FOR THE NORTHERN DISTRICT OF CALIFORNIA
R. E. DAVENPORT, INC., No. 92-11891
Memorandum of Decision
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
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 _______________________