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Rosen, Kantrow & Dillon, PLLC

Proposed Attorneys for Debtor
38 New Street
Huntington, New York 11743
631 423 85127
Avrum J. Rosen

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------------------x
In re: Chapter 11
919 PROSPECT AVE LLC, Case No. 16-13569-scc

Debtor.
----------------------------------------------------------x
DEBTOR’S RESPONSE TO TENANTS’ EMERGENCY MOTION FOR RELIEF FROM
THE AUTOMATIC STAY; DISMISSAL OF CHAPTER 11 CASE;
AND IMPOSITION OF SANCTIONS

919 Prospect Ave LLC, the debtor and debtor in possession, by and through its proposed

counsel, Rosen, Kantrow & Dillon, PLLC, respectfully submits this as and for its response (the

“Response”) to the Tenants’ Emergency Motion for relief from the automatic stay; dismissal of

the chapter 11 case; and the imposition of sanctions, and states as follows:

PRELIMINARY STATEMENT

HPD and the Tenants have moved for expedited relief based upon purported health and

safety issues at the Property and that this case must be sent back to the Civil Court and the stay

lifted. The Debtor has made it clear that does not assert the automatic stay against the HPD

action and filed this case so that the Tenants’ action would not affect that action or slow down

the construction at the Property. In response to attorneys’ affirmations and affidavits, which are

devoid of any admissible evidence, the Debtor, on two (2) business day’s notice has filed a

detailed affidavit with extensive admissible evidence clearly demonstrating that the work being

performed at the Property is proceeding with all due dispatch and that the only delays are

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occasioned by either the need for approvals from other New York City agencies or the actions of

some of the tenants.

As the affidavit of Seth Miller demonstrates, this is a very different factual scenario from

the existing case law in this area. The Tenants rely heavily on Judge Gerber’s very careful

analysis in LKH Assets LLC & AI Holdings LLC, Case Nos. 07-12691 & 07-12692 [Dkt No 48,

October 9, 2007]. However, as shall be discussed below, the Tenants never actually apply that

case to the facts of this case. When that is done, it is respectfully submitted that the Tenants’

case should not be remanded, abstention is not appropriate and the stay should stay in place. In

addition the case should not be dismissed and sanctions are neither authorized as requested, nor

are they appropriate.

STATEMENT OF FACTS

The Court is respectfully referred to the Affidavit of Seth Miller and the Exhibits annexed

thereto, for the statement of facts, and those documents are incorporated herein.

ARGUMENT

I. RELIEF FROM THE STAY SHOULD NOT BE GRANTED AT THIS

TIME.

The Tenants argue that this Court should either remand or abstain from this case and lift

the automatic stay, for cause, pursuant to section 362(d) of the Bankruptcy Code, in order that

they may proceed with their action pending in the Civil Court. Cavalierly, they posit to this

Court that “although the commencement of a bankruptcy case imposes an automatic stay, “a

party in interest can seek relief . . . for cause.” At its essence, that is a true statement.

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However, the Tenants fail to provide cause.1

The automatic stay provides the very cornerstone for the reorganization process.

Without the stay, debtors, and this Debtor, are forced to continue to incur the costs, expenses,

and time, to continue litigation when the money is better spent, and its time is better spent,

attempting to reorganize its affairs. Here, the stay protects the Debtor, its estate, its creditors

and the tenants of the building, by allowing the Debtor to focus its efforts on making the

necessary repairs that the tenants complain are needed to make the building safe and habitable. 2

The entire basis of the Tenants’ motion is that the Debtor is engaging in a series of

arbitrary acts designed to harass, harm and worsen conditions at the Property to force the

