In Re: New York Skyline, Inc.

Filing 27

OPINION AND ORDER: 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. 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 herein, ESB's motion is DENIED. (Signed by Judge Shira A. Scheindlin on 7/31/2014) (kgo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

·---------------------------------------------------

)(

In re
NEW YORK SKYLINE, INC.,
Debtor.

NEW YORK SKYLINE, INC.,

OPINION AND ORDER

Appellant,

13-cv-7686 (SAS)

- against EMPIRE STATE BUILDING
COMPANY L.L.C., EMPIRE STATE
BUILDING, INC. and EMPIRE STATE
BUILDING ASSOCIATES, L.L.C.,
Appellees.

·---------------------------------------------------

)(

SHIRA A. SCHEINDLIN, U.S.D.J.:
I.

INTRODUCTION
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. 1 As detailed in the

See New York Skyline, Inc. v. Empire State Building Co. L.L. C. (Jn re
New York Skyline, Inc.), 512 B.R. 159 (S.D.N.Y. 2014) (the "Opinion").
1

Opinion,2 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.3
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.4

2

Familiarity with the Opinion is assumed for purposes of this Opinion
and Order. Any capitalized terms not defined herein shall have the meaning set
forth in the Opinion.
3

The Lease expires at the end of June 2016. See Appellees’
Memorandum of Law in Support of Motion for Injunctive Relief Pending Appeal
Pursuant to Rule 62 of the Federal Rules of Civil Procedure (“ESB Mem.”), at 14.
4

Because this matter comes before the Court on Skyline’s appeal, ESB
should have moved pursuant to Rule 8017(b) of the Federal Rules of Bankruptcy
Procedure. Under Rule 8017(b), “the district court . . . may stay its judgment
pending an appeal to the court of appeals” and “[a] bond or other security may be
required as a condition to the grant or continuation of a stay of the judgment.”
Rule 62(c) provides that “[w]hile an appeal is pending from an interlocutory order
or final judgment that grants, dissolves, or denies an injunction, the [district] court
2

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
may suspend, modify, restore, or grant an injunction on terms for bond or other
terms that secure the opposing party’s rights.” One notable difference between
Rule 62(c) and Rule 8017(b) is that the latter does not explicitly provide for the
issuance of an injunction to preserve the status quo. I need not decide whether
injunctive relief is available under Rule 8017(b) because substantially the same
standard is applied for the issuance of a stay to preserve the status quo and an
injunction. Another difference is that unlike with Rule 62(c), courts are divided as
to whether the filing of an appeal divests a district court of jurisdiction to issue a
stay under Rule 8017(b). See In re W.R. Grace & Co., Case No. 08-246, 2008 WL
5978951, at *3 (D. Del. Oct. 28, 2008) (collecting cases and “sid[ing] with the
majority in concluding that jurisdiction is retained to hear” a motion for a stay
while an appeal is pending); In re Lambert Oil Co., Inc., 375 B.R. 197, 199 (W.D.
Va. 2007) (“In light of the recognized inherent power of inferior courts to preserve
the status quo pending appeals, the fact that Rule 8017 appears to anticipate a stay
prior to the filing of a notice of appeal, does not preclude the opposite.”). I agree
with the majority and conclude that the filing of an appeal does not divest this
Court of jurisdiction to hear ESB’s motion. In addition, ESB’s mistaken belief that
Rule 62 applies is likely the source of its error in attempting to rely on Rule(g),
which describes the power of the court of appeals, not this Court. See Fed. R. Civ.
P. 62(g) (describing the power of appellate courts); Fed. R. Bankr. P. 8017(c)
(“This rule does not limit the power of a court of appeals or any judge thereof to
stay proceedings during the pendency of an appeal or to suspend, modify, restore,
or grant an injunction during the pendency of an appeal or to make any order
appropriate to preserve the status quo or the effectiveness of the judgment
subsequently to be entered.”).
3

stay will substantially injure the other parties interested in the proceeding; and (4)
where the public interest lies.’”5 The first two factors are the most critical.6 “It is
not enough that the chance of success on the merits be ‘better than negligible.’”7

