COHOES INDUS. TERMINAL v. LATHAM SPARROWBUSH ASSOC., 87 Civ. 1987 (GLG).
| Decision Date | 22 June 1987 |
| Docket Number | No. 87 Civ. 1987 (GLG).,87 Civ. 1987 (GLG). |
| Citation | 75 BR 147 |
| Parties | COHOES INDUSTRIAL TERMINAL, INC., Debtor, v. LATHAM SPARROWBUSH ASSOCIATES, Creditor. |
| Court | U.S. District Court — Southern District of New York |
Leon C. Baker, White Plains, N.Y., for debtor.
David M. Siegel, Zubres, D'Agostino & Hoblock, Albany, N.Y., for creditor.
The debtor moves for leave to appeal to the District Court from an interlocutory order of Bankruptcy Judge Howard Schwartzberg, entered March 3, 1987, dismissing a complete defense of res judicata interposed to the claim of a creditor, Latham Sparrowbush Associates ("LSA").
LSA was the landlord of an apartment complex known as Sparrowbush Apartments. The debtor was the lessee and, in turn, subleased the apartments to the various tenants. The lease had an option providing that the owner, LSA, could recover the leasehold by paying $350,000 to the debtor. LSA attempted to exercise the option. The debtor resisted, claiming that the option violated the rule against perpetuities. The wife of the debtor's president, who claimed to be the real party in interest to the lease, brought suit in New York State Supreme Court to block LSA's attempt to recover the premises. The New York court found she had no standing to sue, and dismissed the action. LSA also brought suit in state court, seeking a declaratory judgment that the termination option in the lease was valid, and an order directing the debtor to deliver possession of the premises to LSA in accordance therewith. Initially, LSA obtained a default judgment. Prolonged proceedings followed, and it took about a year for LSA to actually gain possession. The debtor thereafter filed in bankruptcy. LSA filed a proof of claim against the debtor for about two and one-half million dollars allegedly due to LSA from the debtor. The debtor argued that, under the doctrine of res judicata, these claims were barred because they merged with the state default judgment, which granted LSA specific performance of the option terminating the leasehold. Judge Schwartzberg dismissed this objection in an opinion dated February 6, 1987. In re Cohoes Industrial Terminal, Inc., 69 B.R. 717 (Bankr.S.D.N.Y.1987).
In seeking the extraordinary relief of an interlocutory appeal, the debtor makes three arguments:
1. mounting a defense on the merits of LSA's claims would be extremely costly;
2. all LSA's claims existed prior to its state court action and, therefore, the defense of merger is a complete bar; and
3. the Bankruptcy Court mistakenly relied upon federal bankruptcy law rather than New York law in determining the validity of the debtor's merger defense.
With respect to the first claim, it is one that is true of most defenses. It is not a sufficient factor, standing alone, to warrant an interlocutory appeal.
With respect to the second claim, it is not factually correct. At a minimum, paragraphs 3(c) and 4(c) of LSA's proof of claim are post-termination claims which would not be barred by the merger/res judicata defense.1
As to the third claim, that the Bankruptcy Court mistakenly proceeded on the basis of federal bankruptcy law rather than New York state's law, a reading of Judge Schwartzberg's opinion does not support that argument. Indeed, Judge Schwartzberg cites only one federal case, and that merely to describe the doctrine of merger and the general prohibition against splitting of causes of action. In re Cohoes, supra, 69 B.R. at 721. The remainder of the decision rests upon general common law principles, in particular, those expressed in the Restatem...
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