In re Shea & Gould

• Decision Date: 31 July 1996
• Docket Number: Bankruptcy No. 95 B 45978 (JLG). Adversary No. 96-8322A.
• Citation: 198 BR 861
• Parties: In re SHEA & GOULD, Debtor. SHEA & GOULD, Plaintiff, v. RED APPLE COMPANIES, INC. (d/b/a Red Apple Group, Inc., Red Apple Supermarkets, Inc., Red Apple Realty, Inc. and Red Apple Management, Inc.), Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

198 B.R. 861 (1996)

In re SHEA & GOULD, Debtor SHEA & GOULD, Plaintiff, v. RED APPLE COMPANIES, INC. (d/b/a Red Apple Group, Inc., Red Apple Supermarkets, Inc., Red Apple Realty, Inc. and Red Apple Management, Inc.), Defendants.

Bankruptcy No. 95 B 45978 (JLG). Adversary No. 96-8322A.

United States Bankruptcy Court, S.D. New York.

July 31, 1996.

COPYRIGHT MATERIAL OMITTED

Christopher Lometti, New York City, for Debtor.

Nicholas C. Katsoris, New York City, for Red Apple Companies, Inc.

PROPOSED FINDINGS AND CONCLUSIONS REGARDING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

JAMES L. GARRITY, Jr., Bankruptcy Judge.

Plaintiff Shea & Gould ("plaintiff" or "debtor") moves pursuant to Rule 56 of the Federal Rules of Civil Procedure ("Fed. R.Civ.P.") and Rule 7056 of the Federal Rules of Bankruptcy Procedure ("Bankr. Rules") for summary judgment on its complaint to recover unpaid legal fees and out of pocket expenses totalling $3,039.50 on the ground that Red Apple Companies, Inc. ("Red Apple" or "defendant") is liable for a binding account stated. Defendant opposes the motion arguing that it has paid the fees and that no account stated exists between them. For the reasons stated below, we recommend that debtor's motion be granted.¹

Facts

The facts, as established by debtor's chapter 11 petition, and the affidavits and Local Bankruptcy Rule 7056-1 statements submitted on behalf of each party are as follows. Debtor formerly was a partnership engaged in the practice of law. It ceased operation on or about March 31, 1994. Through a liquidation committee, debtor informally liquidated its operations until December 22, 1995, when it filed a petition under chapter 11 of title 11, United States Code (the "Bankruptcy Code"), in this district.

In or about August 1988, Red Apple retained plaintiff to represent it in connection with certain matters and agreed to compensate plaintiff for its services at the firm's regular hourly rates and to reimburse plaintiff for its expenses. On December 29, 1993, Red Apple tendered, and debtor accepted, a check in the sum of $25,000 ("December 29 Check") that contained a notation stating "paid in full 12/31/93." In March 1994, debtor tendered, and Red Apple accepted, a $3,093.50 bill dated March 9, 1994 (the "March 1994 Bill"). Red Apple did not contest payment of, or otherwise respond to, that bill. On or about November 30, 1995, John Catsimatidis, defendant's Chairman and Chief Executive Officer, received a letter ("November 1995 Letter") from plaintiff's counsel ("Lometti") demanding immediate payment of the March 1994 Bill. Defendant did not respond to that letter until Ms. Susan Betancourt, Catsimatidis' assistant, sent Lometti a letter dated February 27, 1996 ("February 1996 Letter"). In relevant part that letter states that "back in December 1993 our company did a settlement with Shea & Gould for all outstanding bills up to December 31, 1993 and they were paid $25,000.00 as payment in full to cover all invoices and fees." Plaintiff has submitted a copy of the March 1994 Bill, including a detailed breakdown of the amounts owed debtor as of March 9, 1994. That material demonstrates that the March 1994 Bill covers legal services performed by debtor for Red Apple subsequent to December 31, 1993. The accuracy of that material has not been challenged by Red Apple. On or about March 27, 1996, plaintiff commenced this action by filing the underlying complaint with the court and serving it, together with a Summons and Notice of Pre-Trial Conference, on defendant. On or about April 26, 1996, defendant answered the complaint. It has not filed a proof of claim herein.

Plaintiff contends that because defendant accepted, but has not paid, timely contested or otherwise questioned the March 1994 Bill, the bill became an account stated and plaintiff is entitled to summary judgment on its complaint to collect that indebtedness. Defendant denies that summary judgment is appropriate.

