In re 375 Park Ave. Associates, Inc.
| Decision Date | 09 June 1995 |
| Docket Number | Bankruptcy No. 93-B-42011(CB),93-B-42012(CB) and 93-B-41600(CB). |
| Citation | 182 BR 690 |
| Parties | In re 375 PARK AVENUE ASSOCIATES, INC., et al., Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Wachtell, Lipton, Rosen & Katz by David C. Bryan, New York City, for Plan Committee.
Arent Fox Klintner Plintner Plotkin & Kahn, by Jill R. Newman, David N. Wynn, New York City and Washington, DC, for U.S. Holocaust Council.
The Liquidating Trustee and the Plan Committee established under the confirmed joint chapter 11 plans in these bankruptcy cases (collectively, the "Plan Committee"), object to the claim of the United States Holocaust Memorial Council (the "Council") against Eli S. Jacobs ("Jacobs"). The Council has responded with a motion for summary judgment.
On March 29, 1993, an involuntary petition for relief under section 303(b) of Title 11, United States Code (the "Bankruptcy Code") was filed against Jacobs. On April 19, 1993, Jacobs consented to the entry of an order for relief under chapter 11 of the Bankruptcy Code (the "Order for Relief Date"). Also, on April 19, 1993, 375 Park Avenue Associates, Inc. ("Park Avenue Associates") and Park Partners, L.P. ("Park Partners", and collectively with Park Avenue Associates and Jacobs, the "Debtors"), each filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. By orders dated April 20, 1993, the three (3) chapter 11 cases were procedurally consolidated, and thereafter jointly administered.
On or about July 8, 1993, the Council filed proofs of claim numbers 17 and 20 in these chapter 11 cases for an unsecured prepetition claim in the amount of $3,000,000 (the "Claim"). The Claim is based upon a written pledge agreement dated September 30, 1988 by and between Jacobs and the Council (the "Pledge Agreement"). Under the Pledge Agreement, Jacobs pledged the amount of $3,000,000 to fund, in part, the construction of archives (the "Archives") for the U.S. Holocaust Memorial Museum (the "Museum"). In return for Jacobs' pledge, the Council agreed to name the Museum's archives in Jacobs' honor. Pledge Agreement ¶¶ 2-3. The Pledge Agreement further provides that in the event the Council is not an organization to which gifts are not tax deductible under the Internal Revenue Code, no further payments would be due thereunder. Pledge Agreement ¶¶ 1-3, 5.
On June 30, and July 1, 1994, confirmation hearings were held on the Debtors' Second Amended Joint Chapter 11 Plans (the "Plans"). The Plans were confirmed by an order of this Court dated July 1, 1994.
On or about July 8, 1994, the Debtors filed their Second Omnibus Objection to certain proofs of claim against the Debtors, including the Claim asserted by the Council. The stated ground for the Debtors' objection to the Claim in the Second Omnibus Objection was that Jacobs' charitable pledge to the Council lacked consideration and was unenforceable.
In response to the Second Omnibus Objection, the Council filed on August 9, 1994, an affidavit of Marvey Meyerhoff, Chairman of the Council, (the "First Meyerhoff Aff.") and, on August 15, 1994, a Memorandum of Law, arguing that the Claim should be allowed because the Pledge Agreement is enforceable under applicable state law.
The hearing on the Second Omnibus Objection was adjourned as to the Claim as settlement negotiations between the Plan Committee and the Council commenced. As a result of the breakdown of the settlement negotiations, the Plan Committee filed on January 18, 1995, the First Supplement to the Debtors' Second Omnibus Objection (the "First Supplement"), as directed by this Court.
The basis for the Second Omnibus Objections, as amended, is that, regardless of the validity of the Pledge Agreement under state law, the Bankruptcy Code bars allowance of the Claim on the grounds that (1) the Pledge constituted a fraudulent conveyance and (2) assuming arguendo that the Pledge Agreement is an enforceable contract duly rejected by the Debtors pursuant to the Plans, the Council is barred from recovering damages on account of such rejection because it has failed to mitigate its damages. In response, the Council filed on March 24, 1995: (1) a motion for summary judgment, wherein the Council argues that (a) the Pledge Agreement is an enforceable bilateral contract which became enforceable immediately upon its execution by Jacobs on September 30, 1988, (b) the Pledge Agreement is not a fraudulent conveyance because it is supported by fair consideration, and (c) the Council had no duty to mitigate its damages; (2) a Memorandum of Law in support of the motion for summary judgment; (3) a Second Affidavit of Meyerhoff dated March 21, 1995 (the "Second Meyerhoff Aff."); and (4) a Reply Memorandum of Law to the First Supplement.
