In re Cohoes Indus. Terminal, Inc.
| Decision Date | 12 June 1986 |
| Docket Number | Bankruptcy No. 86 B 20201. |
| Parties | In re COHOES INDUSTRIAL TERMINAL, INC., Debtor. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
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Leon C. Baker, White Plains, N.Y., for debtor and Gloria F. Baker.
Zubres, D'Agostino & Hoblock, P.C., Albany, N.Y., for Latham Sparrowbush Associates.
Charles A. Goldberger, White Plains, N.Y., for Latham Sparrowbush Associates.
DECISION ON THREE MOTIONS SEEKING ORDERS LIFTING AUTOMATIC STAY, TO PUNISH FOR CONTEMPT AND PERMISSION FOR DEBTOR TO TRANSFER PROPERTY OF THE ESTATE
The debtor in this Chapter 11 case, Cohoes Industrial Terminal, Inc., asserts leasehold rights to an apartment complex now owned by Latham Sparrowbush Associates, as landlord. The landlord claims that the lease was terminated upon the exercise of a termination option contained in the lease and by a final state court order on default which confirmed the landlord's termination and which was sustained on appeal. The debtor disputes the validity of the termination clause on the ground that it violates the rule against perpetuities and asserts that the landlord's state court termination order was obtained by default because the landlord's service of process was made on the New York Secretary of State. The debtor claims that it did not receive notice of the commencement of the landlord's state court action because it failed to designate a replacement for the original agent to receive service of process, who had died many years before. The landlord contends that the state court order confirming the termination of the lease is res judicata and the debtor has no right to title or possession under the lease. The debtor counters with the assertion that it never had a right of possession and that the debtor was merely a corporate nominee of its secretary, Gloria F. Baker, who actually had possession and operated the apartment complex. Thus, the debtor claims that it holds bare legal title to the leasehold rights and that all the equitable interests, including the right of possession, are held by Gloria F. Baker. However, a state court post-judgment receiver, who was appointed after the entry of the order confirming the landlord's termination of the lease, also claims a right of possession in order to collect the rents from the leased apartment complex and to administer the property.
In the light of this background, the landlord moved pursuant to 11 U.S.C. § 362(d)(1) for relief from the automatic stay, or for a determination that the stay does not apply to the property in question on the ground that the debtor does not have a cognizable interest in the property. The debtor then moved to hold the landlord and the state court post-judgment receiver in contempt for allegedly violating the automatic stay by attempting to enforce the state court order with respect to possession of the property and the turnover of the tenants' rent security deposits.
While these two motions were sub judice, Gloria F. Baker moved, with the debtor's consent, for an order directing the debtor to transfer its alleged bare leasehold title interests to her on the ground that she is actually the equitable owner of the lease, whereas the debtor is only her nominee. This motion is premised on the theory that if Gloria F. Baker is able to obtain court approval for a transfer of the debtor's claimed leasehold title interest to her the entire dispute between the debtor and the landlord would be moot. Gloria F. Baker would then be in a position to litigate anew with the landlord in the state court as to the validity of the termination option in the lease and her asserted right to exercise leasehold interests in the property.
1. On August 28, 1968, Latham Sparrowbush Corp., as landlord, and Shaker Estates, Inc. as tenant, executed a lease (the "Lease") of an apartment complex in Albany County New York (the "Apartments"). On the same day Latham Sparrowbush Corp. deeded the property over to Latham Sparrowbush Associates ("Associates").
2. On December 31, 1973, Shaker Estates, Inc. assigned its rights under the lease to Cohoes Industrial Terminal, Inc., the debtor in this case. On December 26, 1984, Associates gave notice of its exercise of an option to terminate the Lease, effective 60 days from the giving of notice, pursuant to Article 32 of the Lease.1 Leon C. Baker, president of the debtor, sent Associates a letter acknowledging receipt of the notice on December 27, 1984. The letter also questioned the validity of Article 32 of the Lease.
