Matter of Lincoln Plaza Towers Associates, Bankruptcy No. 80 B 10085.

CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
Writing for the CourtJOEL LEWITTES
Citation6 BR 808
PartiesIn the Matter of LINCOLN PLAZA TOWERS ASSOCIATES, Debtors.
Decision Date24 October 1980
Docket NumberBankruptcy No. 80 B 10085.

6 B.R. 808 (1980)


Bankruptcy No. 80 B 10085.

United States Bankruptcy Court, S.D. New York.

October 24, 1980.

6 BR 809

Zalkin, Rodin & Goodman, New York City, for Jamaica Sav. Bank; Henry L. Goodman, Richard A. Gerard, New York City, of counsel; Larry D. Henin, New York City, on the brief.

Levin & Weintraub, New York City, for debtor; Michael J. Crames, Myron Trepper, Barry N. Seidel, New York City, of counsel.


JOEL LEWITTES, Bankruptcy Judge.


Factual and Procedural Background

Jamaica Savings Bank ("Jamaica") moves to dismiss this Chapter 11 case commenced under the applicable provisions of the 1978 Bankruptcy Reform Act ("1978 Code")1 by Lincoln Plaza Towers Associates ("debtor"). These adversaries, no strangers to each other, or to this Court, are now engaged in their third court contest; Jamaica having prevailed in the two previous tilts.2

The material facts underlying the present motion are not in dispute. Jamaica, a member of the Federal Home Loan Bank of New York, holds a consolidated mortgage on the debtor's primary asset, a rental apartment building together with a ground lease of the land located at 44 West 62nd Street, New York City. In 1975, after the debtor defaulted on the mortgage, Jamaica

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commenced a foreclosure action in the New York State Supreme Court. On December 8, 1978, Jamaica obtained a judgment in excess of $8 million and a judgment of foreclosure and sale was entered. The debtor appealed that order, but was unsuccessful

On January 10, 1979, the day after its application for a stay pending appeal was unanimously denied by the State Appellate Division, the debtor filed a petition, in this Court, pursuant to Chapter XII of the 1898 Act. Jamaica retorted by moving to dismiss the bankruptcy case. Thereafter, and before a determination on Jamaica's dismissal motion, the debtor amended its Chapter XII plan. Jamaica objected to confirmation of that plan on substantially the same grounds as its motion to dismiss. Lengthy hearings on confirmation were held, but before resolution of these contested matters. Bankruptcy Judge Lesser, to whom that case had been originally referred, resigned. Subsequently, the case was re-referred to me, and in an opinion dated December 13, 1979,3 I held that the debtor's amended plan violated the relevant provisions of § 5174 of the 1898 Act and granted Jamaica's motion to dismiss. Almost immediately following this determination, the debtor, pursuant to Bankruptcy Rule 12-39,5 sought leave to file another amended plan of arrangement. This belated application was denied.

Subsequent to an order having been entered dismissing the Chapter XII case, "with prejudice", the debtor filed a Notice of Appeal and obtained, from this Court, a stay pending appeal upon condition that the debtor make stated monthly payments6 to Jamaica. After several in-chambers conferences the debtor, representing that it needed additional time to raise third party funds, was granted a ten-day extension of the time period, specified in the proposed stay order, within which to make its initial monthly payment. As so modified, the stay order was signed. The debtor therefore appeared before the District Court seeking a further modification of the stay provisions but such application was denied by District Judge Kevin T. Duffy. On the day the first monthly payment became due, the debtor unsuccessfully applied to this Court for a week's extension of the stay without payment and for permission to substitute a supersedeas bond in lieu of monthly cash payments.

The following morning, at 9:14 A.M., having failed to fulfill the terms of the stay order, the debtor commenced this case under Chapter 11 of the 1978 Code thereby triggering the automatic stay provisions of § 362 of the Code.7 The list of creditors attached to the Chapter 11 petition is identical to the list of creditors furnished by the debtor in the prior Chapter XII case, except that the two law firms, which had represented the debtor in the Chapter XII case, are now listed in the instant one.

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Immediately following the filing of the Chapter 11 petition, an understandably frustrated and outraged Jamaica came before this Court urging dismissal of the Chapter 11 case.8 This motion is predicated primarily9 on (1) the alleged preclusive effect of this Court's prior dismissal order and (2) an interpretation of § 403(a) of the 1978 Bankruptcy Act which, if correct, denies applicability of the provisions of that Act to this debtor.




