In re Blutrich Herman & Miller
| Decision Date | 16 November 1998 |
| Docket Number | Bankruptcy No. 97 B 47248(TLB),Adversary No. 98-A 9089A. |
| Citation | 227 BR 53 |
| Parties | In re BLUTRICH HERMAN & MILLER, Debtor. Richard O'CONNELL, as Trustee, Plaintiff, v. THREE PARK AVENUE BUILDING CO., L.P., Richard P. Herman, P.C. and The Seavey Organization, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Itkowitz & Harwood by Donald A. Harwood, Allyn J. Crawford, Lisa Blustein, New York City, for the Three Park Avenue Building Co.
Zivyak, Klein & Liss, L.L.P. by Jeffrey L. Zivyak, New York City, for the Chapter 7 trustee.
Richard B. Herman, P.C., New York City, pro se.
Gilbride, Tusa, Last & Spellane, L.L.C. by Kirsti A. Reidel, New York City, for The Seavey Organization, Inc.
OPINION ON MOTION TO DISMISS
Challenging the propriety of entry of the order for relief in this involuntary partnership bankruptcy — relief granted despite the petitioning partner's admitted failure to serve the summons and involuntary petition on the alleged debtor and its non-petitioning partners — the defendant urges that the adversary proceeding commenced by the chapter 7 trustee appointed in reliance on that order for relief must fall for want of jurisdiction. Three Park Avenue Building Co. (the "Landlord") pins its motion to dismiss on Federal Rules of Civil Procedure ("Fed. R.Civ.P.") 12(b)(2), (5) and (6) and Federal Rules of Bankruptcy Procedure ("Fed. R.Bankr.P.") 7004 and 7012 for lack of personal jurisdiction, insufficiency of service of process and failure to state a claim upon which relief can be granted. Because I find the jurisdictional argument dispositive, I do not reach the other arguments made by the Landlord.
Blutrich Herman & Miller ("BHM") was a New York general partnership consisting of four partners, Michael D. Blutrich, Richard B. Herman, Robert Miller and Steven Brown. See (Objections, ¶ 3 & 4 "Main Case "MC" Document 5"). Herman asserts that in January, 1995, the partners ceased practicing as a partnership, forming, instead, a new entity known as Blutrich, Herman & Miller, LLP. See (Affidavit in Opposition, related case no. 98B43569, ¶ 4). In any event, it does not appear that the partnership, which is the debtor in these proceedings, was ever formally wound up.
Like most law firms (I say "most" because, in this day and age of "virtual" entities, for all I know, there may be virtual law firms out there existing only in cyberspace), this one needed an office. To that end, BHM and its Landlord had entered into a ten-year lease dated March 11, 1994, for premises located on a portion of the 38th floor at Three Park Avenue, New York, New York. To secure the Landlord, BHM delivered an irrevocable letter of credit payable to the Landlord from European American Bank ("EAB") in the amount of $253,820. When the August 1997 rent went unpaid, the Landlord drew down a portion of the letter of credit and demanded of BHM that it replenish the security deposit. This request went unfulfilled. By this time, if Herman's assertions are correct, BHM was no longer operational, but no agreement of surrender relieving it of liability had been entered into, nor, as mentioned but a moment ago, had BHM formally wound up its affairs under New York's Partnership Law. Relying on certain explicit lease provisions, on October 8, 1997, the Landlord served a ten-day termination notice on BHM. The lawyers who were practicing in the space failed to vacate the premises. So, on October 21, 1997, the Landlord commenced holdover proceedings by serving a notice and petition on BHM.
A mere ten days after the Landlord commenced suit to oust the law firm, a date which, by happenstance, was Halloween, Michael Blutrich "tricked" rather than "treated" his partners. Without obtaining their consent, he filed, as the sole petitioning partner, a summons and involuntary chapter 7 petition against BHM. Continuing in the "trick" mode, he ignored the procedural mandates of the Bankruptcy Rules, failing to serve BHM and his non-filing partners with the summons and involuntary petition. See (Document 5, ¶ 3); (Purported Notice of Discontinuance "MC Document 6", ¶ 2). Blutrich was made aware of the deficiency by the Clerk of the Bankruptcy Court in mid-December 1997 but did not file the requested affidavit of service presumably because he did not thereupon undertake to serve the summons and involuntary petition. Instead, on January 5, 1998, Blutrich filed, in the form of an affirmation, a purported discontinuance of the bankruptcy case in which he stated that he had never served the involuntary petition.
