In re Burke, Bankruptcy No. 5-82-00194

• Decision Date: 08 May 1986
• Docket Number: Adv. No. 5-83-0496.,Bankruptcy No. 5-82-00194
• Citation: 60 BR 665
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: In re Robert J. BURKE, Debtor. Laurence NADEL, Trustee for Robert J. Burke, Plaintiff, v. FRUITVILLE PIKE ASSOCIATES, Defendant.

60 B.R. 665 (1986)

In re Robert J. BURKE, Debtor Laurence NADEL, Trustee for Robert J. Burke, Plaintiff, v. FRUITVILLE PIKE ASSOCIATES, Defendant.

Bankruptcy No. 5-82-00194, Adv. No. 5-83-0496.

United States Bankruptcy Court, D. Connecticut.

May 8, 1986.

Thomas M. Germain, Yules & Yules, P.C., Hartford, Conn., for debtor.

Ira B. Charmoy, Levin & Charmoy, P.C., Bridgeport, Conn., for defendant.

MEMORANDUM OF DECISION

ALAN H.W. SHIFF, Bankruptcy Judge.

In its present posture,¹ this controversy involves the amount of protection the defendant is entitled to after conveying real property, located in Lancaster County, Pennsylvania, to the debtor's estate. The principal issue to be considered is whether the original transfer to the defendant occurred before or after the order for relief. Subsidiary issues involve the right of the plaintiff to deduct rent payments received by the defendant prior to the conveyance and the right of the defendant to add its attorney's fees to the amount of its lien.

I

On October 7, 1982, an involuntary Chapter 7 petition was filed against Robert J. Burke ("Burke").² On December 29, 1982, Burke, the president and sole shareholder of The Realty Group, Inc., which owned the subject property, signed a deed conveying the property to the defendant.³ At the closing, on January 10, 1983, the defendant paid $87,948.51 as follows: a direct payment of $15,000.00 to Burke, a mortgage held by The Exxon Corporation in the amount of $68,388.91, preconveyance tax obligations of $3,248.51, an adjustment of $111.09 and attorney's fees of $1,200.00.⁴

On March 11, 1983, during a hearing scheduled on the involuntary petition, the debtor consented to the entry of an order for relief and filed a pleading entitled "Consent to Entry of an Order for Relief".⁵ On March 16, 1983, the order for relief was signed by me and entered by the clerk in the case docket.⁶ On that same date the deed executed by Burke on December 9, 1982, was recorded by the defendant in the Lancaster County, Pennsylvania land records.⁷ On March 16, 1983,⁸ this case was converted to a case under Chapter 11, and on April 13, 1983, the plaintiff was appointed Chapter 11 trustee. On October 10, 1985, the defendant conveyed the property to the Burke estate pursuant to the September 20, 1985 order of this court, entered in accordance with the stipulation of the parties. During the period that the defendant owned the property, it received rent in the aggregate amount of $40,000.00 and paid taxes and other expenses of $2,644.64.⁹

II

From the arguments of counsel at the October 22, 1985 hearing, it appears that they initially agreed that if the transfer of the property from Burke to the defendant occurred during the so-called "gap" period, between the filing of the involuntary petition and the order for relief, then, under Code § 549(b),¹⁰ the transfer would be valid against the plaintiff/trustee to the extent of $89,393.15, consisting of the payments made by the defendant at the closing, see supra, p. 666, less the $1,200.00 attorney's fee, plus the $2,644.64 subsequent payment for additional taxes and expenses. But if the transfer occurred after the order for relief, then Code § 550(d)¹¹ would apply and the defendant's lien under that subsection would secure $74,393.15, consisting of all the payments included under the § 549(b) analysis except $15,000.00 paid directly to Burke.

The plaintiff, however, takes the position that the transfer occurred after the order for relief and that $74,393.15, secured by the § 550(d) lien, should be reduced by the $40,000.00 rent payments received by the defendant prior to the turnover of the property to the estate. The defendant, on the other hand, contends that the transfer occurred before the order for relief and therefore opposes that deduction. The defendant further argues that its $1,200.00 attorney's fee should be added to the amount protected under § 549(b), but concedes that $2,644.64 paid for post transfer taxes and expenses should be offset and deducted from the rent it received.¹² Thus, the plaintiff claims that the defendant is entitled to $34,393.15 under a § 550(d) analysis, and the defendant claims $87,948.51 under § 549(b).

III

In order to determine whether the transfer occurred before or after the order for relief, it is necessary to ascertain the effective date of that order. The plaintiff argues that the effective date of the order for relief was March 11, 1983, the date Burke consented to its entry.¹³ The defendant claims that the effective date was March 16, 1983, the date the order was entered by the clerk on the case docket.

