Unsecured Creditors’ Committee of Highland Superstores, Inc. v. Strobeck

Strobeck Real Estate, Inc. (Strobeck) (defendant) leased shopping-center space to Highland Superstores, Inc. (Highland) (debtor) under a 20-year lease. Highland filed for bankruptcy under Chapter 11. At the time of filing, Highland was in default under the lease. Highland was unable to find a replacement tenant and filed a motion to reject the lease, which was granted. This constituted a breach under the lease. Strobeck found a new tenant, Syms Corporation. Strobeck filed a proof of claim for $839,871, later amended to $923,446, to recover the value of rent lost in Highland’s breach. The unsecured creditors’ committee (the committee) (plaintiff) objected to the proof of claim. In an evidentiary hearing, it was determined that a statutory rate of interest would be applied to compute the present value of the difference between future income streams under the Highland and Syms leases. The committee proposed an alternative method under which different discount rates would be applied to reflect the differences in creditworthiness between Highland and Syms—an approach that would have significantly reduced the value of Strobeck’s claim. The bankruptcy court applied Strobeck’s preferred method, which had more support in the caselaw. The committee appealed to federal district court, which reversed the bankruptcy court. Strobeck appealed. The United States Court of Appeals for the Sixth Circuit granted certiorari.