New York bankruptcy team victorious in North Carolina court of appeals

Bankruptcy lawyers in our New York office recently obtained a decision from the North Carolina Court of Appeals reversing a summary judgment order that had been entered against our client, Friday Investments. Sam Kohn argued the appeal.

Friday is the owner of a large mall in Charlotte, North Carolina, and the lessor under a lease to Bally Total Fitness of the Mid-Atlantic, which is guaranteed by its parent, Bally Total Fitness Holding Corporation. Bally Mid-Atlantic breached its obligations under the lease, and Friday sought recovery from Bally Holding as guarantor.

In the trial court, Bally Holding argued that notwithstanding the assumption by the Bally debtors of the underlying lease in its 2009 bankruptcy proceeding, its obligations under the guaranty had been discharged by the Bally debtors’ Chapter 11 plan. The trial court agreed and granted summary judgment for Bally Holding, reading the provisions of the plan that consolidated all of the Bally debtors for distribution purposes to include the elimination of intercompany guaranties.

On appeal, the bankruptcy team argued that the express terms of the Bally debtors’ plan provided for the continuation of the guaranty post-bankruptcy, and in the alternative that there was a genuine issue of material fact as to whether the guaranty was required to be maintained, notwithstanding the plan’s consolidation provisions. By a two-to-one margin, the North Carolina Court of Appeals held that the trial court erred in granting summary judgment, and remanded for further consideration of the effect of the plan’s consolidation provisions and whether the guaranty was required to be maintained under the plan. Notably, the dissenting judge would have remanded with instructions to grant summary judgment in favor of our client, reading the plan’s consolidation provisions not to have any substantive effect and that Bally Holding’s guaranty was not discharged by the Bally debtors’ plan.