5

Nken v. Holder, 556 U.S. 418, 434 (2009) (quoting Hilton v.
Braunskill, 481 U.S. 770, 776 (1987)). ESB argues that the first prong should be
read as “whether the stay applicant has demonstrated a substantial possibility,
although less than a likelihood, of success on appeal.” ESB Mem. at 3 (citing
Mohammed v. Reno, 309 F.3d 95, 101 (2d Cir. 2002) (considering standard for
vacating a stay in context of the stay of removal of an alien pending appeal of an
adverse habeas decision). As discussed in Mohammed, each of the factors must be
balanced, and “[t]he probability of success that must be demonstrated is inversely
proportional to the amount of irreparable injury plaintiff will suffer absent the stay.
Simply stated, more of one excuses less of the other.” Mohammed, 309 F.3d at
101 (quotation marks omitted). Thus, the degree of probability required on ESB’s
motion depends in part on the extent of the injury that ESB will suffer absent a stay
or an injunction. See In re World Trade Center Disaster Site Litig., 503 F.3d 167,
170 (2d Cir. 2007) (“We have also noted that the degree to which a factor must be
present varies with the strength of the other factors, meaning that more of one
factor excuses less of the other.”) (quotation marks and alterations omitted).
Unlike in Mohammed, the injury here occurs in a commercial context and is
mitigated by certain factors that will be discussed in Part II.B. Accordingly, the
probability of success that ESB is required to demonstrate is not “less than a
likelihood of success,” which the Second Circuit interpreted as meaning
“something less than 50 percent” in the context of a motion to vacate a stay of
removal of an alien subject to deportation while his appeal was pending.
Mohammed, 309 F.3d at 102. Finally, ESB is correct that the “serious
consequence” test set forth in Carson v. American Brands, Inc., 450 U.S. 79, 83
(1981), is not applicable.
6

See Nken, 556 U.S. at 434.

7

Id. (quoting Sofinet v. INS, 188 F.3d 703, 707 (7th Cir. 1999))
(quotation marks omitted).
4

“By the same token, simply showing some possibility of irreparable injury fails to
satisfy the second factor.”8 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.9 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.10
II.

DISCUSSION
A.

Success on the Merits Is Not Likely or Substantially Possible

8

Id. at 434-35 (quotation marks and citation omitted).

9

See Gesualdi v. Laws Const. Corp., 759 F. Supp. 2d 432, 448
(S.D.N.Y. 2010), aff’d in part, vacated in part, remanded on other grounds, No.
11-332-cv, 2012 WL 1970454 (2d Cir. June 4, 2012). ESB argues that under
Supreme Court precedent, a stay pending appeal returns the parties to the status
quo that existed before the order to be reviewed was entered. See Nken, 556 U.S.
at 429. While the relevant status quo for purposes of ESB’s motion is the one in
which Skyline is enjoined from the disputed activity, I note that when balancing
the equities it is still fair for this Court to consider that for at least five years before
the Judgment was entered, Skyline engaged in the challenged activity and ESB
never sought a temporary restraining order or a preliminary injunction.
10

See Ligon v. City of New York, Floyd v. City of New York, 538 Fed.
App’x 101, 102, 103 (2d Cir. Oct. 31, 2013) (no discussion of any of the four
factors and explicitly declining to make any finding regarding the merits of the
appeal – i.e., the likelihood of success on the merits), clarified and superseded by,
736 F.3d 118 (2d Cir. 2013) (continuing the stay and still failing to address any of
the four factors).
5

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.”11 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.”12 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.13 The counterclaims had no bearing on the administration

11

ESB Mem. at 5.

12

Id.

13

The Bankruptcy Court granted Skyline’s motion to assume or reject
the Lease and the License in 2009. See Opinion, 512 B.R. at 166. It did so even
though the claims and the counterclaims that were the subject of the Electricity and
Protocol Decisions had not been resolved. See id. Thus, Skyline received
authorization to assume the Lease subject only to the future payment of cure funds.
See id. at 178 n.133 (“In May 2012, Judge Bernstein noted in the Authority
Decision that the order approving assumption of the Lease listed certain ‘disputed
cure claims,’ including ‘electrical charges.’ However, he explained that ‘[i]t
appears [ ] that the only remaining monetary claim asserted by ESB relates to
attorneys’ fees.’ Moreover, Judge Bernstein held that ESB was not entitled to
pursue attorneys’ fees in connection with its counterclaims in the Skyline Action.”)
6

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.14 Likewise, enjoining Skyline, now a former debtor, from
certain activities was neither an “adjustment of the debtor-creditor . . .
relationship”15 nor an “order[] approving the use or lease of property.”16
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.17 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

(citations omitted).
14

See 28 U.S.C. § 157(b)(2)(A), (B) and (C).

