MATTER OF DH OVERMYER CO., INC.(OHIO)
| Decision Date | 01 June 1984 |
| Docket Number | No. 84 Civ. 1721.,84 Civ. 1721. |
| Citation | 40 BR 990 |
| Parties | In the Matter of D.H. OVERMYER CO., INC. (OHIO), et al., Consolidated Debtors. Appeal of Amy D. PHILLIPS. |
| Court | U.S. District Court — Southern District of New York |
Patterson, Belknap, Webb & Tyler, New York City, for Custodial Receiver Harold R. Tyler, Jr.; Harold R. Tyler, Jr., Susan Weiner, of counsel.
Michael Cook, New York City, for appellant.
This is an expedited appeal1 by Amy D. Phillips ("Phillips") from the March 1, 1984, decision of the Bankruptcy Court, Southern District of New York, Howard C. Buschman III, Judge, holding in full force and effect a lease to a warehouse complex in Compton, California, between Phillips, as landlord, and D.H. Overmyer, Co., Inc. ("Overmyer-California"), as tenant. Phillips is a citizen of California. Overmyer-California is one of thirty-nine related corporations (collectively, "Overmyer" or "the consolidated debtors") that have been in arrangement proceedings under the Bankruptcy Act of 1898, as amended,2 for more than ten years.3 The controversy leading to the Bankruptcy Court's decision, and the instant appeal, centers about Phillips' refusal to execute a "memorandum of lease," so that the custodial receiver, Harold R. Tyler, Jr. ("Tyler"), could procure title insurance for Overmyer's leasehold interest with a view toward selling the leasehold at the highest possible price for the benefit of Overmyer and its creditors.
The record establishes, and the parties agree, that in 1967 Phillips executed a lease granting Overmyer-California the right to possess or sublet a warehouse complex at 19900 Susana Road, Compton, California, for a period of twenty years, with options to renew the leasehold thereafter for additional terms totalling a maximum of twenty years. The lessee's rights were conditioned upon the payment of specified rents and the performance of other obligations. The lease also provides that the rights and obligations thereunder are assignable. For whatever reason, however, the parties failed properly to record the full lease or a "memorandum of lease," a short synopsis of the full agreement that serves, in California, as an alternative recording document.
Custodial receiver Tyler was appointed on April 7, 1978. On July 20, 1983, the Bankruptcy Court conferred upon him the "sole authority, on behalf of the consolidated debtors, to negotiate the sale or other disposition of the assets of the consolidated debtors, subject to the Bankruptcy Court's approval."4 Acting pursuant to this power, Tyler solicited offers to purchase Overmyer's leasehold interest in the Compton warehouse complex. He negotiated an agreement, signed February 1, 1984, between Overmyer and one Stuart Klabin ("Klabin"), whereby Klabin would receive Overmyer-California's rights and assume its obligations under the lease agreement for a price of $800,000.00. On February 10, 1984, the Bankruptcy Court ordered that a hearing be held on March 1, 1984, for the purpose of determining whether the sale to Klabin should be approved. The Bankruptcy Court further ordered that notice of the March 1 hearing be sent to the members of Overmyer's creditors' committee, the attorneys for the consolidated debtors, and others who had expressed interest in purchasing the leasehold interest.5
In the period immediately following the scheduling of the hearing on whether to approve the Klabin agreement, Phillips refused to execute a memorandum of lease affirming that the lease was in full force and effect, and thus threatened the proposed sale.6 Under the agreement with Klabin, Overmyer was obligated to tender a policy of title insurance "insuring the buyer's interest as assignee of the leasehold estate under the lease."7 Without confirmation from Phillips that the lease was in full force and effect, no title insurer would issue such a policy. The inability to procure title insurance jeopardized not only the proposed sale to Klabin but also one to any other interested party.8 Yet at the same time that Phillips refused to execute a memorandum of lease, she offered to purchase for herself the Overmyer leasehold for $750,000.00, $50,000.00 less than the price Klabin offered.
