Matter of Century City, Inc., Bankruptcy No. 79-03204.
| Decision Date | 10 November 1980 |
| Docket Number | Bankruptcy No. 79-03204. |
| Citation | 8 BR 25 |
| Parties | In the Matter of CENTURY CITY, INC., Debtor. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, Great Pacific Century Corp., Century Associates, and One Century City Apartment Corp., Movants, v. CENTURY CITY, INC., Respondent. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
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Zazzali, Zazzali & Whipple by Lawrence A. Whipple, Jr., Newark, N.J., and Weil, Gotshal & Manges by Michael L. Cook, New York City, for Continental Illinois National Bank and Trust Company of Chicago.
Crummy, Del Deo, Dolan & Purcell by Michael R. Griffinger, Newark, N.J., and Skadden, Arps, Slate, Meagher & Flom by Dana H. Freyer, New York City, for Great Pacific Century Corp. and Century Associates.
Shanley & Fisher by Walter J. Fleischer, Jr., Newark, N.J., for One Century City Apartment Corp.
Ravin, Katchen & Greenberg by Jack M. Zackin, Newark, N.J., and Robert P. Herzog, New York City, for Century City, Inc.
The movants, Continental Illinois National Bank and Trust Company of Chicago, Great Pacific Century Corp., Century Associates and One Century City Apartment Corp. (defendants in the above captioned adversary proceeding), move pursuant to 11 U.S.C. § 1112b to dismiss the Chapter 11 petition and reorganization case commenced by Century City, Inc. on October 26, 1979, on the grounds that (a) the petition has not been filed in "good faith" and (b) debtor has no reasonable prospect of rehabilitation.
The following relevant factual background of the instant motion is essentially undisputed:
1. The debtor, Century City, Inc., wholly owned by Robert J. Slater, its president, was incorporated in the state of New Jersey on or before March 10, 1978, for the purpose of taking title to and developing two parcels of property known as the "Century City Project" located in Fort Lee, New Jersey.
2. For the development and construction of the "Century City Project", Century City, Inc. engaged Orange Gate Construction Co., Inc. and Slater Construction and Realty Company, a sole proprietorship, both of which are Slater-related entities.
3. In 1978 Robert Slater, on behalf of himself and various entities, including Century City, entered into a series of agreements with the movant, Continental Bank, the first being a construction loan agreement concerning the improvement of the Century City Project evidenced by two notes in the total sum of 24 million dollars, was executed on March 10, 1978. Thereafter, on December 18, 1978, a modification of that agreement increased the loan amount to $29,300,000. The final agreement, that of May 2, 1979, generally referred to as the Restated Agreement, superseded the earlier agreements and provided, inter alia, for a transfer of all of the debtor's tangible and intangible rights in the Century City Project to Great Pacific Century Corporation, a New Jersey corporation (Pacific), and Century Associates, a New Jersey limited partnership (Associates).
4. As partial consideration for the transfer of the two parcels, as aforesaid, the liabilities of the various Slater-related entities were assumed in toto by Great Pacific. By the terms of the May 2, 1979 Restated Agreement, Mr. Slater was divested of the two parcels and therewith ceased to exercise control over the partially constructed property. Thereafter Morse Diesel was engaged as general contractor in the place and stead of Orange Gate and Slater Construction and Realty, the two Slater-owned entities.
5. John E. Neal, vice-president of movant Continental Bank, testified to the mechanism employed to assure the liquidation of all Slater-related liabilities, as provided in paragraph 8 of the May 2, 1979 Restated Agreement. It appears that James Demetrakis, Esq., as disbursing agent for both Slater and Continental Bank, was charged with the responsibility of satisfying unpaid obligations contracted by Slater-related entities and Slater individually prior to May 2, 1979. Upon request from Demetrakis, the bank would advance funds in accordance with the May 2 Restated Agreement to Great Pacific who, in turn, would advance them to a trust account opened in the name of James Demetrakis for payment to creditors. Approximately 3.75 million of such disbursements was made.
6. The Restated Agreement of May 2, 1979 provided that Great Pacific and Century Associates were to purchase claims against the debtor. The former, however, by letter of even date agreed not to enforce such acquired claims against the debtor. Demetrakis testified that Great Pacific and Century Associates "were purchasing assignments"; that they were, in fact, purchasing claims as opposed to securing releases, which claims, as noted above, they agreed not to enforce against the debtor.
7. On October 26, 1979 Century City, Inc. filed a Chapter 11 petition in the United States District Court for the Southern District of New York.