15

Id. § 157(b)(2)(O).

16

Id. § 157(b)(2)(M). Nor do any of the other matters labeled as “core”
in section 157(b)(2) apply to these claims.
17

See New York Skyline, Inc. v. Empire State Building Co. L.L.C. (In re
New York Skyline, Inc.), 497 B.R. 700, 703 n.3 (Bankr. S.D.N.Y. 2013) (“Protocol
Decision”) (“Both sides have consented to the Court’s authority to enter a final
judgment in this matter.”) (citing Authority Decision, 471 B.R. 69, 79-80 (Bankr.
S.D.N.Y. 2012)). As explained in the Opinion, a bankruptcy court does not need
the parties’ consent to enter a final judgment on core claims. See Opinion, 512
B.R. at 176.
7

agreements, and are based on state law.”18 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.19
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.20
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.

18

Authority Decision, 471 B.R. at 79.

19

Adv. Pro. Docket No. 48 ¶ 4(b).

20

Opinion, 512 B.R. at 178.
8

Thus, I held that the claims at issue in the appeal were not core.21 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[?]”22 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 2013.23 Accordingly, it was possible that some

21

See id. at 179. During oral argument ESB indicated that one issue the
parties are briefing on remand is the point in time in which a claim is considered
core for purposes of section 157. See 7/24/14 Hearing Transcript (“7/24/14 Tr.”) at
37. It appears that ESB will argue that so long as the claims were core at the
beginning of the adversary proceeding, it does not matter whether Skyline
consented or if the claims continued to “relate to” Skyline’s bankruptcy case.
However, the question of whether the claims at issue in the Electricity and Protocol
Decisions are core is beyond the scope of the remand because I held in the Opinion
that they were not core. In any event, I do not believe that this argument has even
a moderate likelihood of success.
22

Opinion, 512 B.R. at 179.

23

See Adv. Pro. Docket No. 108.
9

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.24
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

24

As just discussed, none of these potentially core claims resulted in the
issuance of the Injunctions. While vacating the entire Judgment was the only
practical solution, there was no reason to believe it would have a detrimental
impact on the parties. The Judgment was invalid as to the claims underlying the
Injunctions, each of Skyline’s claims was dismissed, and ESB was not awarded a
money judgment on any of its counterclaims. I also note that there is no merit to
ESB’s argument that by vacating the Judgment, I improperly granted Skyline a
stay of the Judgment pending its appeal to this Court. See ESB Mem. at 6.
Because I determined that the Judgment was invalid it has no force or effect.
Skyline’s failure to appeal from an order denying a stay does not shield the
Judgment from scrutiny or make it immune from vacatur.
10

is the practical effect of the Order.”25 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.26
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.27

25

Id. at 5.

26

See 28 U.S.C. § 157(c)(1). Contrary to Skyline’s contention, I did not
hold that “there remained a serious question whether the bankruptcy court had
subject matter jurisdiction under 28 U.S.C. § 157 to try the state law claims at issue
post-confirmation.” Appellant’s Memorandum of Law in Opposition to
Respondents’ Motion for Injunctive Relief Pending Appeal Pursuant to Rule 62 of
the Federal Rules of Civil Procedure (“Skyline Mem.”), at 1. As explained by the
Supreme Court, “[s]ection 157 allocates the authority to enter final judgment
between the bankruptcy court and the district court. That allocation does not
implicate questions of subject matter jurisdiction.” Stern v. Marshall, 564 U.S. ---,
131 S.Ct. 2594, 2607 (2011). Rather, I held that while subject matter jurisdiction
continued to exist, the Bankruptcy Court might not have authority to issue
proposed findings of fact and conclusions of law if the claims at issue ceased to
“relate to” Skyline’s bankruptcy case within the meaning of section 157. See
Opinion, 512 B.R. at 175-79.
27

See ESB Mem. at 5-6 (citing Rosen v. Siegel, 106 F.3d 28 (2d Cir.
1997); Jamaica Shipping Co. Ltd. v. Orient Shipping Rotterdam, B.V. (In re
11

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.28 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.’”29 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.30 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

Millenium Seacarriers, Inc.), 54 Fed. App’x 333 (2d Cir. Dec. 17, 2002);
Universal Reinsurance Co., Ltd. v. St. Paul Fire and Marine Ins. Co., 224 F.3d 139
(2d Cir. 2000)).
28

