In re Carabetta Enterprises, Inc., Bankruptcy No. 92-51917. Adv. No. 93-5267.
| Decision Date | 30 December 1993 |
| Docket Number | Bankruptcy No. 92-51917. Adv. No. 93-5267. |
| Citation | 162 BR 399 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | In re CARABETTA ENTERPRISES, INC., Debtor. CARABETTA ENTERPRISES, INC., a Connecticut Corporation, and Ocean Mile Development Group, a New Jersey Limited Partnership, Plaintiffs, v. The CITY OF ASBURY PARK, a Municipal Corporation of the State of New Jersey, The Mayor and Council of the City of Asbury Park, Dennis M. Buckley, Patricia H. Candiano, Angelo A. Chinnici, M.D., William H. Harrington, Carl Williams, Jr., and John Doe(s), Defendants. |
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Dominic J. Aprile, Bathgate, Wegener, Dugan & Wolf, P.C., Newark, NJ, Jon P. Newton, Reid and Riege, P.C., Hartford, CT, for plaintiffs.
Thomas A. Pliskin, Giordano, Halleran & Ciesla, Middletown, NJ, Mark I. Fishman, Pullman & Comley, Bridgeport, CT, for defendants.
ALAN H.W. SHIFF, Bankruptcy Judge.
On December 16, 1993, I entered an order in open court granting a preliminary injunction in favor of the plaintiffs Ocean Mile Development Group, a New Jersey limited partnership ("Ocean Mile") and the debtor Carabetta Enterprises, Inc. (hereafter collectively the "plaintiffs"). That order, which has remained fully effective since the date of its entry, is modified by this Memorandum and Modified Order on Order to Show Cause.
On April 2, 1986, Asbury Park, or "the City," entered into a redevelopment agreement (the "Agreement") with Ocean Mile. The debtor Carabetta Enterprises, Inc. is both a general and limited partner in Ocean Mile, and its interests aggregate approximately 93 percent of all ownership interests in Ocean Mile. On April 8, 1987, Ocean Mile leased certain of the properties to be redeveloped from the City. Ocean Mile did not meet certain performance deadlines under the Agreement and on November 20, 1991, requested that the City agree to a modification. Under the Agreement, the City could not unreasonably refuse to modify the Agreement. On December 18, 1991, the City passed a resolution that the delays were not excusable and that it would not amend the Agreement.
On December 31, 1991, Ocean Mile commenced certain arbitration proceedings against the City, seeking a determination that its delays were excusable under the Agreement and that the City's refusal to modify it was unreasonable. On February 19, 1992, the City passed a resolution to send Ocean Mile a notice of default and to terminate the Agreement. On February 25, 1992 and April 1, 1992, the city manager sent notices of default under the Agreement and the related lease of City property. On April 9, 1992, Ocean Mile commenced a law suit in New Jersey state court to set aside the foregoing resolutions. That action is pending. On July 29, 1992, the debtor commenced the instant chapter 11 case. On June 28, 1993, in connection with the state court action, the City and Ocean Mile entered into a settlement (the "Settlement") whereby Ocean Mile agreed to obtain by November 15, 1993 a binding commitment of $130 million to finance the project. See Plaintiffs' Exhibit 2. Under the Settlement, Ocean Mile delivered in escrow a deed to the real property in the project, its resignation as the project developer, a general release of the City, and an assignment of lease. Failing achievement of its financing goal, those items were to be delivered to the City. A dismissal with prejudice of all pending actions against the City was placed in escrow, to be released if this court approved the Settlement; the parties were to mutually determine an appropriate course of action as to that dismissal if this court did not approve the Settlement by November 25, 1993.
The Settlement was presented to this court on August 3, 1993. The debtor claimed the Settlement was in the estate's interest. The creditors' committee requested further time to study the tax ramifications of the Settlement. An order approving the Settlement has not entered.
Ocean Mile did not obtain the requisite financing commitment. The plaintiffs allege that the City published false and disparaging information against Ocean Mile, coerced it to forbear from exercising its legal rights, conspired to terminate its rights as project developer, and hindered and interfered with its efforts to consummate financing. The plaintiffs claim that the City's actions violated a provision of the Settlement whereby the City agreed to cooperate with Ocean Mile's efforts to obtain financing and to use its best efforts to assist Ocean Mile in obtaining necessary approvals and permits. See Settlement, p. 10.