The order of Dismissal

On December 13, 1979 this Court filed an opinion which, as noted earlier, concluded that the debtor's plan impermissibly violated the express provisions of § 517 of the 1898 Bankruptcy Act. Accordingly, since this Court could not make the prerequisite finding for confirmation that "the provisions of this Chapter XII have been complied with",10 the proposed arrangement was necessarily refused. At the direction of the Court, Jamaica settled an order on notice dismissing the case pursuant to § 481 of the 1898 Act11 and Bankruptcy Rule 12-41(b).12 The order, as signed, provided that the case be dismissed "with prejudice".13

Bankruptcy Rule 12-41(b) provides in relevant part that

"The Court shall enter an order, after hearing on such notice as it may direct dismissing the case, or adjudicating the debtor a bankrupt . . ., whichever may be in the best interest of the estate —
. . . . .
(3) if no plan is confirmed;. . . . "

Subdivision (d) of this Rule further provides that unless the order specifies to the contrary, a dismissal on any ground other than fraud is without prejudice. The Advisory Committee's note indicates that subsection (d) "gives discretion to the Court to determine whether dismissal should bar future relief under the Act."14

Jamaica contends that this Court's dismissal of the debtor's Chapter XII case under the 1898 Act, with prejudice, should operate, as well, to bar the maintenance of the instant reorganization case under Chapter 11 of the 1978 Code. Since "a dismissal with prejudice constitutes an adjudication of the merits of the controversy as fully and completely as if the order had been entered after the trial of the suit",15 Jamaica argues

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that the principle of res judicata16 should apply


Res judicata

Res judicata contemplates that "a final judgment on the merits bars further claims by parties or their privies based on the same cause of action."17 This judicial doctrine18 is "not a technical rule, but a rule of fundamental repose for both society and litigants."19 Moreover, this doctrine "encourages reliance upon judicial decisions, bars vexatious litigation and frees the courts to resolve other disputes."20 However, because a mechanical application of the rule can, in some instances, work an injustice, traditional notions of justice and equity are properly exercisable by the trial courts in determining whether to apply estoppel principles.21

Jamaica's argument, in support of its contention that the debtor is barred from continuing this Chapter 11 case, may be constructed as follows: the debtor's attempt to obtain relief from its debts by resort to a Chapter XII case under the 1898 Act was rejected; since res judicata bars subsequent actions between the same parties on all claims which were, or could have been litigated in the prior action, this debtor is precluded now from filing any further petitions22 for an arrangement with regard to those debts scheduled in the earlier case. But even if we assume along with Jamaica that the orthodox principles of res judicata, set forth above, apply to bar the commencement of a second bankruptcy reorganization case following a dismissal of the first,23 we

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disagree with Jamaica that such principles unqualifiedly apply in the face of a material24 and intervening legislative change in law.25 Although, in our view, the doctrine of res judicata is generally presumed to apply, even in the face of an intervening change occasioned by a newly enacted statute,26 this presumption is qualified27 where the legislative intent of such new enactment either renders the conclusive effect of an earlier judgment inapplicable to a subsequent suit or limits the scope of the earlier judgment.28

Thus, a statutory change will often have the effect of creating a new cause of action which, quite clearly, could not have been litigated prior to the effective date of the new statute.29

Since, in the prior action such newly created rights could not have been adjudicated, a judgment in the earlier proceeding should have no preclusive effect on a subsequent action grounded upon a new statute.30 But whether or not a statute creates a new cause of action necessarily depends upon the intent of the legislature.31

Additionally, there are two other distinct and independent bases for qualifying or rejecting the normally strict application of res judicata. First, since, as noted earlier, res judicata is a judicial doctrine rooted in public policy, that doctrine has no application where it is inconsistent with legislative purposes.32 Second, if in its promulgation of new legislation, the Congress manifests an intent to extend relief even to those who have already had their rights adjudicated under the umbrella of prior legislation, the preclusive effect of res judicata will be abrogated.33

Accordingly, it is clear that resolution of the instant dispute critically turns upon the

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manifestation of Congress' intent as revealed in the intervening 1978 Bankruptcy Reform legislation


The Savings Clause

Although the mandate is clear that, under the circumstances present here, we must seek out the intention of the legislature to determine the effect, if any, of the intervening 1978 Bankruptcy Law, on the prior Chapter XII case, the direction such search leads us is often less than certain. Indeed, the unique...

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