In re Giordano
| Decision Date | 25 October 1995 |
| Docket Number | Civ. A. No. 94-421L. |
| Parties | In re Anthony R. GIORDANO, Debtor. |
| Court | U.S. District Court — District of Rhode Island |
Geoffrey A. Regan, Kirshenbaum & Kirshenbaum, Cranston, RI, for appellant (Monzack).
Robert D. Wieck, Providence, RI, for appellees (Cherenzias).
Sheryl Serreze, U.S. Trustee, Providence, RI.
This matter is now before the Court on appeal from an Order issued on June 27, 1994, by Judge Arthur Votolato of the United States Bankruptcy Court for the District of Rhode Island. Jurisdiction is conferred on this Court by 28 U.S.C. § 158(a). Appellant, Jason D. Monzack, trustee in bankruptcy ("Trustee"), seeks review of the Bankruptcy Court's Order granting Frances G. Cherenzia and Salvatore Cherenzia, III, appellees, relief from the automatic stay pursuant to 11 U.S.C. § 362(d)(2). For the reasons that follow, the Bankruptcy Court's Order is affirmed.
The underlying facts in this case are undisputed. Frances G. Cherenzia and Salvatore Cherenzia, III (the "Cherenzias") are the surviving spouse and son, respectively, of Salvatore Cherenzia, Jr. ("Sal Cherenzia"). Sal Cherenzia and Anthony R. Giordano ("Giordano") were co-owners of Rosalini's, Inc. ("Rosalini's"), a corporation that operated a Connecticut restaurant. Rosalini's leased the land on which the restaurant was located from Giacchio A. Faulise ("Faulise"), and both Sal Cherenzia and Giordano had personally guaranteed Rosalini's obligations under the lease.
Following Sal Cherenzia's death in December 1986, Faulise threatened legal action against Sal Cherenzia's Estate to recover for tax liabilities he incurred on behalf of Rosalini's. In consideration of Faulise abandoning his legal action, the Cherenzias and Giordano agreed, pursuant to a written contract, to assume Sal Cherenzia's obligations under his personal guarantee of the lease. When Faulise's tax liability increased, he sued the Cherenzias on their personal guarantees, and obtained a settlement of $130,000 from them.
On September 11, 1991, the Cherenzias, individually and on behalf of Sal Cherenzia's Estate, commenced suit in Rhode Island Superior Court against Giordano seeking, inter alia, contribution for their payments to Faulise. On October 4, 1991, pursuant to a consent order, the Cherenzias obtained and filed a writ of attachment on certain real property in Rhode Island owned by Giordano. Before any judgment was obtained in that state court action, however, on February 16, 1993, Giordano filed a petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Rhode Island, thereby activating the protection of the automatic stay. See 11 U.S.C. § 362(a) (1988).
On March 23, 1994, the Cherenzias moved, pursuant to 11 U.S.C. § 362(d)(2), for relief from the automatic stay. The Trustee objected to the Cherenzias' motion, arguing that the Cherenzias' pre-judgment attachment of Giordano's real property did not create a perfected lien superior to the Trustee's rights in the property. On June 27, 1994, Judge Votolato held that the Cherenzias' pre-judgment attachment constituted a valid and perfected judicial lien, as of the date it was recorded, superior to the rights of the Trustee. In re Giordano, 169 B.R. 12, 13 (Bankr.D.R.I.1994). Therefore, Judge Votolato granted the Cherenzias' motion to lift the automatic stay under 11 U.S.C. § 362(d)(2). Id. The Trustee appealed that decision to this Court pursuant to 28 U.S.C. § 158(a). Briefs were filed and argument was offered by both sides in open court, then the matter was taken under advisement. It is now in order for decision.
In reviewing the Bankruptcy Court's Order, this Court must accept the bankruptcy judge's findings of fact unless they are clearly erroneous. Fed.R.Bankr.P. 8013; In re LaRoche, 969 F.2d 1299, 1301 (1st Cir. 1992); In re Guilbert, 176 B.R. 302, 305 (D.R.I.1995). This Court, however, will review all legal conclusions de novo. In re LaRoche, 969 F.2d at 1301; In re Guilbert, 176 B.R. at 305.
The filing of a bankruptcy petition imposes an automatic stay on "any act to create, perfect, or enforce any lien against property of the estate" and "any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case." 11 U.S.C. § 362(a)(4), (5) (1988). The Bankruptcy Code defines three types of liens: judicial liens, security interests and statutory liens. 11 U.S.C. § 101(36), (51), and (53) (Supp. V 1993). This case involves a judicial lien which is defined as a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(36) (Supp. V 1993).