Discussion

Pursuant to 28 U.S.C. § 157(b)(1), a bankruptcy judge "may hear and determine all . . . core proceedings arising under title 11 . . . and may enter appropriate orders and judgments, subject to review under 28 U.S.C. § 158." For those purposes, § 157(b)(2) contains a non-exclusive list of "core proceedings". See 28 U.S.C. § 157(b)(2). Bankr.Rule 7008 makes Fed. R.Civ.P. 8 applicable to adversary proceedings under the Bankruptcy Code. That rule also directs, in part, that "in an adversary proceeding before a bankruptcy judge, the complaint . . . shall contain a statement that the proceeding is core or non-core, and if non-core, that the pleader does or does not consent to the entry of final orders or judgment by the bankruptcy judge." In its complaint, debtor alleges that this is a core proceeding under § 157(b)(2). Defendant's answer denies knowledge or information sufficient to respond to that allegation. Under Bankr.Rule 7008, that "has the effect of a denial of that allegation." See also Forts v. Ward, 566 F.2d 849, 853 (2d Cir.1977). In opposing this motion, Red Apple did not challenge our alleged lack of core jurisdiction. However, that defense was preserved by its answer. See Advisory Committee Note to Bankr.Rule 7008 ("only express consent in the pleadings or otherwise is effective to authorize entry of a final order or judgment by the bankruptcy judge in a non-core proceeding"). See also Marill Alarm Systems, Inc. v. Equity Funding Corp. (In re Marill Alarm Systems, Inc.), 81 B.R. 119, 123 (S.D.Fla.1987) (in dicta stating that given mandates of Rule 7008, in an adversary proceeding in a bankruptcy court, "the parties cannot impliedly consent to a final judgment by the bankruptcy court") (emphasis in original), aff'd, 861 F.2d 725 (11th Cir.1988). Accord J.T. Moran Financial Corp. v. Amer. Consol. Finan. Corp. (In re J.T. Moran Financial Corp.), 124 B.R. 931 (S.D.N.Y.1991); M.S.V., Inc. v. Bank of Boston (In re M.S.V., Inc.), 97 B.R. 721 (D.Mass.), appeal dismissed, 892 F.2d 5 (1st Cir.1989); Rushton v. Traub (In re Nell), 71 B.R. 305 (D.Utah 1987); American Business Supply, Inc. v. Reynolds (In re American Business Supply, Inc.), 182 B.R. 580 (Bankr.D.Kan.1995). But see Men's Sportswear, Inc. v. Sasson Jeans, Inc. (In re Men's Sportswear, Inc.), 834 F.2d 1134, 1137-38 (2d Cir.1987) (failure to object to bankruptcy court's assertion of jurisdiction over a "related" proceeding at both bankruptcy and district court levels constitutes consent to final adjudication of the controversy); Miller v. Printech Instant Ads, Inc. (In re Lila, Inc.), 133 B.R. 588 (Bankr. E.D.Pa.1991) (where debtor failed to allege whether matter was core proceeding in complaint and defendant requested court to enter judgment in its favor in answer, court found that both parties expressly consented to final determination even if matter non-core). In any event, we must determine whether the adversary proceeding is within our core jurisdiction. See 28 U.S.C. § 157(b)(3) (a "bankruptcy judge shall determine, on the judge's own motion or on timely motion of a party, whether the proceeding is a core proceeding under 28 U.S.C. § 157(b)(2) or is a proceeding that is otherwise related to a case under title 11").

In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), the court held that Congress could not constitutionally empower a non-Article III bankruptcy court to adjudicate a state breach-of-contract action based on a pre-petition contract brought by a debtor against a defendant that had not filed a claim in bankruptcy court. The court held that the Constitution reserved for Article III courts traditional functions of the judicial power such as adjudicating state breach-of-contract claims like that by the debtor against the defendant. Id. at 84, 102 S.Ct. at 2878. It found Congress's broad grant of jurisdiction to the bankruptcy court to adjudicate such claims in the Bankruptcy Act of 1978 to be unconstitutional. Congress enacted 28 U.S.C. § 157 in response to Marathon. See Ben Cooper, Inc. v. Insur. Co. of State of Pennsylvania (In re Ben Cooper, Inc.), 896 F.2d 1394, 1398 (2d Cir.), cert. granted, 497 U.S. 1023, 110 S.Ct. 3269, 111 L.Ed.2d 779 (1990), vacated and remanded, 498 U.S. 964, 111 S.Ct. 425, 112 L.Ed.2d 408 (1990), reinstated on remand, 924 F.2d 36 (2d Cir.), cert. denied, 500 U.S. 928, 111 S.Ct. 2041, 114 L.Ed.2d 126 (1991). The characterization of an adversary proceeding within the terms included as core in 28 U.S.C. §§ 157(b)(2)(A-O) is not dispositive of whether the proceeding is core. In re General American Communications Corp., 130 B.R. 136, 155 (S.D.N.Y.1991) (citing Taxel v. Commercebank (In re World Financial Services Center, Inc.), 64 B.R. 980, 986 (Bankr. S.D.Cal.1986)). See also Borock v. Turner Construction Co. (In re Sardo Corp.), No. 95 A 01620, 1996 WL 362756 (Bankr.N.D.Ill. June 11, 1996) (mere characterization of an action as a complaint for turnover does not mean that it is a turnover action pursuant to 28 U.S.C. § 157(b)(2)(E)). The relevant inquiry in determining whether a proceeding is a core proceeding "is whether the nature of the adversary proceeding, rather than the state or federal basis for the claim, falls within the core of federal bankruptcy power." Gulf States Exploration Co. v. Manville Forest Products Corp. (In re Manville Forest Products Corp.), 896 F.2d 1384, 1389 (2d Cir.1990).

In its supplemental legal memorandum, Red Apple contends that this matter falls within our non-core "related" jurisdiction, that it does not consent to the jurisdiction of this court and that the case must be dismissed. On the cover sheet annexed to the complaint, plaintiff contended that our core jurisdiction is predicated on 28 U.S.C. §§ 157(b)(2)(A), (E) and (O).² Debtor's supplemental memorandum only addressed § 157(b)(2)(E), although debtor purported to preserve its contention that §§ 157(b)(2)(A) and (O) are bases for finding core...