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In re Cosmopolitan Aviation Corp.

May 24, 1985

IN RE COSMOPOLITAN AVIATION CORP., DEBTOR, COSMOPOLITAN AVIATION CORP., DEBTOR-APPELLANT, FLUSHING SAVINGS BANK, INTERVENOR, APPELLEE CROSS-APPELLANT,
v.
NEW YORK STATE DEPARTMENT OF TRANSPORTATION, APPELLEE, APPELLANT CROSS-APPELLEE



Cosmopolitan Aviation Corporation and Flushing Savings Bank appeal from an order of the United States District Court for the Eastern District of New York, Mishler, J., which affirmed an order of the United States Bankruptcy Court for the Eastern District of New York, Parente, J., directing Cosmopolitan Aviation Corporation to turn over to the New York State Department of Transportation possession of certain premises. The State appeals from an order of the United States District Court for the Eastern District of New York, Altimari, J., which granted Flushing Savings Bank's motion for an extension of time in which to file a notice of appeal from Judge Mishler's order. Appeal of Judge Mishler's order dismissed as to both Cosmopolitan Aviation Corporation and Flushing Savings Bank. Judge Altimari's order reversed. Double costs and attorneys' fees assessed jointly and severally against Cosmopolitan Aviation Corporation and its attorneys and against Flushing Savings Bank and its attorneys. Remanded to the district court for the calculation of attorneys' fees.

Van Graafeiland, Meskill and Winter, Circuit Judges.

Author: Meskill

MESKILL, Circuit Judge:

Cosmopolitan Aviation Corporation (Cosmopolitan) and Flushing Savings Bank (Flushing) appeal from an order entered in the United States District Court for the Eastern District of New York, Mishler, J., which affirmed an order of the United States Bankruptcy Court for the Eastern District of New York, Parente, J., directing Cosmopolitan to turn over possession of certain premises at Republic Airport in Farmingdale, New York to the New York State Department of Transportation (State). The State appeals from an order entered in the United States District Court for the Eastern District of New York, Altimari, J., which extended the time, pursuant to Fed. R. App. P. 4(a)(5), for Flushing to file a notice of appeal from Judge Mishler's order.

We hold that Cosmopolitan is without standing to appeal the bankruptcy court order. We also hold that the trial judge abused his discretion in granting Flushing an extension and, therefore, that Flushing failed to file a timely notice of appeal. Accordingly, we reverse the order granting Flushing an extension and we dismiss this appeal as to both Cosmopolitan and Flushing. Furthermore, the frivolous and vexatious character of the appeal brought by Cosmopolitan and Flushing warrants the imposition of sanctions in the form of double costs and attorneys' fees against them as well as against their attorneys. We intend the award of fees in favor of the State to be in the nature of compensatory damages. Therefore, we remand the nature of compensatory damages. Therefore, we remand this action to the district court and instruct that court to ascertain the amount of the State's reasonable attorneys' fees and to assess that amount jointly and severally against Flushing and its attorneys and jointly and severally against Cosmopolitan and its attorneys to compensate the State for the cost of defending against this action in the federal courts.

BACKGROUND

This case began as a simple dispute between the State as landlord, and its tenant, Cosmopolitan.*fn1 It has, however, been inordinately complicated by the combined machinations of Cosmopolitan and Flushing. The dispute and the legal issues raised do not warrant the space necessary to convey adequately the truly remarkable bad faith evidenced by Cosmopolitan and Flushing throughout this litigation. During the course of these proceedings, Cosmopolitan, Flushing and their attorneys have continually mischaracterized facts, prior proceedings and the law. It has been no mean task to pick through the voluminous record only to find that the State's presentation has been essentially and consistently unbiased and balanced, in complete contrast to the actions of Cosmopolitan and Flushing.

In October 1975, Cosmopolitan entered into a lease under which it took possession of approximately forty acres of Republic Airport, a general aviation facility in Farmingdale owned by the State. The lease was for a term of fifteen years, from October 1975 to October 1990, with an option to renew for ten years. In addition to requiring monthly payment of a base rent and a percentage of revenue, the lease obligated Cosmopolitan, inter alia, to construct a hangar within a specified time limit and in accordance with plans approved in advance by the State, to request and receive written approval prior to conducting air taxi or charter operations, to keep and maintain accurate books and records of its operations at the airport and to make those books and records as well as certified financial statements, external adults and income tax returns available to the State.

The lease also provided that if Cosmopolitan were to continue in default of any or all of its obligations for thirty days after written notice of default from the lessor, the State could terminate the agreement on five days written notice. In the event of such termination, the lessor, an amount equal to the cost of improvements made by the lessee in accordance with the terms and conditions of the lease (the buy-back provision).

