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In re 48 TH Street Steakhouse Inc.

decided: December 15, 1987.

IN RE 48TH STREET STEAKHOUSE, INC., DEBTOR. 48TH STREET STEAKHOUSE, INC., PLAINTIFF-APPELLEE,
v.
ROCKEFELLER GROUP, INC., AND ROCKEFELLER CENTER PROPERTIES, DEFENDANTS-APPELLANTS, I.S.H. LIQUIDATING CORP. AND DORNBUSH MENSCH & MANDELSTAM, DEFENDANTS



Appeal from an order of the United States District Court for the Southern District of New York (Duffy, J.), affirming grant of summary judgment by the Bankruptcy Court for the Southern District of New York (Brozman, J.) on the ground that appellants' sending of a lease termination notice to I.S.H. Liquidating Corp. was in violation of the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362. Affirmed.

Lumbard and Altimari, Circuit Judges, and Kaufman, District Judge.*fn*

Author: Altimari

ALTIMARI, Circuit Judges:

Appellants, Rockefeller Group, Inc. and Rockefeller Center Properties ("the Landlord"), appeal from a decision of the United States District Court for the Southern District of New York, Kevin Thomas Duffy, Judge, which affirmed a grant for summary judgment in favor of 48th Street Steakhouse, Inc. ("48th Street") by the United States Bankruptcy Court for the Southern District of New York, Tina L. Brozman, Bankruptcy Judge. Judge Brozman held that appellants' act of sending a lease termination notice to I.S.H. Liquidating Corp. ("I.S.H."), to which 48th Street's lease had been assigned, was in violation of 48th Street's right to an automatic stay under section 362 of the Bankruptcy Code, 11 U.S.C. § 362. We agree with this conclusion and we affirm the decision of the district court.

BACKGROUND

In November 1975, 48th Street contracted to purchase a restaurant business located at 10 Rockefeller Plaza, New York City, from Charley O's Corp. ("Charley O's"). The agreement of sale provided for the purchase by 48th Street of Charley O's furniture, fixtures and equipment located at the premises, and the right to use the name "Charley O's." Charley O's had been leasing the premises from Rockefeller Center, Inc. (later re-named Rockefeller Group, Inc.), which terminated its lease with Charley O's and entered into a new lease with 48th Street. 48th Street's lease was dated December 1975, but was not executed until April 1976; the lease term was to expire an September 30, 1994.

In order to finance its purchase of the restaurant, 48th Street executed a promissory note in the amount of $207,289.00, which evidenced its obligation to Charley O's. Charley O's secured this obligation by obtaining a security interest in 48th Street's chattels, fixtures and equipment. In addition, 48th Street assigned its lease of the premises to I.S.H., an affiliate of Charley O's, thus rendering I.S.H. the nominal prime tenant under the lease. The Landlord consented to this assignment.

Paragraph 6 of the assignment provided that the Landlord would consent to the future reassignment of the lease back from I.S.H. to 48th Street "whenever requested by the Assignee and the Assignor." Such reassignment was to be requested by means of a document entitled "Assignment with Consent and Release." This document provided that the lease was to be reassigned to 48th Street as soon as 48th Street had satisfied all its financial obligations to Charley O's. The "Assignment with Consent and Release" was to be held in escrow until such time as 48th Street's debt to Charley O's was satisfied.

After 48th Street assigned its lease to I.S.H., I.S.H. in turn sub-let the premises to 48th Street, with the Landlord's consent. The sub-lease was coterminous with the escrow agreement, in that it would also terminate upon the satisfaction of 48th Street's debt to Charley O's. 48th Street remained in continuous possession of the premises and pursuant to the terms of the sublease, paid rent directly to the Landlord.

In July of 1983, rent on the restaurant premises was in arrears. That same month, 48th Street and its parent corporation, American Hospitality Management Co. ("American Hospitality"), filed Chapter Eleven bankruptcy petitions. On August 1, 1983, American Hospitality tendered a payment to Landlord on behalf of 48th Street for use and occupation of the premises for the post-petition period of July. That tender was rejected.

In late August 1983, Landlord served I.S.H., the nominal prime tenant, with a notice of default which stated that if the arrears were not paid within five days, Landlord would terminate the lease. I.S.H. did not pay the requested arrears.

48th Street was served with a copy of the default notice and immediately acted to protect its interest in the lease by commencing the instant adversary proceeding on September 1, 1983. 48th Street's complaint requested, among other relief, that the Landlord be enjoined from taking any action with respect to 48th Street's interest in the lease, and the 48th Street be declared the prime tenant under the lease.

That same day, a hearing was held before Bankruptcy Judge Ryan, at which it was learned that the Landlord had already sent a notice of lease termination to I.S.H. dated September 1, 1983. The notice advised I.S.H. that because the arrears had not been paid within five days of the previous default notice, the lease was to be terminated in three days. Following the September 1 hearing, Judge Ryan issued a preliminary injunction which enjoined the Landlord "from interfering with and/or terminating any right, title and interest that the Debtor may enjoy with regard to the lease or premises." This injunction served to stay the effect of the lease termination notice.

In June 1985, 48th Street moved for summary judgment, arguing that the Landlord's sending of the lease termination notice violated the automatic stay provision of the Bankruptcy Code. 48th Street requested a declaration that the lease termination notice was ineffective, and that "upon the payment of all arrears due and owing under ...


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