Calling on U.S.Marshals

While the outcome may have differed had the tenants objected to the purchaser and debtors' joint motion to enforce the sale order (they did not), the following guide demonstrates how a Manhattan real estate investment fund came to call upon the U.S. Marshals Service to enforce the bankruptcy court's order approving a 363 sale.

Step 1: The Sale Order Was'a Core Bankruptcy Proceeding

On July 1, 2010, the bankruptcy court entered an order approving the sale of the Staff House free and clear of all liens and interests. The sale order was a “core” bankruptcy proceeding under section 157 of title 28 of the United States Code, as an “order[ ] approving the sale of property other than property resulting from claims brought by the estate against persons who have not filed claims against the estate.” 28 U.S.C. ' 157(b)(2)(N).

Step 2: The Purchaser Had A Right to a Free and Clear Sale

Multiple provisions of the sale order explicitly provided that the purchaser had the right to take the assets free and clear of all leases and that the tenants residing at the Staff House were obligated to vacate the premises. See Sale Order, ' 6 (the purchaser was to take the purchased assets “free and clear of all leases of real property relating to the Assets irrespective of any rights of the tenants under section 365(h) of the Bankruptcy Code, if any, and such tenants shall be required to vacate the leased premises prior to the Closing”); Sale Order, ' 24 (“All entities who are presently, or who as of the Closing may be, in possession of some or all of the Assets hereby are directed to surrender possession of the Assets to the Purchaser as of the Closing”). Thus, the purchaser was clearly entitled to take possession of the Staff House unencumbered by any interests of the former medical residents residing therein. (Note that the tenants did not have any rights under section 365(h) as they were no longer employed by the hospital and thus had no non-bankruptcy legal right to remain on the premises.)

Step 3: The Bankruptcy Court Had Jurisdiction to Enforce the Sale Order

By its terms, the Bankruptcy Court retained jurisdiction to “enforce the Order to require that tenants immediately vacate the premises as required by this Order and the Purchase Agreement.” Sale Order, ' 24. Moreover, bankruptcy courts have inherent power to enforce their orders. See, e.g., Universal Oil Ltd. v. Allfirst Bank (In re Millenium Seacarriers, Inc.), 419 F.3d 83, 97 (2d Cir. 2005) (“Bankruptcy courts retain jurisdiction to enforce and interpret their own orders”) (citing Luan Inv. S.E. v. Franklin 145 Corp. (In re Petrie Retail, Inc.), 304 F.3d 223, 230 (2d Cir. 2002)); see also Travelers Indem. Co. v. Bailey, 129 S.Ct. 2195, 2205 (2009) (“as the Second Circuit recognized ' the Bankruptcy Court plainly has jurisdiction to interpret and enforce its own prior orders”). Note that the enforcement sought here occurred before the closing of the transaction when the debtor still owned the property. Had the relief been sought post-closing, one might argue that the Bankruptcy Court no longer had such jurisdiction. See, e.g., In re Xonics, Inc., 813 F.2d 127, 131 (7th Cir. 1987).

Step 4: The Motion to Enforce Sale Order Was a Core Bankruptcy Proceeding

A motion to enforce a sale order is a core proceeding, because the enforcement of orders resulting from core proceedings are themselves core proceedings. See In re Marcus Hook, 943 F.3d 261, 267 (3d Cir. 1991) (A core proceeding is one that “(1) ' invokes a substantive right provided by title 11 or (2) if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case”); see also Ranch 1 Metro, Inc. v. State Nat'l Ins. Co., 2002 WL 31175194 at *1 (S.D.N.Y. Sept. 27, 2002) (same). A motion to enforce a sale order satisfies this two-part test because it invokes the right to a free and clear sale provided by section 363(f) of the Bankruptcy Code and, moreover, could only arise in the context of a bankruptcy case because it deals with this “free and clear” provision that is unique to bankruptcy. Further, legislative history supports a broad reading of the term “core.” See CBI Holding Co., Inc. v. Ernst & Young LLP (In re CBI Holding), 529 F.3d 432, 460 (2d Cir. 2008) (noting congressional intent to grant the bankruptcy court a broad jurisdictional reach in order to ensure the efficient administration of bankruptcy proceedings). Note, however, that since the tenants did not object, the application of Stern v. Marshall, 131 S. Ct. 2594 (2011), was not litigated in this context. Since the tenants were not necessarily in a debtor-creditor relationship with St. Vincent's, they may have relied on Stern to argue that this matter was non-core and thus should be determined by the United States District Court rather than the bankruptcy court.

