In re Feit & Drexler, Inc.
| Citation | 42 BR 355 |
| Decision Date | 17 July 1984 |
| Docket Number | No. 83 B 10921—83 B 10923 (PA),Adv. No. 83-5937-A.,83 B 10921—83 B 10923 (PA) |
| Parties | In re FEIT & DREXLER, INC., Frank Feit Associates, Inc. and William R. Drexler International, Inc., a/k/a William R. Drexler International, Ltd., Debtors. David M. GREEN, as Trustee of Feit & Drexler, Inc., Frank Feit Associates, Inc. and William R. Drexler International Inc., a/k/a William R. Drexler International, Ltd., Debtors, Plaintiff, v. William R. DREXLER and Violet Drexler, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Chester B. Salomon, P.C. by David M. Green, New York City, for trustee.
Ressa, Nappi & Weinig by Harvey Weinig, Port Washington, N.Y., for defendant Violet Drexler.
Carl E. Person, New York City, for defendant William Drexler.
Referred to District Court Under Emergency Bankruptcy Rule I(b)
On June 7, 1984, David M. Green, the trustee in this action sought an attachment order against the property of defendant Violet Drexler by an order to show cause. The order was signed on June 7 and ex parte temporary relief was granted, in the form of an order enjoining Violet Drexler and William Drexler, their agents, employees and assigns from transferring, mortgaging, encumbering or dissipating any interest that either or both of them may have in any brokerage accounts. On June 8, the trustee sought further ex parte temporary relief enjoining the defendants from transferring, mortgaging, encumbering or dissipating any interest that they might have in any securities, bonds, money-market instruments, or other non-demand deposits, or the proceeds therefrom. This relief was granted.
On June 15, 1984, a hearing was held concerning the orders entered and the further relief sought. At that time the trustee sought an order compelling Violet Drexler to turn over all property capable of delivery within her control to an escrow agent. Evidence and testimony were presented by the trustee indicating that, despite her prior testimony to the contrary, Violet Drexler had substantial assets. Indeed, the evidence indicated that Violet Drexler had purchased approximately $250,000 in municipal bonds during the past six months through J.P. Hanaver & Co. Following the hearing, an order was entered directing Violet Drexler to deliver to her attorney, as escrow agent, any property capable of delivery. In entering this order, the Court took into consideration Violet Drexler's history of secreting assets and apparent disregard for court orders and the oath under which she testified.
On June 26, further proceedings were held. At this time, Violet Drexler filed objections to the trustee's motion for an attachment and sought leave to move to vacate or modify the outstanding orders. That motion was made on July 12, 1984. The trustee also moved on that date for an order holding Violet Drexler in contempt of court for failing to adhere to the Court's orders.
The first motion to be addressed is the trustee's motion for an order of attachment, a preliminary injunction and a mandatory injunction compelling turnover of property in aid of the attachment. Defendant Violet Drexler opposes this motion on the ground that the trustee has failed to satisfy the requirements of section 6212 of the CPLR, specifically the requirements that the trustee show: (a) the existence of a cause of action and (b) that it is probable that the trustee will succeed on the merits of his action filed against her.
The trustee's affidavit and the exhibits attached thereto establish that a cause of action exists. To satisfy this requirement of the CPLR the trustee must make a showing of prima facie facts that establish a basis for the cause of action alleged. The Court finds that the trustee has done this. The trustee has not shown, however, on the face of the affidavit and exhibits attached thereto, probable cause on the merits of his claim against Violet Drexler for conversion, mismanagement and waste, and fraudulent conveyance. Without this showing, the trustee is not entitled to an order of attachment. See Executive House Realty v. Hagen, 108 Misc.2d 986, 438 N.Y.S.2d 174 (1981) (). The trustee has established, however, that there are serious questions going to the merits of this action to make them a fair ground for litigation and that the balance of hardships tip decidedly in favor of the trustee. This finding was made by Bankruptcy Judge Prudence Abrams on September 14, 1983 at an earlier proceeding in this action and is recited in her order dated September 27, 1983, submitted as Exhibit B to the trustee's affidavit. Although this finding does not satisfy the requirements for issuance of an order of attachment outlined in section 6212 of the CPLR, it is a sufficient showing for the relief granted thus far in this action, particularly in light of facts in the record.
Under section 6301 of the CPLR, a preliminary injunction may be granted where the defendant threatens or is about to do an act in violation of plaintiff's rights with regard to the subject of the action that may render the judgment ineffectual. Although the ultimate relief sought here is a money judgment, which does not normally qualify as the subject of an action, the court has the power to take control of a "subject matter" of an action to set aside a transfer in fraud of creditors, if extrinsic facts, justifying such interference are presented. Resinol v. Long Island Asbestos Contracting Co., 26 Misc.2d 956, 208 N.Y.S.2d 10, 11 (Sup.Ct.Nassau Cty.1960). Such facts are presented in the trustee's affidavit. The deposition testimony attached to the affidavit demonstrates a blatant disregard for court orders and the obligation to testify truthfully under oath. This evidence, in conjunction with that submitted at the hearing, documents substantial efforts to hide and secrete assets. The relief granted is essential to prevent a potential judgment from becoming ineffectual. The affidavit submitted also satisfies the requirements of section 6312 which outlines what a trustee must show to obtain an injunction under section 6301.
The requirement that the Court find a likelihood of success on the merits, established by case law, is also satisfied. Unlike section 6212, sections 6301 and 6312 do not require that the plaintiff establish, by affidavit or other written evidence, probable success on the merits. The record shows that Violet Drexler received payments from the debtor corporations at $27,378 in 1977; $145,494 in 1978; $220,993 in 1979; and $222,603 in 1980 despite the fact that she testified that her only involvement with the debtor corporations was to supervise the part time clerical help two or three days a week. In addition, the evidence indicates that Violet Drexler was an officer and director of at least one of the debtor corporations during that time. This evidence establishes probable success on the merits of the trustee's waste, conversion and mismanagement claims.
Furthermore, default judgments were entered against those corporations by Judge Haight on May 31, 1983 for $800,000 in an action for an accounting and by Judge Sprizzo on June 13, 1983 in an action seeking $338,000 allegedly owing. Those judgments remain outstanding against the debtor corporations and will remain valid until and unless they are set aside for one of the reasons set forth in rule 60(b) of the Federal Rules of Civil Procedure or overturned on appeal. The existence of any counterclaims to the claims upon which the judgments are based is irrelevant at this stage of the litigation. It should be noted that at least one of these judgments is based on claims accruing in 1978 and thereafter, a time when the trustee's evidence shows that Violet Drexler was...
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