1
The Tenants correctly state that the Debtor failed to indicate that it owned real property . . that
needs immediate attention and incorrectly checked the box “no” on the voluntary petition. The
Debtor apologizes to the Court, the Tenants, the creditors and the United States Trustee for this
error and will, if deemed necessary, amend the voluntary petition to correct the error. The
Debtor clearly understands that there are conditions that required, and received, the Debtor’s
immediate attention and as evidenced by the pleadings, has already continued the task of
repairing the property.
2
An Overview of the Automatic Stay, Prof. John A. Ayer; Michael Bernstein, Arnold & Porter,
Washington, D.C.; Jonathan Friedlan, Kirkland & Ellis, LLP, Chicago, in the American
Bankruptcy Institute Journal. “It is sometimes said that the two primary objectives of chapter 11
are to maximize the going-concern value of the bankruptcy estate and to assure equality of
distribution among similarly situated creditors. The automatic stay, which comes into effect
immediately upon the debtor’s bankruptcy filing without the need for any court order, is integral
to chapter 11 because it furthers both of these goals. It preserves going-concern value by
preventing creditors from picking apart the debtor one asset at a time - the “death by a thousand
cuts” that can convert an operating business into little more than a pile of spare parts. At the
same time, the automatic stay also helps to assure the second chapter 11 objective, equality of
distribution, by preventing one creditor from seizing assets before others have an opportunity to
do so. By putting all creditors on a level playing field, the stay replaces the chaotic “race to the
courthouse” that would otherwise ensue in the absence of bankruptcy with an organized
distributions scheme. Thus, the automatic stay protects not only debtors, by providing some
“breathing room” from their creditors, but it also protects creditors from one another, and from
the loss of going-concern value.”

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tenants to leave, and the Tenants needed to move for a 7A administrator to stop the Debtor’s

actions. As Mr. Miller’s affidavit and the voluminous exhibits clearly demonstrate, the opposite

is what is happening. HPD already has a pending police power action and a court ordered

stipulation to correct, and basically rebuild, the Property. HPD, despite the pleadings filed by its

counsel, has interfaced with the Debtor on an almost daily basis to expedite the work being done,

all of which is mandated by HPD. The Debtor’s principal has, under that stipulation invested

over $750,000 in repairs, in addition to the rent receipts and insurance proceeds from the

Property.

That affidavit also presents documentary evidence that , in part, it is the actions of certain

tenants that have actually hindered the construction at the Property and that the Tenants’ moving

for an order to show cause to stop construction and cause the Debtor to fall further in default to

HPD was the reason that the Chapter 11 petition was filed. The Tenants implicitly acknowledge

that their action is very different from the HPD action, in that they do not even argue that the

police powers exception to the automatic stay applies to them.

In their argument to this Court they assert that this case is identical to Judge Gerber’s

bench decision in LKH Assets LLC & AI Holdings LLC, Case Nos. 07-12691 & 07-12692 [Dkt

No 48, October 9,2007].1 However, they never actually compare the facts of the two cases. In

LKH both HPD and the tenants had both brought petitions for 7A administrators [Tr. 201].2

Those actions had been consolidated for trial [Tr.203]. That court had already ruled that the

HPD action could go forward under the police powers exception to the automatic stay [Tr. 205].

1
It must be noted that Judge Gerber only made his findings after an evidentiary hearing. These issues are clearly
fact sensitive and require such a hearing. The Tenants have put no actual evidence before this Court for any of their
allegations.
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The owners had no secured creditors, were in arrears on taxes to New York City, had refused to

make repairs, and there was no income due to rent strikes by the tenants [Tr. 202-204].

Judge Gerber found that the only reason for the filing was so that the debtors’ principal

could remain in control. The court held that once a 7A administrator was appointed, the tenants

had to pay rent and there would be cash flow into the debtors. Id. The Court further held that the

debtors had little or no cash flow [Tr. 205].

Critical to Judge Gerber’s decision was the fact that the debtors’ counsel had entered into

consent orders with HPD to remediate the violations (but those properties were not in the AEP

program) and the debtors’ principal later asserted counsel had no authority to enter into that

stipulation, repudiated it, and refused to make any repairs. [Tr. 205]. That Court held that once

the 7A administrator was done correcting the violations, control would go back to the Debtor.

Implicit, if not explicit, in that ruling was that there were no other consequences to the debtors

from the appointment of a 7A administrator.

A review of Seth Miller’s affidavit demonstrates the stark differences between these two

cases. Here there is a consent order covering all of the relief sought by the Tenants. The Debtor

has not tried to affect the HPD action in any way and the record shows the extensive efforts to

comply with that consent order, and some of the tenants’ efforts to slow down that work for their

own economic advantage (and to the detriment of other tenants). The Debtor has not only

expended all of the net income and insurance Proceeds from the Property in repairs, it has

invested over $750,000 of new capital so far and estimates and is prepared to invest another

$500,000.00 to complete compliance with that consent order. As also established in his

2
[Tr], references the page of the Decision annexed to the Tenants’ motion.
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affidavit, the appointment of a 7A administrator has dire economic consequences for the Debtor.

