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In re Trak Auto Corporation

United States Court of Appeals for the Fourth Circuit
367 F.3d 237 (2004)


Facts

Trak Auto Corporation (Trak Auto) (plaintiff), a retailer of auto parts and accessories with 196 stores, filed a Chapter 11 petition. Trak Auto received permission from the bankruptcy court to close certain stores. It then sought to assume and assign certain leases for the closed locations. One such location was at the West Town Center shopping center, owned by West Town Center LLC (West Town) (defendant). The lease agreement between Trak Auto and West Town provided that the premises would be used only for the retail sale of automobile parts and accessories. Trak Auto was the only auto parts retailer in the shopping center. It solicited bids for transfer of its lease. None were received from an auto parts retailer. The highest bid came from a discount clothing store, A & E Stores, Inc. (A&E). Trak Auto moved the bankruptcy court to approve its assumption of the lease and its assignment to A&E. West Town objected, citing the use restriction in the lease and alleging that assignment would harm its tenant mix. The bankruptcy court ruled in favor of Trak Auto, on the grounds that 11 U.S.C. § 365(f)(1) authorized assignment of the lease notwithstanding the contractual restriction and that West Town had not proved that the assignment would disrupt its tenant mix. The district court affirmed. West Town appealed.

Rule of Law

Issue

Holding and Reasoning (Michael, J.)

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