Ctr. Operating Co. v. Base Holdings, LLC (In re Base Holdings, LLC)

• Decision Date: 03 July 2012
• Docket Number: Bankruptcy No. 09–34269–SGJ–7.,Adversary No. 09–03256–SGJ.
• Citation: 487 B.R. 727
• Parties: In re BASE HOLDINGS, LLC, Debtor. Center Operating Company, L.P., Plaintiff, v. Base Holdings, LLC, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Texas

487 B.R. 727

In re BASE HOLDINGS, LLC, Debtor.Center Operating Company, L.P., Plaintiff,

v.Base Holdings, LLC, Defendant.

Bankruptcy No. 09–34269–SGJ–7.

Adversary No. 09–03256–SGJ.

United States Bankruptcy Court,

N.D. Texas,

Dallas Division.

July 3, 2012.

Recognized as Unconstitutional

28 U.S.C.A. § 157(b)(2)(C)

Boyd Aaron Mouse, Joseph A. Friedman, Kane Russell Coleman & Logan, Dallas, TX, for Plaintiff, Center Operating Company, L.P.

Richard D. Pullman, Kessler Collins, Dallas, TX, for Robert Yaquinto, Jr., Chapter 7 Trustee.

MEMORANDUM OPINION AND ORDER ADDRESSING CROSS–MOTIONS FOR SUMMARY JUDGMENT ON DEFENDANT'S COUNTERCLAIMS, SPECIFICALLY: (A) GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON ALL COUNTERCLAIMS, EXCEPT ONE BREACH OF CONTRACT CLAIM; AND (B) DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

STACEY G. JERNIGAN, Bankruptcy Judge.

I. INTRODUCTION.

The above-referenced adversary proceeding (“Adversary Proceeding”) is, essentially, a landlord-tenant dispute that erupted within a bankruptcy case. The Plaintiff, Center Operating Company, L.P. (the “Plaintiff” or “Landlord–Center”), is the landlord. Landlord–Center is the operator of a sports and special events complex near downtown Dallas, Texas that is known as American Airlines Center—the hallowed ground at which the Dallas Mavericks NBA basketball team and the Dallas Stars NHL hockey team each play (the “Arena”). The Arena anchors a larger development in Dallas known as Victory Park. The tenant in this landlord-tenant dispute is Base Holdings, LLC, which was a franchisee of the well-known restaurant corporation Brinker International, and was the operator of a Chili's Bar & Grill restaurant (the “Restaurant”) at the southwest corner of the Arena. The Restaurant, unfortunately, had a short and unsuccessful life span. It operated for a mere nine months, starting in late 2008, before voluntarily seeking Chapter 11 bankruptcy relief, and then ultimately (and abruptly) closing. In fact, the tenant (“Debtor” or “Tenant–Base” of “Defendant”) moved to convert its Chapter 11 reorganization case to a Chapter 7 liquidation case, soon after the bankruptcy case and this Adversary Proceeding were filed; thus, the Chapter 7 Trustee, Robert Yaquinto (the “Bankruptcy Trustee”), is now the party-defendant in this Adversary Proceeding and stands in the shoes of the tenant—although many of the pleadings still refer to “Base Holdings, LLC” ¹ as the Defendant.²

Soon after Tenant–Base filed its bankruptcy case (which was on July 6, 2009), the Landlord–Center commenced this Adversary Proceeding (on August 7, 2009), by filing a Complaint for Declaratory Judgment, which requested that the bankruptcy court declare the parties' rights under their June 2, 2008 Lease Agreement (herein so called). Specifically, the Complaint asserted that Tenant–Base had never paid any rent at all to Landlord–Center, and Landlord–Center sought a determination as to how the defined term “Chili's Opening Date” should be interpreted in the Lease Agreement, for purposes of calculating all rent due to Landlord–Center. The Complaint also asked for certain other declarations regarding the parties' rights, status, and legal relations pursuant to the Lease Agreement. Landlord–Center also filed a proof of claim in the underlying bankruptcy case in the amount of $1,595,918.83, for various amounts allegedly due to it under the Lease Agreement.See Claim No. 7, in the Claims Register maintained in Case No. 09–34269. Note that Tenant–Base was still occupying its Restaurant-space in the Arena at the time that this Adversary Proceeding was commenced (thus, it still had all of its rights and remedies available to it pursuant to Section 365 of the Bankruptcy Code). ³

The Adversary Proceeding quickly grew more complicated. The Debtor, Tenant–Base, vacated its space in the Arena less than a month after the Adversary Proceeding was filed, and thereafter filed an answer in this Adversary Proceeding that also asserted numerous counterclaims against Landlord–Center, including numerous torts (mostly fraud claims) and breach of contract. Tenant–Base also filed a separate adversary proceeding against Landlord–Center, asking the bankruptcy court to avoid Landlord–Center's statutory landlord lien that it was asserting (“Lien Avoidance Adversary Proceeding”). A motion to consolidate the Lien Avoidance Adversary Proceeding with this Adversary Proceeding was filed by Landlord–Center, but the parties later reached an Agreed Judgment of Dismissal in the Lien Avoidance Adversary Proceeding. Additionally, insiders of the Tenant–Base (specifically: its equity owner, Gilbert Aranza, and certain of his affiliates) filed a state court lawsuit against Landlord–Center, alleging the same type of claims as the Debtor alleged (as counterclaims) in this Adversary Proceeding. The bankruptcy court stayed this latter lawsuit, determining that insiders were essentially exercising control over claims that were property of the bankruptcy estate.

