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In re Sylva Corp.

United States Bankruptcy Appellate Panel of the Eighth Circuit

November 26, 2014

In re: Sylva Corporation, Inc., Debtor; GE Capital Commercial, Inc., Movant - Appellant,
v.
Sylva Corporation, Inc., Debtor - Appellee

Submitted: October 28, 2014.

Appeal from United States Bankruptcy Court for the District of Minnesota - Minneapolis.

For GE Capital Commercial, Inc., Movant - Appellant: Cameron Alexander Lallier, Thomas James Lallier, Foley & Mansfield, Minneapolis, MN.

For Sylva Corporation, Inc., Debtor - Appellee: Steven B. Nosek, Steven B. Nosek, P.A., Saint Anthony, MN.

Before FEDERMAN, Chief Judge, SALADINO and SHODEEN, Bankruptcy Judges.

OPINION

Page 777

SALADINO, Bankruptcy Judge.

The Appellant, GE Capital Commercial, Inc. (" GE Capital" ), appeals the decision of the bankruptcy court denying its motion for allowance of an administrative expense claim for unpaid lease obligations against the Debtor-Appellee, Sylva Corporation, Inc. (" Sylva" ). For the reasons set forth below, we reverse and remand for further proceedings.

FACTUAL BACKGROUND

The parties are in agreement on the pertinent facts applicable to this appeal.[1] In November 2007, Sylva entered into a " Lift Lease Agreement" with a predecessor to GE Capital for the lease of certain equipment[2] used in Sylva's business operation.

Page 778

The lease was for an initial term of 60 months, expiring on November 30, 2012, and provided for Sylva to make monthly lease payments on the terms set forth in the lease agreement.

Paragraph 11 of the lease agreement gave Sylva the option to purchase the equipment during the lease term or upon expiration of the initial term by complying with the specific terms contained in that paragraph. Sylva did not do so. Paragraph 23 of the lease agreement gave Sylva the right to terminate the lease agreement upon expiration of the initial term by giving notice and returning the equipment. Again, Sylva did not do so. Therefore, pursuant to Paragraph 23, the lease automatically renewed on a month-to-month basis following the initial term until such time as either party provided the other with at least 90 days' written notice of its intent to terminate the lease agreement. Upon expiration of the initial term on November 30, 2012, Sylva had not provided any such notice to GE Capital and retained possession of the equipment. Therefore, the lease continued on a month-to-month basis.

On April 3, 2013, Sylva filed its voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the District of Minnesota. Sylva is continuing in possession of its property and operating and managing its business as a debtor-in-possession.

GE Capital filed its proof of claim on May 9, 2013, specifically identifying the basis of its claim as a " true lease" and further asserting:

This is a contingent claim arising from an equipment lease except for those amounts designated as " Pre-Petition Amounts Due" below. In the event this lease is rejected all amounts asserted hereunder become a non-contingent liability of the debtor. The claim reflected herein is consistent with Claimant's position that the contracts underlying the claim are true leases. . . .

Sylva has not objected to GE Capital's proof of claim nor has it commenced an adversary proceeding to determine the nature and extent of ...


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