In re Borison, Bankruptcy No. 94-B-43467(PCB)

• Decision Date: 18 March 1998
• Docket Number: 94-B-43471(PCB),94-B-43468(PCB),Bankruptcy No. 94-B-43467(PCB),94-B-43481(PCB),94-B-43480(PCB),Adversary No. 95-8852A.,94-B-43470(PCB),94-B-43469(PCB)
• Citation: 226 BR 779
• Parties: In re Edwin BORISON, LDV Oil, Inc., Centurion Oil, Inc., Amadeus, Inc., Optima Exploration, Inc., Olympus Limited Partnership, Debtors. William J. CONDREN and Joseph Cornacchia, Plaintiffs, v. Lynn HARRISON, as Chapter 7 Trustee for the Estate of Edwin B. Borison, and Barbara Balaber-Strauss, as Chapter 7 Trustee for the Estates of LDV Oil, Inc., Centurion Oil, Inc., Amadeus, Inc., Darnoc, Inc., Optima Exploration, Inc., an Olympus Limited Partnership, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

226 B.R. 779 (1998)

In re Edwin BORISON, LDV Oil, Inc., Centurion Oil, Inc., Amadeus, Inc., Optima Exploration, Inc., Olympus Limited Partnership, Debtors William J. CONDREN and Joseph Cornacchia, Plaintiffs, v. Lynn HARRISON, as Chapter 7 Trustee for the Estate of Edwin B. Borison, and Barbara Balaber-Strauss, as Chapter 7 Trustee for the Estates of LDV Oil, Inc., Centurion Oil, Inc., Amadeus, Inc., Darnoc, Inc., Optima Exploration, Inc., an Olympus Limited Partnership, Defendants.

Bankruptcy Nos. 94-B-43467(PCB), 94-B-43468(PCB), 94-B-43469(PCB), 94-B-43470(PCB), 94-B-43471(PCB), 94-B-43480(PCB), 94-B-43481(PCB), Adversary No. 95-8852A.

United States Bankruptcy Court, S.D. New York.

March 18, 1998.

COPYRIGHT MATERIAL OMITTED

Gersten Savage Kaplowitz & Curtin, LLP By Douglas T. Tabachnik, New York City, for William J. Condren and Joseph Cornacchia.

Curtis, Mallet-Prevost, Colt & Mosle By Alan J. Brody, New York City, for Lynn P. Harrison, III as Chapter 7 Trustee for Edwin B. Borison.

Barbara Balaber-Strauss, P.C., White Plains, NY, for Barbara Balaber-Strauss as Chapter 7 Trustee for LDV Oil, Inc., et al.

MEMORANDUM DECISION GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

PRUDENCE CARTER BEATTY,^* Bankruptcy Judge.

This adversary proceeding was commenced by William J. Condron and Joseph Cornacchia (the "60% Claimants") for the purpose of obtaining a declaration that they are the owners of 60% of certain oil and gas property interests located in Oklahoma (the 60% interests hereafter are referred to as the "Property"), title to which is presently recorded in the names of one or more of the debtors.¹ They also seek to have the trustees deliver to them recordable title instruments. They seek this relief based on a judgment of the United States District Court for the Western District of Oklahoma (the "Oklahoma Judgment") issued shortly before the filing of these Chapter 7 cases.² They have now moved for summary judgment in their favor.

The two Chapter 7 trustees oppose the summary judgment motion on the grounds, principally, of their statutory status as a bona fide purchaser of real property under Bankruptcy Code ("Code") § 544(a)(3). The 60% Claimants respond that the notices of lis pendens³ they filed in 1991 at the commencement of the Oklahoma Action prevent the trustees from prevailing over their interest in the Property.

This court finds that there are no material facts in issue. Based on the court's conclusions of law which follow, this court holds that the 60% Claimants are entitled to judgment declaring they are the owners of the Property and directing that the trustees deliver recordable assignments of the Property of the 60% Claimants.

STATEMENT OF UNDISPUTED FACTS⁴

The Bankruptcy Case

1. On July 22, 1994, Edwin B. Borison ("Borison") filed a voluntary petition under Chapter 7 of the Code. Voluntary petitions under Chapter 7 of the Code were also filed on that date by the following entities: LDV Oil, Inc., Centurion Oil, Inc., Amadeus, Inc., Darnoc, Inc., Optima Exploration, Inc. and Olympus Limited Partnership (collectively, the "Business Debtors").⁵ The cases of Borison and the Business Debtors are being jointly administered.

2. Lynn P. Harrison, III was appointed the Chapter 7 trustee of the Borison estate and Barbara Balaber-Strauss was appointed the Chapter 7 trustee for the Business Debtors (together, the "Trustees").

3. Borison was involved in the promotion, acquisition, drilling and management of oil and gas opportunities in Oklahoma and operated certain related business ventures individually, through the Business Debtors or through other related entities either owned or controlled directly or indirectly by Borison or members of his family.

The Notices of Lis Pendens and the Oklahoma Action

4. In the Oklahoma Action the 60% Claimants sought to recover over $4 million they had given to Borison or the Business Debtors for investment in oil and gas properties.

