Empire State Bldg. Co. v. N.Y. Skyline, Inc. (In re N.Y. Skyline, Inc.)

• Decision Date: 11 May 2012
• Docket Number: Adversary Nos. 09–1107,09–1145.,Bankruptcy No. 09–10181 (SMB).
• Parties: In re NEW YORK SKYLINE, INC., Debtor. Empire State Building Company L.L.C. and Empire State Building, Inc., Plaintiffs, v. New York Skyline, Inc., Defendant. New York Skyline, Inc., Plaintiff, v. Empire State Building Company L.L.C., Empire State Building, Inc. and Empire State Building Associates L.L.C., Defendants.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

471 B.R. 69

56 Bankr.Ct.Dec. 138

In re NEW YORK SKYLINE, INC., Debtor.

Empire State Building Company L.L.C. and Empire State Building, Inc., Plaintiffs,

v.New York Skyline, Inc., Defendant.

New York Skyline, Inc., Plaintiff,

v.Empire State Building Company L.L.C., Empire State Building, Inc. and Empire State Building Associates L.L.C., Defendants.

Bankruptcy No. 09–10181 (SMB).

Adversary Nos. 09–1107, 09–1145.

United States Bankruptcy Court, S.D. New York.

May 11, 2012.

Duane Morris, LLP, Rudolph J. DiMassa, Jr., Esq., William C. Heuer, Esq., Of Counsel, Stern Tannenbaum & Bell LLP, David S. Tannenbaum, Esq., Francine Nisim, Esq., Rosemary Halligan, Esq., Of Counsel, New York, NY, for Empire State Building Company L.L.C., Empire State Building, Inc. and Empire State Building Associates L.L.C.

Stewart Occhipinti, LLP, Charles A. Stewart, III, Esq., Frank S. Occhipinti, Esq., Of Counsel, Backenroth Frankel & Krinsky, LLP, Mark Frankel, Esq., Of Counsel, New York, NY, for New York Skyline, Inc.

MEMORANDUM DECISION REGARDING MOTION FOR PARTIAL SUMMARY JUDGMENT

STUART M. BERNSTEIN, Bankruptcy Judge.

The parties to these two adversary proceedings have been locked in litigation for many years over their respective rights and obligations under a lease and license, amended from time to time, pertaining to the debtor's occupancy in the Empire State Building (the “Building”). The Empire State Building parties, identified below, now move for partial summary judgment in connection with claims they have asserted against the debtor and dismissing certain claims that the debtor has asserted against them. For the reasons that follow, the motion is granted in part and denied in part.

BACKGROUND

The background to these adversary proceedings is explained in Empire State Building Co. v. New York Skyline, Inc. (In re New York Skyline, Inc.), 432 B.R. 66 (Bankr.S.D.N.Y.2010) (“Prior Decision ”). I assume familiarity with the Prior Decision, and limit the background discussion to the facts necessary to provide context to the disposition of the pending motion.¹

At all relevant times, the debtor New York Skyline, Inc. (“Skyline”) has operated an attraction in the Building involving a simulated helicopter ride over New York City. The Building is owned by non-party Empire State Land Associates L.L.C., a limited liability company wholly-owned by defendant Empire State Building Associates L.L.C. (“ESB Associates”), which is the master lessee of the Building. ( Certification of Charles A. Stewart, III in Opposition to Motion for Summary Judgment, dated Aug. 19, 2011 (“ Stewart Certification ”), Exhibit OO (ESB Associates' Form 10–K for the fiscal year ended Dec. 31, 2010 (“ Form 10–K ”)), at 3 (ECF Doc. # 68).) ² ESB Associates subleases the Building to the defendant Empire State Building Company, L.L.C., (“ESB”), ( id.), and ESB and Skyline are parties to a sublease, as amended (the “Lease”) and a license, as amended (the “License”), both of which are described at greater length in the Prior Decision. Finally, the defendant Empire State Building, Inc. (“ESBI”) owns the leasehold for the observation decks located on the 86th and 102nd floors (collectively, the “Observatory”).

The original Lease and License date back to 1993, and the current versions, which include the May 2005 Agreement also discussed at length in the Prior Decision, were assumed in the bankruptcy case. The parties' rights and obligations under the Lease and License, and more generally, Skyline's tenancy, are the subject of two adversary proceedings presently pending before the Court. The first of the adversary proceedings, commenced prepetition by Skyline in New York state court (the “State Court Action”), was removed to this Court by ESB shortly after Skyline filed its chapter 11 petition. ESB filed counterclaims in the State Court Action (the “ESB Counterclaims”). In addition, after the removal of the State Court Action, ESB filed an adversary proceeding in this Court (“ESB Action”).

Many of the claims have been resolved, and the ESB parties' motion focuses on the five claims discussed below. ESB contends that it is entitled to summary judgment on its two affirmative claims as well as summary judgment dismissing three claims asserted by Skyline. Skyline raises certain objections relating to the Court's jurisdiction and authority, and contends that issues of fact preclude summary judgment.

