Opinion
M47 (SAS).
May 22, 2006
Appearances For Landlord: Lawrence E. Tofel, Esq. TOFEL PARTNERS, LLP New York, New York.
Judy G.Z. Liu, Esq. WEIL, GOTSHAL MANGES, LLP New York, New York.
For Debtor: Mark A. Frankel, Esq. BACKENROTH FRANKEL KRINKSY, LLP New York, New York.
Larry Hutcher, Esq. DAVIDOFF MALITO HUTCHER, LLP New York, New York.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
East Forty-Fourth Street L.L.C. ("Landlord") requests leave to appeal an order of the Bankruptcy Court issued on March 10, 2006 holding that the lease for the building located at 228-238 East 44th Street, New York, New York (the "Lease") did not terminate prior to East 44 Realty, LLC's ("Debtor") bankruptcy filing on August 5, 2005. Landlord argues that the Lease terminated on March 31, 2005 and Debtor is therefore precluded from assuming the Lease under section 365 of the Bankruptcy Code. For the following reasons, Landlord's request for leave to appeal is denied.
11 U.S.C. § 365 (debtor may assume certain unexpired leases).
II. BACKGROUND
On July 30, 2004, the Supreme Court of the State of New York, County of New York entered a " Yellowstone injunction" restraining Landlord from terminating the Lease during the pendency of litigation between Landlord and Debtor related to Debtor's alleged defaults under the Lease. On February 24, 2005, the Supreme Court granted a motion by Landlord for summary judgment and vacated the Yellowstone injunction (the "Supreme Court Order"). On March 10, 2005, Landlord served Debtor with a default notice terminating the Lease as of March 31, 2005 (the "Default Notice").
See First National Stores, Inc. v. Yellowstone Shopping Ctr. Inc., 21 N.Y. 2d 630 (1968) (commercial tenant is entitled to injunctive relief restraining landlord from terminating a lease under certain circumstances).
Debtor appealed the Supreme Court Order to the Appellate Division, First Department, and on May 6, 2005, the Appellate Division granted an interim stay of the Supreme Court Order ("Interim Stay"). Landlord argued before the Appellate Division that the appeal was moot given the termination of the Lease on March 31, 2005. The Appellate Division did not resolve this question, but gave Landlord "leave to address the issue of mootness on the appeal." On May 26, 2005, the Appellate Division extended the Interim Stay pending determination of the appeal (the "Stay Order"). On August 5, 2005, Debtor filed for protection under chapter 11, and thereafter, moved to assume the Lease under section 365.
5/26/05 Order of the Appellate Division, First Department, Ex. C to Landlord's Motion.
A number of disputes remain to be resolved in the Bankruptcy Court between Landlord and Debtor related to the assumption of the Lease. Because a debtor may not assume an expired lease under section 365, the Bankruptcy Court first ruled on whether the Default Notice terminated the Lease prior to the petition date. The Bankruptcy Court held that the May 26, 2005 Stay Order nullified the Landlord's purported March 31, 2005 termination. The Bankruptcy Court found that the Appellate Division entered the Stay Order with full "knowledge of the background here," intending to preserve the Debtor's "continued right to possession of the premises" and to "avoid a forfeiture of the lease." The Bankruptcy Court rejected Landlord's argument that the Appellate Division could not resuscitate a terminated lease under New York law. Alternatively, the Bankruptcy Court reasoned that it was precluded from reviewing the Appellate Division's decision to resuscitate the Lease "under Rooker Feldman doctrine or related principles of res judicata and collateral estoppel." Landlord now seeks an order certifying this issue for interlocutory appeal under section 158(a)(3) of Title 28 of the United States Code.
3/10/06 Transcript of Hearing before Hon. Robert D. Drain ("3/10/06 Tr.") at 22-23, 26.
Id. at 24.
