In re 461 7TH Ave. Mkt., Inc.

• Decision Date: 02 October 2020
• Docket Number: 20-CV-06216 (PMH)
• Citation: 623 B.R. 681
• Parties: IN RE 461 7TH AVENUE MARKET, INC., Debtor.
• Court: U.S. District Court — Southern District of New York

623 B.R. 681

IN RE 461 7TH AVENUE MARKET, INC., Debtor.

20-CV-06216 (PMH)

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

Signed October 2, 2020

Mark Allen Frankel, Backenroth Frankel & Krinsky, LLP, New York, NY, William F. Savino, Woods Oviatt Gilman LLP, Buffalo, NY, for Appellee.

Holly Ruth Holecek, Lamonica Herbst & Manisclco, LLP, Wantagh, NY, for Trustee.

Michael S. Kimm, Kimm Law Firm, Englewood Cliffs, NJ, for Appellant.

MEMORANDUM OPINION AND ORDER

PHILIP M. HALPERN, United States District Judge:

Appellant 461 7th Avenue Market, Inc. ("Debtor") seeks a stay pending resolution of its appeal challenging a July 15, 2020 Order Lifting Automatic Stay and Converting Chapter 11 Case to a Case Under Chapter 7 of the United States Bankruptcy Code ("July 15th Order") and a July 20, 2020 Order Denying Reconsideration ("July 20th Order" and collectively, "Bankruptcy Orders") issued by Judge Robert D. Drain in the United States Bankruptcy Court for the Southern District of New York. (Doc. 1, "Not. of App.").¹

The Debtor filed its Notice of Appeal on August 7, 2020. (Not. of App.). On August 12, 2020, the Debtor filed a Proposed Order to Show Cause with Emergency Relief along with supporting papers (collectively, the "First Application"). (See Docs. 6-9). That same day, Marianne T. O'Toole, the trustee appointed to administer the Debtor's bankruptcy estate in the Chapter 7 proceeding ("Trustee"), filed a letter requesting an opportunity to be heard with respect to the First Application. (Doc. 10). On August 13, 2020 the Court denied the First Application without prejudice for failure to follow this Court's Individual Practices and various substantive deficiencies. (Doc. 11). The Court directed the Debtor to notify the appellee, Delshah 461 Seventh Avenue, LLC ("Creditor"), and the Trustee that the Court would hold a telephonic conference on August 17, 2020. (Id. ).

On August 14, 2020, the Debtor filed a motion asking the Court to take judicial notice of two documents filed in 461 7th Ave. Market, Inc. v. Delshah 461 Seventh Ave., LLC , Index No. 650843/2017, an action in the Commercial Division of the Supreme Court of the State of New York, New York County. (Doc. 15). Three days later, on August 17, 2020, the Debtor filed a second Proposed Order to Show Cause with Emergency Relief along with supporting papers (collectively, the "Second Application"). (See Docs. 16-21). The Court held the scheduled telephonic conference that same day; counsel for the Debtor, Creditor, and Trustee appeared. (Aug. 17, 2020 Min. Entry). The Court directed all three parties to meet-and-confer regarding a possible stay on consent, advised the Debtor that any application for injunctive relief must be filed in accordance with this Court's Individual Practices, and granted the Debtor leave to re-file compliant papers should the parties fail to reach an agreement. (Id. ). The Debtor withdrew the Second Application by letter that same day which the Court granted on August 18, 2020. (Doc. 23, "Mot. to Withdraw").²

Approximately one week later, on August 26, 2020, the Debtor filed a letter advising the Court that, despite its efforts, the Creditor and Trustee "declined to enter into" a stipulation staying enforcement of the Bankruptcy Orders pending appeal. (Doc. 24 at 1). That same day, the Debtor filed a third Proposed Order to Show Cause with Emergency Relief with its supporting papers (the "Third Application"). (See Doc. 25; Doc. 26, "Kimm Decl."; Doc. 27, "Debtor Br."). On August 27, 2020, the Court scheduled a telephonic conference for August 31, 2020 and instructed the Creditor and Trustee to each file a letter, no longer than three pages, outlining issues to be raised in connection with the Third Application during the conference. (Aug. 27, 2020 Ord.). The Creditor and the Trustee filed their letters on August 28, 2020. (Docs. 28, 29).³

The Court held the scheduled telephonic conference regarding the Third Application on August 31, 2020. (Sept. 1, 2020 Min. Entry). Counsel for the Debtor, Creditor, and Trustee appeared. (Id. ). The Court directed the Debtor to file a letter providing authority for its appeal and granted the Creditor leave to file a letter itemizing authority regarding the concept of equitable mootness. Both parties filed their letters later that day. (Docs. 30-32).