5. The 60% Claimants alleged, inter alia, fraud, conversion and that Borison was the alter ego of each of the corporate defendants. The 60% Claimants sought relief in the form of money damages as well as seeking title to oil and gas property interests held by the defendants on the grounds that they belonged to the 60% Claimants.

6. In April and October 1991, the 60% Claimants filed notices of lis pendens of the Oklahoma Action. The notices of lis pendens were filed with the clerks of the various Oklahoma counties in which the oil and gas properties were located. The notices of lis pendens covered the entirety of the interests of Borison and the Business Debtors in the oil and gas properties and were not limited to the percentages which were ultimately awarded the 60% Claimants in the Judgment. The notices clearly identified the Oklahoma Action, including case name, number, and court, gave the date of filing of the Oklahoma Action and provided the legal description of the land affected, including the section number, township number, range number and county where it was located. Copies of the recorded notices of lis pendens were attached to the 60% Claimants' summary judgment motion and show the "filed" stamp of the respective county clerk as well as the location of the entry in the clerk's recordbook.

7. While the Trustees assert that the notices of lis pendens may have been defective in some respect, they have failed to identify any specific deficiency in the form of the notices of lis pendens or in their filing. The Trustees have had adequate opportunity for investigation and discovery with respect to the notices of lis pendens, which, it should be pointed out, are matters of public record.

The Oklahoma Judgment

8. The Oklahoma Action was tried from October 20 through November 4, 1993. At the conclusion of the trial, United States District Judge Wayne E. Alley made findings of fact and conclusions of law from the bench (the "Oral Ruling"). Judge Alley specifically found that

"Plaintiffs are entitled to conveyances of the property interests bought with their money. I find and conclude that their interests are property itself, and not a contractual right to acquire property. This is so no matter which of the Defendants has nominal title to the property. In any event, the title held by the defendants, or any of them, is for the use and benefit of the Plaintiffs. An exhibit we frequently referred to here is Plaintiffs\' 427, listing their claims as to property. Now, I find as to items one through seven on that list, and 13 through 28, the Plaintiffs are entitled to conveyance of interest in accordance with the fractional interest stated in the exhibit. Or, if the entry is an unknown interest, a conveyance of their percentage of whatever that interest is." Oral Ruling at 17-18 (emphasis added).

Judge Alley further found that the notices of lis pendens which the 60% Claimants had filed did not violate the defendants' rights. Oral Ruling at 21-22.⁶

9. The Oral Ruling was not reduced to written form, i.e., the Oklahoma Judgment, until June 1994. On June 30, 1994, a Journal Entry of Judgment was entered in the judgment docket of the Oklahoma District Court.⁷

10. In the Oklahoma Judgment the 60% Claimants were awarded the Property in accordance with the Oral Ruling. The Oklahoma Judgment ordered Borison and the Business Debtors to execute assignments to the Property, all of which was detailed in the Oklahoma Judgment, in favor of the 60% Claimants.⁸

11. Neither Borison nor the Business Debtors had executed the required assignments in favor of the 60% Claimants prior to the time their Chapter 7 petitions were filed.

Commencement of This Adversary Proceeding

12. On March 31, 1995, the 60% Claimants commenced this adversary proceeding asserting that they were entitled to the Property and requesting that the Trustees be directed to execute assignments of the Property to them as required by the Oklahoma Judgment.⁹ The Oklahoma Judgment details precisely which fractional interests were held to be the Property of the 60% Claimants. For the purposes of this motion for summary judgment, it is assumed that record title to the Property is held by Borison or one or more of the Business Debtors. There have been allegations made by the 60% Claimants that there were transfers of some of the oil and gas lines comprising the Property after the filing of the notices lis pendens. However this court need only adjudicate the rights to the Property as between the 60% Claimants and the Trustees since there are no other parties to this adversary proceeding.

13. The 60% Claimants filed a motion for summary judgment in this adversary proceeding which the Trustees have opposed. Following oral argument, the court took the motion under advisement.

SUMMARY OF PARTIES' LEGAL ARGUMENTS

60% Claimants' Arguments

The 60% Claimants state that the Oklahoma Judgment, which established that they are the equitable owners of the Property, and the lis pendens filed in 1991 prevent the Trustees from using either Code §§ 544(a)(3) or 547(b) to bring the Property into the bankruptcy estates.

Alternatively, they contend that the Property is the subject of an implied trust and is not part of the bankruptcy estate pursuant to Code § 541(d). They argue that although they had not specifically requested the imposition of a trust, the Oral Ruling in the Oklahoma Action found that a "trust" relationship existed between the parties. They maintain that under Oklahoma law resulting and constructive trusts are not claims which must be pled in a complaint but are remedial in nature, to be imposed by a court to prevent wrongful taking or unlawful holding of property.

The Trustees' Arguments

The Trustees first address the arguments of the 60% Claimants by stating that the 60% Claimants have failed to establish that the Property is not property of the estate under Code § 541(a)(1) because (1) no assignments of the Property had been made in favor of the 60% Claimants as...