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February 23, 1979

In re Richard H. M. MAIDMAN, not Individually but as Trustee under that certain land trust agreement dated December 19, 1975, known as "Trust Number 2", Debtor

The opinion of the court was delivered by: GAGLIARDI


This is an expedited appeal from an order entered on January 16, 1979 by the Bankruptcy Judge (Lewittes, J.) in proceedings for a real property arrangement pursuant to Chapter XII of the Bankruptcy Act, 11 U.S.C. §§ 801-926. Richard M.H. Maidman, as Trustee under a land trust agreement dated December 19, 1975 (the "Debtor"), challenges that portion of the Bankruptcy Judge's order requiring that the Debtor's possession of his property be subject to a lease between a state foreclosure receiver, as lessor, and Jomar Hotel Corporation ("Jomar"), as lessee. For the reasons set forth below, the order of January 16, 1979 is affirmed in part and reversed in part, and the case is remanded to the Bankruptcy Judge for further proceedings.

Statement of Facts

 As no findings of fact were made by the Bankruptcy Judge, this statement of facts is necessarily drawn from the affidavits and memoranda of law submitted by the parties and the transcript of the oral argument before the Bankruptcy Judge.

 The Debtor, as trustee under a land trust agreement, has various property interests in oceanfront hotel property in Miami Beach, Florida. These property interests include: 1) a lessee's interest in a long-term ground lease of 5.5 acres of land; 2) the fee interest in the Barcelona and International Hotel complexes situated on that land; 3) the lessor's interest in the lease of the two hotels; and 4) the sublessor's interest in the sublease of the land. The Debtor owes approximately $ 4.75 million to nine separate creditors, the largest of which is the first mortgagee, the Barnett Winston Investment Trust ("BWIT"). In January 1978, BWIT commenced a foreclosure action against the Debtor and others in Florida state court and, on January 24, 1978, that court appointed a receiver to take possession of the Debtor's property and to operate his business.

 On December 19, 1978, after a hearing and with the Florida court's approval, the receiver entered into a short-term lease of the Barcelona Hotel's north building with Jomar. The lease calls for Jomar to pay $ 210,000 rent in monthly installments of varying amounts until its termination on April 29, 1980.

 On January 9, 1979, the Debtor filed his petition for a Chapter XII arrangement with this court. The Bankruptcy Judge entered an order permitting the Debtor to regain possession of its property and enjoining all persons from interfering with the Debtor's possession. On Jomar's subsequent oral application, however, the Bankruptcy Judge issued an amended order on January 11th providing that the Debtor's continued possession was "subject to all existing leases" but that the Debtor retained the right to move to reject any executory contracts. No appeal was taken from this order.

 When the Debtor allegedly interfered with Jomar's access to the premises, Jomar moved for the issuance of a certificate of contempt. The Debtor cross-moved to dismiss the application on the grounds that the filing of a Chapter XII petition nullified the lease between Jomar and the state foreclosure receiver and that Jomar had failed to satisfy certain conditions precedent to the lease as required by the Florida court at the hearing on approval of the lease. No testimony was taken on the respective motions, but the Bankruptcy Judge heard oral argument on the question of the lease's continued validity in light of the initiation of the Chapter XII case. By order dated January 16, 1979, the Bankruptcy Judge denied the parties' motions, amended his order of January 9th to provide that the Debtor's possession was subject to the lease between the receiver and Jomar, and ordered the Debtor not to interfere with Jomar's right to immediate possession of the property without prejudice to the Debtor's pursuit of any claim for breach of the lease in a court of competent jurisdiction. The Debtor applied to the Bankruptcy Judge for a stay of the order pending an appeal. In his memorandum decision of January 16th, the Bankruptcy Judge expressly rejected the Debtor's theory that the lease became a nullity upon the filing of the Chapter XII petition and denied the request for a stay. The instant appeal followed. *fn1"

 The Debtor challenges the order below on the grounds that the relief granted is contrary to the express provisions of §§ 506-08 of the Bankruptcy Act and is both outside the scope of the proceeding below and without support in the record. The Debtor also objects to that portion of the order which requires him to litigate the issue of Jomar's alleged breach of the lease in a court of competent jurisdiction rather than in the Bankruptcy Court.


 A. The Procedural Requirements of the Bankruptcy Rules

 The sole issue presented by Jomar's application of January 12, 1979 was whether the Debtor was in contempt of the Bankruptcy Judge's order of the previous day by denying Jomar access to the leased premises. The Bankruptcy Judge's order of January 16, 1979, however, not only ruled on the pending motion but also determined that Jomar had rights in the property and ordered the Debtor not to deny possession to Jomar.

 Bankruptcy Rule 12-60 states in pertinent part:

Part VII of the Bankruptcy Rules shall govern any proceeding instituted by a party before a bankruptcy judge in a Chapter XII case to (1) recover money or property other than a proceeding under Rule 12-29 or Rule 12-50, (2) determine the validity, priority, or extent of a lien or other interest in property, . . . (or) (4) ...

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