True to this new course, Blutrich subsequently notified the Landlord that he was voluntarily discontinuing the case. During all this time, the Landlord had continued to draw down the letter of credit to compensate itself for the unpaid, accruing rent. After Blutrich's attempt to end the bankruptcy, the lawyers practicing in the space vacated the premises, clearing the way for the Landlord to relet the space to two not-so-new tenants: Herman and The Seavey Organization, Inc., previously a subtenant of BHM's. Once these new tenants were installed, they began paying the rent.
Blutrich's purported discontinuance went largely ignored given that no motion on notice to BHM's creditors accompanied it. For reasons that are unclear in the record, the United States Trustee appointed a chapter 7 trustee notwithstanding that there had not been entered any order for relief granting the involuntary petition. In early January, 1998, that initial trustee moved for an order designating Herman as the person responsible to perform the debtor's duties. Herman objected, asserting that the summons and involuntary petition had never been served on any of the partners or the alleged debtor, noting that Blutrich had requested the case be discontinued, and requesting that the involuntary case be dismissed. See (MC Document 5, ¶ 3, 4, 5 & 6). Declining to enter the trustee's order, I endorsed it on January 6, 1998, with the following words: "inasmuch as no order for relief has been entered in this involuntary case, no trustee has been validly appointed and the relief requested is inappropriate." See (Notice of Presentment, dated January 7, 1998 "MC Documents 7 & 8"). Galvanized by my refusal to enter the trustee's order, on March 10, 1998, EAB moved for the entry of an order for relief coupled with the appointment of an interim trustee or, alternatively, for the dismissal of the involuntary petition. EAB's application recited that the summons and involuntary petition were never served on the other partners and the alleged debtor and that Blutrich wished to discontinue the proceeding. Nevertheless, for reasons which do not appear of record,1 one of my colleagues, hearing EAB's motion in my absence, signed an order for relief and ordered the appointment of a second chapter 7 trustee. That order was docketed on April 4, 1998. None of (i) the motion for the entry of an order for relief or, in the alternative, dismissal of the case (ii) the notice of entry of the order for relief, dated April 8, 1998, nor (iii) the notice of commencement of the case, dated April 17, 1998, was served on Blutrich (except EAB's motion which was served on him c/o BHM)2, Herman, Miller or Brown.
The newly-appointed chapter 7 trustee, Richard O'Connell, commenced the adversary proceeding which gives rise to this opinion on August 14, 1998, in order to recover the remaining proceeds from the letter of credit, which he deemed to be property of the debtor's estate. Richard P. Herman, P.C., a named defendant, answered the complaint, with Herman specifically preserving as an affirmative defense this court's lack of jurisdiction as a result of what he termed the improper filing of the BHM case.
The adversary proceeding was not the trustee's only skirmish with Herman. The trustee also commenced an involuntary chapter 7 case against him individually. In response thereto, Herman controverted the petition, maintaining, much as he did in the adversary proceeding, that his individual case had been commenced by a petitioner, the trustee, who had been wrongly appointed in the BHM case and thus lacked power to viably institute Herman's involuntary case.3
The Landlord asserts that the complaint in the trustee's adversary proceeding must be dismissed as a nullity because the underlying involuntary petition and attendant summons were never served on the debtor and its general partners as required by Fed. R.Bankr.P. 1004(b), 1010 and 7004(f). Additionally, the Landlord contends, Blutrich voluntarily discontinued the case pursuant to Fed.R.Bankr.P. 7041. The trustee, on the other hand, condemns what he views as a collateral attack on the order for relief and further argues that Fed.R.Civ.P. 41 is ineffective to discontinue an involuntary petition. Instead, he urges, a motion on notice to all creditors and a hearing pursuant to § 303(j) is the appropriate vehicle for such relief.
Fed.R.Bankr.P. 1018 governs which of the bankruptcy rules apply to contested involuntary petitions; Fed.R.Bankr.P. 7041 does not figure among them. The absence of Fed.R.Bankr.P. 7041 is unremarkable, however, because § 303(j) of the Bankruptcy Code mandates that an involuntary petition may not be dismissed simply on the say-so of the petitioners, with the consent of the alleged debtor, or for want of prosecution unless there has first been made a motion on notice to creditors. This procedure affords them the opportunity to join in the involuntary petition and contest the dismissal, or contest the terms on which dismissal is sought. Although Fed.R.Bankr.P. 1018 permits the court the discretion to apply any of the omitted adversary proceeding rules where an involuntary petition is contested, the court cannot deviate from the mandated...
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