In re 85-02 Queens Blvd. Associates

Decision Date29 August 1997
Docket NumberAdversary No. 197-1096-353.,Bankruptcy No. 196-18487-353
PartiesIn re 85-02 QUEENS BOULEVARD ASSOCIATES, Debtor. 85-2 QUEENS BOULEVARD ASSOCIATES, Plaintiff, v. Alan K.Y. KONG, Liza Lai Guan Kong, So Wai Cheung and Chu Chung Wong Cheung, Defendants.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

Jaspreet Mayall, Certilman, Balin, Adler & Hyman, L.L.P., East Meadow, NY, for Debtor/Plaintiff.

Louis A. Novellino, Law Offices of Stephen K. Seung, New York City, for Creditors/Defendants.

DECISION ON CROSS-MOTIONS FOR PARTIAL SUMMARY JUDGMENT

JEROME FELLER, Bankruptcy Judge.

Before the court are cross-motions for partial summary judgment in the above-captioned adversary proceeding. This adversary proceeding was filed by 85-02 Queens Boulevard Associates ("Debtor") against four judgment creditors, Alan K.Y. Kong, Liza Lai Guan Kong, So Wai Cheung and Chu Chung Wong Cheung (the "Kongs"). The Kongs obtained a prepetition New York state court judgment in the amount of $305,905.49 ("State Court Judgment"), which was the result of a successfully prosecuted lawsuit based on the Debtor's breach of a contract with the Kongs for the sale of certain real property ("State Court Action"). The State Court Judgment was docketed by the Queens County Clerk and, in accordance with N.Y. Civ. Prac. L. & R. 5203, automatically became a lien on all the Debtor's real property in Queens County.

The Debtor is a limited partnership which owns twelve (12) parcels of real property on Queens Boulevard and Grand Avenue in Queens County. The Debtor contends that the terms of the State Court Judgment required that its effect as a lien be limited to the parcel of real property that was the subject of the contract whose breach gave rise to the State Court Action. The Debtor commenced this adversary proceeding seeking, in its fifth cause of action, a declaratory judgment to that effect. The Kongs filed an answer which denied the Debtor's contentions and counterclaimed for a declaration affirming their understanding of the State Court Judgment. According to the Kongs, the State Court Judgment provided for a monetary award which gave rise to a judgment lien for the amount of the award on all the Debtor's real property in Queens County, and a vendee's lien on the specific property that was the subject of the underlying State Court Action ("Counterclaim").

The Kongs now move for summary judgment on its Counterclaim and dismissal of the Debtor's fifth cause of action ("Motion"). Conceding the absence of factual issues, the Debtor cross-moved for summary judgment on its fifth cause of action and dismissal of the Kong's Counterclaim ("Cross-Motion"). Both motions are made pursuant to Fed. R.Civ.P. 56(c), which is applicable to adversary proceedings through Fed. R. Bankr.P. 7056.

Upon consideration of the undisputed facts and applicable legal principles, we are convinced that the State Court Judgment is properly read in the manner asserted by the Kongs. The State Court Judgment constitutes a lien on all the Debtor's real property in Queens County, and a vendee's lien on the specific real property that was the subject of the contract between the Debtor and the Kongs. Accordingly, the Kong's Motion is granted and the Debtor's Cross-Motion is denied.

I.

The seed from which this controversy germinates is a contract between the Debtor and the Kongs, entered into in December of 1987 ("Contract"), pursuant to which the Kongs agreed to purchase from the Debtor a parcel of real property known as 85-06 Queens Boulevard, Elmhurst, New York ("85-06 Queens Blvd." or "Subject Property"). The Contract provided that the Debtor would erect a building on the Subject Property in accordance with certain specifications mutually agreed upon. The purchase price was $818,000.00, of which $204,500.00 was paid down by the Kongs when the Contract was signed, with the remaining portion due at closing. Paragraph 36 of the rider to the Contract stated that "all sums paid on account of this agreement, and the reasonable expense of the examination of the title to said premises are hereby made liens hereon, but such liens shall not continue after default by the purchasers. . . ." See Contract, which is annexed to the Kongs' Motion as Ex. F.

The Debtor breached the Contract. Prior to closing, the Kongs discovered that the square footage of the building erected in accordance with the Contract was substantially less then agreed upon. Accordingly, the Kongs rescinded the Contract and commenced the State Court Action in the New York State Supreme Court, Queens County, seeking return of their down payment, plus interest and expenses.

