In re 680 Fifth Avenue Associates
| Decision Date | 30 June 1997 |
| Docket Number | 92 B 44735 (TLB),Bankruptcy No. 92 B 44734 (TLB),Adversary No. 95-1395A. |
| Citation | 209 BR 314 |
| Parties | In re 680 FIFTH AVENUE ASSOCIATES and 54th and Fifth Land Partners, Reorganized Debtors. 680 FIFTH AVENUE ASSOCIATES, on its own behalf and as successor-in-interest to 54th and Fifth Land Partners, Plaintiff, v. EGI COMPANY SERVICES INC., Engadine Holdings Inc., 54th Estate Corp., 680 Realty Partners and HFA Investor Services, Inc., Defendants. EGI COMPANY SERVICES INC., Engadine Holdings Inc., 54th Estate Corp., 680 Realty Partners and HFA Investor Services, Inc., Counterclaimants and Third Party Plaintiffs, v. 680 FIFTH AVENUE ASSOCIATES, Counterclaim Defendant, and Lodz Properties, L.P., Hensel Fifth Avenue Associates, L.P., Hensel 680 Realty Corp., Farrell C. Glasser, J. Michael Broumas, and Ober, Kaler, Grimes & Shriver, Steven L. Green, and S.L. Green Real Estate, Inc., Third Party Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Hahn & Hessen by Jeffrey L. Schwartz, Joshua I. Divack, New York City, for Reorganized Debtor.
Brown, Raysman & Millstein, LLP by Kenneth M. Block, New York City, for Hensel Fifth Avenue Associates L.P., Hensel 680 Realty Corp., Stephen L. Green, and S.L. Green Management Corp.
Walter, Conston, Alexander & Green, P.C. by Paul H. Silverman, New York City, for Lodz Properties, L.P.
Flemming, Zulack & Williamson, LLP by Gerald G. Paul, New York City, for Farrell C. Glasser, J. Michael Broumas, Ober, Kaler, Grimes & Shriver.
Ross & Hardies by Marshall Biel, Kathryn C. Spann, New York City, for EGI Company Services Inc., Engadine Holdings Inc., 54th Estate Corp., 680 Realty Partners, and HFA Investor Services, Inc.
680 Fifth Avenue Associates and 54th and Fifth Land Partners are two former chapter 11 debtors controlled prior to emergence from that chapter by one Edward Strasser. Freed from Strasser's control through confirmation of a plan of reorganization, the surviving reorganized debtor,1 680 Fifth Avenue Associates, has objected to almost $2 million in previously undisclosed claims of entities controlled by Strasser (the "Strasser claimants"). Joined with the objections to the claims were causes of action against the Strasser claimants and other entities as well as Strasser himself. After the defendants moved to both amend their answer and dismiss certain claims in the complaint, the reorganized debtor dropped the claims against Strasser and others, but does still assert that the lease pursuant to which the Strasser claimants occupy space in the reorganized debtor's premises is void and that the Strasser claimants are liable for use and occupancy charges.
In response to the attack on their claims, the defendants counterclaimed and commenced a third party action sounding in fraud bottomed on their contention that had the plan proponents for the confirmed plan (the "McNamee Plan") revealed certain information to the limited partners of the debtors, the limited partners would have voted in favor of the debtors' competing plan, which would have been confirmed. The flaws with this counterclaim and third party complaint, which the reorganized debtor and the third party defendants now move to dismiss, are fatal: I refused to confirm the debtors' plan based, not on the voting outcome, but on the debtors' failure (for three years) to obtain the requisite funding to permit confirmation. The Debtors did not appeal from this ruling, and indeed, withdrew their objections to the McNamee Plan's confirmation.
When Strasser withdrew the debtors' objections to the McNamee Plan, I had hoped that he was graciously conceding that although he had been given ample opportunity to confirm a plan to the liking of the creditors and the limited partners, he had failed. It is apparent, however, that the enmity which plagued the proceedings has only been fueled by Strasser's removal such that his affiliates have interposed previously-undisclosed major administrative claims and he now is attempting to recover damages for my refusal to confirm a plan for which he had no financing. Lest my criticism be seen to imply that Strasser alone has been mean-spirited, I note that he has had the good company of the reorganized debtor, which came to its senses only when its new counsel filed an amended complaint. Strasser, too, has new counsel, but they have only fanned the flames, notwithstanding the amendment of the complaint.
