In re A.J. Lane & Co., Inc.

In November 1987, Andrew J. Lane (debtor) purchased 16 acres of commercially zoned land from Southern Pacific Development Company (Southern Pacific). Lane planned to build commercial buildings on the land. The purchase-and-sale agreement gave Southern Pacific the right to repurchase the property if Lane did not develop it. The deed for the property similarly provided that Lane would construct at least one 200,000-square-foot building on the property on or before November 17, 1991, and that if Lane did not, Southern Pacific would have the right to repurchase the property within 90 days. Santa Fe Pacific Realty Corporation (Santa Fe) subsequently became Southern Pacific’s successor in interest under the purchase-and-sale agreement and deed. Lane ran into financial trouble and did not develop the property. In March 1989, Lane and affiliated entities (debtors) filed Chapter 11 bankruptcy petitions. To obtain cash to fund a reorganization plan, Lane wanted to sell the undeveloped property and an adjacent developed parcel. Jack Langson had agreed to purchase both parcels from Lane for $16.5 million, but Langson refused to complete the sale transaction if the undeveloped parcel remained subject to Santa Fe’s repurchase option. Lane therefore moved to reject the repurchase option under 11 U.S.C. § 365. Santa Fe opposed Lane’s motion. To facilitate the sale of the property to Langson, the bankruptcy court issued an order granting Lane’s motion and then supplemented its order with a written decision.