On February 13, 1984, the custodial receiver communicated to the Bankruptcy Judge these impediments to a successful sale and applied for an order directing Phillips to show cause why an order should not be entered "declaring that a lease . . . between Amy D. Phillips . . . with respect to a warehouse complex located at 19900 Susana Road, Compton, California, is in full force and effect." On February 14, 1984, the Bankruptcy Judge issued the order to show cause, returnable February 23, 1984. Pursuant to the order, the custodial receiver on February 14 caused the notice of hearing to be served by overnight express mail upon Phillips at her California residence and upon her California attorney, Harold Rhoden ("Rhoden"), who had represented her in the efforts to buy back the leasehold interest. Following this service, the return date was adjourned one day, to February 24, 1984, by order of the Bankruptcy Court.9
On the adjourned return date, Nancy Lane, an associate of Michael Cook ("Cook"), whom Phillips retained for purposes of the hearing, appeared to request a further adjournment because Cook was "out of the country" until February 27.10 This request was granted and the hearing rescheduled to February 27, 1984, at 9:30 a.m. Cook appeared on the second adjourned date. He requested a further adjournment, which the court granted, until 12:15, during which time he consulted with Rhoden by telephone. When the hearing resumed, Cook requested a further adjournment. The Bankruptcy Court denied this request and proceeded with the hearing. Andrew C. Edgerton ("Edgerton"), Overmyer's director of property management, testified concerning the status of rental payments and the performance of other obligations under the lease. Attempting to elicit responses to support a claim by Phillips that she had terminated the lease pursuant to its terms, Cook questioned Edgerton both on voir dire and on cross-examination, but called no witnesses on Phillips' behalf. In addition to attacking Edgerton's competence to testify to various matters in issue, Cook, throughout the hearing, made numerous protests that the Bankruptcy Court lacked jurisdiction to enter an order binding Phillips and that the failure to grant an additional adjournment amounted to a violation of Phillips' right to due process of law.
Based on the testimony and documents received at the February 27 hearing, Bankruptcy Judge Buschman on March 1, 1984, issued an oral decision finding that Overmyer was current in its rental payments, and had complied with all other obligations under the lease, including the obligation to pay taxes on the complex and to make repairs. He also found that the lease was assignable and that Phillips' refusal to execute a memorandum of lease was an attempt "to defeat the lease itself." The Bankruptcy Judge thus ruled that the lease "is in full force and effect."11
Bankruptcy Judge Buschman also amplified upon his denial of Phillips' motion for a further adjournment. He rejected Cook's assertion that a further adjournment was necessary because he had not read the custodial receiver's papers until early in the morning of the February 27 evidentiary hearing; had not had an opportunity to gather and produce evidence to support his client's refusal to execute a memorandum of lease; and could not produce Ms. Phillips or her accountant, Don Bleitz ("Bleitz"), because Phillips is an elderly woman confined to a wheelchair and Bleitz had recently undergone heart surgery. Bankruptcy Judge Buschman found that Phillips had had sufficient notice of the hearing to retain Cook, who appeared, through an associate, at the February 24 hearing; and that prior to Cook's appearance at the February 27 hearing Phillips made no request for an adjournment on the basis of her physical condition or that of her accountant or to have her testimony submitted by deposition. The Bankruptcy Judge then held that Phillips' failure to disclose the nature of her inability to participate in the hearing and her retention of Cook, who was out of the country on the return date set by the Court, "were obvious delaying tactics" and that, having received adequate notice of the issues to be determined at the February 27 hearing, Phillips was not prejudiced by any action of the court in proceeding with the evidentiary hearing on February 27.
Phillips advances four essential claims in support of her appeal from the Bankruptcy Court's March 1 decision: (1) the Bankruptcy Court lacked jurisdiction over Phillips' person; (2) the Bankruptcy Court lacked jurisdiction over the subject matter; (3) Phillips' opportunity to litigate her interest in the leasehold was so curtailed as to amount to a violation of her right to due process of law; and (4) the Bankruptcy Court failed to comply with the Federal Rules of Bankruptcy Procedure in permitting the force and effect of the lease to be litigated upon an order to show cause instead of a full adversary proceeding.
Phillips first assignment of error is without substance. Citing International Shoe Co. v. Washington,12 Phillips asserts that the Bankruptcy Court was without power to enter an order declaring the lease to the Compton warehouse complex to be in full force and effect in the absence of "minimum contacts" linking Phillips to New York State. Such a claim fundamentally misconceives the nature of the jurisdiction exercised by the Bankruptcy Court. The power of the Bankruptcy Court to issue effective process derives from congressional enactment, and is not limited by the fourteenth amendment's restrictions on the power of state courts to issue process beyond state borders.13 Under section 311 of the Bankruptcy Act, the Bankruptcy Court is vested with "exclusive jurisdiction of...
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