Under Rule 56(c) of the Federal Rules of Civil Procedure, made applicable in bankruptcy cases under Rule 7056 of the Federal Rules of Bankruptcy Procedure, the court may grant summary judgment when "the pleadings, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." A fact is material if it will affect the outcome of the suit under governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). In deciding a motion for summary judgment, the court must assess whether there are any factual issues to be tried, resolve ambiguities and draw reasonable inference against the moving party. Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir.1986), cert denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987). It is the moving party who bears the initial burden of showing the absence of genuine issues of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970).
Early New York cases held that a charitable subscription, which is nothing more than a promise, is unenforceable if made without consideration. Hamilton College v. Stewart, 1 N.Y. 581 (1848); Presbyterian Church v. Cooper, 112 N.Y. 517, 20 N.E. 352 (1889); Baptist Church v. Cornwell, 117 N.Y. 601, 23 N.E. 177 (1890). However, in an attempt to balance public policy and general contract law, the New York courts have sustained charitable pledges on the grounds of either consideration or promissory estoppel. Some New York courts have found consideration in the traditional sense. In re I & I Holding Corp. v. Gainsburg, 276 N.Y. 427, 434, 12 N.E.2d 532 (1938). In In re I & I Holding Corp. v. Gainsburg, the court enforced the charitable pledge made by the donor "`to aid and assist the Beth Israel Hospital in its humanitarian work, and in consideration of the promises of others contributing. . . .'" In so holding, the court reasoned that consideration was given by the hospital when it relied upon the pledge "by proceeding in its work, securing other subscriptions, expending large sums of money and incurring large liabilities." Id. at 432, 12 N.E.2d 532.
Other New York courts, applying the theory of promissory estoppel, have held that the charity's reliance on the promisee, such as its expenditure of money, labor, and time in furtherance of obtaining the subscription, will suffice as a substitute for consideration. In re Keuka College v. Ray, 167 N.Y. 96, 100, 60 N.E. 325 (1901) (); Tioga County General Hospital v. Tidd, 164 Misc. 273, 298 N.Y.S. 460 (1937); I & I Holding Corp. v. Gainsburg, 276 N.Y. 427, 434, 12 N.E.2d 532 (1938); Allegheny College v. National Chautauqua County Bank, 246 N.Y. 369, 159 N.E. 173 (1927). Accordingly, the New York courts have uniformly held that a charitable pledge constitutes a unilateral contract, that, when accepted by the charity by incurring liability in reliance thereon, becomes a binding obligation. In re Versailles Foundation, Inc., 202 A.D.2d 334, 610 N.Y.S.2d 2 (1994); Laventhol & Horwath v. Moet-Hennessy, et al., 147 A.D.2d 366, 537 N.Y.S.2d 530 (1989); Cohoes Memorial Hospital v. Mossey, 25 A.D.2d 476, 266 N.Y.S.2d 501 (1966); In re Field's Will, 15 Misc.2d 950, 181 N.Y.S.2d 922 (1959); Liberty Maimonides Hospital v. Felberg, 4 Misc.2d 291, 158 N.Y.S.2d 913 (1957); In re Metz' Estate, 262 A.D. 508, 30 N.Y.S.2d 502 (1941); In re Borden's Will, 41 N.Y.S.2d 269 (1943).
In Allegheny College, the court held that the moment Allegheny College accepted $1,000 as payment on account of the donor's $3,000 pledge, which was conditioned on the establishment of a memorial to perpetuate the donor's name, Allegheny College assumed the "duty to do whatever acts were customary or reasonably necessary to maintain the memorial fairly and justly in the spirit of its creation." 246 N.Y. at 375, 159 N.E. at 175. The court in Allegheny College stated as follows:
When the promisee subjected itself to such a duty at the implied request of the promisor, the result was the creation of a bilateral agreement. . . . There was a promise on the one side and on the other a return promise, made, it is true, by implication, but expressing an obligation that had been exacted as a condition of the payment. . . . We think the fair inference to be drawn from the acceptance of a payment on account of the subscription is a promise by the college to do what may be necessary on its part to make the...
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