Manhattan King David Restaurant Inc. v. Levine
| Decision Date | 24 May 1993 |
| Docket Number | No. 92 Civ. 8715 (LAP).,92 Civ. 8715 (LAP). |
| Parties | MANHATTAN KING DAVID RESTAURANT INC. d/b/a David's Harp and Le Sannom Building Corp., Appellants, v. Arthur B. LEVINE, as Receiver and Joseph Nathanson, Appellees. |
| Court | U.S. District Court — Southern District of New York |
Ernest H. Hammer, New York City for appellants.
Joseph J. Ceccarelli, Daniel S. Lopresti, Sieratzki & Ceccarelli, New York City, for appellees.
This is an appeal from an order of the bankruptcy court directing the debtor, Manhattan King David Restaurant ("MKDR") to pay $35,483.87 in post-petition rent prior to assumption of an unexpired lease pursuant to section 365(d)(4) of the Bankruptcy Code.1 For the reasons stated below the decision of the bankruptcy court is affirmed.
MKDR purchased all the stock of its co-debtor, Le Sannom Building Corp. ("Le Sannom") from 47th Street Photo, Inc. ("47th Street") in December 1989.2 Record on Appeal from an Order of the Bankruptcy Court Directing Payment by Debtor-Restaurant in the Sum of $35,483.87 and in the Event of Non-Payment Denying Debtors' Motion for Authorization to Assume Non-Residential Unexpired Leases, As Modified, Deeming Leases to be Rejected and Directing the U.S. Marshall to Remove the Debtor-Restaurant From Possession ("R. 8715 at ___") at 20.3 Le Sannom is the fee owner of a seven-story commercial loft building located at 148-50 West 46th Street, New York, New York (the "Building").
On October 12, 1988, Le Sannom executed a mortgage agreement (the "Second Mortgage") and a promissory note (the "Note") pursuant to which Le Sannom agreed to borrow approximately $1,000,000 from Joseph K. Nathanson ("Nathanson") secured by a second mortgage on the Building. Of that amount, Le Sannom requested and received a total of $850,000 from the Mortgagee. R. 8717 at 146-154. Subsequently, a corporation wholly owned by Nathanson, Considerate Discount Corp., purchased the outstanding first mortgage on the Building from the Anchor Savings Bank in the principal sum of approximately $455,000.
MKDR and Le Sannom entered into a lease agreement dated September 1, 1987 (the "1987 Lease"), which entitled MKDR to occupy the basement, ground and second floor of the Building (the "Leased Space"). In return, MKDR was to pay to Le Sannom: (1) base rent in the amount of $150,000 per annum, $12,500 per month; and (2) various additional charges for real estate tax, water and sewer charges, etc. R. 8717 at 63.
MKDR challenges the validity of the 1987 Lease on the grounds that it "never had a valid inception". R. 8175 at 18.
The 1987 lease was executed solely upon the request of the prior controlling person of the realty, Irving Goldstein 47th Street\'s principal and Joseph Nathanson, who stated that Mr. Nathanson needed a backdated document to obtain parallel financing from the Israel Discount Bank.
Id. at 19. It is MKDR's position that the 1987 Lease was modified by a January 10, 1991 letter agreement between MKDR and Le Sannom which provided that MKDR could use and occupy the Leased Space from January 10, 1991 through July 1, 1994 for an annual payment of $1.00 per annum (the "1987 Lease Modification"). In the event that MKDR's average monthly gross revenue exceeded $95,000 for any calendar year, MKDR would pay market rate rent for the following year. R. 8715 at 26.
MKDR also occupied the third, sixth, and half of the fifth floor of the Building (the "Squatter Space"). It is the Appellants' position that there is no valid lease agreement which entitles MKDR to occupy the Squatter Space. MKDR maintains that by letter dated January 10, 1991, Le Sannom granted MKDR use and occupancy of the Squatter Space in consideration for MKDR's renovation of the Squatter Space (the "Squatter Space Lease"). R. 8715 at 25.
In September 1991, Joseph Nathanson sued to foreclose on the Second Mortgage in the Supreme Court of the State of New York. R. 8717 at 65. By Order dated October 16, 1991, Arthur B. Levine was appointed receiver (the "Receiver") by the state court pursuant to NYCPLR § 6401, NYRPL § 254(10) and relevant provisions of the Second Mortgage. R. 8717 at 65. The Receiver was charged with the following responsibilities: (1) collection of rents currently due or which become owing; (2) establishment of a fair and reasonable market rent for use and occupation of the Building; (3) institution and prosecution of legal proceedings necessary for the protection of the Building; (4) maintenance of the Building; and (5) payment of all taxes etc. Id.
