In re Alsted Automotive Warehouse, Inc.

• Decision Date: 29 January 1982
• Docket Number: Adv. No. 880-0392-20,880-0387-20.,Bankruptcy No. 880-02496-20
• Citation: 16 BR 926
• Parties: In re ALSTED AUTOMOTIVE WAREHOUSE, INC., Debtor. ALSTED AUTOMOTIVE WAREHOUSE, INC., Debtor/Plaintiff, v. FORD MOTOR CO., Defendant. ALSTED AUTOMOTIVE WAREHOUSE, INC., Debtor/Plaintiff, v. PUROLATOR, INC., Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

16 B.R. 926 (1982)

In re ALSTED AUTOMOTIVE WAREHOUSE, INC., Debtor.

ALSTED AUTOMOTIVE WAREHOUSE, INC., Debtor/Plaintiff, v. FORD MOTOR CO., Defendant.

ALSTED AUTOMOTIVE WAREHOUSE, INC., Debtor/Plaintiff, v. PUROLATOR, INC., Defendant.

Bankruptcy No. 880-02496-20, Adv. Nos. 880-0392-20, 880-0387-20.

United States Bankruptcy Court, E.D. New York, at Westbury.

January 29, 1982.

Hahn & Hessen, New York City, for debtor/plaintiff; Kevin Kelly, New York City, of counsel.

Rood, Schwartz & Cohen by Melvin C. Cohen, New York City, for defendant Ford Motor Co. and Purolator, Inc.

ROBERT JOHN HALL, Bankruptcy Judge.

James Barr, the Trustee for Alsted Automotive Warehouse, Inc. ("Alsted"), a debtor under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 701 et seq. (Supp. IV 1980), commenced the instant adversary proceedings against Ford Motor Company ("Ford") and Purolator, Inc. ("Purolator") (collectively "the defendants") seeking to invalidate the security interests which the defendants have claimed in Alsted's inventory based on the defendants' alleged failure to properly perfect these interests under section 9-401 of the New York Uniform Commercial Code,¹ N.Y.U.C.C. § 9-401 (McKinney 1964 & Supp. 1980-1981). For the reasons hereinafter stated, the Court finds for the Trustee.

I.

Alsted was formed in 1971 by Theodore Freedman, Stanley Padover and Allen Menaker, its business being the wholesale distribution of automotive parts. Alsted's sole warehouse and office was located, at all times relevant to these proceedings, at 110 Schmitt Boulevard, Farmingdale, New York, which lies in Suffolk County.

In 1972, these same three individuals formed Alsted Automotive Warehouse of Brooklyn, Inc. ("Brooklyn, Inc.") which later became a wholly-owned subsidiary of Alsted Industries, Inc., a holding company in which Freedman, Padover and Menaker held an interest. As in the case of Alsted, the business of Brooklyn, Inc. was the wholesale distribution of automotive parts. In Brooklyn, Inc.'s case, however, its warehouse was located at 5924-13th Avenue, Brooklyn, New York. Moreover, in 1978, Brooklyn, Inc. ceased operations and went out of business.

In addition to Alsted and Brooklyn, Inc., Freedman, Padover and Menaker held substantial, if not controlling, interests in a string of automotive parts retail outlets.² The most significant of these, in terms of these proceedings, was Allstate Automotive Discount Center, d/b/a Arthur's Auto Parts ("Arthur's") which was located in Hempstead, New York in Nassau County.³

In 1975, Alsted entered into an open account agreement with Ford for the purchase of their automotive parts and in connection therewith executed a security agreement in Ford's favor collateralized by the purchase or to be purchased parts. Apparently believing that Alsted was located in Nassau County,⁴ Ford attempted to perfect this security interest by filing a UCC financing statement with the Secretary of State in Albany and the County Clerk's office in Nassau County.⁵

Alsted entered into a similar arrangement with Purolator which attempted to perfect in the identical manner.⁶

II.

The Trustee's position is that Alsted had a place of business in one and only one county of New York, to wit: Suffolk. Therefore, to properly perfect their security interests, Ford and Purolator had to file both centrally in Albany and locally in Suffolk County. See N.Y.U.C.C. § 9-401(1)(c) (McKinney 1964 & Supp. 1980-1981). In that they did not, their security interests are unperfected, and consequently, subordinate to existing lien creditors. See id. at § 9-301. Finally, as a hypothetical lien creditor under 11 U.S.C. § 544, the Trustee argues that his position is superior to that of Ford and Purolator.

Ford and Purolator responded by arguing that Alsted had places of business in more than one county of New York, and therefore, central filing was sufficient to perfect their security interests thereby giving them priority over the Trustee.

Purolator asks the Court to "pierce the corporate veil" between Alsted, Arthur's and the other retail outlets in which Freedman, Padover, and Menaker held interests and thereby find that Alsted had a place of business at each of these locations. Ford, in addition to this argument, claims that Alsted held itself out to the public as doing business from Brooklyn, Inc.'s location, and accordingly, had a place of business in Brooklyn within the meaning of section 9-401(1)(c).

III.