III. LEGAL STANDARD
In deciding whether to grant leave to appeal a non-final bankruptcy court order under section 158(a)(3), reviewing courts have applied the standards set forth in 28 U.S.C. § 1292(b), which governs the appealability of interlocutory district court orders. Under section 1292(b), the order being appealed must "(1) involve a controlling question of law (2) over which there is substantial ground for difference of opinion," and the movant must also show that "(3) an immediate appeal would materially advance the ultimate termination of the litigation." In addition, leave to appeal is warranted only when the movant demonstrates the existence of "exceptional circumstances."
See, e.g., In re Alexander, 248 B.R. 478, 483 (S.D.N.Y. 2000).
Perera v. Cogan, 265 B.R. 32, 34 (S.D.N.Y. 2001). Accord In re Alexander, 248 B.R. at 483; Gache v. Balaber-Strauss, 198 B.R. 662, 664 (S.D.N.Y. 1996).
Regarding the second prong, the "substantial ground for a difference of opinion" must arise out of a genuine doubt as to the correct applicable legal standard relied on in the order. Substantial ground would exist if the issue is "difficult and of first impression." However, it is not sufficient that the relevant case law is "less than clear" or allegedly "not in accord." "A mere claim that a district court's decision was incorrect does not suffice to establish substantial ground for a difference of opinion. Rather, to satisfy this prerequisite, there must be `substantial doubt' that the district court's order was correct."
In re Worldcom, No. M-47 HB, 2003 WL 21498904, at *10 (S.D.N.Y. June 30, 2003) (citation omitted).
Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21, 25 (2d Cir. 1990).
See North Fork Bank v. Abelson, 207 B.R. 382, 390 (E.D.N.Y. 1997).
Aristocrat Leisure Ltd. v. Deutsche Bank Trust Co. Americas, No. 04 Civ. 10014, 2005 WL 3440701, at *2 (S.D.N.Y. Dec. 14, 2005) (citations omitted).
IV. DISCUSSION
Landlord argues that the Bankruptcy Court misconstrued the Stay Order and misapplied principles of New York law. But Landlord has not demonstrated any substantial ground for a difference of opinion with the Bankruptcy Court's ruling.
Landlord argues that the May 26, 2005 Stay Order did not retroactively revive the Supreme Court's Yellowstone injunction because the Stay Order gave Landlord leave to raise the mootness issue on the appeal. But as the Bankruptcy Court observed, at the time it entered the Stay Order, "[o]bviously, the Appellate Division determined to continue with the appeal and not to consider it moot." The purpose of the Stay Order was to preserve the Debtor's right to cure defaults and avoid forfeiture of the Lease by the Debtor, and that Stay Order was in effect on the petition date. In May 2005, "it was up to the Appellate Division to determine . . . whether in fact the debtor should be estopped from attempting to revive [its right to cure any default] because of inactivity or the like. . . . And the Appellate Division did not do that." The text of the Stay Order does not cast substantial doubt on the Bankruptcy Court's conclusion.
3/10/06 Tr. at 20.
Id. at 25.
Landlord also fails to establish grounds for a difference of opinion with respect to the Bankruptcy Court's conclusion that doctrines of collateral estoppel, res judicata, and Rooker Feldman preclude review of the New York law question. Nor, for that matter, does Landlord attack the Bankruptcy Court's alternative holding that a lease can be revived by operation of a retroactive stay order under New York law. Landlord attaches the papers it filed in the Bankruptcy Court arguing this point, but Landlord does not identify the controlling legal issue that Bankruptcy Court overlooked.
Because I find no substantial grounds for difference of opinion with the Bankruptcy Court's holding, there is no need to address whether Landlord has identified a controlling issue of law or whether an immediate appeal would materially advance the litigation. For the same reasons, I do not address Debtor's alternative argument that Landlord's notice of appeal was untimely.
V. CONCLUSION
For the foregoing reasons, Landlord's motion for leave to appeal is denied. The Clerk of the Court is directed to close this motion.
SO ORDERED.