In re Ionosphere Clubs, Inc.
| Decision Date | 14 March 1990 |
| Docket Number | 89 B 10449 (BRL).,Bankruptcy No. 89 B 10448 (BRL) |
| Citation | 111 BR 436 |
| Parties | In re IONOSPHERE CLUBS, INC., Eastern Airlines, Inc., Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Hill & Barlow by Michael S. Greco, Bruce E. Falby and E. Randolph Tucker, Boston, Mass., Sp. Counsel, for debtors.
Weil, Gotshal & Manges by Laura M. Sillins, New York City, for debtors.
Ropes & Gray by John L. Bartenstein and Charles P. Normandin, Boston, Mass., for Mass. Port Authority.
Massachusetts Port Authority ("Massport") asks this Court to grant its summary judgment motion which arises out of its request for relief from the automatic stay imposed by Bankruptcy Code (the "Code") § 362(a). Specifically, Massport seeks an order declaring that the lease agreement (the "Lease") between Massport and Eastern Airlines, Inc. (the "Debtors" or "Eastern") expired by its terms on May 31, 1986, and that Eastern failed to exercise an option agreement dated October 9, 1959 (the "Option") to renew the Lease for an additional five (5) years and, therefore, that the Lease is not property of the estate. Massport further requests an order that requires Eastern to pay fair market rental value for use and occupation from and after the filing of the Chapter 11 case as a cost of administration, and for this Court to determine the amount of such use and occupation.1
In contrast, Eastern has cross-moved for summary judgment in its favor. Eastern seeks an order declaring that the Option was effectively exercised or, in the alternative, that Eastern should be granted equitable relief giving the estate an interest in the leased premises.
On March 9, 1989 (the ") Ionosphere Clubs, Inc. and Eastern filed for reorganization under Chapter 11 of the Code and were continued in the management, operation and possession of their businesses and properties as debtors-in-possession pursuant to §§ 1107 and 1108 of the Code. These cases have been consolidated for procedural purposes only and are being jointly administered pursuant to Orders of this Court.
The undisputed facts relevant to this controversy as described in the various Statements and Counterstatements filed pursuant to Rule 13(h) of the Local Bankruptcy Rules (the "13(h) Statements")2 submitted in conjunction with the cross-motions for summary judgment are as follows:
On or about April 17, 1958, Eastern and the Commonwealth of Massachusetts State Airport Management Board entered into a twenty-five (25) year lease agreement for a hangar and apron areas at Logan International Airport in Boston. Prior to the commencement of the Lease term, Massport succeeded to the rights and obligations of the Commonwealth of Massachusetts under the Lease. The Lease provided for Massport to construct a hangar and apron areas at a maximum cost not to exceed $3,500,000 and for Eastern to pay as rent during the lease term: (1) the complete cost of construction of the hangar and associated premises (not to exceed $3,500,000) amortized over the term of the lease; (2) interest on the unamortized balance; and (3) ground rent of $.06 per square foot per annum. The lowest bid to construct the facility specified a price greater than the expenditure called for in the Lease and because Massport did not have the extra funds available, Eastern agreed to provide the funding for construction costs in excess of $3,500,000 on the condition that it be given an irrevocable option to extend the Lease term for an additional five years. On or about October 9, 1959, Eastern and Massport entered into an agreement amending the Lease (the "Option") and as of March 20, 1961, Eastern had paid Massport $500,000 to fund construction costs to completion in excess of the $3,500,000 specified in the Lease. The Option granted Eastern an option:
to lease the Complete Hangar for a period of five (5) years commencing upon the expiration of the Present Lease, said Lease to be upon the same terms and conditions as the Present Lease except that the rental to be paid by Eastern to the Authority shall be at a rate to be negotiated at least six (6) months prior to the expiration of the Present Lease but in no event shall said rate be in excess of $120,000 per year.
The following procedure was specified for exercising the Option:
Said option may be exercised by written notice addressed to the Authority at its principal office in Boston and delivered or sent first-class, registered or certified mail at least one (1) month prior to the expiration of the term of the Present Lease.
