In re 222 Liberty Associates
| Decision Date | 16 February 1990 |
| Docket Number | Bankruptcy No. 88-11535S,Adv. No. 89-0674S. |
| Citation | 110 BR 196 |
| Parties | In re 222 LIBERTY ASSOCIATES, Debtor. 222 LIBERTY ASSOCIATES, Plaintiff, v. PRESCOTT FORBES REAL ESTATE CORP., Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Christopher Kuhn, Silverman, Markovitz, Meo & Raslavich, Philadelphia, Pa., for debtor.
David R. Dearden, Sprague Higgins Creamer & Sprague, Philadelphia, Pa., for defendant.
Andrew N. Schwartz, Philadelphia, Pa., for creditors' committee.
Stephen B. Mirow, Philadelphia, Pa., for Philip J. Banks.
Laurence J. Kaiser, Kronish, Lieb, Weiner & Hellman, New York City, for Donald L. Wolk.
James J. O'Connell, Asst. U.S. Trustee, Philadelphia, Pa., U.S. Trustee.
The parties have litigated this proceeding, concerning an attempt by the Debtor-Landlord to recover $24,531.71, plus interest, from a realtor who set off his commissions against a tenant's deposit, as if it presented a difficult issue of application of 11 U.S.C. § 549(b), an obscure Bankruptcy Code section concerning transfers in the "gap" period between the filing of a bankruptcy petition and the entry of an order for relief. See In re 222 Liberty Associates, 94 B.R. 381, 382 (Bankr.E.D.Pa.1988), rev'd, 110 B.R. 686 (E.D.Pa.1989) (hereinafter "Liberty I").1 However, we hold that the Plaintiff-Debtor, 222 LIBERTY ASSOCIATES (hereinafter "the Debtor"), is entitled to judgment on at least two other grounds: (1) The realtor's act was violative of the automatic stay, an issue which we are obliged to raise sua sponte; and (2) The realtor, as an escrow agent for the Debtor and its tenant, had no right to apply funds deposited in escrow by the tenant on behalf of the Debtor to the benefit of his own fees.
This bankruptcy case was commenced on May 3, 1988, by the filing of an involuntary petition under Chapter 11 of the Bankruptcy Code against the Debtor, a partnership whose sole asset is a nearly-vacant 12-story building in center city Philadelphia. A consensual order for relief was entered on September 28, 1988. Given its moderate size, this case has generated an inordinate amount of litigation and published Opinions, to which any interested reader is referred for a history of the case. In addition to Liberty I, addressing a dispute over "gap"-period payments for electric service, published Opinions arising from disputes in this case appear at 99 B.R. 639 (Bankr.E.D. Pa.1989) (); 101 B.R. 856 (Bankr.E.D.Pa.1989) (); 105 B.R. 798 (); and what promises to be our longest opus to date, our Opinion of January 4, 1990, 108 B.R. 971, denying confirmation of two separate Plans of Reorganization submitted by one of the Debtor's two general partners.
The instant proceeding, commenced by counsel for the Debtor on July 14, 1989, involves a matter which is removed from the frenetic disputes between the general partners and the contest to determine whether any interested party can produce a confirmable plan, which have spurred most of the above-referenced litigation. The trial was conducted on November 20, 1989. Although an earlier intention to obtain a transcript was withdrawn, the parties requested rather lengthy periods in which to submit proposed Findings of Fact, proposed Conclusions of Law, and Briefs, and then requested and obtained further extensions to January 4, 1990 (the Plaintiff-Debtor) and February 2, 1990 (the Defendant), to make these submissions. The submissions were made in accordance with the latter schedule, but were brief (about 10 pages each) and, unfortunately, transfixed with § 549(b), the application of which to this proceeding we deem relatively insignificant. See pages 203-04 infra. Since this is an adversary proceeding, we are obliged, by the dictates of Bankruptcy Rule (hereinafter "B.Rule") 7052 and Federal Rule of Civil Procedure 52(a), to submit our decision in the form of Findings of Fact and Conclusions of Law. The latter will include a discussion of the legal principles which we deem pertinent.
1. On or about November of 1987, the Defendant, PRESCOTT FORBES REAL ESTATE CORP. (herein "the Defendant"), by Peter Pakuris, its President (hereinafter "Pakuris"), entered into an oral agreement whereby the Defendant would be an exclusive rental agent of the Debtor's building at 110 South 16th Street, Philadelphia, PA (herein "the Property"), with Philip J. Banks (hereinafter "Banks"), then the managing partner of the Debtor.
