In re Cohoes Indus. Terminal, Inc.
| Decision Date | 18 February 1987 |
| Docket Number | No. 86 Civ. S736-CLB (86 B 20201).,86 Civ. S736-CLB (86 B 20201). |
| Citation | 70 BR 214 |
| Parties | In re COHOES INDUSTRIAL TERMINAL, INC., Debtor. LATHAM SPARROWBUSH ASSOCIATES, Appellee, v. COHOES INDUSTRIAL TERMINAL, INC. and Gloria F. Baker, Appellants. |
| Court | U.S. District Court — Southern District of New York |
Leon C. Baker, White Plains, N.Y., for appellants.
David Siegal, Zubres, D'Agostino & Hoblock, Albany, N.Y., Taylor, McCullough, Goldberger, Geoheagan and Friedman, White Plains, N.Y., for appellee.
On this appeal fully submitted on October 9, 1986, the Debtor in this Chapter 11 reorganization proceeding seeks to review an order of the Bankruptcy Court (Schwartzberg, J.) issued June 12, 1986. In re Cohoes Industrial Terminal, Inc., 62 B.R. 369 (Bkrtcy.S.D.N.Y.1986). The parties to the dispute herein are adversaries in at least four separate lawsuits in the state and federal courts, making for a voluminous record on appeal.
On April 28, 1986, the Debtor filed a Chapter 11 petition. Prior to that date and continuing to the present time, the Debtor has been involved in litigation in the New York state courts regarding leasehold rights to an apartment complex now owned by Latham Sparrowbush Associates as landlord. By notice of motion dated May 7, 1986, Latham Sparrowbush Associates ("LSA") moved the Bankruptcy Court for an order declaring the automatic stay inapplicable to the disputed leasehold interest on the ground that the leasehold had been terminated prior to the filing of the petition. In the alternative, LSA moved for an order vacating the automatic stay to allow the state court to proceed on LSA's post-judgment motion for an order specifically directing the state court appointed post-judgment receiver to transfer the Debtor's interest in the subject premises to LSA.
The Debtor then moved the Bankruptcy Court for an order adjudging LSA and the state court post-judgment receiver in contempt of the Bankruptcy Court for alleged violations of the automatic stay. The secretary of in the Debtor corporation, Gloria F. Baker, moved for an order directing the Debtor to transfer to her "the legal title to the tenant's interest" in the leasehold, asserting that she is actually the equitable owner of the lease, while the Debtor is only her nominee. The "tenant's interest" in the leasehold at the time of the motion consisted of the right to $350,000.00 compensation for early termination of the lease, payable, under the terms of the lease (quoted below) to the lessee.
The claimed nominee relationship appears to be verbal, and no memorandum thereof was ever properly recorded in the land records of Albany County.
Both the Debtor and Mrs. Baker are represented herein by Leon C. Baker, Esq., Mrs. Baker's husband and President of and sole shareholder in the Debtor.
The Bankruptcy Court ruled that the automatic stay does not operate to enjoin LSA and the receiver from enforcing any rights which LSA may claim with respect to the leasehold, because the Debtor's interest was terminated by a pre-petition state court order. Accordingly, the Debtor's contempt motion was denied. Mrs. Baker's motion was denied as not in the best interests of the estate.
Since 1968, LSA has owned the fee of an apartment complex called Sparrowbush Apartments in Latham, New York. It had executed a lease at that time and in 1973 the interest of the tenant thereunder was assigned to the Debtor. On December 26, 1984, LSA gave notice of its exercise of an option to terminate the lease, effective sixty days from the giving of notice, pursuant to Article 32 of the lease. Article 32 reads in pertinent part:
"
By letter dated December 27, 1984, the Debtor acknowledged receipt of the notice, but disputed the legal validity or effectiveness of Article 32 of the lease under New York law.
