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

• Decision Date: 16 June 2014
• Docket Number: No. 13 Civ. 7686 (SAS).,13 Civ. 7686 (SAS).
• Citation: 512 B.R. 159
• Parties: In re NEW YORK SKYLINE, INC., Debtor. New York Skyline, Inc., Appellant, v. Empire State Building Trust Company L.L.C. and Empire State Building Associates, L.L.C., Appellees.
• Court: U.S. District Court — Southern District of New York

512 B.R. 159

In re NEW YORK SKYLINE, INC., Debtor.New York Skyline, Inc., Appellant,

v.Empire State Building Trust Company L.L.C. and Empire State Building Associates, L.L.C., Appellees.

No. 13 Civ. 7686 (SAS).

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

Signed June 16, 2014.

Recognized as Unconstitutional

28 U.S.C.A. § 157(b)(2)(C)

James Wilson Perkins, Esq., Greenberg Traurig, LLP, New York, NY, Charles Addison Stewart, III, Esq., Stewart Occhipinti, LLP, New York, NY, for Appellant.

David Scott Tannenbaum, Esq., Stern, Tannenbaum & Bell, L.L.P., New York, NY, for Appellees.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

I. INTRODUCTION

Appellant New York Skyline Inc. (“Skyline”) operates “SkyRide,” a helicopter simulator on the second floor of the Empire State Building (the “Building”). Skyline and appellees ¹ are parties to Lease and License agreements entered into in February 1993, amended from time to time, and assumed by Skyline pursuant to section 365 of the Bankruptcy Code (“ section 365”) during its chapter 11 bankruptcy case.²

Skyline appeals from an Order and Final Judgment issued by Bankruptcy Judge Stuart M. Bernstein on September 11, 2013 (the “Judgment”) in a pre-confirmation adversary proceeding.³ As a threshold matter, Skyline contends that under Stern v. Marshall,⁴ Judge Bernstein lacked constitutional authority to enter a judgment in the adversary proceeding. ⁵ On the merits, Skyline argues that Judge Bernstein committed reversible errors with respect to (1) ESB's claim that Skyline breached a provision of a 2005 Lease and License amendment (the “2005 Agreement”) which prohibited Skyline from paying commissions or sales incentives to Skyline representatives working in certain areas; and (2) Skyline's claim that Article 42 of the Lease “requires ESB to bill Skyline based on a survey that estimates Skyline's actual consumption, as opposed to its estimated overall capacity to consume electricity.” ⁶ For the reasons set forth below, the Judgment is vacated and this case is remanded.

II. BACKGROUNDA. The 2005 Agreement

In April 2005, ESB moved the ticket office for the Observation Decks to the second floor of the Building and reversed the direction of the “West Escalators” leading to SkyRide.⁷ Skyline brought an action against ESB in state court seeking declaratory, injunctive, and monetary relief relating to its right to access the West Escalators under the Lease.⁸ Prior to a hearing on Skyline's motion for a preliminary injunction, the parties executed the 2005 Agreement, and stipulated to discontinue the action with prejudice. The 2005 Agreement permitted Skyline access to its premises through the West Escalators and addressed some, but not all, of the many disputes between the parties.⁹ One issue was ESB's concern “about Skyline representatives selling tickets in the Building and Skyline and other vendors clogging” entrances.¹⁰ In response, the parties agreed to a protocol provision requiring 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.¹¹

In July 2008, ESB served Skyline with a Notice to Cure demanding Skyline pay $431,000 in Building security fees claimed under the 2005 Agreement. ¹² On August 18, 2008, Skyline filed an action in state court (the “Skyline Action”).¹³ The action was referred to the same judge that presided over the 2005 lawsuit.¹⁴

B. Skyline's Bankruptcy

1. Skyline's Chapter 11 Filing and the Removal of the Skyline Action

On January 12, 2009, Skyline filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. Skyline's largest creditor by far was its secured lender, which held a claim of over $24 million as of the petition date. ¹⁵ Roughly ninety trade creditors held unsecured claims totaling $130,000.¹⁶ In addition, ESB asserted claims based on the disputes under the parties' agreements.

