United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
JOHN J. THARP, District Judge.
This bankruptcy appeal of the denial of a sanctions motion presents the question of whether the filing of a bankruptcy case automatically stays state court eviction proceedings involving a holdover tenancy.
On December 1, 2005, Appellant Ruven Gaceveto Acevedo ("Acevedo") and the now-defunct Acevedo Enterprises, Inc., entered into a written commercial lease agreement with the predecessor in interest to S.C. Real Estate, LLC ("SC"). The term of the lease agreement was five years, ending on November 30, 2010, with an option to extend the lease for an additional five years. Acevedo operated a restaurant on this leased property. During the original five-year term, S.C. became Acevedo's landlord. At the end of the five-year term, Acevedo did not exercise the extension option. However, Acevedo continued to pay rent, which S.C. accepted from December 2010 to April 2012.
In May 2012, Acevedo stopped paying rent. In July 2012, S.C. served Acevedo with a five-day notice demanding payment of the past due rent. Acevedo did not pay, and S.C. filed a forcible entry and detainer action ("Eviction Action") in state court on September 12, 2012. Acevedo filed a Chapter 7 bankruptcy petition on the morning of September 25, 2012, hours before the first hearing in the state court proceeding. The state court set a continued hearing for October 9, 2012. The day before this hearing, on October 8, 2012, SC's counsel agreed to advise the state court that the pending bankruptcy case stayed the eviction proceedings; on the basis of that understanding, Acevedo's attorney did not attend the court hearing. However, on the morning of the October 9 hearing, SC's counsel had a change of heart, apparently after the state court ruled in a case that had been called before SC's that the automatic stay did not prevent entry of an order of possession. Whatever the reason, rather than accede to entry of a stay, S.C. requested and obtained an order of possession for the property in question. Upon learning that the state court had entered an order of possession, Acevedo filed an emergency motion to stay the order of possession, and the state court then vacated the order of possession.
Acevedo moved in the bankruptcy court for sanctions against S.C. for violating the automatic stay. The bankruptcy court denied the motion for sanctions, concluding that the automatic stay did not enjoin an eviction proceeding against a holdover tenant whose original lease term had already expired. Acevedo moved for reconsideration, but his motion was denied. Acevedo now brings this appeal.
STANDARD OF REVIEW
This appeal challenges only the bankruptcy court's conclusions of law applied to undisputed facts, so this Court reviews the bankruptcy court's ruling de novo. In re Berman, 629 F.3d 761, 766 (7th Cir. 2011).
The Bankruptcy Code provides for an automatic stay, applicable against "all entities, " whenever a bankruptcy petition is filed. 11 U.S.C. § 362(a). As applied to the context of this case, the automatic stay prohibits the "continuation" of any "judicial, administrative, or other action or proceeding against the debtor that was... commenced before the [bankruptcy] case." Id. § 362(a)(1). Congress intended the stay to apply broadly to "all proceedings." S. Rep. No. 95-989, at 50 (1978); H.R. Rep. No. 95-595, at 340 (1978). Therefore, unless an applicable exception applies, the commencement of a bankruptcy case would automatically stay any proceeding against the debtor, including an eviction action filed in state court. See In re Williams, 144 F.3d 544, 546 (7th Cir. 1998); Robinson v. Chicago Housing Authority, 54 F.3d 316, 317-18 (7th Cir. 1995).
Subsection (b) of 11 U.S.C. § 362, however, carves out several exceptions to the automatic stay. See generally id. § 362(b). As relevant in this case, § 362(b)(10) excepts "any act by a lessor to the debtor under a lease of nonresidential real property that has terminated by the expiration of the stated term of the lease before the commencement of or during a case under this title to obtain possession of such property." Id. § 362(b)(10). In both the state court and the bankruptcy court, S.C. invoked this exception to avoid the automatic stay. The original lease between Acevedo and SC's predecessor in interest expired on November 30, 2010. Acevedo filed his bankruptcy petition on September 25, 2012, nearly twenty-two months after the "stated term" of the original lease expired. Therefore, S.C. argued, the automatic stay did not apply to its efforts to evict Acevedo from the premises.
Acevedo does not dispute that his original lease expired. He maintains, however, that under Illinois law he acquired rights as a holdover tenant by virtue of his continued occupancy and payment of rent after the expiration of the lease. Under Illinois law, a landlord who continues to accept rent from a tenant who has held over after the expiration of an express multi-year lease is presumed to create an implied year-to-year tenancy. Wanous v. Balaco, 412 Ill. 545, 547, 107 N.E.2d 791, 792 (Ill. 1952); Bransky v. Schmidt Motor Sales, Inc., 222 Ill.App.3d 1056, 1061, 584 N.E.2d 892, 895 (Ill.App.Ct. 1991); Troccoli v. L & B Prods. of Ill., Inc., 189 Ill.App.3d 319, 321, 545 N.E.2d 219, 221 (Ill.App.Ct. 1989); see also Butz v. Butz, 13 Ill.App.3d 341, 346-47, 299 N.E.2d 782, 786 (Ill.App.Ct. 1973) (holding that the presumption of a year-to-year holdover tenancy applies, even if the original lease contained a renewal option, if the tenant fails to affirmatively exercise the option). The presumption of a holdover tenancy may be overcome only when the landlord's actions indicate an intention not to accept the holdover tenancy. See Troccoli, 189 Ill.App.3d at 321-22. S.C. readily accepted rent payments from December 2010 to April 2012, so an implied year-to-year tenancy arose under Illinois law. See Wanous, 412 Ill. at 547; Butz, 13 Ill.App.3d at 346. Such a tenancy "substantially... is a tenancy at will except that it cannot be terminated without notice to quit." Bellows v. Ziv, 38 Ill.App.2d 342, 348, 187 N.E.2d 265, 268 (Ill.App.Ct. 1962). Afterwards, the landlord may only terminate the year-to-year tenancy with at least 60 days notice before the end of the term. Id.; see also 735 ILCS 5/9-205.
In the bankruptcy court, S.C. did not dispute that a holdover tenancy had been created by virtue of its acceptance of Acevedo's continuing rent payments. Distinguishing a holdover tenancy as a relationship implied in law, the bankruptcy court held that Acevedo's holdover tenancy did not constitute a new "lease" and did not extend the term of his original five-year lease. The bankruptcy judge therefore concluded that Acevedo's holdover tenancy had no relevance to the question of whether § 362(b)(10) applied to bar the eviction proceeding.
The bankruptcy court's assessment that Acevedo's holdover tenancy did not extend the term of the original lease is unquestionably correct. See Bellows, 38 Ill.App.2d at 348, 187 N.E.2d at 268. At the time of the filing of Acevedo's bankruptcy petition in 2012, SC's rights as a landlord arose by implication from Acevedo's status as an accepted holdover tenant, not from the express five-year lease that had expired in 2010. But the question of whether that tenancy qualifies as a new "lease" requires further examination. As Acevedo argues, elsewhere the Bankruptcy Code states that a "lease" of real property includes not only agreements that are denominated as such, but also "any rental agreement to use real property." 11 U.S.C. § 365(m). This definition, moreover, expressly applies in the context of the § 362(b)(1) automatic stay: "For purposes of this section 365... and [section] 362(b)(10), leases of real property shall include any rental agreement to use real property." When Acevedo raised this argument in a motion for reconsideration, the bankruptcy judge did not consider it because he held that Acevedo had waived the ...