In re PCH Associates
| Decision Date | 15 May 1986 |
| Docket Number | No. 86 Civ. 392 (CHT).,86 Civ. 392 (CHT). |
| Citation | 60 BR 870 |
| Parties | In re PCH ASSOCIATES, f/k/a Simon Associates, Debtor. LIONA CORPORATION, N.V., Appellant, v. PCH ASSOCIATES, Appellee. |
| Court | U.S. District Court — Southern District of New York |
Winick & Rich, P.C., New York City, Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pa. (Jeffery N. Rich, New York City, Michael L. Temin, Patrick Matusky, Philadelphia, Pa., of counsel), for appellant.
Gelberg & Abrams, New York City (Marc S. Kirschner, Darren H. Goldstein, of counsel), for appellee.
This is an appeal from an order of the bankruptcy court, Lifland, J., holding that the instant parties, PCH Associates ("PCH") and Liona Corporation ("Liona") are joint venturers. The only question presented for review is whether the transaction at issue here created a landlord/tenant relationship between the parties or a joint venture. The Court affirms the bankruptcy court's decision for the reasons set forth below.
The facts of this case are set forth at length in the bankruptcy court's opinion, and will not be repeated here. See 55 B.R. 273, 274-75. A few pertinent facts will suffice.
PCH owns and operates the Philadelphia Centre Hotel ("hotel") in Philadelphia and, prior to 1981, PCH held title to both the hotel and the land upon which it is situated.1 In 1981, PCH and Liona entered into a "Sale-Leaseback Agreement" ("Agreement") and a "lease" ("Ground Lease"), whereby Liona purportedly purchased the land upon which the hotel is situated, and PCH agreed to lease the land back from Liona.
In 1984, PCH filed a petition for reorganization under the bankruptcy laws,2 and, since that date, has operated the hotel as a debtor-in-possession.3 Liona filed an application with the bankruptcy court pursuant to Code §§ 365(d)(3) and (4) seeking an order directing PCH to continue paying rent to Liona according to the terms of the Ground Lease.4 PCH subsequently instituted an adversary proceeding seeking a determination that the transaction between Liona and PCH constituted a joint venture, rather than a true sale and leaseback arrangement. The bankruptcy court considered the actions together.
After a five day hearing, the court concluded that the parties intended to create a joint venture, and that the documents at issue did not constitute a true contract of sale or a true lease. See 55 B.R. at 283. The court therefore concluded that, as a joint venturer and absent a true lease, Liona was not entitled to collect rent from PCH under Code § 365. Liona now appeals that decision.
Liona contends (1) that this action is not a "core" proceeding as defined by the bankruptcy laws, and therefore is subject to de novo review by the district court; and (2) that the determination of whether there is a joint venture is a question of law, not fact, and therefore is fully reviewable on appeal. Both arguments are without merit.
Core proceedings are statutorily defined as including actions for the "allowance or disallowance of claims against the estate." 28 U.S.C. § 157(b)(2)(A). In this instance Liona asserted a claim for rent against the estate. As previously noted, Liona asked the bankruptcy court to direct PCH to perform its obligations under the Ground Lease as required by Code §§ 365(d)(3) and (4). In order to determine PCH's obligations, the court first had to determine whether, in fact, a true lease existed for the purposes of Code § 365. Since the case at bar involves a claim against the estate and the claim arose under the Code, it is clear that this case is a core proceeding and must be reviewed as such.
Liona also argues that this issue involves a question of law, and is therefore fully reviewable by the court. PCH contends that the bankruptcy court's decision was based on findings of fact concerning the parties' intentions and, therefore, the court's decision cannot be set aside unless it is clearly erroneous. After a careful review of the record, the Court is convinced that the decision should be affirmed under either standard of review.
Although it is not necessary to decide whether the de novo standard or the clearly erroneous standard of review should be applied, since the result would be the same under either standard, it appears that the clearly erroneous standard is the correct one. Under Pennsylvania law,5 the question of "whether a joint venture exists is a question of fact." Wilkins v. Heebner, 331 Pa.Super. 491, 480 A.2d 1141, 1144 (Pa.Super.Ct.1984); see also Keeler v. International Harvester Used Truck Center, 317 Pa.Super. 244, 463 A.2d 1176, 1178 (Pa.Super.Ct.1983) (). Since the bankruptcy court based its decision primarily on findings of fact concerning the parties' intent, the circumstances surrounding the negotiations, and the economic substance of the transaction, the court's findings are binding unless clearly erroneous. See Fed.Bankr.R.Proc. 8013.
