The Court notes that Respondent LKH Assets LLC, AI Holdings, LLC, (hereafter referred as "owners"), IHAY ZINNER and JUNIOR WILLIAMS (hereafter referred as "landlord") and Respondent Department of Housing Preservation and Development (hereafter referred as "HPD") have written letters to the Court regarding the effects of the automatic stay upon the filing of the bankruptcy petition the landlord/owner.There was no formal motion or application on the record before the Court prior today's hearing.

Respondent landlord/owner moves to stay all the pending 7A and HP proceedings.

The parties have appeared before the Court for the court to determine to what extent the pending actions are affected by the filing of the bankruptcy petition.

The Court must determine whether the filing of a petition in the bankruptcy court stays various the state court proceedings now pending before the Court? The answer to this question depends largely on who commenced the actions.

Under 11 USC §362 (a) (1), the commencement or continuation of any judicial action or proceeding is automatically stayed .Where the action was initiated by the tenant to obtain repairs and since the tenant action is a civil proceeding brought before a judicial tribunal, the tenant initiated action is stayed upon the filing of the petition pursuant to 11 USC §362 which provides for an automatic stay upon the filing of a petition in bankruptcy court. Therefore the HP actions initiated by the tenants under Index #s 6338/06, 6383/06, 6340/06 and 6383/06 are all stayed against Respondents LKH Assets LLC and AI Holdings, LLC by the bankruptcy petition. The proceedings may proceed against Respondents Issac Neshalam, 225 W 146 Street Realty LLC, Junior Williams, Glenn Zinner, Noel Romero and Ihay Zinner.

The second question is whether the tenant initiated Article 7A proceedings are also stayed by the owner's filing of a petition in bankruptcy court?

In order to implement the objective of repairing hazardous conditions under RPAPL Article 7A, the rent money is channeled into court to be used exclusively to correct the conditions and improve the building (see Salzman v Brown, 67 Misc 2d 101, [Civ Ct., Kings Co 1971]). 11 USC §362 (a) (3) specifically stays any act to obtain

possession of property or exercise control over property of the estate. Both the building and the rent moneys are derived from the building which are property items of the estate. Therefore, 11 USC §362 (a) (3) specifically stays any action which seeks to obtain control over these items of property (the rent and the building).Since the Article 7A actions are initiated by the tenants to take control of the building and the rents, these proceedings are stayed. Therefore, the 7A proceedings initiated by the tenants under Index #s 101035/06, 101036/06 and 101037/06 are all stayed against only the entities who filed the bankruptcy petition, LKH Assets LLC and AI Holdings, LLC. The proceedings may continue against the named individuals, Respondents Isaac Neshalam, Ihay Zinner and 225 West 146 Street Realty LLC.

Wherein, these actions are automatically stayed by the filing of the bankruptcy petition, it is the sole jurisdiction of the Bankruptcy Court to modify or lift the stay.

Whether proceedings commenced by HPD to obtain repairs are stayed by the owner's filing of a petition in bankruptcy? The answer to this question depends on the relief sought by HPD. An action by HPD for an order to correct the conditions in the building is not stayed. An action by HPD to recover civil penalties is stayed.

State Courts have concurrent jurisdiction pursuant to 28 USC §1334 (b) to determine whether the automatic stay of the Bankruptcy Code applies to pending actions (In re Edwin A. [*2]Epstein, Jr., Operating Co., Inc., 314 BR 591 [Bankr SD, Tex 2004]). Although the reach of the automatic stay is broad, it is not unlimited. Pursuant to 11 USC § 362 (b) (4) where a governmental unit sues a debtor to enforce its police and regulatory

power, the action or proceeding is not stayed. A two part test is used to determine whether the action falls under the police and regulatory exception (In re Gandy, 327 BR796 [Bankr SD, Tex 2005]).

First, it must be determined whether the plaintiff in the state court action is a governmental unit (Id.). 11 USC §101(27) defines a governmental unit as, inter alia, the United States, the States and a Municipality. Because HPD is an agency of a Municipality, the City of New York Department of Housing Preservation and Development is a governmental unit as so defined by the Code.

Second, what is the purpose for commencing the state court action? (In re Berg, 230 Fed 1165 [9th Cir 2000]). Under this test, the Court must determine whether the action commenced by the governmental unit relates primarily to the protection of the governmental pecuniary interest in the debtor's property or whether the action relates to matters of public safety and welfare. If the government action is pursued solely to advance a pecuniary interest of the governmental unit, the automatic bankruptcy applies (In re Berg, supra).

A comprehensive action commenced by HPD makes two demands for relief. First, HPD seeks a relief by way of an order to correct and, second, HPD seeks a relief for the imposition of civil penalties. The demand for an order to correct is clearly brought to further the public safety and welfare. Where HPD has commenced actions against the buildings for hazardous and immediately hazardous violations in the buildings which have not been corrected and for an order from the Court that the hazardous and immediately hazardous conditions be corrected and where the Court grants such an Order to correct, the failure to correct these conditions may result in a contempt of the Court's

Order. The demand by HPD, however, for civil penalties advances only a pecuniary interest of HPD. The civil penalties that may be obtained pursuant to the contempt order is not used to effect the repairs to the building and advance the public safety and welfare. Nor is the money forwarded by HPD to the tenants so that they can effect the repairs. Instead, the money is deposited with the comptroller of the City of New York. Thereby, the civil penalties does not serve the purpose of the public safety and welfare to correct the conditions but rather punishing the owner for failing to effect repairs. This Court agrees that this is a compelling interest but does not defeat the reaching of the automatic stay.

Therefore, all actions commenced by HPD for pecuniary purpose are stayed by the filing of the bankruptcy petition.All actions commenced by HPD for an order to correct or for an order for access to correct are not stayed.The actions commenced under Index #s 01/07, 02/07 038/07, 467/07 and 1056/07, to the extent they seek an order to correct the conditions or access in the building, are not stayed; to the extent these actions seek civil penalties, they are stayed and the stay can only be modified or lifted by the Bankruptcy Court. Any stay of civil penalties is against only Respondents LKH Assets LLC and AI Holdings LLC.

NON PAYMENT PROCEEDING COMMENCED BY THE OWNER

All the HP proceedings, Article 7A proceedings and nonpayment proceedings are joined before this court. To the extent that the HP and 7A proceedings are stayed, this [*3]

Court will also stay the nonpayment proceedings, pending the outcome of the bankruptcy, since the issues are inextricably intertwined.

All cases are adjourned to October 2, 2007 at 9:30 a.m. for trial against Respondents Issac Neshalam, 225 W 146 Street Realty LLC, Junior Williams, Glenn Zinner, Noel Romero and Ihay Zinner and for the status of the automatic stay.

Dated: September 24, 2007_____________________________

New York, New YorkPam Jackman-Brown, JHC

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