Opinion
Civ. No. 03-1391 (DRD), Bankruptcy Case No. 02-38465 (DHS).
April 28, 2003
Richard L. Zucker, Esq., Lasser Hochman, L.L.C. Roseland, NJ, Attorney for Appellant Levin Properties L.P.
David Panitz, Esq., Hackensack, NJ, Attorney for Appellee Eyeglass Services Industries, Inc.
OPINION
Appellant Levin Properties ("Levin") has appealed from a February 27, 2003 order of the Bankruptcy Court, and Eyeglass Services Industries, Inc. ("ESI") has moved to dismiss Levin's appeal on the grounds (1) that the challenged order is interlocutory and therefore not appealable as a matter of right under 28 U.S.C. § 158(a), and (2) that leave to appeal the order (also available under § 158 (a)) should not be granted. For the reasons stated below, ESI's motion to dismiss the appeal will be denied.
BACKGROUND
Lens Lab has, since 1998, operated an eyeglass services business on premises (the "Premises") located in Paramus, New Jersey, and owned by Levin. The Premises are subject to a lease between ESI as tenant and Levin as landlord. Lens Lab occupies the Premises under a sublease between it and ESI. On August 20, 2001, Levin purportedly terminated its lease agreement with ESI and the tenancy created by that agreement, citing grounds including non-payment of rent, an improper (according to Levin) sublease to Lens Lab, and the operation of a business on the premises under an unapproved name. On August 27, 2001 Levin sued in New Jersey Superior Court seeking, among other things, possession of the Premises. Following discovery, Levin filed a motion for partial summary judgment on the issue of possession. On August 1, 2002, the day before the return date of the motion, Lens Lab filed a bankruptcy petition pursuant to 11 U.S.C. § 301.
While recognizing that the bankruptcy Petition stayed all proceedings as to Lens Lab, the state court nevertheless proceeded to decide the motion for partial summary judgment with respect to ESI, declaring that Levin had properly terminated its lease. The state court's judgment is embodied in an August 2, 2002 advisory opinion and in an August 30, 2002 order. The state court did not order any relief directly affecting Lens Lab. On September 27, 2002, the state court issued and order granting partial summary judgment in favor of Levin awarding damages against ESI (the "Damages Award") — at least in part based on a wrongful holdover of a terminated lease. Lens Lab remains in possession of the Premises, has continued to pay rent post-Petition, and continues to operate a business on the premises.
On October 7, 2002 Levin moved before the Bankruptcy Court for immediate possession of the Premises on two grounds: (1) that its August 2001 termination of ESI's lease had effectively terminated ESI's and therefore Lens Lab's rights to possession and (2) that, even assuming that the termination had not been effective, Lens Lab had failed to assume its sublease with ESI within 60 days of its bankruptcy petition, so that the sublease was deemed rejected under 11 U.S.C. § 365.
On November 27, 2002, Lens Lab cross moved for an order declaring that Levin violated the automatic stay, that the state court order purporting to determine ESI's and Levin's rights to the Premises was void ab initio, and that the debtor assumed its sublease. Lens Lab also cross moved for sanctions against Levin.
On January, 31, 2003, the Bankruptcy Court issued an order denying without prejudice Levin's motion for immediate possession; declaring that the state court's August 2, 2002 advisory opinion and August 30, 2002 order were void ab initio and stating that the "Debtor's interest in the premises leased by ESI from Levin and subleased by Debtor . . . is property of the estate pursuant to 11 U.S.C. § 541 and subject to protection by 11 U.S.C. § 362(a)" (imposing the automatic stay); the order also noted that Levin reserved its right to seek a determination that ESI's lease had been terminated in August of 2001. The order also postponed the determination whether sanctions against Levin were appropriate for violation of the stay; it required Lens Lab to file a motion either for approval of a new sublease with ESI or for a determination that ESI had waived automatic rejection of the existing sublease; and it required Lens Lab to file an adversary proceeding to determine the "nature, extent, and validity" of its interest in the Premises.
Lens Lab has since initiated the adversary proceeding, and it has filed the required motion for approval of a new sublease with ESI. That motion was granted, over Levin's objection, on February 4, 2003.
On February 27, 2003, the Bankruptcy Court issued an order granting a motion by ESI (which Lens Lab had joined) for declaration that the September 27, 2002 state court judgment awarding Levin damages against ESI was also void ab initio. It is this order that is the subject of the present appeal.
DISCUSSION AND CONCLUSION
Pursuant to 28 U.S.C.A. § 158(a), district courts have jurisdiction to hear appeals from final judgments or orders of bankruptcy courts. Appeals form interlocutory orders of a bankruptcy court may be heard with leave of the court. The standards defining the finality of bankruptcy court orders were reviewed in this Court's opinion of April 23, 2003, discussing Lens Lab's motion to dismiss Levin's appeal from portions of the Bankruptcy Court's January 31, 2003 order; and that outline of standards is incorporated here by reference.
For the purposes of the finality analysis, the Bankruptcy Court's February 4 declaration that the state court's Damages Award was void ab initio is practically identical to the Bankruptcy Court's declaration, in its order of January 31, 2003, that the state court's adjudication of Levin's and ESI's rights to the premises (in its August 2 and August 30, 2002 decisions) was similarly void. In both instances the Bankruptcy Court relieved a party of the effect of a state court judgment. In both instances it apparently did so on the grounds that the state court action at issue was within the scope of the automatic stay. Also in both instances the implications for the assets of the estate are considerable, as the state court orders at issue all appear to embody determinations that Levin's termination of the ESI lease was valid.
In part of its argument on the merits Levin appears to contend that the state court damages order in fact does not have an effect on the assets of the estate. Given that the order included an award of damages for ESI's wrongfully holding on the Premises, that such an award necessarily implies a decision that ESI's lease had been properly terminated, and that Lens Lab's rights to the premises are entirely derivative of ESI's, this contention does not appear viable.
Accordingly, for substantially the same reasons (discussed in the opinion of April 23, 2003) that rendered the Bankruptcy Court's voiding of the state court's August 2002 orders appealable as a final order, the Bankruptcy Court's order of February 27, 2003 is also appealable. ESI's motion to dismiss Levin's appeal from that order will therefore be denied. An appropriate order will be entered.