In re Joshua Slocum, Ltd.

In 1983, Joshua Slocum, Ltd. (Slocum) (debtor) entered a 10-year lease with George Denney for retail space at Denney Block in Freeport, Maine. Denney Block consisted of three buildings—two adjacent and one separated by a courtyard—housing seven retail stores that sold different types of goods. Denney Block was in Freeport’s downtown shopping district, which consisted of several store-lined streets. Denney owned a parking lot primarily for use by Denney Block patrons and was the landlord for every Denney Block store. Denney’s lease with Slocum, like other Denney Block leases, contained an average-sales clause permitting Slocum or Denney to terminate the lease after six years if Slocum’s average yearly sales were below $711,245. The lease also contained a percentage-rent clause requiring Slocum to pay additional rent if Slocum’s gross sales exceeded a certain amount. In 1988, Slocum filed for Chapter 11 bankruptcy. Slocum sought to assume and assign the Denney lease under 11 U.S.C. § 365. Denney objected, asserting that Denney Block was a shopping center for purposes of 11 U.S.C. § 365(b)(3) and thus that there were heightened restrictions on lease assignment. The bankruptcy court found that Denney Block was not a shopping center because the stores were located on a street in a shopping district rather than enclosed in a typical shopping mall. The bankruptcy court authorized the bankruptcy trustee to assign the lease and excised (i.e., deleted) the average-sales clause from the lease before approving the assignment. The district court affirmed, and Denney appealed.