United States District Court, S.D. New York
August 1, 2014
In re NEW YORK SKYLINE, INC., Debtor.
EMPIRE STATE BUILDING COMPANY L.L.C., EMPIRE STATE BUILDING, INC. and EMPIRE STATE BUILDING ASSOCIATES, L.L.C., Appellees NEW YORK SKYLINE, INC., Appellant,
Decided July 31, 2014
For Appellant: James Wilson Perkins, Esq., Greenberg Traurig, LLP New York, NY; Charles Addison Stewart, III, Esq., Elin M. Frey, Esq., Stewart Occhipinti, LLP, New York, NY; Howard J. Berman, Esq., Ellenoff Grossman & Schole LLP, New York, NY.
For Appellees: David Scott Tannenbaum, Esq., Francine Nisim, Esq., Karen S. Frieman, Esq., Stern, Tannenbaum & Bell, L.L.P., New York, NY; William Heur, Esq., Duane Morris LLP, New York, NY.
OPINION AND ORDER
Shira A. Scheindlin, United States District Judge.
On June 16, 2014, this Court issued an Opinion and Order which vacated an Order and Final Judgment issued by Judge Stuart Bernstein (the " Judgment" ) and remanded the case for further proceedings. As detailed in the Opinion, the Judgment was entered in an adversary proceeding involving a former debtor, Appellant New York Skyline, Inc. (" Skyline" ), and Appellees (" ESB" ). Skyline is ESB's tenant and licensee under a Lease and License entered into in 1993 and assumed by Skyline in the early stages of its chapter 11 bankruptcy case.
Among other things, the Judgment enjoined Skyline from engaging in certain activities, including paying commissions to independent contractors working within specific areas outside the Empire State Building and selling particular items in the Building's gift shop (the " Injunctions" ). On July 7, 2014, ESB filed an appeal from the Opinion. ESB now moves pursuant to Rule 62(c) and (g) of the Federal Rules of Civil Procedure for an injunction or stay of the vacatur of the Judgment, and restoration of the Injunctions, pending the appeal. Oral argument was held on the
motion on July 24, 2014. For the reasons set forth below, ESB's motion is DENIED.
The standard for obtaining a stay pending appeal is well-established, as is the burden of proof. The court must consider: " '(1) whether the stay applicant has made a strong showing that [it] is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.'"  The first two factors are the most critical. " It is not enough that the chance of success on the merits be 'better than negligible.'"  " By the same token, simply showing some
possibility of irreparable injury fails to satisfy the second factor."  The burden is on the moving party to establish these elements. A stay of a judgment pending an appeal is an exercise of judicial discretion and is not a matter of right, even if irreparable injury might otherwise result. Unlike a recent decision issued by a panel of the United States Court of Appeals for the Second Circuit, I take seriously the need to analyze and evaluate each of these stay factors.
A. Success on the Merits Is Not Likely or Substantially Possible
1. Vacatur Was Not Premature
ESB argues that where " there are undecided issues relating to the propriety of injunctive relief, the injunction should remain in effect pending remand and further review."  ESB contends that relevant issues remain undecided because the Opinion " remanded the case for the Bankruptcy Court to determine, inter alia, the underlying issue of whether any of the claims on which it had ruled were core."  However, the counterclaims that gave rise to the Injunctions cannot be considered core. They did not arise under title 11 or in Skyline's bankruptcy case. In 2013, when trial was held on the counterclaims and the Judgment and Injunction were entered, these counterclaims were irrelevant to the assumption of the Lease and License. The counterclaims had no bearing on the administration of the estate -- there was no bankruptcy estate in 2013 -- or the allowance or disallowance of ESB's claim -- which was satisfied under the confirmed and consummated Plan. Likewise,
enjoining Skyline, now a former debtor, from certain activities was neither an " adjustment of the debtor-creditor . . . relationship"  nor an " order approving the use or lease of property." 
