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Note: In connection with the sublease of office space in a commercial building, Ciena Capital LLC (Debtor/Tenant), Alstra Capital Management LLC (Subtenant), and PGREF I 1633 Broadway Tower L.P. and its agent, Paramount Group, (Landlord/ Beneficiary) entered into a consent agreement. Pursuant to the sublease, Subtenant provided a standby letter of credit in favor of Tenant. Subsequently, Tenant/Debtor filed for bankruptcy protection to reorganize and sought to reject the lease and sublease. The Bankruptcy Court for the Southern District of New York entered a rejection order allowed the LC to be transferred to Landlord to offset unpaid rent on any attornment by which Landlord and Subtenant would enter into a new lease and provided for notice of any attornment.

After Landlord provided Subtenant with a notice of its election to require an attornment, Subtenant failed to do so and abandoned the premises. Claiming that the notice of election to seek attornment was not timely under the Bankruptcy Code, Subtenant sued Landlord/Beneficiary in New York state court for a declaration that it was allowed by the action of the Debtor to treat the Sublease as terminated, entitled to return of the LC, and entitled to a permanent injunction prohibiting Landlord/Beneficiary from drawing on the LC. It also obtained a temporary restraining order against a drawing on the LC.

Landlord removed the action to the federal bankruptcy court and Subtenant moved to remand the action to state court since it involved a dispute between parties who were not involved in the Bankruptcy Estate and for a preliminary injunction against drawing on the LC. Landlord/Beneficiary cross-moved for summary judgment. The US Bankruptcy Court for the Southern District of New York, Gonzalez, J., granted Landlord/Beneficiary's motion and denied those of Subtenant.

The Judge ruled that the court retained jurisdiction to interpret its order and concluded that Landlord's notice was timely. He also ruled that rejection of the lease resulted in abandonment of the premises by Tenant/Debtor, it did not terminate either the lease or sublease and was not a material breach of the sublease. The Judge also noted that the agreements related to the sublease contemplated that the Landlord would establish a direct tenancy with Subtenant in the event of Tenant's insolvency. Without any further discussion of the injunction, the Judge refused the motion for a preliminary injunction and lifted the temporary restraining order.

[JEB]

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