In re Frank Santora Equipment Corp.

• Decision Date: 23 March 1999
• Docket Number: No. CV 96-5911(ADS).,CV 96-5911(ADS).
• Citation: 231 BR 486
• Parties: In re FRANK SANTORA EQUIPMENT CORP., and Santora Crane Service, Inc., Debtors. Allan B. Mendelsohn, Chapter 7 Trustee of the Estate of Frank Santora Equipment Corp. and Santora Crane Service, Inc., Plaintiff-Appellee, v. Sequa Financial Corporation, Defendant-Appellant.
• Court: U.S. District Court — Eastern District of New York

231 B.R. 486 (1999)

In re FRANK SANTORA EQUIPMENT CORP., and Santora Crane Service, Inc., Debtors Allan B. Mendelsohn, Chapter 7 Trustee of the Estate of Frank Santora Equipment Corp. and Santora Crane Service, Inc., Plaintiff-Appellee, v. Sequa Financial Corporation, Defendant-Appellant.

No. CV 96-5911(ADS).

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

March 23, 1999.

Finkel Goldstein Berzow & Rosenbloom, New York City, by Kevin J. Nash, of Counsel, for Debtors Frank Santora Equipment Corp. and Santora Crane Service, Inc.

Zeichner, Ellman & Krause, New York City, by Peter Janovsky, of Counsel, for Chapter 7 Trustee/Plaintiff-Appellee Allan B. Mendelsohn.

Saretsky, Katz & Dranoff, P.C., New York City, by Barry G. Saretsky, of Counsel, Gary Franklin, for Defendant-Appellant Sequa Financial Corporation.

MEMORANDUM OF DECISION AND ORDER

SPATT, District Judge.

This matter is on appeal from the October 13, 1996 interlocutory order of the Honorable Dorothy D.T. Eisenberg, United States Bankruptcy Judge for the Eastern District of New York, and the September 6, 1997 Order of this Court granting leave to appeal two novel issues which, apparently, the Second Circuit has not yet resolved, regarding the application of the pre-Bankruptcy Reform Act of 1994: (1) whether the Bankruptcy Court properly applied the Deprizio doctrine to the avoidance and recovery of alleged preferential transfers which the Debtor made to the Appellant between 90 days and one year prior to the filing of the bankruptcy petition; and (2) whether the Bankruptcy Court correctly held that the two-year statute of limitations on the Chapter 7 Trustee's preference avoidance claims began to run anew upon being appointed as permanent trustee and replacing the debtor-in-possession.

I. PROCEDURAL HISTORY OF THE CASE

This appeal arises from the decision of the Bankruptcy Court in the procedurally consolidated adversary proceedings brought in the cases In re Frank Santora Equip. Corp. & Santora Crane Serv., Inc., Cas Nos. 892-83119478, 892-83118-478 (Bankr.E.D.N.Y. Oct. 13, 1996). In its decision, the Bankruptcy Court denied the motions for dismissal and summary judgment by eight of the forty-one defendants, including the appellant, Sequa Financial Corporation ("Sequa"). Although there were initially eight moving defendants who filed at total of four motions under four separate dockets before this Court seeking leave to appeal in separate cases, the motion papers were identical and treated together by this Court in an earlier decision.

The defendants, including Sequa, moved for leave to appeal to this Court on the grounds that the Bankruptcy Court erred by: (1) applying the Deprizio doctrine to deny their motions; (2) holding that many of the Trustee's claims are not barred by the applicable statute of limitations; (3) taking judicial notice of the number of creditors whose claims were guaranteed by insiders; (4) finding that the elements necessary to invoke the Deprizio doctrine were satisfied; and (5) determining that the permanent bankruptcy trustee was appointed on December 23, 1993, when there is no evidence in the record to that effect.

In a Memorandum of Decision and Order dated September 6, 1997, this Court granted the defendants' motion for leave to appeal the following two issues: (1) whether the Deprizio doctrine applies in the Second Circuit; and (2) whether the statute of limitations operates as a bar to any of the Trustee's claims. In re Frank Santora Equipment Corp., 213 B.R. 420 (E.D.N.Y. 1997). The Court denied the defendants' motion for leave to appeal the other issues. In addition, the Court directed that the Trustee's application for permission to continue the litigation before the Bankruptcy Court while the substance of these appeals is pending be resubmitted to the Bankruptcy Court for an initial determination.

In the ensuing months, only one of the four dockets, namely, Docket Number CV 96-5911, reflected any activity. Following a status conference, on notice to all parties on February 5, 1998, all except Docket Number CV 96-5911 were dismissed either on consent or without objection. Thereafter, by Memorandum of Decision and Order dated October 26, 1998, this Court denied the motion by the defendants NatWest Bank USA, Tilden Commercial Alliance and Tilden of New Jersey, for an "Order permitting them to be included in the pending appeal," given their failure to file appellate briefs, to attend the status conference, or to request any adjournment of the conference. In re Frank Santora Equipment Corp., 227 B.R. 206 (E.D.N.Y.1998).