See Rosen, 106 F.3d at 32-33. Millenium Seacarriers, Inc. relies on
Rosen. For that reason, and because it is substantially similar to Rosen, I will not
discuss it separately.
29

Id. at 33 (quoting Inverness Corp. v. Whitehall Labs., 819 F.2d 48, 51
(2d Cir. 1987) (alterations omitted)).
30

Id.
12

issue the Injunctions – i.e., the parties’ consent – is clear from the record.31 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.32 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.33 Rather than vacate the

31

See Protocol Decision, 497 B.R. at 703 n.3 (citing Authority Decision,
471 B.R. at 79-80).
32

The Second Circuit explained that “[t]his case is the latest in a parade
of appeals involving questions of state law only that have proceeded to final
judgment on the merits – often after extensive proceedings – even though the basis
for diversity jurisdiction is either lacking or in considerable doubt.” Universal
Reinsurance Co., 224 F.3d at 139 (citing Franceskin v. Credit Suisse, 214 F.3d
253, 257-59 (2d Cir. 2000) (recounting cases, vacating judgment on claims
between aliens, and remanding for determination of defendant’s state of
incorporation).
33

See id. at 140-41.
13

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.34 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[.]”35 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

34

In particular, the Second Circuit instructed the district court to
determine “(i) whether Universal is an indispensable party to this litigation such
that it cannot be dropped from the case to salvage jurisdiction; (ii) Forkush’s state
of domicile at the time this litigation commenced; and (iii) whether, if Forkush was
indeed a Bermuda domiciliary, he is a dispensable party.” Id. at 141.
35

Id.
14

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.36 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.37 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.38 However, Skyline’s conduct does not

36

ESB Mem. at 7.

37

See id. at 13.

38

See id. at 7.
15

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.39 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

39

See 4/28/09 Hearing Transcript, Bankr. Docket No. 30, at 27-28, 32.
16

order separate trials on those issues.40
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.41
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.42 A lease that is not assumed
within that period of time is deemed rejected.43 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.”44 In other words, a debtor

40

Id. at 29.

41

See Adv. Pro. Docket No. 8.

42

If a chapter 11 plan is filed before then, the plan must state whether
unexpired leases are assumed.
43

See 11 U.S.C. § 365(d)(4)(A).

44

Id. § 365(d)(4)(B)(ii).

17

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.45 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.46 And, as already noted, the Bankruptcy Court approved the assumption

45

See 8/5/09 Hearing Transcript (“8/5/09 Tr.”), Bankr. Docket No. 55,

at 4, 75-76.
46

See Opinion, 512 B.R. at 166.

18

of the Lease and License without resolution of those claims.47
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.48 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.49 Specifically, the Bankruptcy
47

See id.

48

See ESB Mem. at 8-9.

49

See Adv. Pro. Docket No. 17. In fact, the bulk of the relief sought in
the parties’ motions pending at the time of the assumption of the Lease and License
was sought by ESB, which had moved pursuant to Rule 12(c) for judgment on the
pleadings to dismiss Skyline’s Third and Twelfth Claims and pursuant to Rule 56
for summary judgment on Skyline’s First, Third, Eleventh, Twelfth, and Thirteenth
Claims for Relief. See Empire State Building Co. L.L.C. v. New York Skyline, Inc.
(In re New York Skyline, Inc.), 432 B.R. 66, 70 (Bankr. S.D.N.Y. 2010) (“June
2010 Opinion”). Skyline merely sought a declaration that paragraph 42 of the
Lease was ambiguous. See id.; see also New York Skyline, Inc.’s Memorandum of
Law in Support of Its Motion for Summary Judgment, Adv. Pro. Docket No. 13.
The Bankruptcy Court denied Skyline’s motion, holding that it was “not
appropriate to use summary judgment as a vehicle for fragmented adjudication of
non-determinative issues.” June 2010 Opinion, 432 B.R. at 88. The Bankruptcy
Court explained that “[w]hile paragraph 42 is clearly germane to the contract claim
relating to the appropriate electricity charges, Skyline is essentially asking for
summary judgment that it would be inappropriate to grant summary judgment on

19

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.50 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.51 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.52 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

that contract claim.”). Id.
50

See 8/5/09 Tr. at 91-100.

51

See June 2010 Opinion, 432 B.R. at 82.

52

See ESB Mem. at 8.

