Matter of Kennise Diversified Corp., Bankruptcy No. 83 B 10612 (PBA).
| Citation | 34 BR 237 |
| Decision Date | 21 October 1983 |
| Docket Number | Bankruptcy No. 83 B 10612 (PBA). |
| Parties | In the Matter of KENNISE DIVERSIFIED CORP., Debtor. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Oswald Silvera, New York City, for Kennise Diversified Corp.
Department of Housing Preservation and Development City of New York, Community Services Section, New York City; Marjorie B. Liburd, Howard Arenz, New York City, of counsel.
Dazivedo Watson, Pro Se, Adam Clayton Powell Jr. Associates.
DECISION AND ORDER ON MOTION FOR ORDER DIRECTING TURNOVER
Kennise Diversified Corp. ("Kennise") filed a Chapter 11 petition on April 18, 1983. Kennise's sole asset is the ownership, free and clear of any mortgages, of the land and building at 2299 7th Avenue, New York City (the "Building"). The Building has 23 single room apartments sharing bathroom facilities located in the public hallways. There are three ground floor commercial spaces. Robert Epps is the sole shareholder of Kennise. Mr. Epps has kidney disease, is on dialysis and currently uses a wheelchair to get around.
Approximately a week prior to the filing of the Chapter 11 petition, a 7A administrator was appointed for the Building by the Civil Court of the City of New York, Housing Part (the "Civil Court"). The appointment was made pursuant to the authority provided by Article 7A of the New York Real Property Actions and Proceedings Law ("NYRPAPL"), N.Y.Real Prop.Acts § 769 et seq. (McKinney's 1979) on the petition of the Commissioner of the Department of Housing Preservation and Development ("HPD") of the City of New York ("City"). NYRPAPL Article 7A permits a special proceeding with respect to a multiple dwelling for the purpose of obtaining "a judgment directing the deposit of rents into court and their use for the purpose of remedying conditions dangerous to life, health and safety. . . ." NYRPAPL § 769(1). For a discussion of the factual background to the enactment of Article 7A see Note, Rent Strike Legislation—New York's Solution to Landlord-Tenant Conflicts, 40 St. John's L.Rev. 253 (1966). See also Kahn v. Riverside Syndicate, Inc., 34 A.D.2d 515, 516, 308 N.Y.S.2d 65, 66 (1st Dept.1970) () Article 7A has been held to be a valid exercise of the police power, to be constitutional, and to affect and promote the public welfare. Himmel v. Chase Manhattan Bank, 47 Misc.2d 93, 262 N.Y.S.2d 515 (1965).
The action may be commenced either by one-third or more of the tenants, or by the Commissioner of HPD as the commissioner of the department of the City of New York charged with enforcement of the housing maintenance code. NYRPAPL § 770(1).
A petition commencing a proceeding under Article 7A must:
NYRPAPL § 772.
It is a sufficient defense to a 7A proceeding if the owner establishes:
The court must enter final judgment either (a) dismissing the petition, if defective, or a defense is sustained or (b) directing that rents be deposited with an administrator, that the rents be used to the extent necessary to remedy the conditions alleged in the petition and upon completion of the work, and that any remaining surplus be turned over to the owner together with a complete accounting. NYRPAPL § 776. The court is authorized to appoint an administrator and specify the scope of his authority within the statutory parameters. NYRPAPL § 778(1). The Administrator is statutorily directed to dispose of the rents and other monies deposited with him in accordance with the following order of priority:
The court must require the administrator to keep written accounts itemizing receipts and expenditures, which are open to inspection by the owner and certain other persons. Upon motion the court or the owner may require a presentation or settlement of accounts. NYRPAPL § 779.
On April 12, 1983, a final judgment was entered which appointed Dazivedo Watson ("Watson" or the "7A Administrator") as the administrator for the Building and specified his duties.
It is apparent that one of the major reasons Mr. Epps caused the Chapter 11 petition to be filed was that he believed it would result in the automatic ouster of the 7A Administrator. Early in this case the court refused to sign an ex parte order directing turnover of the property to the debtor in possession. Thereafter Kennise was unsuccessful in various efforts in the Civil Court aimed at obtaining the ouster of the 7A Administrator.1 After failing in an attempt to regain physical possession of the Building through changing the locks, Kennise brought on a motion in late August 1983 to cite the City of New York and the attorney responsible for the 7A proceedings for contempt for violating the automatic stay provided by Bankruptcy Code § 362, 11 U.S.C. § 362. The court denied that motion on the basis that the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power is specifically excepted from the operation of the automatic stay by virtue of Bankruptcy Code § 362(b)(4), 11 U.S.C. § 362(b)(4).2
The court also denied a motion made by the United States Trustee under the provisions of Bankruptcy Code § 305, 11 U.S.C. § 305 to have the court abstain entirely. It was suggested that the debtor in possession would have to bring on a turnover motion directed to both the City of New York and the 7A Administrator to test its right to the return of the Building. That motion was brought on and a trial was held on September 1 and September 15, 1983. The City of New York has vigorously opposed the turnover, arguing that it is inappropriate both on the particular facts of this case and as a matter of general policy. The 7A Administrator appeared at both hearings without counsel and took no position on the matter.
The City of New York submitted a lengthy affirmation in opposition to the turnover motion. The affirmation outlines the prior litigations involving the Building and attaches copies of various orders entered. These orders include an order entered in February 1982 finding Kennise and Mr. Epps in civil contempt of a prior order requiring the provision of adequate heat and hot water. Photocopies of the City's computerized records of violations which also show emergency repairs by the City prior to the 7A Administrator's appointment of approximately $14,000. That report also reflects that the real estate taxes are twelve quarters in arrears. Kennise has not challenged the accuracy of the exhibits to the City of New York's affirmation, or indeed to the factual statements in the affirmation.
The 7A Administrator testified that when he went to collect rents, which average $150 per residential unit per month, only five persons admitted to legal tenancy. He has since secured an additional ten tenants. Apparently, a number of units in the building had been vandalized and he stated that he has used rent and deposit moneys to fix up units for rental. A major ground for his appointment had been a lack of heat and hot water, as well as inoperative plumbing, and apparently the Building now has hot water and plumbing. The condition of the heating system was not discussed at trial, presumably because the 7A Administrator's appointment coincided with warmer weather. The order of appointment required Mr. Watson to obtain a fidelity bond of $5,000, within 30 days. NYRPAPL § 778(3) () However, it appears that Mr. Watson did not procure a bond until July. Although the 7A Administrator testified that he had filed monthly reports he did not have them with him in court. Kennise caused a search to be made of the court files and was able to locate only one report. One of the tenants in the Building testified both as to conditions prior to and after Mr. Watson's appointment. This witness testified to total inoperability of the public sanitary facilities, complete lack of hot water and other serious conditions in the Building in April 1983 and earlier. The witness stated that conditions in the Building have improved since...
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