At any hearing concerning relief from the automatic stay the party requesting relief has the burden of proof on the issue of the debtor's equity in property, while the party opposing relief bears the burden on all other issues. 11 U.S.C. § 362(g) (1988).
The requirements of § 362(d)(2) have clearly been satisfied in this case. The Trustee has stipulated that since the Cherenzias' contribution claim against Giordano exceeds the value of the property in the Giordano Estate, the debtor has no equity in the real property subject to the writ of attachment. Similarly, the Trustee has stipulated that since rehabilitation of the debtor is unlikely, the real property subject to the writ of attachment is not necessary to an effective reorganization.
The Trustee argues, however, that although the requirements of 11 U.S.C. § 362(d)(2) have been satisfied, the Cherenzias are not entitled to relief from the automatic stay because their pre-judgment writ of attachment does not give them a perfected lien, superior to the Trustee's § 544(a) rights in the debtor's property. This Court disagrees with the Trustee and holds that the Cherenzias are the equivalent of secured creditors with respect to the attached real property.
Upon the filing of a bankruptcy petition, the trustee is given the rights and powers of a hypothetical judicial lien creditor, and may avoid any transfer of property or obligation incurred by the debtor that is voidable by such a lien holder. 11 U.S.C. § 544(a)(1) (1988). Similarly, the trustee, as of the commencement of the case, has the status of a hypothetical bona fide purchaser of real property. 11 U.S.C. § 544(a)(3) (1988). As such, the trustee may avoid any transfer of the debtor's property that is voidable by a bona fide purchaser. Id.
Although federal law grants the trustee avoidance powers under § 544(a), state law governs the extent of the trustee's rights, remedies and powers as a hypothetical lien creditor or bona fide purchaser. In re Cushman Bakery, 526 F.2d 23, 30 (1st Cir.1975), cert. denied, 425 U.S. 937, 96 S.Ct. 1670, 48 L.Ed.2d 178 (1976); Carina Mercury, Inc. v. Igaravides, 344 F.2d 397, 400 (1st Cir.1965); Collier on Bankruptcy, § 544.02 at 544-9 (15th ed. 1993). Similarly, state law governs the nature of the lien established by the Cherenzias' pre-judgment attachment, and their rights and priorities with respect to the attached real property. Cohen v. Wasserman, 238 F.2d 683, 686 (1st Cir.1956); Yumet & Co. v. Delgado, 243 F. 519, 521 (1st Cir.1917). Therefore, the Court must look to the law of Rhode Island, the state in which Giordano's real property is located, to determine which party has priority over it.
In Rhode Island an attachment may be obtained pursuant to a court order after notice and hearing, or ex parte upon motion by the complainant in a civil action of an equitable character. R.I.Gen.Laws § 10-5-2, § 10-5-5 (1985). A writ of attachment upon real property can be recorded by leaving an attested copy of the writ with the town clerk or the recorder of deeds of the town in which the real property is situated. R.I.Gen.Laws § 10-5-9 (1985). Recordation is considered constructive notice to all persons of the matters recorded. R.I.Gen.Laws § 34-13-2 (1984).
Under Rhode Island law, an attachment creates a perfected lien on the attached property when it is recorded. An attachment "creates a lien on the property attached which is held in the custody of the law to satisfy such judgment or decree as the plaintiff may obtain." In re Gibbons, 459 A.2d 938, 939 (R.I.1983) (quoting Everett v. Cutler Mills, 160 A. 924, 925 (R.I.1932)). "The later judgment does not create a new lien, but relates back to satisfy the earlier attachment by subjecting the attached property to satisfaction of the subsequent judgment." In re Gibbons, 459 A.2d at 939 (quoting In re Suppa, 8 B.R. 720, 722 (Bankr.D.R.I.1981)). "An attachment upon real property therefore constitutes a lien thereon from the date it is filed in the records of land evidence pursuant to judicial authorization." Bonniecrest Dev. Co. v. Carroll, 478 A.2d 555, 559 (R.I.1984).
Under the relation back principle, the Cherenzias' rights in the attached real property are superior to the Trustee's § 544(a) rights. The Cherenzias had a valid and perfected lien on the debtor's real estate as of October 4, 1991, the date they obtained and recorded their writ of attachment. Consequently, the Cherenzias' lien is superior to the Trustee's hypothetical lien under § 544(a)(1), as it was first in time. R.I.Gen. Laws § 9-26-30, § 9-26-31 (1985). Similarly, the Trustee, as a bona fide purchaser under § 544(a)(3), would take the property subject to the Cherenzias' attachment. R.I.Gen.Laws § 34-13-2 (1984); Bonniecrest Dev. Co., 478 A.2d at...
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