Liona contends, however, that the issue is solely a question of law because the case revolves around the construction and interpretation of a contract. In support of its position, Liona relies on Sun Oil Co. v. Commissioner, 562 F.2d 258 (3d Cir.1977), cert. denied, 436 U.S. 944, 98 S.Ct. 2845, 56 L.Ed.2d 785 (1978), in which the Third Circuit reaffirmed the rule that the interpretation and construction of a contract which is clear on its face is a question of law. Id. at 262. The court held that when the documents at issue are unambiguous and complete, characterizing the true nature of the transaction constitutes a question of law which is fully reviewable on appeal. The court, however, also noted that "where the documents are ambiguous or incomplete . . . the court's determination of the parties' unexplained subjective intent is a finding of fact." Id.
In the case at bar, the bankruptcy court concluded, and this Court agrees, that the instruments at issue were not clear or unambiguous. The bankruptcy court therefore looked to the parties' subjective intent.6 Since a determination concerning intent is a finding of fact, the clearly erroneous standard must be applied on review. Nevertheless, as stated above, the Court is convinced that the result would be the same even if a de novo standard of review were applied.
Liona contends that the bankruptcy court erred in admitting extrinsic evidence. The bankruptcy court concluded that the documents at issue — the Sale/Leaseback Agreement and the Ground Lease — are ambiguous because they are reasonably susceptible to more than one interpretation. See 55 B.R. at 280 (). The Court agrees.
Liona argues that under Pennsylvania law the parol evidence rule prohibits introduction of extrinsic evidence to vary or alter the terms of the pertinent instruments. See Scott Bryn Mawr Arms, Inc., 454 Pa. 304, 312 A.2d 592, 594 (1973). Although this is a correct statement of the law, it has no effect on the case at bar. In this instance, parol evidence was not introduced in order to vary or alter the terms of the instruments, but rather it was introduced in order to clarify the true nature of the instruments.
Even though an instrument may be called a lease, and may look like a lease, it does not necessarily follow that the instrument is in fact a true lease. See Nath v. National Equipment Leasing Corp., 282 Pa.Super. 142, 422 A.2d 868, 873-75 (Pa.Super.Ct.1980), aff'd, 497 Pa. 126, 439 A.2d 633 (1981); Matter of Candy Lane Corp., 38 B.R. 571, 575 (Bankr.S.D.N.Y.1984); In re Winston Mills, 6 B.R. 587, 593 (Bankr.S. D.N.Y.1980). See also Kowatch v. Atlantic Richfield Co., 480 Pa. 388, 390 A.2d 747, 749 (1978) (). If two parties draw a picture of an animal that has four legs and a tail, and the parties agree to label it "A Horse," it would be reasonable to conclude that the picture is in fact a drawing of a horse. If, however, the animal not only has four legs and a tail, but also has large floppy ears and a long trunk in place of a nose, then it would be unclear whether the parties actually intended to draw a horse or whether they meant to draw something else — i.e., an elephant.
In that situation, parol evidence could be introduced — not to change the drawing in any way — but simply to clarify what the drawing was intended to be, an elephant or a horse. The same is true in the case at bar. Although at first glance the Agreement and Ground Lease appear to create a sale and leaseback arrangement, the parties included certain provisions which are not ordinarily found in such instruments. Thus, extrinsic evidence was properly admitted in order to clarify what the parties intended to create. See In re 716 Third Ave. Holding Corp., 340 F.2d 42, 47 (2d Cir.1964), cert. denied sub nom. A.G. Assoc., Inc. v. Cross, 381 U.S. 913, 85 S.Ct. 1535, 14 L.Ed.2d 434 (1965); Matter of Anton's Lounge & Restaurant, Inc., 40 B.R. 134, 136 (Bankr.E.D.Mich.1984).7
Liona contends that the bankruptcy court erred in relying on the expert testimony of Richard A. Bernstein ("Bernstein"), one of the individuals originally involved in negotiating the transaction at issue here. Although Liona does not dispute Bernstein's qualifications as a real estate expert, Liona argues that Bernstein improperly testified as to legal matters which are solely the province of the court. The Court disagrees.
The trial court has broad discretion in determining whether expert testimony should be admitted or excluded, and the court's action is to be sustained on review unless it is manifestly erroneous. See Salem v. United States Lines Co., 370 U.S. 31, 35, 82 S.Ct. 1119, 1122, 8 L.Ed.2d...
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