LLC v. East Lyme Planning and Zoning Commission (2010)

MEMORANDUM OF DECISION RE PLAINTIFF'S MOTION TO STAY (# 109)

FACTS

The plaintiffs, Darrow's Ridge, LLC (Darrow's), New England National, LLC (New England) and Niantic Real Estate, LLC (Niantic) commenced this administrative appeal against the defendant, the planning and zoning commission of the town of East Lyme, by service of process on December 7, 2009.   Before the court is the plaintiffs' motion to stay these proceedings.

In their appeal, the plaintiffs allege the following facts.   The plaintiffs own a property which is subject to a subdivision approval that the defendant granted on October 6, 2004.   As part of the subdivision approval, the town of East Lyme (town) was supposed to obtain certain permits to make improvements to certain named roads.   Those improvements were to be made before or concurrent with certain public improvements in the subdivision.   The town has failed in its efforts to secure the proper permits from United States Army Corp. of Engineers.   As a result, the plaintiffs have been unable to complete the public improvements in the subdivision within the statutorily mandated five years.

The plaintiffs applied to the defendant for a two-year extension of time.   The defendant granted only a ten-month extension of time.   This appeal followed.   The plaintiffs plead that they are aggrieved by the defendant's decision and maintain that the decision was arbitrary and capricious.   In their prayer for relief, they ask that the appeal be sustained and that the court remand the matter to the defendant “with an order to grant an extension of two years and to vacate any special conditions issued under the present approved extension.”

The defendant filed a return of record on April 21, 2010.   The plaintiffs filed a motion for a stay on May 3, 2010.   They claim that the present appeal was filed to ensure that their rights were preserved, but that this and other disputes between the parties should be adjudicated by the United States Bankruptcy Court, District of New Haven (bankruptcy court).   One of the plaintiffs, New England, is a debtor in a confirmed chapter 11 proceeding before that court, and the town is a creditor in that proceeding.   The plaintiffs appended three exhibits to their motion for a stay.   Exhibit A (compromise agreement) is a copy of an agreement between the plaintiffs and the town, which was approved by the bankruptcy court on December 4, 2008, and which the plaintiffs maintain “provide[s] that all disputes between the parties ․ would be dealt with by the bankruptcy court.”   Exhibit B (plan of reorganization) is a copy of the bankruptcy court's order dated August 28, 2006 confirming New England's third amended plan of reorganization, which was filed with that court on March 29, 2006 and which the plaintiffs maintain “gave the bankruptcy court continuing jurisdiction to hear and determine disputes between the [town] and the plaintiffs.”   Exhibit C (adversarial proceeding) is a copy of a draft adversarial proceeding that New England alleges it has filed in the bankruptcy court.¹

On May 12, 2010, the defendant objected to the motion on the grounds that the bankruptcy court does not have jurisdiction to decide the issue raised in this appeal, that the claims that the plaintiffs made in the adversarial proceeding are separate from the issue raised in this appeal and that a stay will substantially prejudice the defendant and the residents of the subdivision.²  On June 4, 2010, the plaintiffs filed a memorandum responding to each objection.³

After argument on June 10, 2010, this court ordered supplemental briefing on the question of whether the bankruptcy court has the power to grant the relief requested in this appeal, that is, whether the bankruptcy court could order that the defendant grant a two-year, rather than a ten-month, extension of time to complete the subdivision.   In their supplemental response filed June 24, 2010, the plaintiffs argue that the bankruptcy court has such power.⁴  In its reply filed June 30, 2010, the defendant maintains that the bankruptcy court does not have such power.

DISCUSSION

“In the absence of a statutory mandate, the granting of an application or a motion for a stay of an action or proceeding is addressed to the discretion of the trial court ․ [T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.   How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance.”  (Citation omitted;  internal quotation marks omitted.)  Lee v. Harlow, Adams and Friedman, P.C., 116 Conn.App. 289, 311-12, 975 A.2d 715 (2009).

