Crysen/Montenay Energy Co., In re

• Decision Date: 09 May 1990
• Docket Number: No. 788,D,788
• Citation: 902 F.2d 1098,20 BCD 807
• Parties: , 22 C.B.C. 1385, 20 Bankr.Ct.Dec. 807, Bankr. L. Rep. P 73,394, 11 UCC Rep.Serv.2d 881 In re CRYSEN/MONTENAY ENERGY CO., Debtor. CRYSEN/MONTENAY ENERGY CO., Appellant, v. ESSELEN ASSOCIATES, INC., Appellee. ocket 89-5035.
• Court: U.S. Court of Appeals — Second Circuit

Page 1098

902 F.2d 1098

58 USLW 2706, 22 C.B.C. 1385, 20

Bankr.Ct.Dec. 807,

Bankr. L. Rep. P 73,394, 11 UCC Rep.Serv.2d 881

In re CRYSEN/MONTENAY ENERGY CO., Debtor CRYSEN/MONTENAY ENERGY CO., Appellant, v. ESSELEN ASSOCIATES, INC., Appellee.

No. 788, Docket 89-5035.

United States Court of Appeals Second Circuit.

Argued Feb. 2, 1990.

Decided May 9, 1990.

Richard N. Chassin, New York City (John R. Horan, Fox & Horan, New York City, of counsel), for appellant.

Anthony J. Pruzinsky, Hill, Rivkins, Carey, Loesberg, O'Brien & Mulroy, New York City, for appellee.

Before OAKES, Chief Judge, KEARSE, Circuit Judge, and FLETCHER, Circuit Judge. ^*

OAKES, Chief Judge:

Crysen/Montenay Energy Co. ("Crysen") appeals an August 10, 1989, amended opinion and order of the United States District Court for the Southern District of New York, Milton Pollack, Judge, reported at 102 B.R. 25 (S.D.N.Y.1989), holding that prosecution of a tort claim by appellee Esselen Associates, Inc. ("Esselen"), against Consolidated Edison Company of New York, Inc. ("Con Edison"), is not barred by the automatic stay provision of 11 U.S.C. Sec. 362(a) (1988), on grounds that the claim is not property of Crysen's bankruptcy estate, and reversing the bankruptcy court's award of damages to Crysen's estate for Esselen's willful violation of the automatic stay. Because we agree with the bankruptcy court in concluding that any cause of action Esselen may have against Con Edison is the exclusive property of Crysen's estate, we reverse the portion of the district court's opinion that lifted the injunction imposed by the bankruptcy court against Esselen's prosecution of the claim. Nevertheless, we affirm the district court's refusal to award damages to Crysen, on grounds that the standard governing an award of sanctions for an automatic stay violation was not sufficiently settled in this circuit at the time Esselen initiated its action to justify an award against Esselen.

This case addresses whether a tort cause of action arising out of events that occurred prior to a debtor's declaration of bankruptcy constitutes property of the debtor's bankruptcy estate. In 1985, appellant Crysen, now the debtor, entered into a long-term contract with Con Edison to supply Con Edison with a specified amount of fuel oil over the period November 1985 to March 1987. The contract provided that an independent inspector would determine the quantity of fuel oil delivered in a given shipment by gauging the amount of oil received in Con Edison's shore tanks. In the event the shore tank measurements were unavailable, the contract provided for gauging according to vessel discharge figures.

On January 16, 1986, Crysen also entered into a contract with appellee Esselen for the sale of fuel oil by Esselen. The contract specified that delivery was to be made "into buyer's designated New York harbor terminal" and that buyer's shore tank measurements, as gauged by an independent inspector, would determine the quantity deemed delivered.

Using the purchase of fuel oil from Esselen to fulfill its continuing supply obligations under the Con Edison contract, Crysen designated Con Edison's Hudson Avenue terminal in New York harbor as On January 22-23, 1986, Esselen's designated vessel discharged, according to the appointed independent inspector, 113,255.93 barrels of oil at Con Edison's terminal. However, the independent inspector found that only 99,719.02 barrels were received into Con Edison's shore tanks, a discrepancy that equated to over $300,000 in "lost" oil.

the place for delivery of Esselen's fuel oil. Under this arrangement, Crysen would make either a profit or loss based on the difference between the price it purchased the oil from Esselen and the price it sold the oil to Con Edison.

Despite the inspector's recommendation that the parties amend their various agreements and adopt the vessel discharge figures as more representative than the shore tank measurements of the quantity of oil actually delivered, both Con Edison and Crysen denied receipt of the "missing oil," refused to accept the vessel discharge figure as the quantity delivered, and declined to pay for the 13,537 barrel difference between the vessel discharge figure and the shore tank measurement. Accordingly, Con Edison paid Crysen the price for only 99,719.02 barrels, citing its contract with Crysen which provided that shore tank measurements, when available, would determine the quantity of oil delivered, and Crysen in turn paid the same to Esselen, citing the similar provision in its agreement with Esselen.