It will lose its ability to obtain a J 51 Tax abatement, which will reduce the taxes on the building

for 14 -30 years, pass along some of those savings to the tenants, and add millions of dollars in

value to the building. Thus, Mr. Miller’s reasons for maintaining control are quite different

from the cited case. He is personally liable for contempt and fines if the Consent Order is not

complied with, so he wants to have control over the process. It would take months before a 7A

administrator could obtain financing, prime the commercial first lender on the Property and

obtain new permits to complete the work on the Property. All that time, fines and penalties

would be running against the Debtor and Mr. Miller and the needed repairs would not be made.

As noted, other creditors would also be affected. The mortgage would go into default

with all of the attendant costs and the risk of foreclosure. There are other creditors in this case

as well. The exigencies of the filing did not permit ascertaining the exact dollar amount, and the

Court can see by the annexed affidavit that all of Mr. Miller’s energies have been directed at

getting the work finished at the Property.

Assuming arguendo, that the Tenants’ allegations are correct and the Debtor does not

follow through on its responsibilities as a Debtor in Possession pursuant to the HPD Consent

Order, this Court can appoint an operating trustee. As drastic a remedy as that may be, it is far

better than a 7A administrator, as it would preserve the Debtor’s ability to get J-51 tax

abatements (which also benefit the tenants) and rent increases for building wide improvements.

The Tenants, in their Complaint seek, as alternative relief, the exact same relief as HPD,

except that HPD, under the AEP program has mandated work that goes far beyond curing any

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existing violations.3 As a result, the interests of the Tenants, as to the health and safety issues

raised by HPD’s mandated repairs are protected by HPD, the governmental agency charged with

that duty. Appointment of a 7A administrator is not a police power function in this case and has

dire economic repercussions that are protected by the automatic stay.

With these factors in mind the Court should analyze first if this case should either be

dismissed or the stay lifted for “cause” as a bad faith filing, CT-TC 9th Avenue Partnership v.

Norton Company, 113 F.3d 1304 (2d Cir. 1997) and then under the so-called “Sonnax factors”

enumerated in Sonnax Indus., Inc. v. Tri Component Prods. Corp. (In re Sonnax Indus., Inc.),

907 F.2d 1280, 1285 (2d Cir. 1990). These factors are those that courts look to in determining

whether stay relief is appropriate and should be granted. As the movants have correctly stated,

this Court need not give equal weight to each of the factors. Rather, the Court will consider the

applicability of the factors to the case before it.

First, the “Bad Faith” factors should be addressed. As a starting point, the Tenants would

argue that every Single Asset Real Estate (“SARE”) chapter 11 case is filed in bad faith based

upon the logic that they would have this Court employ. After all, most SARE cases have the

“factors” that could lead to a conclusion they are filed in bad faith. Yet, we know that is not the

case. “A financially troubled company embroiled in or confronting the prospect of onerous

litigation that has the potential to compromise its ability to continue operating or restructure

operations may consider filing for bankruptcy as part of its overall reorganization strategy.

Whether recourse to bankruptcy as a means of warding off or managing the consequences of

3
The Tenants’ papers allege, incorrectly, that none of these violations have been cured. The annexed affidavit
proves otherwise. Clearing violations, as of record, while in the AEP program is a difficult process. A review of
the e-mails demonstrates that the Debtor proposed and HPD agreed, that it made sense to clear other violations in
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litigation is a legitimate invocation of federal bankruptcy laws has been the subject of some

controversy.” Chapter 11 Filing to Delay Litigation Not Bad Faith, Sean P. Byrne and Mark G.

Douglas, Jones Day, July 2004.

Although the Bankruptcy Code contemplates dismissal of a bankruptcy case for “cause”,

bad faith is not enumerated as cause. See, 11 U.S.C. §1112. That being said, most courts have

routinely interpreted section 1112 of the Bankruptcy Code to include dismissal of a chapter 11

case due to a lack of good faith in its filing. See, e.g., In re Humble Place Joint Venture, 936

F.2d 814, 816-17 (5th Cir. 1991). As the Tenants in the instant case have jumped on the popular

bandwagon of creditors, unabashedly throwing around the term “bad faith,” the Court must

carefully examine the “facts” the Tenants argue support a conclusion that this case is one filed in

bad faith.

The Court is asked to canvas the case to apply a totality of the circumstances inquiry.

