In re 48th Street Steakhouse, Inc., Bankruptcy No. 83 B 11070 (TLB)
| Decision Date | 28 May 1986 |
| Docket Number | Bankruptcy No. 83 B 11070 (TLB),Adv. No. 83-5915A. |
| Citation | 61 BR 182 |
| Parties | In re 48TH STREET STEAKHOUSE, INC., Debtor. 48TH STREET STEAKHOUSE, INC., Plaintiff, v. ROCKEFELLER CENTER, INC., Rockefeller Center Properties, I.S.H. Liquidating Corp. and Dornbush, Mensch & Mandelstam, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Angel & Frankel, P.C. by Sanford Rosen, Rita Dumain, New York City, for debtor.
William T. Livingston, III, New York City, for Rockefeller Center, Inc. and Rockefeller Center Properties.
Finkel, Goldstein & Berzow by Neal Rosenbloom, New York City, for Creditors' Committee.
Dornbush, Mensch & Mandelstam by Dirk S. Roberts, New York City, pro se and for I.S.H. Liquidating Corp.
DECISION AND ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT BY PLAINTIFF AND DEFENDANTS ROCKEFELLER CENTER INC. AND ROCKEFELLER CENTER PROPERTIES
Plaintiff 48th Street Steakhouse, Inc. ("48th Street") is the debtor in possession and owner of a ten year old restaurant located in the prestigious Rockefeller Center area. Defendants Rockefeller Center, Inc. (renamed Rockefeller Group, Inc.) ("RGI") and Rockefeller Center Properties ("RCP") are respectively the managing partner of RCP and the owner of the premises at which 48th Street's restaurant is located (collectively, "the landlord").
Plaintiff and defendants have each moved for summary judgment in an adversary proceeding commenced by 48th Street. At the heart of their controversy is the effectiveness of a post-petition three-day notice of termination served by the landlord on I.S.H. Liquidating Corp. ("ISH"), at least nominally the prime tenant of 48th Street's premises pursuant to an assignment of lease executed by 48th Street in conjunction with its 1975 purchase of the restaurant from an affiliate of ISH. 48th Street urges that the notice of termination was violative of the automatic stay of section 362 of the Bankruptcy Code, 11 U.S.C. § 362 (the "Code"), and thereby inadequate to divest 48th Street of its interest in the premises. The landlord counters that the lease has been terminated such that 48th Street cannot compel the landlord's consent to a reassignment from ISH and therefore cannot assume the lease pursuant to section 365 of the Code.
48th Street purchased its restaurant through a series of transactions which are not unusual to the restaurant business. In November, 1975, 48th Street contracted to buy the restaurant from Charley O's Corp. ("Charley O's"), issuing a promissory note to the seller in the amount of $207,289.00 (the "Note") secured by a lien on 48th Street's chattels, fixtures and equipment. Excluded from the sale was the lease for the premises. 48th Street instead entered into a new lease directly with RGI. That lease, which was dated December 1, 1975 and signed April 7, 19761, expires by its terms on September 30, 1994 (the "Lease"). On the same day that the Lease was signed, 48th Street assigned it to ISH pursuant to an Assignment with Consent ("Assignment") dated December 1, 1975, and executed by 48th Street, ISH and RGI. That Assignment did not release 48th Street of its contractual obligations to RGI. Not only did the Assignment not release 48th Street, but the Lease provided that the majority shareholders of 48th Street were not to change during the period of 48th Street's liability to the landlord. Pursuant to paragraph 6 of the Assignment, contained in a rider, RGI also consented to a reassignment of the Lease to 48th Street whenever requested by ISH and 48th Street and upon presentation of a fully executed reassignment, the form for which was annexed as an exhibit. Specifically, paragraph 6 of the Assignment reads as follows:
(6) Anything herein or in the lease to the contrary notwithstanding, the landlord will consent to the further assignment of the lease by the Assignee ISH to the Assignor 48th Street whenever requested by the Assignee and the Assignor by executing and delivering an Assignment with Consent and Release in the form attached hereto as Exhibit A provided that concurrently herewith, such Assignment and Consent and Release is duly executed by the Assignor and the Assignee and the agreement of Restaurant Associates Industries, Inc. an affiliate of ISH on the fourth page thereof is duly executed by said Restaurant Associates Industries, Inc.
