In re Winimo Realty Corp.
| Decision Date | 25 October 2001 |
| Docket Number | Bankruptcy No. 92-B-40026(CB) to 92-B-40045(CB). No. 01M47(SAS). Adversary No. 9618730A. |
| Citation | 270 BR 108 |
| Parties | In re WINIMO REALTY CORP., et al., Debtors. Cibro Petroleum Products, Inc., et al., Debtors in Possession, Plaintiffs, v. City of Albany, and Albany Port District Commission, Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Paul N. Silverstein, Andrews & Kurth, LLP, New York City, for Plaintiffs.
Jeremy J.O. Harwood, Healy & Baillie, LLP, New York City, for Albany Port District Commission.
Defendant Albany Port District Commission ("APDC") appeals from an order of the Bankruptcy Court for the Southern District of New York denying its motion to compel arbitration of disputes arising under pre-petition contracts between debtor Cibro Petroleum Products, Inc. ("Cibro"), APDC and defendant City of Albany (the "City") and for a stay of proceedings pending arbitration. For the reasons stated below, the decision of the Bankruptcy Court is reversed.
I. BACKGROUND1
Cibro is a company formerly engaged in refining, marketing, transporting, and distributing petroleum and asphalt products. See 4/5/01 Affidavit of Jeremy J.O. Harwood, Attorney for APDC ("Harwood Aff. No. 1") ¶ 4. APDC is a public corporation created by the State of New York in 1925, that facilitates trade and economic activities in the port districts of Albany and Rennsselaer, New York. See id. ¶ 2; 6/11/78 Lease Agreement, Ex. 1 to Harwood Aff. No. 1, at 1. Cibro operated a refinery at the Port of Albany ("Cibro Facility"). See Harwood Aff. No. 1 ¶ 4. The Cibro Facility was operated on property leased by Cibro from APDC.
Cibro filed for Chapter 11 relief on January 3, 1992. See id. ¶ 3. It has ceased operations and remains in bankruptcy pending confirmation of a reorganization plan. See id. ¶ 4.
The Cibro Facility was leased from APDC pursuant to three long-term leases executed in 1978 and 1979 (the "Leases"). See id. ¶ 5; Complaint ("Cibro's Complaint"), Ex. 7 to Harwood Aff. No. 1, ¶ 8. The Leases cover approximately thirty-three acres at the Port of Albany. See Brief of Defendant-Appellant APDC ("APDC Mem.") at 4. Among other things, the Leases have renewable options through the year 2055 and are each, by their specific terms, freely assignable by Cibro as lessee without approval by APDC. See Cibro's Complaint ¶ 10. Article 2 of the Leases provides for payment of taxes on the leased land and any property attached to the land. See APDC Mem. at 4. Each Lease also contains an identical, broadly-worded arbitration provision which reads, in relevant part: "Any controversy or claim arising out of or relating to this lease or the breach thereof . . . shall be settled by arbitration. . . ." See id. at 5.
In 1991, Cibro, the City, and APDC entered into an Agreement for Payments in Lieu of Taxes.2 See Agreement for Payments in Lieu of Taxes ("PILOT Agreement"), Ex. C to Silverstein Aff.; Harwood Aff. No. 1 ¶ 11; Arbitration Decision at 3. Under the PILOT Agreement, Cibro was to make payments to the Comptroller of the City in lieu of City, County and School taxes on Cibro's leaseholds at the Port of Albany. See PILOT Agreement. This Agreement makes specific reference to the APDC Leases. See id. In 1994, Cibro discontinued making payments called for by the PILOT Agreement. See Silverstein Aff. ¶ 4; APDC Mem. at 6.
On June 19, 1996, Cibro filed an action against the City (the "PILOT Proceeding") seeking a declaratory judgment with respect to the enforceability of the PILOT Agreement and an accounting of all "payments in lieu of taxes" paid thereon. See Cibro's Complaint ¶ 5. APDC was not named as a defendant in that action. See id. In its complaint, Cibro seeks: (1) a declaration that the PILOT Agreement is void, ab initio, because there was no consideration from the City for the Agreement, see id. ¶¶ 24-26; or (2) alternatively, a declaration that the PILOT Agreement is voidable as a fraudulent conveyance and/or transfer pursuant to Section 273 of the New York Debtor & Creditor Law and Sections 544(a) and 548(b) of the Bankruptcy Code, see id. ¶¶ 28-32 (the "Avoidance Claim"); and (3) an accounting of all funds paid by Cibro under the PILOT Agreement, or "in lieu of taxes" since 1983, with interest thereon, see id. ¶¶ 37-42. In its complaint, Cibro asserts that the PILOT Proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). See id. ¶ 7.
