In re J. Baranello & Sons, Inc.
| Decision Date | 30 November 1992 |
| Docket Number | Adv. No. 891-8068-20.,Bankruptcy No. 890-80299-20 |
| Parties | In re J. BARANELLO & SONS, INC., Debtor. J. BARANELLO & SONS, INC., Plaintiff, v. George BAHARESTANI and Franklin Baharestani, Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
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Hogan, Jones & Parisi, P.C., Mineola, NY, for the debtor/plaintiff.
Michael Cook, New York City, for defendants.
DECISION AND ORDER ON MOTION FOR NONCORE DECLARATION AND DISMISSAL
This matter comes before the Court upon a motion ("Motion") by J. BARANELLO & SONS, INC., the above-captioned plaintiff ("Plaintiff" and sometimes, the "Debtor") for an order of the Court determining that the above-captioned adversary proceeding ("Adversary Proceeding") is a core proceeding and striking the affirmative defense of GEORGE BAHARESTANI and FRANKLIN BAHARESTANI, the above-captioned defendants ("Defendants"), in which the Defendants assert that the Adversary Proceeding is not a core proceeding and should be dismissed. Defendants have cross-moved ("Cross-motion") for an order dismissing the Adversary Proceeding (i) for failure to state a cause of action, (ii) for Plaintiff's failure to join necessary persons, and (iii) on the ground that it is not a core proceeding.
The Court has jurisdiction over the Motion and Cross-motion pursuant to section 157(a)(b)(3) of title 28, United States Code ("title 28") and the order of referral of matters to the bankruptcy judges by the District Court for the Eastern District of New York (Weinstein, C.J.) (1986).
For the reasons set forth below, the Court makes the following holdings. The Adversary Proceeding is a NONCORE proceeding. The Court will hear the Adversary Proceeding and submit proposed findings of fact and conclusions of law to the District Court for the Eastern District of New York. Accordingly, that part of the Plaintiff's Motion which seeks a determination that the Adversary Proceeding is core is DENIED; and that part of the Defendants' Cross-motion which requests that the Court determine that the Adversary Proceeding is noncore is GRANTED. Also, the Defendants' Cross-motion for dismissal of the Adversary Proceeding for (i) failure to state a cause of action, and (ii) Plaintiff's failure to join certain persons, is DENIED.
From the Court's files and all papers submitted in support and in opposition to the Motion and Cross-motion, the Court makes the following findings of fact.
The Plaintiff is a New York corporation which filed a voluntary petition for bankruptcy protection under chapter 11 of title 11, United States Code () on or about February 8, 1990. On or about March 13, 1991, the Plaintiff commenced the Adversary Proceedings against the Defendants. Pursuant to the Adversary Proceeding, the Plaintiff seeks to pierce the corporate veil of 72nd Associates, Inc. ("72nd Associates"), a corporation against which the Plaintiff holds a judgment ("Judgment"), and to be permitted to enforce the Judgment against the personal assets of the Defendants, who are stockholders of 72nd Associates.
The Defendants' answer alleges, as an affirmative defense ("Affirmative Defense"), that the Court is without jurisdiction since the Adversary Proceeding is not a core proceeding as that term is defined in section 157(b)(2)1 of title 28.
By notice of motion dated May 24, 1991, the Plaintiff commenced its Motion for an order determining that the Adversary Proceeding is a core proceeding and striking the Defendants' Affirmative Defense. On June 18, 1991, the Court held a hearing upon the Motion. Because the Defendants failed to appear before the Court on the Motion, and to file or serve any opposition to the Motion, the Court granted the Plaintiff's Motion on default by order dated July 25, 1991 ("Default Order"). Thereafter, the Defendants moved for an order vacating the Default Order by notice of motion dated August 12, 1991. For sufficient cause, the Court vacated the Default Order and ordered that Plaintiff's Motion be heard on October 22, 1991, by order dated October 8, 1991. By notice of motion dated October 11, 1991, the Defendants commenced their Cross-motion, also to be heard on October 22, 1991. At the request of the parties' attorneys, the Motion and Cross-motion were marked submitted and no hearing was held before the Court.
