Brewer for Value-Added Communications, Inc. Litigation Trust v. State

• Decision Date: 12 March 1998
• Docket Number: VALUE-ADDED,No. M-56296,M-56296
• Citation: 176 Misc.2d 337,672 N.Y.S.2d 650
• Parties: , 32 Bankr.Ct.Dec. 558, 1998 N.Y. Slip Op. 98,201 Charles BREWER, as Trustee for theCOMMUNICATIONS, INC. LITIGATION TRUST, Claimant, v. STATE of New York, Defendant. (Motion) 1 Court of Claims of New York
• Court: New York Court of Claims

Page 650

672 N.Y.S.2d 650

176 Misc.2d 337, 32 Bankr.Ct.Dec. 558,

1998 N.Y. Slip Op. 98,201

Charles BREWER, as Trustee for the VALUE-ADDED COMMUNICATIONS, INC. LITIGATION TRUST, Claimant, v. STATE of New York, Defendant (Motion No. M-56296.) ¹ Court of Claims of New York.

March 12, 1998.

O'Sullivan, Graev & Karabell, L.L.P. (Bradley J. Butwin, of counsel), for claimant.

Dennis C. Vacco, Attorney General (Reuben Goldwaser, of counsel), for defendant.

FRANCIS T. COLLINS, Judge.

Movant seeks an order pursuant to Court of Claims Act § 10(6) permitting him to serve and file a late claim.

Value-Added Communications, Inc. (VAC) is a Texas corporation which entered into a telephone services contract with the New York State Department of Correctional Services (DOCS) whereby VAC provided telephone services for inmates as part of the defendant's Inmate Call Home Program. Pursuant to the agreement, VAC was required to pay DOCS commissions on the gross revenues generated by collect calls and a penalty of one and one-half percent on those commissions not paid by the tenth day of each month. Additionally, savings resulting from DOCS' long-term discount agreement with the New York Telephone Company (N.Y.NEX) were to be used for a telephone infrastructure improvement fund.

On October 10, 1995, VAC filed a voluntary petition in the United States Bankruptcy Court for the Northern District of Texas under chapter 11 of the Bankruptcy Code. Within the ninety day period preceding the filing of the petition, VAC sent three checks to DOCS totaling $58,303.45 to pay for penalty charges on commission payments. While aware of the bankruptcy proceeding, DOCS demanded payment to NYNEX of savings accrued under the contract. Postpetition, VAC made three payments to or for the benefit of DOCS totaling $488,584.52.

Movant was appointed by the Bankruptcy Court as trustee of the estate of VAC and on June 2, 1997 commenced an adversary proceeding against DOCS in the Bankruptcy Court alleging that the prepetition payments to DOCS were avoidable preferential transfers under section 547 of the Bankruptcy Code (11 U.S.C. § 547), and the postpetition payments were avoidable transfers under 11 U.S.C. § 549. The trustee sought a judgment avoiding the prepetition and postpetition payments and directing DOCS to pay the money to the trustee with interest.

On July 11, 1997, DOCS served a motion to dismiss the adversary proceeding in Bankruptcy Court upon the ground that the Court lacked subject matter jurisdiction in that the Eleventh Amendment of the United States Constitution precluded suit in Federal Court against a state agency unless the state had waived its sovereign immunity, which New York had not done. In particular, DOCS argued that section 106(a) of the Bankruptcy Code is unconstitutional pursuant to the decision of the United States Supreme Court in the case of Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996). Section 106(a) of the Bankruptcy Code provides, in pertinent part, that "notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to the following: (1) sections ... 547,... 549, 550 ...".

On September 26, 1997, the trustee filed Claim No. 97047 containing five causes of action seeking the return of the prepetition and postpetition payments. The claim was served upon the Attorney General on September 29, 1997 by certified mail, return receipt requested. Out of what movant's counsel describes as "an abundance of caution", this motion for permission to serve a late claim was brought on by a notice of motion dated October 8, 1997. The State has submitted a memorandum of law in opposition to the motion arguing that the Court of Claims lacks subject matter jurisdiction over the proposed claim.

On September 10, 1997, a United States Bankruptcy Judge in the United States Bankruptcy Court for the Northern District of Texas issued a memorandum opinion and order denying DOCS' dismissal motion upon the ground that it had waived its sovereign immunity by filing a proof of claim for fees allegedly due it pursuant to the telephone services contract. Both parties agree that the ruling of the Bankruptcy Judge will be pursued to the Fifth Circuit Court of Appeals, a process that will take many months.