On July 18, 1996, the City filed an answer to Cibro's Complaint. See Debtor's Response to APDC's Motion for a Writ of Mandamus ( ) ¶ 11. On October 22, 1997, APDC intervened in the PILOT Proceeding to assert counterclaims. See id. On January 30, 1998, the Bankruptcy Court dismissed APDC's intervening complaint. See id. On March 23, 1998, the City and APDC filed an amended intervening answer with counterclaims. See Intervening Answer with Counterclaims ("APDC Answer"), Ex. A-1 to Cibro Counter Designation. In their Answer, the City and APDC assert that the payments called for by the PILOT Agreement are collateral obligations under the APDC Leases and that Cibro's failure to make these payments is a default of those leases (the "Breach Allegation").3See Harwood Aff. No. 1 ¶ 14.
On or about March 2, 1998, Cibro filed a motion to assume the APDC Leases pursuant to section 365 of the Bankruptcy Code (the "365 Motion"). See Debtor's Motion for an Order Authorizing Assumption of Leases with APDC Pursuant to 11 U.S.C. § 365(a) ("Assumption Motion"), Ex. 8 to Harwood Aff. No. 1. As agreed upon by the parties in a hearing before the Bankruptcy Court, Cibro refiled this motion as a motion for partial summary judgment on June 15, 1998. See Debtor's Motion for an Order Granting Partial Summary Judgment ("Summ.Judg.Mot."), Ex. 10 to Harwood Aff. No. 1. Among other things, Cibro's motion requests a ruling on the Breach Allegation. Specifically, Cibro seeks an order declaring that its failure to make payments under the PILOT Agreement did not constitute a default under the APDC Leases. See id. ¶ 12.
APDC opposed Cibro's initial Assumption Motion and cross-moved on May 15, 1998, inter alia, for a stay and an order compelling arbitration of the Breach Allegation. Opposition and Notice of Cross-Motion by APDC, Ex. 9 to Harwood Aff. No. 1, ¶ 2. APDC subsequently opposed Cibro's refiled Summary Judgment Motion and cross-moved, on July 6, 1998, for a stay and an order compelling arbitration of this matter. See Opposition and Notice of Cross-Motion by APDC ("Summ.Judg.Opp."), Ex. 12 to Harwood Aff. No. 1.
On May 12, 1998, the City filed two proofs of claim against Cibro. See Proofs of Claim ("City's Proofs of Claim"), Ex. 2 to Cibro Counter Designation. The City seeks more than two million dollars purportedly owed under the PILOT Agreement or, alternatively, taxes owed by Cibro from January 1, 1995 to the present. See id. A proof of claim was also filed by APDC, but was withdrawn on July 16, 1998, after APDC received the rental payments it sought. See APDC Mem. at 19; 7/22/98 Affidavit of J.O. Harwood ("Harwood Aff. No. 3") ¶¶ 14-16.
The Bankruptcy Court has refused to compel arbitration on three occasions. In its decision on Cibro's Summary Judgment Motion (the "Arbitration Decision"), the court held that the arbitration provisions in the Leases are enforceable and that the Breach Allegation "is arbitrable" but ordered mediation in lieu of arbitration "due to APDC's delay in invoking the arbitration clause." Arbitration Decision at 11-13. After mediation proved unsuccessful, APDC requested that the court, in line with the Arbitration Decision, now order arbitration of the issues previously subject to mediation. See Harwood Aff. No. 1 ¶ 37. At a hearing on January 24, 2001, the court acknowledged that it had found that the Breach Allegation was arbitrable, but again refused to enter an order compelling arbitration. See 1/24/01 Transcript, Ex. 15 to Harwood Aff. No. 1, at 36. The court explained that it would not enter such an order until after the court had tried the issues. See id. (). The court then set a schedule for trial of the PILOT Proceeding. See 4/13/01 Transcript at 21.
On April 6, 2001, APDC filed an application for an Order to Show Cause requesting a writ of mandamus directing the Bankruptcy Court to compel arbitration and stay the proceedings pending arbitration. See APDC's Combined Application and Memorandum of Law in Support of its Order to Show Cause for a Writ of Mandamus ("Mandamus Mem."). In response, this Court issued a remand order directing the Bankruptcy Court to determine the following issues: (1) whether "the PILOT adversary proceeding is subject to arbitration," and (2) if the PILOT Proceeding is subject to arbitration, "whether such arbitration must proceed prior to the trial of the adversary proceeding." Order on APDC's Motion for Writ of Mandamus to Compel Arbitration ("Remand Order"), Ex. 17 to 7/01 Affidavit of Jeremy J.O. Harwood ("Harwood Aff. No. 2"), at 2.
On June 28, 2001, the Bankruptcy Court issued an opinion in response to the Remand Order. Decision on Remand by District Court to Consider Whether the Issues to be Tried are Arbitrable ("Remand Decision"), Ex. 25 to Harwood Aff. No. 2. In the Remand Decision, the Bankruptcy Court refused to compel arbitration of the PILOT Proceeding and to stay the Proceeding pending arbitration. See id. There were essentially three elements of the court's reasoning. First, the Court found that the PILOT Proceeding was a "core proceeding." Id. at 4. The court reasoned that settlement of a dispute involving ...
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