The term of the Lease commenced on June 1, 1961 and was scheduled to expire on May 31, 1986. Eastern asserts that during the term of the Lease it spent up to $500,000 on repairs or improvements to the hangar.
In May, 1986, Philip B. Berger, an Eastern Properties Representative, sent a certified letter to William Coleman, Director of Massport, attempting to exercise the Option. Although Mr. Berger's letter was dated May 1, 1986, it was metered in Eastern's mailroom on May 6, hand-delivered to the United States Post Office in Miami on May 7, and received by Massport on May 9. Eastern has alleged that one of their representatives orally exercised the Option on March 26, 1986, and verbally confirmed this in a telephone conversation on April 30, 1986. Without conceding their accuracy, Massport disputes the conclusions to be drawn from these allegations.
Massport asserts that it notified Eastern by letter dated June 3, 1986, that the Option had not been timely exercised. Eastern disagrees with Massport's assertion characterizing the letter. Thereafter, the parties met on several occasions and exchanged numerous letters in an effort to resolve their differences over the matter, but were unable to do so. On or about February 2, 1989, Massport filed an action in the Massachusetts Superior Court seeking a declaratory judgement that Eastern had not properly exercised its option to renew the Lease and for damages representing back rent. The Superior Court action was stayed by the filing of this Chapter 11 case on March 9, 1989.
I. Whether Eastern validly exercised its Option.
II. If the Option was not validly exercised, whether Massport waived its right to rely on that failure.
III. If Eastern had not validly exercised its Option, whether Eastern is nevertheless entitled to equitable relief.
Under 28 U.S.C. §§ 157 and 1334 and the "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York (Ward, Acting C.J.) dated July 10, 1984, this Court has jurisdiction over Massport's Motion and Eastern's Cross-Motion. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G).
Pursuant to Rule 56 of the Federal Rules of Civil Procedure (the "Federal Rules"), as adopted in bankruptcy proceedings under Bankruptcy Rule 7056, summary judgment must be granted where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Federal Rule 56(c). "Summary judgment . . . is an extraordinary remedy which should be granted with great caution. . . ." In re Overmyer, 52 B.R. 111, 114 (Bankr.S.D.N.Y.) motion to amend denied, 53 B.R. 952 (S.D.N.Y.1985); Katz v. Goodyear Tire and Rubber Co., 737 F.2d 238, 244 (2d Cir.1984). Summary judgment "is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986) (quoting Federal Rule 1). Summary judgment is appropriate where the movant demonstrates that there are no genuine issues of material fact to be tried. In re O.P.M. Leasing Services, Inc., 46 B.R. 661, 665 (Bankr.S.D.N.Y. 1985). Thus, "only dispute over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Ambiguities must be resolved and all reasonable inferences must be drawn in favor of the party against whom summary judgment is sought. Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 10-11 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987); Schiess-Froriep Corp. v. S.S. Finnsailor, 574 F.2d 123, 126 (2d Cir.1978).
The court must go beyond the mere pleadings of the parties, by examining all of the admissible evidence set forth in the papers and considering all inferences reasonably deducible from such evidence, in determining whether there are any genuine issues of material fact which would necessitate a trial. In re Esposito, 44 B.R. 817, 821 (Bankr.S.D.N.Y.1984); Schwabenbauer v. Board of Education, 667 F.2d 305, 313 (2d Cir.1981); George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 554 (2d Cir.1977); United States v. Matheson, 532 F.2d 809, 813 (2d Cir.), cert. denied, 429 U.S. 823, 97 S.Ct. 75, 50 L.Ed.2d 85 (1976).
The submissions of the parties establish a sufficient record to enable this Court to grant the essential relief requested in Massport's motion for summary judgment.
Paragraph 6 of the Option incorporates by reference Article XIX(f) of the Lease and provides: "This Lease shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts."3
The Court of Appeals for the First Circuit has recently summarized the law of Massachusetts concerning the exercise of options as follows:
Under Massachusetts law: "An option, being unilateral in its nature, and likely to be exercised...
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