545 B.R. 786
Bankr. E.D.N.Y.2016Background
- Debtor Metro-plex on the Atlantic, LLC owns a partially completed 15‑story condominium on property in Far Rockaway (the Property); DOF holds a mortgage fixed at ~$38M. Debtor filed Chapter 11.
- A 24‑foot easement (the Easement) runs down the middle of the block from Seagirt Ave. to the Atlantic; the Building obstructs the southern portion of that easement.
- State court litigation produced a default judgment in favor of one easement claimant (Anderson) finding a valid easement and awarding damages and punitive damages; Richard George (another easement claimant) contests the Debtor’s proposed sale treatment.
- The Debtor/DOF Plan proposes auction sale of the Property under 11 U.S.C. § 363 free and clear of the Easement, with modest carve‑outs ($100,000 plus waterfall) to distribute to easement/other unsecured claimants.
- Movants seek an order authorizing confirmation‑stage sale free and clear under § 363(f)(4) and (5); George objects arguing the Easement cannot be stripped absent consent or bona fide dispute and that demolition would be required to vindicate his right.
Issues
| Issue | Plaintiff's Argument (George) | Defendant's Argument (Debtor/DOF) | Held |
|---|---|---|---|
| Whether an easement is an "interest" subject to § 363(f) | Easements are non‑monetary servitudes that cannot be extinguished by bankruptcy sale except with consent or bona fide dispute | Easements are property interests subject to § 363(f) like other interests; sale free and clear is available if a § 363(f) prong is met | Easement is an "interest" under § 363(f); § 363 applies to easements |
| Whether the Easement holder can be compelled to accept money under NY law (§ 363(f)(5)) | George seeks injunction/ demolition to restore easement; argues willful violation warrants mandatory relief | Removal would destroy value of sole estate asset and wreck plan; NY courts weigh equities and may award damages instead of demolition | Under NY law, court may compel monetary satisfaction; here equities favor damages — George can be compelled to accept money |
| Whether the Easement is in bona fide dispute (§ 363(f)(4)) | George contends validity and value of easement are established and not in bona fide dispute | Movants argue either § 363(f)(5) applies or (alternatively) § 363(f)(4) — but court resolved on (f)(5) grounds | Court did not decide bona fide dispute; sale authorized on § 363(f)(5) grounds (no need to reach § 363(f)(4)) |
| Constitutional takings / adequate protection | Free‑and‑clear sale would effect a taking; George seeks adequate protection | Movants say NY law permits monetary remedy; Plan provides distributions and adequate protection | No Fifth Amendment violation where holder can be compelled to accept money; proposed distribution (class carve‑outs) constitutes adequate protection |
Key Cases Cited
- Sutera v. Go Jokir, Inc., 86 F.3d 298 (2d Cir.) (easement is an in‑rem property interest)
- In re Chrysler LLC, 576 F.3d 108 (2d Cir.) (broad definition of "interest in such property" for § 363)
- In re Energytech, Inc., 739 F.3d 215 (5th Cir.) (holding that covenants running with the land are interests subject to § 363 and remanding to determine if holder can be compelled to accept money)
- Forstmann v. Joray Holding Co., 244 N.Y. 22 (N.Y. 1926) (New York courts weigh equities in granting equitable relief against completed structures)
- Andrews v. Cohen, 221 N.Y. 148 (N.Y. 1917) (equity cautions against mandatory demolition absent substantial rights and exceptional willfulness)