II. BACKGROUND

On June 3, 1992, prior to the effective date of the Bankruptcy Reform Act of 1994, P.L. 103-394, 108 Stat. 4106 (effective Oct. 22, 1994 and codified throughout Title 11 of the United States Code), Frank Santora Equipment Corporation and Santora Crane Service, Inc. (collectively the "Debtors") filed bankruptcy petitions under Chapter 11 of the Bankruptcy Code. At that time, the Debtors continued operating their businesses as debtors-in-possession pursuant to 11 U.S.C. §§ 1107 and 1108.

On October 21, 1993, the Debtors' cases were converted to Chapter 7 liquidation proceedings. On October 29, 1993, the Trustee was appointed interim trustee pursuant to 11 U.S.C. § 701. The interim trustee was appointed as permanent trustee pursuant to 11 U.S.C. § 702 on December 23, 1993.

On December 22, 1995, and within two years of being appointed permanent trustee, the Trustee commenced adversary proceedings against 40 creditors, including Sequa, to avoid certain alleged preferential transfers pursuant to 11 U.S.C. §§ 547 and 550, as set forth prior to the Bankruptcy Reform Act of 1994. The Trustee sought to recover a sum in excess of $469,471.53, as stated in the November 22, 1996 amended complaint. These transfers, made to non-insider transferee creditors, were made more than 90 days before the Debtor's bankruptcy filing, but less than one year before the filing.

Between January 1996 and June 1996, Sequa and the other defendants moved to dismiss the adversary proceedings or in the alternative for summary judgment on the grounds that: (1) Sequa was not subject to a preference action because the Debtor made the payments to Sequa more than 90 days before the bankruptcy filing and the Deprizio doctrine was inapplicable; and (2) the two-year statute of limitations barred the Trustee's claim.

On October 13, 1996, the Bankruptcy Court denied the defendants' motions in a written decision after having rendered a decision from the bench on August 14, 1996. In denying these motions, the Bankruptcy Court determined that the Trustee's claims were viable under the Deprizio doctrine, as originally set forth the Court of Appeals for the Seventh Circuit in Levit v. Ingersoll Rand Financial Corp. (In re V.N. Deprizio Constr. Co. ("Deprizio")), 874 F.2d 1186. Further, the Bankruptcy Court held that the Trustee's claims were not time-barred under to 11 U.S.C. § 546.

III. DISCUSSION

A. The Standard on Appeal

On appeal from a decision of a Bankruptcy Court, conclusions of law are reviewed de novo, while factual conclusions are reviewed for clear error. See National Union Fire Ins. Co. of Pittsburgh v. Bonnanzio (In re Bonnanzio), 91 F.3d 296, 300 (2d Cir. 1996); see also Fed.R.Bankr.P. 8013.

B. The Deprizio Doctrine

The first issue confronting this Court is whether the Bankruptcy Court impermissibly applied the Deprizio doctrine to preserve the Trustee's claims. As noted above, this doctrine finds its origins in the Seventh Circuit's 1989 decision inLevit v. Ingersoll Rand Financial Corp. (In re Deprizio Constr. Co.), 874 F.2d 1186.

Preliminarily, the Court recognizes that the Deprizio doctrine was effectively overruled by the amendment to 11 U.S.C. § 550(c) contained in the Bankruptcy Reform Act of 1994, see H.R.Rep. No. 835, 103d Cong.2d Sess. at 44-45, 1994 U.S.Code Cong. & Admin.News pp. 3340, 3352-3353, which statute is not retroactive. CEPA Consulting, Ltd. v. New York Nat'l Bank (In re Wedtech Corp.), 187 B.R. 105, 110 (S.D.N.Y. 1995); Crampton v. First Union Nat'l Bank (In re Conner Home Sales Corp.), 190 B.R. 255, 260 (E.D.N.C.1995). Because this case was filed well before the effective date of the 1994 Act, in this determination the Court will be governed by the relevant statutory provisions in force at the time of the filing.

Avoidance of transfers is governed by 11 U.S.C. § 547(b) and § 550. Section 547(b) provides:

Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property —

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made —

(A) on or within 90 days before the date of the filing of the petition; or

(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of the transfer was an insider, and

(5) that enables such creditor to receive more than such creditor would receive if —

(A) the case were a case under Chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

11 U.S.C. § 547(b) (emphasis added).

Section 550, in turn, provides:

(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b) or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value such property, from —

(1) the initial transferee of such transfer or the entity for whose benefit the transfer was made; or

(2) any immediate or mediate transferee of such initial transferee.

(b) The trustee may not recover under section (a)(2) of this section from —

(1) a transferee that takes for value, including

...