Bankruptcy Rule 9021(a), which in relevant part essentially tracks Rule 58 F.R. Civ.P., provides:

Every judgment entered in an adversary proceeding or contested matter shall be set forth on a separate document. A judgment is effective when entered as provided by Rule 5003.

Rule 54(a) F.R.Civ.P., made applicable here by Bankruptcy Rule 7054(a), contains the following definition:

"Judgment" as used in these rules includes a decree and any order from which an appeal lies.

The plaintiff argues that since judgments in civil or criminal actions in the District Court mark the conclusion of trials, Rule 58 is "basically for purposes of appeal"; an order for relief, on the other hand, has other effects such as establishing a lien under Code § 549(b).¹⁴ The plaintiff also argues that Burke's consent to the entry of an order for relief eliminated the possibility of an appeal.¹⁵ Therefore, according to the plaintiff, an order for relief is not a "judgment" as defined in Rules 9021(a) and 58. I do not agree. Parenthetically it should be observed the "judgment" as defined by Rule 54(a) "includes a decree and any order from which an appeal lies" (emphasis added), so that the plaintiff's attempt to exclude other meanings must fail. Moreover, his argument that Burke's consent eliminated an appeal is neither accurate nor persuasive. Although an appeal by Burke would likely fail absent a showing of fraud or other reason why he should not be bound by his consent to the entry of the order for relief, an appeal may nonetheless lie.

More to the point, the essence of the order for relief is the effect it has upon parties and others, not the procedural path that led to its entry. It is because an order for relief not only reaches a conclusion regarding an involuntary petition from which an appeal might lie but also sets in motion the future course of the case, establishing for some and extinguishing for others certain rights and duties, it is all the more important that the order have all the attributes of a judgment, including the docketing procedure, so that all parties in interest will have easy access to its effective date.

The plaintiff further argues that although Part VII of the Bankruptcy Rules, which deals with adversary proceedings, applies to involuntary proceedings, Rule 58 F.R.Civ.P. (relating to the effective date of a judgment) is not adopted in Part VII but in fact is adopted through Bankruptcy Rule 5003, which does not specifically apply to involuntary proceedings.¹⁶ The plaintiff incorrectly traces the derivation of the rule making an order for relief effective when entered by the clerk in the case docket. It is not Part VII or Rule 5003 but rather Rule 9021(a) which, as noted, makes judgment effective when entered on the case docket.

Bankruptcy Rule 1018 makes Rule 7054(a) and Rule 54(a) F.R.Civ.P. applicable in "all proceedings relating to a contested involuntary petition . . ." The proceeding here involved an adversary proceeding which was ultimately settled by Burke's consent to the entry of an order for relief. Had the order for relief in this case followed a full trial under Code § 303(h), the order for relief would clearly be a judgment as defined in Rule 7054(a). That result should not change simply because Burke consented to the entry of the order. All the consent did was obviate the necessity for a trial and provide a basis for the entry of an order for relief.

By the plaintiff's logic, a debtor's consent at any time and by any degree of formality governs the effective date of the order for relief. Apart from the difficulty of proving the precise time the consent was given in cases when it was not done in open court, the plaintiff's argument fails to recognize the interest of others, not parties to the proceeding relating to a contested involuntary petition, in having the effective date of the entry of the order for relief uniformly fixed in every case by an easily ascertainable date. Including an order for relief within the definition of judgment accomplishes that result.

No persuasive reason has been given or authority cited to support the plaintiff's contention that the effective date of the order for relief was when Burke consented to the order. I accordingly conclude that the order for relief is a judgment as defined in Rule 54(a), and that under Bankruptcy Rule 9021(a), its effective date is March 16, 1983.

Since the recording of the conveyance in the Lancaster County, Pennsylvania land records and the docketing of the order for relief in Burke's involuntary case both occurred on March 16, 1983, it is necessary to determine when on March 16 the order for relief entered. Although as a general principle, the law does not recognize fractions of a day, "the legal fiction that a day is an indivisible period of time will be disregarded and the court will determine and note the actual priority `where one day only is involved, and the rights of litigants depend on priority in time of two occurrences on that day, and the priority can be established.'" In re Dejay Stores, Inc., 220 F.Supp. 497, 501 (S.D.N.Y.1963). See also In re Kleitz, 6 B.R. 214, 216-7 (Bankr.D. Nev.1980).

The docket sheet in this case has two entries on March 16, 1983. The first listed a "Motion for Order," which was time stamped at 4:20 p.m. The second entry was the ...