In re Best Payphones, Inc.
| Decision Date | 14 January 2015 |
| Docket Number | Case no. 01–15472 SMB |
| Citation | 523 B.R. 54 |
| Parties | In re: Best Payphones, Inc., Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
MICHAEL CHAITE, Pro Se, 70 Roselle Street, Mineola, NY 1150
ZACHARY W. CARTER, Corporation Counsel of the City of New York, Attorney for the City of New York and Its Agencies, 100 Church Street, Room 5-223, New York, New York 10007, Gabriela P. Cacuci, Esq., Of Counsel
GEORGE M. GILMER, ESQ., 26 Court Street, Suite 312, Brooklyn, NY 11242
Chapter 11 (Confirmed)
Over twelve years have elapsed since the New York City Department of Information Technology and Telecommunications (the “City”) filed its claims in this case and the Court confirmed the plan jointly proposed by the debtor Best Payphones, Inc. (“Best”) and its sole shareholder Michael Chaite. Since then, the City and Best have been litigating with each other regarding issues that affect the allowance of the City's claims before the New York City Environmental Control Board (“ECB”), the New York courts and several federal courts. Some of these litigations were resolved long ago while others remain alive.
Last spring, Chaite and Best filed yet another set of objections to the City's administrative claim. The City vehemently opposed the objections and cross-moved for an order directing the entry of a final decree in this thirteen-year-old case. For the reasons that follow, the Court concludes that it has jurisdiction to decide the objections and there is no bar to asserting them. They cannot, however, be decided on the state of the current record and require further briefing and proceedings. And because this case must remain open to resolve the objections, the cross-motion is denied without prejudice.
The background to the current motions has been the subject of numerous opinions by this Court. See, e.g., In re Best Payphones, Inc., 279 B.R. 92 (Bankr.S.D.N.Y.2002) (“Best Payphones I ”); In re Best Payphones, Inc., No. 01–15472, 2014 WL 5507618 (Bankr.S.D.N.Y. Oct. 31, 2014) (“Best Payphones II ”). I assume familiarity with these opinions and limit the discussion, which nonetheless involves a lengthy recitation of over twelve years of litigation, to the facts necessary to explain this decision.
Prior to the petition date, Best operated public pay telephones (“PPTs”) in various locations throughout the City of New York. In 1996, the City adopted a new regulatory scheme based on franchises and placed existing operators like Best on an Interim Registry (“IR”). The PPT operators on the IR could continue to operate until, inter alia, the Franchise and Concession Review Committee (“FCRC”) determined not to approve a proposed franchise agreement and sixty days had elapsed after the FCRC had advised the proposed franchisee of its decision.
In August 1999, the FCRC approved Best as a franchisee, but Best did not return the signed franchise agreement because it refused to accede to some of its provisions. By letter dated January 13, 2000 (the “January 13 Letter”),1 an Assistant Corporation Counsel advised Best that the FCRC had disapproved Best as a franchisee because Best had failed to execute and return the franchise agreement as well as the other closing documents. The letter offered Best one last chance. If, within sixty days, it did not return the signed franchise agreement, enter into a contract to sell the PPTs or remove the PPTs from City property, the phones would be subject to removal by the City. The effect of the January 13 Letter would spawn years of litigation.
Best did not comply with any of the conditions, the City took the position that the Debtor lacked the authority to operate the PPTs and, between May 8 and May 10, 2000, issued twenty-three notices of violation (the “Prepetition NOVs”) charging Best with operating PPTs without a permit. The City initiated an administrative proceeding before the ECB to collect the fines. ALJ Twomey conducted four days of hearings and reserved decision.
Best commenced this chapter 11 case on October 23, 2001, and following the commencement of the case, ALJ Twomey issued his decision. He concluded that Best was a member in good standing on the IR, and was not, therefore, operating its PPTs without a permit. Accordingly, he dismissed the violations. (Twomey Decision at ¶ 45.) The decision rested on the determination that the January 13 Letter did not revoke the FCRC's prior approval of Best as a franchisee. (Id. at ¶ 44.)
The City moved for relief from the automatic stay to appeal ALJ Twomey's decision and argued, among other things, that the issuance of his decision postpetition violated the automatic stay and was void. The Court agreed, and because the decision was void, there was nothing to appeal from and the City's motion was denied as moot. Best Payphones I, 279 B.R. at 98–99.
