Lafayette Radio Electronics Corp., In re
| Decision Date | 03 April 1985 |
| Docket Number | D,No. 47,47 |
| Citation | 761 F.2d 84 |
| Parties | 12 Collier Bankr.Cas.2d 746, 13 Bankr.Ct.Dec. 69, Bankr. L. Rep. P 70,354 In re LAFAYETTE RADIO ELECTRONICS CORP., et al., Debtors. WARDS COMPANY, INC., as Successor in Interest to Lafayette Radio Electronics Corporation, Plaintiff-Appellee, v. JONNET DEVELOPMENT CORPORATION and Roamon's Stores of Pennsylvania, Inc., Defendants, Jonnet Development Corporation, Defendant-Appellant. ocket 84-5016. |
| Court | U.S. Court of Appeals — Second Circuit |
Whitman & Ransom, New York City (Jeffrey A. Oppenheim, New York City, of counsel), for plaintiff-appellee.
Sunshine, Slott & Sunshine, New York City (Robert W. Slott, New York City, Yaier Y. Lehrer, Pittsburgh, Pa., of counsel), for defendant-appellant.
Before LUMBARD, MANSFIELD and KEARSE, Circuit Judges.
Defendant Jonnet Development Corporation ("Jonnet") appeals from a judgment of the United States District Court for the Eastern District of New York, Jacob Mishler, Judge, which, adopting certain proposed findings of fact and conclusions of law submitted by the United States Bankruptcy Court for the Eastern District of New York, C. Albert Parente, Bankruptcy Judge, principally (1) held that Jonnet as lessor of certain premises had violated a judgment of the bankruptcy court (a) allowing Lafayette Radio Electronics Corp. ("Lafayette")--predecessor in interest of plaintiff Wards Company, Inc. ("Wards")--to assume as lessee a lease on the premises, and (b) ordering Jonnet to make certain repairs to the premises; (2) declared terminated the lease and a sublease entered into by Wards; and (3) awarded damages to Wards in the amount of the profits it would have earned on the sublease had Jonnet obeyed the bankruptcy court's judgment. On appeal, Jonnet contends chiefly that the district and bankruptcy courts lacked subject matter jurisdiction, that venue was improper, and that Jonnet was improperly denied a jury trial. Finding no merit in any of Jonnet's contentions, we affirm.
The matter arises out of a 1967 long-term lease (the "Lease") of a retail store owned by Jonnet and the subsequent treatment of the Lease in the lessee's chapter 11 bankruptcy proceeding. On March 21, 1967, Lafayette Radio Electronics Corporation of Monroeville, Pennsylvania ("Monroeville Lafayette"), a wholly-owned subsidiary of Lafayette, leased a retail store in Monroeville (the "Store") from Jonnet Enterprises, Inc., corporate predecessor of Jonnet. The Lease was for a term of ten years and gave Monroeville Lafayette two options to renew for additional terms of five years each. Apparently, the first such renewal option was exercised in 1977.
On January 4, 1980, Lafayette and six of its subsidiaries, including Monroeville Lafayette, filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code, 11 U.S.C. Secs. 1101-1146 (1982), in the United States Bankruptcy Court for the Eastern District of New York. Pursuant to a plan of reorganization confirmed by the bankruptcy court in 1981, the six subsidiaries were merged into Lafayette, and Lafayette was then merged into Wards.
In the meantime, Lafayette had reached agreement for a 7-year sublease (the "Sublease") of the Store to Roamon's Stores of Pennsylvania, Inc. ("Roamon's"), and in July 1980, Lafayette submitted an application to the bankruptcy court for (1) authorization to assume the Lease and enter the Sublease, and (2) an order directing Jonnet to make certain repairs to the Store. Jonnet opposed Lafayette's application on the merits and on grounds of the bankruptcy court's lack of jurisdiction and improper venue.
At about the time Lafayette filed its application, Jonnet took possession of the Store and changed the locks, thereby depriving Lafayette of possession. For these actions, the bankruptcy court held Jonnet in contempt for having "violated the automatic stay provisions of Sec. 362(a) of the In early 1981, having rejected Jonnet's jurisdictional and procedural contentions, the bankruptcy court held hearings on the merits of Lafayette's July 1980 application for authorization to assume the Lease and enter the Sublease. In June 1981, the bankruptcy court granted Lafayette's application, ruling that
Bankruptcy Code ... with full knowledge of the pendency of the ... chapter 11 proceedings," and eventually fined Jonnet $2,500.
