Opinion
Bankruptcy No. 84 B 11467.
February 13, 1985.
Angel Frankel, P.C., Stein, Davidoff Malito, New York City, for debtor.
Webster Sheffield, New York City, for United Nations Development Corp.
DECISION AND ORDER ON MOTION FOR MODIFICATION OF THE AUTOMATIC STAY
On October 16, 1984, 343 East 43rd Street Holding Corporation, doing business as La Bibliotheque (Debtor) filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code (Code). The debtor had leased space from the United Nations Development Corporation (UNDC) for use as a restaurant. Under §§ 1107 and 1108 of the Code, the debtor was authorized to operate and manage its restaurant and remain in possession of its property.
On August 3, 1983, the two sole shareholders of the debtor were charged, as a result of a federal criminal investigation, in a thirty-five count indictment with conspiracy, income tax evasion and mail fraud against UNDC during the years 1978-1981. Subsequently, the two shareholders pleaded guilty to the first two charges and served three months in prison and were fined $10,000 for their crimes.
On April 13, 1984, UNDC instituted a civil action in the Southern District Court against the debtor and its shareholders to seek redress for the injury suffered by it as a result of the defendants' criminal fraud, under the Racketeer Influenced and Corrupt Organization Act (RICO). United Nations Development Corporation v. 343 East 43rd Street Holding Corporation, William Gordon and Steven Meisels, S.D.N.Y., 84 Civ. 2650 (VLB). Prior to the filing of debtor's Chapter 11 proceeding, the respondents in the civil action moved to dismiss the entire action. In addition, on June 27, 1984, UNDC moved to obtain disclosure of certain materials from the Government's criminal investigation of the two shareholders of the corporation. The materials are sought to establish the defrauding of the UNDC of a large amount of percentage rent.
No answer to the complaint has been filed. Of course, upon filing of the petition, the district court civil action was automatically stayed. 11 U.S.C. § 362(a)(1).
Upon notice of motion, dated November 5, 1984, the landlord, UNDC, moved for a modification of the automatic stay for the limited purpose of allowing a disposition of the motion for discovery in the civil action.
Modification or relief from the automatic stay may be granted upon notice and a hearing for cause. 11 U.S.C. § 362(d)(1). Given the serious nature of the allegations of rent fraud, there is good cause to proceed with discovery in the civil action. See, In re Highcrest Management Co., Inc., 30 B.R. 776 (S.D.N.Y.Bankr. 1983). The debtor will not be prejudiced significantly. The documents are held by the United States Attorney's Office. The debtor has not adequately met its burden of showing that it is entitled to continuation of the stay. 11 U.S.C. § 362(g); see In re E.C. Ernst, 35 B.R. 341, 342 (Bankr.S.D.N.Y. 1983).
Accordingly, the court UNDC's motion to modify the automatic stay to allow disposition of the motion for discovery in the civil action, S.D.N.Y., 84 Civ. 2650, is granted.
It is so ordered.