Johnston Environmental Corp. v. Knight (In re Goodman)

OVERVIEW

James A. Knight, John A. Knight, and Mary Katherine Knight (collectively “the Knights”) own commercial rental property (“the Property”) in Santa Ana, California. David Goodman, a Chapter 11 debtor in bankruptcy as of September 1, 1988 (“the Debtor”), was a subordinate sub-sublessee of a portion of the Property. The Debtor acquired this leasehold interest from International Packaging Corporation (“IPC”), the predecessor in interest to Johnston Environmental Corporation (“Johnston”). Because the Debtor’s use of the Property violated various provisions of the Santa Ana Municipal Code, the City of Santa Ana threatened the Knights on January 24, 1989, with criminal prosecution. The Knights eventually responded by sending Notices to Quit to all lessees and by filing an unlawful detainer action in Santa Ana Municipal Court against all intermediate lessees, but not the Debtor. Prior to so doing, the Knights by their own admission had been notified by letter of Goodman’s pending bankruptcy. The bankruptcy court made a finding of fact that the Knights and their attorney of record were put on notice as of January 19, 1990 that the debtor had filed a petition in bankruptcy. It is…