Unpublished Disposition, 940 F.2d 667 (9th Cir. 1991)

MEMORANDUM^* 

Appellant Jerome N. Field is the debtor in a Chapter 13 proceeding. Field listed appellee Robert Berry as a creditor because Field had entered into a ten-year lease of office space from Berry. Field's bankruptcy petition asserted that he was not bound by the lease because of alleged building code violations. The Bankruptcy Court affirmed the validity of the lease, holding that any claimed code deficiencies were immaterial because of the issuance of a certificate of occupancy by the City of San Francisco. The Bankruptcy Appellate Panel affirmed. Field now appeals. Berry cross-appeals, claiming the damage cap of 11 U.S.C. § 502(b) (6) is not applicable to his claim. In addition, Berry contends that the cap should, if otherwise applicable, not limit his recovery of attorney's fees incurred in earlier litigation between the parties in California Superior Court. We affirm the BAP rulings on both the appeal and cross-appeal, but agree with Berry that he is entitled to fees for the Superior Court action without the cap. We remand for determination of those fees.

The BAP properly ruled that it was not within its purview to weigh the seriousness of alleged building code violations where a certificate of occupancy had been issued by the City of San Francisco. The BAP correctly noted that under San Francisco's building code, a certificate of occupancy is the Bureau of Building Inspection's certification that a building complies with all applicable regulations and is ready for occupancy. Having obtained such certification, Berry was entitled to assume that occupancy of the building was legal, even if a code violation was later discovered. The authorities upon which Field relies involve cases in which no building permit or certificate of occupancy was ever obtained. See, e.g., Gruzen v. Henry, 84 Cal. App. 3d 515, 148 Cal. Rptr. 573 (Ct.App.1978). Field also relies on Finnegan v. Royal Realty Co., 35 Cal. 2d 409, 218 P.2d 17 (1950) (en banc), for the assertion that a landlord has a duty to comply with applicable health and safety codes. Finnegan is inapposite, however, because it discusses a landlord's duty of care toward employees of a lessee who were injured in a fire in the landlord's building. The fact that a landlord may be liable in tort for the failure to comply with safety codes does not bear on the validity of the underlying lease. Also inapposite are cases involving leases for unlawful purposes. See, e.g., Shephard v. Lerner, 182 Cal. App. 2d 746, 6 Cal. Rptr. 433 (Dist.Ct.App.1960).

In his cross-appeal, Berry claims that the damage cap of 11 U.S.C. § 502(b) (6) should not be applied to this case because Berry is the sole unsecured creditor and the statute was designed to apply in situations where there are multiple unsecured creditors. This position is contrary to the language of the statute and the statute has apparently never been so narrowly interpreted by the courts. Moreover, Berry has not demonstrated that Field was using the bankruptcy filing in bad faith. The Bankruptcy Court declined to make such a finding, and we cannot say that determination was clearly erroneous.

Berry also argues that section 502(b) (6) does not apply to limit recovery of Berry's attorney's fees from the earlier rescission action. He asserts that his claim for attorney's fees from the rescission action brought in San Francisco Superior Court is not a claim resulting from the termination of the lease in the bankruptcy proceedings, and therefore should fall outside the limitation of section 502(b) (6). The BAP found that the attorney's fees incurred by Berry in defending against Field's rescission action were part of the damages resulting from the termination of the lease, and thus section 502(b) (6) limited recovery of the attorney's fees.

As to this issue, we also agree with the Bankruptcy Court and the BAP. Damages sought in both the rescission action and in Bankruptcy Court relate to the termination of the lease.

AFFIRMED. Costs on appeal are awarded to Berry.