(1) [Lafayette] has provided the adequate assurances necessary pursuant to Sec. 365(b)(1) and (3) and is, therefore, permitted to assume the ... [L]ease; (2) [Jonnet's] affirmative defenses are hereby dismissed, as [Jonnet] has failed to sustain its burden of proof with respect to said defenses; (3) [Jonnet] has a duty under the terms of the ... [L]ease to promptly repair the roof and all resulting damages to the leasehold premises; (4) the agreement between [Lafayette] and Roamans [sic ] is a sublease; and (5) the proposed sublease is in the best interests of the creditors and estate and is hereby approved. 12 B.R. 302, at 313.
A Judgment was entered ("1981 Judgment") allowing Lafayette to assume the Lease and approving the Sublease, and ruling that Lafayette's only defaults under the Lease were the nonpayment of rents totaling $9,375.03 and that Lafayette was authorized to cure those defaults by paying such rents within 30 days. In addition, and most pertinent for purposes of this appeal, the 1981 Judgment ordered Jonnet to make repairs to the Store:
8. [Jonnet] is hereby directed at its sole expense to forthwith undertake to:
(i) repair the roof of the leased premises so as to make it watertight;
(ii) repair the interior of the leased premises to remedy all water damage caused by the leaking roof; and
(iii) [Jonnet] shall make repairs of the water damage and roof as listed in (i) and (ii) hereof so as to satisfy the requirements of the Fire Marshal and/or the appropriate municipal authority for the issuance of occupancy permits for the leased premises.
9. [Jonnet] shall have until August 31, 1981 to complete the repairs, and in the event that said repairs are not completed and the occupancy permit not obtained by August 31, 1981, [Jonnet] shall be deemed to be in contempt of this Court and a proceeding shall be commenced to determine the amount of the fine to be levied against [Jonnet].
Jonnet's appeal from the 1981 Judgment was discontinued by consent.
Apparently, Jonnet failed to make the repairs ordered by the 1981 Judgment. As a result, by letter dated September 3, 1981, Wards, into which Lafayette had by then been merged, notified Jonnet of this failure and withheld both the rent payments ruled overdue in the 1981 Judgment and the rent payments for subsequent months. On September 5, 1981, Jonnet once again took possession of the Store and changed the locks. In November 1981, Jonnet moved in the bankruptcy court for an order directing Wards to pay Jonnet the rent due under the Lease, including the $9,375.03 found overdue in the 1981 Judgment. This motion resulted in a preliminary direction to Wards to pay the rent into escrow and an eventual order ("1982 Order") awarding $9,375.03 from the escrow account, plus interest, to Jonnet. Prior to this resolution of Jonnet's motion, however, Wards had commenced the present action in the bankruptcy court.
Ward's complaint, filed in December 1981, alleged that Jonnet's failure to make the repairs ordered by the bankruptcy court in the 1981 Judgment and Jonnet's repeated efforts to deny Wards possession of the Store constituted defaults by Jonnet under the Lease. Further, Wards claimed that Jonnet's actions had foreshortened the available term of occupancy under the Lease and Sublease and had therefore substantially diminished their value. Accordingly, Wards sought, inter alia, a declaration terminating both the Lease and the Following a five-day trial, the bankruptcy court made proposed findings that, inter alia, (1) Jonnet was in default under the Lease because of its failure to make the repairs directed by the 1981 Judgment, and this failure substantially diminished the value of the Lease and Sublease to Wards and Roamon's; (2) Jonnet's actions in changing the locks and denying Wards and Roamon's access to the Store constituted a breach of the covenant of quiet enjoyment and, under applicable law, a wrongful eviction; and (3) Ward's failure to pay its monthly rent did not constitute a default because Jonnet had failed to give the 15-day notice required by the Lease before a breach could become a default. Accordingly, the bankruptcy court recommended (a) that both the Lease and the Sublease be declared terminated, (b) that Wards be awarded damages equal to the profits it would have earned under the Sublease, and (c) that Wards recover both the funds turned over to Jonnet pursuant to the 1982 Order and the funds remaining in the escrow account.
Sublease, and damages in the amount of the present value of profits Wards would have received under the Sublease but for Jonnet's defaults under the Lease. In response, Jonnet principally (1) challenged the bankruptcy court's jurisdiction over the subject matter of Ward's action and challenged venue; (2) defended on the merits by denying that it had failed to make the ordered repairs and by asserting that Wards was in default under the Lease for failure to make rent payments; and (3) asserted a counterclaim against Wards for unpaid rent under the Lease and a cross-claim against Roamon's for the same amount on the theory that Jonnet was a third-party beneficiary of the Sublease.
Pursuant to Emergency Bankruptcy Rule I (the "Emergency Rule") as adopted by the district judges of the Eastern District, In re Jurisdiction of Bankruptcy Courts (E.D.N.Y. Dec. 21, 1982), the bankruptcy court found that Wards's action was a "related proceeding" within the meaning of Emergency Rule S...
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