In re Damianopoulos, Bankruptcy No. 87-01132.

• Citation: 93 BR 3
• Decision Date: 05 February 1988
• Docket Number: Bankruptcy No. 87-01132.
• Parties: In re Ernest N. DAMIANOPOULOS, d/b/a Corinthian Cafe, Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Northern District of New York

93 B.R. 3 (1988)

In re Ernest N. DAMIANOPOULOS, d/b/a Corinthian Cafe, Debtor.

Bankruptcy No. 87-01132.

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

February 5, 1988.

McAuliffe & McAuliffe, P.C., Syracuse, N.Y., for HRR Properties Co.; Robert D. McAuliffe, of counsel.

Scott, Sardano & Pomeranz, Syracuse, N.Y., for debtor; Roger Scott, of counsel.

Warren V. Blasland, Syracuse, N.Y., Trustee.

MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

STEPHEN D. GERLING, Bankruptcy Judge.

This contested matter comes before the Court on the motion of HRR Properties Company ("HRR"), pursuant to § 362(d) of the Bankruptcy Code, 11 U.S.C.A. §§ 101-1330 (West 1979 & Supp.1987) ("Code"), to lift the automatic stay on the non-residential real property it owns and leases to Ernest N. Damianopoulos, d/b/a Corinthian Cafe ("Debtor"). A preliminary hearing pursuant to Code § 362(e) was conducted in Utica on December 7, 1987 and a final evidentiary hearing, also in Utica, took place on January 4, 1988. The final hearing was concluded on January 21, 1988, when counsel for the Debtor submitted a reply memorandum to HRR's post-trial memorandum of law. Accordingly, HRR's request for relief under Code § 362(d) was submitted for decision January 21, 1988.

JURISDICTIONAL STATEMENT

The Court has jurisdiction by virtue of 28 U.S.C.A. §§ 1334(b) and 157(a) (West 1979 & Supp.1987). This is a core proceeding, 28 U.S.C.A. §§ 157(b)(1) and (b)(2)(G), rendered in accordance with Rules 9014, 7052 and 4001(a) of the Federal Rules of Bankruptcy Procedure ("Fed.R.Bankr.P.").

FACTS

Debtor filed for relief under Chapter 13 of the Code on August 10, 1987. From a review of Debtor's Petition, Statement and Schedules ("Petition"), it appears that he lives in Syracuse with his wife, who does not work, and two children, Maria and Dimitri, ages thirty and twenty-two, respectively. Over the past three years, Debtor has earned income from the Corinthian Cafe ("Cafe"), a luncheonette he has owned and operated in Syracuse, New York since 1984, research and teaching duties at a local university and room and board collected from his daughter and a boarder in his home.

Debtor's individual filing stayed a summary eviction proceeding instituted by HRR in the City Court of Syracuse, New York to gain possession of the premises on which he operates the Cafe. In his Petition, Debtor listed this action and appeared to mark June 7, 1987 as the last date he made a monthly rental payment of $250.00. The Debtor also included HRR as an unsecured creditor holding a disputed claim of $900.00 for rent under this business lease.

The lease in question was executed on March 6, 1984 between the Debtor and HRR for the rental of some 630 square feet at 238 Harrison Street¹ and was expressly for restaurant use only. It provided for a term of five and one-half years from March 1, 1984 to August 31, 1989 at a monthly rate of $200.00 for the first six months and $250.00 for the remaining five years with additional charges of pro rata building taxes and insurance. Rental payments not made on the first day of each calendar month were subject to a fifty dollar late charge. Debtor was obligated to perform and bear the costs of all work necessary to ready the premises for his Cafe and pay the cost of providing access to restrooms located on the premises and specific work that HRR was to perform. Rent abatement and liquidated damages were provided for in the event that the work HRR was required to perform prevented the Debtor from being open for business or was not completed within six months of the lease's execution. In addition, the lease agreement set out eight different categories of events which constituted default, including bankruptcy and the failure to timely pay monthly rent and cure without notice from HRR. The lease also created a month to month holdover tenancy at double the rent if the Debtor continued in possession of the premises despite lease expiration or forfeiture.

In his Petition, Debtor estimated his personal monthly expenses at $1,251.00 and his monthly net income at $1,739.00, of which $1,189.00 was generated by the Cafe. He indicated that the Cafe also supplied his family with food. The Debtor's original plan filed on August 27, 1987, did not list any executory contracts to be rejected, and stated the following: "The debtor shall remain in possession of all property at all times under the Plan." After a secured creditor objected to the confirmation of the plan, the Debtor filed an amended plan October 30, 1987 in which the only change was an increase in the amount of monthly plan payments.

