## Facts

- From 1955 to 1980, Karen-Richard Beauty Salon, Inc. operated a beauty salon in the Fontainebleau Hotel under a lease that began when the hotel was built.
- In 1955, the salon left a security deposit with the hotel’s original owner/landlord, Fontainebleau Hotel Corp.
- In 1977, Fontainebleau sold the hotel to Hotelerama, and the salon’s lease was transferred with the sale.
- After the sale, the salon remained in possession for several years and did not leave the premises until 1980.
- In 1982, the salon filed a proof of claim in bankruptcy court against Fontainebleau seeking return of the 1955 security deposit.
- In October 1982, the bankruptcy court allowed the claim in the amount of $15,000.
- About two months later, Fontainebleau objected, asserting that Hotelerama had assumed Fontainebleau’s assets and liabilities when it purchased the hotel and that, in any event, the deposit was no more than $7,000.
- The bankruptcy court sustained the objection, entered an order to reconsider its earlier allowance, and later disallowed the claim; it also denied the salon’s rehearing request, which argued Fontainebleau’s request was untimely under Federal Rule of Civil Procedure 59 and did not satisfy Rule 60(b).
- The salon appealed to the U.S. District Court for the Southern District of Florida.

## Issues

1. Whether the bankruptcy court could entertain and grant reconsideration of an order allowing a claim even though the movant did not satisfy Federal Rule of Civil Procedure 60(b) and the request came outside Rule 59’s ten-day period.
2. Whether a party to a contract may be relieved of contractual obligations merely by assigning the contract to a third party, so that the original obligor’s bankruptcy estate has no liability for a lease security deposit.

## Decision

- The district court affirmed the bankruptcy court’s decision disallowing the salon’s claim.
- The court held that bankruptcy courts have a recognized power, within limits, to correct their own mistakes and reconsider claim-allowance decisions; that reconsideration power is not confined to Civil Rules 59 and 60(b) in the same manner as ordinary civil litigation.
- On the assignment question, the court recognized the general contract rule that assignment alone does not automatically discharge the assignor from contractual duties absent a novation or similar agreement.
- Even so, the court concluded the bankruptcy court did not err in disallowing the claim against Fontainebleau’s estate, where the purchaser had assumed obligations connected to the hotel and the salon’s proper remedy, if any, lay against the assignee rather than through Fontainebleau’s bankruptcy claims process.

## Legal Principles

- Bankruptcy courts have continuing authority, subject to statutory and rule-based limits, to reconsider allowance or disallowance of claims to prevent error and to ensure proper administration of the estate.
- A motion seeking reconsideration of a claim-allowance order in bankruptcy is not necessarily governed by Civil Rule 59’s timing or limited to Civil Rule 60(b)’s grounds in the same way a final civil judgment is.
- Under general contract law, an assignment or delegation of a contract does not by itself release the original contracting party from liability; discharge typically requires a novation or an agreement by the obligee to look solely to the assignee.
- In bankruptcy claim administration, the court may disallow a claim against an estate where the facts show the liability was assumed by another party and the claimant is, in fairness, left to pursue available nonbankruptcy remedies against the assignee.

## Conclusion

Karen-Richard sought return of a long-ago lease security deposit by filing a bankruptcy claim against the hotel’s original owner after the hotel had been sold and the lease transferred. The district court affirmed the bankruptcy court’s decision to reconsider its earlier allowance of the claim and to disallow the claim against Fontainebleau’s bankruptcy estate, ruling that bankruptcy claim reconsideration is not strictly limited by Civil Rules 59 and 60(b) and that, on this record, any viable remedy for the deposit lay against the purchaser/assignee rather than the debtor’s estate.


Karen-Richard Beauty Salon v. Fontainebleau Hotel Corp., 36 B.R. 896 (1983)