N.Y. Skyline, Inc. v. Empire State Bldg. Co. (In re N.Y. Skyline, Inc.)

Decision Date26 August 2015
Docket NumberAdv. P. No. 09-01145 (SMB),Case No. 09-10181 (SMB)
CourtU.S. Bankruptcy Court — Southern District of New York
PartiesIn re: NEW YORK SKYLINE, INC., Debtor. NEW YORK SKYLINE, INC., Plaintiff, v. EMPIRE STATE BUILDING COMPANY L.L.C., EMPIRE STATE BUILDING, INC. and EMPIRE STATE BUILDING ASSOCIATES L.L.C. Defendants.

Chapter 11

POST-REMAND OPINION REGARDING COURT'S AUTHORITY TO ISSUE PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW

APPEARANCES:

STEWART OCCHIPINTI, LLP

65 West 36th Street, 7th Floor

New York, New York 10018

Charles A. Stewart, III, Esq.

Elin M. Frey, Esq.

Of Counsel

Attorneys for New York Skyline, Inc.

STERN TANNENBAUM & BELL LLP

380 Lexington Avenue

New York, NY 10168

Francine Nisim, Esq.

Karen S. Frieman, Esq.

David S. Tannenbaum, Esq.

Of Counsel

Attorneys for Empire State Building Company L.L.C.,

Empire State Realty Observatory TRS, LLC and Empire State Building, Inc.STUART M. BERNSTEIN United States Bankruptcy Judge:

After this Court confirmed the debtor's plan, entered a final decree and closed the case, it rendered certain decisions and entered a final judgment in an adversary proceeding that had been removed from state court early in the case and prior to confirmation. The District Court vacated the judgment and remanded to this Court to consider several questions. See New York Skyline, Inc. v. Empire State Bldg. Trust Co. L.L.C. (In re New York Skyline, Inc.), 512 B.R. 159 (S.D.N.Y. 2014) ("Remand Decision"), aff'd, 601 F. App'x 52 (2d Cir. 2015). The principal questions on remand are whether these removed claims continued to be "related to" the confirmed and closed bankruptcy case, and whether the Court had the authority to issue proposed findings of fact and conclusions of law under 28 U.S.C. § 157(c)(1) or other authority.

As discussed in detail below, the Court concludes that it did not lose its "related to" or non-core jurisdiction over pre-confirmation claims following confirmation and the closing of the bankruptcy case, and had the power to issue proposed findings of fact and conclusions of law pursuant to 28 U.S.C. § 157(c)(1). Alternatively, the Court exercised supplemental jurisdiction over the removed proceeding, and had the power to enter proposed findings of fact and conclusions of law under either 28 U.S.C. § 157(c)(1) or its inherent power. Finally, the Court concludes that it had core jurisdiction over the debtor's claim to rescind the parties' May 2005 Agreement (the "Rescission Claim") which the Court dismissed on a motion for partial summary judgment, and will enter a separate final judgment dismissing that claim.

BACKGROUND

The background to this long running dispute between the parties is discussed in numerous opinions of this Court and more recently by the District Court in the Remand Decision. I limit the discussion to what is necessary to address the questions posed by the District Court.1

The debtor, New York Skyline, Inc. ("Skyline"), operates a helicopter simulator ride (the "Attraction") on the second floor of the Empire State Building (the "Building"). Skyline and ESB2 have been parties to a Lease, as modified (the "Lease"), and a License, as modified (the "License"), since 1993. The parties have been litigating with each other for just as long regarding various aspects of their relationship.

Focusing on May 2005, they were at that time engaged in litigation brought by Skyline in state court. The lawsuit was prompted by ESB's decision to reverse the Building escalators which had the effect of blocking or at least impeding access to and from the Attraction. In May 2005, they entered into an agreement (the "May 2005 Agreement") to resolve the access issue as well as some, but not all, of the disputes between them. Among other things, the May 2005 Agreement permitted Skyline to install video monitors and erect signage at the premises. In addition, the May 2005 Agreement required Skyline employees or representatives working in areas "of or near the building" to wear uniforms approved by ESB and prohibited them from being paid commissions or sales incentives. Finally, it required Skyline to pay an access fee inthe annual amount of $450,000 and a security fee in the annual amount of $335,000.3 As part of the settlement embodied in the May 2005 Agreement, the parties stipulated to discontinue the pending state court action with prejudice.

The peace was only temporary. In July 2008, ESB served Skyline with a Notice to Cure demanding $431,000 in Building security fees. In response, Skyline commenced an action in state court to obtain a "Yellowstone" injunction (the "Skyline Action").