Subdivision 6 of section 10 of the Court of Claims Act permits this Court, if the applicable Statute of Limitations set forth in Article 2 of the CPLR has not expired, to allow the filing of a late claim upon consideration of the following factors: "whether the delay in filing was excusable; whether the state had notice of the essential facts constituting the claim; whether the state had an opportunity to investigate the circumstances underlying the claim; whether the claim appears to be meritorious; whether the failure to file or serve upon the attorney general a timely claim or to serve upon the attorney general a notice of intention resulted in substantial prejudice to the state; and whether the claimant has any other available remedy". This Court has broad discretion in deciding a motion to permit the late filing of a claim (Ledet v. State of New York, 207 A.D.2d 965, 616 N.Y.S.2d 831), and the statutory factors are not exhaustive or one factor controlling (Matter of Gavigan v. State of New York, 176 A.D.2d 1117, 575 N.Y.S.2d 217). The most important factor is whether the potential claim has merit, as it would be a futile exercise to permit litigation of a clearly baseless lawsuit (Savino v. State of New York, 199 A.D.2d 254, 604 N.Y.S.2d 970).

The first issue for resolution is whether the motion has been made within the time limitations set forth in article 2 of the CPLR as to each cause of action set forth in the proposed claim. The proposed claim contains the following causes of action: wrongful appropriation of personal property of the bankruptcy estate; money had and received; breach of a contract implied in law; commission by the defendant of an unnamed tort against the estate; and that the transfers are avoidable under the Bankruptcy Code.

The trustee argues that Claim No. 97047 is timely because the applicable Statute of Limitations was tolled by section 108 of the Bankruptcy Code and extended two years from the petition filing date of October 10, 1995. Defendant's opposition papers are silent upon the timeliness issue. The trustee's position is correct with respect to the fifth cause of action premised upon a violation of the Bankruptcy Code in that a Federal cause of action sued upon in this Court carries with it the applicable Federal Statute of Limitations and tolling provisions (Ahern v. State of New York, 174 Misc.2d 123, 662 N.Y.S.2d 684). Pursuant to 11 U.S.C. § 108 the fifth cause of action contained in Claim No. 97047 was timely served and filed and the relief requested by this motion with regard to that cause of action is moot. Whether the Court of Claims has subject matter jurisdiction of a claim under the Bankruptcy Code to set aside an avoidable preference will be left for resolution by motion practice in Claim No. 97047.

The trustee's position that the first four causes of action set forth in Claim No. 97047 are timely due to the Federal tolling provision is not correct as those causes of action arise under State law. While the appropriate Federal Statute of Limitations will be applied to a Federal cause of action, it is equally well settled that the appropriate Statute of Limitations set forth in article 2 of the CPLR will be applied to a cause of action under State law (Baker v. Board of Educ. of the W. Irondequoit Cent. School Dist., 70 N.Y.2d 314, 320, 520 N.Y.S.2d 538, 514 N.E.2d 1109). It may well be determined upon a dismissal motion made in Claim No. 97047 that the first four causes of action contained in that claim were not timely commenced pursuant to Court of Claims Act § 10. Be that as it may, the first task presented by this motion is to determine which Statutes of Limitations set forth in article 2 of the CPLR apply to the first four causes of action contained in the proposed claim.

The six-year Statute of Limitations set forth in CPLR § 213 applies to a cause of action for a contract implied in law (Gold Sun Shipping Ltd. v. Ionian Transport Inc., --- A.D.2d ----, 666 N.Y.S.2d 677), money had and received (Board of Educ. of the Sachem Cent. School Dist. at Holbrook v. Jones, 205 A.D.2d 486, 614 N.Y.S.2d 23), and appropriation of personal property (Williamsburg Candy and Tobacco v. State of New York, 106 Misc.2d 728, 435 N.Y.S.2d 252). Clearly, the motion for permission to serve a late claim has been brought within the applicable CPLR article 2 time period with respect to the first, second and third causes of action set forth in the proposed claim. The fourth cause of action refers to an unnamed tort, which movant's counsel could not identify during oral argument. However, a conversion action is available to recover specifically identifiable money in the unauthorized possession of another (Key Bank of N.Y. v. Grossi, 227 A.D.2d 841, 843, 642 N.Y.S.2d 403). A conversion claim is governed by the three-year Statute of Limitations set forth in CPLR § 214, and the motion as to that cause of action is timely.

As to the prepetition payments, the foregoing causes of action accrued at the time of the filing of...