There is no specific test or exhaustive list of factors for determining bad faith. Courts often

consider factors that evidence the intent to abuse the judicial process and the purposes of

reorganization. See, e.g., Rollex v Associated Materials Inc., 14 F.3d 240 (4th Cir. 1994). In

the Tenants’ motion, they conclude “the facts demonstrate that Debtor-Landlord filed its

bankruptcy petition not to reorganize its business, but as a tactic to avoid trial and judgment in

the pending Housing Court Proceeding. The Debtor has only one asset, the Building, and admits

that this is a single-asset real estate case.” The Tenants make these conclusions not based upon

any evidence, but rather, in an attempt to fit a square peg into a round hole. That is to say, they

have taken the holdings in the cases that suit their arguments and attempt to argue that they apply

apartments as the plumbing work was corrected, as that work required major demolition. The Debtor cannot come
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to this case. In essence, they would like this Court to conclude that every single asset real estate

case is one that is filed in bad faith.

In In re Cherokee Simeon Venture I, LLC, Bankr. LEXIS 4794 (Bankr. D. Del. 2012), the

Delaware Bankruptcy Court was faced with the creditor’s motion seeking dismissal of the

chapter 11 case and the imposition of sanctions. In that case, a single asset real estate case, the

Court ruled against the creditor. The creditor argued that the bankruptcy filing did not serve a

valid purpose. Moreover, the creditor argued that the filing was nothing more than a litigation

tactic designed to allow a non-debtor party to operate outside of bankruptcy while benefitting

from the automatic stay. At the end of its memorandum seeking dismissal, it stated that it

sought sanctions and damages against the debtor in the amount of $558,590.03, stating that it had

incurred $412,612.41 in legal fees and costs from the chapter 11 case and $143,853.78 in

consequential damages.

The debtor in In re Cherokee Simeon Venture argued that the petition was filed in good

faith because it sought a breathing spell to (1) explore offers to buy the property; (2) to manage

the leases on the property to create a positive cash flow; and (3) to exam claims against the

debtor and prospective causes of action. The debtor further argued that the filing was not a

litigation “strategy” but a business decision designed to allow the debtor access to information

about its debt obligations while protecting the rights of creditors and tenants.

The Delaware Bankruptcy Court was guided by the decision in 15375 Memorial Corp., v.

BEPCO (In re 15375 Memorial Corp.), 589 F.3d 605 (3d Cir. 2009). In that case, the Third

Circuit explained that a “petition serves a valid bankruptcy purpose if it preserved a going

out of the AEP program until the violations are cleared.

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concern or maximized the value of the debtor’s estate.” Id. at 619. In In re Cherokee Simeon

Venture, the Delaware Bankruptcy Court provided a well reasoned decision that this Court

should follow in determining whether the instant case was filed in “bad faith.” First, this Court

should consider that although the instant Debtor filed the case “primarily to obtain the benefits of

the Bankruptcy Code’s protections,” the Debtor has assets. In In re Cherokee Simeon Venture, a

state court receiver was operating the property at a significant loss. Here, if the Tenants are

successful in obtaining their desired goal, namely the appointment of an administrator, there is no

doubt that the building will operate at a significant deficit. The Debtor filed its petition with the

intention of allowing the Debtor and its principal to obtain the breathing spell and continue to

make emergency and necessary repairs without interference of any party. Accordingly, the

Debtor is attempting to preserve the value of the building and maintain it as a going concern.

Next, the Court should consider whether the bankruptcy case was filed “merely to obtain

a tactical advantage.” 15375 Memorial, 598 F.3d at 618. Here, the Debtor filed its case on the

eve of the return date of the Civil Court action. While the case was filed on the eve of the return

date, it was not, as the Tenants would have this Court believe, filed to gain a tactical advantage.

Rather, it was filed to ensure that the Debtor would be able to complete the necessary repairs.

These are the very repairs that the Tenants have complained are not being addressed. Surely, the

effect of the filing was a stay of the pending action. This Court, however, understands that the

dockets of the bankruptcy courts are filled with individual debtors who have filed a bankruptcy

petitions while defending a foreclosure action simply to stay such a proceeding. Thus, filing a

petition to preserve property is not indicative of bad faith. See, In re Cherokee Simeon Venture.