Step 5: The Bankruptcy Court Is Authorized to Issue Writs of Assistance

The bankruptcy court's authority to evict a tenant from real property stems from its authority to issue writs. This authority is founded in the All Writs Act, 28 U.S.C. ' 1651(a), which provides that “[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” In addition, the enabling language contained in section 105(a) of the Bankruptcy Code provides a bankruptcy court with the authority to issue writs, stating that “[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title ' ” 11 U.S.C. ' 105(a); see also Casse v. Key Bank Nat'l Assoc., 198 F.3d 327, 336 (2d Cir. 1999) (quoting In re Earl, 140 B.R. 728, 741 n.4 (Bankr. N.D. Ind. 1992)) (“[T]he legislative history of ' 105 reflects congressional intent that the section be 'similar in effect to the All Writs Statute, 28 U.S.C. ' 1651,' and was included in the Bankruptcy Code 'to cover any powers traditionally exercised by a bankruptcy court that are not encompassed by the All Writs Statute'”).

Step 6: The U.S. Marshals Act upon Writs of Assistance

The U.S. Marshals' authority to evict a tenant from real property by way of a writ of assistance stems from the powers and duties of a U.S. Marshal under the United States Code. Pursuant to 28 U.S.C. ' 566(a), unless otherwise provided, “the United States Marshals Service shall execute all lawful writs, process, and orders issued under the authority of the United States and shall command all necessary assistance to execute its duties.” 28 U.S.C. ' 566(a). Accordingly, a bankruptcy court may issue a writ of assistance directing that a party convey, deliver, or turn over a right of ownership to the U.S. Marshals Service.

Step 7: Obtaining the Writ of Assistance

In the St. Vincent's bankruptcy case, the purchaser and the debtors jointly filed a motion to enforce the sale order by way of writ of assistance. In connection with the filing of the motion, the debtors, the purchaser and the U.S. Marshals Service negotiated a form of proposed writ to be presented to the bankruptcy court with the motion. No objections were received to the motion to enforce the sale order. Based on the statutory authority described in the foregoing steps, the bankruptcy court issued a Writ of Assistance Enforcing the Sale Order. During the period of time between the filing of the motion to enforce the sale order and the entry of the writ, two of the three holdover tenants voluntarily vacated the Staff House premises. Accordingly, the writ of assistance was issued with respect to the one remaining holdover tenant.

Step 8: Executing the Writ of Assistance

As a practical matter, when executing a writ, the U.S. Marshals do not just arrive and kick down a tenant's door. They first serve the writ and tell the tenants they are required to leave. If the tenants fail to vacate the premises, the U.S. Marshals return some days later and execute the writ by force. In the St. Vincent's bankruptcy case, the writ of assistance was served on the one remaining holdover tenant by personal service. The writ ordered the tenant to vacate the Staff House within eight days of the entry of the writ. It further authorized the debtors and the purchaser, with the supervision and assistance of the U.S. Marshals Service, to take all necessary steps to take possession of the premises including breaking open, entering the property and evicting all persons located within. See Writ of Assistance Enforcing the Sale Order, ' 3.

The holdover tenant moved out of the Staff House premises following the service of the writ and before the U.S. Marshals came back to enforce the writ by force. According to one of the U.S. Marshals involved with the St. Vincent's writ, rarely do they break out the battering ram to evict a holdover tenant. Once the U.S. Marshals arrive and serve the writ, holdover tenants tend to clear out pretty quickly thereafter.'

Through these steps, the bankruptcy court exercised its jurisdiction to issue a writ of assistance, which the U.S. Marshals honored to effectuate the sale order, thus allowing the purchaser to take the Staff House truly “free and clear.” And while this case was something of a landlord-tenant dispute, the analysis for obtaining the assistance of the U.S. Marshals should be equally applicable to other bankruptcy court orders ' for other circumstances when you may need a literal “strong-arm” power.

Nathan Haynes is a shareholder in Greenberg Traurig's Business Reorganization & Financial Restructuring Practice, representing interested parties in complex financial and operational corporate restructurings both in and out of court. He can be reached at [email protected].

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When pondering how best to enforce a bankruptcy court order, calling upon the U.S. Marshals Service doesn't immediately jump to mind. But an interesting scenario presented in the Chapter 11 bankruptcy case of St. Vincent's Hospital demonstrates that the U.S. Marshals Service can be utilized as the ultimate enforcer for the United States bankruptcy courts. In the St. Vincent's case, the debtor and a purchaser of real property successfully obtained a writ of assistance for the U.S. Marshals to evict a holdover tenant. The power of the bankruptcy courts to issue writs is not limited to eviction issues, however, and this case provides a blueprint for obtaining a writ of assistance to enforce any type of bankruptcy court order.'