Section 544 of the Bankruptcy Code cloaks the trustee, as of the commencement of the case, with the rights and powers of a "hypothetical" judicial lien creditor. 11 U.S.C. § 544. See also id. at § 101(27). Accordingly, the trustee may avoid any security interest that would be avoidable under nonbankruptcy law by a creditor on a simple contract who, at the commencement of the case, extends credit and obtains a judicial lien on the debtor's property, whether or not such creditor exists. Id. at § 544(a)(1);⁷ B. Weintraub & A. Resnick, Bankruptcy Law Manual ¶ 7.01 (1980). See generally Collier on Bankruptcy ¶ 544.02 (15th ed. 1981). Moreover, such is true without regard to any knowledge of the trustee or of any creditor. 11 U.S.C. § 544(a).

Moreover, section 9-301 of the U.C.C. provides in pertinent part:

An unperfected security interest is subordinate to the rights of . . . (b) a person who becomes a lien creditor before the security interest is perfected;

N.Y.U.C.C. § 9-301(1) (McKinney Supp. 1980-1981).⁸ See also id. at § 9-301(3).

Finally, section 9-401, which provides the locations for filing a financing statement in order to perfect a security interest under section 9-301, provides in pertinent part:

(c) in all other cases, in the department of state and in addition, if the debtor has a place of business in this state and in only one county of this state, also in the office of the filing officer of such county;

N.Y.U.C.C. § 9-401(1)(c) (McKinney 1964 & Supp. 1980-1981). See also id. at § 9-302(1) (McKinney 1964 & Supp. 1980-1981).

Accordingly, the sole issue before the Court is whether Alsted had a "place of business" in only one or more than one county of New York.

IV.

The Uniform Commercial Code nowhere defines "place of business." J. White and R. Summers, Uniform Commercial Code § 23-14 (1972). To fill this void, White and Summers hypothesized the use of a "quantity" test, i.e., how much work was accomplished at that location; or a "notoriety" test, i.e., "to what extent do creditors and others know that the debtor in fact was doing business at the place in question." Id. at 826 (emphasis added). Furthermore, while White and Summers advocated the notoriety test, id. at 827, it should be noted that, even as formulated by them, the test presupposes that a minimum quantum of business had been transacted by the debtor at the location in question.

The test in New York, as stated by the Second Circuit, is essentially a hybrid of these two tests. See In re Mimshell Fabrics, LTD., 491 F.2d 21, 23 (2d Cir. 1974); cf. In re Enark Industries, Inc., 86 Misc.2d 985, 383 N.Y.S.2d 796 (App.Term 1976) (per curiam). As explained by Mimshell, the test is composed of two parts: 1) was the debtor actually doing business at the location in question as evidenced by its frequent use by the debtor in the production of revenue? 491 F.2d at 23; In re Airequipt, Inc., 1 B.C.D. 1494 (S.D.N.Y.1975); see P.S. Products Corp. v. Equilease Corporation, 435 F.2d 781, 783 & n. 3 (2d Cir. 1970); see, e.g., In re John Adams Henry, Inc., 5 U.C.C. 795, 799-801 (B.C.S.D.N.Y.1968); In re Golden Kernel, Inc., 5 U.C.C. 43 (B.C.E.D.Pa.1968); cf. In re McQuaide, 5 U.C.C. 802, 807 (B.C. D.Vt.1968) (bookkeeping isn't doing business); In re Falkof, 2 U.C.C. 731 (B.C.D. Mass.1963) (holding preparatory meetings isn't doing business); and 2) was such use notorious, i.e., was there a "class of probable potential creditors who knew of the second place of business? 491 F.2d at 23. See also In re Mauck, 378 F.Supp. 904 (W.D. Va.1974); In re Bethlehem Concrete Corp., 306 F.Supp. 1047 (E.D.Pa.1969).

The case law is clear, however, that the mere appearance of doing business at a location, no matter how notorious, is insufficient to constitute such location a place of business within the meaning of the statute.

For example, in P.S. Products, supra, the Second Circuit held that where no actual business was done in Nassau County, the listing of a Nassau County address in the Certificate of Incorporation did not make that location a place of business under section 9-401(1)(c). Nor did the renting of a Nassau County Post Office Box. 435 F.2d at 783.

An even more extreme set of facts was presented in Uniroyal, Inc. v. Universal Tire & Auto Supply Co., 557 F.2d 22 (1st Cir. 1977). In Uniroyal, the debtor's actual location was in Brookline, Massachusetts on the border of Boston. The debtor, however, listed this on his letter head as being within Boston. The First Circuit, after noting the almost impossible task a creditor would have had in discovering the correct municipality that the debtor was actually located in, nevertheless held the debtor's sole place of business to be in Brookline. Id. at 23.⁹ For a similar result, see In re B & B Concrete, Inc., 10 U.C.C. 1282 (D.Vt.1971).

These cases must be contrasted with Mimshell. In Mimshell, the bankrupt was located in Suffolk County while an affiliated corporation, M.B.S., was doing business in Manhattan. The crucial circumstance, however, which distinguishes Mimshell from cases like P.S. Products and Uniroyal is that M.B.S. was found to have allowed the bankrupt's employees frequent use of its Manhattan show room so that the bankrupt might generate sales. See 491 F.2d at 22; cf. In re John Adams Henry, Inc., 5 U.C.C. 795, 799-801 (B.C.S.D.N.Y.1968) (each telephone salesman working full time out of his home constituted a place of business).

Applying the foregoing to the case at bar, the Court notes that the defendants...