In or about September 1976, the State consented in writing to Cosmopolitan's mortgage and assignment of its interest in the lease to Flushing. The consent outlined the conditions Flushing would have to satisfy before it would have to cure any defaults; it would have to do so within the period permitted under the lease, i.e., within thirty days following notice of default, and it would have to obtain the consent of the State which would not unreasonably be withheld.

In late 1977 and 1978, Cosmopolitan defaulted on all of its previously listed obligations. Attempts at informal resolution having proved unavailing, the State served on Cosmopolitan, with a copy to Flushing, a notice of default dated June 11, 1979, The defaults remained uncured. Flushing took no timely action to satisfy any of the conditions required before it could take possession of the premises. In August 1979, the State notified Cosmopolitan in writing, with a copy to Flushing, that the lease would terminate on September 5, 1979 and that Cosmopolitan should surrender the premises on that date. Cosmopolitan refused to comply. Consequently, the State instituted a summary proceeding in the state District Court of the County of Suffolk, Second District to recover possession. The State did not notify Flushing of the suit.

Trial began in June 1981 and progressed slowly and sporadically. Nine trial days later, in August 1981, Cosmopolitan began its defense case. On August 11, 1981, Cosmopolitan filed a Chapter 11 petition in the United States Bankruptcy Court for the Eastern District of New York, which automatically stayed the state court litigation. The State moved successfully in the bankruptcy court to vacate the stay. The bankruptcy court order, however, also prohibited the State from enforcing any favorable state court judgment absent a further order from the bankruptcy court. The state court trial resumed, progressing even more slowly than before. Post-trial briefs were finally submitted in late April 1982.

Although never formally notified, Flushing had been aware of the State's summary dispossess proceedings since at least December 1981. Flushing sought no involvement of any kind, however, until March 1982. At that time it sued the State for declaratory and monetary relief pursuant to the buy-back provision of Cosmopolitan's lease. At no time during this critical period did flushing assert a right to possession of the premises either in this action or in the underlying possession proceeding. The State removed Flushing's action to the bankruptcy court where the suit has remained dormant.

The state trial court handed down its decision in the summary proceeding in May 1982. Finding that Cosmopolitan had failed to cure eight material defaults under the lease - only one of which related to nonpayment of rent - the court held that the lease had terminated on September 5, 1979 and that Cosmopolitan had thereafter wrongfully remained in possession. Final judgment was entered on June 2, 1982 adjudging the State to be entitled to possession, ordering the issuance of a warrant of eviction against Cosmopolitan, its personnel and affiliates and awarding the State $176,426.44 but not precluding it from seeking any additional amounts later found to be owing.

Armed with its unequivocal state court judgment, the State returned to the bankruptcy court on June 3, 1982 seeking to have Cosmopolitan liquidated, to have the proceeding converted from a Chapter 11 to a Chapter 7 action and to have a trustee appointed to oversee the liquidation, to conduct an audit and to restore possession to the State. By order dated June 24, the bankruptcy court appointed an operating trustee but, on Flushing's request, refused to convert the action. Flushing informed the court that it was engaged in negotiating a potential refinancing deal with Cosmopolitan.

On or about June 12, 1982, with the trustee's approval, Cosmopolitan appealed the trial court decision to the New York Supreme Court, Appellate Term. While aware of the appeal, Flushing did not attempt to intervene during the ten month period of the appeal's pendency.

In November 1982, the bankruptcy court sua sponte issued an order to show cause why it should not convert the Chapter 11 proceeding to a Chapter 7 proceeding or dismiss pursuant to 11 U.S.C. ยง 1112(b) (1982). At the January 25, 1983 hearing, Cosmopolitan and the trustee argued that the bankruptcy court should not act until the appellate term decided Cosmopolitan's appeal. The bankruptcy court acquiesced but also ordered that a rehabilitation or liquidation plan be filed by March 1, 1983. The court acknowledged that the lease, it reinstated, would constitute a valuable asset. But it was becoming increasingly evident that even with the lease, Cosmopolitan would be in very dire financial straits.

In April 1983, the appellate term affirmed the trial court judgment and Cosmopolitan appealed to the New York Supreme Court, Appellate Division. In early November 1983, the trustee informed the bankruptcy court that Cosmopolitan was unable to meet its current operating expenses, incapable of settling its pre-petition obligations and incapable of curing its defaults-even if the lease was resurrected. A full evidentiary hearing was held in the bankruptcy court on December 12, 1983, approximately two and one-half years after Cosmopolitan filed its petition and a year and one-half after the State filed its initial motion to convert. Flushing participated, appearing through one of its attorneys, and urged the court to again ...


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