Background

In June 2010, St. Vincent's Hospital held a successful auction to sell its “Staff House,” a residential building in Manhattan's Greenwich Village that, in tune with its colloquial name, formerly housed St. Vincent's medical residents. The United States Bankruptcy Court for the Southern District of New York approved the sale. However, as the debtors and purchaser proceeded toward closing the sale, three former residents remained ensconced in the building, notwithstanding the fact that their leases had been terminated. Consistent with the “free and clear” provisions of the sale order, the purchaser was unwilling to close with holdover tenants. Thus, through a series of statutory and caselaw linkages outlined below, the purchaser and debtors successfully obtained the assistance of the U.S. Marshals Service to enforce the bankruptcy court sale order and evict the holdover tenants.

While the outcome may have differed had the tenants objected to the purchaser and debtors' joint motion to enforce the sale order (they did not), the following guide demonstrates how a Manhattan real estate investment fund came to call upon the U.S. Marshals Service to enforce the bankruptcy court's order approving a 363 sale.

Step 1: The Sale Order Was'a Core Bankruptcy Proceeding

On July 1, 2010, the bankruptcy court entered an order approving the sale of the Staff House free and clear of all liens and interests. The sale order was a “core” bankruptcy proceeding under section 157 of title 28 of the United States Code, as an “order[ ] approving the sale of property other than property resulting from claims brought by the estate against persons who have not filed claims against the estate.” 28 U.S.C. ' 157(b)(2)(N).

Step 2: The Purchaser Had A Right to a Free and Clear Sale

Multiple provisions of the sale order explicitly provided that the purchaser had the right to take the assets free and clear of all leases and that the tenants residing at the Staff House were obligated to vacate the premises. See Sale Order, ' 6 (the purchaser was to take the purchased assets “free and clear of all leases of real property relating to the Assets irrespective of any rights of the tenants under section 365(h) of the Bankruptcy Code, if any, and such tenants shall be required to vacate the leased premises prior to the Closing”); Sale Order, ' 24 (“All entities who are presently, or who as of the Closing may be, in possession of some or all of the Assets hereby are directed to surrender possession of the Assets to the Purchaser as of the Closing”). Thus, the purchaser was clearly entitled to take possession of the Staff House unencumbered by any interests of the former medical residents residing therein. (Note that the tenants did not have any rights under section 365(h) as they were no longer employed by the hospital and thus had no non-bankruptcy legal right to remain on the premises.)

Step 3: The Bankruptcy Court Had Jurisdiction to Enforce the Sale Order

By its terms, the Bankruptcy Court retained jurisdiction to “enforce the Order to require that tenants immediately vacate the premises as required by this Order and the Purchase Agreement.” Sale Order, ' 24. Moreover, bankruptcy courts have inherent power to enforce their orders. See, e.g., Universal Oil Ltd. v. Allfirst Bank (In re Millenium Seacarriers, Inc.), 419 F.3d 83, 97 (2d Cir. 2005) (“Bankruptcy courts retain jurisdiction to enforce and interpret their own orders”) (citing Luan Inv. S.E. v. Franklin 145 Corp . ( In re Petrie Retail, Inc. ), 304 F.3d 223, 230 (2d Cir. 2002)); see also Travelers Indem. Co. v. Bailey , 129 S.Ct. 2195, 2205 (2009) (“as the Second Circuit recognized ' the Bankruptcy Court plainly has jurisdiction to interpret and enforce its own prior orders”). Note that the enforcement sought here occurred before the closing of the transaction when the debtor still owned the property. Had the relief been sought post-closing, one might argue that the Bankruptcy Court no longer had such jurisdiction. See, e.g., In re Xonics, Inc., 813 F.2d 127, 131 (7th Cir. 1987).

Step 4: The Motion to Enforce Sale Order Was a Core Bankruptcy Proceeding

A motion to enforce a sale order is a core proceeding, because the enforcement of orders resulting from core proceedings are themselves core proceedings. See In re Marcus Hook, 943 F.3d 261, 267 (3d Cir. 1991) (A core proceeding is one that “(1) ' invokes a substantive right provided by title 11 or (2) if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case”); see also Ranch 1 Metro, Inc. v. State Nat'l Ins. Co., 2002 WL 31175194 at *1 (S.D.N.Y. Sept. 27, 2002) (same). A motion to enforce a sale order satisfies this two-part test because it invokes the right to a free and clear sale provided by section 363(f) of the Bankruptcy Code and, moreover, could only arise in the context of a bankruptcy case because it deals with this “free and clear” provision that is unique to bankruptcy. Further, legislative history supports a broad reading of the term “core.” See CBI Holding Co., Inc. v. Ernst & Young LLP (In re CBI Holding), 529 F.3d 432, 460 (2d Cir. 2008) (noting congressional intent to grant the bankruptcy court a broad jurisdictional reach in order to ensure the efficient administration of bankruptcy proceedings). Note, however, that since the tenants did not object, the application of Stern v. Marshall , 131 S. Ct. 2594 (2011), was not litigated in this context. Since the tenants were not necessarily in a debtor-creditor relationship with St. Vincent's, they may have relied on Stern to argue that this matter was non-core and thus should be determined by the United States District Court rather than the bankruptcy court.