By Notice of Removal dated April 10, 1992, the state foreclosure action instituted by Nathanson against Le Sannom was removed to the United States Bankruptcy Court as an adversary proceeding within the chapter 11 case of 47th Street. The appointment of the Receiver has been continued by the Bankruptcy Court. See Appellees' Designation of Additional Items pursuant to Fed.R.Bankr.P. 8006 dated December 3, 1992 at Exhibit E; Appellees' Designation of Items Pursuant to Fed. R.Bankr.P. 8006 No. 6.
The Receiver then commenced a state court summary non-payment proceeding seeking to evict MKDR from the Leased Space (the "Lease Space Action"). After a trial, the state court granted the Receiver a final judgment against MKDR in the amount of $100,000 for MKDR's non-payment of rent from January 1992 through August 1992.4
The Receiver commenced separate litigation against MKDR seeking $75,000 for the use and occupancy of the Squatter Space from January through May 1992 (the "Squatter Space Action"). At the completion of a bench trial, the state court issued a final judgment of possession in favor of the Receiver dated June 4, 1992.5 By reason of the issuance of the final judgment of possession the trial court scheduled a use and occupancy hearing which was to commence on June 23, 1992, and then was adjourned until July 7, 1992 for a continued hearing. By Notice of Motion dated June 19, 1992, MKDR moved in the Appellate Term for an order staying enforcement of the final judgment in the Squatter Space Action pending appeal. By Order dated June 30, 1992, the Appellate Term granted a conditional stay.
On August 5, 1992, MKDR filed for protection under chapter 11 of the Bankruptcy Code. Because MKDR was not paying post-petition rent as required under section 365(d) of the Bankruptcy Code, by Order dated October 28, 1992, the bankruptcy court lifted the automatic stay, permitting the Receiver to pursue all enforcement and state court remedies with respect to the Leased Space Action and the Squatter Space Action.
The Receiver then moved to lift the stay of execution in the Squatter Space Action. By Order dated October 20, 1992, the Appellate Term lifted the stay. The trial court then held a hearing and set the use and occupancy rate for the Squatter Space at $8,437.50 per month and directed MKDR to pay six months use and occupancy from June through November 1992, totalling $50,625.
Due to MKDR's repeated failure to pay pre- and post-petition rent and its failure to pay the judgment entered in either the Leased Space Action or the Squatter Space Action, the bankruptcy court by Order dated November 5, 1992 lifted the automatic stay enabling the United States Marshall to evict MKDR from the Leased Space and from the Squatter Space in accordance with the final judgments entered in the state court actions. The Receiver was put in possession of the Leased Space on November 20, 1992 and was put in possession of the Squatter Space on December 18, 1992.
The Receiver then commenced a second summary proceeding against MKDR in the Civil Court of the City of New York for failure to pay post-petition rent during the months of September through November 1992. A final judgment in favor of the Receiver in the amount of $36,500 was entered on January 6, 1993 (the "Second Leased Space Action").
MKDR then moved in bankruptcy court to assume the 1987 Lease Modification and the Squatter Space Lease. By order dated November 3, 1992, the Bankruptcy Court adjourned this motion on the condition that MKDR pay $35,483.87 (the post-petition rent due under the terms of the 1987 Lease) prior to the hearing on the motion to assume. R. 8715 at 4. In the event that payment was not received, the motion to assume would be deemed denied and the 1987 Lease would be deemed rejected. Id. at 5. Upon rejection of the 1987 Lease, MKDR was ordered to vacate the Leased Space. Id.
By motion, MKDR moved to assume the purported unexpired leases which the state court had previously determined were invalid. Therefore, the question before this Court is whether MKDR could use the forum of the bankruptcy court to collaterally attack the state court findings or whether the state court findings are res judicata as to the validity of the lease agreements.
Federal courts are to give the same full faith and credit to decisions of state courts as courts within that state would give the decision. 28 U.S.C. § 1768, see Allen v. McCurry, 449 U.S. 90, 96, 101 S.Ct. 411, 415, 66 L.Ed.2d 308 (1980) (); Rameau v. New York State Dept. of Health, 741 F.Supp. 68, 70 (S.D.N.Y.1990) ()
A judgment of the Civil Court is given res judicata effect by New York State Courts. Ruse v. Inta-Boro Two-Way Radio Taxi Assoc. Inc., 166 A.D.2d 641, 561 N.Y.S.2d 70, 71 (2d Dep't.1990); see, also, Gilberg v. Barbieri, 53 N.Y.2d 285, 291, 423 N.E.2d 807, 813, 441 N.Y.S.2d 49, 55 (1981); Gramatan Home Investors Corp. v. Lopez, 46 N.Y.2d 481, 386 N.E.2d 1328, 414 N.Y.S.2d 308 (1979); Babigan v. Wachtler, 181 A.D.2d 640, 582 N.Y.S.2d 14 (1st Dep't.1992); ...
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