On January 12, 2009, and while the Skyline Action was pending in state court, Skyline filed a chapter 11 case in this Court. ESB filed an adversary proceeding against Skyline on March 4, 2009 (the "ESB Action"), and removed the Skyline Action to this Court on March 30, 2009. The ESB Action asserted eleven claims. The majority sought declaratory relief, injunctive relief, and specific performance in connection with conduct by Skyline alleged to have violated the Lease or License. In addition, Count I sought a declaratory judgment that the May 2005 Agreement was part of the Lease and the License, and Count XI sought attorneys' fees and expenses under the Lease incurred in connection with bringing the ESB Action. Skyline's Third Amended Complaint (the "Complaint"), filed on July 29, 2009, asserted a host of claims, including rescission of the May 2005 Agreement, declaratory and injunctive relief, breach of specific provisions of the Lease and License, unjust enrichment, prima facie tort, tortious interference with contract, turnover and violations of the automatic stay in connection with breaches of the Lease and License agreements.

In April 2009, Skyline filed two motions: (1) to remand the Skyline Action or abstain and (2) to extend the time within which to assume or reject the Lease for ninety days pursuant toBankruptcy Code § 365(d)(4). The Court considered both motions on the same day. It granted the ninety-day extension and denied the motion to remand or abstain reasoning that "the issues were intertwined with the issues raised by Skyline's anticipated motion to assume some or all of its agreements with ESB." Specifically, the claims were core insofar as they related to the Lease assumption and "arguably" core to the extent they related to the allowability of ESB's proof of claim. The Court later entered a stipulation and order that fast-tracked claims in the adversary proceedings believed to be relevant to Skyline's decision to assume or reject the Lease under section 365. On July 17, 2009, and in connection with that order, the parties cross-moved for partial summary judgment. Among other relief, ESB moved to dismiss Skyline's Third Claim for Relief which sought to rescind the May 2005 Agreement.4

Shortly after the motions were filed, and before they were decided, Skyline moved to assume the Lease. The strategy was curious but understandable. The resolution of the Rescission Claim was critical to determining exactly what agreements Skyline was assuming and the amount of the cure costs it would have to pay. In particular, ESB was seeking substantial access and security fees under the May 2005 Agreement. Nevertheless, Skyline made the decision that it needed to operate in the Building, even if it had to do so under the May 2005 Agreement, and believed it could bear whatever costs that involved. (Motion to Assume Lease, dated July 20, 2009 ("The Debtor has determined, in the exercise of its business judgment, that it would be in the Debtor's best interest to assume the Lease. The reason is simple: the Debtor's business is contingent upon the Lease, and on an operating basis, the Debtor has historically been profitable, and remains profitable.") (ECF/Main Case Doc. # 38).)

The Court granted Skyline's motion to assume the Lease and License on September 17, 2009, over ESB's objection and while ESB's motion for partial summary judgment was still pending. (See Order Granting Motion to Assume Lease, dated Sept. 17, 2009 ("Assumption Order") (ECF/Main Case Doc. # 57).) Pursuant to the Assumption Order, Skyline assumed both the Lease and License, paid $306,991.02 to ESB in undisputed cure amounts, and escrowed $768,120.76 to satisfy the disputed cure amounts should they be allowed. Among the disputed items were "security charges, access fees, electrical charges, late fees, and attorneys' fees." In addition, the status of the May 2005 Agreement, and specifically, whether it had been assumed, was still an open issue.

The Court's decision on the cross-motions for summary judgment resolved those questions. The Court dismissed the Rescission Claim for three reasons. First, the May 2005 Agreement was indivisible from and therefore part of the Lease and License. Hence, Skyline could not rescind just the May 2005 Agreement; it had to rescind the Lease and License which it was not prepared to do. New York Skyline, Inc. v. Empire State Bldg. Co. L.L.C. (In re New York Skyline, Inc.), 432 B.R. 66, 80 (Bankr. S.D.N.Y. 2010) ("Rescission Decision"). Second, by assuming the Lease and License, Skyline had also assumed the May 2005 Agreement. Skyline's assumption of the May 2005 Agreement barred the claim to rescind the same agreement. Id. at 82. Third, Skyline had discontinued its May 2005 state court action with prejudice following the execution of the May 2005 Agreement, and the status quo could not be restored if the May 2005 Agreement was rescinded. Id. at 84.5

On October 12, 2010, the Court confirmed Skyline's Fourth Amended Chapter 11 Plan of Reorganization (the "Plan"), which, inter alia, retained jurisdiction over the pending adversary proceedings. On February 28, 2011, the Court entered a final decree after determining that the Plan had been substantially consummated and closed Skyline's bankruptcy case. (Final Decree, dated Feb. 28, 2011 (ECF/Main Case Doc. # 164).) The Final Decree expressly...

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