As in the Delaware case, this Debtor has bona fide reasons for commencing the instant

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action. It is attempting to preserve an asset of the estate and to remedy the myriad complaints

alleged by the Tenants. As the Debtor realized that the Tenants were attempting to thwart its

efforts for their own personal benefit, the Debtor filed for relief to protect its interests.

Judge Gerber addressed the bad faith elements in detail in the LKH , so heavily relied

upon by the Tenants. A review of the factors demonstrates how misplaced that reliance was in

regards to this case. The first factor is if the Debtor has only one asset. That is true, but as

discussed above, Congress has specifically authorized single asset real estate cases and this factor

has little or no weight.

The second factor is that there are few creditors in relation to secured creditors. This

analysis assumes that the secured creditor is foreclosing in a SAR. That is not the case here.

Incredibly, the Tenants conclude that lifting the stay will have no impact on the Debtor’s

creditors. They conclude this based upon the Debtor’s schedules which indicate all claims at

“zero”. This conclusion is either intentionally misrepresented, or, at best, disingenuous.

Actually, the Debtor’s schedules indicate that the claims are unknown. In fact, a simple review

of the claims register in this case reveals that there are significant claims against the Debtor.

The Debtor’s sole asset, as admitted by both the Debtor and the Tenants, is the building. Thus,

the rents generated from the building provide the sole source of revenue for the Debtor and the

only ability for the creditors to get paid. The Debtor agrees with the conclusion that the repairs

made to the building inure to the benefit of the Debtor’s creditors and the Debtor’s principal has

made capital contributions of over $750,000 in addition to all NOI and Insurance Proceeds so far

to comply with HPD’s requirements and anticipates investing another $500,000.00 to complete

the renovations.

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As noted above, the Tenants fail to discuss the implication of the appointment of a 7A

administrator. Again, assuming that the appointment of an administrator to remedy the

buildings’ violations is in fact the goal of the Tenants, the 7A administrator is limited by the

amounts collected from rent. Thus, the incredible lack of funds necessary to make repairs,

currently being supported by the Debtor’s principal, will render the repairs impossible for an

administrator. While the administrator may have the ability to borrow funds, after moving in the

Supreme Court for such authority, this includes priming the mortgagee. This borrowing results

in a lien encumbering the real property. The Tenants are not concerned with the potential

pitfalls that the Debtor’s creditors may suffer because of their actions. However, the bankruptcy

process must be concerned with such pitfalls. Accordingly, the Tenants’ conclusion is myopic.

They state, “to be sure, no creditor will prejudiced by a judgment being rendered and enforced

against the Debtor in the Housing Court Proceeding.” That is simply not true.

Another factor is if there are other creditors or if this is a two party dispute. Unlike the

cited case, there is a secured creditor. While the Tenants are usually considered one creditor,

given the fact that certain tenants are hindering construction to the detriment of other creditors,

that may not be true here. The movants herein only represent nineteen (19) tenants, which nis

slightly more than half of the tenants in the Property. HPD is also a substantial creditor. Judge

Gerber held that HPD’s and the Tenants’ interests were aligned in that case. As has been

demonstrated in this case, that is not the situation in this case. As noted, there are multiple trade

creditors. The Tenants have not met their burden on this element.

The next factor discussed by Judger Gerber was if the property has a secured claim and if

it is in foreclosure. The corollary to that inquiry is if there were substantial risks to the

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ownership interests [Tr. 212]. In this case, there is a mortgage, it was not in default pre-petition,

The appointment of a 7A administrator and the attempt to prime that lender will put the mortgage

in default. The accrual of the 7A administrator’s loans and default rate interest, in addition to

the diminution in value if the right to J-51 tax abatements and statutory rent increases are lost,

will most certainly put the ownership interests at risk. The Tenants have not met their burden on

this element.

The next factor is if the intent of the filing was to delay debtor’s [secured] creditors to

enforce their rights. Judge Gerber applied this standard to the Tenants and HPD’s joint action

and found it was so intended [Tr. 213-214]. The opposite is true in this case. As has been

repeatedly documented, there was no effort to hinder the HPD action. The case was filed to

prevent the Tenants from hindering the HPD mandated repairs and to protect the Debtor’s assets.

The Tenants have not met their burden as to this element.

