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In re Poseidon Pool & Spa Recreational

September 28, 2007

IN RE: POSEIDON POOL & SPA RECREATIONAL, INC., DEBTOR.
VERMONT PARTNERS, LTD., APPELLANT,
v.
ANDREW M. THALER, ESQ., AS TRUSTEE OF THE ESTATE OF POSEIDON POOL & SPA RECREATIONAL, INC. APPELLEE.



The opinion of the court was delivered by: Joseph F. Bianco, District Judge

MEMORANDUM AND ORDER

The instant case is an appeal from the involuntary bankruptcy proceeding of Debtor Poseidon Pool & Spa Recreational, Inc. ("Debtor"), under Chapter 7 of the Bankruptcy Code, in the United States Bankruptcy Court for the Eastern District of New York (the "Bankruptcy Court"). Vermont Partners, Ltd. ("Vermont Partners" or "Appellant"), the mortgagee of Debtor's landlord, Steamroller Properties, LLC ("Steamroller"), appeals from an Order of the Honorable Dorothy Eisenberg, United States Bankruptcy Judge, dated November 30, 2006, finding that Trustee Andrew M. Thaler, Esq. ("Trustee" or "Appellee") of Debtor's estate timely applied to the Bankruptcy Court to assume Debtor's lease. Trustee opposes the instant appeal, asserting that: (1) it is interlocutory; and (2) Trustee's application was timely. For the reasons set forth below, the Court disagrees on the first ground but agrees on the second, and affirms the Bankruptcy Court's Order.

I. BACKGROUND

A. The Filing and Conversion

Debtor filed for bankruptcy under Chapter 11 of the Bankruptcy Code on October 7, 2005 (the "Filing Date"). On September 21, 2006, the Bankruptcy Court converted the case to Chapter 7, effective September 15, 2006 (the "Conversion Date").

B. The Ruland Road Property

As of the Filing Date, Debtor leased and occupied non-residential real property located at 25 Ruland Road in Melville, NY (the "Ruland Road Property"). Steamroller was Debtor's landlord and owned the Ruland Road Property. Vermont Partners was Steamroller's mortgagee. At the time of the Filing Date, Debtor had failed to pay rent to Steamroller, which in turn defaulted on its mortgage with Vermont Partners. On August 3, 2006, in lieu of foreclosure, Vermont Partners accepted the deed for the Ruland Road Property (the "August 3 Transfer").

The lease between Debtor and Steamroller for the Ruland Road Property (the "lease") provided Debtor with a right of first refusal in the event Steamroller received an offer to purchase or elected to sell the Ruland Road Property (the "right of first refusal").

C. The Adversary Proceeding

On October 26, 2006, Trustee filed a complaint against Vermont Partners, Steamroller, Steamroller Properties, Ltd. (Steamroller's predecessor in interest), and Joseph Gartner, the President both of Debtor and of Steamroller. In the complaint, Trustee alleged that the August 3 Transfer constituted a (1) breach of contract; (2) breach of New York Business Corporation Law; (3) tortious interference with contract; and (4) fraudulent conveyance because Steamroller did not notify Debtor of its contractual right of first refusal prior to transferring the Ruland Road Property to Vermont Partners. (Compl. ¶¶ 61-104.) Trustee asks the Bankruptcy Court to reverse the August 3 Transfer and to award Trustee damages and attorney's fees. (Id. ¶ 104.)

D. The Bankruptcy Court's Extensions of Time to Assume or Reject the Lease*fn1

On November 7, 2005, Trustee filed a motion with the Bankruptcy Court to extend the time within which Debtor had to assume or reject the lease to April 28, 2006, under 11 U.S.C. § 365(d)(4) (the "Motion for Extension").*fn2 (Bankruptcy Court Docket Entry (hereinafter, "Docket Entry") 18.) The Bankruptcy Court scheduled a hearing on the Motion for Extension for November 29, 2005 (the "Extension Hearing"). (Id.) In a socalled "Minute-Entry" on the docket entered on November 29, 2005, the Bankruptcy Court adjourned the Extension Hearing to January 19, 2006 and granted an extension of time to assume or reject until January 27, 2006, stating: "DEBTORS [sic] TIME TO ASSUME OR REJECT LEASE EXTENDED TO 1/27/06 DEBTOR TO SET ASIDE THE RENT PAYMENT PURSUANT TO LEASE." (Unnumbered Docket Entry, dated November 29, 2005 (hereinafter, "Minute-Entry 1").)