What follows are the background facts (drawn from the complaint, counterclaim and third party complaint as well as the record before me) and my reasons for dismissing the counterclaim and third party complaint with prejudice.
On April 21, 1992, 54th and Fifth Land Partners, the owner of real property located at 680 Fifth Avenue in Manhattan, and 680 Fifth Avenue Associates (54th and Fifth Land Partners and 680 Fifth Avenue Associates are collectively referred to as the "Debtors"), the owner and operator of the 27 story commercial office building located at that address, filed their voluntary chapter 11 petitions.
In 1987, Edward M. Strasser had assumed control over the Debtors' operations and management. He is the president of 54 Estate Corporation, which was the general partner of 54th and Fifth Land Partners, and the president of CRC Realty Capital Corp., the sole general partner of 680 Realty Partners, one of the defendants and itself the general partner of 680 Fifth Avenue Associates.
As their reorganization cases progressed, the Debtors had difficulty in mustering support for their plan proposals. Growing increasingly restless, a group of the limited partners (the "McNamee Group") banded together to attempt to oust 680 Realty Partners (and by extension, Strasser) as the Debtor's general partner. After a period of litigation, the parties eventually reached a truce whereby the Debtors permitted the McNamee Group2 to file its own plan of reorganization in competition with the Debtors' in return for terminating the litigation. Later efforts at mediating the remaining disputes between the parties were fruitless.
On March 9, 1995, the McNamee Group filed its 6th Amended Joint Plan of Reorganization (the "McNamee Plan"). This plan granted a redemption option to 680 Fifth Avenue Associates entitling it to redeem all of the limited partnership interests for up to 15 years after the plan's effective date and provided that it pay the limited partners $7.5 million for their interests if the option were exercised in the first 5 years, $5 million during the next 5 years, or $1.5 million in the tenth year, increasing by $65,000 for each of the next 5 years up to $1.825 million at the fifteenth year anniversary, at which time the option expires. The McNamee Plan required the reorganized debtor to exercise this option if certain events taxable to the limited partners occurred, such as a sale of the property, foreclosure by the secured lenders, or refinancing of the secured debt. The option was designed so that limited partners would receive a cash distribution to help defray any tax liability that might arise as a result of the occurrence of one of those events.
About two weeks later, on March 27, 1995, the Debtors filed their 6th amended joint plan (the "Debtors' Plan") and disclosure statement.
On April 19, 1995, I conducted a hearing on the adequacy of information provided in both the McNamee Group's and the Debtors' proposed disclosure statements. Each group of proponents filed written objections to the other's disclosure statement. After I had ruled on numerous issues, both proponents submitted modified disclosure statements for my approval. On May 3, 1995, I entered separate orders approving the respective disclosure statements and establishing voting procedures for the solicitation of acceptances from creditors to the competing plans. Neither of these orders was contested through requests either for leave to appeal or for a rehearing.
On July 12, 1995, I held a confirmation hearing to consider the two plans. The Debtors and the McNamee Group filed written objections to confirmation of each other's plan. The Debtors' Plan was the first to be evaluated. Because after more than three years of sojourn in chapter 11 the Debtors still did not have the necessary financing in place to execute the plan, I denied its confirmation, finding the plan was not feasible. I also denied the Debtors' request for an adjournment to continue to seek financing.
I then turned my attention to the McNamee Plan. After receiving an offer of proof from its proponents and a statement from the Debtors that they would not oppose it, I approved the McNamee Plan. On July 20, 1995, I entered an order of confirmation which became final and nonappealable on July 31, 1995.
On August 31, 1995, the McNamee Plan became effective; 680 Fifth Avenue Associates as the reorganized debtor became vested with the property of the former Debtors. Accordingly, any interests of the Debtors' general partners in the Debtors' property were canceled; consequently, Strasser was removed from control and management.
On August 18, 1995, 680 Realty Partners, 54th Estate Corporation, EGI Company Services Inc. and HFA Investor Services, Inc. (the previously-identified Strasser claimants) filed administrative claims for services rendered to the Debtors during the bankruptcy proceeding in the approximate aggregate amount of $1.955 million. On November 30, 1995, the Strasser claimants filed supplemental claims which increased these administrative claims and asserted $4.2 million in additional general unsecured claims (the "Strasser claims").3 Neither the existence nor the magnitude of the Strasser claims was disclosed in the Debtors' disclosure statement. Not having appeared in the Debtors' submission, the claims'...
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