In re BSL Operating Corp., Bankruptcy No. 85 B 11361 (BRL)

• Decision Date: 18 February 1986
• Docket Number: Bankruptcy No. 85 B 11361 (BRL),Adv. No. 85-6652A.
• Citation: 57 BR 945
• Parties: In re BSL OPERATING CORP., Debtor. BSL OPERATING CORP., Plaintiff, v. 125 EAST TAVERNS, INC., et al., Defendants. Joel Carroll, et al., Additional Defendants on Counterclaims.
• Court: U.S. Bankruptcy Court — Southern District of New York

57 B.R. 945 (1986)

In re BSL OPERATING CORP., Debtor BSL OPERATING CORP., Plaintiff, v. 125 EAST TAVERNS, INC., et al., Defendants Joel Carroll, et al., Additional Defendants on Counterclaims.

Bankruptcy No. 85 B 11361 (BRL), Adv. No. 85-6652A.

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

February 18, 1986.

COPYRIGHT MATERIAL OMITTED

Lewis W. Siegel, New York City, for debtor.

Hyman, Miner & Robbin, New York City, for 125 East Taverns, Inc., Terence Dunne and Michael Coyne; Leonard H. Rubin, of counsel.

Decision and Order on Motion to Reargue

BURTON R. LIFLAND, Bankruptcy Judge.

An adversary proceeding seeking turnover of property does not often yield as many interesting facts as have surfaced in the instant chapter 11 case. Here, the tenant under a lease filed two sequential chapter 11 petitions. The lease in at least some form survived the first case by fortuitous operation of law; in the second case, the former debtor tenant was not so fortunate.

Subsequent to the tenant's forays in bankruptcy court, the landlord found itself obligated to file a chapter 11 petition as well. The landlord, who is now the debtor, has filed the motion presently at issue, seeking immediate possession of the leased premises because of the tenant's failure to timely assume the lease in tenant's second chapter 11 case. We hold that the tenant's leasehold right to possession of the premises has legally expired.

Factual Background

On May 18, 1983, 125 East Taverns, Inc. ("Taverns") filed a voluntary petition for reorganization ("the 1983 case") pursuant to Chapter 11 of the Bankruptcy Reform Act of 1978 ("the Code"). Taverns leased commercial space ("the lease") to operate a cabaret known as Tramps in a building ("the building") at 125 East 15th Street in New York City owned by BSL Operating Corp. ("BSL"), the debtor herein. Although Taverns is a corporation, it filed its petition pro se, an impermissable filing.¹

The salient filing events are as follows. BSL was listed as a creditor of Taverns for past rent and oil bills. According to a signed but undated affidavit made by Taverns' president accompanying the petition filed in 1983 case, the lease ran until October 1985. On February 6, 1984, Taverns filed a Plan of Reorganization and on April 5, 1984, a Disclosure Statement. The Plan and the Disclosure Statement were completely silent as to Taverns' assumption or rejection of the lease. On August 2, 1984, Taverns filed an Amended Disclosure Statement which did not mention the lease. On August 30, 1984, Taverns filed a Second Amended Disclosure Statement ("the Disclosure Statement"). In this disclosure statement, dated August 15, 1984, Taverns stated that "it would assume a lease presently in effect sic on business premises known as 125 East 15th Street, New York, New York which will run until May 31, 1995." (emphasis added). On September 24, 1984, Taverns filed a Supplement to Amended Disclosure Statement ("the Supplement"), dated August 31, 1984. The Supplement provided that "the unexpired portion of the lease continues until April 30, 1995. The lease contains escalation provisions for rent throughout the leasehold and debtor maintains that rental is at fair market value throughout the terms of the lease." (emphasis added). On September 20, 1984, an order was entered approving the Disclosure Statement of August 15, 1984 and the Supplement. An order confirming Taverns' Plan of Reorganization was signed on October 29, 1984. The only affidavits of service in the court files for the entire 1983 case are for the Notice of Hearing on the initially filed disclosure statement and another affidavit entitled "Affidavit of Service of Plan of Reorganization Disclosure Statement and Ballot." The body of the affidavit, filed on October 29, 1984, refers to service of an "Amended Disclosure Statement and Supplement Plan of Reorganization and Ballot." There is no affidavit of service relating to those disclosure documents that refer to a "1995 lease." BSL claims that it was unaware of and unaffected by the 1983 case. While relevant for some purposes, this court's ruling does not turn on these apparent notice defects and irregularities in service.

