In Re: 461 7th Avenue Market, Inc.

Background

The debtor appealed two orders issued by Bankruptcy Judge Robert D. Drain: an order converting its Chapter 11 bankruptcy case to Chapter 7 and lifting the automatic stay, and an order denying reconsideration. While that appeal was pending, the debtor asked the district court for a stay, meaning an order temporarily pausing enforcement of the bankruptcy orders.

The dispute arose from the debtor’s commercial lease for property at 461 Seventh Avenue in New York. After the New York City Department of Buildings confirmed violations involving, among other things, access to a second-floor bathroom and exits from the cellar and second floor, Judge Drain concluded that the debtor had not shown it could correct the violations. Judge Drain therefore found cause to convert the case to Chapter 7. A trustee, Marianne T. O’Toole, was appointed afterward.

Standing

The district court first held that the debtor lacked standing—meaning the legal authority—to seek a stay on its own behalf. Under the Bankruptcy Code, a Chapter 7 trustee represents the bankruptcy estate and controls its legal claims and property. The court concluded that, after the trustee’s appointment, the trustee alone had authority to seek a stay for the debtor’s estate.

The court rejected the debtor’s argument that it could seek a stay because it was a person aggrieved by the bankruptcy orders. The court explained that being able to appeal an order did not establish authority to seek a stay on the debtor’s behalf. The court also did not accept the debtor’s argument that abandonment of the lease gave it authority to seek the stay.

Stay Factors

The court said that, even assuming the debtor had standing, the stay request would still fail under the four-factor test for a stay pending appeal: likely success on the appeal, irreparable injury without a stay, harm to other interested parties, and the public interest.

On likely success, the court concluded that the debtor had not made the strong showing required. The district court would review the conversion and reconsideration orders for abuse of discretion, meaning a serious legal or factual error or a clear error in judgment. The court found no strong likelihood that the debtor could show such an error. It noted that the debtor had not provided evidence that it could cure the lease defaults and therefore could not show that it could assume the lease and propose a Chapter 11 reorganization plan.

On irreparable injury, the court concluded that the claimed harm was essentially financial and that the debtor had not shown a realistic prospect of successful reorganization. The court also found that the requested stay would substantially harm the creditor and trustee by requiring the creditor to surrender the property, limiting the trustee’s authority, and potentially requiring recovery of funds distributed to creditors. Finally, the court determined that prolonging the bankruptcy case without a foreseeable benefit would harm the public interest in efficient bankruptcy administration.

Disposition

The court concluded that the debtor lacked standing to make the application and, alternatively, had not satisfied the requirements for a stay pending appeal. Judge Halpern therefore denied the debtor’s motion for a stay pending appeal. The opinion did not decide the underlying appeal itself.