In Re New York Skyline Inc., Bankruptcy No. 09-10181 (SMB).

Decision Date21 June 2010
Docket NumberBankruptcy No. 09-10181 (SMB).,Adversary No. 09-1107 (SMB),09-1145(SMB).
Citation432 B.R. 66
PartiesIn re NEW YORK SKYLINE, INC., Debtor.Empire State Building Company L.L.C. and Empire State Building, Inc., Plaintiffs,v.New York Skyline, Inc., Defendant.New York Skyline, Inc., Plaintiff,v.Empire State Building Company L.L.C., Empire State Building, Inc. and Empire State Building Associates L.L.C., Defendants.
CourtU.S. Bankruptcy Court — Southern District of New York

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Stern Tannenbaum & Bell LLP, David S. Tannenbaum, Esq., Francine S. Nisim Esq., Karen S. Frieman, Esq., and Duane Morris LLP, Rudolph J. DiMassa, Esq., William C. Heuer, Esq., of Counsel, New York, NY, Attorneys for Empire State Building Company L.L.C., Empire State Building, Inc., and Empire State Building Associates L.L.C.

Backenroth Frankel & Krinsky, LLP, Mark Frankel, Esq., and Stewart Occhipinti, LLP, Charles A. Stewart, III, Esq., Frank S. Occhipinti, Esq., of Counsel, New York, NY, Attorneys for New York Skyline, Inc.

MEMORANDUM DECISION GRANTING IN PART AND DENYING IN PART CROSS-MOTIONS FOR SUMMARY JUDGMENT

STUART M. BERNSTEIN, Bankruptcy Judge.

At all relevant times, the debtor New York Skyline, Inc. (Skyline) has operated a simulator attraction called “SkyRide” (the “Attraction”) on the second floor of the Empire State Building (the Building) in New York City. The Empire State Building Company L.L.C. (ESBC) manages the Building, the Empire State Building, Inc. (ESBI) owns the leasehold for the observation decks located on the 86th and 102nd floors (collectively, the “Observatory”), and although the record is not entirely clear, it appears that the Empire State Building Associates L.L.C. (ESBA) owns the fee interest. ESBC, ESBI and ESBA are referred to collectively as “ESB.”

Skyline and ESB are parties to lease and license agreements dating back to 1993, which have been modified from time to time. These adversary proceedings concern a variety of disputes under those agreements. Among other things, Skyline seeks to rescind the latest modification entered into on May 27, 2005 (the May 2005 Agreement”), ( Affidavit of Francine Nisim, sworn to July 17, 2009 (“ Nisim Affidavit ”), Ex. I (ECF Doc. # 15)),1 and also challenges the method of computing the electricity charges that ESB is entitled to collect as additional rent.

ESB has moved pursuant to Rule 12(c) of the Federal Rules of Civil Procedure for judgment on the pleadings to dismiss the Third and Twelfth Claims for Relief asserted in Skyline's Second Amended Complaint, dated May 1, 2009 (“SAC”) (ECF Doc. # 5).2 ESB also seeks summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure dismissing the First, Third, Eleventh, Twelfth and Thirteenth Claims for Relief. Skyline has cross-moved for partial summary judgment declaring that the lease provision that governs the computation of electrical charges is ambiguous.

Skyline has represented that it is no longer pursuing the Thirteenth Claim for Relief, and that claim is dismissed. Although ESB's motion refers to the First Claim for Relief, its submissions do not discuss it, and that aspect of its motion is denied. For the reasons that follow, the balance of ESB's motion is granted in part and denied in part and Skyline's cross-motion motion is denied.

BACKGROUND
A. The Parties' Agreements

On or about February 26, 1993, ESB 3 and Skyline entered into a lease agreement (the “Original Lease”), ( Nisim Affidavit, Ex. A), and a license agreement (the “Original License”). ( Id., Ex. B.) The Original Lease and License permitted Skyline to occupy space on the second floor in the Building and operate the Attraction. The parties subsequently executed lease modification agreements on or about October 28, 1993, ( id., Ex. C), and February 8, 1994, ( id., Ex. D), and the latter expanded Skyline's leasehold premises to include space on the third floor.