The next element is if the Debtor has little or no cash flow and cannot meet current

expenses. Here again, the Tenants do not meet their burden. This Property has significant cash

flow and a documented history of large capital contributions to upgrade the property and a

commitment to infuse further funds. Lifting the stay will lead to increased expense, the need for

new debt, the priming of a secured creditor and the loss of significant tax and income benefits to

the Debtor. All so that the Tenants may engage in duplicative or even worse, conflicting

litigation from what HPD is pursuing.

The last factor is if the Debtor has any employees. In this case, as in many real estate

cases, the Debtor hires a management company to run the day to day operations of the Debtor.

A retention application for that manager has been filed with the court. That company has many

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employees that are involved in the management of the Debtor and whon are paid from the

Debtor’s income. The Tenants do not meet their burden on this factor.

As this analysis demonstrates, the Tenants have not met their burden of proving bad faith,

either as a basis to dismiss this case, or to lift the automatic stay on their action.

The next step in the analysis is to apply the Sonnax factors , many of which overlap with

the prior analysis. Those factors are addressed in order of importance.. The Tenants conclude

that the relevant Sonnax factors weigh “conclusively” in favor of granting relief.

Balance of the harms:

As a starting point, the Tenants suggest to this Court that the “balance of harms” weighs

heavily in their favor and thus, this Court must grant stay relief to allow the Civil Court action to

go forward. The Tenants state, without any evidentiary support, that they will continue to suffer

immediate and irreparable harm as a result of the hazardous conditions that pose a danger to the

health, life and safety of the tenants. The Tenants’ counsel sets forth these unsubstantiated

allegations in the moving papers. Counsel is apparently relying upon the complaint filed in the

Civil Court action. However, the complaint is nothing more than mere allegations. The Debtor

has provided extensive evidentiary support that the work being done at the premises is mandated

by HPD and is the result of decades of neglect at the Property. The Debtor has also proven that

HPD is supervising the work at the Property and has its own enforcement mechanism in place.

HPD represents the interests of all of the tenants, not just the movants. Moreover, due to the

large amount of new capital needed to repair the Property, HPD has decided to use the AEP

program to bring the Property into compliance. Some tenants’ actions have actually hindered

the work at the Property.

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The Tenants argue that granting stay relief will enable them to “litigate” their “claims”

against the Debtor. The Tenants suggest that should they prevail against the Debtor in the Civil

Court action, they will be able to obtain the appointment of a 7A administrator to take control of

the building and repair the dangerous conditions. Assuming arguendo, that the Tenants in fact

want the repairs to be made to remedy the “dangerous conditions”, it seems that they should

allow the bankruptcy process to go forward.3 The process will enable the Debtor to continue to

make the necessary repairs and reduce the wasteful costs of absolutely unnecessary litigation.

The funds that the Debtor does not have to expend in defending the litigation inure directly to the

benefit of the Tenants. Accordingly, the Tenants’ arguments fail on their face.

Despite the convoluted argument of the Tenants, they somehow argue with a straight face

to this Court, that there is no “prejudice to the Landlord in having to litigate the Tenants’ claims

in the Housing Court.” It is impossible to conclude that. The prejudice is not only to the

Debtor, this estate and its creditors, but, from the Tenants’ perspective, the most important

prejudice is to the Tenants themselves. The costs of defending the action in the Civil Court are

staggering and have a direct and proportionate effect on the Debtor’s ability to make the

necessary repairs. This is particularly true given the fact that Debtor’s principal has agreed to

fund any shortfall of the Debtor. Here, the Debtor’s books and records indicate income from

rent in the approximate amount of $52,500 per month. Monthly expenses, not including the

3
The Debtor notes that the Tenants’ moving papers are replete with personal attacks aimed at the
Debtor’s principal. Obviously, there is an attempt to “poison” the Court against the Debtor.
Include in the attacks are references to the “landlord watch list” and allegations that the Debtor’s
building is listed as one of “The 20 Worst Buildings in the Bronx.” The Debtor submits that
these references are nothing more than arguments presented by counsel. They do not constitute
admissible evidence and serve only to attempt to prejudice this Court against the Debtor.

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costs for repairs, are approximately $41,000 per month. The Debtor estimates repairs cost

approximately $60,000 per month. Forcing the Debtor to continue the costly and time

consuming, unnecessary litigation, in the Civil Court, will serve only to delay the repair process

as the funds will be consumed in the litigation process. The Debtor suggests that this is

counterproductive as the Debtor and the Tenants have the same goal - the repair of the building.

