The United States Bankruptcy Code, pursuant to 11 U.S.C. Section 502(b)(6), caps a landlord’s claim in bankruptcy for damages resulting from the termination of a real property lease. See In re PPI Enterprises U.S., 324 F.3d 197, 207 (3rd Cir. 2003). Under Section 502(b)(6), a landlord-creditor is entitled to rent reserve from the greater of one lease year or 15 percent, not to exceed three years, of the remaining lease term. The cap operates from the earlier of the petition filing date or the date on which [the] lessor repossessed, or the lessee surrendered, the leased property. The landlord also retains a claim for any unpaid rent due under such lease prior to the earlier of those dates. This language reflects Congress’s intent to limit lease termination claims to prevent landlords from receiving a windfall over other creditors. Id. at 207.
The Ninth Circuit recently issued an opinion holding that Section 502(b)(6) does not cap damages arising from every breach of a lease. See In re Kupfer, —F.3d—, 2016 WL 7473790, 63 Bankr. Ct. Dec. 136 (9th Cir. 2016). Konstantin Kupfer and Margarita Kupfer(the debtors) leased two commercial properties. Each lease ran for 10 years. Each lease included an arbitration clause for the resolution of disputes between the landlord and tenant and included a clause under which attorney fees, arbitration fees and costs would be awarded to the prevailing party in the event of a dispute. The debtors stopped paying rent on the properties and eventually vacated the premises. Litigation ensued in the California state court for breach of both leases. The state court stayed the action pending arbitration.