On February 19, 1986, Esselen initiated a contract action against Crysen in the United States District Court for the District of New Jersey, demanding payment for the full 113,255.93 barrels allegedly delivered. Crysen impleaded Con Edison into the action, claiming a right to indemnification for any resulting judgment that might hold Crysen liable to Esselen for the "missing barrels." While the action was still pending, however, Crysen in June 1986 filed a petition for reorganization under Chapter 11 of Title 11 of the United States Code. Shortly thereafter, in light of the automatic stay provision governing attempts to collect judgments from estates in bankruptcy, see 11 U.S.C. Sec. 362(a), Esselen voluntarily dismissed its action against Crysen, and Crysen withdrew its third-party action against Con Edison.

In January 1987, Esselen filed a tort action directly against Con Edison in the United States District Court for the Eastern District of New York, claiming that Con Edison, by converting or misappropriating the "missing barrels," wrongfully deprived Esselen of its right to payment from Crysen for that oil. Underlying Esselen's action against Con Edison was the theory that the missing barrels of oil had somehow disappeared after discharge from Esselen's vessel and within Con Edison's harbor system.

One year later, Crysen commenced its own adversary proceeding against Con Edison in the United States Bankruptcy Court for the Southern District of New York, seeking payment of the balance due for the 113,255.93 barrels delivered to Con Edison. Moreover, in January 1989, Crysen, claiming that the right to recover from Con Edison was property of its estate, moved to enforce the automatic stay provision of 11 U.S.C. Sec. 362(a) to enjoin Esselen from pursuing the Eastern District action and to assess damages against Esselen for its willful violation of the automatic stay provision. The bankruptcy court granted Crysen's motion. Esselen filed a timely notice of appeal to the district court, which in turn reversed the bankruptcy court's order on grounds that Esselen bore the actual risk of loss for the missing barrels, and thus that its right of action against Con Edison was not the exclusive property of Crysen's bankruptcy estate, pursuant to N.Y.U.C.C. Law Sec. 2-722 (McKinney 1964). Crysen appeals the reversal by the district court of the bankruptcy court's order.

DISCUSSION

Contrary to Crysen's arguments, we do not agree that this case, as a matter of law, necessarily involves only a simple contractual dispute as to the proper measure of delivered oil. Because of the large discrepancy between the vessel discharge figure and the shore tank measurement, it is possible that Esselen, through further discovery can demonstrate that the "missing oil" was in fact misappropriated or somehow diverted, as by pipes between storage tanks, and not simply measured incorrectly.

Given that facts may support a tort cause of action against Con Edison, the issue remains whether this cause of action is the exclusive property of Crysen's bankruptcy estate. If so, then Esselen's prosecution of the action against Con Edison is a violation of the automatic stay provision of 11 U.S.C. Sec. 362(a). The automatic stay prevents individual creditors from suing to enforce a right of action belonging to a corporation when that corporation is in bankruptcy. See In re MortgageAmerica Corp., 714 F.2d 1266, 1276-78 (5th Cir.1983). If, however, the right of action belongs to the creditor, the action is not part of the debtor's estate and the stay does not apply. See Kommanditselskab Supertrans v. O.C.C. Shipping, Inc., 79 B.R. 534, 540 (S.D.N.Y.1987).

The federal bankruptcy code broadly defines property of a debtor's estate as including "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. Sec. 541(a)(1) (1988). Within this definition of a debtor's property fall the debtor's rights of action to collect accounts receivable. See In re Chateaugay Corp., 78 B.R. 713, 725 (Bankr.S.D.N.Y.1987); cf. Mitchell Excavators, Inc. v. Mitchell, 734 F.2d 129, 131 (2nd Cir.1984) (bankruptcy estate includes debtor's causes of action).

Although federal bankruptcy law determines the outer boundary of what may constitute property of the estate, state law determines the "nature of a debtor's interest" in a given item. In re Howard's Appliance Corp., 874 F.2d 88, 93 (2nd Cir.1989). Therefore, whereas federal law instructs us that the action for the missing oil may constitute property of Crysen's estate, state law determines whether Crysen's interest in the cause of action is sufficient to confer on the estate a property right in the action.

1. Applicability of the Automatic Stay

Determining whether the tort action against Con Edison is the exclusive property of Crysen's estate requires a parsing out of the relative rights and interests of Esselen and Crysen in the missing oil. Under section 2-722 of New York's Uniform Commercial Code ("UCC"), either party to a contract may bring an action against a third-party tortfeasor who "so deals with goods which have been identified to a contract for sale as to cause actionable injury to a party to that contract," such as by misappropriating the goods, if the party has either title, a security interest, or an insurable interest in the goods, or maintains risk...