## Facts

- Patriot Place, Ltd. (PPL) owned and operated Hawkins Plaza, a shopping center in El Paso, Texas, under a ground lease with the City of El Paso (City).
- Three Legged Monkey, L.P. (3LM) operated a bar at Hawkins Plaza under a nonresidential shopping-center lease with PPL.
- The City threatened termination of the ground lease, and PPL filed Chapter 11 largely due to controversy tied to 3LM’s operations.
- PPL and the City mediated a settlement that contemplated sale of Hawkins Plaza to the City, conditioned on the property being transferred free and clear of 3LM’s leasehold.
- 3LM filed its own Chapter 11 case, sought to assume its lease, and proposed a competing reorganization plan centered on remaining at Hawkins Plaza.
- The bankruptcy court held a consolidated, multi-day hearing addressing (i) 3LM’s motion to assume the lease, (ii) confirmation of both debtors’ competing plans, (iii) valuation/adequate protection of 3LM’s leasehold in a proposed § 363 sale, and (iv) ballot designation/striking disputes.

## Issues

1. Whether 3LM could assume its nonresidential shopping-center lease under 11 U.S.C. § 365, including cure and adequate assurance requirements applicable to shopping centers.
2. Whether PPL’s plan, implementing a settlement and a § 363 sale to the City free and clear of 3LM’s lease, satisfied confirmation requirements under 11 U.S.C. § 1129.
3. Whether 3LM’s competing plan was confirmable, including feasibility and consistency with the reorganizations at issue.
4. Whether 3LM’s leasehold constituted an “interest in property” that could be extinguished in a § 363(f) sale, and what adequate protection/valuation was required under § 363(e).
5. Whether any plan votes or ballots should be designated or struck for lack of good faith under 11 U.S.C. § 1126(e).

## Decision

- The court confirmed PPL’s Chapter 11 plan implementing the mediated settlement and sale of Hawkins Plaza to the City.
- The court denied confirmation of 3LM’s plan.
- The court denied 3LM’s effort to use lease assumption to block the settlement-driven transaction structure.
- The court permitted a sale free and clear of 3LM’s leasehold interest, subject to protecting 3LM’s economic interest through valuation and adequate protection under § 363(e).
- The court rejected attempts to use plan voting procedures to obstruct an otherwise confirmable reorganization tied to the settlement and sale.

## Legal Principles

- A debtor-tenant seeking to assume a nonresidential lease must cure defaults and provide adequate assurance of future performance under § 365; in the shopping-center setting, adequate assurance includes consideration of tenant mix and the shopping center’s operation as a whole.
- Lease assumption is not assessed in a vacuum where assumption would conflict with a confirmable, estate-beneficial reorganization transaction; the court may deny relief that would frustrate a settlement central to reorganization feasibility.
- A tenant’s leasehold can constitute an “interest in property” for purposes of § 363(f), permitting a sale free and clear if statutory conditions are met.
- Under § 363(e), the holder of an interest cut off by a free-and-clear sale is entitled to adequate protection, which may be provided by protecting the value of the interest rather than preserving continued possession.
- Plan confirmation under § 1129 turns on, among other requirements, good faith, feasibility, and creditor recoveries compared to liquidation; a plan tied to a funded sale and negotiated settlement may satisfy these standards where alternatives are speculative.
- Under § 1126(e), the court may police bad-faith vote solicitation or procurement, but will not invalidate votes simply because they support a legitimate settlement-based reorganization.

## Conclusion

The bankruptcy court confirmed the landlord-debtor’s reorganization plan centered on a settlement and sale of the shopping center to the City free and clear of the tenant-debtor’s lease, holding that the tenant’s leasehold could be converted into a protected economic interest through valuation and adequate protection, and denying the tenant’s competing plan and lease-assumption strategy as inconsistent with feasibility and the confirmed transaction structure.


In re Patriot Place, Ltd., 486 B.R. 773 (Bankr. W.D. Tex. 2013)