ESB filed an adversary proceeding against Skyline on March 4, 2009 (the “ESB Action”),¹⁷ and removed the Skyline Action to the bankruptcy court on March 30, 2009.¹⁸ The Notice of Removal states that the bankruptcy court has jurisdiction over the Skyline Action pursuant to Title 28, United States Code, sections 1334(b) and 1452(a) because the Skyline Action is “related to” Skyline's bankruptcy case.¹⁹ The Notice of Removal also states that “[u]pon removal, the [Skyline Action] will be a ‘non-core’ matter, see28 U.S.C. § 157(b)(2), and ESB does not consent to entry of final orders or a judgment by the Bankruptcy Court in the [Skyline Action].” ²⁰

2. The April 28, 2009 Hearing

On April 7, 2009, Skyline filed a motion requesting that Judge Bernstein either remand the Skyline Action or abstain, arguing that state law predominated and the proceeding was non-core.²¹ The next day, Skyline filed a motion in its bankruptcy case for a ninety-day extension of time to assume or reject the Lease under section 365 of the Bankruptcy Code. ²² Judge Bernstein considered both motions at a hearing on April 28, 2009.²³He granted the ninety-day extension under section 365, 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.” ²⁴ Specifically, he determined that 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.²⁵ Judge Bernstein later entered a stipulation and order which fast-tracked claims in the adversary proceedings believed to be relevant to Skyline's decision to assume or reject the Lease under section 365. ²⁶

3. The Adversary Proceedings, the First Motions for Summary Judgment, and the Assumption of the Lease and License

The ESB Action asserted eleven claims.²⁷ Count I sought a declaratory judgment that the 2005 Agreement was part of the Lease and the License and therefore would need to be assumed along with the Lease and the License. ²⁸ Counts II through X sought declaratory relief, injunctive relief, and specific performance in connection with conduct by Skyline alleged to violate provisions of the Lease.²⁹ Count XI sought attorneys' fees under the Lease for ESB's expenses in connection with bringing the ESB Action. ³⁰ ESB alleged that its claims were “core matters pursuant to 28 U.S.C. § 157(b)(2)(A), (B) and (O), among others.” ³¹ In its Answer, Skyline stated that the allegation was a legal conclusion to which no response was necessary, but in any event denied knowledge as to the truth or falsity of the allegation.³²

Skyline filed a Second Amended Complaint on May 1, 2009, and a Third Amended Complaint (the “Complaint”) on July 29, 2009.³³ The Complaint asserts claims for rescission of the 2005 Agreement, declaratory judgment, injunctive relief, breach of specific provisions of the Lease and License, unjust enrichment, prima facie tort, and tortious interference with contract. In addition, Count Nineteen asserts claims for turnover and violations of the automatic stay pursuant to sections 542 and 362 of the Bankruptcy Code in connection with breaches of the Lease and License agreements.

The Complaint alleges that jurisdiction is proper because the claims either arise in title 11, under title 11, or are related to the pending chapter 11 case.³⁴ It also states that “[f]or the reasons articulated by the Hon. Stuart M. Bernstein on April 28, 2009 in connection with the denial of Skyline's motion to remand, the causes of action alleged in this Complaint are ‘core’ matters pursuant to 28 U.S.C. § 157(b)(2).” ³⁵ On September 15, 2009, ESB filed an answerand asserted nine counterclaims. ³⁶

On July 17, 2009, in connection with the order expediting claims relevant to Skyline's decision to assume or reject the Lease, the parties cross-moved for partial summary judgment. In its motion, Skyline sought a determination that Article 42 of the Lease, relating to electricity charges, is ambiguous. ESB moved with respect to five of Skyline's claims, including the Third Claim, which was to rescind the 2005 Agreement. Just after the motions were filed, Skyline moved to assume the Lease.³⁷ On July 28, 2009, during oral argument on the motions for summary judgment, Skyline indicated it would seek assumption of the Lease regardless of whether it could rescind the 2005 Agreement. On September 17, 2009, Judge Bernstein granted Skyline's motion to assume over ESB's objection.³⁸ Pursuant to the assumption order, Skyline assumed both the Lease and License, paid $306,991.02 to ESB in undisputed cure amounts, and was directed to escrow $768,120.76 for disputed cure amounts.³⁹ Among the disputed items were “security charges, access fees, electrical charges, late fees, and attorneys' fees.” ⁴⁰

Judge Bernstein issued his decision on the parties' cross-motions on June 21, 2010. He dismissed Skyline's rescission claim in part because the Lease, License, and 2005 Agreement were a single, indivisible agreement for purposes of assumption under section 365.⁴¹ Judge Bernstein concluded that by assuming the 2005 Agreement, Skyline had ratified it, which barred a claim for rescission.⁴² He denied Skyline's request for a determination that Article 42 is ambiguous, holding that it was “not appropriate to use summary judgment as a vehicle for fragmented adjudication of non-determinative issues.” ⁴³

4. Plan Confirmation

On August 13, 2010, Skyline filed a Fourth Amended Chapter 11 Plan of Reorganization (the “Plan”),⁴⁴ which was confirmed on October 12, 2010. ⁴⁵ Article 11 of the Plan is a retention of jurisdiction provision. It states in relevant part that the court retained jurisdiction “(b) To determine any and all adversary proceedings, applications, and contested matters that are pending on the Effective Date”; “(i) To hear and determine all Claims, controversies, suits and disputes against the Debtor to the full extent...