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In re 57th Street Day Spa, LLC, Case No. 10-13048 (REG)

(Bankr. S.D.N.Y. Oct. 27, 2010)

We represented: Landlord Creditor

Hon. Robert E. Gerber, U.S.B.J.


THE COURT: Have seats please. Ladies and gentlemen, in this case under Chapter 7 of the code, a commercial code, a commercial case, the landlord moves under 707(a) of the code to dismiss this case for cause. The landlord also makes an alternative request for dismissal under 305(a), though for reasons I'll articulate it's unnecessary for me to address that alternate. The motion is granted, and the following are the bases for the exercise of my discretion in this regard. Whether you call it a cause or bad faith -- and while bad faith has historically been used in many of the cases, I, in dealing with similar motions under Chapters both 7 and 11, have preferred to articulate it in exactly the words that the code articulates itself, which are for cause. If you review the case law, the various factors that are considered in such an analysis under either rubric are essentially the same. And you'll also see in the case law, as I discussed in my published decision in ?clair Bakery, the standards are largely congruent whether one talks about relief from the stay for cause or for bad faith filing or for dismissal of the entire case for cause or bad faith filing. Both sides seem to acknowledge the applicability of Judge Eisenberg's decision in Lombardo; Judge Eisenberg in the Eastern District being a respected colleague. And I re-read her decision and in my view, it merely bundles up and captures a doctrine that's been established in the case law across the country. And while it's useful because so much of it is gathered in one place, it really breaks no new ground in that regard. Various factors are articulated there, many of which apply to individual debtors and don't apply to commercial debtors. So I'm going to talk about those that are most important here. One of those factors is whether the case was filed to frustrate or has the effect of frustrating -- and you'll see the word effect in addition to purpose -- a single creditor. Mr. Messer on behalf of the debtors is quite right, that the mere existence of a two-party dispute or a dispute or a filing that was occasioned by reason of the pressure exerted by a single large creditor is not by itself dispositive. By way of example, Texaco, the famous case in this district before Judge Schwartzberg up in White Plains, was a two-party dispute case in some ways. It was certainly occasioned by the effect of the filing of the Pennzoil judgment, or obtaining the Pennzoil judgment and the need to deal with the Pennzoil judgment. But to state the obvious, Texaco had the needs and concerns of thousands of creditors to deal with and in this case the situation is very different. I do not say or make a finding the debtor here acted with an evil intent. I don't think that's what bad faith ever meant and I think it's a shorthand for a different kind of case law. Instead, what we need to look at and what is the overriding consideration, are the purposes for which we're here as bankruptcy courts advanced or frustrated by the filing, and are we as bankruptcy courts going to do the good that we're supposed to do as bankruptcy courts. A hugely important factor in that regard is the extent to which we're going to be serving the needs and concerns of creditors other than the moving court. So if, by way of example, I had a Texaco case, to take an extreme example, where I had thousands of creditors who would be benefited by the continued pendency of the case, I would keep it in play. On the other hand, I looked very carefully and I asked a lot of questions about the particular needs and concerns of creditors other than the landlord here. The debtor has stated that the employees have been paid. The debtor has stated that the taxing authorities have been satisfied. Ironically, the movant landlord isn't so sure that that's the case, but the debtor has acknowledged that that's the case. And that fact gives me some strong reason to believe that the people whose needs and concerns I would most want to take care of don't need protection in this case. Moreover, if it mattered, I would find the debtor estopped from saying that what it said in its schedules isn't true. So basically what I have is the landlord, as the overwhelmingly major creditor here, and a couple of flotsam and jetsam creditors: Verizon, ADT. But the need, which I would consider of huge importance if it were true, to present ? to protect other creditors is absent here. I could go through the other factors, but I think Mr. Messer -- in Lombardo and similar cases -- but I think Mr. Messer was right in that that's not necessary. The most important here is that the case was filed with the purpose of blocking a single creditor. It had the effect of doing so. I have no material creditors who would be benefited by the continuance of this Chapter 7 case. No jobs to save. This isn't a GM. No communities to save. Again, it's not a GM. And even if the trustee had completed her investigation and concluded that she wanted to bring an avoidance action, the minimal number of creditors who would be benefited by that wouldn't make it worth it. If a creditor thinks that this continued battle after battle after battle is warranted, and if it wants to spend its money to do it, my reaction is that the interests of the bankruptcy system are insufficient to cause me to stand in its way. The landlord is to settle an order in accordance with the foregoing. No less than seven calendar days notice by hand, fax or email, or an extra week if it chooses to use mail. The order is to provide for the usual stay, which used to be a 10-day stay, is now a 14-day stay for its effectiveness to permit time to appeal if that is desired. We're adjourned.