## Facts

- Saddleback Valley Community Church leased land to El Toro Materials Company, Inc. for mining operations.
- El Toro filed for Chapter 11 bankruptcy, and the parties stipulated that the lease would be rejected under 11 U.S.C. § 365(a).
- After ceasing operations, El Toro allegedly left on the property about one million tons of wet clay, along with mining equipment and other materials.
- Saddleback asserted claims labeled as waste, nuisance, trespass, and breach of contract (including restoration obligations), seeking roughly $23 million in removal and related damages.
- The bankruptcy court held, on partial summary judgment, that Saddleback’s recovery was not limited by the cap for “damages resulting from the termination of a lease of real property” in 11 U.S.C. § 502(b)(6).
- The Bankruptcy Appellate Panel reversed, ruling that § 502(b)(6) capped the damages.
- The Ninth Circuit reviewed Saddleback’s appeal from the BAP decision.

## Issues

1. Whether claims for remediation and property-interference (waste, nuisance, trespass, and related contract duties) based on a tenant’s leaving materials on leased land are “damages resulting from the termination of a lease of real property” capped by 11 U.S.C. § 502(b)(6).
2. How to distinguish termination-based landlord damages (e.g., future rent) from damages that would be actionable regardless of lease rejection.

## Decision

- The Ninth Circuit reversed the BAP and reinstated the bankruptcy court’s ruling.
- The court held that § 502(b)(6) did not cap Saddleback’s asserted damages because they did not “result from” lease termination, but from conduct and conditions that would have been actionable even if the lease had not been terminated.
- The court rejected broader BAP interpretations that treated non-rent, collateral damages as subject to § 502(b)(6), overruling prior BAP precedent to that extent.

## Legal Principles

- 11 U.S.C. § 502(b)(6) limits only those landlord claims that flow from lease termination itself, principally rent-type damages tied to the lost lease term.
- Damages based on independent tort-like or property-based wrongs (including waste, nuisance, trespass, and remediation costs) are not capped when the alleged injury would exist regardless of lease rejection.
- The “resulting from” inquiry focuses on causation: whether the asserted damages are triggered by termination/rejection, as opposed to being independently actionable harms that happen to involve a landlord-tenant relationship.
- The statutory purpose of § 502(b)(6) is to prevent large future-rent claims from overwhelming other unsecured creditors, not to reduce liability for physical damage or interference claims that resemble ordinary tort claims.

## Conclusion

The Ninth Circuit held that § 502(b)(6) does not cap a landlord’s claims for remediation and related tort/property harms arising from a debtor-tenant’s conduct, because such damages do not result from lease termination in the rent-loss sense targeted by the statute.


Saddleback Valley Cmty. Church v. El Toro Materials Co. (In re El Toro Materials Co.), 504 F.3d 978 (9th Cir. 2007)