The Plaintiff, a general contractor, was retained in or about 1985 by 72nd Associates to erect a structure on 72nd Avenue in Queens, New York. Due to a dispute between the Plaintiff and 72nd Associates, a claim for damages was submitted to an arbitrator who issued an award in favor of the Plaintiff. On September 29, 1987, the arbitration award was confirmed in the Judgment entered by the Supreme Court of the State of New York, County of Queens, in an action entitled In re Arbitration Award Between J. Baranello & Sons, Inc. v. 72nd Assocs., Inc. (Index No. 6311/87).
The Plaintiff alleges that the Judgment against 72nd Associates has never been satisfied but this allegation is specifically denied by the Defendants.
The Defendants have admitted that together they own 100% of the outstanding shares of stock of 72nd Associates. Fed. R.Civ.P. 8(d) ().
The Plaintiff furthermore makes the following allegations, all of which are denied by the Defendants. The Defendants "in creating, organizing, managing, controlling and operating 72nd Associates inadequately capitalized said corporation in that they never tended consideration in return for the issuance of stock and never properly funded said corporation." Complaint at 4. Defendants operated 72nd Associates with total disregard for the corporate entity and failed to employ the formalities generally associated with corporate existence, such as the issuance of stock and the maintenance of separate corporate records. Id. The Defendants, as sole officers, shareholders and/or directors of 72nd Associates, made personal use of funds which belonged to said corporation. Id. The Defendants formed, created, incorporated and operated 72nd Associates solely to perpetrate a fraud against the Plaintiff in that they permitted and operated 72nd Associates as a mere shell which was never operated as a separate legal entity. Id. The Defendants acted with the intent to advance their own personal interest with a complete disregard for the interest of 72nd Associates. Id. at 5. The operation of 72nd Associates was as an alter ego of the Defendants. Id. Due to the disregard of the corporate existence of 72nd Associates and its operation as a mere shell and/or alter ego of the Defendants' own identities, the Defendants are the parties upon whom the Plaintiff conferred a benefit in the amount of $199,784. Id. In disregarding the corporate existence of 72nd Associates, the Defendants are personally liable for the satisfaction of the Judgment entered in this amount, in addition to interest, costs and disbursements. Id. at 5-6.
The Court will first determine whether the Adversary Proceeding is a core proceeding2 and the method for its disposition; the Court will then rule upon the Defendants' Cross-motion for dismissal for failure to state a cause of action and for failure to join necessary persons.
Title 28 provides the bankruptcy judge with the jurisdictional authority to hear and determine those proceedings which have been termed "core proceedings" and which arise under the Bankruptcy Code or in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Core proceedings include, but are not limited to, those proceedings set forth in section 157(b)(2)3 of title 28. Core proceedings include matters which were traditionally deemed inherently within the bankruptcy courts' jurisdiction. E.g., Walsh v. Abrams (In re HBG Servicenter, Inc.), 45 B.R. 668, 671 (Bankr.E.D.N.Y.1985).
Noncore proceedings involve disputes over rights that, in distinction, have little or no relation to the Bankruptcy Code, do not arise under the federal bankruptcy law and would exist in the absence of a bankruptcy case. E.g., Acolyte Elec. Corp. v. N.Y. (In re Acolyte Elec. Corp.), 69 B.R. 155, 162 (Bankr.E.D.N.Y.1986), order aff'd, 1987 WL 47763 (E.D.N.Y.1987); 28 U.S.C. § 157(b)(3) ().
The Court will determine whether the Adversary Proceeding is core or noncore using the guidance provided by the United States Court of Appeals for the Second Circuit:
The relevant inquiry is whether the nature of this adversary proceeding, rather than the state or federal basis for the claim, falls within the core of federal bankruptcy power.
Gulf States Explor. Co. v. Manville Forest Prods. Corp. (In re Manville Forest Prods. Corp.), 896 F.2d 1384, 1389 (2d Cir. 1990) (citing Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir.1987); Arnold Print Works, Inc. v. Apkin (In re Arnold Print Works, Inc.), 815 F.2d 165, 169 (1st Cir.1987)). See also Pryor v. Continental Ins. Co. (In re Blue Point Carpet, Inc.), 86 B.R. 327, 328 (Bankr.E.D.N.Y.1988) () (quoting Acolyte, 69 B.R. at 173).
Pursuant to the Adversary Proceeding, the Plaintiff seeks to pierce the corporate veil of 72nd Associates and to hold its shareholders, the Defendants, personally liable for the Judgment. The doctrine of piercing the corporate...
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