Will relief result in a partial or complete resolution of the issues

As noted, the HPD action and provide complete relief and most of the relief for the

Debtor. As noted, the Debtor cannot be given complete relief if the Tenants’ case is returned to

the Civil Court, as that Court lacks the jurisdiction [Ex. P] to order tenants to provide access for

the very repairs that HPD has directed the Debtor to make and for which the Debtor has been and

will continue to be fined for not making. That is why this case should remain in this Court and

the stay left in place unless either party obtains needed relief as the case progresses.

The status of the Civil Court litigation.

Next, the Tenants argue that the Civil Court action was ready for trial. Actually, the

matter which had been pending for some time, was not “trial ready”. Over the course of time, as

evidenced by the exhibits annexed to the Tenants’ and the Debtor’s papers, the parties had

entered into various agreements and stipulations. In fact, the Debtor was meeting its obligations

pursuant to the stipulations. The Debtor was attempting to gain access to the apartments to

make the needed repairs, and in fact, HPD was pleased with the Debtor’s attempts to make

necessary and emergency repairs [Exhibits A, B. C, E, G, J, L and O]. Despite the Tenants

running interference, the Debtor retained contractors to continue the necessary work. The

Tenants are disingenuous in their argument that the agreements made in the Civil Court action

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cannot be enforced unless the stay is lifted and the Tenants are allowed to litigate their “claims”

against the Debtor. In fact, the Debtor has agreed to honor the agreements made and it has no

intention of using the stay to shirk those obligations. Thus, the Tenants’ argument as to this

point, abjectly fails.

Is the matter trial ready?

While the Tenants argue that they are “ready, willing and able” to proceed to trial in the

Civil Court action, the Debtor is forced to ask, why? There is simply nothing to be gained by

allowing the Civil Court action to continue. Again, if the Tenants’ desire is to have the Debtor

make the necessary repairs and ensure the habitability of the building, then they should stand

down and allow the Debtor to do exactly that. There is already a consent judgment in place with

HPD and compliance is ongoing. HPD is not stayed. The Tenants’ thinly veiled ulterior

motives are on display when they continue to argue that they should be allowed to litigate with

the Debtor and agree to provide access for repairs only if the Debtor waives its rights to seek

statutory rent increases based upon building improvements. This litigation tactis harms other

tenants, some of whom are part of this case and others whon are not. That is not a health and

safety issue, instead that borders on extortion. The Tenants argue that this Court cannot give

them the expedited relief that they seek in the Civil Court action. In fact, this Court understands

the urgency of relief and a bankruptcy court is a court in which litigation moves quickly. Cases

are administrated on an expedited basis to ensure value to the estate and its creditors. The idea

that the Tenants cannot obtain expedited relief is nonsense and it fails to provide a reason to lift

the stay. The simple fact is that the appointment of a 7A administrator will delay the renovations

for months, if not years.

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Lifting the stay promotes judicial economy.

The Tenants’ judicial economy argument is nothing more than a rehashing of those

arguments already put forth by the Tenants. In fact, true judicial economy would be to leave the

stay in place on the Tenants’ action and allow HPD to do its job in its own action. While the

Debtor concedes that the Civil Action pending in the Bronx is one that is before a specialized

tribunal, this Court has concurrent jurisdiction over the matter by virtue of the implications it has

on the bankruptcy process. Even if this Court decides to remand or abstain, there is no basis to

lift the stay at this point in time. If access is needed, separate actions will have to be commenced

in either the New York Supreme Court or as an eviction in Civil Court.

Connection to the Bankruptcy Case and effect on creditors.

The Debtor’s income stream and its ability to pay its creditors and reorganize under the

Bankruptcy Code, is inextricably intertwined with the pending Civil Action. This matter clearly

falls within the “related to” jurisdiction. Adverse determinations made in the Civil Court action

negatively impact the Debtor’s creditors and the ability to reorganize, which is the ultimate goal

of this chapter 11 case. Moreover, this Court needs no specialized expertise to determine if the

Debtor is remedying the very situations complained of by the Tenants. As noted previously,

appointment of a 7A administrator will cause grave economic hard to the Debtor, by creating a

default in its mortgage, losing the ability to obtain J-51 tax relief and losing the ability to obtain

rent increases for building wide improvements, causing extra delays in remediation which will

result in HPD fines increasing exponentially and increasing exposure to claims by tenants based

on uncompleted repairs.

