In re Arker, Bankruptcy No. 880-0079B.
| Decision Date | 20 October 1980 |
| Docket Number | Bankruptcy No. 880-0079B. |
| Citation | 6 BR 632 |
| Parties | In re Sol ARKER, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Marvin R. Javitz, New York City, for debtor.
Stanley R. Stern, New York City, for Bank Leumi Trust Co., petitioner.
Stephen F. Harmon, Parker, Chapin, Flattau & Klimpl, New York City, for Bank Leumi, Trust Co.
On February 14, 1980, the Bank Leumi Trust Company of New York (hereafter "petitioning creditor") filed an involuntary petition against Sol Arker (hereafter "alleged debtor") seeking an order for relief under Chapter 7 of the Bankruptcy Code. The alleged debtor filed an answer generally contesting the involuntary petition. The matter was set for trial to ascertain whether the alleged debtor, at the time the involuntary petition was filed, was generally not paying his debts as they became due.
A summary of the pertinent facts follows:
In 1974, the alleged debtor and his father were the sole principles, stockholders and officers of Donogan Hills Colony, Inc. (hereafter "Donogan Hills") and Sierra Properties, Inc. (hereafter "Sierra"). The alleged debtor and his father personally guaranteed all the present and future liabilities of Sierra, which in turn guaranteed the obligations of Donogan Hills.
On December 20, 1976, Donogan Hills executed a promissory note in favor of the petitioning creditor in the sum of $182,000.00 payable on February 28, 1977. Said note was in consideration of a loan made by the petitioning creditor to Donogan Hills.
The petitioning creditor commenced an action in the New York State Supreme Court in 1977 predicated on Donogan Hills' default under the promissory note and the guarantors' refusal to make payment. Judgment was entered on December 15, 1977, against Donogan Hills and the guarantors (Sierra, the alleged debtor, and the alleged debtor's father) in the sum of $190,860.06.
Subsequent to the entry of the state court judgment, the petitioning creditor commenced supplementary proceedings pursuant to Article 52 of the New York Civil Practice Laws & Rules (McKinney's 1978). At the supplementary examinations, the alleged debtor testified that (1) apart from the minimal sums of money received from his mother, the living expenses of the alleged debtor were paid for by his wife; (2) he owned no stocks, bonds, automobiles, houses or any other real property; (3) he had no funds held for him in other accounts, nor did he have any personal bank accounts other than an escrow account; and (4) he had no receivables, nor was he owed any monies.
At the trial held in this Court on April 24, 1980, the alleged debtor reiterated that he was not in possession of any assets which could be used to satisfy the petitioning creditor's judgment. Further, the alleged debtor testified that in addition to the petitioning creditor's judgment, he has incurred a small number of current debts which arose out of household and daily living expenses. The alleged debtor stated that these recurring debts were paid in part from monies he would receive from his mother and his wife. The remaining debts were paid by the alleged debtor by checks drawn from his brother's checking account. Finally, the alleged debtor testified that his sole source of income is from his legal practice, which generates approximately $100.00 to $500.00 per year.
Elliot Robinson, Vice-President of the Credit Administration Division for the Bank Leumi, testified that subsequent to the entry of the state court judgment, the petitioning creditor attempted to execute on said judgment, but that the Sheriff of the City of New York returned the writ of execution unsatisfied due to his inability to locate any of the alleged debtor's assets. Robinson further testified that the petitioning creditor again attempted to execute on said judgment, but that the Sheriff of the City of New York returned the writ of execution unsatisfied due to his inability to locate any of the alleged debtor's assets. Robinson further testified that the petitioning creditor again attempted to execute on said judgment and that this time the Sheriff was able to execute on two bank accounts in the sum of $6,499.40. Thus, the petitioning creditor's judgment was reduced to $184,360.66.
Petitioning creditor contends that given the circumstances of this case, i.e., the alleged debtor has only one large creditor who is not being paid, the Court is warranted in finding that the alleged debtor is generally not paying its debts as they become due and thus an order for relief should be granted.
In contraposition, the alleged debtor contends that the petitioning creditor is not a holder of a claim against him. Further, the alleged debtor denies that he is generally not paying his debts as they become due.
Whether the Court should grant an order for relief against the alleged debtor rests on the resolution of the following issues:
(1) Is the petitioning creditor a holder of a claim in the sum of $5,000.00 which is not contingent as to liability.