Many months have now elapsed in the Adversary Proceeding. During these months, not only did Base–Tenant vacate the Restaurant space (which was followed by various legal skirmishes regarding personal property at the Restaurant), but, as mentioned, a Bankruptcy Trustee was appointed for Tenant–Base. Then, a motion to dismiss counterclaims was heard and decided (on July 20, 2010)—with the bankruptcy court dismissing three of Tenant–Base's many counterclaims. Additionally, a jury demand was made by Tenant–Base (which was objected to by Landlord–Center and stricken by the bankruptcy court, on August 18, 2010).⁴

In mid–2011, cross motions for summary judgment, responses, and supporting documentary evidence were filed—solely dealing with Tenant–Base's (i.e., the estate's) numerous, remaining counterclaims against Landlord–Center.⁵ Landlord–Center moved for summary judgment on all of the counterclaims asserted on behalf of the estate of Tenant–Base ( i.e., all of the counterclaims that had not been dismissed by the bankruptcy court earlier). Tenant–Base moved for summary judgment on two of its counterclaims. The bankruptcy court took those cross-motions for summary judgment under advisement (in Fall of 2011) after oral arguments. Around the time that this bankruptcy court was prepared to issue a written ruling on the cross-motions for summary judgment, Tenant–Base filed (on December 21, 2011) a motion to withdraw the reference and motion for remand. Tenant–Base argued that, pursuant to the holding in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), the bankruptcy court had no Constitutional authority to render a final judgment on the counterclaims of the estate (hereinafter, the “ Stern Motion”). DE # 112 & 113 (same pleading). The Stern Motion was filed a full six months after the Supreme Court's ruling in Stern v. Marshall, approximately five months after the cross-motions for summary judgment were filed, and 28–and–a–half months after the Adversary Proceeding was filed.

The bankruptcy court held a status conference on February 6, 2012, on Tenant–Base's motion to withdraw the reference and motion for remand. Counsel for Base–Tenant announced that it was withdrawing its request for remand and was simply urging withdrawal of the reference. Based on the arguments made at the status conference, the bankruptcy court has issued a Report and Recommendation to the District Court,⁶ respectfully recommendingthat the District Court deny the Stern Motion, and not withdraw the reference, based on the reasons that:

(a) the counterclaims in this Adversary Proceeding are distinguishable from those in Stern v. Marshall, in that it seems necessary to resolve the counterclaims as part of the proof of claim allowance or disallowance process ( i.e., here, unlike in Stern v. Marshall, the plaintiff against whom the counterclaims are asserted still has a live, unresolved proof of claim that will not survive if the counterclaims are sustained); ⁷ and (b) Debtor/Tenant–Base should be deemed to have consented to the bankruptcy court finally adjudicating this Adversary Proceeding: (i) by, first, filing the counterclaims in the bankruptcy court (which were amended twice in a seven-month period) ⁸, (ii) by filing a motion for summary judgment and signing a pretrial order—both afterStern v. Marshall—never mentioning that Tenant–Base would challenge adjudication of its counterclaims in the bankruptcy court, and (c) delaying filing a motion to withdraw the reference for more than two years (and more than six months after Stern v. Marshall ).

In the alternative, the Report and Recommendation suggests that, if the District Court determines that the bankruptcy court has no Constitutional authority to enter final orders on the counterclaims, the District Court should:

(a) consider this Memorandum Opinion and Order on the Cross–Motions for Summary Judgment as a proposed ruling;

(b) adopt the Memorandum Opinion and Order and enter it as an Order of the District Court; and

(c) deny actual withdrawal of the reference but, instead, refer all remaining matters in this Adversary Proceeding to the bankruptcy court to conduct, with the proviso that the bankruptcy court shall make proposed findings of fact and conclusions of law thereon to the District Court for the District Court to consider de novo pursuant to 28 U.S.C. § 157(c)(1).

Based on all the foregoing, and further based upon the summary judgment record and arguments presented, the court is: (a) denying, in full, Defendant's Partial MSJ; (b) granting Plaintiff's MSJ on all of Tenant–Base's tort counterclaims; (c) granting Plaintiff's MSJ on all but one of Tenant–Base's breach of contract claims ( i.e., the one breach of contract claim of Tenant–Base that should survive is one alleging that Landlord–Center improperly charged rent before December 6, 2008). Due to genuine issues of disputed fact, a trial on the merits is needed on this one remaining...