The State Court Action was successfully prosecuted by the Kongs who, after a lengthy trial, received a favorable decision from the presiding judicial hearing officer. The essence of the decision, dated September 19, 1995, may be gleaned from the following portion, which reads as follows:

The crux of this case reduced to its simplest terms is that the Debtor was unable to deliver property as it agreed to do pursuant to the terms of the Contract involved herein. The Debtor attempted to deliver to the Kongs property of a size different than that which they had agreed to deliver under the terms of the Contract and the Kongs in no way consented to such an alteration of the Contract. Therefore, I find that the Kongs are entitled to recover from the Debtor the sum of $204,500.00 and are entitled to have a lien impressed upon the property involved in the Contract herein for the aforesaid sum of $204,500.00 and that the Kongs are entitled to any relief to which the law provides.

See Memorandum Decision of Judicial Hearing Officer ("JHO") Allen Beldock ("Memorandum Decision"), which is annexed to the Kongs' Motion as Exhibit C, at 6. The Debtor's seven affirmative defenses and two counterclaims were rejected, and the entire relief sought by the Kongs was granted. Id.

As the prevailing party, the Kongs drafted and settled the State Court Judgment, which was intended to reflect the relief granted in the decision. The State Court Judgment was signed by JHO Beldock on November 17, 1995, and contains two ordering paragraphs. These two paragraphs, the meaning of which is a matter of hot dispute between the parties, read as follows:

ORDERED, ADJUDGED and DECREED, that the Kongs . . . recover of the Debtor . . . the sum of Two Hundred Four Thousand and Five Hundred ($204,500.00) Dollars, plus interest thereon from June 28, 1990 in the sum of $100,395.49, together with costs and disbursements in the sum of $1010.00, making a total of $305,905.49, and that the Kongs have execution therefore, and is (sic) further,
ORDERED, ADJUDGED and DECREED, that the Clerk of the County of Queens is hereby directed to record a lien on the premises commonly known as 85-06 Queens Boulevard, Elmhurst, New York, . . . in favor of the Kongs in the sum of $305,905.49 immediately upon the filing of an attorney\'s certified copy of this judgment upon said Clerk.

See State Court Judgment, which is annexed to the Kong's Motion as Exhibit D.

The State Court Judgment was immediately docketed by the clerk of the New York State Supreme Court, Queens County, in accordance with N.Y. Civ. Prac. L. & R. 5018(a).1 Pursuant to N.Y. Civ. Prac. L. & R. 5203(a), once docketed, the judgment automatically became a lien on all the Debtor's real property located in Queens County.

The Debtor filed a Chapter 11 petition on August 30, 1996. The Bank of East Asia ("Bank") is a secured creditor of the Debtor owning a blanket mortgage on all twelve parcels of the Debtor's real property, including 85-06 Queens Blvd. ("Mortgage"). As of the petition date, the amount due and owing on the Mortgage, as indicated on schedule D of the Debtor's petition, is $4,300.000.00. The Kongs are the only other secured creditors listed on Debtor's schedule D. Despite being listed by the Debtor on schedule D of its petition (Creditors Holding Secured Claims), the Kongs' claim, scheduled at $306,000.00, is denominated by the Debtor as totally unsecured. The Kongs maintain that their claim is a secured one in the amount of $330,500.00, inclusive of further accruals of interest on the State Court Judgment, and have filed a proof of claim to that effect.

The Debtor commenced this adversary proceeding on January 22, 1997. In its fifth cause of action, the Debtor alleges that the sole relief granted to the Kongs by the State Court Judgment was a monetary award of $305,905.49 (the amount of the Kongs' down payment, plus interest), enforceable only by a lien against 85-06 Queens Blvd. The Debtor seeks a judgment declaring that to be the case. If the Debtor is correct, the Kongs will only be able to look to 85-06 Queens Blvd. for satisfaction of the State Court Judgment. In the context of this chapter 11 case, such a limitation may be quite harmful to the Kongs. 85-06 Queens Blvd. is valued by the Debtor in its schedule A at $330,000.00. The State Court Judgment has not been satisfied and with interest accruals is growing daily. If the State Court Judgment is limited in effect as contended by the Debtor, it likely cannot be fully satisfied and, possibly, not satisfied at all in light of the Bank's Mortgage.

The Kongs' answer rejects the Debtor's reading of the State Court Judgment and by their Counterclaim seek a judgment endorsing their understanding of that document. According to the Kongs, the State Court Judgment granted two separate and distinct forms of relief: a monetary award which was provided for in the first ordering paragraph, and a lien for the amount of said award which was provided for in the second. Once docketed, the monetary judgment became a lien on all the Debtor's real property in Queens County, including 85-06 Queens Blvd. According to the Kongs, the second ordering paragraph, which specifically awarded them a lien for the amount of the monetary award on 85-06 Queens Blvd., does not...

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