(2) Should the Court grant an order for relief where the petitioning creditor contends that the alleged debtor has failed to pay one creditor and where the alleged debtor has no assets for the Bankruptcy Court to administer.
As set forth in 11 U.S.C. § 303 and as is relevant to the case now before the Court, an involuntary case may be commenced under Chapter 7 or Chapter 11 of the Bankruptcy Code against any person that may be a debtor under those chapters. 11 U.S.C. § 303(a); In re All Media Properties & Artlite, 5 B.R. 126, 2 C.B.C.2d 449 (Bkrtcy.S. D.Tex.1980). In cases such as the case at bar, where the debtor has fewer than twelve creditors, § 303(b)(2) provides that a petition may be brought by a single entity which is a holder of a claim against the alleged debtor that is not contingent as to liability. 11 U.S.C. § 303(b)(2); 2 Collier on Bankruptcy (15th Ed.) ¶ 303.05(2).
Section 101(4)(A) defines a claim to mean:
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, secured, or unsecured; or . . .
Section 303(b)(2) restricts the definition of a claim under § 101(4)(A) for purposes of an involuntary petition only to the extent that a claim under § 303(b)(2) must be unsecured and must not be contingent as to liability. 11 U.S.C. § 303(b)(2).
The alleged debtor contends that the petitioning creditor's claim is contingent as to liability since the alleged debtor has filed an appeal from the state court judgment entered on December 15, 1977.
The petitioning creditor alleges that at no time prior to the filing of the involuntary petition did the alleged debtor or anyone on his behalf ever attempt to appeal from the state court judgment.
The testimony elicited at trial does not support the alleged debtor's contention that an appeal from the state court judgment has in fact been filed. No documentary evidence was submitted by the alleged debtor to support his contention. Further, although the attorney for the alleged debtor stated at trial that an appeal had been filed, the alleged debtor testified that he did not move to vacate the judgment in 1977 nor did he recall whether he had instructed his attorney to move to vacate the judgment after he had received notice of the execution by the New York City Sheriff's Office in 1978, or whether in fact an appeal had been filed.
Assuming that the alleged debtor had in fact filed an appeal from the state court judgment, nevertheless the petitioning creditor's claim would not be contingent as to liability. It is a well established principle of law in New York that the finality of a judgment is not affected by the pendency of an appeal. In re Bailey, 265 App. Div. 758, 40 N.Y.S.2d 746 (1943), aff'd 291 N.Y. 534, 50 N.E.2d 653 (1943). Absent a stay, execution on the judgment may proceed while the appeal is pending. In re Bailey, supra.
The Court finds that no stay of execution was issued by the state court. This finding is supported by the following facts:
First: No evidence was adduced at trial showing that the state court had issued a stay against execution on the judgment.
Second: The petitioning creditor not only conducted supplementary proceedings subsequent to the entry of the state court judgment but also attempted to execute on said judgment.
Thus, the decision of the state court is final as to all matters of law and fact that were or should have been adjudicated in the state court proceeding. Carr v. U.S., 507 F.2d 191 (5th Cir. 1975), cert. denied 422 U.S. 1043, 95 S.Ct. 2657, 45 L.Ed.2d 694 (1975).
Finally, the Court finds that the alleged debtor's introduction of evidence to demonstrate that he is not in fact liable to the petitioning creditor is nothing more than an attempt to collaterally attack the state court judgment in this Court. It is well established that where a claim of a creditor is predicated on a state court judgment, the claim may be assailed as invalid in the Bankruptcy Court upon the grounds following:
(a) lack of jurisdiction over the parties or the subject matter of the suit; or
(b) the judgment is a product of fraud. Heiser v. Woodruff, 327 U.S. 726, 66 S.Ct. 853, 90 L.Ed. 970 (1946).
No claim has been put before this Court that either a jurisdictional defect or fraud of a party elicited the decision of the state court. Thus, the alleged debtor cannot collaterally attack the judgment in this Court, but rather must move in the state court.
It is this Court's finding that the state court judgment is a claim pursuant to the definitional context of 11 U.S.C. § 101(4)(A), as it constitutes a "right to payment" in the sum of $190,860.06. Therefore, the petitioning creditor's claim meets the criteria for the commencement of an involuntary petition in comport with 11 U.S.C. § 303(b)(2).
Subsection (h) of § 303 enunciates the standard for an order for relief on...
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