In re Nargassans

• Decision Date: 19 July 1989
• Docket Number: Bankruptcy No. 88B-12719 (HCB).
• Citation: 103 BR 446
• Parties: In re Robert C. NARGASSANS, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

103 B.R. 446 (1989)

In re Robert C. NARGASSANS, Debtor.

Bankruptcy No. 88B-12719 (HCB).

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

July 19, 1989.

Daniel A. Zimmerman, New York City, for Petitioning Creditors.

Robert Grant, New York City, for alleged debtor.

DECISION

HOWARD C. BUSCHMAN, III, Bankruptcy Judge.

By motion for summary judgment, the Alleged Debtor, Robert C. Nargassans, seeks an order pursuant to Bankruptcy Rule 1011 dismissing the involuntary petition under Chapter 7 of the Bankruptcy Code filed against him pursuant to 11 U.S.C. § 303. He contends that the petitioners are not qualified to file the petition because their claims are the subject of a bona fide dispute and his liability, if any, is contingent. In addition, Nargassans requests the imposition of sanctions against petitioners American Guild of Variety Artists ("AGVA"), a labor union, and its Executive Vice President, Eileen M. Collins ("Collins"); Gerald Dunbar, General Counsel; and Daniel A. Zimmerman, Attorney for the petitioners, pursuant to 11 U.S.C. § 303(i)(2). The sanctions sought include actual damages for court costs, disbursements, attorneys fees in the amount of $5,000; and damages for mental distress and embarrassment in the amount of $250,000.

The Petitioners are AGVA and twenty-seven individuals formerly employed by a closely held corporation known as Alcazar de Paris in New York, Inc. ("Alcazar"), a debtor in a companion Chapter 11 case. They have filed a cross-motion for summary judgment, insisting that their claims against Nargassans are neither contingent nor the subject of a bona fide dispute. Petitioners assert two claims agianst Nargassans: that he is personally liable for wages and payments due to the AGVA Welfare Trust Fund (the "AGVA Fund") by Alcazar (i) in contract and (ii) under N.Y.Bus.Corp.Law § 630 (McKinney 1986) ("BCL § 630"). By cross-motion Petitioners also seek summary judgment on the ground that their claims are not subject to bona fide dispute or are contingent and that Nargassans is not paying his debts when due.¹

As structured by the parties, the questions are whether there is a bona fide dispute as to Nargassans having personally obligated himself to pay the debts arising under the contracts he signed with AGVA and the Petitioners and whether Nargassans' liability under BCL § 630 is contingent. The question of whether Nargassans is paying his debts when due raises the same issues. He has not paid the 28 petitioners because he claims their debts are disputed or contingent.

I

The facts material to this motion are largely undisputed. Nargassans, a resident of Dover, Massachusetts, is the president and sole stockholder of Alcazar, a domestic corporation duly incorporated in April, 1988. Alcazar maintains an office in care of its former attorney who also represents Nargassans.

On May 16, 1988, Alcazar signed a lease for the Apollo Theater at 234 West 42nd Street, New York, New York 10036. It then began remodeling the premises in order to accommodate its plans to produce a "Restaurant Theater." In July 1988, Nargassans, Steven Yuhasz, Alcazar's Creative Producer, and Dick Scott ("Scott"), an agent for the show's choreographer met with Jerry Kall ("Kall"), a representative of AGVA. Scott introduced Nargassans to Kall as the President of Alcazar. Yuhasz Aff. at ¶ 5. Kall brought a proposed Producer/Employer — AGVA Agreement (the "Form Contract") to the theater the following week and was told that the correct name of the Producer/Employer was Alcazar de Paris in New York, Inc. Id. at ¶ 6.

Nargassans and Yuhasz subsequently met with Deidre Kane ("Kane"), National Director of AGVA, and Collins, AGVA's Executive Vice-President. Collins was similarly told that the Producer/Employer was Alcazar de Paris in New York, Inc. to which she replied "That's fine." Id. at ¶ 8. At this meeting, the proposed Form Contract and the Union Rule Book were discussed. Modifications to the Form Contract and "some of the rules were incorporated into the Agreement." Id. at ¶ 7. These negotiations were set forth in a Letter Agreement, Alleged Debtor's Exh. 1, that was prepared by Yuhasz and signed by Nargassans on September 14, 1988 and by Collins on September 16, 1988. Although the printed Form Contract is dated September 18, 1988, it was apparently not signed until some time in November. Yuhasz Aff. at ¶ 13. Nargassans concedes that the Letter Agreement together with the Form Contract were to constitute the total agreement. Alleged Debtor's Supplemental Brief at 7.

The Letter Agreement states that the "name of the corporation is Alcazar de Paris in New York, Inc." (emphasis added). The typed language below the signature block Nargassans signed reads:

"Agreed and Accepted/Alcazar de Paris in New York, Inc/Robert Nargassans/Producer."

