In re 239 Worth Ave. Corp., Bankruptcy No. 99-31940-BKC-SHF.

CourtUnited States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida
Writing for the CourtSTEVEN H. FRIEDMAN
Citation236 BR 492
PartiesIn re 239 WORTH AVENUE CORP., Debtor.
Docket NumberBankruptcy No. 99-31940-BKC-SHF.
Decision Date04 August 1999

Thomas DeCarlo, West Palm Beach, FL, for the debtor.

James B. Miller, Miami, FL, for Siegelson' Diamonds, Inc., M.B. Altman Sons, R.T. Jewelers, Inc. and Twin Jewelry Company.

Steven J. Solomon, for E & S Jewelry Inc. and Barber Bros. Jewelry Mfg. Inc.


STEVEN H. FRIEDMAN, Bankruptcy Judge.

THIS MATTER came before the Court on July 19, 1999 for an evidentiary hearing on the motion of creditors Siegelson's Diamonds, Inc., M.B. Altman Sons, R.T. Jewelers, Inc. and Twin Jewelry Company (collectively the "Creditors"), to dismiss the Debtor's bankruptcy case. Having considered the evidence presented, the argument of counsel and for the reasons set forth below, the Court grants the Creditors' motion and dismisses this case.

This case was commenced on April 22, 1999, with the Debtor's filing of its voluntary chapter 11 petition. The Debtor, 239 Worth Avenue Corp. d/b/a Samuel Harold Jewelers, has been in business for approximately 30 years, selling "high end" jewelry. Most of the Debtor's inventory is owned outright by the Debtor, while some of the inventory is held by the Debtor on consignment. The Creditors allege that the Debtor is holding valuable items on consignment which belong to the Creditors. Although the Debtor disputes whether the Creditors are properly secured under Article 2 of the Uniform Commercial Code, it does not dispute that it possesses certain items belonging to the Creditors. The issue of whether the Creditors are properly secured is not of any moment to the Court in rendering its decision. Rather the Court focuses on the manner in which the Debtor has conducted its business since the filing of the bankruptcy.

Harold Lazow is the President of the Debtor. He began the company in partnership with one Samuel Herlich, who no longer is a principal of the Debtor. Harold Lazow is currently 82 years old and has turned over control of the company to his son Joseph. According to the testimony of Harold Lazow, Joseph is the only person who decides what jewelry the Debtor should buy for resale. According to the testimony of Herbert Herman, the Debtor's bookkeeper, all payments issued by the Debtor are at Joseph's direction. It is clear that this family business is operated primarily by Joseph Lazow.

Pre-petition, Joseph Lazow gave little deference to the separation of personal expenses and business expenses when operating the Debtor. The Debtor paid for Joseph's car payments; Harold's home mortgage payment; dry cleaning for Joseph and Harold; gasoline to operate the cars of Joseph, Harold and Martha Lazow; life insurance premiums on Harold Lazow's life; insurance premiums on cars owned by Harold and Martha Lazow; a salary to Martha of $300 a week for coming into the Debtor's premises for an hour a day; and a salary to Harold of $500 a week plus commissions for working three hours a day. For the moment, the Court is not concerned with how the Debtor operated pre-petition. However, once the Debtor filed its bankruptcy petition, it became a fiduciary to its creditors. As a debtor-in-possession, the Debtor is obligated to protect and conserve property in its possession. In re Sal Caruso Cheese, Inc., 107 B.R. 808, 816 (Bankr.N.D.N.Y.1989).

Post-petition, the Debtor has continued to make payments: (1) on Joseph's car; (2) for gas and insurance for the cars of Joseph, Harold and Martha; (3) on the life insurance policy on the life of Harold Lazow under which policy the Debtor is not the beneficiary; and (4) for salaries to Joseph, Harold and Martha at the same rate they were receiving pre-petition. More telling of Joseph Lazow's disdain for the requisites of the bankruptcy process is that, without court approval, the Debtor: paid a pre-petition obligation due the Internal Revenue Service for $7,930; altered a repayment agreement with another creditor, Wexler Insurance, to cure pre-petition defaults; entered into a post-petition financing agreement with a new vendor, Imperial Jewelry Corp.; and entered into an arrangement whereby assets of the Debtor were transferred to an unaffiliated entity co-owned by Joseph Lazow.

Internal Revenue Service Payment

Pre-petition, the Debtor owed the IRS $7,930. This debt was a pre-petition priority debt which the Debtor decided to repay. Despite the fact that the IRS may hold a priority position under Section 507 of the Bankruptcy Code, no provision of the Bankruptcy Code authorizes post-petition payment of a pre-petition debt without court approval. In re Air Florida Systems, Inc., 50 B.R. 653, 660 (Bankr. S.D.Fla.1985).

Wexler Insurance Payment Arrangement

Although it was not made clear by the evidence whether Wexler Insurance Company is an insurance broker or an insurance premium financing company, it is not relevant to the examination of the Debtor's conduct. In order to pay its annual insurance premium of $100,000, the Debtor financed the premium through Wexler, paying Wexler approximately $2,000 per week. Pre-petition, the Debtor fell behind on its premium payments. To cure this arrearage, the Debtor unilaterally and without court approval agreed to increase its...

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