Cedar Tide Corp., In re, 675

• Decision Date: 17 October 1988
• Docket Number: D,No. 675,675
• Citation: 859 F.2d 1127
• Parties: , Bankr. L. Rep. P 72,480 In re CEDAR TIDE CORPORATION, Debtor. CEDAR TIDE CORPORATION, Plaintiff-Appellee, v. CHANDLER'S COVE INN, LTD., Defendant-Appellant. ocket 87-5035.
• Court: U.S. Court of Appeals — Second Circuit

Page 1127

859 F.2d 1127

18 Bankr.Ct.Dec. 843, Bankr. L. Rep. P 72,480

In re CEDAR TIDE CORPORATION, Debtor CEDAR TIDE CORPORATION, Plaintiff-Appellee, v. CHANDLER'S COVE INN, LTD., Defendant-Appellant.

No. 675, Docket 87-5035.

United States Court of Appeals Second Circuit.

Argued Feb. 4, 1988.

Decided Oct. 17, 1988.

Charles E. Morrison, New York City, for defendant-appellant.

Robert S. Arbeit, Hauppauge, N.Y. (Pinks, Brooks, Stern & Arbeit, Hauppauge, N.Y., of counsel), for plaintiff-appellee-debtor.

Before TIMBERS, WINTER and ALTIMARI, Circuit Judges.

WINTER, Circuit Judge:

The burgeoning record in this bankruptcy case includes an extraordinary number of unresolved contradictions, apparent obfuscations, and unanswered allegations of fraud amounting to criminal conduct by and against both parties. Difficult as it is to piece together a coherent tale from the record, traces of serious misconduct appear, although doubt surrounds who is responsible. Nevertheless, for purposes of this appeal, we need dispose of only two comparatively narrow questions: (i) whether the original appeal from the bankruptcy court was properly before the district court

despite the fact that the attorney who filed and perfected it had not been authorized to do so; and (ii) whether the federal courts have jurisdiction over a Chapter 11 petition filed by a corporation previously dissolved by New York State for nonpayment of franchise taxes. Because we answer these questions in the affirmative, we conclude that the bankruptcy court did not err in granting summary judgment nullifying the post-petition transfer of substantially all the assets of Cedar Tide Corporation ("Cedar Tide"), a Chapter 11 debtor-in-possession, to Chandler's Cove Inn, Ltd. ("CCI") where the transfer was made without notice and a hearing as required by 11 U.S.C. Sec. 363(b)(1) (1982 & Supp. IV 1986).

BACKGROUND

We note at the outset that the record in this appeal contains serious lacunae, some of which may reflect grave improprieties. Nevertheless, the record is sufficient to allow us to resolve the merits of the appeal.

The underlying dispute concerns forty largely undeveloped waterfront acres in Suffolk County, New York ("the Land"). The Land, which is apparently worth at least one and perhaps as much as six million dollars, has been owned, directly or indirectly, for about fifty years by Elizabeth Chandler, now approximately ninety years old. From 1969 onward, the record owner of the Land was Cedar Tide, a corporation formed in that year with the Land as its main, if not sole, asset. Although Cedar Tide's stock may never have been issued, it apparently was intended that Elizabeth would be the majority stockholder and her son Frederick the minority stockholder. At least we know of nothing indicating that anyone else has an ownership interest. Cedar Tide was dissolved by New York State in December 1979 for nonpayment of franchise taxes.

At some point, Cedar Tide borrowed money from The Mint Factors, Inc. with the Land as security. The loan terms were disputed in a state court action in which a stipulation of settlement was entered in 1983. In 1984, The Mint Factors brought a state court action against Cedar Tide and Elizabeth Chandler to enforce the settlement, and, in the alternative, to foreclose on the Land. In an opinion dated October 11, 1985, the state court ruled that The Mint Factors was entitled to specific performance of the stipulated settlement. However, the state court judgment appears never to have been carried out. In the wake of this attempt by The Mint Factors to foreclose on the Land, Cedar Tide filed for reorganization under Chapter 11 on December 10, 1985.

Frederick Chandler authorized the December 1985 Chapter 11 filing, alleging that he was a director and fifty percent shareholder of Cedar Tide Corporation, and that he had been authorized to file the petition. Frederick's claim of fifty percent ownership contradicted testimony given in the state court in August 1985 by Elizabeth, who testified that there were 200 shares in Cedar Tide outstanding and that she owned 125 and her son Frederick owned 75. The filing did not mention the dissolution of Cedar Tide. Harold Spivack, the attorney who filed the petition, attests that he did not know that the corporation had been dissolved at the time of filing, and that he discovered this fact only at the end of January 1986. After the Chapter 11 filing, Cedar Tide paid its back taxes under an amnesty program. The corporation received an official notice of reinstatement in February 1986 and appears to have been formally reinstated no later than May 1986.