Unlike the Assignment, the form for this reassignment explicitly released the assignor, here, ISH. At the same time as they executed their Assignment, 48th Street and ISH executed the reassignment which was held in escrow by the law firm Dornbush, Mensch & Mandelstam (the "Dornbush firm"). The escrow, whose terms and conditions were acknowledged in a receipt dated March 24, 1976, was to terminate and the reassignment was to be delivered to 48th Street upon the later of the payment in full of the Note or of all liabilities accruing under the Lease prior to January 1, 1980.2
As part and parcel of the transaction, ISH sublet the premises to 48th Street for the period of the escrow. RGI consented, in writing, to the subletting and accepted rent payments directly from 48th Street. In consenting to sublease, RGI required, as in the Lease, that the two majority shareholders of 48th Street remain the same, breach of which covenant would revoke RGI's consent. Both the sublease and the security agreement provided that the payments to be made by 48th Street under the Note constitute additional rent for the use of the subleased premises.
On July 22, 1983, when 48th Street filed a voluntary petition under chapter 11 of the Code, it owed substantial rent to the landlord. On August 1, 1983, American Hospitality Management Co. ("American Hospitality"), 48th Street's parent company and co-debtor, tendered to RGI use and occupation for the post-petition period of July. That tender was rejected.3
On approximately August 29, 1983,4 over a month after the bankruptcy case was commenced, the landlord delivered to ISH a written notice of default which provided that in the event that the arrears were not paid within five days, a written notice would follow which would provide that the Lease would be terminated in three days. Soon thereafter, during the morning of September 1, the promised notice followed, a copy going to 48th Street.
In an effort to protect its interests in the Lease, 48th Street commenced an adversary proceeding against RCP, RGI, ISH and the Dornbush firm. 48th Street sought to enjoin the landlord from taking any actions respecting 48th Street's Lease and sublease rights, to compel RGI to accept 48th Street's use and occupation payments, and to obtain a declaration that it was the prime tenant under the Lease. Alleging that all Note payments had been made, 48th Street also sought to compel the Dornbush firm to release the reassignment. In the event that the court did not find 48th Street to be the prime tenant, 48th Street sought alternatively a declaration that, upon full payment to ISH to be fixed by the court, 48th Street will become the prime tenant.
48th Street's efforts were not limited to commencement of the adversary proceeding. By order to show cause signed September 1, 1983, 48th Street moved for a) authorization to assume the Lease; b) a finding that the landlord was in contempt for violating the automatic stay; and c) a declaration that 48th Street has the right to make the Lease payments so it may be reinstated as prime tenant under the Lease. Contained in that order to show cause (obtained during the afternoon of September 1 after a hearing on notice to the landlord) was an order enjoining the landlord from "interfering with and/or terminating any right, title and interest that the Debtor may enjoy with regard to the lease or premises." The landlord later sought to vacate this September 1 injunction; the motion was denied by order dated January 3, 1984. Various appellate rulings emanated from the second of the two orders.5 On January 29, 1985, the district court held that the September 1 injunction was a preliminary one rather than a temporary restraining order, as the landlord had contended, but granted the landlord's motion for leave to appeal the January 3 order.6 Eventually the district court affirmed the January 3 order denying the landlord's motion to vacate the September 3 order.7
During the pendency of the proceedings before the district court, 48th Street entered into a court-approved settlement of its adversary proceeding against ISH and the Dornbush firm, paving the way for the parties to eventually "put" the reassignment to RGI, unless the Lease has been validly terminated.
Pursuant to Fed.R.Civ.P. 56(a) and Fed. R.Bankr.P. 7056, 48th Street seeks summary judgment against the landlord declaring that a) the default and termination notices issued by the landlord were ineffective because they violated the automatic stay provisions of § 362 of the Code; b) alternatively, the September 1, 1983 injunction served to prevent the termination of the Lease such that 48th Street's interest in the Lease and/or sublease has not terminated; and c) upon payment of all arrears due and owing under the Lease and/or sublease, 48th Street will be the prime tenant. The landlord has cross moved for partial summary judgment declaring that 48th Street is not the tenant under the Lease, has not been a party to the Lease since July 22, 1983 and did not, by filing its petition on that date, invoke any law that would enjoin or stay the effectiveness of the notices served by the landlord upon ISH.8
48th Street contends that (i) the Assignment was given as collateral to secure its obligations under the Note so that the Lease itself constitutes property of 48th Street's estate protected by the automatic stay; (ii) the sublease is property of the estate protected by the automatic stay; (iii) the September injunction...
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In re 48th Street Steakhouse, Inc., 86 Civ. 5313 (KTD).
...an appeal from an Order of Judge Tina L. Broznan of the United States Bankruptcy Court for the Southern District of New York dated May 22, 1986, 61 BR 182, prohibiting the appellant-landlord from interfering with the possession of certain premises by the appellee-debtor-in-possession. While......