In re Okan's Foods, Inc.

• Decision Date: 06 March 1998
• Docket Number: Bankruptcy No. 95-10044SR,Adversary No. 97-029,97-687.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania
• Parties: In re OKAN'S FOODS, INC., Debtor. OKAN'S FOODS, INC., Plaintiff, v. WINDSOR ASSOCIATES LIMITED PARTNERSHIP, Edward S. Brown, Brean Corp., and Oakwood Corporate Housing, Inc., Defendants. OKAN'S FOODS, INC., Plaintiff, v. R & B DEVELOPMENT CO., d/b/a R & B Apartment Mgt. Co., d/b/a R & B Realty Group, d/b/a Oakwood Corporate Housing, Inc., d/b/a Oakwood Mgt. Co., Defendants.

217 B.R. 739 (1998)

In re OKAN'S FOODS, INC., Debtor.

OKAN'S FOODS, INC., Plaintiff, v. WINDSOR ASSOCIATES LIMITED PARTNERSHIP, Edward S. Brown, Brean Corp., and Oakwood Corporate Housing, Inc., Defendants.

OKAN'S FOODS, INC., Plaintiff, v. R & B DEVELOPMENT CO., d/b/a R & B Apartment Mgt. Co., d/b/a R & B Realty Group, d/b/a Oakwood Corporate Housing, Inc., d/b/a Oakwood Mgt. Co., Defendants.

Bankruptcy No. 95-10044SR, Adversary Nos. 97-029, 97-687.

United States Bankruptcy Court, E.D. Pennsylvania.

March 6, 1998.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Maurice Mitts, Middleman & Mantour, P.C., Philadelphia, PA, for Plaintiff.

Timothy A. Gallogly, Philadelphia, PA, for Defendants.

Frederic J. Baker, Philadelphia, PA, U.S. Trustee.

OPINION

STEPHEN RASLAVICH, Bankruptcy Judge.

Introduction:

Before the Court is a motion for partial summary judgment filed by debtor/plaintiff Okan's Foods, Inc., d/b/a the Peacock on the Parkway (the "Debtor"). By means of the instant motion the Debtor seeks judgment in its favor on Count I of the Complaint which underlies adversary proceeding 97-029. Also before the Court is a cross motion for summary judgment filed by the defendants in the foregoing adversary proceeding — Windsor Associates Limited Partnership ("Windsor, LP"), Edward S. Brown ("Brown"), Brean Corp. ("Brean"), and Oakwood Corporate Housing, Inc. ("Oakwood")(collectively the "Defendants") — who request judgment in their favor on Count I. The Court held a hearing on the motions on December 8, 1997, after the conclusion of which, both matters were taken under advisement. The motions were submitted for final decision on January 5, 1998, after the Court received post hearing memoranda of law from the parties. For the reasons which are more fully stated below, the Debtor's motion is denied and the Defendants' cross motion is granted. Summary judgment, therefore, will be entered in favor of the Defendants and against the Debtor on Count I of the Complaint.

JURISDICTIONAL STATEMENT

The Court has jurisdiction over the parties and subject matter of the instant core proceeding pursuant to 28 U.S.C. § 1334; 28 U.S.C. § 157(a), § 157(b)(1) and § 157(b)(2)(A) and (O).

BACKGROUND

The Debtor is the owner of a restaurant known as the Peacock on the Parkway, located on the first floor and mezzanine level of the Oakwood Apartments at The Windsor (the "Windsor"), 1700 Benjamin Franklin Parkway, Philadelphia Pennsylvania. Windsor, LP is the record owner of the Windsor real estate. On or about November 22, 1993 the Debtor and Windsor, LP entered into a Retail Lease (the "Lease") for the commercial space at the Windsor which the Debtor's restaurant occupies (the "Premises").¹ The Debtor was represented by legal counsel in the foregoing transaction.

The Premises was formerly occupied by Continental Bank and was not outfitted for use as a restaurant at the time that the Lease was signed. While it is not disputed that the Debtor performed work on the Premises to convert it from its former use as a bank and to make it ready for use as a restaurant, the amount of the Debtor's expenditures for such work is contested by Windsor. The actual amount of the Debtor's expenditures, however, is not material to the matters presently before the Court.

The Debtor's restaurant opened for business in August, 1994. Although the restaurant's success prior to the filing date of the Debtor's bankruptcy petition constitutes a matter of dispute between the parties, see Amended Answer to Complaint, ¶¶ 14 and 16; Defendants' Response and Cross Motion, ¶¶ 6 and 7, it is not disputed that as of the petition date the Debtor was two months behind on its rent payments under the Lease, and four months behind on its obligation to pay both use and occupancy taxes and certain utilities bills. See Defendants' Response and Cross Motion, Exhibits 4 and 11, at ¶ 7. As will be discussed infra, the relative success or failure of the Debtor's business prepetition, as well as the actual amount of the Debtor's prepetition payment arrears under the Lease, are not material to the matters sub judice.

