In re Newbury Operating LLC
| Decision Date | 25 March 2021 |
| Docket Number | Case No. 20-12976-JLG |
| Parties | In re: NEWBURY OPERATING LLC, Alleged Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
APPEARANCES:
CULLEN AND DYKMAN LLP
100 Quentin Roosevelt Boulevard
Garden City, New York 11530
By: C. Nathan Dee, Esq.
Elizabeth M. Aboulafia, Eq.
ROSEN & ASSOCIATES, P.C.
Counsel for 250 E. 87 Owners Corp.
747 Third Avenue
New York, New York 10017
By: Sanford P. Rosen, Esq.
Paris Gyparakis, Esq. JAMES L. GARRITY, JR. United States Bankruptcy Judge:
Introduction
As of December 28, 2020 (the "Petition Date"), Newbury Operating LLC ("Newbury" or the "Alleged Debtor") was operating an "Icon Parking" branded parking garage (the "Garage") in a building located at 250 E. 87th Street, New York, New York. It had not paid rent to its landlord, 250 E. 87 Owners Corp. (the "Landlord"), since April 2020 and the Landlord was seeking the appointment of a Receiver in the State Court Action (defined below) that the Landlord had commenced against Newbury in October 2020. That day, the Landlord, as the sole petitioning creditor, commenced this case by filing an involuntary petition under chapter 7 of the Bankruptcy Code (the "Involuntary Petition") against Newbury in this Court. In this motion (the "Motion"),1 Newbury asks the Court (i) to dismiss the Involuntary Petition, with prejudice, pursuant to sections 303(h), 305(a) and 707 of the United States Bankruptcy Code, 11 U.S.C. § 101, et seq, as amended (the "Bankruptcy Code"), or, alternatively, (ii) to abstain from consideration of the Involuntary Petition pursuant to section 305(a) of the Bankruptcy Code and/or exercise its discretion to permissively abstain from hearing the involuntary case pursuant to Judiciary Code section 1334(c). Newbury also asks the Court to award it the attorneys' fees and related costs that it has incurred in this case. The Landlord opposes the Motion (the "Opposition").2
This is essentially a two-party case as the Landlord holds over 98% of the debt in the case, and the Alleged Debtor's two ordinary course creditors have taken no action in the case. For the reasons set forth below, the Court grants the Motion and dismisses the case pursuant to sections 707 and 305(a) of the Bankruptcy Code. The Court denies the Alleged Debtor's request for relief under 28 U.S.C. § 1334(c) and its request for an award of its attorneys' fees and costs incurred herein.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1) and the Amended Standing Order of Reference dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).
In 2013, Newbury took possession of the Garage pursuant to a twelve-year lease agreement with the Landlord dated December 31, 2012 (the "Lease"). Newbury is an affiliate of Icon Parking. As of the Petition Date, it was operating the Garage as an "Icon Parking" branded parking garage. Smith Decl. I ¶ 2. Icon Parking operates parking garages throughout New York City. In the ordinary course of business, it manages and provides administrative services to its affiliates, including Newbury. In operating its business, Icon Parking utilizes a centralized and integrated cash management system which provides established mechanisms for the collection, management, and disbursement of funds used in the operation of the parking garage entities. Smith Decl. II ¶ 4. Under that system, Newbury reflects the collection and disbursement of funds that it generates in the operation of the Garage in its books and records and maintains a bankaccount into which it deposits parking fees. Id. ¶ 5. Each day, Icon Parking sweeps the funds deposited into that account (and the accounts of all of its affiliates) into an Icon Parking-managed account (the "Paymaster Account") out of which it pays the following categories of costs on behalf of Newbury and all affiliated Icon Parking garage entities: (i) employee payrolls, (ii) general and administrative expenses, (iii) rent, and (iv) all other operating costs associated with the operation of the parking garages. Id. ¶¶ 5-6. Among the management and administrative services that Icon Parking provides to Newbury and affiliates, is that Icon Parking obtains letters of credit for the benefit of the garage operators and provides insurance coverage to their subsidiaries and their employees. Id. ¶ 6. The six employees who worked for Newbury at the Garage are members of the Garage Employees Union Local No. 272. Icon Parking is responsible for paying their union benefits and dues on Newbury's behalf. Smith Decl. I ¶ 2.
