557 B.R. 326
Bankr. D.N.J.2016Background
- Debtor leased commercial premises at 325 Broadway; lease term expired Dec. 31, 2014 and Debtor became a month-to-month tenant. Landlord served a February 9, 2016 termination notice effective March 31, 2016; Debtor remained in possession and collected rent from a subtenant.
- Landlord sued in NYC Civil Court on April 1, 2016 for possession; Civil Court entered judgment for possession and warrant of eviction on May 31, 2016, finding the lease terminated prepetition and that the automatic stay did not apply to eviction under 11 U.S.C. §§ 362(b)(10) and 541(b)(2).
- Debtor filed a Chapter 7 petition on May 23, 2016 and then filed an adversary complaint alleging tortious interference, defamation/libel, stay violation, and a declaratory judgment; he also sought an injunction to stop eviction.
- Defendants moved to dismiss the adversary complaint under Rule 12(b)(6); court considered whether Debtor had standing to pursue prepetition claims and whether the stay applied to eviction.
- Chapter 7 Trustee filed a Notice of Proposed Abandonment as to 3 Wood Edge Court (property Debtor claimed an interest in); Trustee argued property was not estate property (state court had voided deed) and was overencumbered; Debtor objected but the court found Rooker–Feldman and lack of standing issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtor had an estate interest in the nonresidential lease on petition date and whether the automatic stay barred eviction | Truong argued his possessory interest and continued possession (and subtenant rent) meant the stay applied | Landlord argued the lease terminated prepetition by notice under NY law, so § 362(b)(10) and § 541(b)(2) exclude the lease from the estate and the stay does not bar eviction | Held: Lease terminated prepetition; no estate interest; automatic stay did not apply to eviction (Counts 5–6 dismissed with prejudice) |
| Whether Kaminsky should be disqualified / barred from appearing pro hac vice because he may be a witness | Truong argued Kaminsky is a defendant and potential eyewitness so disqualification is warranted | Kaminsky and defendants argued no present conflict, waivers executed, and disqualification is drastic; representation at pretrial is permissible even if lawyer may be a witness at trial | Held: Pro hac vice admission stands; no disqualification at this stage (issue can be revisited if trial approaches) |
| Whether Trustee properly abandoned alleged interest in 3 Wood Edge Court under § 554(a) | Truong disputed state orders voiding his deed and contested lien amounts/value, urging Trustee not to abandon | Trustee relied on state and EDNY/bankruptcy-court orders showing deed void and liens > value, concluding property not estate property or is overencumbered | Held: Trustee’s abandonment is a proper exercise of business judgment; Debtor’s objections barred by Rooker–Feldman / lacked standing; abandonment authorized |
| Whether the adversary complaint states claims and whether Debtor has standing to prosecute prepetition tort claims | Truong pressed substantive tort and defamation claims and requested injunctive relief | Defendants argued prepetition tort claims are estate property (11 U.S.C. § 541) and only the trustee may prosecute; stay-based claims fail because stay did not apply | Held: Counts 1–4 (prepetition tort/libel) dismissed without prejudice for lack of standing (trustee may prosecute); Counts 5–6 dismissed with prejudice because stay did not apply |
Key Cases Cited
- In re Neville, 118 B.R. 14 (Bankr. E.D.N.Y.) (lease terminated prepetition; § 362(b)(10) applies)
- In re Policy Realty Corp., 242 B.R. 121 (S.D.N.Y.) (prepetition termination by notice triggers §§ 362(b)(10) and 541(b)(2))
- Policy Realty Corp. v. 213 F.3d 626 (2d Cir.) (affirming reasoning in Policy Realty)
- In re 48th St. Steakhouse, Inc., 835 F.2d 427 (2d Cir.) (hold that possessory interest can trigger stay pre-amendment; distinguished here)
- In re Scarsdale Tires, Inc., 47 B.R. 478 (S.D.N.Y.) (lease terminated prepetition is not estate property)
- In re Jarman, 118 B.R. 380 (Bankr. D.S.C.) (supporting refusal to let last-minute bankruptcy frustrate nonresidential lease termination)