IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
PATRICK and KATHLEEN McMAHON, No. 95-11897
Memorandum of Decision
In 1984, debtor Patrick McMahon paid Pier 39 Limited Partnership $100,000.00 for a
50-year sublease of a boat slip at Pier 39, San Francisco. Pier 39 has a master lease with the city.
The sublease does not require the payment of rent in the conventional sense, but requires
McMahon to pay monthly fees for maintenance, repair, operation, and management of the
premises. The lease provides that the lien for these fees shall be a mortgage within the meaning
of section 2920 of the California Civil Code, and may be enforced in the same manner as
foreclosure of liens on real property.
Before the filing, McMahon failed to pay the fees and was sued for them by Pier 39.
McMahon prevailed at the trial level, with the state court holding that because Pier 39 had
previously sued for money damages it was barred from recovery by California Code of Civil
Procedure section 726. However, this ruling was reversed on appeal and a money judgment was
ordered to be entered. The appellate court ruled that due to procedural errors Pier 39 had lost its
right to foreclose based on this particular debt.
Now before the court are McMahon's amended plan proposing to pay Pier 39 seventy cents
on the dollar, Pier 39's motion to have its lease deemed rejected, and McMahon's motion to
assume the lease if it is found to be an executory contract.
The court has no difficulty disposing of Pier 39's arguments that the court should apply
section 365 of the Bankruptcy Code to deem McMahon's interest in the slip forfeited as an
unassumed executory contract. A court of equity looks through the form of a contract to its
substance. Where the agreement grants a 50-year interest in return for a payment of
$100,000.00, and provides for relatively nominal payments thereafter, it is not a true lease subject
to the automatic rejection provisions of section 365. In re Moreggia & Sons, Inc.
, 852 F.2d 1179
(9th Cir.1988). The fact that the nominal payments are to be enforced by foreclosure rather than
unlawful detainer proceedings further establishes that the agreement did not create a typical
Further, the state appellate court made it clear that the judgment for unpaid fees was
unsecured. Pier 39 advances no reason why its existence poses an impediment to confirmation
so long as Pier 39 would not receive more that seventy cents of the dollar if the case were a
Chapter 7 case and so long as McMahon and his wife are devoting all disposable income for 36
months. Since the amended plan so provides, the court would confirm it if everything else was
acceptable. However, the terms of Attachment 1 do not seem proper, in that the amount of
attorney's fees will be left to the state court to fix and the sublease the debtors propose appears
to violate the terms of the agreement with Pier 39.
Moreover, the plan fails to deal with McMahon's accruing postpetition monthly fees due to
Pier 39. Since the already-confirmed original plan did not modify the right to these fees (and
probably could not), Pier 39 is entitled to full payment of fees accruing postpetition. The court
is in no way inclined to allow modification of this right at this late date, even if the amended plan
so provided (it does not). If McMahon's postpetition fees are not current, the court will entertain
Pier 39's motion for modification of the automatic stay.
1. The agreement between Pier 39 and McMahon is not governed by section 365 of the
Bankruptcy Code. Pier 39's motion to have it deemed rejected (and McMahon's motion to
assume) will be accordingly denied. In any further proceedings, Pier 39 will be treated as an
unsecured creditor as to the judgment and a secured creditor as to McMahon's other obligations
under the agreement.
2. The amended plan is not confirmed solely because the provisions of Attachment 1 are not
acceptable. A further confirmation hearing will be held on February 24, 1997, at 1:30 P.M.
3. As a secured creditor, Pier 39 may seek modification of the automatic stay to foreclose if
McMahon is not current in his postpetition fee obligations.
Either side may submit appropriate orders in conformance with this memorandum.
Dated: January 28, 1997 _______________________