Step 5: The Bankruptcy Court Is Authorized to Issue Writs of Assistance

The bankruptcy court's authority to evict a tenant from real property stems from its authority to issue writs. This authority is founded in the All Writs Act, 28 U.S.C. ' 1651(a), which provides that “[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” In addition, the enabling language contained in section 105(a) of the Bankruptcy Code provides a bankruptcy court with the authority to issue writs, stating that “[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title ' ” 11 U.S.C. ' 105(a); see also Casse v. Key Bank Nat'l Assoc. , 198 F.3d 327, 336 (2d Cir. 1999) (quoting In re Earl , 140 B.R. 728, 741 n.4 (Bankr. N.D. Ind. 1992)) (“[T]he legislative history of ' 105 reflects congressional intent that the section be 'similar in effect to the All Writs Statute, 28 U.S.C. ' 1651,' and was included in the Bankruptcy Code 'to cover any powers traditionally exercised by a bankruptcy court that are not encompassed by the All Writs Statute'”).

Step 6: The U.S. Marshals Act upon Writs of Assistance

The U.S. Marshals' authority to evict a tenant from real property by way of a writ of assistance stems from the powers and duties of a U.S. Marshal under the United States Code. Pursuant to 28 U.S.C. ' 566(a), unless otherwise provided, “the United States Marshals Service shall execute all lawful writs, process, and orders issued under the authority of the United States and shall command all necessary assistance to execute its duties.” 28 U.S.C. ' 566(a). Accordingly, a bankruptcy court may issue a writ of assistance directing that a party convey, deliver, or turn over a right of ownership to the U.S. Marshals Service.

Step 7: Obtaining the Writ of Assistance

In the St. Vincent's bankruptcy case, the purchaser and the debtors jointly filed a motion to enforce the sale order by way of writ of assistance. In connection with the filing of the motion, the debtors, the purchaser and the U.S. Marshals Service negotiated a form of proposed writ to be presented to the bankruptcy court with the motion. No objections were received to the motion to enforce the sale order. Based on the statutory authority described in the foregoing steps, the bankruptcy court issued a Writ of Assistance Enforcing the Sale Order. During the period of time between the filing of the motion to enforce the sale order and the entry of the writ, two of the three holdover tenants voluntarily vacated the Staff House premises. Accordingly, the writ of assistance was issued with respect to the one remaining holdover tenant.

Step 8: Executing the Writ of Assistance

As a practical matter, when executing a writ, the U.S. Marshals do not just arrive and kick down a tenant's door. They first serve the writ and tell the tenants they are required to leave. If the tenants fail to vacate the premises, the U.S. Marshals return some days later and execute the writ by force. In the St. Vincent's bankruptcy case, the writ of assistance was served on the one remaining holdover tenant by personal service. The writ ordered the tenant to vacate the Staff House within eight days of the entry of the writ. It further authorized the debtors and the purchaser, with the supervision and assistance of the U.S. Marshals Service, to take all necessary steps to take possession of the premises including breaking open, entering the property and evicting all persons located within. See Writ of Assistance Enforcing the Sale Order, ' 3.

The holdover tenant moved out of the Staff House premises following the service of the writ and before the U.S. Marshals came back to enforce the writ by force. According to one of the U.S. Marshals involved with the St. Vincent's writ, rarely do they break out the battering ram to evict a holdover tenant. Once the U.S. Marshals arrive and serve the writ, holdover tenants tend to clear out pretty quickly thereafter.'

Through these steps, the bankruptcy court exercised its jurisdiction to issue a writ of assistance, which the U.S. Marshals honored to effectuate the sale order, thus allowing the purchaser to take the Staff House truly “free and clear.” And while this case was something of a landlord-tenant dispute, the analysis for obtaining the assistance of the U.S. Marshals should be equally applicable to other bankruptcy court orders ' for other circumstances when you may need a literal “strong-arm” power.

Nathan Haynes is a shareholder in Greenberg Traurig's Business Reorganization & Financial Restructuring Practice, representing interested parties in complex financial and operational corporate restructurings both in and out of court. He can be reached at [email protected].

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