Assuming arguendo, that the Tenants ultimate desires are the appointment of a 7A

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administrator, it is respectfully suggested that this Court has the power to appoint an appropriate

party to oversee the Debtor’s operations, should that become appropriate and necessary. Thus,

judicial economy is better served by having this Court oversee the entirety of the process. In

fact, the Bankruptcy Court is uniquely situated to handle multi-party disputes as it provides one

forum to resolve all issues. The alternative is the antithesis of judicial economy. It forces the

Debtor to “put out fires” on multiple fronts. It forces the Debtor to run to Civil Court and the

Bankruptcy Court. The Bankruptcy Code contemplates one court to resolve all of the Debtor’s

and creditors’ issues. Based upon the foregoing the Tenants’ motions must be denied.

II. SANCTIONS ARE NOT WARRANTED AND THE MOTION IS

DEFICIENT.

In the alternative, should the Court not agree that cause exists to lift the stay, the Tenants

argue that the bankruptcy case should be dismissed and Sanctions awarded. Moreover, the

Tenants, represented by experienced bankruptcy counsel in addition to the Urban Justice Center,

call for the imposition of sanctions pursuant to Rule 9011 of the Federal Rules of Bankruptcy

Procedure. That portion of the Tenants’ motion seeking sanctions under Rule 9011, is in and of

itself, sanctionable as none of the safe harbor provisions of Rule 9011 have ever been afforded

the Debtor.4

4
Rule 9011 of the Federal Rules of Bankruptcy Procedure explicitly requires a party to move
separately for sanctions by stating that such ‘motion for sanctions under this rule shall be made
separately from other motions or requests...’ Fed. R. Bankr. P. 9011(c)(1)(A)(emphasis added).
Furthermore, a party cannot file a motion for sanctions or submit such a motion to the court if the
challenged paper, claim, defense, contention or denial is withdrawn or corrected within
twenty-one days after service of the motion on the offending party. Fed. R. Civ. P. 11(c)(2),
Fed. R. Bankr. P. 9011(c)(1). While the Rule contemplates an exception if the offending paper
is a petition in bankruptcy, notice must still be provided to the allegedly offending party and a
separate motion must be filed.
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Turning to the misguided request for sanctions, this Court may impose sanctions under

either of two legal authorities. A bankruptcy court may award sanctions pursuant to Rule 9011

of the Bankruptcy Rules or under its own inherent powers. The Tenants have requested the

imposition of sanctions pursuant to Rule 9011, however, they have abjectly failed to comply with

the Rule insofar as no safe harbor was afforded the Debtor. Moreover, the pleading seeking

sanctions cannot be included with any other pleading. In fact, the request for the imposition of

sanctions is sanctionable in and of itself. Thus, sanctions are not available under Rule 9011.

Assuming that this Court was to consider the imposition of sanctions under its own

inherent authority, it is respectfully stated that the Court would first have to determine that the

actions taken by the Debtor were taken in “bad faith, vexatiously, wantonly, or for oppressive

reasons.” See, e.g., Fellheimer, Eichen & Braverman, P.C. v. Charter Techs, Inc., 57 F.3d 1215,

1224 (3d Cir. 1995) (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 1991). “This authority

provides courts with the discretion to fashion an appropriate sanction for conduct which abuses

the judicial process.” Id. at 44-45. If this Court were to find “that fraud has been practiced upon

it, or that the very temple of justice has been defiled,” it may assess attorney’s fees against the

responsible party. Universal Oil Prods. Co. v. Root Refining Co., 328 U.S. 575, 581 (1946).

The Court understands that there is distinction between its inherent power to sanction and Rule

9011 sanctions insofar as to invoke its inherent power, this Court would have to find bad faith.

Felheimer, 57 F.3d at 1225. As the inherent power is completely within the Court’s discretion,

it should be exercised with restraint. Id. at 1224. The Debtor has already set forth its reasons

for filing of the bankruptcy petition and it believes, as stated herein, the filing was not one done

in bad faith but in affirmative good faith. Absent a bad faith finding by this Court, it should not

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invoke its inherent powers to sanction the Debtor.

Dated: Huntington, New York

January 23, 2017
Rosen, Kantrow & Dillon, PLLC
Proposed Attorneys for Debtor/Respondent

BY: S/Avrum J. Rosen

Avrum J. Rosen
38 New Street
Huntington, New York 11743
631 423 8527
arosen@rkdlawfirm.com

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