The Bankruptcy Court stated in the Protocol Decision that it had the authority to enter a final judgment on ESB's counterclaims based on the parties' consent. This is consistent with the Bankruptcy Court's determination in the May 2012 Authority Decision that, " [w]ith a few exceptions, the remaining claims asserted by Skyline and ESB are non-core; they arise from the parties' pre-petition agreements, and are based on state law."  It is also consistent with ESB's statement in the parties' May 2011 joint pretrial submission that the claims at issue were " non-core matters," which the Bankruptcy Court had the authority to adjudicate because of Skyline's express consent in the Plan and its waiver of the right to a jury trial on its tort claims.
Having determined that Skyline did not consent to the entry of a final judgment on the claims or counterclaims, the critical issue on remand is whether the Bankruptcy Court has the authority to issue proposed findings of fact and conclusions of law subject to review by this Court. As stated in the Opinion:
[w]hile jurisdiction may continue to exist, it does not follow that the adversary proceedings continued to be " related to" the bankruptcy case for purposes of section 157. The nature of the claims that went to trial, the confirmation of the Plan, and the issuance of the Final Decree, strongly suggest that the claims were no longer related to Skyline's bankruptcy case.
As with the issue of consent, the question of whether the claims are " related to" the bankruptcy case for purposes of section 157 assumes that those claims are not core. Thus, I held that the claims at issue in the appeal were not core. In doing so, I phrased this as " Skyline's claims are not core," when a more careful statement would have been that neither Skyline's claims nor ESB's counterclaims decided in 2013 when the Electricity and Protocol decisions were issued were core. Why then did I vacate the entire Judgment and also remand, in part, so that the " bankruptcy
court [c]ould determine which claims were core when decided and, if necessary, enter a separate judgment with respect to only those claims[?]"  While the Opinion addressed claims that were decided in 2013 when the Electricity and Protocol Decisions were issued, the Judgment covered nineteen claims and nine counterclaims that were, in whole or in part and in one way or another, resolved between June 2010 and August 2013. Accordingly, it was possible that some claims referred to in the Judgment were core when they were determined. As there was no basis for this Court to leave in place a judgment, especially one providing injunctive relief, after determining that the Bankruptcy Court exceeded its authority under section 157, I vacated the Judgment and remanded with the instruction that the Bankruptcy Court determine if there were any claims that were core and to enter a new judgment only as to those claims.
ESB also contends that relevant issues remain undecided because I remanded the case for the additional purpose of requesting that the Bankruptcy Court determine if it had the authority to issue proposed findings of fact and conclusions of law with respect to the parties' " non-core" claims. According to ESB, " there is no basis for assuming the Bankruptcy Court did not have this authority and in effect reversing its findings and dissolving the Injunctions, which is the practical effect of the Order."  However, the question of whether the Bankruptcy Court has the authority to issue proposed findings of fact and conclusions of law is irrelevant to whether the Judgment and the Injunctions should be vacated. Even assuming that the Bankruptcy Court could issue proposed findings of fact and conclusions of law, those conclusions and findings would not constitute a binding judgment, and any injunction it recommended would not be effective, until entered by this Court.
Finally, the cases cited by ESB for the proposition that the Injunctions should remain in effect pending remand do not support ESB's request for a stay. In Rosen v. Siegel, the district court had issued a preliminary injunction without citing the applicable legal standard or making findings of fact to support the injunction. Although the Second Circuit remanded the case so that the district court could render the required findings, it did not vacate the injunction for two reasons. First, doing so would " 'punish the movant for the district court's failure to make specific findings.'"  Second, there was some evidence that the injunction was warranted, such that " the evidence on the record [did] not compel a ruling for either side" and the court could not determine whether the district court had committed reversible error. Unlike in Rosen, this Court vacated the Judgement after finding that the Bankruptcy Court lacked the authority to enter a final judgment, and the Bankruptcy Court's rationale for asserting it had the authority to issue the Injunctions -- i.e., the parties' consent -- is clear from the record. For the reasons stated here and in the Opinion, the issue on remand is not whether the Bankruptcy Court had the authority to issue the Judgment, but whether it had the authority to issue proposed findings of fact and conclusions of law subject to this Court's review.