On December 5, 2005, the Bankruptcy Court issued a written order confirming the extension and rent set-aside granted by means of Minute Entry 1. (Order Pursuant to Sections 105 and 365(d)(4) of the Bankruptcy Code Extending the Time Within Which the Debtor-in-Possession Must Elect to Assume or Reject its Unexpired Lease of Non-Residential Real Property (hereinafter, the "December 5 Order") at 2.) On December 7, 2005, the Bankruptcy Court amended the December 5 Order, adding a separate provision that Debtor must put aside rent due under the lease in a separate escrow account held by Debtor's counsel. (Amended Order Pursuant to Sections 105 and 365(d)(4) of the Bankruptcy Code Extending the Time Within Which the Debtor-in-Possession Must Elect to Assume or Reject its Unexpired Lease of Non-Residential Real Property (hereinafter, the "December 7 Order") at 2) (emphasis in original.) The December 7 Order maintained the January 27, 2006 extension. Both the December 5 Order and the December 7 Order contained a provision ordering "that nothing contained in this Order shall, in any respect, be deemed to prejudice the right or ability of the Debtor to assume or reject the lease . . . ." (December 5 Order at 2; December 7 Order at 2.)

On December 23, 2005, Debtor filed a motion for reconsideration of the December 7 Order (hereinafter, the "Motion for Reconsideration"). (Docket Entry 55.) In the Debtor's Affirmation in Support of the Motion for Reconsideration (the "Affirmation"), Debtor alleged that the Bankruptcy Court "granted the extension of time to assume or reject on the condition that the Debtor deliver the rent payment in escrow . . . ." (Affirmation ¶ 5.) The Motion for Reconsideration did not, however, address the provision of the December 7 Order granting the Motion for Extension. Instead, Debtor addressed the provision of the December 7 Order requiring the rent set-aside. (Id. ¶ 15.)

On January 10, 2006, the Bankruptcy Court scheduled a hearing on the Motion for Reconsideration for March 9, 2006 (the "Reconsideration Hearing") (Unnumbered Docket Entry, dated January 10, 2006 (hereinafter, "Minute-Entry 2").)

On January 19, 2006, the Bankruptcy Court adjourned the Extension Hearing to March 9, 2006 and granted an additional extension of the time to assume or reject until April 28, 2006, stating: "Hearing Rescheduled Motion to Extend Time within which the Debtor must assume or reject the unexpired lease of the non-residential property located at 25 Ruland Road, Melville, NY through 4/28/06."*fn3 (Unnumbered Docket Entry, dated January 19, 2006 (hereinafter, "Minute-Entry 3")) (emphasis added.)

On March 9, 2006, the Bankruptcy Court adjourned the Extension Hearing to March 13, 2006. (Unnumbered Docket Entry, dated March 9, 2006 (hereinafter "Minute-Entry 4").) The Bankruptcy Court also adjourned the Reconsideration Hearing to the same day. (Unnumbered Docket Entry, dated March 9, 2006 (hereinafter, Minute-Entry 5").) The Bankruptcy Court docket does not contain an entry for March 13, 2006.

On April 10, 2006, the Bankruptcy Court adjourned the Reconsideration Hearing to May 9, 2006 and granted an additional extension of time to assume or reject until May 11, 2006, stating: "Hearing Rescheduled (RE: related document(s) 55 Motion to Reconsider the Court's Order of December 7, 2005 . . . . Time Extended to 5/11/06 to Assume or Reject Lease. . . ." (Unnamed Docket Entry, dated April 10, 2006 (hereinafter, "Minute-Entry 6")) (emphasis added.)

On May 2, 2006, Debtor filed a "Supplemental Motion to Assume/Reject" the lease. Appellant alleges that the supplemental motion "makes absolutely no mention of a request that the Bankruptcy Court further extend the Debtor's time to assume or reject the lease."*fn4 (Appellant's Br. at 7.)

On May 9, 2006, the Bankruptcy Court entered two Minute-Entries. The first states: "Hearing Held (RE: related document(s) 55 Motion to Reconsider the Court's Order of December 7, 2005 . . . . DENIED COURT TO RENDER A WRITTEN DECISION." (Unnumbered Docket Entry, dated May 9, 2006 (hereinafter, "Minute-Entry 7").) The second adjourned the Extension Hearing to June 6, 2006 and granted an extension of the time to assume or reject until June 8, 2006, stating: "Hearing Rescheduled (RE: related document(s) 18 Motion to Extend Time . . . . TIME EXTENDED TO 6/8/06, RENT PAYMENTS TO BE HELD IN ATTORNEY FOR DEBTORS [sic] ESCROW ACCOUNT." (Unnumbered Docket Entry, dated May 9, 2006 (hereinafter, "Minute-Entry 8")) (emphasis added.)

On May 19, 2006, the Bankruptcy Court denied the Motion for Reconsideration, (Memorandum Decision Denying Debtor's Motion for Reconsideration of the Court's December 7, 2005 Order (hereinafter, "May 19 Order") at 10), holding that Debtor must continue to pay all postpetition rent into Debtor's attorney's escrow account. (Id.) The May 19 Order did not address the provision of the December 7 Order pertaining to the extension of time to assume or reject the lease. However, the Bankruptcy Court noted that "because the Debtor continues to remain in possession of the Premises, the Debtor should pay for its ...


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