8. On October 29, 1979 Great Pacific, sponsor of Century City Towers, transferred the 31 story cooperative apartment building known as Century City Towers to Apartment Corporation. On the following day, October 30, 1979, Century commenced an adversary proceeding against the above captioned defendants, filing a complaint subsequently and finally amended on June 20, 1980, alleging, inter alia, that the May 2, 1979 Restated Agreement providing for the transfer of Century's real property to Pacific and Associates did not constitute the voluntary act of the plaintiff, but rather was the result of defendants' wrongful and coercive threats, acts, misrepresentations and undue influence, for which reason the transfer of the two parcels effected by that agreement should be set aside.
9. On August 29, 1980 the motion now considered was filed by the movants.
The defendants, alleging bad faith on the part of the debtor Century City, Inc. and its president and sole stockholder, Robert J. Slater, argue for dismissal of the debtor's Chapter 11 petition on two grounds: Firstly, they maintain that there is a virtual absence of creditors of Century City, Inc.; secondly, they deny categorically that there exists a reasonable expectation that Century City, Inc. can successfully effectuate a plan of reorganization, required in a Chapter 11 proceeding.
Century City, Inc., in its turn, has brought in question the authority of the Court to dismiss the instant Chapter 11 case, first, by challenging the standing of the defendants, refusing to consider them "parties in interest" pursuant to § 1109b of the Bankruptcy Code; further, by maintaining that the Court cannot sua sponte dismiss or convert a case under Chapter 11. Here again, plaintiff Century City relies on the language of § 1112b of the Code, requiring that such request be made by a "party in interest".1
Preliminarily, we note three possible bases of the Court's jurisdiction. First, 11 U.S.C. § 305a1 enables the Court, at any time, to dismiss a case under title 11 or suspend all proceedings in the case if the interests of creditors and the debtor would be better served by such dismissal or suspension. In direct contrast to common law, see 2 Collier on Bankruptcy § 305-.01-.02 (15th ed. 1980), § 305 recognizes that the Court may, under appropriate circumstances, order dismissal sua sponte, notwithstanding its jurisdiction was properly invoked in the first instance. See 2 Collier on Bankruptcy § 305.01-.02 (15th ed. 1980).
A second possible basis for jurisdiction is found in 11 U.S.C. § 1112b, which delineates the standards governing dismissal of a case under Chapter 11. Under this provision, dismissal must be for cause, with application therefor limited to a party in interest. In re Zip Print, supra. "Section 1112b does not define what is meant by the term `cause' although the subsection contains nine non-exclusive grounds which constitute `cause'." 5 Collier on Bankruptcy § 1112.03, at 1112-12 (15th ed. 1980). A "party in interest" is defined in § 1109b of the Bankruptcy Code as "including the debtor, the trustee, a creditors' committee, an equity security holders' committee, a creditor, an equity security holder, or any indenture trustee."2
Third, under its inherent power the Court may act sua sponte to dismiss, independently of the grounds specified in either § 305a or § 1112b of the Code. See Banque de Financement v. First Nat'l Bank of Boston, 568 F.2d 911, 916 n. 8 (2d Cir. 1977); In re Ettinger, 76 F.2d 741 (2d Cir. 1935); In re Pioneer Warehouse Corp., 2 B.R. 1, 9 (Bkrtcy.E.D.N.Y.1979). The power of the Court to dismiss a case when its jurisdiction has been improperly invoked is inherent in the bankruptcy court as a court of equity, guided by equitable doctrines and principles; SEC v. United States Realty & Improvement Co., 310 U.S. 434, 435, 60 S.Ct. 1044, 1046, 84 L.Ed. 1293 (1941). See also Pepper v. Litton, 308 U.S. 295, 304, 60 S.Ct. 238, 244, 84 L.Ed. 281 (1939). "There is an overriding consideration that equitable principles govern the exercise of bankruptcy jurisdiction;" Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 277, 17 L.Ed.2d 197 (1965). See In re St. Matthew Lutheran Church, 6 Bankr.Ct.Dec. 578 (Bkrtcy.C.D.Cal.1980), wherein the court expressly based its decision to dismiss a Chapter 11 case, not on 11 U.S.C. § 305a, but rather on its inherent power to dismiss a case which imposed upon its jurisdiction.
In further support of the Court's power to act sua sponte to dismiss, we note that unlike Section 146 of Chapter X, the corporate reorganization chapter of the former Bankruptcy Act, neither Chapter XI and Chapter XII of that Act, nor Chapter 11 of the Bankruptcy Code contains a specific requirement that the relief petition be filed in "good faith". Nevertheless, employing their equity powers, courts have considered the allegation of bad-faith filing of a Chapter XI and Chapter XII petition. See In re Mallard Assocs., 463 F.Supp. 1259 (S.D.N.Y. 1979),...
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