“The court has the inherent power to stay proceedings before it in the interest of the just resolution of controversies.”   Kutcher v. Connecticut Vascular & Thoratic Surgical Associates, P.C., Superior Court, judicial district of Fairfield, Docket No. CV 09 5026130 (January 7, 2010, Gilardi, J.) (49 Conn. L. Rptr. 137, 138).  “An order staying proceedings does not terminate the action but merely postpones its disposition.   It may be modified or vacated by the court whenever, in the exercise of a sound discretion, it is considered necessary or proper to do so.”  (Internal quotation marks omitted.)  Success Centers, Inc. v. Huntington Learning Centers, Inc., 223 Conn. 761, 613 A.2d 1320 (1992).

The defendant raises several arguments in opposition to the plaintiffs' motion for stay.   First, it argues that the bankruptcy court does not have jurisdiction over the matters raised in the present appeal.   The bankruptcy court is one of limited jurisdiction and the compromise agreement only allowed that court to retain jurisdiction over limited matters, not all disputes that may arise between the parties.   Specifically, it allowed the court to retain jurisdiction over breaches of the compromise agreement itself and certain other “retained” causes of action.   Second, the present matter differs materially from the adversary complaint filed in the bankruptcy court.   In that complaint, the plaintiffs seek compensatory damages stemming from alleged breaches of the compromise agreement, which is not the relief sought in this action.   Finally, it maintains that it will be substantially prejudiced by the delay if the court grants the motion to stay.

The plaintiffs argue in response that the bankruptcy court has jurisdiction over the present matter and cite the compromise agreement, the plan of reorganization and the “pending bankruptcy” of Darrow's.⁵  Second, the adversary complaint is not wholly unrelated to the present appeal because the plaintiffs allege in both actions that the defendant has “fail[ed] to timely pursue and further fail[ed] to obtain resolution with the Army Corps. of Engineers permitting issue ․” Finally, the plaintiffs maintain that the defendant will not be substantially prejudiced by the delay because by its own failure to obtain the necessary permits from the Army Corps. of Engineers, it has caused the delay.

This court requested that the parties brief a limited issue:  whether the bankruptcy court has the power to grant the relief requested in this appeal.   The plaintiffs maintain that in this case, the bankruptcy court does have such authority.   In the compromise agreement, the “retained claims” includes “any and all actions which the Debtor holds or may hold against [the town] ․” This includes “land use” related matters which “may” arise in the future and which have arisen in this appeal.   The town agreed in the compromise agreement that such future claims would be resolved by the bankruptcy court.

In response, the defendant argues that neither the compromise agreement nor the plan for reorganization provide authority for the bankruptcy court to hear the present claim.   The “retained claims” referenced in the compromise agreement, in context, is more limited than suggested by the plaintiffs' reading of that language.   It does not vest indefinite jurisdiction with the bankruptcy court for any and all matters and certainly not for future land use appeals.   Further, a review of the adversarial proceeding filed in the bankruptcy court demonstrates that the issue in the present appeal is not before that court.   Nowhere do the plaintiffs raise the defendant's denial for an extension of time in the pleading before the bankruptcy court nor do they request the relief sought here.

First, the court will review the terms of the confirmed plan for reorganization and the compromise agreement.   In § 3.1 of the plan of reorganization titled in part “the [town] tax claim classes,” New England ⁶ and another entity paid the claim and the town and the town agreed “that [New England] did not have to discharge, release or relinquish its causes of action against [the town].   As a result, [New England] reserved and reserves all of its [c]auses of [a]ction against the [town] and its elected and appointed officials, employees and agents including, but not limited to claims by [New England] for reimbursement of taxes paid to [the town] (the ‘[r]etained causes of [a]ction’ and the ‘[r]eservation of [r]ights').”   Section 10 defines the “retained causes of action” to include actions involving a determination of New England's tax liability and actions for damages based upon the town's violation of New England's civil rights.

