In re Capgro Leasing Associates
| Decision Date | 30 June 1994 |
| Docket Number | Bankruptcy No. 888-81336-20. |
| Citation | 169 BR 305 |
| Parties | In re CAPGRO LEASING ASSOCIATES, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
COPYRIGHT MATERIAL OMITTED
Robert S. Powers, Phillips, Nizer, Benjamin, Krim & Ballon, New York City, Louis A. Scarcella, Phillips, Nizer, Benjamin, Krim & Ballon, Garden City, NY, Special Counsel for debtor.
Ira L. Hyams, Ira L. Hyams, P.C., Jericho, NY, for F.D.I.C.
Stan Y. Yang, Office of the U.S. Trustee, Garden City, NY.
Snitow & Pauley, Debtor's Appellate Counsel, New York City.
DECISION AND ORDER
Before the Court1 is a motion ("Motion") by Debtor for an order expunging the claim of a creditor, the Federal Deposit Insurance Corporation ("FDIC"). Debtor's Motion was made pursuant to section 502 of title 11, United States Code ("Bankruptcy Code") and Rule 3007 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules").2
The issues raised by Debtor's Motion are the status of a judgment against a debtor signed and entered post-petition by the clerk of a state court, and of the debtor's post-petition appeal from the state court proceeding — without any party involved having first sought relief from the automatic stay.3
Debtor, Capgro Leasing Associates, is a limited partnership that was created in 1982. Debtor's general partner is a corporation, M.N. Capgro Corp. ("Capgro"), whose president is Richard Caplan ("Caplan"). Caplan's business with Debtor and other partnerships and corporations involved buying, selling and leasing automobiles. One such other corporation was Roadworks Industries, Inc. ("Roadworks"), of which Caplan was an officer and shareholder. Roadworks operated its business in part through two demand deposit checking accounts with First Inter-County Bank of New York (the "Bank"). Each checking account was backed by an unlimited line of credit. By virtue of an unlimited guaranty, Caplan was personally liable for any credit extended through these accounts. Caplan also executed another document, an unlimited guaranty by Debtor of all Roadworks' debts to the Bank, which Caplan signed as Debtor's general partner, although Caplan was never in fact a general partner of Debtor. (As stated, the corporation of which Caplan was president, Capgro, was Debtor's general partner.)
By complaint dated February 16, 1988, the Bank commenced an action against Debtor, Roadworks, Caplan, and Capgro, among others, in New York State Supreme Court, New York County ("State Court Action"). Pursuant to the State Court Action, the Bank sought, in addition to various other relief, reimbursement for overdrafts upon the checking accounts by Roadworks and to realize upon the guaranties of Roadworks' debts by Caplan and Debtor. Debtor maintains in papers before this Court that the unlimited guaranty signed by Caplan was never an enforceable guaranty by Debtor of Roadworks' debts. Debtor argues that the guaranty instrument signed by Caplan was unauthorized, improper and ineffective because Caplan was not a general partner of Debtor and, in any event, Debtor's partnership agreement did not provide authority to any partners to execute unlimited guaranties. Debtor notes that these defenses were not raised by its counsel either in papers or in argument before Justice Herman Cahn, who presided over the State Court Action. Debtor also denigrates its counsel for engaging in an apparent conflict by representing Debtor, Roadworks, Caplan, Capgro and other defendants in the State Court Action. Debtor alleges that its own interests were "clearly adverse to Richard Caplan who was also individually liable for the amount of the overdrafts and who acted without authorization on behalf of the Debtor in executing the Unlimited Guaranty of Roadworks' debts, the alleged basis for the Debtor's liability." (Debtor's Memorandum of Law at 4; Debtor's Application at 6.) As of the time Debtor filed the Motion at bar, it had pending an action for malpractice against its counsel in the State Court Action.
After commencement of the State Court Action, the Bank was declared insolvent and FDIC was appointed receiver. FDIC then moved to be substituted for the Bank and for summary judgment. By order dated November 30, 1988, Justice Cahn of New York County Supreme Court allowed the substitution, granted FDIC's motion for summary judgment, and gave direction to the Clerk of the Court to enter judgment against Debtor, Roadworks, Capgro, Caplan and others for $3,862,189.63 plus interest, costs and disbursements ("Justice Cahn's Order", or "Order").