While ALJ Twomey's decision was still sub judice, Best applied to establish a bar date for prepetition claims. By order dated January 8, 2002 (ECF Doc. # 14), the Court established a February 22, 2002 deadline for filing prepetition claims (the “Prepetition Bar Date”). On February 4, 2002, the City filed Claim no. 4 (the “Prepetition Claim”) in the amount of $60,048.15, consisting of $37,048.15 in unpaid IR fees and $23,000.00 in fines pertaining to twenty-three Prepetition NOVs. The Prepetition Claim did not attach the NOVs to the claim.
Thereafter, by amended order dated October 11, 2002 (ECF Doc. # 161), the Court fixed November 18, 2002 as the deadline for filing administrative claims (the “Administrative Bar Date”). The City filed Claim no. 16 (the “Administrative Claim”) on November 13, 2002, prior to the Administrative Bar Date. The Administrative Claim sought $105,789.35 consisting of $69,789.35 in unpaid IR fees and $36,000.00 relating to thirty-six additional NOVs that were served postpetition (the “Postpetition NOVs”).2 The face of the Administrative Claim alleged that the entire debt was incurred postpetition between October 23, 2001 and December 14, 2002. The attachment to the claim confirmed that the fees arose postpetition but did not identify the dates that the thirty-six violations occurred or attach copies of the corresponding Postpetition NOVs. Best contends that these NOVs were served postpetition but listed dates of violation that pre-dated the bankruptcy case. The City has never disputed this assertion.
The claims for IR fees and fines were mutually exclusive. Best owed the fees if it remained on the IR and was authorized to operate the PPTs and owed the fines if it was not. The City subsequently withdrew its claim for fees, (Letter from Gabriela P. Cacuci, Esq. to Court, dated Oct. 7, 2005 (ECF Doc. # 438)), and its claims are now limited to the fines.
The Court confirmed the Third Amended Plan of Reorganization Jointly Proposed by Best Payphones, Inc., Debtor and Debtor–in–Possession, and Michael Chaite, dated October 8, 2002 ( the “Plan ”) (ECF Doc. # 155)) on December 26, 2002. (Order Confirming Third Amended Plan of Reorganization Jointly Proposed by Best Payphones, Inc., Debtor and Debtor–In–Possession, and Michael Chaite, dated October 8, 2002, as Modified, dated Dec. 26, 2002 (“Confirmation Order ”) (ECF Doc. # 219).) The Plan left all classes unimpaired, called for the payment of administrative claims on the effective date and provided that allowed unsecured claims would be paid in full on the effective date together with postpetition interest computed at the annual rate of 9%. Finally, Chaite would retain his 100% equity interest in Best. (Plan at Art. III.)
When the Plan and disclosure statement were filed, Best had not yet objected to the City's claims. The disclosure statement indicated, however, that Best disputed the City's claims and intended to pursue pending and potential claims against the City. (Third Amended Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code for Third Amended Plan of Reorganization Jointly Proposed by Best Payphones, Inc., Debtor and Debtor–In–Possession, and Michael Chaite, dated Oct. 8, 2002, at 4, 5, 6 (ECF Doc. # 156).) The Plan provided that the money needed to cover disputed claims would be held in escrow and paid to the creditor to the extent the claim was allowed or to Best or Chaite, as the case might be, to the extent the claim was disallowed. (See Plan at Arts. V, VII.)3 Following confirmation, Best sold all of its assets to Universal Telecommunications, Inc. for $1,015,000, (see Notice of Hearing on Motion for Authority to (1) Sell Property Free and Clear of Claims, Liens and Encumbrances and (2) Assume and Assign Executory Contracts and/or Leases, dated Dec. 7, 2002, at 2 (ECF Doc. # 244–1)), presumably netting Chaite a return on his equity over and above his contingent interest in the escrow covering the payment of disputed claims.
Best filed objections to the City's Prepetition and Administrative Claims shortly before the Plan was confirmed. (See Objection to Proof of Claim of New York City Department of Information Technology and Telecommunications, dated Nov. 29, 2002 (“Prepetition Objection ”) (ECF Doc. # 191)); Objection to Proof of Administrative Claim of New York City Department of Information Technology and Telecommunications, dated Dec. 12, 2002 (“Administrative Objection ”) (ECF Doc. # 205).)4 The Administrative Objectionasserted that the imposition of the fees violated the Telecommunications Act of 1996 by discriminating against Best and in favor of other telecommunications providers. (Administrative Objection at ¶ 4.) Best objected to the postpetition claim for fines on the ground that it had the necessary permits to move its PPTs to the curb and did not receive notice that the...
To continue reading
Request your trial