Section 8 of the plan of reorganization discusses New England's plan to continue “acquisition and development of real estate for bulk sales to affiliated and unaffiliated buyers.”   As part of the continued acquisition and development of real estate, in § 8.3, titled “[r]etention of [d]evelopment [p]rofessionals,” New England agrees that certain attorneys and other professionals may be part of the process to obtain final development approval as necessary and appropriate.   That section reads in part:  “[N]otwithstanding final confirmation the [bankruptcy] court shall retain such jurisdiction as it would otherwise have over any disputes between [New England], Niantic and [the town], arising out of or incidental to the permitting process.”  (Emphasis added.)   Finally, in § 14, the plan of reorganization sets forth the “effect of confirmation” and § 14.5 discusses “jurisdiction retained by [the bankruptcy] court.”   The court retains jurisdiction over “disputes arising or filed prior to the entry of the [f]inal [d]ecree in this case with respect to ․ (3) any proceeding based on [r]etained causes of [a]ction ․ (4) disputes with the [town] regarding or arising from its enforcement of its so-called land use-regulations, including constitutional challenges thereto or civil rights litigation arising therefrom to the fullest extent permitted by law [and] (5) the implementation or enforcement of this [p]lan.” ⁷  (Emphasis added.)

These parties also entered into a compromise agreement which was filed with and approved by the bankruptcy court on December 4, 2008.   The compromise agreement, in § 2(I), provides in relevant part:  “ ‘Retained Claims' means and includes any and all causes of action, which [New England] holds or may hold against [the town] ․” In the agreement, in § 7(e) as part of “[the town's] [c]ompromise [c]onsideration,” it agreed to “resolve all permitting issues in accordance with Exhibit C.” Exhibit C of the compromise agreement is titled “resolution of land use issues.”   One of the “land use issues” involved the town's agreement to resolve the permit issues regarding the public road improvement with the Army Corps. of Engineers.

The defendant points to In re Cabrini Medical Center, Case No. 09 14398, 2010 WL 1418862, 2010 Bankr.Lexis 1222 (Bankr.S.D.N.Y. April 7, 2010), for the proposition that the bankruptcy court lacks jurisdiction to interfere with the state's enforcement of its regulatory powers.   The defendant cites, among others, Binder v. Price Waterhouse & Co., LLP, 372 F.3d 154, 161 (3d Cir.2004), for the proposition that if a bankruptcy court lacks jurisdiction over a dispute, it cannot create jurisdiction simply by asserting jurisdiction in the plan of reorganization or other document.   The plaintiffs argue that the matter before this court constitutes a “core proceeding” and is therefore within the bankruptcy court's jurisdiction, citing Jamaica Shipping Co. v. Orient Shipping Rotterdam, B.V., 458 F.3d 92, 95 (2d Cir.2006), for the proposition that the United States Court of Appeals for the Second Circuit interprets the concept of “core proceedings” broadly.

The parties agree that the bankruptcy court retained jurisdiction over alleged breaches of the compromise agreement.   In the adversarial proceeding before the bankruptcy court, the plaintiffs (New England and Darrow's Ridge) allege that the town breached the compromise agreement in a number of ways ⁸ and seeks, among other things, money damages, attorneys fees and an order that the defendant comply with the terms of the agreement.   Whether the breach of contract and other claims constitute “core proceedings” within the jurisdiction of the bankruptcy court is for that court, and not for this court, to decide.

The issue before this court is whether “all land use issues,” including the appeal before this court, must be adjudicated before the bankruptcy court.   This court concludes that in the plan for reorganization, the bankruptcy court did not purport to retain unqualified jurisdiction over “all land use issues” which may arise between the parties at any time in the future.   See section 8.3 (the court “shall retain such jurisdiction as it would otherwise have over any disputes ․”);  section 14.5 (disputes over “so-called land use-regulations ․ to the fullest extent permitted by law ”).   The compromise agreement spelled out particular “compromised claims” and “retained claims.”   The section entitled exhibit C, “resolution of land use issues,” may provide the plaintiffs for a breach of contract action before the bankruptcy court, but it did not vest indefinite and exclusive jurisdiction in that court for all land use issues.

The court notes that the claims at issue in the bankruptcy litigation are not entirely unrelated to the present appeal:  the plaintiffs allege here that defendant's failure to resolve the permit issues regarding the public road improvement has caused the delay in their work, which precipitated their request for the extension of time at issue in this appeal.   The outcome of the dispute before the bankruptcy court, however, does not impact the issue raised in this appeal.   The plaintiffs' appeal is whether the defendant's decision to grant a ten-month, rather than two-year, extension of time to complete certain public improvements was reasonable.   A review of the adversarial proceeding reveals that the plaintiffs have not asked the bankruptcy court to adjudicate that issue, and it appears that it would be improper for them to do so.   See Binder v. Price Waterhouse & Co., LLP, supra, 372 F.3d 161 n.5 (listing examples of core proceedings).

