Colonial Realty Co., In re
| Citation | 980 F.2d 125 |
| Decision Date | 20 November 1992 |
| Docket Number | No. 1673,D,1673 |
| Parties | , 28 Collier Bankr.Cas.2d 28, 23 Bankr.Ct.Dec. 1143, Bankr. L. Rep. P 75,283 In re COLONIAL REALTY COMPANY, Jonathan Googel, and Benjamin Sisti, Consolidated Debtors. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Citytrust, The Landmark Bank, Community National Bank, Suffield Bank, and The New Connecticut Bank & Trust Company, N.A., Plaintiff-Appellant, v. Hal M. HIRSCH, as Operating Trustee of Colonial Realty Company, Jonathan Googel, and Benjamin Sisti, Consolidated Debtors, Defendant-Appellee. ocket 92-5023. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Daniel H. Kurtenbach, Counsel, F.D.I.C., Washington, D.C. (Dorothy L. Nichols, Associate General Counsel, Ann S. Duross, Asst. General Counsel, Richard J. Osterman, Jr., Sr. Counsel, Edward J. O'Meara, Counsel, F.D.I.C., Washington, D.C., John R. Mallin, Sharon L. Aresco, Annamarie DiBartolo, Elia Walsh, Corcoran, Mallin & Aresco P.C., Hartford, Connecticut, of counsel), for plaintiff-appellant.
Hal M. Hirsch, Purchase, N.Y. (Gainsburg & Hirsch, Purchase, N.Y., of counsel), for defendant-appellee.
Before: CARDAMONE, WINTER, and MAHONEY, Circuit Judges.
This is an appeal from an order of the United States District Court for the District of Connecticut, Jose A. Cabranes, Chief Judge, entered December 31, 1991 that affirmed an order of the United States Bankruptcy Court for the District of Connecticut, Robert L. Krechevsky, Chief Judge, entered December 17, 1991. See In re Colonial Realty Co., 134 B.R. 1017 (Bankr.D.Conn.1991) ().
The bankruptcy court ruled that a lawsuit initiated by the Federal Deposit Insurance Corporation ("FDIC") in the United States District Court for the Southern District of Florida to recover assets alleged to have been fraudulently conveyed by a bankruptcy debtor involved property of the bankruptcy estate, and was accordingly subject to the automatic stay of 11 U.S.C. § 362 (1988). 134 B.R. at 1020-23. Acting pursuant to 11 U.S.C. § 105 (1988), and rejecting the FDIC's claim that 12 U.S.C. § 1821(d)(17)-(19) (Supp. II 1990) and 1821(j) (Supp. I 1989) exempted the FDIC from the operation of § 362, 134 B.R. at 1023-24, the bankruptcy court enjoined the FDIC from continuing the pending Florida lawsuit, or from commencing or continuing litigation in any forum other than the bankruptcy court to obtain property of the bankruptcy estate without first complying with § 362. 134 B.R. at 1024-25.
We affirm the order of the district court.
Jonathan Googel and Benjamin Sisti were the general partners of Colonial Realty Company ("Colonial"), a Connecticut general partnership. Colonial was involved in the formation and syndication of approximately sixty real estate limited partnerships throughout the United States. On September 14, 1990, involuntary bankruptcy petitions were simultaneously filed against Colonial, Googel, and Sisti (collectively the "Debtors"). The bankruptcy cases were consolidated on August 9, 1991, 1 and Hal M. Hirsch was appointed permanent trustee for the consolidated estates (the "Trustee") on October 19, 1991.
Thousands of Colonial investors suffered significant losses in connection with the Colonial collapse, and claims filed by all creditors total billions of dollars. Shortly after the fall of Colonial, many of the banks that had loaned money to the Debtors and the limited partnerships also failed. As a result, between January and September 1991, the FDIC was appointed receiver of five former Connecticut state or national banks--Citytrust, The Landmark Bank, Community National Bank, Suffield Bank, and The Connecticut Bank and Trust Company, N.A. These banks had previously filed proofs of claim in the consolidated cases.
Between December 1985 and June 1990, Sisti allegedly incurred obligations to these banks in connection with his Colonial activities as direct obligor, general partner, or guarantor in the amount of $66,169,921. These obligations are allegedly in default and owed to the FDIC as receiver.
The Trustee has been investigating the financial dealings of the Debtors, and has negotiated with the FDIC to examine the financial records of the five banks in receivership and to secure bank records involving the Debtors and their transactions. The Trustee claims to have issued over four hundred subpoenas to various parties in the course of his investigation.