On December 9, 1988, at 1:28 p.m., Debtor filed a petition for bankruptcy relief under chapter 11 of the Bankruptcy Code. On the same date, Justice Cahn's Order was filed and entered, although the exact time that the New York County Supreme Court Clerk performed these actions has neither been alleged nor established by the parties herein. It therefore is not determinable whether the Justice Cahn's Order was filed and entered upon the New York County Supreme Court's docket pre- or post-petition.
The following events then occurred post-petition.
On December 12, 1988, in furtherance with the direction contained in Justice Cahn's Order, the Clerk of New York County Supreme Court signed a judgment providing for a total recovery of $3,965,099.51 by FDIC against Debtor, Roadworks and Caplan, among others ("Judgment"). Then, also in compliance with Justice Cahn's Order, the Judgment was entered by the Clerk on the State Court's docket on December 22, 1988.
Debtor, Caplan, and other defendants in the State Court Action then appealed from Justice Cahn's Order to the Appellate Division of the Supreme Court in and for the First Judicial Department. On motion of FDIC, as appellee, Debtor's appeal was dismissed by the Appellate Division by order dated April 5, 1990.
Two years later, on April 6, 1992, Debtor filed the within Motion. Debtor seeks an order vacating the Judgment and expunging the claim4 filed by FDIC or, alternatively, reducing FDIC's claim by $1,474,922.70, and for such other and further relief as is just and proper.
Debtor's legal arguments in support of the relief requested are: (i) Debtor's own appeal was a violation of the automatic stay and must be declared void and of null effect; (ii) post-petition signing and entry of the Judgment constituted a violation of the automatic stay, rendering signature and entry of null and void effect; and (iii) since the Judgment was signed and entered post-petition, the Judgment itself is null and void, and therefore the decision of New York County Supreme Court is not final and need not be given preclusive effect, allowing Debtor to object to FDIC's claim and argue the merits of the dispute anew in this Court. (Debtor's Memorandum of Law at 5, 7-8.)
As to the merits of the dispute, FDIC's claim is based upon the Judgment. Debtor contends that the Judgment was rendered against Roadworks for the unsatisfied debts incurred by Roadworks when it accessed the credit lines which backed all overdrafts upon its checking accounts held with the Bank. Debtor claims that the Judgment was rendered against it pursuant to Debtor's guaranty of Roadworks' debts. Debtor insists, however, that the Judgment is incorrect in this aspect. The instrument which purportedly is a guaranty of Roadworks' debts by Debtor, was unauthorized and ineffective. It was signed by Caplan as Debtor's general partner, but Caplan was never a general partner. In fact, Debtor alleges, no partner had authority, apparent or otherwise, to execute a guaranty by Debtor of another entity's debts. Debtor hopes to avoid the res judicata and collateral estoppel bar to relitigation of the merits of Debtor's dispute with FDIC's claim by having this Court declare the State Court Order and Judgment void and of null effect. Then, within the context of a hearing upon Debtor's objection to FDIC's claim, Debtor hopes to establish that it has no liability (or somewhat less liability) because Caplan's purported guaranty by Debtor of Roadworks' debts was in fact unauthorized, and not binding.
The queries before the Court are the status of the Judgment against Debtor signed and entered post-petition, and the validity of Debtor's post-petition appeal therefrom, all of which transpired in the absence of an order granting relief from the automatic stay.
Debtor contends that upon the filing of a bankruptcy petition, all judicial proceedings are stayed pursuant to section 362(a)(1) of the Bankruptcy Code. Debtor specifically argues that its petition stayed the State Court Action and the activity of the Clerk of the State Court, the Appellate Division of New York County Supreme Court, and of all parties involved in the State Court proceedings. Debtor insists that signing and entering the Judgment and Debtor's own appeal are all of null and void effect for having been procured in violation of the automatic stay. (Debtor's Memorandum of Law at 6.) Relief from the stay, Debtor proffers, should have been obtained from this Court before the State Court Clerk could sign and enter the Judgment and before continuation of the State Court Action pursuant to Debtor's own appeal.
We begin with the relevant Code section that occasions the automatic stay, and which provides:
A bankruptcy petition . . . operates as a stay, applicable to all entities, of . . . the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title. . . .
Pursuant to section 362, the stay created by the...
To continue reading
Request your trial