In re Locke

In In re Locke (Bankr. C.D.Cal. 1995) 180 B.R. 245, the lessee of a property assigned 99 percent of its interest to one of the property's tenants and the remaining 1 percent to the Lockes. ( In re Locke, supra, 180 B.R. at pp. 248-249.) A judgment creditor filed a lien against the Lockes' interest in the lease shortly before the Lockes filed for bankruptcy. (Ibid.) Thus, the bankruptcy court had to decide whether a debtor-lessee's deemed rejection of a lease extinguishes a third party's lien against the debtor's interest. After an exhaustive review of federal case law and commentary on the subject, the court concluded the rejection was properly construed as a breach of the lease, not a termination, such that the judgment lien was not automatically extinguished. ( Id. at p. 263.) In reaching this holding, the court distinguished two cases decided by the Bankruptcy Appellate Panel of the Ninth Circuit because the "crux" of the disputes concerned "the right to possession of the subject premises--not termination or extinguishment of each and every covenant, remedy and right in or appurtenant to the subject lease." ( Id. at p. 255.)