Summary
holding prior appellate decision addressing identical issue as was before the court to be law of the case
Summary of this case from Perez v. Terrestar Corp. (In re Terrestar Corp.)Opinion
No. 84 civ. 2488 (WCC).
October 10, 1985.
Daniel A. Fass, Stanley L. Kantor and Jodi L. Popofsky, Schekter, Aber, Rishty Goldstein, New York, New York, attorneys for appellant.
David F. Segal, Jaffe Segal, New York, New York, attorney for appellee.
Marc S. Kirschner and David B. Stern, Gelberg Abrams, New York, New York, attorneys for appellee.
Jurisdiction — Related Proceedings — Law of the Case Doctrine — Appeals. — Under the "law of the case" doctirne, an appellate court will not reconsider a question decided on an earlier appeal in the same case absent cogent and compelling reaons. Those reasons include an intervening change in the controlling law, new evidence, and the need to correct a clear error or prevent manifest injustice. A district court's order in an earlier appeal, which held that a jurisdictional infirmity had been cured, was the law of the case here in the absence of any grounds for reconsideration.
See 28 U.S.C. § 158 at ¶ 4035.
Executory Contracts — Assignments — Compromies. — A court-ordered compromise between the assignee of a lease from the debtor and the landlord was "eminently reasonable under the circumstances." The compromise required the lessee to make certain improvements to the leasehold in compliance with local law, and reserved the issue of who would bear the ultimate cost of the improvements.
See Sec. 365(f) at § 8634.
This is an appeal from an order of Bankruptcy Judge Prudence B. Abram dated February 17, 1984 (the "February order") determining certain rights and obligations between appellant Free-Tan Corporation ("Free-Tan") and appellee 49-50 Associates, Free-Tan's landlord. The court has subject matter jurisdiction of this appeal pursuant to the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, sec. 241(a), § 1471, 92 Stat. 2549, 2668 (formerly codified at 28 U.S.C. § 1471 (Supp. IV 1980)), held unconsitutional in part by Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), and Emergency Bankruptcy Rule I § (e)(2)(A), see In re Emergency Bankruptcy Rule I, No. M10-468 (S.D.N.Y. Dec. 21, 1982).
Background
Appellant Free-Tan owns and operates a chain of retail clothing stores which do business under the names "Strawberry" and "Chuckles." Appellee 49-50 Associates is the landlord of a building located at 444-450 Madison Avenue in Manhattan ("the Newsweek Building").
On October 21, 1983, Judge Abram issued an order (the "assignment order") approving the assignment to appellant of a lease in the Newsweek Building which ws held by Lierbty Music and Video, Incorporated ("Liberty Music"), the debtor in possession in a Chapter 11 proceeding before her. The order, made purusant to 11 U.S.C. § 365 (Supp. II 1984), and submitted to and approved by District Judge Irving Ben Cooper purusant to Emergency Bankruptcy Rule I § (e)(2)(A)(ii), followed three days of hearings which were prompted by the landlord's strenuous objections to the proposed assignment. The landlord, which had twice before rejected appellant as a tenant, based its objection on its belief that appellant's business — primarily the operation of discount stores — was not appropriate to the image it was trying to maintain for the Newsweek Building. The landlord was also concerned that the types of signs and physical layout to be employed by appellant might not conform to the requirements of the lease and the News week Building regulations.
At the hearing, appellant represented to the bankruptcy court that it had always engaged prominent architects to design its stores, which contained the "finest types of marble, carpets, mirrors, lighting and such." Tr. dated Oct. 13, 1983 at 47. It presented a photograph of one of its "Strawberry" stores which had won an award for its design. Id. at 52-53. It suggested that the photograph represented the type of store that it intended for the leased premises, id., and stipulated that any area rented in accordance with the assignment from the debtor would receive careful and costly planning and design, id. at 48-49. It assured the bankruptcy court that the landlord's fears were unfounded, and that any operation on the lease premises would be that of a "high class" retail clothing store.
