX 00165. It stated further that Kratter and its successors or assigns would "possess and reserve the right . . . in the nature of an easement for the benefit of, and appurtenant to, the Office Building Property, to the exclusive use and possession of all parking spaces solely for parking and parking access purposes . . . that are contained within the Office Building Easement Area." Id. at LAX 00166. The document also contains other provisions that the Court will discuss below. The parties agree that LAX Enterprise has succeeded to Kratter's rights in the parking easement area.

In May 2008, Gateway Hotel and LAX Enterprise entered into an agreement under which Gateway Hotel leased the parking easement area from LAX Enterprise for $40,000 per month. In August 2008, Gateway Deck (with the assistance of Gateway Hotel) demolished the original parking deck and began to build a new one. Construction on the new parking deck stalled in April 2009, however, and it has never been completed. The lease expired on May 31, 2009. The debtors filed a Chapter 11 bankruptcy petition on August 17, 2009.

LAX Enterprise asserted an administrative expense claim for compensation for the debtors' alleged use and occupancy of the parking easement area following the expiration of the lease. It sought redress in the bankruptcy court under several theories.

First, LAX Enterprise asserted that the debtors are trespassing on the parking easement area and that it is entitled to compensation for this. LAX Enterprise claimed that it lost the ability to rent the parking easement area to another party and that a sales contract for the office building fell through because of the unavailability of the parking easement area.

Second, LAX Enterprise asserted that it was entitled to $40,000 per month from the bankruptcy petition date forward as an administrative expense under 11 U.S.C. § 503(b)(1)(A). To establish this claim, it needed to show that the claim arose out of a transaction with the debtor-in-possession and benefitted the operation of the debtors' business. In re Jartran, Inc., 732 F.2d 584, 587 (7th Cir. 1984). LAX Enterprise argued that the debtors' use and occupancy of the parking easement area constituted a transaction that benefitted the estates because the uncompleted parking deck is Gateway Deck's only asset.

Third, LAX Enterprise contended that it was entitled to "adequate protection" for the loss in value of its interest in the easement under 11 U.S.C. § 363(e).

After a trial, LAX Enterprise moved for additional discovery, alleging that it had discovered that Gateway Hotel was using the parking easement area for hotel guest parking. The bankruptcy court continued the motion for discovery until after issuing its ruling.

The court then ruled for the debtors. It held first that LAX Enterprise had failed to show that a trespass had occurred under California law because "an owner of real property may be liable for trespass over his own land [only] if he has transferred exclusive possession to another," and the parking easement did not give LAX Enterprise an exclusive possessory interest. In re RadLAX Gateway Hotel, LLC, 447 B.R. 570, 576-77 (N.D. Ill. 2011) (citation omitted).

The bankruptcy court then found that if there had been a trespass, it "likely would be considered a transaction between [LAX] Enterprise and the Debtor." Id. at 577. The fact that Gateway Deck does not operate a business on the parking property, however, meant that "any trespass would not stem from an attempt to preserve a going concern or any other type of value for the estate." Id. It found further that any current parking by the hotel would "not link the alleged trespass to the ongoing operations of the hotel" because the alleged tort is simply the trespass on the parking easement area, which would occur regardless of hotel operations. Therefore, any trespass "would not be a ...

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