Memorandum of Decision Re: Assumption of Lease
The debtor in possession in this Chapter 11 case, doing business as Davenport Marine, operates a marine fueling facility on property owned by the City of Eureka. Before the court is its motion to assume the lease pursuant to section 365 of the Bankruptcy Code. Eureka objects, arguing that the debtor is not proposing to cure all the defaults under the lease. The heart of the dispute is whether Davenport is liable for the cost of repairs and improvements to the city-owned fuel tanks. Eureka has spent $73,000.00 to remove one tank leaking tank, remove and replace another, and install modern leak monitoring equipment after Davenport refused Eureka's demand that Davenport perform these tasks. Pursuant to the lease, Eureka has the right to perform the needed work itself and seek reimbursement from Davenport. The lease between the parties, effective as of 1986, provides that after the city-owned property is made to be in proper working order and compliance with existing government regulations, it is the responsibility of Davenport to thereafter maintain the equipment. The lease specifically requires Davenport to do all work necessary to comply with all government laws and regulations, including those which might come into effect in the future. It also provides that the taking of possession constitutes acknowledgement that the premises are in good condition.
II. Monitoring Equipment
When the lease was entered into in 1986, cities were exempt from state law which required monitoring equipment. However, in 1989 the law was changed to remove the exemption. In essence, a new law was made that the tanks needed monitoring equipment. Under the lease, Davenport was responsible for installing this equipment. Davenport seem to allege that Eureka defrauded it by not telling it that the tanks did not already have monitoring equipment. If this is so, Davenport might have grounds for rescission and a defense to a claim by Eureka. However, if Davenport wants to assume the lease, this allegation is irrelevant. The debtor must assume all of the lease, not just the parts it likes.
III. Leaking Oil Tanks
Davenport alleges that it is not responsible for the costs of removing the leaking waste oil tank and bulk oil tank because the leak in the former was caused when the tank was installed and the latter was not leaking at all. The court finds no merit in these arguments. Both tanks were tested before Davenport assumed responsibility for them, and found to be in working order. Davenport acknowledged that they were in good working order by assuming dominion over them without protest. They thereafter leaked. Davenport is responsible for the cost of correcting the problems. Davenport's argument that there was nothing wrong with the bulk oil tank seems lame to the court. It is clear that Eureka discovered the leak in this tank while removing the other one, and did the right thing by removing both.
Under the lease, Davenport is responsible for the costs of installing the monitoring equipment and removing the leaking tanks. While the court may be willing to approve reasonable terms for the the assumption of the lease, it is clear that Eureka must be reimbursed on some terms for the costs of removing the leaking tanks and bringing the rest up to compliance with governmental regulations. Accordingly, Davenport's motion to assume the lease will be denied, without prejudice to a revised motion which cures these defaults. Counsel for Eureka shall submit an appropriate form of order forthwith.
Dated: September 25, 1993 _______________________ Alan Jaroslovsky U.S. Bankruptcy