In Universal Reinsurance v. St. Paul Fire and Marine Insurance, the Second Circuit considered a district court's order granting summary judgment for defendants in a case that had been litigated for almost five years without a showing of diversity jurisdiction by plaintiffs. The Second Circuit determined that there were two bars to diversity jurisdiction: (i) Universal was not a member of a foreign state for purposes of the diversity statute and (ii) plaintiffs' failure to allege that another party, Forkush, was a citizen of a particular state. Rather than vacate the judgment and dismiss the case for lack of subject matter jurisdiction, the Second Circuit remanded, in an " abundance of caution," so that the district court could determine whether it had subject matter jurisdiction to hear the case. The district
court was directed to " enter an appropriate order vacating the judgment and dismissing this case without prejudice[, i]f, after making the above determinations, the district court conclude[d] that it lack[ed] subject matter jurisdiction over the claims in this case[.]"  By contrast, this Court has already determined that the Bankruptcy Court lacked the authority to enter the Judgment, at least as it related to the claims at issue in the Electricity and Protocol Decisions. The primary purpose of the remand is to determine whether the Bankruptcy Court has the authority to issue proposed findings of fact and conclusions of law. In addition, declining to vacate a judgment while a case is remanded to the district court is substantially different from allowing an injunction to stand after a court has determined there was no power to issue that injunction.
2. Skyline Did Not Consent
ESB argues that it will likely prevail on its appeal because Skyline's " significant involvement in litigating this matter in the Bankruptcy Court . . . demonstrates that Skyline" consented to the Bankruptcy Court's entry of a final judgment on non-core claims. The record does not support this conclusion. The only reason the Skyline Action was in the Bankruptcy Court was because ESB removed it to that court; Skyline promptly sought to have the action remanded and, in the alternative, asked the Bankruptcy Court to abstain; and, just three weeks after the Supreme Court issued Stern v. Marshall, Skyline raised the Bankruptcy Court's lack of authority and, in the alternative, renewed its requests for remand and abstention.
Nevertheless, ESB contends that Skyline was content to proceed in the Bankruptcy Court but had a change of heart after it lost at trial. ESB claims that Skyline consented to the adjudication of its claims and ESB's counterclaims for all purposes in April 2009 when it identified certain claims and counterclaims as being integral to its motion to assume or reject the Lease and License and agreed to an expedited trial on those claims. However, Skyline's conduct does not demonstrate consent, express or otherwise.
Skyline filed a motion to remand or abstain and the following day filed a motion for a ninety-day extension of the deadline to assume or reject the Lease and License pursuant to section 365 of title 11 of the United States Code. A hearing on both motions was held on April 28, 2009. As reflected in the transcript of that hearing, Skyline's motion to remand or abstain was denied in part because certain claims were believed to be integral to Skyline's forthcoming motion to assume or reject the Lease and the License, and at the hearing the Bankruptcy Court asked the parties to identify the claims that needed to be resolved in the context of such a motion. Skyline identified the electrical charge claim as such an issue, presumably because it could impact the amount of any cure payment required to assume the Lease and the License, as well as the sales commission issue because this could impact the profitability of its business. Following this colloquy, Judge Bernstein stated:
See if you can come up with [the] . . . issues you think should be decided or have to be decided in the context of a motion to assume and so there's no
question about the effect of any findings or conclusions I'll carve those out of the adversary and try them simultaneously so they'll be part of the adversary. In essence, I'll order separate trials on those issues.
In accordance with this direction, on May 27, 2009, the Bankruptcy Court entered a stipulation and scheduling order that set forth the claims and counterclaims in the adversary proceeding that the parties agreed to try on an expedited basis in connection with Skyline's assumption motion.
To place Skyline's conduct in its proper context, it is important to consider the statutory framework under the Bankruptcy Code for assuming a lease of nonresidential real property. Under section 365(d), a debtor has 120 days from the filing of its petition to assume such a lease. A lease that is not assumed within that period of time is deemed rejected. The deadline can be extended by the bankruptcy court for cause for an additional ninety days, but following the initial for-cause extension, " the court may grant a subsequent extension only upon prior written consent of the lessor in each instance."  In other words, a debtor faced with a recalcitrant landlord must assume a nonresidential lease within 210 days of filing for bankruptcy relief. Here, Skyline filed its petition on January 12, 2009, meaning that prior to the initial extension, Skyline had until May 12, 2009 to assume the Lease. Following the extension granted by the Bankruptcy Court on April 28, 2009, Skyline had until August 10, 2009 to assume the Lease, unless it obtained the prior written consent of ESB.