In or about March 1996, ESB and Skyline entered into another lease modification, ( id., Ex. E), and license modification (the 1996 License Modification”). ( Id., Ex. F.) Although § 4 of the Original License included a provision under which ESB agreed to sell tickets to the Attraction at the Observatory ticket office, the 1996 License Modification greatly expanded its obligation to promote the Attraction. Among other things, ESB agreed to (1) instruct its employees to solicit Observatory ticket purchasers to purchase a ticket to the Attraction at the same time on a combination basis, (1996 License Modification at § 1.A), (2) include Attraction promotional materials in all written group sales solicitations, ( id. at § 1.B(i)), (3) provide Skyline with Observatory tickets under the most favorable terms and conditions offered to tour operators and wholesale purchasers who buy on a group sales basis, ( id. at § 1.D), (4) subject to restrictions, allow Skyline to reward Observatory employees based upon their sale of combination tickets and “the general demeanor of such employees in favorably depicting the Attraction,” ( id. at § 1.E), and (5) include information about the Attraction in any pre-recorded telephone message providing information to the public. ( Id. at § 1.G.)

The 1996 License Modification also granted Skyline expanded rights concerning signage. Under § 2, Skyline obtained the right, subject to ESB's written approval which it could not withhold unreasonably, to install four 32-inch video monitors in the 80th floor Observatory lobby staging area and the ticket sales office for the Observatory.

On or about December 30, 1999, and as part of a resolution of litigation between the parties, ESB and Skyline executed a Third Amendment of Lease, ( Nisim Affidavit, Ex. G), and a Second Modification of License Agreement. ( Id., Ex. H.) The latter did not alter the promotion obligations that ESB had undertaken in the 1996 License Modification. The Original Lease and License, as amended up to the adoption of the May 2005 Agreement, will be referred to as the Existing Lease and License.

B. The Events Leading Up To the May 2005 Agreement

Prior to April 2005, the ticket office for the Observatory was located in the concourse or basement level of the Building. The traffic flow from the ticket office to the Observatory was generally such that after visitors purchased tickets in the concourse, they (1) traveled up an escalator to the ground floor of the building in the 33rd Street corridor, (2) moved west down the corridor and (3) went up escalators located at the west end of the corridor (the “West Escalators”) to the second floor where they passed through security. After clearing security, visitors took the elevators to the Observatory. Visitors to Skyline also used the West Escalators to access Skyline's premises. Although the Original Lease provided that “Tenant shall have two entrances to the demised premises as indicated on the attached plans,” neither the Original Lease nor Original License, as modified, expressly provided that Skyline would have access to its premises through the West Escalators.

In April 2005, ESB moved the Observatory ticket office from the concourse to the second floor of the Building. Skyline did not contest its right to do so. The relocation of the Observatory ticket office resulted in a change in the traffic flow of the Building, and dramatically affected Skyline's operations. Visitors to the Observatory were now directed to enter the Building on Fifth Avenue, go up escalators located in the Fifth Avenue lobby to the second floor of the Building, and pass through security in the Observatory ticket office before entering the Observatory. In addition, although Skyline contends that its customers were always permitted to merge into the Observatory ticket holders' line, ESB was directing them to the end of the Observatory line and prohibiting them from merging into it.

The most significant issue concerned the West Escalators. Until April 2005, the Skyline customers traveled up the West Escalators to enter the Attraction. According to Skyline, this was the only means of ingress to its premises. When the new Observatory ticket office opened, ESB reversed the direction of the West Escalators. As a result, they only went down, and served solely as a means of exit for visitors to the Observatory and the Attraction.

The reversal of the West Escalators ignited litigation; one month later, Skyline commenced an action against ESB in the Supreme Court of New York, County of New York. Skyline sought inter alia, declaratory, injunctive and monetary relief relating to its alleged right to access its premises through the West Escalators under the Original Lease as well as at common law. ( Nisim Affidavit, Ex. M.) Skyline also sought a preliminary injunction regarding the reversal of the West Escalators, and obtained a temporary restraining order prohibiting ESB from reversing the West Escalators until a determination was made on Skyline's motion for a preliminary injunction. ( Id., Ex. N.) Prior to the hearing on that motion, the parties settled by executing the May 2005 Agreement, and stipulated to discontinue the action with prejudice. ( Id., Ex. P.)

C. The May 2005 Agreement

The May 2005 Agreement was intended to resolve the dispute that triggered the litigation as well as some other (but not all) disputes between the parties involving many of their rights and obligations under the Existing Lease and License. It included the following terms:

1. ESB and Skyline agreed to discontinue the May 2005 Action with prejudice, and the parties exchanged mutual releases.
2. ESB agreed to allow Skyline access to its premises through the West Escalators, and to allow Skyline's guests to merge into the line for the Observatory at a specific merger point and at a set rate.
3. Skyline agreed to install certain security measures and pay the cost of security guards in the annual amount of $335,000 (the “Security Fee”) so that its customers would
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