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IN RE GRAYSON SHOPS

February 3, 1966

In the Matter of GRAYSON SHOPS, INC., Debtor


The opinion of the court was delivered by: BONSAL

BONSAL, District Judge:

 This is a petition to review two related orders by the Referee in Bankruptcy Herzog. One order, dated August 17, 1965, denied a motion by petitioner, Millman Brothers, Inc. (Millman), for leave to reject its sublease with the debtor Grayson Shops, Inc. (debtor). The other order, dated August 26, 1965, permitted the debtor to (1) withdraw an application for rejection of a lease between debtor and its lessor and (2) approved a stipulation and agreement of settlement assigning debtor's interest in a lease with the lessor as well as debtor's interest in any subleases to Mayfield Investment Company (Mayfield).

 The facts relevant to this petition are not in dispute.

 In 1947, the debtor entered into a long term lease with lessor Phyllis Birnkrant, et al. (lessor) for certain premises located in Michigan. This lease, as modified on October 7, 1952, limited rights of subleasing by the lessee and provided that in the event of insolvency or bankruptcy of the lessee, the lessor after thirty days has the option to cancel the lease. (Paragraph 7, Modification of October 7, 1952.)

 The lease further provided:

 
"Any consent to subletting * * * in this lease shall not create any privity between the subtenant and the Landlord but such subtenant shall hold only under the Tenant herein, and upon termination of this lease by the Landlord by re-entry or otherwise, such subleases * * * shall automatically be cancelled and of no further force and effect * * *." (Paragraph 27, Modification of October 7, 1952.)

 Debtor subleased a portion of the premises to Millman in 1947, which sublease through extensions, expires in 1972.

 On December 23, 1964, the debtor filed a petition in this court under Chapter XI of the Bankruptcy Act and was permitted by the bankruptcy court to remain in possession.

 By petition dated February 2, 1965, debtor moved for permission to reject the main lease. *fn1" A hearing on this motion was postponed by the debtor from time to time until June 21, 1965. *fn2" At the June 21st hearing, and over lessor's objections that debtor's motion was in violation of the February 4th agreement (footnote 2), the Referee made a memorandum decision dated June 21, 1965 stating:

 
"I find that the lease to be [sic] burdensome and debtor is permitted to reject same. Submit order."

 No order was entered on the Referee's decision. Subsequently the debtor and lessor entered into a stipulation and agreement of settlement which was approved by the Referee by order dated August 26, 1965 (which order is under review). Under the stipulation and agreement debtor's application for rejection of the main lease was withdrawn. The debtor was permitted to assign its interest in the main lease and its interest in the sublease with Millman to Mayfield and the lessor reduced its general unsecured claim from $126,000 to $50,000

 Prior to the entry of the August 26th order, Millman moved in the bankruptcy court for an order authorizing it to reject its sublease with the debtor. After a hearing held August 17, 1965, Millman's motion was denied, which is the second of the two orders here under review. It was during this August 17th hearing that the debtor informed the Referee of the proposed stipulation and agreement with its lessor and moved to withdraw its own motion for rejection of the main lease.

 As a result of these two orders of the Referee, the debtor's motion to reject the main lease was withdrawn prior to the entry of any order on the subject. The debtor was permitted to assign its interest in the main lease, and its interest in the Millman sublease to Mayfield. Millman's motion to have its sublease with the debtor rejected was denied.

 Millman has failed to demonstrate that the Referee has committed error in denying its motion to reject the sublease, permitting the withdrawal of debtor's motion for rejection, and approving the ...


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