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In re Standor Jewelers West Inc.

filed: June 27, 1991.

IN RE: STANDOR JEWELERS WEST, INC., D/B/A SCHAFFER & SONS JEWELERS, A CALIFORNIA CORPORATION, DEBTOR. SOUTH COAST PLAZA, APPELLANT,
v.
STANDOR JEWELERS WEST, INC., D/B/A SCHAFFER & SONS JEWELERS, A CALIFORNIA CORPORATION, SECURITY PACIFIC CREDIT CORPORATION, APPELLEE



Appeal from the United States Bankruptcy Court for the Central District of California; Bk. No. LA90-13627-SB; Honorable Samuel L. Bufford, Bankruptcy Judge, Presiding.

Jones, Perris and Volinn, United States Bankruptcy Judges.

Author: Jones

JONES, United States Bankruptcy Judge

I.

OVERVIEW

Appellant South Coast Plaza appeals the bankruptcy court determination that Bankruptcy Code section 365(f), 11 U.S.C. § 365(f), preempts a provision in a retail lease that might otherwise be valid under state law. Appellant argues that the bankruptcy court erred by not determining whether the estate owned the appreciated value of the leasehold before applying § 365(f). We affirm.

II.

FACTS

On June 1, 1990 Debtor Standor Jewelers West, Inc. filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. At the time, Debtor operated four retail jewelry stores including a store leased at the South Coast Plaza Mall in Costa Mesa, California. On July 30, 1990 Debtor sought to assume and assign the lease for its South Coast Plaza Store (the "Lease") and to sell the assets of the South Coast Plaza Store free and clear of liens, with liens to attach to proceeds, to Sterling Inc., an Ohio corporation ("Sterling").*fn1 South Coast Plaza objected to the assumption and assignment of the Lease because of debtor's alleged refusal to provide it with "adequate assurances" that it would comply with a provision in the Lease requiring the lessee to remit to the landlord 75% of the appreciation in value of the Lease as a condition to the landlord's consent to any assignment.

The bankruptcy court held that, even if the provision of the Lease allocating 75% of the value of the leasehold to the landlord as a condition of the assignment was valid under state law, that provision constituted a restriction on transfer of the lease which was preempted by and invalid pursuant to § 365(f). The court further held that the Lease was an asset of the bankruptcy estate and, as such, South Coast Plaza had no entitlement to any part of the $350,000.00 allocated by Sterling to the Covenant Not to Compete and to Intellectual Property.*fn2 South Coast Plaza timely appealed.

III.

ISSUE PRESENTED

We must determine whether a lessor's condition on transfer of a lease, providing for the lessor to be paid a substantial portion of the lease appreciation, may be held invalid under § 365(f) as a restriction on the ...


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