In re Klein Sleep Products
United States Court of Appeals for the Second Circuit
78 F.3d 18 (1996)
Klein Sleep Products (Klein) filed for reorganization under Chapter 11 in June 1991. It sought to assume an existing lease of retail space in Paramus, New Jersey. The bankruptcy court approved assumption of the lease between Klein and the landlord, Nostas Associates (plaintiff). Klein paid rent to Nostas through October 1992. In January 1993, it was clear that the reorganization would fail. A Chapter 11 trustee (defendant) was appointed to oversee Klein’s liquidation. The trustee rejected the Paramus lease and surrendered the property to Nostas. Nostas applied for payment of past arrearages and future rent as administrative expenses that would be entitled to priority. The trustee objected. The bankruptcy court ruled that Nostas was entitled to priority only for those claims arising before rejection of the lease. The court further ruled that Nostas’s post-rejection claims were limited to one year of rent under 11 U.S.C. § 502(b)(6). The district court affirmed, reasoning that claims arising after the rejection of a lease are entitled to administrative priority only where such claims provide benefit to the estate. Nostas appealed.
Rule of Law
Holding and Reasoning (Calabresi, J.)
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