In re Double TRL, Inc.

• Decision Date: 22 October 1986
• Docket Number: Adv. No. 186-0042.,Bankruptcy No. 185-51830-353
• Citation: 65 BR 993
• Parties: In re DOUBLE TRL, INC., Double TRL, Inc., d/b/a Autovest, Double TRL, Inc., d/b/a South Shore Automotive Center and Double TRL, Inc., d/b/a Rustguard, Debtor. DOUBLE TRL, INC., Plaintiff, v. F.S. LEASING, INC., Sound Move Leasing, Inc., Auto Strada, Ltd., Sound Move Datsun, Inc., Sound Move Auto Plaza, Inc., Frank Scappatura, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of New York

65 B.R. 993 (1986)

In re DOUBLE TRL, INC., Double TRL, Inc., d/b/a Autovest, Double TRL, Inc., d/b/a South Shore Automotive Center and Double TRL, Inc., d/b/a Rustguard, Debtor DOUBLE TRL, INC., Plaintiff, v. F.S. LEASING, INC., Sound Move Leasing, Inc., Auto Strada, Ltd., Sound Move Datsun, Inc., Sound Move Auto Plaza, Inc., Frank Scappatura, Defendants.

Bankruptcy No. 185-51830-353, Adv. No. 186-0042.

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

October 22, 1986.

Alan M. Dubow, Epstein Reiss & Goodman, New York City, for debtor.

Noel W. Hauser, Hass, Greenstein, Hauser, Sims, Cohen & Gerstein, P.C., New York City, for defendants.

Gary R. Greenman, Kissam & Halpin, New York City, for Creditors' Committee.

JEROME FELLER, Bankruptcy Judge.

Before this Court are motions filed by Defendants seeking the following:

(1) stay or dismissal of Adversary Proceeding No. 186-0042 pending arbitration of the underlying disputes and;

(2) dismissal of Adversary Proceeding No. 186-0042 for lack of jurisdiction or, in the alternative, abstention by this Court.

After reviewing the motion papers, pleadings, briefs of the parties, transcript of the July 30, 1986 hearing on the motions, other relevant papers filed in the Chapter 11 case, applicable law, and for the reasons hereinafter set forth, Defendants' motions are in all respects denied.

I. Background

Double TRL, Inc. (hereinafter "Debtor", "Plaintiff", or "Double TRL") is an automobile leasing company which filed a voluntary petition under Chapter 11 of title 11 of the United States Code ("Bankruptcy Code"), 11 U.S.C. § 1101, et seq., on November 6, 1985. The various entities named as defendants in the subject litigation (Adversary Proceeding No. 186-0042) either are or were also engaged in the business of automobile leasing and are all owned, operated and/or controlled by defendant Frank Scappatura (hereinafter collectively referred to as the "Strada Group" or "Defendants").

The Chapter 11 case has been marked from virtually its outset by litigation instituted by the Debtor, bitterly contested by Defendants, arising from the Debtor's entry into the automobile leasing business in or around the period of February-April 1984, and legal maneuverings by the parties to such litigation far too numerous to recount in great detail. The facts surrounding Debtor's entry into the automobile leasing business are fuzzy at best and can be aptly summarized as a mystery enshrouded in an enigma, even to the extent that Defendants assert that some of the entities comprising the Strada Group have no legal existence. Fortunately, the precise facts are not relevant to resolution of the motions now before this Court. Suffice it to say that from the very beginning, around 2½ years ago, rancor and feuding was the name of the game between the Debtor, Defendants, Apple Bank for Savings ("Apple Bank") — the principal institution financing the purchase of the automobiles ultimately leased, and a company known as ESP Leasing Inc. ("ESP").

A brief overview of the known facts, litigation in the bankruptcy court and related maneuverings, is necessary to place Defendants' motions in proper perspective and to facilitate comprehension of their resolution. The genesis of the disputes begin with ESP, a company that was engaged in the business of automobile leasing under the trademark "Autovest". ESP experienced financial difficulties in 1983 and on December 26, 1983 signed a conditional agreement with Defendants, in effect, selling its automobile leasing business to Defendants. Under the agreement Defendants were to have acquired all of ESP's assets subject to its liabilities, but retained the option to terminate the agreement within 120 days. Defendants exercised the termination option. However, in or around the February-April 1984 time span, discussions or negotiations ensued between Debtor and Defendants, materializing in understandings or agreements whereby Double TRL was to step into the shoes of Defendants under the December 1983 agreement and acquire ESP's assets subject to its liabilities. Feuding quickly developed between and among Double TRL, Defendants, Apple Bank and ESP. Insofar as here relevant, the gravamen of Double TRL's dispute with Defendants were assertions that while it was straddled with ESP's liabilities, Defendants failed to turn over ESP's assets.