CCI, the other claimant to the Land in the present proceeding, did not file its certificate of incorporation until January 3, 1986, some weeks after Cedar Tide's Chapter 11 filing. A series of transactions followed that incorporation. On January 18, 1986, Elizabeth transferred all of her interest in Cedar Tide and the Land to Frederick. On March 24, 1986, Stanley Kommisar, as vice-president of Cedar Tide, executed a deed transferring the Land to CCI. This may have been a cameo performance because Kommisar is otherwise unknown. Sidney Mintz, an attorney, witnessed the deed and apparently took possession of the corporate records of both Cedar Tide and On April 16, 1986, Elizabeth Chandler and Cedar Tide filed an action in New York State court seeking to set aside the deed transferring the Land to CCI. In alleging that she was the sole shareholder in Cedar Tide, she failed to mention the transfer of all of her interest to Frederick in January or her earlier testimony that Frederick was either a minority or fifty percent shareholder. The complaint also neglected to mention the fact that Cedar Tide already had a Chapter 11 petition pending in the bankruptcy court. Mintz appeared for CCI. On May 22, 1986, while its state court action was still pending, Cedar Tide filed an adversary proceeding in bankruptcy court seeking to set aside the March 24, 1986 deed transferring the property to CCI. Judge Goetz issued a temporary restraining order enjoining CCI from transferring the property on May 23, 1986. CCI, represented by attorney Douglas A. Durnin, moved to dismiss the adversary proceeding on the grounds that: (1) the bankruptcy court lacked jurisdiction because Cedar Tide was a dissolved corporation when it filed Chapter 11; (2) Cedar Tide lacked authority to bring the action because it was controlled by CCI, which possessed seventy-five percent of its stock; (3) Cedar Tide's filings were insufficient as a matter of law; and (4) the pending state action precluded any transfer of the property in any event, so no injunction would lie.

CCI. A Charlotte Mintz is a principal of The Mint Factors, but whether she is related to Sidney is not reflected in the record. The deed was registered with the Suffolk County Clerk on March 27, 1986.

The bankruptcy court held a hearing on Cedar Tide's motion for a preliminary injunction and CCI's motion to dismiss on June 4, 1986. No one at the hearing had access to the corporate records of either Cedar Tide or CCI, which apparently were in the possession of Sidney Mintz. Robert S. Arbeit, Cedar Tide's counsel, admitted that he did not know exactly what was going on (a refreshing touch of candor in a record shrouded in deliberate or negligent obfuscation), including what Frederick's interest was, but he indicated that Frederick and Elizabeth were willing to swear that they had not transferred the Land to anyone or authorized its transfer (although the complaint alleged lack of authority only upon "information and belief"). Durnin appeared for CCI, and indicated that Shari Scott, a second-grade school teacher and part-time real estate broker, was a seventy-five percent owner of CCI. Frederick apparently was the owner of the remaining twenty-five percent interest in the company and its agent for service of process. Shari's husband Paul Scott and her adult daughter Susan Scott Fortuna were also somehow involved with the company.

Durnin indicated that he believed that Frederick was the sole owner of Cedar Tide and had authorized the transfer of the Land to CCI. He did not dispute that Cedar Tide was in Chapter 11 when the transfer took place or that Cedar Tide continued as debtor-in-possession at that time. He claimed that Frederick received consideration for the transfer but produced only an unsigned memorandum between Frederick and Shari Scott. Judge Goetz granted the injunction and denied CCI's motion to dismiss on the grounds that a dissolved New York corporation may seek Chapter 11 protection. ¹

Cedar Tide moved for summary judgment on September 9, 1986. On September 26, 1986, while that motion was pending before Judge Goetz, CCI, whose sole asset appears to have been its claim to the Land, filed a voluntary Chapter 7 petition in the United States Bankruptcy Court in the Southern District of New York. The case was assigned to Judge Buschman, who appointed Isaac Nutovic interim trustee for CCI. On September 30, 1986, Cedar Tide's motion for summary judgment was argued before Judge Goetz, and Durnin appeared for CCI. After that hearing, Judge Goetz granted summary judgment for Cedar Tide. That judgment was entered on October 16, 1986. Durnin filed a notice of appeal CCI's Chapter 7 case was transferred from the Southern District to Judge Goetz in the Eastern District in December 1986. On January 6, 1987 Robert L. Pryor was appointed to replace Nutovic as interim trustee. Neither he nor Nutovic ever filed or authorized the filing of an appeal from Judge Goetz's grant of summary judgment, although Pryor did request by letter an extension of the date scheduled for oral argument in the district court so that he could inform himself about the case. While later statements by Pryor indicate that he never believed that the appeal had merit, he did nothing to stop Durnin from perfecting it. Meanwhile, it appears that...