Upon these representations, Judge Abram issued her order approving the assignments. The order provided that appellant's intended use of the premises as a "Strawberry type" sore would not constitute a violation of the lease and authorized appellant to make certain non-structural alterations to the premises. It enjoined the landlord from commencing any legal or equitable action against appellant "for the purpose of challenging the validity or the enforceability of the assignment of the Lease . . . or declaring the Lease in default or terminating the estate thereunder for any default which occurred prior to the assignment thereof." In addition, it provided "that except as otherwise modified by the terms of this Order and Judgment, all of the terms, covenants, conditions, liabilities and obligations of or arising out of the lease including those related to signs shall remain in full force and effect." Finally, the order directed "that the Bankruptcy Court retain exclusive jurisdiction to hear and determine any dispute which may arise out of or in connection with the [assignment] Agreement and/or this Order and Judgment."
Under the terms of the lease, tenants were not permitted to make structural modifications to lease premises without the prior approval of the landlord. About a month after the assignment order was entered, appellant applied for such permission. The landlord refused. Appellant thereupon proceeded to the bankruptcy court to compel the landlord to accept its building plans. Judge Abram denied such relief on the ground that appellant's plans were merely preliminary drawings from which appellant's own expert admitted he would never attempt to commence actual construction. Tr. dated Nov. 30, 1983 at 84-86. About two months later appellant applied to Judge Abram for similar relief. This relief was similarly denied, Judge Abram noting that appellant had refused "from the very beginning to undertake to prepare the drawings at the point in time which it should have prepared the drawings." Tr. dated Jan. 19, 1984 at 55.
The following month, appellant again submitted proposed plans, which were again rejected by the landlord. However, in the interest of expediting appellant's receipt of the requisite building permit, Judge Abram approved the plans for the limited purpose of permitting appellant to submit them to the Department of Buildings. February order ¶ 5. Free-Tan was required to "make such installations of sprinklers and other devices as are required by Local Law No. 5 at its own expense at or prior to the time the Premises open for business." Id. ¶ 10. Judge Abram specifically reserved "the legal issue of whether Free-Tan [was] obligated to bear the expense of compliance with Local Law 5 at the Premises." Id. ¶ 13. Judge Abram made no findings with respect to the landlord's other objections to Free-Tan's proposed building plans, and provided that if the parties were unable to resolve those objections between themselves, either Free-Tan or the landlord would have the right to apply to Judge Abram or any other court for appropriate instructions and relief. Id. ¶ 7. From the issuance of this order, Free-Tan perfected this appeal.
Discussion
Free-Tan raises two issues on appeal. First, it contends that the bankruptcy court was without jurisdiction to enter the February order. Second, it asserts that Judge Abram abused her discretion in directing it to comply with Local Law No. 5 and in making such compliance a condition precedent to appellant's opening the premises for business.
I address first Free-Tan's contention that the Bankruptcy Court lacked subject matter jurisdiction over Free-Tan's dispute with 49-50 Associates since that dispute was neither a civil proceeding arising under title 11 nor one arising in or related to a case under title 11. Free-Tan raised the identical issue before Judge Knapp on its appeal from another order of Judge Abram issued at a later stage in the proceeding. See In re Liberty Music Video, Inc., 50 B.R. 379, supplemented, 50 B.R. 385 (S.D.N.Y. 1985). On that appeal, Free-Tan challenged Judge Abram's order enjoining Free-Tan from using the leased premises "for the conduct or operation of any business unless and until the store was appropriately and permanently fixtured for a high grade and respectable operation or until such time as Free-Tan obtain[ed] the landlord's consent in writing to any temporary or permanent use of the premises." 50 Bankr. at 380. Noting that our court of appeals has held that an action to enforce the terms of an order assigning a debtor's lease is an action "related to" rather than one "arising from" bankruptcy proceedings, 50 Bankr. at 385 (citing In re Lafayette Radio Electronics Corp., 761 F.2d 84, 89 n. 3 (2d Cir. 1985)), Judge Knapp acknowledged that, to the extent that Judge Abram attempted to retain jurisdiction to enforce her assignment order, she ran afoul of the Supreme Court's ruling in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). However, Judge Knapp concluded that approval of the assignment order by District Judge Cooper had cured any jurisdictional infirmity surrounding entry of the injunction order. 50 Bankr. at 385.