The City, on the other hand, claims that Ocean Mile defaulted under the Agreement and the Settlement by (i) failing to make $1 million payments on December 31, 1991 and December 31, 1992, in lieu of taxes, (ii) failing to meet deadlines to commence construction, and (iii) failing to obtain financing commitments by August 19, 1991 (or, if the Settlement was effective, by November 15, 1993). The Agreement allegedly provided for excusable delays for the construction covenants, but not for the covenants to pay money and to obtain financing.
On November 9, 1993, the debtor's counsel sent a letter to the City saying that the court had not yet approved the Settlement and that any adverse action by the City against Ocean Mile would violate the automatic stay. On November 15, 1993, the city manager allegedly announced publicly that the City would seek the release of the escrowed documents.
On November 17, 1993, the plaintiffs filed the instant Application in Support of Order to Show Cause and a Verified Complaint. In Count I of that complaint, they seek (i) a declaration that the Settlement and stipulated dismissal are void, (ii) a declaration that the Agreement and lease are effective, (iii) an injunction preventing the City from terminating those agreements or exercising any remedies under them, (iv) an order that the escrowed items be returned to Ocean Mile, and (v) attorneys fees and costs. Other counts allege breach of the Settlement, breach of the duties of good faith and fair dealing, economic duress, unconscionability, mistake of fact, estoppel, and violation of the New Jersey Open Public Meetings Act. The complaint seeks damages, including punitive damages.
On November 17, 1993, this court entered an Order to Show Cause (the "OSC") setting November 29, 1993 as the date for the defendants to show cause why this court should not issue an order enjoining the City from taking any action which would negatively impact on Ocean Mile's rights as redeveloper under the Agreement. Notwithstanding the issuance of the OSC, the matter presently before the court is an application for a preliminary injunction under Rule 65 Fed.R.Civ. P., made applicable by Rule 7065 Fed. R.Bankr.P., and the plaintiffs have the burden of proof. The plaintiffs seek to enjoin, pending a trial on the merits, any declaration of a default under the Agreement and Settlement, any enforcement actions by the defendants under those and the related escrow documents, and the release of the documents placed in escrow.
Joseph Carabetta, the secretary and treasurer of the debtor, testified as follows. The debtor has contributed approximately $60 million to Ocean Mile for the Asbury Park project. Ocean Mile owes $39 million of that amount to the debtor. The City agreed to cooperate "one hundred percent" with Ocean Mile in assisting Ocean Mile to obtain the financing commitment required under the Settlement. Notwithstanding that agreement, the City did not cooperate and in fact commenced a newspaper campaign disparaging Ocean Mile. A member of the city council said he would make it "difficult" for Ocean Mile and that Ocean Mile representatives would not be welcome in the city council if Ocean Mile did not return certain leased property to the City. City representatives were working with another potential developer. City inspectors were sent to inspect the properties and come up with violations to harass Ocean Mile.
Michael J. Fiondella, the accountant for Ocean Mile and the debtor, testified as follows. Ocean Mile owes a $36 million receivable to the debtor. If Ocean Mile's development rights are terminated in the debtor's 1993 fiscal year, the debtor would be able to take a bad debt deduction for that amount in 1993. However, because the debtor would have no income to offset that deduction, it would not benefit the estate. The debtor as Ocean Mile's general partner would receive discharge of indebtedness income if the receivable was eliminated. That income would first be applied to eliminate the debtor's net operating losses and then would be applied to adjust the debtor's basis in certain properties. On the other hand, because the debtor anticipates some $30 million of taxable income in its 1994 fiscal year from certain refinancing arrangements, if the debtor recognizes the loss in 1994, it will be able to offset all of that income. The estate's tax burden would be reduced by 45 to 55 percent in that event.1
A city councilman, Dr. Angelo Chinnici, testified as follows. Ocean Mile owns property in the redevelopment area with a tax assessed value of over $15 million. If Ocean Mile forfeits its rights under the Agreement and Settlement, it would have to reconvey four pieces of property with a total tax assessed value of approximately $285,000.00. Under the Settlement, the City would be obligated to sell those parcels, with the proceeds to be applied first to costs of sale, then to reimburse Ocean Mile for any improvements it had made on the parcels, with the remaining net proceeds to be divided equally between Ocean Mile and the City. The City recently experienced a revenue shortfall of $5.6 million, and received $5.2 million from the State of New Jersey. The proposed redevelopment was to bring new jobs to the City and rehabilitate the beachfront. There has been...
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