## Facts

- DH4, Inc. (DH4) operated a sports bar and restaurant in a shopping center under a commercial lease with 12th Street Associates, d/b/a Crosstown Plaza (Crosstown).
- The lease stated that if DH4 assigned the lease, DH4 would remain liable to Crosstown for any violation of the lease by the assignee.
- In June 2005, DH4 filed a Chapter 11 case and sought authority under 11 U.S.C. § 365 to assume and assign the unexpired lease to SK West Palm Beach, L.L.C. (SK).
- Crosstown objected to the proposed assumption and assignment.
- After hearing, the bankruptcy court approved the assumption and assignment, finding that SK provided adequate assurance of future performance and that SK’s proposed use would not change the shopping center’s tenant mix; the court also required SK to post additional security.
- On August 12, 2005, DH4 assigned the lease to SK. SK accepted the assignment, assumed the lease obligations, and agreed to fully perform under the lease.
- In February 2007, SK defaulted on rent payments and related obligations.
- Crosstown filed an amended proof of claim in DH4’s bankruptcy case seeking $84,351.72 for rental arrearages and other charges tied to SK’s post-assignment default (including items such as taxes, insurance, and attorneys’ fees).
- DH4 objected to the amended claim, arguing that once the lease was assumed and assigned under § 365, the bankruptcy estate was not responsible for SK’s later breach.

## Issues

1. After a debtor assumes and assigns a nonresidential real property lease under 11 U.S.C. § 365, may the landlord assert an unsecured claim against the debtor’s estate for the assignee’s post-assignment default where the lease purports to preserve the debtor’s continuing liability?

## Decision

- The court sustained DH4’s objection.
- The court disallowed Crosstown’s amended proof of claim to the extent it sought recovery from DH4’s estate for SK’s post-assignment default.
- The court held that, following a court-approved assumption and assignment under § 365 with adequate assurance of future performance, the estate was relieved of liability for breaches occurring after the assignment, and Crosstown’s remedy for the later default lay against SK (and any security posted), not DH4’s bankruptcy estate.

## Legal Principles

- Under 11 U.S.C. § 365, a debtor may assume and assign an unexpired lease if required cures are made and the assignee provides adequate assurance of future performance; for shopping-center leases, adequate assurance includes protections related to tenant mix and related factors.
- An assignee that takes a lease by a court-approved § 365 assignment becomes directly obligated to the landlord to perform the lease going forward.
- Under 11 U.S.C. § 365(k), once an assumed lease is assigned, the trustee/debtor and the estate are relieved from liability for breaches of the lease that occur after the assignment.
- A lease provision that attempts to keep the original tenant liable after assignment cannot be enforced in a way that defeats § 365(k)’s allocation of post-assignment breach liability away from the bankruptcy estate.
- A landlord’s claim against the debtor’s estate must rest on an obligation of the debtor/estate; amounts arising from the assignee’s later default after a § 365 assignment are not allowable against the assignor’s estate merely because the lease contains a continuing-liability clause.

## Conclusion

In re DH4, Inc. held that where a shopping-center lease was assumed and assigned under § 365 with adequate assurance of future performance, the debtor’s estate was not liable for the assignee’s later rent default, and the landlord could not convert that post-assignment breach into an allowed claim against the bankruptcy estate despite contract language purporting to preserve the debtor’s liability.


In re DH4, Inc., 2007 WL 3283781 (2007)