Full title: Response to 175 Motion to sell property free and clear of liens filed by Interested Party Reddy Rentals, Inc.. (Swedberg, Amy) (Entered: 03/10/2021)
Document posted on Mar 9, 2021 in the bankruptcy, 18 pages and 0 tables.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MINNESOTA
In re Case No. 21-30037-WJF
TEA OLIVE I, LLC d/b/a STOCK-FIELD, Chapter 11
REDDY RENTALS, INC.’S PRECAUTIONARY OBJECTION
AND RESERVATION OF RIGHTS
Reddy Rentals, Inc. (“Reddy Rentals”), by and through its undersigned counsel, files this precautionary objection to the Debtor’s First Supplemental Assumption and Assignment Notice (“Assumption and Assignment Notice”), filed on March 3, 2021 [Docket No. 180].
Reddy Rentals has no objection to the “Cure Costs” stated in the Assumption and Assignment Notice, but Reddy Rentals objects to the Debtor’s reservation of rights as to whether the three (3) Equipment Leases between the Debtor (as assignee of Big R Stores) and Reddy Rentals (collectively, the “Reddy Rentals Leases”) constitute unexpired leases within the meaning of 11 U.S.C. § 365.
1. The three (3) Reddy Rentals Leases described in the Assumption and Assignment Notice concern the following leased equipment that is owned by Reddy Rentals:
• Max Pax Model MP60-15 Baler and Wastequip 265IP (used at Findlay, OH store) • Wastequip 265IP (used at Lima, OH store)
• Max Pax Model MP60-15 Baler (used at Lima, OH store)
True and correct copies of the Reddy Rentals Leases are attached hereto as Exhibit A.
2. A key feature of the Reddy Rentals Leases is that the Debtor has the option to purchase the equipment at the end of the lease term for 10% of its original cost, a sum that is not nominal such as a $1 lease buyout option in a disguised financing agreement. See Ex. A, at ¶¶ 9 of each Lease.
3. In determining whether consideration is “nominal” for purposes of whether a lease is a “true” lease or a disguised financing statement, state courts following the Uniform Commercial Code (“UCC”) apply UCC § 1-203 that provides “additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under the lease agreement if the option is not exercised.” See Ohio Stat. § 1301.0203. In the Reddy Rentals Leases, the buy-out option is only available at the end of the lease term after performance of the lease agreement is fully exercised. Accordingly, the buy-out payment constitutes additional consideration beyond what is required under the lease. This consideration would not be “nominal” under this test.
4. The Ohio Court of Appeals has also found that “intent of the parties is a determinative factor in deciding whether an agreement is a mere lease or a security agreement” and may be inferred based on “whether the lessee may realistically return the property to the lessor without further obligation or is compelled by either the lease or economic practicality to keep and pay for it.” Fifth Third Bank v. Roberts, 2004-Ohio-6488, 2004 WL 2785955 (Ohio Ct.
App. Dec. 6, 2004). In Fifth Third Bank, the court found it was the parties intent to enter into a lease where the subject lease included the option to purchase the subject vehicle for a price of $5,075 at the end of the lease (where the lessee had made 60 monthly payments of $290.20 on a vehicle that was $14,857.50 at the time of signing). As in Fifth Third Bank, the additional 10% buy-out payment under the Reddy Rentals Leases is significant enough to not compel the lessee to keep the equipment out of economic practicality.
WHEREFORE, Reddy Rentals respectfully requests that the Court uphold the designation of the three (3) Reddy Rentals Leases as unexpired leases within the meaning of 11 U.S.C. § 365 and deny the Debtor’s purported reservation of rights to dispute this characterization of the leases as set forth on the Assumption and Assignment Notice.
Dated: March 10, 2021 By: /s/ Amy J. Swedberg
Amy J. Swedberg (#271019)
3300 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402-4140
Telephone: (612) 672-8367
ATTORNEYS FOR REDDY RENTALS, INC.