20

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-2011,53 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.54 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.55
53

See Opinion, 512 B.R. at 167.

54

See, e.g., Gonzalez v. Micelli Chocolate Mold Co., 514 Fed. App’x 11,
12 (2d Cir. Mar. 4, 2013) (“[W]here the federal claims are dismissed before trial,
the state claims should be dismissed as well.”); Selinger v. City of New York, 453
Fed. App’x 93, 96 (2d Cir. Dec. 23, 2011) (“Because [defendant] was entitled to
summary judgment on [the] federal claims, the district court was within its
discretion to decline exercising supplemental jurisdiction over [ ] remaining state
law claims.”) (citing Doninger v. Niehoff, 642 F.3d 334, 357 (2d Cir. 2011)).
55

At a pretrial conference on June 16, 2011, Skyline’s counsel indicated
that it had looked at the case law on withdrawing the reference and concluded that
it would be unsuccessful. See 6/16/11 Hearing Transcript, Adv. Pro. Docket No.
74, at 2. Little elaboration is given, but as just suggested, withdrawal of the
reference was not really the relief that Skyline wanted and, in any event, Stern was
decided the following week, which gave rise to Skyline’s renewed motion for

21

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.56 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 . . . .”57 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.”58 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.59 But the Authority Decision rejected Skyline’s
arguments finding that it had expressly consented in the Plan to the entry of final
remand and abstention and its challenge to the Bankruptcy Court’s authority to
enter a final judgment in the adversary proceeding. Skyline’s second request for
remand or abstention was denied nearly a year later. See Authority Decision, 471
B.R. at 80 (“[T]o the extent that Skyline appears to be asking the Court to
reconsider its prior decision not to remand or abstain, I note that Skyline has not
made such a motion, and even if it had, the motion to reconsider would be
untimely (by nearly 3 years).”).
56

See ESB Mem. at 9.

57

Id. at 10.

58

Adv. Pro. Docket No. 65 at 19.

59

See id. at 14-20.

22

judgment on all non-core claims.60
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.”61 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.’”62
60

See Authority Decision, 471 B.R. at 79-80.

61

In Men’s Sportswear, Inc. v. Sasson Jeans, Inc. (In re Men’s
Sportswear, Inc.), 834 F.2d 1134, 1138 (2d Cir. 1987).
62

Opinion, 512 B.R. at 176 n.121 (quoting Men’s Sportswear, Inc., 834
F.2d at 1138) (quotation marks omitted). The Court has reviewed and rejects
ESB’s remaining arguments. For example, ESB suggests that it was improper to
invalidate the Judgment and the Injunctions based on the Bankruptcy Court’s lack
of authority because Skyline never appealed from the Authority Decision and its
appeal was limited to the electricity and protocol claims. See ESB Mem. at 10. An
appeal from the Authority Decision would have been an interlocutory appeal, and
thus not mandatory, while Skyline’s appeal from the Judgment challenged the
Bankruptcy Court’s authority to enter a final judgment on the state-law claims. See
Appellant New York Skyline’s Memorandum of Law in Support of Appeal from
Decisions and Orders of the Bankruptcy Court at 14 (“Regardless [of] whether the
claims asserted in the Skyline Action were core or non-core and regardless of any
purported consent, the Bankruptcy Court still lacked authority to enter final

23

3.

Due 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.63 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.’”64
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

judgment on state-law claims that were not central to the bankruptcy process and
unrelated to the claims allowance process.”). Moreover, ESB never challenged the
scope of the appeal. See Appellant New York Skyline’s Memorandum of Law in
Support of Appeal from Decisions and Orders of the Bankruptcy Court at 1-2
(“Skyline appeals from three separate orders entered during this case which are
included in the Judgment. First, Skyline appeals from the Court’s Memorandum
Decision Regarding Motion for Partial Summary Judgment, dated May 11, 2012
(“Order I”), in which Order, inter alia, the court below dismissed Skyline’s
challenges to its subject matter jurisdiction and constitutional authority to enter a
final judgment in this case.”).
63

See Appellees’ Reply Memorandum of Law in Further Support of
Motion for Injunctive Relief Pending Appeal Pursuant to Rule 62 of the Federal
Rules of Civil Procedure (“ESB Reply”), at 3-4.
64

Opinion, 512 B.R. at 176 n.123 (quoting Bankr. Docket No. 144 ¶

30).