The matter was settled, probably with the assistance of Apple Bank and ESP, when Double TRL and Defendants for the first time entered into a written agreement on August 24, 1984. That agreement provided for, among other things, the assignment to Double TRL of three Autovest leases formerly owned by ESP, the transfer of certain other assets formerly owned by ESP and in possession of Defendants and the assumption of certain liabilities by Double TRL. Also part of the August 1984 agreement was a provision for all outstanding claims between the parties to be submitted to an arbitration committee consisting of Jerome McDougal, President of Apple Bank and Richard Fitzgerald, President of Yagen Associates. Apple Bank is a creditor of the Debtor and Yagen Associates was or is one of the largest creditors of ESP and may well be a creditor of the Debtor as well. Notwithstanding the August 1984 agreement, the feuding continued apparently unabated, spilling over into the Chapter 11 case. According to Double TRL, it was its inability to obtain all the ESP assets to which entitlement is claimed that was a major cause for the Chapter 11 filing.

The first skirmish in the Chapter 11 case was an adversary proceeding instituted by the Debtor against Apple Bank, Apple Bank's officers and directors, the Strada Group and Frank Scappatura (Adversary Proceeding No. 185-0202 — (hereinafter "Adversary Proceeding No. 1"). The complaint, dated November 27, 1985, contains fifteen (15) causes of action sounding in breach of contract, fraud, misrepresentation and conspiracy, including violations of the RICO statute (Racketeer Influenced and Corrupt Organizations — 18 U.S.C. § 1961, et seq.). Many millions were sought in damages and Debtor requested a trial by jury.

The Debtor was able to settle its differences with the Apple Bank defendants in Adversary Proceeding No. 1 and entered an agreement, dated February 5, 1986, with the subjoined consent of the Creditors' Committee settling the litigation between them. Thereafter, on April 28, 1986, a stipulation discontinuing Adversary Proceeding No. 1 and severing the action against the Apple Bank defendants was "so ordered" by the Court, with the litigation continuing as against the Strada Group and Mr. Scappatura. Meanwhile, Debtor's counsel began to doubt the propriety of bringing Adversary Proceeding No. 1 in the bankruptcy court in light of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. 98-353, July 10, 1984, 98 stat 333 ("BAFJA"), probably, in large part, due to the Court raising sua sponte the issue at a pre-trial conference in that lawsuit.

The Debtor withdrew its request for a jury trial in Adversary Proceeding No. 1 and, while continuing said lawsuit against the Strada Group and Mr. Scappatura, commenced another lawsuit against the Strada Group and Mr. Scappatura with the filing of a second complaint, this one dated April 1, 1986 (Adversary Proceeding No. 2). This latter lawsuit is the target of Defendants' dismissal and/or abstention motions. The complaint in Adversary Proceeding No. 2 seeks a turnover and an accounting under 11 U.S.C. § 542 of specifically designated property which the Debtor claims was supposed to have been turned over pursuant to agreements with the Defendants.¹ Defendants filed an answer, dated May 9, 1986, containing various affirmative defenses, including the Statute of Frauds, and a counterclaim praying for an order directing Plaintiff to perform its obligations under the agreements, including reimbursement to Defendants of monies expended and indemnification for obligations assumed in connection therewith.

The motions of Defendants seeking dismissal and/or abstention came on for hearing on July 30, 1986 in connection with both Adversary Proceeding No. 1 and 2. At the hearing, Debtor's counsel announced the complete withdrawal of Adversary Proceeding No. 1 and an order, dated July 30, 1986, was signed by the Court dismissing the action as against the Strada Group and Mr. Scappatura. Thus, as indicated above, the pending motions pertain only to Adversary Proceeding No. 2. At the conclusion of the July 30 hearing, the motions were taken under advisement and the Court directed the parties to proceed with discovery. Defendants took an appeal to the District Court of this Court's directive to proceed with discovery, pending its ruling on Defendants' motions, which appeal was dismissed from the bench by the Honorable Charles P. Sifton, U.S.D.J., on August 14, 1986.

II. Motion to Stay or Dismiss Adversary Proceeding No. 2 and to Compel Arbitration of Underlying Disputes

Citing the United States Arbitration Act ("Arbitration Act"), 9 U.S.C. § 1, et seq., Defendants contend that this Court is required to stay Plaintiff's turnover proceeding and, in effect, to compel arbitration under the August 24, 1984 agreement between the parties. It is Defendants' position that the Arbitration Act, specifically 9 U.S.C. § 3, mandates that where litigation is commenced asserting a claim or claims arising out of an agreement which calls for arbitration of disputes, the action shall be stayed until such time as arbitration has been had in accordance with the agreement, providing the applicant is not in default in proceeding with the arbitration.² Debtor disagrees sharply, arguing that the Bankruptcy Code modifies the Arbitration Act and that this Court may and should exercise its discretion in favor of judicial resolution of the disputes between the parties. In addition, Debtor contends that the Defendants are in default in proceeding with arbitration, and therefore, have...