Less than one month after confirmation, on November 26, 1984, Taverns filed its second Chapter 11 petition ("the 1984 case"). In a repeat of recent history, Taverns again filed pro se. This dubious new filing by a freshly "rehabilitated" debtor appears to have been motivated by a desire to use Title 11 to stay a foreclosure of the building Taverns occupied but did not own. Whatever the filing impact, the foreclosure proceedings did not go forward at that time. Taverns was notified by the United States Trustee ("the U.S. Trustee") that a corporate debtor may not appear without counsel. After receiving no response from Taverns, the U.S. Trustee moved by order to show cause on January 2, 1985 seeking an order dismissing Taverns' 1984 case. The U.S. Trustee's motion was based upon the corporation's pro se appearance and upon Taverns' failure to file an Additional Local Bankruptcy Rule XI-2 affidavit, its schedules of assets and liabilities and its statement of financial affairs as required by section 521 of the Code. The 1984 case was dismissed and closed pursuant to an order signed on January 28, 1985 by Judge Abram of this court, sixty-four days after the 1984 petition was filed.

On August 22, 1985, BSL, the landlord, filed its own Chapter 11 petition. According to BSL, Taverns' lease expired on May 31, 1985, was not assumed in either of Taverns' previous cases pursuant to section 365 or in a plan of reorganization. Nevertheless, Taverns has refused to vacate the premises and turn over possession to BSL.

The parties have exchanged accusations and versions of the facts which raise implications of such a serious nature that the court has referred the matter to the Authorities for investigation. For example, BSL claims:

1. that the Supplement which purports to grant Taverns a ten year lease extension, describes a forged instrument;

2. that Taverns altered the version of the Supplement it included in Taverns' president Terence Dunne's affidavit ("Dunne") to this court in opposition to BSL's motion for partial summary judgment;

3. that Dunne falsely and fraudulently stated in documents submitted to the Department of Buildings that he was the owner of the building and as such, requested changes in the Certificate of Occupancy;

4. that the Department of Buildings issued a Peremptory Vacate Order to Taverns, which was modified based upon false and fraudulent representations made by Dunne and Taverns' vice president Michael Coyne ("Coyne");

5. that Taverns has operated since 1977 without a cabaret licence in violation of New York City Department of Consumer Affairs regulations and in violation of Taverns' lease;

6. that two of Taverns' officers conspired to unlawfully possess the premises and to harass other tenants;

7. that Taverns broke into the boiler room of the premises and stole and diverted hot water, even though the lease did not require BSL to provide hot water to Taverns;

8. that because of improper scheduling BSL received neither actual nor constructive notice of the 1983 case;

9. that Taverns never complied with the Amended Vacate Order;

For its part, Taverns claims in its answer:

1. that BSL extended Taverns' lease, in writing, from June 1, 1985 through May 31, 1995;

2. that BSL fraudulently refused to permit Taverns to exercise an option to purchase the building;

3. that BSL is estopped from asserting that the lease is not in effect because BSL failed to object to the statement in Taverns' 1983 case "Disclosure Statement and Plan" (emphasis added) that the lease expired on May 31, 1995.

BSL moved for partial summary judgment seeking inter alia, a determination that the Lease and extension had been terminated and an order for immediate turnover of the premises. In its statement pursuant to Local Rule 3(g), BSL asserted that Taverns filed its 1984 case on November 26, 1984 (the second case), and that Taverns failed to assume the lease and extension within 60 days or seek an extension of time to do so, as required by Code section 365(d)(3). BSL urges that the lease and (disputed) extension were automatically deemed rejected by Code section 365(d)(4). In its Local Rule 3(g) statement in response to BSL's 3(g) statement, Taverns creatively suggests that "by listing the lease in its petition as an asset, and by performing its obligations under the lease during the pendency of the proceedings and thereafter Taverns assumed the lease." Furthermore, Taverns knew from its 1983 case that a corporation could not file pro se, yet, in 1984, it cavalierly ignored this mandate. Taverns now whimsically urges, by counsel that the 1984 case was a nullity because it was filed pro se.

Taverns subsequently cross-moved for partial summary judgment on its third counterclaim, which asserted that Taverns had assumed the lease in its 1983 case Disclosure Statement; that the plan provision for payment of prepetition rent owed BSL was an assumption of the lease by implication and that BSL is estopped from arguing that the lease was not assumed because BSL waived this ground by never objecting to Taverns' Disclosure Statement or Plan.

At a hearing held on the two partial summary judgment motions, this court granted summary judgment to BSL "as a matter of law," ruling that whatever interest Taverns had in the lease following the 1983 case was terminated by operation of section 365(d)(4) in the 1984 case and found that "there is no relationship of landlord and tenant based upon the lease anymore." 1/8/86 Tr. at 28. The record was "so ordered" to allow Taverns to appeal expeditiously.

On January 15, 1986, Taverns moved by order to show cause for leave to reargue both its and BSL's motions for partial summary judgment or alternatively for relief from this court's order of January 8, 1986,...