On January 12, 1985, Mrs. Baker commenced an action in New York State Supreme Court, Westchester County, against LSA seeking a judgment declaring Article 32 of the lease invalid as violative of state law (the Westchester action). She did not request an adjudication of her claim to be the equitable owner of the lease. On February 8, 1985, Mrs. Baker moved for summary judgment. LSA cross-moved to dismiss the complaint on the ground that Mrs. Baker lacked standing to sue because she had no connection with the lease.
By decision entered April 30, 1985, and order dated June 20, 1985, Justice Cerrato of the Supreme Court of New York, Westchester County dismissed Mrs. Baker's complaint on the ground that under New York law, a suit challenging a lease provision must be brought by the named tenant. The relevant portion of the court's opinion reads:
Mrs. Baker's motion to reargue was denied. An Appeal of the matter is sub judice at this writing.
Meanwhile, anticipating that the Debtor would not quit the premises as required by the notice of termination, LSA commenced an action against the Debtor in the Supreme Court of New York, Albany County, on February 13, 1985 (the Albany action). LSA sought specific performance of Article 32's termination provision. On February 25, 1985, LSA's exercise of its option to terminate the lease became effective, and as feared, LSA was unable to recover possession of the premises. On March 15, 1985, the Debtor defaulted in answering in the Albany action. Therefore, on April 18, 1985, a default order and judgment was signed by Justice Kahn of the Supreme Court, Albany County, which (1) declared Article 32 of the lease to be valid, binding and enforceable; (2) directed the Debtor to deliver possession of the leased premises; and (3) ordered that, upon delivery of possession, LSA tender to the Debtor a certified check for $350,000.00 payable to the Debtor.
The Debtor challenged the default judgment claiming that it had no notice of LSA's action because of improper service of process. On May 20, 1985, Justice Kahn denied the Debtor's motion to vacate the default judgment. On October 10, 1985, the Appellate Division, Third Department, unanimously affirmed, holding that the Debtor was properly served through the Secretary of State and that, in any case, the Debtor had actual notice of the lawsuit in time to defend. On December 20, 1985, the Appellate Division denied the Debtor permission to appeal to the New York Court of Appeals. Latham Sparrowbush Associates v. Cohoes Industrial Terminal, Inc., 114 A.D.2d 584, 494 N.Y.S.2d 195 (3d Dep't 1985). The Court of Appeals denied the Debtor's motion for leave to appeal on February 13, 1986, 67 N.Y.2d 736, 500 N.Y.S.2d 100, 490 N.E.2d 1226 (1986), and denied the Debtor's motion for reargument on March 27, 1986.
Also on March 27, 1986, Justice Kahn of the Supreme Court, Albany County, signed an order which: (1) appointed a post-judgment receiver for the collection of rents on the apartment complex; (2) ordered that the receiver take possession of the premises and that the tenants and anyone without a valid lease surrender possession; (3) authorized the receiver to manage the property; and (4) ordered the Debtor and all persons other than the receiver to refrain from collecting rents or interfering with possession, and to transfer to the receiver all security deposits until possession is delivered to LSA. After Justice Kahn declined to stay the order pending appeal, the receiver took possession on March 28, 1986.
In response to the Debtor's failure to obey certain commands of Justice Kahn's order, for example, its failure to return the security deposits promptly, LSA and the receiver filed numerous contempt motions in the state court. These motions were prosecuted subsequent to the filing of the Debtor's bankruptcy petition on April 28, 1986, and were ultimately granted.
LSA also moved the court in the Albany action for an order directing the receiver to deliver possession of the premises to LSA. After the Bankruptcy Court ruled that the automatic stay did not apply to the property, Justice Kahn granted LSA's motion on July 1, 1986. Contrary to Mrs. Baker's contention, Justice Kahn's order in no way made the transfer of possession to LSA "subject to the rights of Gloria Baker." The July 1st order does not recite such language or any language that could fairly be read to convey a similar restriction on the transfer. The transfer of possession to LSA was intended to and did bring an end to any dispute over LSA's right to possess the premises.
On July 2, 1986, possession of the premises was delivered to LSA and LSA tendered the lease termination payment in the amount of $350,000.00 to the Debtor on the same day. The termination payment is presently...
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