Thus, to the extent that the parties' claims were relevant to the assumption of the Lease, Skyline had little choice but to agree to their resolution before the Bankruptcy Court. However, at the hearing on Skyline's assumption motion, the parties indicated that they had agreed on a cure amount, and ESB indicated that it would only oppose assumption if Skyline prevailed on its cause of action seeking to rescind the May 2005 Agreement. This was because Skyline had determined that resolution of the claims identified in the May 27, 2009 stipulation and scheduling order was not in fact necessary for assumption purposes. And, as already noted, the Bankruptcy Court approved the assumption of the Lease and License without resolution of those claims.
Nevertheless, ESB argues that because the Bankruptcy Court raised the issue of abstention and remand at the August 5, 2009 hearing, Skyline's failure to seek abstention or remand at that point manifested consent to have all claims and counterclaims adjudicated by the Bankruptcy Court. However, the Bankruptcy Court's comments primarily concerned Skyline's claim for rescission of the May 2005 Agreement. ESB had sought summary dismissal of that claim in a July 2009 motion that was pending at the time of
assumption. Specifically, the Bankruptcy Court noted that because it could not vacate the stipulation of discontinuance that Skyline had agreed to in state court -- only the state court could -- Skyline would not be able to establish that the parties could be restored to the status quo. As this is an essential element of a rescission claim, the Bankruptcy Court expressed its concern that this claim would have to be dismissed. But as of June 21, 2010, the rescission claim had little relevance to this case. The Bankruptcy Court determined that it could be dismissed on three independent grounds, including that Skyline's assumption of the Lease and License was an act of ratification that precluded rescission. Thus, the rescission claim, which was both defective and dismissed, could not form the basis of a motion to remand or abstain.
ESB also argues that Skyline indicated its consent by not seeking to withdraw the reference. The notion that Skyline should have sought to withdraw the reference highlights one of the problems underlying the Bankruptcy Court's continued retention of these cases, particularly following confirmation of the Plan on October 12, 2010, and its subsequent consummation. Had the reference been withdrawn, aside from one or two claims and/or counterclaims that were premised on bankruptcy law, all of which were resolved by mid-2011, the district court would have had before it purely state law claims. In the absence of federal claims, the most likely result would have been remand to the state court based on principles of supplemental jurisdiction. Asking the district court to withdraw the reference, in the hope that the district court would remand to the state court, would only have prolonged the already protracted proceeding, particularly given that an application to remand had twice been denied. It is therefore difficult to secondguess Skyline's decision not to move to
withdraw the reference.
ESB further argues that at a pretrial conference held on June 16, 2011, Skyline consented to the Bankruptcy Court's authority to enter a final judgment on its claims by agreeing to waive its right to a jury trial on its tort claims. ESB notes that, " Skyline went so far as to agree on the record to withdraw its jury demand so that the Bankruptcy Court would have the proper jurisdiction to try the case . . . ."  However, as Skyline later explained, it had " abandoned its right to a jury trial on its tort claims because research disclosed that a motion to withdraw the reference would be futile in June 2011."  Following Stern, which was issued a week or so later, Skyline challenged the authority of the Bankruptcy Court to issue a final judgment on its claims. But the Authority Decision rejected Skyline's arguments finding that it had expressly consented in the Plan to the entry of final judgment on all non-core claims.
In short, a careful review of the record indicates that this is not a case where " [Skyline's] protest" after the fact " more closely resembles an afterthought than a bona fide objection."  As discussed in the Opinion, " 'a court should not lightly infer from a litigant's conduct consent to have private state-created rights adjudicated by a non-Article III bankruptcy judge,'" because " 'to do so would violate the spirit of Northern Pipeline, which emphasizes that the power to adjudicate private rights, such as the right to recover contract damages, cannot be lodged in a court lacking the essential attributes of the judicial power.'" 
