Teachers Ins. and Annuity Ass'n of America v. Butler
| Decision Date | 15 April 1986 |
| Citation | 803 F.2d 61,15 CBC.2d 952 |
| Parties | 15 Collier Bankr.Cas.2d 952, Bankr. L. Rep. P 71,512 TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, Plaintiff-Appellee, v. David L. BUTLER, James L. Grauer, James E. Kassis, and One City Centre Associates, a California Limited Partnership, Defendants-Appellants. Docket 86-7178. . Heard |
| Court | U.S. Court of Appeals — Second Circuit |
Fried, Frank, Harris, Shriver & Jacobson, New York City (Robert E. Gerber, Wayne Eastman, of counsel), for plaintiff-appellee.
Willkie Farr & Gallagher, New York City (Francis J. Menton, Jr., J. Kelly Strader, of counsel), for defendants-appellants.
Before MANSFIELD, KEARSE and CARDAMONE, Circuit Judges.
Before us is a motion to stay an appeal made by parties that appealed a district court judgment. Such an anomalous motion is not an everyday occurrence. Not satisfied with this clever bit of lawyering, the movants mounted more cunning maneuvers to thwart the effect of the adverse judgment. It is no wonder that in exceeding the limits of adversarial effort they only succeeded in outfoxing themselves, and that the district court, which found their conduct "outrageous," imposed sanctions against them.
Plaintiff entered into a long-term loan agreement at a fixed rate of interest with defendants for the development and construction of an office building in Sacramento, California. As interest rates declined defendants became increasingly disenchanted with their deal, so much so--as the district court found--that they grasped onto a default prepayment provision in the closing documents in a "last-ditch attempt" to undo the loan agreement. Plaintiff instituted a diversity action in the United States District Court for the Southern District of New York (Weinfeld, J.), in which it asserted that defendants breached their contract by failing to negotiate the dispute between them in good faith. Defendants countered that plaintiff had breached the contract by insisting on the inclusion of a provision that was not in the commitment letter.
After a six-day bench trial Judge Weinfeld issued his decision on January 28, 1986, 626 F.Supp. 1229, finding for the plaintiff. Three days later the district judge signed the judgment. Later that same day--across the continent--defendants were busily devising schemes to render the adverse judgment ineffective. After the close of business on the 31st on the east coast, defendants filed a petition on behalf of the partnership under Chapter 11 of the Bankruptcy Code in the Eastern District of California and obtained from the California bankruptcy judge a temporary Not content with these attempts to neutralize the judgment, defendants went further. On March 3rd a bankruptcy trustee nominated by the general partners and appointed by the bankruptcy court filed a petition to remove the breach of contract case from the Southern District of New York to the Eastern District of California Bankruptcy Court. Two days later the general partners filed a notice of appeal from the District Court of New York's judgment to the Bankruptcy Appellate Panel of the Ninth Circuit. Then, these same defendants appealed the same judgment to the Ninth Circuit and, finally, an appeal was filed from the January 28 decision in this Court.
restraining order preventing plaintiff from enforcing its judgment against the defendant partnership--which in any event was protected by the automatic stay provision of the Bankruptcy Code--and also preventing plaintiff from enforcing the judgment against each of the three defendant general partners, none of whom had filed bankruptcy petitions.
Plaintiff responded to these legal maneuvers by petitioning the district judge for injunctive relief barring defendants from appealing its January 28 decision to any court other than the Second Circuit. Plaintiff also sought to bar the partners from collaterally attacking the judgment entered as a result of that decision and to be awarded sanctions. Judge Weinfeld granted the injunction pending determination of the appeal by this Court, and ordered the general partners to pay plaintiff $1,500 each in costs and attorneys' fees for their "outrageous" conduct. Defendants have also appealed from this order dated March 27, 1986, 58 B.R. 1019.
In the motion before us, defendants--the partnership and the general partners--seek to stay the appeals from the decision of January 28 and the order of March 27, 1986 based on 11 U.S.C. Sec. 362 (Supp. III 1985). They argue that the district court wrongly concluded that the automatic stay and the associated temporary restraining order obtained by the general partners in the Eastern District of California had no application to these appeals. For reasons to be discussed shortly, we grant the motion staying the appeal from the district court's judgment with respect to the debtor partnership on condition that the judgment of the district court be given full faith and credit by the bankruptcy court in California, and without prejudice to the plaintiff's right to petition that court to have the stay of the appeal vacated. The motion to stay the appeal on behalf of the general partners is denied.
The facts are simply stated. The underlying action arose out of alleged breaches of a commitment letter agreement entered into by plaintiff-appellee Teachers Insurance and Annuity Association of America (Teachers) and the defendants-appellants One City Centre Associates (City Centre or the partnership) and its general partners, David L. Butler, James E. Kassis and James L. Grauer (general partners). Teachers is a New York nonprofit corporation which provides annuities and insurance programs to educational institutions and derives income from various investments, including long-term loans on commercial real estate ventures. City Centre is a California limited partnership that undertook the development and construction of a high rise office building, One City Centre, in Sacramento, California.
After extended negotiations between Teachers and City Centre, a commitment letter was signed on September 9, 1982 providing the necessary construction financing for the period during which the building was under construction and permanent financing upon completion. In July 1983 Teachers' counsel sent the closing document to City Centre for review and comments. This document contained a default prepayment provision. Prior to the closing date--set for April 30, 1984--Teachers and City Centre had agreed on all provisions except for the language of the default prepayment fee. On April 30 the general partners informed Teachers that
they were unwilling to accept Teachers' loan so long as the documents contained this particular condition. Teachers then drew the full amount of a $200,000 letter of credit that previously had been provided by City Centre under the commitment letter and brought suit for breach of contract.
Teachers initiated its breach of contract claim in the Southern District of New York seeking to recover damages in the amount of $3,991,408. This sum represented the difference between the 14.25% interest rate agreed upon in the commitment letter and the 11.89% prevailing rate of interest on Teachers' loans during the month after the closing, over the 35 year period of the loan, discounted to present value. Teachers also sought to recover $170,000 for interest over a six-month period following City Centre's refusal to close and $22,411 reflecting attorneys' fees for counsel retained for the closing. The partnership asserted that Teachers breached the contract by including in the closing documents an 18% default prepayment fee that was not included in the commitment letter, and counterclaimed to recover a $400,000 commitment fee and the $25,000 appraisal and engineering inspection fee it paid to Teachers.
As already noted, on January 28, 1986 the district court found after a six-day non-jury trial that City Centre had breached its duty of fair dealing and good faith implied in every contract under New York law and awarded damages to Teachers in the sum of $3,005,390. City Centre's counterclaim was dismissed because City Centre failed to sustain its burden of proof. On January 31 the district court judge signed the judgment; and on that day the partnership filed its bankruptcy petition in the Bankruptcy Court for the Eastern District of California. The bankruptcy judge issued an order temporarily restraining the initiation or continuation of any actions against City Centre's general partners. On February 4 the district court's judgment was filed and it was entered on February 6, 1986.
This motion raises two questions--whether a debtor who takes an appeal after filing for bankruptcy may on its own motion stay that appeal, and whether non-debtor general partners are entitled to a stay of proceedings against them. We discuss each question in turn.
Section 362 of the Bankruptcy Code automatically stays all proceedings against the debtor:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78eee(a)(3)), operates as a stay, applicable to all entities, of--
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.
11 U.S.C. Sec. 362(a)(1) (Supp. III 1985). It provides the debtor with "a breathing spell from his creditors." S.Rep. No. 989, 95th Cong., 2d Sess. 54-55 (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5840-41. Provision for relief from the effect of a...
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