In re Kong
| Decision Date | 27 December 1993 |
| Docket Number | Bankruptcy No. 193-12815-260. |
| Citation | 162 BR 86 |
| Parties | In re Sok Jun KONG and Ki Hwa Kong, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
COPYRIGHT MATERIAL OMITTED
Randy A. Dusek, New York City, for debtors.
Robert G. Del Gadio by A. Jeffrey Spiro, Uniondale, NY, for Getty Petroleum Corp.
Office of the U.S. Trustee by Alfred Dimino, Garden City, NY.
DECISION
Getty Petroleum Corp. ("Getty") moved this Court for an order dismissing the Debtors' Chapter 13 Petition prior to its conversion to its present Chapter 11 status,1 or in the alternative, directing Sok Jun Kong (hereinafter referred to as "Sok"), one of the Debtors herein,2 to pay postpetition rent and post rent security, or further in the alternative, lifting the automatic stay under section 362 in order to continue a State Court action for non-payment of rent pursuant to a certain lease agreement entered into between Getty and Sok. In addition, Getty seeks the costs, expenses, and reasonable attorney's fees associated with its motion and for such other and further relief as this Court deems just and proper. The motion in its entirety has gone forward in this Chapter 11 case. The Debtors have cross-moved seeking to have the relief sought by Getty denied. The relationship between Getty, Sok, and the remaining Debtor Ki Hwa Kong and the rights and obligations as between Getty and said Debtors are hereafter spelled out in greater detail. For the reasons hereinafter set forth, Getty's motion is granted in part3 and the Debtors' cross-motion is denied.
On January 11, 1977, Power Test Petroleum Distributors, Inc. ("Power Test"), a wholly-owned subsidiary of Getty, entered into a lease as Tenant ("Lease I") with regard to premises known as 163-10 Pidgeon Meadow Road, Queens, New York (the "Premises"). At that time, the Premises were owned by Anne N. Albert and Sylvia A. Fieber, (the "Landlords"). Subsequently, Anne N. Albert was succeeded by Norman A. Fieber.
Lease I was to commence as of April 1, 1977, for an initial period of ten years, with Power Test having two consecutive options to renew, each for an additional five year term. The lease provided for a stated rent of $8,100.00 per year for the first five years and $8,220.00 per year for the second five years. In the event Tenant exercised its option to renew, the stated rent was to be $9,300.00 and $11,100.00 per annum, respectively for the first and second five-year options. It further provided that in order to exercise its option to renew, Power Test had to notify the Landlords in writing at least ninety days prior to the expiration of the preceding term. Such notice would be sufficient if made by personal delivery, telegraph or mailed to the Landlords at the address listed in the lease.
Lease I was drafted by Power Test and, as signed by the parties, contained various handwritten deletions and additions including the deletion of paragraph 11, titled "Assignment and Subletting," which provided as follows:
Landlord consents that Tenant may assign or sublet the premises, provided that Tenant shall remain liable to Landlord for the performance of all the terms hereof.
On February 1, 1985, Power Test entered into a sublease agreement4 with Getty whereby Power Test leased to Getty all the real property Power Test was leasing as of that date and all properties thereafter leased by Power Test as tenant. Annexed to the agreement was a list of all properties then leased by Power Test, which included the subject Premises.
On May 22, 1986, Sok entered into a Retail Gasoline Station Lease Agreement ("Lease II") as Tenant, with Getty as the Landlord, for the purpose of operating a gasoline service station on the Premises. From that time, Sok has been the proprietor of said gasoline station.
Power Test exercised its first option to renew Lease I on December 29, 1986 by letter addressed to Norman A. Fieber and Sylvia A. Fieber, extending the lease to March 31, 1992.
On March 9, 1988, Power Test was given notice that the Premises were conveyed to the Debtors herein subject to the terms and conditions of Lease I. Thus, as of that date, the Debtors were the owners/lessors of the Premises with Power Test as the lessee and Getty as the sublessee, while at the same time Sok was the sublessee of the subleased Premises with Getty as the sublessor.
Thereafter, on August 28, 1990, Sok renewed Lease II to run from January 1, 1991 to March 31, 1992 at a monthly base rent of $4,000.00. In addition, Lease II required Sok to (1) continuously operate the Premises as a Gasoline Station for a minimum of eighteen hours per day, seven days a week and (2) purchase from Getty a minimum of 32,000 gallons of gasoline per month. Sok was required to pay, as additional rent, $.06 per gallon for any difference between the minimum purchase requirement and the amount actually purchased.
