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In re Prestige Point

filed: June 28, 1991.

IN RE PRESTIGE POINT, A JOINT VENTURE, DEBTOR. PRESTIGE POINT, A JOINT VENTURE, APPELLANT,
v.
BEAR VALLEY MUTUAL WATER COMPANY, APPELLEE



Appeal from the United States Bankruptcy Court for the Central District of California; Honorable Lynne Riddle, Bankruptcy Judge, Presiding.

Volinn, Ollason, and Jones, Bankruptcy Judges.

MEMORANDUM

OVERVIEW

Appellant-debtor Prestige Point ("Prestige") seeks to overturn the bankruptcy court's declaratory judgment finding that Prestige has no leasehold interest in a ten-acre parcel of real property owned by appellee Bear Valley Mutual Water Company ("Bear Valley").

FACTUAL AND PROCEDURAL BACKGROUND

Prestige Point is a joint venture between James Hunter Construction Corporation and James O. Buckels formed in 1980 for the purpose of acquiring a 10-acre parcel of lakefront property on Big Bear Lake in San Bernardino, California ("the property"). The property has been owned at all times relevant herein by Bear Valley. Bear Valley and Prestige were parties to two leases which ran concurrently for a period of time: the "Ground Lease" dated May 1, 1983 with Prestige as tenant; and a lease dated March 31, 1964 with L.J. Smith and Masonic Homes of California as original tenants ("Masonic Lease") and assigned to Prestige as tenant on December 16, 1980.

The two leases contain distinct and even contradictory terms and conditions. The Masonic Lease was for a term of 22 years until April 30, 1986, with an option to renew for 25 additional years. It requires a $2,200 per year rental payable in advance on May 1st of each year, and permits alterations only with the lessor's approval. In contrast, the Ground Lease anticipates active development of the property, and provides for an annual "minimum rent" of $50,000 for five years until May 1, 1988 or until "one or more phases of the property is developed . . . in whole or in part." For the next seven years, the rent is $362,278 per annum and, thereafter, is to be periodically recalculated. The term of the Ground Lease is 75 years but terminates after five years on May 1, 1988 if no construction has begun. A provision of the Ground Lease states that the Masonic Lease is not superseded or terminated by the Ground Lease nor is any rent due under the Masonic Lease during the pendency of the Ground Lease.*fn1

Appellant filed a Chapter 11 petition on December 12, 1986. After obtaining an order extending the deadline, it moved to assume the Ground Lease under Bankruptcy Code § 365(a)*fn2 on May 27, 1987. Prestige did not file a motion to assume the Masonic Lease. Prestige failed to make the May, 1988 rental payment on the Ground Lease or to begin development of the property, and, as a result, the Ground Lease was terminated. In July 1988, Prestige attempted to resume making annual rental payments under the Masonic Lease but Bear Valley refused to cash its first check.

On March 8, 1989, Bear Valley initiated this adversary proceeding for declaratory relief, unlawful detainer, ejectment and to quiet title. It asserted, inter alia, that Prestige had no leasehold right under the Masonic Lease, and that Prestige should be ordered to surrender the property. The bankruptcy court conducted a one-day trial on February 5, 1990, and filed its Memorandum of Decision on April 27, 1990.

The trial court found against Prestige on a number of alternate grounds. First, it held that Prestige never delivered to appellee the requisite notice renewing the Masonic Lease and that therefore appellant has no leasehold right to the property. The court also held that the manner of the alleged delivery of the renewal notice, even if such delivery did occur, was not proper under California law. Finally, the trial court found that, in any event, the lease must be deemed rejected under 11 U.S.C. § 365(d)(4) because Prestige failed to make a motion to assume the lease within 60 days of the filing of the bankruptcy petition.

We reverse the trial court and hold that Prestige retains a leasehold interest in the property under the Masonic Lease.

ISSUES

There are two principal issues in this appeal: (1) whether Prestige effectively exercised its option to renew the Masonic Lease; and, assuming that it did, (2) whether Prestige was required under Code § 365(d)(4) to assume the Masonic Lease within 60 days after the filing of the bankruptcy petition.

STANDARD OF REVIEW

The trial court's determination that Prestige failed to renew the Masonic Lease is a finding of fact and, accordingly, cannot be reversed unless clearly erroneous. Bankruptcy Rule 8013. A factual finding is clearly erroneous if the appellate court, after reviewing the record, has a firm and definite conviction that a mistake has been committed. Anderson v. City of Bessemer, N.C., 470 U.S. 564, 573 (1985). Credibility findings are entitled to even greater deference and, if uncontradicted by extrinsic evidence, are virtually insulated from appellate review. Id. at 575; see also Sutton v. Atlantic Richfield Co., 646 F.2d 407, 412-13 (9th Cir. 1981); Bankruptcy Rule 7052.

The trial court's conclusion that the option to renew cannot be effectuated by personal delivery on Bear Valley's agent in Big Bear Lake, California is a legal holding and reviewable de novo. Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir. 1986).

The applicability of Code § 365(d)(4) is a mixed question of law and fact, with the factual findings subject to the clearly erroneous standard and legal issues reviewable de novo. Id.

Discussion

A. Whether Prestige Exercised its Option to Renew ...


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