3. Some time subsequent to December 1984, (the record does not reveal the exact date) Gloria F. Baker commenced a declaratory action in State Court seeking various relief with respect to the Lease. Gloria F. Baker is the secretary of the debtor. The plaintiff's attorney in that case is her husband, Leon C. Baker, who is also president of, and attorney for, the debtor.
4. On or about February 8, 1985 Gloria F. Baker made a motion for summary judgment seeking, among other things, a declaration that Article 32 of the Lease was invalid because the repurchase option granted therein to Associates violated the rule against perpetuities. Defendant Associates cross moved to dismiss the complaint on the ground that Gloria F. Baker lacked standing to sue because she was not in privity with Associates and had no connection with the Lease. By a decision entered April 30, 1985, and order dated June 20, 1985, Justice Anthony Cerrato of the New York Supreme Court, Westchester County dismissed Gloria F. Baker's complaint, holding that she had no standing to question the validity of the Lease as she was a legal outsider to it. The court specifically refused to reach any other issue. Debtor's motion to reargue was denied.
5. On or about February 13, 1985, Associates commenced an action against the debtor by service of two copies of a summons and complaint on the Secretary of State pursuant to N.Y.B.C.L. § 306.2 The debtor had designated an attorney as its agent who apparently died prior to the service of the summons and complaint with the result that the debtor never received that copy of the papers.
6. A copy of Associates' summons and complaint was annexed as an exhibit to Associates' cross motion in the action between Gloria F. Baker and Associates, which was served prior to February 27, 1985.
7. On February 25, 1985, Associates exercise of its option to terminate the Lease became effective. (No stay of the termination of the Lease has been sought or granted). On March 15, 1985 the debtor defaulted in answering.
8. On April 18, 1985, an order and default judgment was signed by Justice Lawrence E. Kahn of the New York Supreme Court, Albany County, which:
9. On April 19, 1985, the order was entered. On May 20, 1985, Justice Kahn denied the debtor's motion to vacate the default judgment entered on April 19, 1985, which was made pursuant to C.P.L.R. § 5015.
10. On June 21, 1985, the Supreme Court, Appellate Division Third Department granted a stay of execution of the April 19, 1985 order and judgment pending debtor's appeal to the Third Department.
11. On October 10, 1985, a unanimous Appellate Division affirmed Justice Kahn's denial of the debtor's motion to vacate the default judgment pursuant to C.P.L.R. § 5015(a) and C.P.L.R. § 317 on the dual grounds that (1) a corporation is under an obligation to notify the Secretary of State of a change of address and failure to do so is not a reasonable excuse, and (2) that the debtor had had actual notice by receipt of the summons and complaint in time to defend. On October 16, 1985, the Appellate Division entered an order affirming the April 19, 1985 order.
12. On December 20, 1985, the Appellate Division entered an order denying the debtor permission to appeal to the Court of Appeals. Latham Sparrowbush Associates v. Cohoes Industrial Terminal, Inc., 114 A.D.2d 584, 494 N.Y.S.2d 195 (3rd Dep't 1985).
13. On February 13, 1986, the New York Court of Appeals denied the debtor's appeal from the order denying leave to appeal from the order of the Appellate Division on the ground that the denial was an interlocutory order. 67 N.Y.2d 736, 500 N.Y.S.2d 100, 490 N.E.2d 1226 (1986). On March 27, 1986, the New York Court of Appeals denied the debtor's motion to reargue its appeal from the Appellate Division's denial of leave to appeal.
14. On March 27, 1986, Justice Kahn of the Supreme Court signed an order which:
15. On April 24, 1986, the Appellate Division entered an order denying the debtor's motion for a stay pending its appeal of Justice Kahn's order of March 27, 1986.
16. On April 28, 1986, Associates commenced a motion, by order to show cause praying for the transfer of possession of the premises to Associates. The motion was made returnable on May 7, 1986. Also returnable on May 7, 1986 were several ...
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