On November 23, 1987, HRR filed the instant motion seeking an order either lifting the automatic stay to allow it to proceed in City Court, or terminating the Debtor's lease rights and establishing a claim of $3,927.05. Affidavit of Charles W. Rich, general partner of HRR (Nov. 18, 1987). HRR alleged that the lease terminated through the Debtor's pre-petition defaults and the notice of termination it sent out on May 23, 1987. Id. at Exhibit B. These allegations apparently formed the basis of HRR's eviction action commenced on July 6, 1987. On his own accord, the presiding City Court Judge, the Hon. Langston C. McKinney, stayed the eviction action on September 14, 1987 due to the Debtor's bankruptcy filing. HRR also claimed the Debtor's holdover status, at double the lease's fixed monthly rent as set forth in the lease, and asserted that the Debtor's bankruptcy filing, which "terminates the estate created in tenant hereby", constituted an additional ground of default. Id.

At the preliminary hearing on December 7, 1987, counsel for the Debtor asserted that there was no contest of factual allegations, no legal cause and that the lease was improperly terminated. In response, counsel for HRR stated that there was no lease because of pre-petition defaults. At the final evidentiary hearing on January 4, 1988, both attorneys stipulated into evidence all of the papers submitted in the City Court eviction action and neither called any witnesses. The stipulated papers recited a volley of charges between the Debtor and HRR concerning the interpretation of the lease agreement and the breach of respective landlord and tenant obligations arising thereunder, dating back to August 1, 1986.

Subsequently, HRR reiterated that the lease terminated June 1, 1987 due to the Debtor's failure to timely pay the fixed monthly rent, thus precluding any lease assumption under bankruptcy law. Petitioner's (Creditor's) Memorandum of Law (received and filed Jan. 1988). In the alternative, HRR asked the Court to defer its decision until the completion of the state court action if it determined that there were issues of lease termination. Id.

In response, the Debtor maintained that the lease had neither expired nor been terminated. Debtor's Memorandum of Law (received and filed Jan. 21, 1988). Even assuming termination, he asserted that the process was not complete and immune from reversal, nor was a final decision ever issued by the City Court. Id. The Debtor further stated that HRR's attorney was holding its post-petition rental payments, contrary to HRR's pre-petition behavior. Id.

Debtor's second amended plan was denied confirmation in this Court's Memorandum-Decision dated January 21, 1988.

ISSUE

Whether HRR is entitled to a vacating of the automatic stay, pursuant to Code § 362(d), to enable it to obtain possession of the non-residential real property it leases to the Debtor?

DISCUSSION

The automatic stay is triggered by the filing of a bankruptcy petition and continues until certain property is no longer property of the estate and the earlier occurrence of the closing or dismissal of the case or the denial or granting of a discharge. Code §§ 362(a) and (c) and 541. Subject to certain exceptions, Code § 362(b), the stay operates to protect the debtor or the property of the estate from almost any type of formal or informal action. Code § 362(a). See also King, 2 COLLIER ON BANKRUPTCY ¶ 362.04 (15th ed. 1987); Bregman v. Meehan (In re Meehan), 59 B.R. 380, 382-383 (E.D.N.Y.1986). Thus, if the Court concludes that the Debtor has no possessory interest in the Cafe lease or that said lease is not property of the estate, the automatic stay does not affect it. This would be true regardless of whether the lease terminated pre or post-petition and would effectively render HRR's motion moot. Code §§ 541(b)(2) and 362(b)(10). See also Town of Islip v. Northeastern Int'l Airways, Inc. (In re Northeastern Int'l Airways, Inc.), 56 B.R. 247, 249 (S.D. Fla.1986).

The Court finds Code § 365(d)(4), which applies "in a case under any chapter of this title", dispositive of the instant motion. See In re Aneiro, 72 B.R. 424 (Bankr.S.D.Cal.1987); In re Adams, 65 B.R. 646 (Bankr.E.D.Pa.1986); In re Dulan, 52 B.R. 739 (Bankr.C.D.Cal.1985); In re Independence Village, Inc., 52 B.R. 715, 722 (Bankr.E.D.Mich.1985). See also Code § 1322(b)(7); In re Meehan, supra 59 B.R. at 382-383; 2 COLLIER, supra, ¶ 365.03 at 365-30 to 365-32. Contra In re Dodd, 73 B.R. 67 (Bankr.E.D.Cal.1987).

At this point in time, the Cafe lease is not property of the estate nor does the Debtor have any interest in it since it has been rejected by operation of law under Code § 365(d)(4). This occurred when the Debtor did not move to assume or reject it by October 9, 1987, sixty days after his Chapter 13 filing. Fed.R.Bankr.P. 6006. See also In re O.P. Held, Inc., 77 B.R. 388, 390-391 (Bankr.N.D.N.Y.1987).

Even if something less than a motion was required under Code § 365(d)(4), the Debtor's general statement in his original plan — the only "action" he took regarding the lease — did not constitute the clear, unequivocal, affirmative and specific act of assumption required. See By-Rite Distributing, Inc. v. Brierley (In re By-Rite Distributing, Inc.), 55 B.R. 740, 742 (D.Utah 1985). See e.g. In re O.P. Held, Inc., supra, 77...