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In re Rockford Products Corp.

United States Court of Appeals, Seventh Circuit

December 18, 2013

In the Matter of ROCKFORD PRODUCTS CORPORATION, Debtor. Appeal of Harrison Kishwaukee, LLC.

Argued Dec. 13, 2013.

Page 731

Thomas J. Lester, Hinshaw & Culbertson, Rockford, IL, Nancy G. Lischer, Hinshaw & Culbertson, Chicago, IL, for Debtor.

Judy Bamberger Calton, Honigman, Miller, Schwartz & Cohn, Detroit, MI, John J. Holevas, Williams & McCarthy, Rockford, IL, for Rockford Products Corporation.

Before EASTERBROOK, KANNE, and ROVNER, Circuit Judges.

EASTERBROOK, Circuit Judge.

Rockford Products Corp. (Debtor) leased a building from Harrison Kishwaukee (Landlord). During its liquidation in bankruptcy, Debtor assumed the lease, 11 U.S.C. § 365, and sold the leasehold interest (and many other assets) to Rockford Acquisition, which later renamed itself as Rockford Products, LLC (Tenant). The bankruptcy judge approved the transaction in 2007, see 11 U.S.C. § 363, after Landlord did not object to Debtor's assertion tat Landlord did not have any outstanding claim against Debtor. The order approving

Page 732

the sale bars any claims based on pre-sale events.

The lease requires Tenant to maintain the roof in good repair. In 2010 Landlord sued Tenant in state court, contending that it had failed to fulfil this obligation. Tenant replied with a motion in the closed bankruptcy proceeding, asking the bankruptcy court to interpret the 2007 order as blocking Landlord's claim. The bankruptcy judge acknowledged that a federal court has continuing authority to enforce its orders after a case has been closed, see Travelers Indemnity Co. v. Bailey, 557 U.S. 137, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009), but concluded that the 2007 order does not affect continuing obligations such as a duty to keep leased premises in good repair.

The 2007 order's effect, Judge Barbosa stated, is limited to blocking a demand for damages on account of pre-discharge events. Landlord wants a prospective remedy, not damages. Continuing federal authority over such a state-law claim could be supported only under the " related-to-bankruptcy" jurisdiction supplied by 28 U.S.C. § 1334(b), and because the bankruptcy has long been closed, and no creditor's interest could be affected, there is nothing to which the state proceedings could be related. See, e.g., Rivet v. Regions Bank, 522 U.S. 470, 118 S.Ct. 921, 139 L.Ed.2d 912 (1998); Pettibone Corp. v. Easley, 935 F.2d 120 (7th Cir.1991); In re Xonics, Inc., 813 F.2d 127 (7th Cir.1987). The judge dismissed the federal proceedings.

A district judge disagreed, ruling that Landlord can enforce the lease's good-repair clause only to the extent that defects in the roof first occurred after the lease's assumption in bankruptcy. 2012 U.S. Dist. LEXIS 117096 (N.D.Ill. Aug. 20, 2012). The district judge stated that Tenant bears the burden of establishing which problems existed when the lease was assumed in 2007. The judge wrapped up: " this matter is remanded to the bankruptcy court for a determination of which defects [Landlord] is seeking to enforce existed pre-assumption and to enter an order enforcing the Sale Order by barring [Landlord] from seeking to compel [Tenant] to repair those defects. After the bankruptcy court makes this determination, [Landlord] may proceed with its specific performance action to compel [Tenant] to repair post-assumption defects." 2012 U.S. Dist. LEXIS 117096 at *16.

The district judge did not discuss the possibility that leaks existing when Debtor assumed the lease have become worse over time, and the parties disagree about who bears responsibility for them. Nor did the district judge discuss decisions such as Ohio v. Kovacs, 469 U.S. 274, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985), and In re CMC Heartland Partners, 966 F.2d 1143 (7th Cir.1992), which hold that obligations enforceable by orders of specific performance to meet ongoing responsibilities survive bankruptcy even when obligations to pay damages do not. The district judge also did not consider whether, after Stern v. Marshall, __ U.S. __, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), a bankruptcy judge who lacks the tenure and salary protections of Article III may enter an order effectively disposing of a state-law claim by a person (Landlord) who did not file a claim in the bankruptcy or otherwise consent to the claim's disposition by a bankruptcy judge. Landlord contends that Stern deprives the federal judiciary of jurisdiction over its claim. That's not right; if the bankruptcy judge cannot act, then authority to interpret and enforce the 2007 order devolves on the district judge. But the district judge's remand directs the bankruptcy judge to proceed, and Landlord

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contends that this, at least, is ...


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