DISCUSSION

A. The Court's Jurisdiction and Authority

As an initial matter, Skyline contends that this Court lacks subject matter jurisdiction over the claims asserted in the adversary proceedings, lacks the authority to enter a final judgment on those claims, but even if jurisdiction exists, the Court should abstain from exercising it. To put these arguments in context, and understand the Court's reason for rejecting them, it helps to review some of the prior proceedings in the bankruptcy case.

Skyline filed this chapter 11 case on January 12, 2009. Shortly thereafter, ESB removed the State Court Action and commenced the ESB Action. Skyline promptly moved for an order remanding the State Court Action and abstaining from deciding the ESB Action.

Around this same time, Skyline made a motion to extend its time within which to assume or reject the Lease and to extend its exclusive period within which to file a plan and solicit acceptances. ( See Application for Order Extending Time to Assume or Reject Nonresidential Lease, dated Apr. 7, 2009 (ECF Doc. # 24) (main case).) One of the reasons proffered by Skyline was the uncertainty regarding which of the several amendments and modifications to the original Lease were part of the current Lease. In particular, Skyline contended that the May 2005 Agreement, or at least certain portions of it, should be rescinded, and asserted a rescission claim in the State Court Action. According to Skyline's motion, “the Lease itself is complex inasmuch as there are numerous amendments and collateral agreements,” ( id. at ¶ 11), “there are disputes as to which of the agreements are enforceable as part of the Lease and which are not,” ( id. at ¶ 12), and “the nature of the Debtor's plan is contingent upon the Debtor's assumption or rejection of the Lease, and that decision is in large part contingent upon the progress of the ESB litigation.” ( Id. at ¶ 26.) In other words, the claims asserted in the parties' lawsuits, or at least some of those claims, had to be decided first before Skyline could exercise its business judgment and decide whether to assume or reject the Lease.

The motion to extend the time to assume or reject and to extend exclusivity, and the motion to remand and abstain were argued on the same day. The Court granted the first motion. ( Order Extending Time to Assume or Reject Nonresidential Lease and Extending Debtor's Exclusive Periods to File a Plan and Solicit Acceptances, dated June 15, 2009 (ECF Doc. # 33) (main case).) As to the remand/abstention motion, it appeared, as Skyline argued, that the claims in the adversary proceedings were intertwined with Skyline's decision to assume or reject the Lease. For example, the rescission claim, if successful, would define the extent of the Lease that Skyline would be assuming as well as the monetary obligations imposed under the May 2005 Agreement that Skyline would have to cure. Similarly, ESB asserted a claim for attorneys' fees under the Lease and License in the ESB Action, and Skyline would also have to cure these costs if it assumed the Lease and License. Given the clear connection between the litigations and Skyline's decision to assume or reject its agreements with ESB, a connection that Skyline highlighted, the Court denied the remand and abstention motions noting that certain of the claims “arguably, they may be core proceedings.” ³ (Transcript of the hearing held Apr. 28, 2009 (“Tr.(4/28/09)”), at 26 (ECF Doc. # 30) (main case).)

Surprisingly, only three months later and before any of the Lease issues had been decided, Skyline moved to assume the Lease. ( See Motion to Assume Lease, dated July 20, 2009 (ECF Doc. # 38) (main case).) The motion was eventually clarified to include the License, ( Stipulation & Order, dated July 27, 2009, at ¶ 1 (ECF Doc. # 44) (main case)), and following an evidentiary hearing and over ESB's objection, the Court granted the assumption motion. ( Order Granting Motion to Assume Lease, dated Sept. 17, 2009 (“ Assumption Order ”) (ECF Doc. # 57) (main case).) The Assumption Order also encompassed the May 2005 Agreement. Prior Decision, 432 B.R. at 80.⁴

With this background, I turn to Skyline's jurisdiction-related objections. Skyline maintains that I should now grant the remand/abstention motion I previously denied for two reasons. First, even if the Court previously had subject matter jurisdiction, it now lacks post-confirmation subject matter jurisdiction because the plan was confirmed, and the case has been fully administered. ( New York Skyline, Inc.'s Memorandum of Law in Opposition to the Motion of Empire State Building L.L.C., Empire State Building, Inc. and Empire State Building Associates, L.L.C. for Summary Judgment and/or Dismissal, dated Aug. 19, 2011 (“ Skyline Opposition ”), at 14–16 (ECF Doc. # 65).) Second, the Supreme Court's decision in Stern v. Marshall deprives this Court of the power to decide purely state law claims, but in any event, the procedures required by Stern v. Marshall will lead to delay. ( Id. at 16–20.)

1. Subject Matter Jurisdiction

A court's subject matter jurisdiction is determined at the time that the action is commenced, and subsequent events do not affect it. Freeport—McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426, 428, 111 S.Ct. 858, 112 L.Ed.2d 951 (1991) (“We have consistently held that if jurisdiction exists at the time an action is commenced, such jurisdiction may not be divested by subsequent events.”); Certain Underwriters at Lloyds, London v. ABB Lummus Global, Inc., 337 B.R. 22, 25 (S.D.N.Y.2005) (sa...