## Facts

- United Solar Ovonic (USO) and Energy Conversion Devices, Inc. (ECD) filed Chapter 11 cases.
- The Pegasus Group (Pegasus) was the commercial landlord under a lease with the debtors.
- After the lease ended postpetition, Pegasus filed a proof of claim asserting damages tied to the lease breach, including unpaid rent and amounts attributed to the debtors’ alleged failure to perform maintenance and repair obligations (physical damage to the premises).
- A liquidation trustee (acting for the estates) objected to Pegasus’s claim.
- The trustee argued that 11 U.S.C. § 502(b)(6)—which limits a lessor’s claim for damages “resulting from the termination of a lease of real property”—applied not only to rent-related damages but also to the physical-damage component, effectively eliminating that portion under the statutory formula.
- Pegasus argued that damages for failure to maintain and repair were not “termination” damages because the same liability could exist even if the lease had not been terminated.
- The bankruptcy court heard the claim objection and addressed how to separate capped termination damages from other landlord claims.

## Issues

1. Does 11 U.S.C. § 502(b)(6) cap a landlord’s claim for physical damage based on the tenant’s alleged failure to maintain and repair the premises, when the lease was terminated postpetition?
2. How should a court determine whether a particular component of a landlord’s claim is “for damages resulting from the termination” (and therefore capped), as opposed to a separate breach-of-lease claim that is not capped?

## Decision

- The court rejected the trustee’s position that § 502(b)(6) automatically caps every component of a lessor’s damages claim whenever a lease termination occurred.
- The court held that § 502(b)(6) applies only to damages that result from the termination itself, not to all claims a landlord may hold against a debtor that happens to be a tenant.
- The court concluded that the physical-damage claim based on alleged failure to maintain and repair was not, by its nature, termination-caused damages; it could exist apart from termination and therefore was not subject to the § 502(b)(6) cap on that basis.
- The court sustained the trustee’s objection only to the extent Pegasus sought recovery for termination-caused lease damages beyond the statutory limit, and overruled it to the extent the trustee sought to use § 502(b)(6) to disallow the physical-damage component.

## Legal Principles

- Section 502(b)(6) limits the allowable amount of “the claim of a lessor for damages resulting from the termination of a lease of real property,” rather than placing a blanket limitation on all claims held by a landlord.
- A component-by-component analysis is required: the court must ask whether the asserted damages are caused by the termination event (such as loss of future rent) or whether they arise from other lease duties that could be breached even if the lease continued.
- Damages for breach of maintenance and repair duties (physical damage) are not automatically “termination” damages; when the liability is based on non-termination covenants and accrued independent of termination, § 502(b)(6) does not cap the claim on that ground.
- The court looks to the source of the right to payment and the causal link to termination; the label assigned by the creditor is not controlling.
- Even when § 502(b)(6) does not apply, the landlord’s non-termination claims remain subject to ordinary allowance rules, including proof of the claim amount and any other valid defenses.

## Conclusion

In *In Re Energy Conversion Devices, Inc.*, the bankruptcy court held that § 502(b)(6) limits only those landlord damages that are actually caused by lease termination, and it does not cap a separate claim for physical damage based on alleged failures to maintain and repair, even though the lease ended postpetition.


In Re Energy Conversion Devices, Inc., 483 B.R. 119 (2012)