24

customary appellate deference.”65 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.66
Accordingly, I conclude that the first factor, likelihood of success on
the merits, weighs heavily against granting the relief sought by ESB.
B.

Irreparable Harm67
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.68 ESB argues that this Court should not have vacated the Injunctions
because the Bankruptcy Court determined in the Protocol Decision and in its denial

65

Casse v. Key Bank Nat’l Assoc. (In re Casse), 198 F.3d 327, 333 (2d
Cir. 1999) (quotation marks omitted).
66

See Opinion, 512 B.R. at 177-78 & n.127. ESB suggests that the
Bankruptcy Court also determined that the claims were core, which finding is also
subject to substantial deference. See ESB Reply at 3. But the Bankruptcy Court
made no such finding. See Authority Decision, 471 B.R. at 79 (“With 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.”).
67

Only the injunction relating to the protocol provision appears to be at
issue because Skyline has represented that it “has no present intention to resume
sales of products in its gift shop about which ESB complains.” Skyline Mem. at 6.
The Court will of course hold Skyline to this representation.
68

See id. at 21.

25

of the stay of the Injunctions that ESB would be irreparably harmed.69 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.70 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.71
69

See ESB Mem. at 2, 14.

70

See Protocol Decision, 497 B.R. at 709 (“Where a party seeks an
injunction granting specific performance, a party can be compelled to perform its
contractual obligations if (1) there is a valid contract; (2) plaintiff has substantially
performed under the contract and is willing and able to perform its remaining
obligations; (3) defendant is able to perform its obligations; and (4) plaintiff has no
adequate remedy at law.”) (quotation marks omitted). As I found that the
Judgment was invalid and that there was a question as to whether I could treat the
Bankruptcy Court’s findings as proposed conclusions of law and findings of fact, I
have not reached the merits of ESB’s counterclaims.
71

See New York Skyline, Inc. v. Empire State Building Co. L.L.C. (In re
New York Skyline, Inc.), No. 09-1145, 2013 WL 5487938, at *8 (Bankr. S.D.N.Y.
Oct. 2, 2013) (“Skyline bears the burden of proving that a stay pending appeal will
not cause substantial injury to ESB.”).

26

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,72 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.73 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.74 In

72

See 7/21/14 Affidavit of Jean-Yves Ghazi, Director of ESRT
Observatory TRS, L.L.C., the successor of Appellee Empire State Building, Inc.,
¶¶ 5-7, 10, 14-15.
73

See 7/24/14 Hearing Tr. at 34-36.

74

See Skyline Mem. at 21.

27

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.75 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 . . . .”76 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.77
D.

Public Interest
ESB does not dispute that the public interest is not implicated, but

75

See id. at 22.

76

ESB Reply at 8.

77

At the same time, ESB argues that a bond is not required and has not
stated that it would be willing to post a bond. See id. at 10 (“In the unlikely event
that Skyline is injured by the stay, ESB is more than capable of satisfying any
judgment.”). It is unclear from this record whether a bond is necessary to protect
Skyline from the harm caused by the issuance of a stay. But the failure of a party
to address its burden with respect to a bond may weigh against granting a stay. See
In re W.R. Grace & Co., 475 B.R. 34, 209 (D. Del. 2012) (“It has been recognized
that if the movant seeks the imposition of a stay without a bond, the applicant has
the burden of demonstrating why the court should deviate from the ordinary full
security requirement.”) (quotation marks omitted).

28

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.”78 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.
III.

CONCLUSION
For the foregoing reasons, ESB’s motion is denied.

78

ESB Mem. at 16.

29

Dated:

New York, New York
July 31, 2014

30

- Appearances For Appellant:

For Appellees:

James Wilson Perkins, Esq.
Greenberg Traurig, LLP
200 Park Avenue
New York, NY 10166
[phone]

David Scott Tannenbaum, Esq.
Francine Nisim, Esq.
Karen S. Frieman, Esq.
Stern, Tannenbaum & Bell, L.L.P.
380 Lexington Avenue
Suite 3600
New York, NY 10168
[phone]

Charles Addison Stewart, III, Esq.
Elin M. Frey, Esq.
Stewart Occhipinti, LLP
One Exchange Plaza
55 Broadway
Suite 1501
New York, NY 10006
[phone]

William Heur, Esq.
Duane Morris LLP
1540 Broadway
New York, NY 10036
[phone]

Howard J. Berman, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
New York, NY 10105
[phone]

31