The Lease calls for Newbury to pay the Landlord base rent in the amount of $73,958.33 per month, as well as additional rent, defined as, "all sums other than base rent, including late charges, tax escalation, service charges, interest, [and] any other costs." Pretsfelder Aff., Ex. 1.3 Prior to the onset of the COVID-19 pandemic in March 2020, Newbury made its monthly Lease payments without exception. However, Newbury ceased paying its rent in April 2020, notwithstanding that it continued to operate the Garage and collect the associated revenue, including parking fees from its 220 monthly customers. Id. ¶ 11. All attempts by the Landlord to collect the outstanding debt against Newbury proved to be futile, and on October 14, 2020, the Landlord commenced a civil action against Newbury (the "State Court Action") in the New York County Supreme Court (the "State Court"). Id. ¶ 5. On October 21, 2020, the Landlord drew down on a letter of credit in the amount of $196,875.00, that it was holding as security under the Lease, thus reducing the arrearagesdue to it under the Lease. Thereafter, the letter of credit issuing bank demanded and obtained reimbursement from Icon Parking for such sums. Smith Decl. I ¶ 8. The Landlord subsequently served Newbury with a Notice of Default under the Lease dated October 22, 2020 (the "Default Notice"). Among other things, the notice provided until November 6, 2020, for Newbury to cure the default by tendering the then outstanding rent in the amount of $591,369.77. Pretsfelder Aff. ¶ 6, Ex. 3. Newbury failed to cure the default and, on or about November 9, 2020, the Landlord served it with a Notice of Termination (the "Termination Notice"). That notice advised Newbury that the Lease would be terminated effective November 16, 2020. Id. ¶ 7, Ex. 4.
Newbury took no action in response to the Default and Termination Notices, and on November 30, 2020, the Landlord moved by order to show cause in the State Court Action for the appointment of a Receiver with the authority to retain a parking garage operator to operate the Garage and collect the fees generated therefrom. Pretsfelder Aff. ¶ 8, Ex. 5. On December 11, 2020, Newbury filed an answer to the initial complaint in the State Court Action denying all substantive allegations. The Landlord rejected the answer as untimely. Id. ¶ 9. On December 22, 2020, Newbury opposed the motion for the appointment of a Receiver. The State Court scheduled a hearing on the motion for January 12, 2021. The commencement of this involuntary case on December 28, 2020 automatically stayed the Landlord's prosecution of the State Court Action. By letter dated January 4, 2021, counsel for the Landlord in the State Court Action informed the state court of the bankruptcy case and requested all aspects of the litigation be stayed pending the resolution of the bankruptcy. Motion, Ex. 3. See also Smith Decl. I ¶ 12.
On January 8, 2021, the Landlord filed a motion herein (the "Trustee Motion"), on an emergency basis, seeking the appointment of an interim chapter 7 trustee in the case pursuant to section 303(g) of the Bankruptcy Code and Rule 2001 of the Federal Rules of BankruptcyProcedure.4 In support of the motion, the Landlord asserted that Newbury had operated the Garage since April 2020, without tendering the rent due and owing under the terms of the Lease, but, nonetheless, through the cash sweeps, had systematically disbursed its operating income to related entities for no consideration. Pretsfelder Aff. ¶¶ 3-4. The Landlord argued that the Court should appoint a chapter 7 trustee to secure Newbury's books and records and investigate and pursue avoidable and fraudulent transfers and breach of fiduciary duty claims against Newbury, Icon Parking and its affiliates, for the benefit of all parties in interest. On February 9, 2021, the parties submitted a stipulation resolving the Trustee Motion (the "Trustee Stipulation").5 In substance, pursuant to that stipulation, the parties agreed that pending resolution of the Motion, Icon Parking would not sweep cash from Newbury's operating account to the Paymaster Account, Newbury would pay ordinary course operating expenses incurred in operating the Garage (other than the rent), and Icon Parking would return to Newbury's account any funds that it swept from that account to the Paymaster Account after December 29, 2020. Trustee Stipulation ¶¶ 1-2. The parties also agreed that to the extent the Court enters an order for relief herein, all funds then on deposit in Newbury's bank account shall constitute property of its bankruptcy estate. Id. ¶ 3.
Effective February 28, 2021, Newbury ceased operating, surrendered the Lease to the Landlord, and vacated the Garage.
Newbury asserts that in the wake of the onset of the pandemic it experienced a precipitous decline in its revenue that impaired its ability to pay its operating expenses, including rent under the Lease. Smith Decl. I ¶¶ 3-5. In the nine months preceding the Petition Date, Newbury remained current on all its obligations in operating the Garage, save for the payment of rent. As of the Petition Date, Newbury owed the Landlord approximately $655,884 on account...
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