Upon review of the Third Application, the authorities cited by the Debtor and the Creditor, and all the proceedings herein, the Court signed the associated Order to Show Cause on September 1, 2020. (Doc. 33). The Court directed that any opposition to the Debtor's requested relief address, inter alia , the following items: (1) the standing of Young-Il Park, the Debtor's sole shareholder, to pursue the relief sought in the Order to Show Cause; (2) the Debtor's standing to pursue the relief sought in the Order to Show Cause "given the appointment of the Chapter 7 Trustee;" and (3) the burden of proof associated with the request for a stay, "including the requirement for a bond." (Id. at 2). The Creditor and Trustee filed their opposition papers on September 11, 2020 (Doc. 34, "Trustee Br."; Doc. 36, "Creditor Br."; Doc. 37 "Shah Decl."), and the Debtor filed its reply brief—along with a supplemental declaration—on September 18, 2020 (Doc. 39, "Reply Br."; Doc. 39-1, "Supp. Kimm Decl.").

For the reasons set forth below, the request for a stay pending appeal is DENIED.

BACKGROUND

This is a contentious landlord-tenant dispute that has meandered through state and federal courts for almost four (4) years. The facts pertinent to this extant analysis are recounted herein.

On or about January 5, 2011, the Debtor assumed a multi-year lease ("Lease") for a commercial property located at 461 Seventh Avenue, New York, New York 10001. (Kimm Decl. ¶ 6; A1803). Upon assumption of the Lease, the Debtor paid its then-landlord an assignment fee of $100,000.00 and the parties agreed to extend the Lease term into 2024. (A1804). Shortly after assuming the Lease, the Debtor—with its then-landlord's consent—made a number of alterations to the property. (See Kimm Decl. ¶¶ 7-9; A0392).

By contract dated February 11, 2015, the Creditor purchased the property from the Debtor's initial landlord. (A0068-103). A little less than two years later, on January 19, 2017, the Creditor issued an eight-page "notice to cure" alerting the Debtor that it was in violation of the Lease and various provisions of the New York City Building Code (the "Code"). (A0461-68). The Debtor disputed the notice because the Creditor was aware of the purported violations at the time it purchased the property and "should have terminated the contract and walked away" or "collected the $70,000.00 ... set aside in escrow" to remedy New York City Department of Building ("DOB") violations. (Kimm Decl. ¶ 16; see also Debtor Br. at 9, 12). The Debtor filed an action, 7th Ave. Market, Inc. v. Delshah 461 Seventh Ave., LLC , No. 650843/2018, in the Commercial Division of the Supreme Court of the State of New York, New York County, the following month. (Kimm Decl. ¶ 18; A1805-20).

Before the New York State Supreme Court the Debtor sought, inter alia , an injunction pursuant to First Nat'l Stores, Inc. v. Yellowstone Shopping Ctr., Inc. , 21 N.Y.2d 630, 290 N.Y.S.2d 721, 237 N.E.2d 868 (1968). (Kimm Decl. ¶ 18; A1815-16). The state court granted the injunction on April 12, 2017 and directed, inter alia , that the Debtor "proceed in good faith to cure all specifically identified violations of the Lease and that [the Debtor] seek all necessary consents from the [Creditor] which consent shall not be withheld unreasonably." (A1827). In an April 26, 2018 Order—more than a year after granting the injunction—Justice O. Peter Sherwood concluded that the injunction expired in part because of the Debtor's inaction:

At the time of the evidentiary hearing that resulted in issuance of the February 16, 2018 order [which directed that the Yellowstone injunction would expire on March 15, 2018, (A2020)], the court commented that plaintiff had done little to cure the then existing violations for over a year and as a result, the court would allow plaintiff only a month to file for the necessary permits with the New York City Department of Buildings ("DOB"). As of March 15, 2018, plaintiff had not filed a proper application and had not sought to show good reason for a further extension of the Yellowstone injunction. Accordingly, the injunction has expired.

(A2045). Precisely one week later, on May 3, 2018, the Debtor filed a voluntary bankruptcy petition under Chapter 11, which commenced the action before Judge Drain ("Bankruptcy Action"). (Kimm Decl. ¶ 26; Doc. 26-7). Shortly thereafter, the Debtor initiated an adversary proceeding against the Creditor pressing claims for harassment, breach of the covenant of quiet enjoyment, breach of the implied covenant of good faith and fair dealing, and declaratory judgment ("Adversary Action"). (Kimm Decl. ¶ 26; Doc. 26-15).

Focusing on the Debtor's alleged default under the Lease and attendant Code violations during a September 5, 2018 appearance, the bankruptcy court observed "that the professionals on this could be able to work it out, if the parties are sincere in doing so." (Kimm Decl. ¶ 27; Doc. 26-3 at 156:21-22). The matter was adjourned so that the parties' agents, along with "the DOB people," would have an opportunity to "work it out." (Doc. 26-3 at 156:18-159:10). At an appearance on November 29, 2018, the parties discussed an "administrative determination" issued by a DOB building inspector which highlighted certain existing violations—particularly "the bathroom and extra exit from the basement" among other things—that had to be addressed. (A3034-35, A3039; see also A3010 (November 2, 2018 DOB audit noting "need to provide Handicapped Accessibly [sic] for the second floor bathroom" and "[p]rovide Two means of egress (enclosed) from Cellar and 2nd Floors [sic]")). When pressed by the bankruptcy court for...