ORDER

Accordingly, the plaintiffs' motion for a stay of these proceedings is hereby denied.

Devine, J.

FOOTNOTES

FN1. The defendant argues in its May 12, 2010 memorandum that this document was never actually filed in the bankruptcy court.   The plaintiffs provided proof of filing with its June 4, 2010 memorandum..  FN1. The defendant argues in its May 12, 2010 memorandum that this document was never actually filed in the bankruptcy court.   The plaintiffs provided proof of filing with its June 4, 2010 memorandum.

FN2. The defendant attached as exhibits pleadings before the bankruptcy court entitled Debtor's Motion for Determination of Debtor's Tax Liability to the Town of East Lyme (exhibit 1) as amended by Debtor's Motion to Amend Motion for Determination of Debtor's Tax Liability to the Town of East Lyme (exhibit 2).   They also provided evidence that counsel before this court is counsel of record in the bankruptcy proceeding..  FN2. The defendant attached as exhibits pleadings before the bankruptcy court entitled Debtor's Motion for Determination of Debtor's Tax Liability to the Town of East Lyme (exhibit 1) as amended by Debtor's Motion to Amend Motion for Determination of Debtor's Tax Liability to the Town of East Lyme (exhibit 2).   They also provided evidence that counsel before this court is counsel of record in the bankruptcy proceeding.

FN3. The plaintiffs attached exhibits to this memorandum, including the compromise agreement, proof of filing the adversary proceeding with the bankruptcy court, the plan of reorganization, and a draft pre-trial order from the bankruptcy court..  FN3. The plaintiffs attached exhibits to this memorandum, including the compromise agreement, proof of filing the adversary proceeding with the bankruptcy court, the plan of reorganization, and a draft pre-trial order from the bankruptcy court.

FN4. The plaintiff attached an additional exhibit to this memorandum:  a copy of correspondence dated February 17, 2004 between two attorneys who apparently represent the defendant regarding New England's pending bankruptcy.   The defendant offered no objection to the court's considering this unauthenticated evidence..  FN4. The plaintiff attached an additional exhibit to this memorandum:  a copy of correspondence dated February 17, 2004 between two attorneys who apparently represent the defendant regarding New England's pending bankruptcy.   The defendant offered no objection to the court's considering this unauthenticated evidence.

FN5. No evidence concerning the “pending bankruptcy” of Darrow's is before this court except to the extent that it is referred to in the compromise agreement and adversarial proceeding..  FN5. No evidence concerning the “pending bankruptcy” of Darrow's is before this court except to the extent that it is referred to in the compromise agreement and adversarial proceeding.

FN6. Throughout the plan of reorganization, New England is referred to as the debtor.   In § 5.2(a) of the plan of reorganization it states that “the [d]ebtor shall change its name to Niantic Capital Partners, LLC.” This memorandum will continue to refer to the debtor as New England..  FN6. Throughout the plan of reorganization, New England is referred to as the debtor.   In § 5.2(a) of the plan of reorganization it states that “the [d]ebtor shall change its name to Niantic Capital Partners, LLC.” This memorandum will continue to refer to the debtor as New England.

FN7. Notably, in the court's order confirming the plan of reorganization, the court ordered that New England “shall file an [a]pplication for [f]inal [d]ecree closing the case on or before November 16, 2006.”   There has been no explanation to this court as to why there has not been an entry of a final decree in the New England bankruptcy litigation almost four years after the court confirmed the plan of reorganization..  FN7. Notably, in the court's order confirming the plan of reorganization, the court ordered that New England “shall file an [a]pplication for [f]inal [d]ecree closing the case on or before November 16, 2006.”   There has been no explanation to this court as to why there has not been an entry of a final decree in the New England bankruptcy litigation almost four years after the court confirmed the plan of reorganization.

FN8. The adversary pleading complaint alleges breach of contract, breach of the covenant of good faith and fair dealing, a violation of CUTPA and civil contempt..  FN8. The adversary pleading complaint alleges breach of contract, breach of the covenant of good faith and fair dealing, a violation of CUTPA and civil contempt.

Devine, James J., J.