2. On or about June 4, 1988, the Defendant, apparently unaware of the involuntary Chapter 11 filing against the Debtor about a month prior thereto, and without obtaining any appointment by this court as a professional, submitted to the Debtor a signed lease with a tenant (Integra) for a portion of the Property, which the Debtor accepted. The Debtor belatedly paid to the Defendant $2,199.36, representing the brokerage commission due for the Integra lease based upon a "discounted commission" formula computed on the aggregate rates payable under the lease, i.e., six (6%) percent of the first year's rentals, five (5%) percent of the second, four (4%) percent of the third, and three (3%) percent of all subsequent years' rentals.
3. On July 1, 1988, the Debtor and the Defendant executed a written Agency Agreement (hereinafter "the Agreement"), including an exclusive leasing commission agreement similar to the earlier oral agreement, the main difference being that the new commission agreement deleted the reference to the five (5%) percent commission in year two. The Agreement also included the following provision:
Owner the Debtor agrees that deposit monies will be retained by agent the Defendant in an escrow account in accordance with Pennsylvania statutes until consummation or termination of any lease that may occur as a result of this agency.
4. On July 20, 1988, pursuant to the Agreement, the Defendant submitted to the Debtor a signed lease with Sung Won Suh (hereafter "Suh") for a restaurant in the street floor of the Property, which the Debtor accepted.
5. Pursuant to the Lease, on or about July 25, 1988, Suh paid the sum of $26,666.66 to the Defendant, which represented the first month's rent in the amount of $6,666.66, and a security deposit of $20,000.00.
6. On July 22, 1988, being concerned that the Debtor would delay in paying the Defendant its commissions, as it had in the case of the Integra lease, Pakuris wrote to Banks, advising that he had deposited Suh's check for $26,666.66 in escrow pursuant to the Agreement and proposing that he be permitted to deduct the commissions payable to the Defendant for generating that lease, initially said to be $25,161.71, from Suh's check and forward the Debtor the net balance.
7. In response to this letter, Banks wrote to Pakuris by a letter dated July 25, 1988, in which Banks questioned Pukuris' calculation of the commissions, and indicated that he believed that it was the Defendant's responsibility to remit Suh's payment to the Debtor, irrespective of whether the Defendant's commissions had been paid.
8. By a letter also dated July 25, 1988, Pakuris responded to Banks' above-referenced letter, stating that he had recalculated his commissions at $24,531.71, and agreeing to remit Suh's funds by exchanging the Defendant's certified check for this sum with a certified check from the Debtor for the commissions.
9. Having apparently not received a favorable response to this offer to exchange certified checks, the Defendant proceeded to simply remit a check dated July 28, 1988, to the Debtor for the difference between Suh's deposit and the commissions, a net sum of $2,134.95. In response, by letter of July 29, 1988, Banks severed his relationship with the Defendant.
10. Pakuris admitted, in questioning from the court, that his actions in taking his commissions out of Suh's payments which he held in escrow were not "proper" and that this was the only instance, in thirteen years of doing business, that he had ever done such a thing.
11. The Defendant claimed to have spent approximately 800 hours on the Debtor's behalf in attempting to rent up the Property between March and July, 1988, with a greater portion of the activity in May, June and July, 1988.
12. On or about January 15, 1989, Suh terminated the lease and vacated the Premises. However, he ultimately assigned the lease to another restaurant owner, who presently remains as one of the Debtor's few tenants.
13. At no time did the Defendant ever seek to be appointed as a professional person hired by the Debtor nor did it ever file a motion to obtain relief from the automatic stay arising from the filing of the involuntary petition against the Debtor.
1. The Instant Proceeding Is Core and Therefore We Can Determine It.
The parties agree that this matter is a core proceeding over which this court not only has jurisdiction, but is empowered to decide, pursuant to 28 U.S.C. §§ 157(b)(1), (b)(2)(E), (b)(2)(O).
We also agree. This proceeding involves an attempt to recover certain specific funds, which the Debtor, we believe appropriately, alleges should have been held for it by the Defendant in escrow. We believe that the automatic stay is implicated. The proceeding is therefore comparable to that found by us to be core in In re TM Carlton House Partners, Ltd., 93 B.R. 859, 572 (Bankr.E.D.Pa.1988). See 28 U.S.C. § 157(b)(2)(A) and (b)(2)(G). It is also a proceeding to collect an account receivable in which the cause of action arose post-petition. See In re Arnold Print Works, 815 F.2d 165, 168-71 (1st Cir.1987); Valley Forge Plaza Associates v. Firemen's Fund Insurance Cos., 107 B.R. 514, 516-18 (E.D. Pa.1989...
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