On October 18, 1991, Power Test exercised its second option to renew, extending Lease I to March 31, 1997, by certified mail, return receipt requested, addressed to the Debtors at the address listed in Lease II. This letter was returned unclaimed and thereafter resent on November 12, 1991, by regular mail.
On March 10, 1993, Getty, as sublessor, commenced a non-payment action against Sok, as sublessee, in the Civil Court of the City of New York for failure to make rent payments pursuant to Lease II seeking a judgment in the amount of $30,223.505 plus attorney's fees and interest from October 1, 1992.6
The Debtors filed for relief under Chapter 13 of the Bankruptcy Code on April 5, 1993. Subsequently, on ex-parte application of the Debtors, the Chapter 13 case was converted, by order of this Court dated April 12, 1993, to a case under Chapter 11.
As hereinabove set forth, on April 9, 1993, Getty moved this Court while the Chapter 13 case was still pending, to dismiss it or in the alternative, directing Sok to pay postpetition rent and post rent security, or further in the alternative, lifting the automatic stay under section 362 in order to continue a State Court action for non-payment of rent pursuant to a certain lease agreement entered into between Getty and Sok. In addition, Getty seeks the costs, expenses, and reasonable attorney's fees associated with its motion and for such other and further relief as this Court deems just and proper. After a hearing, this Court signed an order, dated April 21, 1993, directing Sok to pay, pursuant to Lease II, postpetition rent in the amount of $4,000.00 per month to Getty, subject to further order of the Court. Thereafter, on July 6, 1993, the Debtors, as landlords of the Premises, filed their cross-motion to Getty's motion hereinabove referred to. In essence, the effect of the cross-motion was aimed at rejecting Lease I.
In response to the Debtors' cross-motion, Getty produced the Affidavit of Samuel M. Jones, Vice President and General Counsel of Getty sworn to July 16, 1993, stating that 1) Power Test is a wholly-owned subsidiary of Getty; 2) Sok established a franchise relationship with Getty upon the signing of Lease II; and 3) Power Test continued to make its rent payments to the Debtors pursuant to Lease I with funds provided by Getty.
Getty also produced copies of the "Sublease Agreement" between Power Test and Getty and contends that the fact that the assignment and subletting paragraph of Lease I was crossed out does not imply a restriction on Power Test and absent an express restriction to the contrary, a tenant, such as Power Test, has the absolute right to assign its lease or to sublet the premises leased to it. Thus, Getty argues that in the absence of an express restriction against assignment or subletting, it had the right to do so. In addition, it contended that Power Test, utilizing funds provided by Getty, continued to make and the Debtors continued to accept the rent payments due under Lease I certainly up to the date of said affidavit of Samuel M. Jones. However, Sok is in default under Lease II. Accordingly, Getty maintains that it has an unsecured claim against Sok by virtue of the sublease between Power Test and Getty and Lease II.
Sok defaulted on the postpetition payments due pursuant to this Court's Order, dated, April 21, 1993, and on September 7, 1993, the automatic stay was lifted, enabling the parties to proceed with their landlord and tenant action in the State Court on Lease II. In a decision dated December 7, 1993, the Civil Court of the County of Queens, found that "the various defenses raised by the respondents Sok are without merit." After trial, the court found that "based upon credible evidence," Getty is owed the sum of $67,876.98 for the period from March 17, 1993 to November 30, 1993 less the $8,443.52 held by Getty as security. The court further found that Getty is entitled to recover the sum of $10,000.00 as reasonable attorney's fees.
The Debtors' petition and schedules do not list Getty or Power Test as creditors. However, Lease I and Lease II are listed on Debtors' Schedule G as "Executory Contracts," which the Debtors allege were breached by Power Test and Getty on the grounds that the provision allowing Power Test to assign or sublet was stricken from Lease I, and therefore, Lease I could not be assigned or sublet to Getty.
The Debtors' cross-motion argues that Getty is not a party in interest because it was Power Test that entered into Lease I, not Getty, and in the alternative that even if Power Test's sublet to Getty was appropriate, Getty failed to properly exercise the second option to renew. In support of their cross-motion, Debtors contend that Power Test breached Lease I prepetition by its sublease to Getty because Lease I did not contain a provision allowing assignment or subletting. Although Debtors' papers are unclear, as appears from the above the cross-motion is apparently an effort to reject Lease I and terminate Getty's leasehold interest.
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