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In re Lafayette Radio Electronics Corp.

April 3, 1985

IN RE LAFAYETTE RADIO ELECTRONICS CORP., ET AL., DEBTORS, WARDS COMPANY, INC., AS SUCCESSOR IN INTEREST TO LAFAYETTE RADIO ELECTRONICS CORPORATION, PLAINTIFF-APPELLEE,
v.
JONNET DEVELOPMENT CORPORATION AND ROAMON'S STORES OF PENNSYLVANIA, INC., DEFENDANTS, JONNET DEVELOPMENT CORPORATION, DEFENDANT-APPELLANT



Appeal from a judgment of the United States District Court for the Eastern District of New York, Jacob Mishler, Judge, adopting proposed findings and conclusions of the United States Bankruptcy Court for the Eastern District of New York, C. Albert Parente, Bankruptcy Judge, (1) declaring appellant in default on a lease assumed by appellee-lessee's predecessor in interest pursuant to a prior judgment of the bankruptcy court, (2) declaring such lease and sublease of the same premises terminated, and (3) awarding appellee damages for lost profits resulting from appellant's default. Affirmed.

Lumbard, Mansfield, and Kearse, Circuit Judges.

Author: Kearse

KEARSE, Circuit Judge:

Defendant Jonnet Development Corporation ("Jonnet") appeals from a judgment of the United States District Court for the Eastern District of New York, Jacob Mishler, Judge, which, adopting certain proposed findings of fact and conclusions of law submitted by the United States Bankruptcy Court for the Eastern District of New York, C. Albert Parente, Bankruptcy Judge, principally (1) held that Jonnet as lessor of certain premises had violated a judgment of the bankruptcy court (a) allowing Lafayette Radio Electronics Corp. ("Lafayette") -- predecessor in interest of plaintiff Wards Company, Inc. ("Wards") -- to assume as lessee a lease on the premises, and (b) ordering Jonnet to make certain repairs to the premises; (2) declared terminated the lease and a sublease entered into by Wards; and (3) awarded damages to Wards in the amount of the profits it would have earned on the sublease had Jonnet obeyed the bankruptcy court's judgment. On appeal, Jonnet contends chiefly that the district and bankruptcy courts lacked subject matter jurisdiction, that venue was improper, and that Jonnet was improperly denied a jury trial. Finding no merit in any of Jonnet's contentions, we affirm.

I. BACKGROUND

A. The Lease and Lafayette's Bankruptcy

The matter arises out of a 1967 long-term lease (the "Lease") of a retail store owned by Jonnet and the subsequent treatment of the Lease in the lessee's chapter 11 bankruptcy proceeding. On March 21, 1967, Lafayette Radio Electronics Corporation of Monroeville, Pennsylvania ("Monroeville Lafayette"), a wholly-owned subsidiary of Lafayette, leased a retail store in Monroeville (the "Store") from Jonnet Enterprises, Inc., corporate predecessor of Jonnet. The Lease was for a term of ten years and gave Monroeville Lafayette two options to renew for additional terms of five years each. Apparently, the first such renewal option was exercised in 1977.

On January 4, 1980, Lafayette and six of its subsidiaries, including Monroeville Lafayette, filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101-1146 (1982), in the United States Bankruptcy Court for the Eastern District of New York. Pursuant to a plan of reorganization confirmed by the bankruptcy court in 1981, the six subsidiaries were merged into Lafayette, and Lafayette was then merged into Wards.

In the meantime, Lafayette had reached agreement for a 7-year sublease (the "Sublease") of the Store to Roamon's Stores of Pennsylvania, Inc. ("Roamon's"), and in July 1980, Lafayette submitted an application to the bankruptcy court for (1) authorization to assume the Lease and enter the Sublease, and (2) an order directing Jonnet to make certain repairs to the Store. Jonnet opposed Lafayette's application on the merits and on grounds of the bankruptcy court's lack of jurisdiction and improper venue.

At about the time Lafayette filed its application, Jonnet took possession of the Store and changed the locks, thereby depriving Lafayette of possession. For these actions, the bankruptcy court held Jonnet in contempt for having "violated the automatic stay provisions of § 362(a) of the Bankruptcy Code . . . with full knowledge of the pendency of the . . . chapter 11 proceedings," and eventually fined Jonnet $2,500.

In early 1981, having rejected Jonnet's jurisdictional and procedural contentions, the bankruptcy court held hearings on the merits of Lafayette's July 1980 application for authorization to assume the Lease and enter the Sublease. In June 1981, the bankruptcy court granted Lafayette's application, ruling that

(1) [Lafayette] has provided the adequate assurances necessary pursuant to § 365(b)(1) and (3) and is, therefore, permitted to assume the . . . [L]ease; (2) [Jonnet's] affirmative defenses are hereby dismissed, as [Jonnet] had failed to sustain its burden of proof with respect to said defenses; (3) [Jonnet] has a duty under the terms of the . . . [L]ease to promptly repair the roof and all resulting damages to the leasehold premises; (4) the agreement between [Lafayette] and Roamans [ sic ] is a sublease; and (5) the proposed sublease is in the best interests of the creditors and estate and is hereby approved.

A Judgment was entered ("1981 Judgment") allowing Lafayette to assume the Lease and approving the Sublease, and ruling that Lafayette's only defaults under the Lease were the nonpayment of rents totaling $9,375.03 and that Lafayette was authorized to cure those defaults by paying such rents within 30 days. In addition, and most pertinent for purposes of this appeal, the 1981 Judgment ordered Jonnet to make repairs to the Store:

8. [Jonnet] is hereby directed at its sole expense to ...


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