In a 25 page opinion published February 7, 2013, Judge Sontchi applied black-letter contract interpretation principles in conjunction with the bankruptcy rules in holding that a landlord was not entitled to damages resulting from a debtor’s breach of its lease. Judge Sontchi’s opinion is available here (the “Opinion”).
Pursuant to a pre-petition lease that expired December 25, 2008 between a landlord (the “Landlord“) and Sportsman’s Warehouse (“Sportsman’s“), Sportsman’s was required to purchase the leased property “on or before the Initial Term Expiration Date of December 25, 2008.” Opinion at *2. Without purchasing the property or vacating the leased property, Sportsman’s filed for bankruptcy on March 21, 2009. In April, 2009, the Landlord and Sportsman’s entered into an amendment of the lease. Opinion at *7. This amendment had a new term that extended through March 1, 2010. On July 30, 2009, the lease was assumed pursuant to Sportsman’s plan of reorganization. This assumption occurred with a cure amount of $0. The plan then went effective on August 14, 2009. When the Debtor failed to provide notice that it would purchase the leased property by the March 1, 2010 expiration of the contract, the Landlord sued for breach of contract. Sportsman’s then vacated the leased property by March 1, 2010. Opinion at *8-9.
Judge Sontchi’s Opinion
While the motion practice involved between the Landlord and Sportsman’s was long and detailed after the property was vacated, the ultimate decision of Judge Sontchi rested squarely on the language of the initial lease entered into by the Landlord and Sportsman’s. The pre-petition lease used the term “Initial Term Expiration Date of December 25, 2008.” The amendment of the lease did not address the term “Initial Term Expiration Date” or effect any explicit changes to the December 25th purchase date. Rather, the amendment contained the phrase, “The Lease shall remain in full force and effect and shall remain unaltered, except to the extent specifically amended herein.” Opinion at *7.
While a number of additional arguments are raised by each party, and Judge Sontchi discusses them all, the case ultimately turns on the drafting of the contracts. Because the initial contract set a date certain, December 25, 2008, the failure of the lease amendment to address this point specifically meant that this aspect of the lease remained unchanged. Opinion at *24. Sportsman’s failure to purchase the leased property was a breach of contract, but because the cure amount was set at $0 when the lease was assumed, and there was no objection raised, the Landlord was left without any recourse.