In re Hirschhorn
| Decision Date | 07 July 1993 |
| Docket Number | Bankruptcy No. 190-14584-260,Adv. No. 193-1240. |
| Citation | 156 BR 379 |
| Parties | In re Peter J. HIRSCHHORN, Debtor. FELLERMAN AND COHEN REALTY CORP., Plaintiff, v. CLINICAL PLUS INC. and Dr. Peter J. Hirschhorn, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
COPYRIGHT MATERIAL OMITTED
Stangler, Edelman & Binder by Harold J. Stangler, Sachs & Kamhi by Gary Sachs, Carle Place, NY, for debtor.
Department of Justice, Office of U.S. Trustee by Alfred Dimino, Garden City, NY.
Kleinberg, Kaplan, Wolff & Cohen, P.C. by Monica L. Kaiser and David Parker, New York City, for Landlord.
DECISION
It is a well-known axiom that the bankruptcy laws are intended to be used as a shield and not as a sword. Shell Oil Co. v. Waldron, 785 F.2d 936, 938 (11th Cir.1986) (quoting In re Penn Cent. Trans. Co., 458 F.Supp. 1346, 1356 (E.D.Pa.1978)), cert. dismissed, 478 U.S. 1028, 106 S.Ct. 3343, 92 L.Ed.2d 763 (1986); In re Lee Road Partners, 155 B.R. 55, 64 (Bankr.E.D.N.Y.1993) (quoting Friarton Estates Corp. v. City of New York, 65 B.R. 586, 594 (Bankr. S.D.N.Y.1966)). This adversary proceeding presents a classic case in which a Debtor seeks to use the bankruptcy laws to smite his landlord. Such behavior will not be tolerated by this Court.
Dr. Peter Hirschhorn, the debtor in this case (the "Debtor" or "Hirschhorn"), is a podiatrist who, up to about two months ago, practiced out of an office in a professional and medical building of which the plaintiff in this adversary proceeding is the landlord. The Debtor has moved from this building to an office across the street where he has continued to practice as a podiatrist. The lease affecting his office in the medical center contains a non-compete clause which prohibits him from practicing podiatry within a six block radius for two years following the termination of the lease. The plaintiff-landlord commenced this adversary proceeding for an injunction to enjoin Hirschhorn from violating the non-compete clause and for damages and costs arising therefrom. The plaintiff also moved this Court on June 25, 1993, for a preliminary injunction which, after a hearing, was granted. Immediately following the granting of the motion and after hearing testimony proffered by the plaintiff and by the Debtor, this Court granted the permanent injunction. Subsequently, on June 28, 1993, this Court entered an Order directing Hirschhorn, within thirty days of the entry of the Order, to vacate the premises to which he had moved and to cease practicing podiatry in a six block radius as provided for by the non-compete clause.
This decision is intended to set forth the findings of fact which lead to this Court's conclusion granting the preliminary and the permanent injunction so as to assist any appellate tribunal to which the Debtor may appeal this decision in making its determination in the event such an appeal is taken.
Fellerman-Cohen Realty Corp. ("Fellerman-Cohen"), whose director and principal is Dr. Kenneth Fellerman ("Fellerman"), is in the business of managing and operating a medical office building complex located in the Bronx, New York (the "Complex").1 The Complex is occupied by a variety of different health care professionals including a gynecologist, pediatrician, dentist, oral surgeon, dermatologist, and until the Debtor's recent departure, a podiatrist.
On January 1, 1983, Fellerman-Cohen, entered into a Sublease Agreement (the "Sublease") with Clinical Plus, Inc. ("Clinical" or the "Tenant") whereby Fellerman-Cohen agreed to sublease office space (the "Premises") in its Complex to Clinical for use as a podiatry office. Clinical was a New York corporation whose president and sole shareholder was the Debtor. The Debtor also practices at a second office in Brooklyn, New York.
Paragraph 20 of the Sublease provides as follows: "This instrument may not be changed, modified, discharged or terminated orally." Sublease at 2 (Jan. 31, 1983).
An attached Rider to the Sublease, which is signed by Hirschhorn as president of Clinical, contains a non-compete clause in clause 11 which provides as follows:
11. Tenant and its officers, directors and shareholders shall not, during the term of this Sublease and for the two (2) year period beginning on the date of termination of this Sublease, own, operate, become employed by, lease, construct, render services to or for, become interested or purchase, directly or indirectly, a podiatry facility or practice within a radius of six (6) square blocks of the demised premises.