Deference Was Given to the Bankruptcy Court's Interpretation of the Confirmation
Order and the Plan
ESB asserts that this Court failed to give due deference to the Bankruptcy Court's interpretation of the Confirmation Order. The Confirmation Order merely states that " '[t]he Court hereby retains jurisdiction over the Bankruptcy Case to the fullest extent provided for in Article 11 of the Plan.'"  The Bankruptcy Court did not interpret the Confirmation Order, and the Confirmation Order does not address consent under section 157(c)(2). As for the Bankruptcy Court's interpretation of the Plan, I agree that where a bankruptcy judge's order is " ambiguous . . . [his] interpretation of [that] order warrants customary appellate deference."  However, I reviewed the plain language of the Plan and I rejected the Bankruptcy Court's interpretation of that language for the reasons stated in the Opinion.
Accordingly, I conclude that the first factor, likelihood of success on the merits, weighs heavily against granting the relief sought by ESB.
B. Irreparable Harm
Skyline admits that following vacatur of the Injunctions, it rehired twenty of the sixty independent contractors to work in the barred area outside the Building. ESB argues that this Court should not have vacated the Injunctions because the Bankruptcy Court determined in the Protocol Decision and in its denial of the stay of the Injunctions that ESB would be irreparably harmed. This argument is without merit. First, the Protocol Decision addressed whether ESB had established a right to specific performance under New York law, and did not mention irreparable harm or the other stay factors. Second, this Court is not bound by
the Bankruptcy Court's findings on Skyline's motion for a stay in the context of ESB's present motion because the parties have different burdens on the respective motions and the circumstances may well have changed. For example, it was Skyline's burden on its motion to show that ESB would not be substantially harmed, whereas here it is ESB's burden to show that it would be irreparably harmed.
While I agree that some measure of harm to ESB's reputation and good will may result from the aggressive behavior of sales persons operating across the street from the Building, the extent of that harm is mitigated by the fact that this condition existed throughout this litigation, roughly five years before the Bankruptcy Court issued the Injunctions. In addition, as admitted by ESB during oral argument, third-party contractors that are not affiliated with Skyline are permitted to sell tickets outside the Building, making it unclear whether Skyline has caused any damage to ESB's reputation. Accordingly, I conclude that this factor weighs only slightly in favor of granting the relief sought by ESB.
C. Substantial Harm to Skyline
ESB does not address this requirement in its opening brief. Skyline argues that restoration of the Injunctions will result in substantial injury because it lost approximately thirty percent of its revenue from ticket sales and approximately $2.25 million in profit on an annual basis while the Injunctions were in place. In addition, the issuance of a stay would require Skyline to terminate the twenty independent contractors it retained following this Court's vacatur of the Judgment and the Injunctions. ESB responds that any injury is a " natural result of Skyline having to adhere to the terms of its own agreements and, in any event, is compensable by damages . . . ."  While the harm does appear to be compensable by damages, it remains the case that the Bankruptcy Court did not have authority to enter a final judgment on the claims at issue, meaning that reinstatement of the Injunctions would violate Skyline's rights. On balance, I find that this factor is neutral and does not weigh either for or against granting the relief sought by ESB.
ESB does not dispute that the public interest is not implicated, but suggests that because " the parties spent over four years and many hundreds of thousands of dollars litigating their respective claims . . . in the Bankruptcy Court[,] and [t]he Bankruptcy Court spent countless hours hearing and determining the claims[,] . . . [i]t would be a waste of judicial resources and against public policy to prematurely dissolve the Injunctions and they should be restored pending the Appeal."  But as discussed above, vacatur of the Judgment and the Injunctions was not " premature." Accordingly, the Court finds that this factor does not weigh in favor of granting the relief sought by ESB.
Having weighed each of the factors relevant to the issuance of an injunction or a stay pending appeal, I conclude that because there is little likelihood that ESB will prevail on the merits, neither a stay nor an injunction is warranted despite the possibility that ESB could suffer injury to its reputation and good will. In short, there is no basis to preserve the " status quo" created by the invalid Judgment and Injunctions.
For the foregoing reasons, ESB's motion is denied.