Of particular relevance to the instant matters are the uncontested material facts which follow. By letter dated December 20, 1994, Windsor notified the Debtor that it was in default under the Lease for failing to pay both rent for November and December 1994 ($8,075.84), and use and occupancy taxes from July 1994 through December 1994 ($701.40). The letter also informed the Debtor that Windsor, LP intended to pursue legal remedies against the Debtor, including confession of judgment and execution, if payment in full of the foregoing overdue amounts was not made within three days of the date of the letter. See Defendants' Response and Cross Motion, Exhibit 15. On December 27, 1994, Windsor, LP confessed judgment against the Debtor for: 1) the liquidated amount of $198,261.87; and 2) possession of the Premises. The money judgment Windsor, LP confessed against the Debtor consisted of: $8,075.84 for outstanding rent for November and December 1994, and unpaid use and occupancy taxes for the period July through December 1994; $403.79 for attorneys' commission; and $189,782.24 for accelerated rent due under the Lease for the period January, 1995 through November 30, 1998. See Debtor's Motion for Partial Summary Judgment, Exhibit 1-B. The Defendants admit that Brown signed the affidavits that supported entry of the foregoing judgments by confession.² See Amended Answer, ¶ 16.

Also on December 27, 1994, Windsor, LP caused to be issued and delivered to the Philadelphia County Sheriff: 1) a writ of execution to levy on the Debtor's personal property at the leased premises and to attach, inter alia, all of the Debtor's bank accounts at CoreStates Bank; and 2) a writ of possession authorizing the Sheriff to seize possession of the leased Premises. On December 29, 1994, the Sheriff served the writ of execution on CoreStates Bank. Thereafter, on January 3, 1995, CoreStates Bank notified the Debtor that it had been served with a writ of execution and interrogatories in aid of attachment, and that the Bank had placed a total restraint on the Debtor's checking accounts — account numbers XXXXX-XXXXX, XXXXX-XXXXX and XXXXX-XXXXX. The Bank also informed the Debtor that as a result of the execution it had withdrawn $1,064.06 from the Debtor's account and applied those funds against the Debtor's outstanding loan balance with the Bank. On December 30, 1994, the Sheriff served the writ of execution upon the Debtor and levied upon certain contents of the leased Premises. See Debtor's Motion for Partial Summary Judgment, Exhibit 1-G. The writ of possession was also served on the Debtor on December 30, 1994. See id., at Exhibit 2, pp. 68-71 and attachments 4, 4A and 6A. Apart from the contents of its letter to the Debtor dated December 20, 1994 (notice of default under the Lease and of Windsor, LP's intent to pursue legal remedies, including confession of judgment and execution), Windsor, LP did not provide the Debtor with notice prior to the issuance of any of the foregoing execution. Windsor, LP posits, however, that the Debtor waived such notice pursuant to the terms of paragraph fourteen of the Lease.³

The Debtor filed a petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Code"), 11 U.S.C. §§ 101-1330, on January 4, 1995. The automatic stay imposed by Code § 362(a) upon the filing of the petition prevented Windsor, LP from completing execution on its judgments. See, e.g., 42 Pa.R.Civ.P. 2958 (rescinded April 1, 1996, effective July 1996); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1263 (3d Cir.1994) (absent a discretionary stay of execution, a plaintiff executing on a judgment may seize property that has been attached twenty days after the date the prothonotary originally mailed notice of entry of the confessed judgment to the judgment debtor). Five days later (on January 9, 1995), the ink on the petition barely dry, Windsor, LP, filed a motion captioned "Motion to Compel Surrender of the Premises, Rejection of the Lease and for Relief from Stay." A hearing on the motion was held on February 9, 1995, whereupon it was reported to the Court on the record that the Debtor consented to the entry of an order granting relief from stay, but that issues with respect to rejection of the lease had not been discussed by the parties. See Transcript of hearing of February 9, 1995, at p. 2. The form of order attached to Windsor, LP's motion was signed by the Court after striking out certain provisions therein pertaining to rejection of the Lease and vacation of the Premises by the Debtor. The Order, dated February 9, 1995, stated, inter alia, that: "it is hereby ORDERED and DECREED that the stay is modified and that Windsor may proceed with all available state court remedies to regain possession of the premises."

Later that day, Windsor, LP and the Debtor reached an agreement which provided, inter alia, that Windsor would forbear from exercising its state court remedy of eviction against the Debtor, conditioned on the Debtor timely making certain payments to Windsor. The agreement further provided that in the event the Debtor failed to make any of the prescribed payments on the dates specified, Windsor would be permitted to immediately, and without further notice, evict the Debtor from the Premises. The foregoing agreement was memorialized in a letter dated February 10, 1995, see Defendants' Response and Cross Motion, Exhibit 11, which was signed by counsel for Windsor, LP and countersigned by counsel for the Debtor.

On May 3, 1995, Windsor, LP caused the writ of possession for the Premises to be reissued by the Prothonotary. The next day, on May 4, 1995, Windsor, LP filed a Motion to Compel Surrender of Premises, Rejection of the Lease, and for Relief from Stay in which it alleged, inter alia, that the Debtor failed to move to assume the...