In re Lockwood, Bankruptcy No. 880-0575-20.
Decision Date | 15 May 1981 |
Docket Number | Bankruptcy No. 880-0575-20. |
Citation | 11 BR 291 |
Parties | In re Francis J. LOCKWOOD, Sr., and Joan Lockwood, Debtors. SOCIETA INTERNAZIONALE TURISMO, S.p.A., Plaintiff, v. James BARR, as Trustee in Bankruptcy of Francis J. Lockwood, Sr., and Joan Lockwood, Defendants. |
Court | U.S. Bankruptcy Court — Eastern District of New York |
Seymour Chagrin, Freeport, N.Y., for defendants.
Herzfeld & Rubin, New York City, for plaintiff.
James Barr, New York City, Trustee.
Societa Internazionale Turismo, S.p.A. (hereinafter "Plaintiff"), has commenced an adversary proceeding seeking relief from the automatic stay provisions of 11 U.S.C. section 362(a). For the reasons set forth below, Plaintiff's request for the aforesaid relief is denied pending a final hearing.
Plaintiff is a judgment creditor of the debtor in the amount of $87,212.58 pursuant to a judgment entered on March 15, 1977, in the Supreme Court of the State of New York, County of New York (hereinafter "State Court judgment"). On March 23, 1977, the State Court judgment was docketed with the County Clerk of Nassau County, thereby placing a lien on any real property owned by the debtors in Nassau County. N.Y.C.P.L.R. section 5203 (McKinney 1980). On October 30, 1978, Plaintiff issued a property execution to the Sheriff of Nassau County to levy on and sell the realty owned by the debtors to satisfy the Plaintiff's judgment. The Sheriff scheduled the sale of the realty located at 50 North Main Street, Town of Farmingdale, New York (hereinafter "the Property") for April 21, 1980. Prior to that date, on April 17, 1980, the debtors filed a petition under Chapter 7 of the Bankruptcy Code. Thereafter, the Plaintiff commenced this adversary proceeding.
The filing of a bankruptcy petition operates as a stay of the enforcement of a pre-petition judgment against the debtor or property of the estate, and any act to enforce any lien against property of the estate. 11 U.S.C. section 362(a)(2), (4). A party may obtain relief from the stay by commencing an adversary proceeding, see 11 U.S.C. section 362(d), Fed.R.Bankr.P. 701(6). In its complaint, Plaintiff alleges that it is a judgment lien creditor of the debtor and that the Property "is not property subject to this bankruptcy proceeding, since Plaintiff has a lien on the property which is in excess of its value." Plaintiff misstates the applicable law. It is clear from the broad definition of property contained in 11 U.S.C. section 541 that it is not necessary for a debtor to have an equity in property for it to be "property of the estate" over which the bankruptcy court has jurisdiction; legal title is sufficient. See 28 U.S.C. section 1471; See also Cross Electric Company, Inc. v. United States of America, 512 F.Supp. 511, 6 B.C.D. 1348, 1349 (W.D.Va.1980) (Turk, D.J.).
11 U.S.C. section 362(d), which governs relief from the automatic stay, provides:
Plaintiff does not allege lack of adequate protection. Thus, it appears in the first instance, that Plaintiff is bringing this action under 11 U.S.C. section 362(d)(2). Since Chapter 7 is concerned with liquidation, rather than "reorganization," subdivision "(B)" of section 362(d)(2) does not apply in cases filed under that Chapter. Cf. Matter of Sulzer, 2 B.R. 630 (B.C.S.D.N.Y. 1980) ( ); But, cf. Matter of Zellmer, 6 B.R. 497, 3 C.B.C.2d 42 (Bkrtcy.N.D.Ill.1980) ( ); Matter of Feinster, 6 B.C.D. 131 (B.C.N.D.Ga.1979) ( ).1
The Plaintiff, as the party seeking relief from stay, has the burden of proof on the issue of the debtor's equity in the Property. See 11 U.S.C. section 362(g). The parties agree that if the judgment is valid the debtors have no equity in the Property. The debtors, however, contend that the judgment, and hence the judgment lien, were secured by fraud and, thus, are void or voidable. The debtors also claim that while the Plaintiff may have had a claim against Francis J. Lockwood Associates, Inc., a codefendant in the State Court action, it had no colorable claim against them.2 Moreover, the debtors allege that the judgment was entered against them after their answers were stricken for failure to comply with the order of the court requiring them to provide discovery. The debtors allege that their attorney for the State Court action told them both "not to worry," and that he never advised them of the defaults until it was too late. Thus, it appears that the State Court action was not resolved upon the merits of the case.
The Plaintiff argues that under the doctrines of res judicata and collateral estoppel the State Court judgment bars this Court from reconsidering the validity of the State Court judgment and the subsequent judgment lien.
It is true that the principles of res judicata and collateral estoppel apply in bankruptcy proceedings, see Heiser v. Woodruff, 327 U.S. 726, 66 S.Ct. 853, 90 L.Ed. 970 (1946), and to default judgments, see 1B J. Moore Federal Practice ¶ 4.09, p. 1024 (2d ed. 1978). It is equally true, however, that the principles of res judicata and collateral estoppel should not be applied when their application would result in manifest injustice to a party, see 1B J. Moore Federal Practice ¶ 0.40511.3 The United States Supreme Court has recently restated this principle in the context of a bankruptcy proceeding:
Because res judicata may govern grounds and defenses not previously litigated, however, it blockades unexplored paths that may lead to truth. For the sake of repose, res judicata shields the fraud and the cheat as well as the honest person. It therefore should be invoked only after careful inquiry.
Brown v. Felsen, 442 U.S. 127, 130-34, 99 S.Ct. 2205, 2209-10, 60 L.Ed.2d 767 (1979) (emphasis added). If the Plaintiff does not have a colorable claim against the debtors, the application of res judicata or collateral estoppel would result in manifest...
To continue reading
Request your trial-
In re Alpa Corp.
... ... INTERNAL REVENUE SERVICE, United States of America, Defendant ... Bankruptcy" No. 80-02546, Civ. No. 80-0445 ... United States Bankruptcy Court, D. Utah ... May 15, 1981. \xC2" ... ...