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K & H Restaurant, Inc. v. Diamond Rock NY Lex Owner, LLC

United States District Court, S.D. New York

December 22, 2017

K & H RESTAURANT, INC., Plaintiff,

          Jesse B. Schneider Jacklyn M. Siegel Davis & Gilbert LLP Attorneys for Plaintiff

          Eric J. Snyder Alan D. Zuckerbrod Eloy A. Peral WlLK AUSLANDER LLP Attorneys for Defendants DiamondRock NY Lex Owner, LLC and Marriott International, Inc.

          Loretta M. Gastwirth Meltzer, Lippe, Goldstein & Breitstone LLP Attorney for Defendant Highgate Hotel L.P.


          Lewis A. Kaplan, District Judge.

         The matter is before the Court on defendants' motion to withdraw the reference of an adversary proceeding brought by plaintiff in the United States Bankruptcy Court for the Southern District of New York.[1]


         In 2003, K&H Restaurant, Inc. d/b/a Raffles ("K&H") entered into a commercial lease with Lexington Hotel LLC (defendant DiamondRock NY Lex Owner, LLC's ("DiamondRock") predecessor-in-interest), as landlord, to operate a coffee shop-restaurant in the ground floor of the hotel located at 511 Lexington Avenue in New York.[2]

         The lease contained various provisions relating to the interaction between hotel guests and K&H's restaurant, including that K&H would accept breakfast vouchers provided by the hotel to its guests and that K&H would provide room service subject to certain conditions.[3] The original lease contained also a number of labor-related provisions, including that K&H would comply with the provisions and standards set forth in "a certain collective bargaining agreement. .. between the Hotel Association of New York City, Inc. and the New York Hotel and Motel Trades Council, AFL-CIO (the 'Union')" (the "CBA"). If K&H failed to comply with the CBA for a period of seven days after notice from the landlord, the landlord had the right to terminate the lease.[4]

         On October 24, 2013, K&H signed a memorandum of understanding with the hotel and the Union pursuant to which K&H would pay certain wages to its employees.[5] The relationship between K&H and defendants subsequently deteriorated and, in 2016, an arbitrator issued awards directing the hotel and K&H, jointly and severally, to make certain payments to the Union and to specific employees.[6]

         DiamondRock issued a notice of default to K&H on October 9, 2016, stating that K&H had failed to comply with the CBA and that it had fifteen days to cure before the landlord would exercise is remedies under the lease, including its right to terminate the lease.[7] On November 7, 2016, the landlord issued a notice of cancellation and termination of the lease.[8] Shortly thereafter, on December 12, 2016, the landlord commenced a holdover proceeding in New York Civil Court.[9]In the meantime, on November 13, 2016, K&H filed a petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for this district. As discussed further below, that case remains pending.

         K&H filed the adversary proceeding at issue here in the bankruptcy court on February 10, 2017. The complaint alleged that DiamondRock breached its contract with K&H in April 2015 by ceasing to allow K&H to exercise its rights to provide room service, breakfast and catering services to hotel guests.[10] The complaint asserted claims for breach of contract, intentional interference with contractual relationship and unjust enrichment.[11] Defendants now move to withdraw the reference.


         Congress has distinguished between "core proceedings arising under title 11, or arising in a case under title 11, " which bankruptcy judges may hear and determine, and non-core proceedings that are "otherwise related to a case under title 11, " which a bankruptcy judge may hear, but not decide without the consent of the parties.[12] Section 157(d) provides that "[t]he district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown ... ."

         The Second Circuit has articulated the following rule:

"A district court considering whether to withdraw the reference should first evaluate whether the claim is core or non-core, since it is upon this issue that questions of efficiency and uniformity will turn... . [O]nce a district court makes the core/non-core determination, it should weigh questions of efficient use of judicial resources, delay and costs to the parties, uniformity of ...

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