Rider to Sublease at 2-3 (Jan. 31, 1983).
A handwritten rider to the Sublease dated January 31, 1983, states as follows:
The undersigned and the tenant hereby agree that as to the clause # 8(b)2 they will indemnify the Landlord for reasonable legal fees not to exceed the sum of one thousand dollars ($1,000). It is further understood that the undersigned individual does not personally assume or guarantee the other terms and provisions of the lease.
Handwritten Rider to Sublease (Jan. 31, 1983).
This rider was signed by Fellerman on behalf of Fellerman-Cohen and twice by Hirschhorn, once as President of Clinical and once in his personal capacity.
Prior to January 1, 1990, Clinical was dissolved by operation of law for failure to pay New York State Franchise taxes. Following Clinical's dissolution, the Debtor continued to practice podiatry in the office and otherwise utilize the premises as provided for by the Sublease. He did not notify Fellerman that Clinical had been dissolved and was no longer in existence. However, almost from the inception of the Sublease, all monthly rental payments were made by Hirschhorn and not by Clinical.
On January 1, 1990, Fellerman-Cohen executed an extension of the Sublease until December 29, 1997. The extension was between Fellerman-Cohen and Clinical despite the fact that Clinical had been dissolved at this time. Thus, it is apparent that Hirschhorn was still concealing the demise of the corporation from Fellerman-Cohen.
The extension provided that the provisions of the Sublease remained in full force and effect except as modified. Paragraph 14 of the extension provided as follows: Sublease at 2 (Jan. 1, 1990).
On October 22, 1990, the Debtor filed its petition seeking relief under Chapter 11 of the Bankruptcy Code. Thereafter, by motion duly made pursuant to § 365(d)(4), the Debtor's time to assume or reject the subject Sublease and the Brooklyn lease were extended to March 22, 1991. Subsequently, upon further applications by the Debtor, seven additional extensions were granted ultimately extending the time to May 31, 1993. The Debtor justified these extension requests, in all but the first two applications, by asserting that he was embroiled in an adversary proceeding initiated in this Court by one of his creditors, National Union Fire Insurance Company of Pittsburgh, PA. ("National"), which sought the non-dischargeability of its debt as well as the denial of Hirschhorn's discharge. According to the Debtor, the outcome of this proceeding would determine the viability of the Debtor's reorganization.
On May 27, 1993, the Debtor, through its counsel, moved for its ninth extension for the Brooklyn office only. As before, counsel for the debtor cited the adversary proceeding with National as the reason why this extension was necessary. However, a stipulation settling that adversary proceeding had been approved by this Court on May 25, 1993, two days before Debtor's counsel sought the extension. Even more astounding was that counsel for the Debtor had signed the stipulation on May 17, 1993, a full ten days prior to seeking the extension.
On June 25, 1993, a hearing was held on Fellerman-Cohen's motion for a preliminary injunction. Having found that it had successfully shown 1) irreparable injury and 2) a likelihood of success on the merits or a sufficiently serious question going to the merits and a balance of hardships tipping decidedly in its favor as the moving party, Laureyssens v. Idea Group, Inc., 964 F.2d 131, 135 (2d Cir.1992); Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979), the Court granted the motion for a preliminary injunction. Pursuant to Fed.R.Bankr.P. 7065 which incorporates Fed.R.Civ.P. 65(a)(2), the court then held a consolidated hearing on the permanent injunction.
During the course of the hearing, the Debtor testified that the conditions at the Complex had been deteriorating, that it had become seedy, vermin infested and was in a state of disrepair (the roof leaked), until it was no longer satisfactory for a medical facility. He testified that he had discussed these complaints with Fellerman on many occasions.
The Debtor also testified that he had been attempting to leave the Complex for the last two years. It was his contention that having been given until May 31, 1993, to assume or reject the lease, he decided to reject it before that expiration date. He further testified that he therefore began negotiations to lease new office space directly across the street from the Complex on April 1, 1993. He admitted that he did not inform Fellerman, or this Court of those discussions. On April 15, 1993, he entered into a lease for the office space directly across the street from the Complex. As before, the Debtor did not inform Fellerman or this Court of that decision. When questioned about his actions, the Debtor proffered the incredulous story that the landlord of the new premises had told him on April 14, 1993 that he needed to see the Debtor right away. According to the Debtor's testimony, when he arrived at the landlord's office the next day, April 15, 1993, he was told by the landlord that if he wanted to move in, he had to sign the lease that day.3
The Debtor further testified that on or around April 17, 1993, he...
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