The Form Agreement reads, in pertinent part: Robert Nargassans (Associate(s) Name(s)) and Alcazar De Paris in New York, Inc. (Corporation Name) (hereinafter called the Producer/Employer), its successors and assigns. The Form Agreement is signed only by Nargassans on the line for "Full name of Producer/Employer". The signature line for a signature of an Alcazar officer is blank. The individual Artists Engagement Contracts ("AEC's") are preprinted AGVA form contracts filled in by Yuhasz and signed by Nargassans and the artists on or about September 19, 1988. These contracts list the Operator and/or Producer as Alcazar. Nargassans' name had first been typed into that space but was deleted. The typed language of the signature block of these contracts, however, places both Alcazar and Robert C. Nargassans on the line for Operator and/or Producer. Nargassans' signature appears on the following line under which is printed: "Signature of Officer of corporation, partner or owner and Title." No title is indicated. Alleged Debtor's Exh. 4.

The record does not state when the show actually opened but the AECs specified the "contemplated date of first public performance" as October 21, 1988. Alleged Debtor's Exh. 4. On November 26, five employees were laid off. When Nargassans refused to pay severance benefits demanded by AGVA, the union struck the show on December 2 and forced it to close. The reason given was that the security bond required by the Form Contract had not been posted. Nargassans Aff. at ¶ 11. The Yuhasz affidavit elaborates further: "We met with them at about 8:00 PM and were told that the bond had to be posted and the full amount due the Welfare Fund had to be paid immediately. Mr. Nargassans stated he could not do so immediately." Yuasz Aff. at ¶ 15. The show was closed that night. Id. at ¶ 17.

The present action was commenced by the filing of an involuntary petition on behalf of AGVA and AGVA members and Richard Lavsky, a contractor of Alcazar, under Chapter 7 against Nargassans on December 20, 1988.² The petitioners claim that Nargassans is indebted to the AGVA Fund for the balance of contributions due since October 17, 1988, Kane Aff. Exh. D, a sum exceeding $5,000, Petitioning Creditor's Summary Judgment Memo at 5; and is indebted to each of the individual employee petitioning creditors for "some sum of money" for wages. Ibid.

II

As relevant here § 303(b) provides that an involuntary bankruptcy case may be filed by at least three entities, each of which is either a holder of a claim against such person "that is not contingent as to liability or the subject of a bona fide dispute" if those claims aggregate at least $5,000. Nargassans does not dispute the amount of the claims or the number of petitioners. He contends that the petitioners have no standing because their claims are the subject of a bona fide dispute or are contingent and thus precluded by § 303(b)(1).

A. Bona Fide Dispute

Prior to the adoption by Congress of the Bankruptcy Amendments and Federal Judgeship Act of 1984, a claim asserted by a petitioner need only have been non-contingent. Even so, in 1983 the Second Circuit stated: "Still we have difficulty in believing that Congress intended that a debtor should be found to be generally not paying its debts as they become due under § 303(h)(1) or that a claim qualifies under § 303(b), when the claim is subject to serious dispute." In re B.D. Int'l Discount Corp., 701 F.2d 1071, 1076 (2d Cir.), cert. denied, 464 U.S. 830, 104 S.Ct. 108, 78 L.Ed.2d 110 (1983); accord In re Wallace Dill, 731 F.2d 629 (9th Cir.1984). Congress agreed by amending § 303 in July of 1984 to add the phrase "the subject of a bona fide dispute" to both § 303(b)(1) and (h)(1).

That phrase is defined in neither the legislative history nor the Code. In re Drexler, 56 B.R. 960, 965-66, Bankr.L. Rep. (CCH) ¶ 70992 (Bankr.S.D.N.Y.1986) The simplicity of the language is deceptive. Id. 56 B.R. at 966. In In re Ross, 63 B.R. 951, 960 (Bankr.S.D.N.Y.1986) this Court defined the term as an "honest conflict" or "good faith controversy." Accord, In re Tikijian, 76 B.R. 304, 315, 16 Bankr.Ct. Dec. (CRR) 221, 229 (Bankr.S.D.N.Y.1987). Although this language suggests an inquiry into the subjective intent of the debtor, Ross, 63 B.R. at 960, the test is objective. Matter of Busick, 831 F.2d 745, 750 (7th Cir.1987). ("Under this standard, the bankruptcy court must determine whether there is an objective basis for either a factual or a legal dispute as to the validity of a debt."); see also B.D. Int'l, 701 F.2d at 1077; Tikijian, 76 B.R. at 314. Conversely, a subjective standard places the court in the unenviable position of judging a debtor's motives, leaving in the end an undefinable standard.

Consistent with an objective standard, one court has suggested that if the alleged debtor's defense raises material issues of fact such that "summary judgment could not be rendered as a matter of law in favor of the creditor on a trial of the claim, the claim is subject to a bona fide dispute." In re Stroop, 51 B.R. 210, 212, 13 Bankr. Ct.Dec. (CRR) 319 (D.Colo.1985). In this Circuit, the objective test is...