On December 2, 1991, the FDIC, as receiver of the five failed Connecticut banks, commenced an action in the United States District Court for the Southern District of Florida, FDIC v. Helene L. Sisti, No. 91-7866 Civ.-Zloch (S.D.Fla. Dec. 2, 1991) (the "Florida Action"), pursuant to its authority under 12 U.S.C. § 1821(d)(17)-(19) (Supp. II 1990). 2 The Florida Action sought to avoid the transfer of and recover approximately ten million dollars 3 that Sisti allegedly had fraudulently transferred to his wife, Helene L. Sisti, and Southern Ties, Inc., a Florida corporation. Some of these funds were subsequently transferred by the original transferees to other entities. Section 1821(d)(17) allows any transfer that was intended to hinder, delay, or defraud an insured depository institution or the FDIC as receiver to be set aside if the transfer was made within five years from the date that the FDIC was appointed receiver for the institution.
The FDIC alleged that between March and August 1990, Sisti made a series of fraudulent transfers directly or indirectly to the Florida Action defendants with the intent to hinder, delay, and defraud the FDIC or the five banks. Neither the Debtors nor the Bankruptcy Trustee were named in the Florida Action, which was brought only against the transferees to recover the transferred funds for the benefit of the estates of the failed banks.
On December 12, 1991, the United States District Court for the Southern District of Florida entered an ex parte temporary restraining order ("TRO") and appointed a trustee for the property at issue pursuant to § 1821(d)(18). The Trustee first learned of the litigation on December 13, 1991 via a telephone call from Sisti's counsel. Although the Florida Action is still pending, the district court for the Southern District of Florida has dissolved the TRO and denied a motion by the FDIC to extend it. The defendants in the Florida Action have stipulated in the bankruptcy court that they will not transfer any assets previously subject to the restraints of the TRO without three days prior written notice to the bankruptcy court and the Trustee.
On December 16, 1991, the Trustee moved in the United States Bankruptcy Court for the District of Connecticut for an order determining that the Florida Action violated the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362 (1988 & Supp. II 1990), 4 and enjoining the FDIC from continuing that action. On the same day, the FDIC moved in the United States District Court for the District of Connecticut, pursuant to 28 U.S.C. § 157(d) (1988), to withdraw the contested matter commenced by the Trustee's motion to the district court. The district court denied the FDIC's motion, and the matter proceeded before the bankruptcy court. 5
The Trustee contended that the fraudulent conveyance claims asserted by the FDIC in the Florida Action are property of the consolidated estate over which the bankruptcy court has exclusive jurisdiction, and therefore the automatic stay applies to the FDIC. The FDIC countered that § 1821(d)(17)(D), by providing that the FDIC's rights under paragraph 17 of § 1821(d) "shall be superior to any rights of a trustee ... under title 11," see supra note 2, precluded application of the automatic stay to the FDIC. The FDIC also argued that the bankruptcy court lacked jurisdiction to make any determination of the Trustee's motion in view of 12 U.S.C. § 1821(d)(13)(D) (Supp. I 1989), a position rejected by the bankruptcy court and not pursued on appeal, and 12 U.S.C. § 1821(j) (Supp. I 1989), which precludes court action "to restrain or affect the exercise of powers or functions of the [FDIC] as a conservator or a receiver." 6
The bankruptcy court ruled in favor of the Trustee with respect to the applicability of the automatic stay. The court stated that 28 U.S.C. § 1334(d) (1988) provided it with "exclusive jurisdiction" over the property of the Debtors upon reference of the Title 11 cases by the district court pursuant to 28 U.S.C. § 157(a) (1988), and that it was "well settled" that fraudulent conveyance actions based upon prepetition transfers by a debtor are property of the estate. 134 B.R. at 1020. The court then reasoned that the § 1821(d)(17)(D) grant of a "superior" right to the FDIC simply indicates that the FDIC's claim is "prior in right," like a claim of a secured creditor, but does not establish any exemption from the § 362 automatic stay. 134 B.R. at 1021. The court stated that the stay does not "constitute a 'right' of a trustee, but a congressionally-mandated restraint that springs into existence upon the filing of a bankruptcy case." Id. The court noted that the Crime Control Act of 1990, which added § 1821(d)(17) and (j) to the United States Code, made no amendments to § 362(b) to provide any exemption for the FDIC from the automatic stay, although making numerous other amendments to the Bankruptcy Code to harmonize it with the new enactments regarding the FDIC. 134 B.R. at 1021-22.
The court stated that the FDIC could seek relief from the stay, at which time the Trustee would have the opportunity to inquire whether the FDIC could establish the specific intent requirement of § 1821(d)(17)(A), rather than permitting the FDIC to "unilaterally make that decision for itself." 134 B.R. at 1022. The court noted that the Trustee could also explore "whether other...
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