In the context of this bankruptcy appeal, I sit as an appellate court. Judge Knapp has decided the jurisdiction issue on a prior appeal in the same case. Under the doctrine of the "law of the case," an appellate court will not reconsider questions decided on a prior appeal in the same case absent "cogent" or "compelling" reasons. Doe v. New York City Dep't of Social Servs., 709 F.2d 782, 789 (2d Cir.), cert. denied, 104 S.Ct. 195 (1983); Dale v. Hahn, 486 F.2d 76, 81 (2d Cir. 1973), cert. denied, 419 U.S. 826 (1974). The major grounds justifying reconsideration are an intervening change of controlling law, the availability of new evidence, and the need to correct a clear error or prevent manifest injustice. Doe, 709 F.2d at 789. None of the grounds justifying reconsideration of Judge Knapp's decision are present and I therefore hold that his decision is the law of the case.
Having resolved appellant's jurisdictional challenge, I next address appellant's argument that Judge Abram abused her discretion in directing it to comply with Local Law No. 5 and in making such compliance a condition precedent to appellant's opening the premises for business. Appellant suggests that the Court review Judge Abram's order under the "abuse of discretion" standard. Considering the interim nature of the February order, I am inclined to agree. However, because this appeal is governed by Emergency Bankruptcy Rule I, it is arguable that I should review the bankruptcy court proceedings de nono. I need not reach the question of which standard applies, since the result in this case would be the same under either standard.
Emergency Bankruptcy Rule I § (e)(2)(B), provides that "[i]n conducting review, the district judge may hold a hearing and may receive such evidence as appropriate and may accept, reject, or modify, in whole or in part, the order or judgment of the bankruptcy judge, and need give no deference to the findings of the bankruptcy judge."
As a part of the assignment of the leased premises to Free-Tan, Free-Tan was given "the right to make nonstructural alterations at the Premises to convert the Premises to its own use." Free-Tan and the landlord were repeatedly before the bankruptcy court quibbling about Free-Tan's proposed renovations. On at least three separate occasions, Free-Tan invoked the jurisdiction of the bankruptcy court seeking to compel the landlord to accept its building plans.
Although it would appear that Free-Tan was largely to blame for the delays, Free-Tan had expended and was continuing to expend substantial sums in connection with the leased premises and was not receiving a return on its investment. In order to expedite the process of turning the leased premises into a going concern, Free-Tan was directed to comply with the requirements of Local Law No. 5 as a part of the extensive renovations it already planned to make to the leased premises. In return, it received the landlord's approval of its building plans which it had sought unsuccessfully for some four months and which was preventing it from proceeding with the renovations necessary to open its store. The issue of who would ultimately bear the cost of compliance with Local Law No. 5 was not resolved. Free-Tan was merely required to advance the funds to cover the cost of compliance.
Although I too decline to resolve this question, I note, as did Judge Abram, that article 6 of the lease would appear to place the burden of compliance on Free-Tan.
Having reviewed the proceedings before Judge Abram de novo, I conclude that the compromise effected in the February order was eminently reasonable under the circumstances. Accordingly, I adopt Judge Abram's order as the order and judgment of this Court.
The final issue I address is appellee's motion pursuant to Fed.R.Civ.P. 11 for an award of costs and attorney's fees incurred in responding to Free-Tan's jurisdictional challenge. In connection with the earlier appeal in this same proceeding, Judge Knapp concluded that appellant's position was frivolous and assessed costs and attorney's fees. In light of my ruling above that Judge Knapp's resolution of the jurisdictional issue is the law of the case, I have not addressed the merits of that issue. Consequently, I conclude that it would be inappropriate to inquire whether appellant's position on this issue "is well-grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law," Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir. 1985). Additionally, I note that appellee presumably incurred little additional expense in responding to the jurisdictional challenge on this appeal, since it had already addressed the issue on the prior appeal.
For the foregoing reasons, the February 17, 1984 order of the bankruptcy court is affirmed. Appellee's motion for costs pursuant to Fed.R.Civ.P. 11 is denied.