In re OPM Leasing Services, Inc.

Decision Date16 July 1982
Docket NumberAdv. No. 82-5730A.,Bankruptcy No. 81 B 10533
PartiesIn re O.P.M. LEASING SERVICES, INC., Debtor. James P. HASSETT, as Trustee of O.P.M. Leasing Services, Inc., Plaintiff, v. Allen GANZ, Defendant.
CourtU.S. Bankruptcy Court — Southern District of New York


Zalkin, Rodin & Goodman, New York City, for James P. Hassett as Chapter 11 Trustee of O.P.M. Leasing Services, Inc.

Kasanof, Schwartz, Iason, New York City, for defendant.


BURTON R. LIFLAND, Bankruptcy Judge.

Defendant Allen Ganz ("Ganz") moves this Court to dismiss the complaint and for alternative relief in the instant action brought by the Chapter 11 Trustee in Bankruptcy of O.P.M. Leasing Services, Inc. ("O.P.M.") ("the Trustee"). This action is based on Ganz' alleged faithless conduct while employed by O.P.M. Ganz bases his motion for dismissal on the lack of subject matter jurisdiction of this Court. Alternatively, Ganz alleges that the first cause of action fails to state a claim upon which relief can be granted and moves for a more definite statement regarding the second claim for relief.

On March 11, 1981, O.P.M. filed a voluntary petition in this Court under Chapter 11 of Title 11 U.S.Code. Thereafter, by order dated March 23, 1981, this Court directed the United States Trustee for this district to appoint a Trustee for O.P.M. pursuant to 11 U.S.C. § 151104. The Trustee was so appointed, has duly qualified and is the acting Trustee in this case.

On or about December 7, 1981, Ganz, a former Vice President of O.P.M., pleaded guilty to an information of the United States Attorney, charging him with mail and wire fraud and making false statements to lending institutions to induce them to purchase notes from O.P.M. secured by fictitious and false leases. The Trustee alleges that as a direct consequence of Ganz' actions in concert with other O.P.M. officers, O.P.M. was delayed in seeking the protection of the bankruptcy court, its debts were substantially increased, and it became liable for fraud and other torts.

In his complaint, the Trustee alleges two causes of action grounded in state law. The first claim for relief requires Ganz to repay to the Trustee salary and other payments which he received from O.P.M. during the period of his employment as an officer, and is based upon his faithless conduct and breach of his fiduciary duty to O.P.M.

The second claim for relief is for an accounting and turnover to the Trustee of monies and other property belonging to O.P.M. and allegedly converted by Ganz from O.P.M. securities accounts.

For the reasons hereinafter detailed, I deny defendant's motion to dismiss and for alternative relief.1

I. Motion to Dismiss for Lack of Subject Matter Jurisdiction

Defendant predicates his motion to dismiss for lack of subject matter jurisdiction in this Court on the unconstitutionality of 28 United States Code Section 1471. Section 1471 gives the bankruptcy court jurisdiction over all civil proceedings "arising under title 11 or arising in or related to cases under title 11". See 28 U.S.C. § 1471 (Supp. IV 1980).

The United States Supreme Court has recently ruled on this very issue in Northern Pipeline Construction Co. v. Marathon Pipeline Co., ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598, 1982. In a plurality opinion, the Court in Northern Pipeline held that Section 1471 does indeed confer an unconstitutionally broad grant of jurisdiction on the bankruptcy court in violation of Article III of the Constitution. However, it is not necessary at this time for the Court to explore the justifications for and nuances and ramifications of this landmark decision because the Supreme Court therein expressly provided that my actions, as well as those of my brethren bankruptcy judges, must not at this time be governed by the holding of unconstitutionality in Northern Pipeline. On page ____, 102 S.Ct. at 2880 of the plurality opinion, Justice Brennan stated:

"The judgment of the District Court is affirmed. However, we stay our judgment until October 4, 1982. This limited stay will afford Congress an opportunity to reconstitute the bankruptcy courts or to adopt other valid means of adjudication, without imparing the interim administration of the bankruptcy laws" (citations omitted)

Northern Pipeline, supra at ____, 102 S.Ct. at 2880.

In so stating, Justice Brennan stayed in full the finding of unconstitutionality of Section 1471 until the earlier of October 4, 1982 or an Act of Congress correcting the constitutional deficiency. The concurring opinion by Justices Rehnquist and O'Connor also joins in this result regarding the stay of the Supreme Court's judgment. See Northern Pipeline, supra at ____, 102 S.Ct. at 2863 (Rehnquist, J. and O'Connor, J. concurring).

Justice Brennan, writing for the plurality in Northern Pipeline, cites earlier Supreme Court cases as support for the staying of a finding of unconstitutionality. See, e.g., Buckley v. Valeo, 424 U.S. 1, 143, 96 S.Ct. 612, 693, 46 L.Ed.2d 659 (1976); Fortson v. Morris, 385 U.S. 231, 87 S.Ct. 446, 17 L.Ed.2d 330 (1966).

In Buckley, the Supreme Court held that the Federal Election Commission as then constituted was an unconstitutional federal adjudicative body because it was not comprised of "officers of the United States" nominated by the President. Buckley, supra 424 U.S. at 141, 96 S.Ct. at 692. Nevertheless, the Court stayed the totality of the effect on an interim basis. It stated:

"We stay, for a period not to exceed 30 days, the Court\'s judgment insofar as it affects the authority of the Commission to exercise the duties and powers granted it under the Act."

Buckley, supra 424 U.S. at 143, 96 S.Ct. at 693.

The Court in Buckley based its stay upon the need to prevent interruption of orderly enforcement of a federal act. The Court continued: "This limited stay will afford Congress an opportunity to reconstitute the Commission by law or to adopt other valid enforcement mechanisms without interrupting enforcement of the provisions the Court sustains, allowing the present Commission in the interim to function de facto in accordance with the substantive provisions of the Act." Id.

In Fortson v. Morris, supra, the Supreme Court reinforced its earlier holding in Toombs v. Fortson, 384 U.S. 210, 86 S.Ct. 1464, 16 L.Ed.2d 482 (1966). In Toombs, the Court had affirmed without opinion the district court's holding that the then constituted apportionment of the Georgia State Assembly was unconstitutional. See Toombs v. Fortson, 241 F.Supp. 65, 71 (N.D.Ga. 1965). In addition, the Supreme Court in Toombs affirmed the district court's decision to withhold action concerning this unconstitutionality until May 1, 1968 to allow the State Assembly a reasonable period to study the practical effects of the deficient plan so as to rectify this unconstitutionality.

In Fortson v. Morris, supra, the Court invalidated a challenge to the action of the Assembly in deciding the election of the Governor of Georgia, which election took place after the decision in Toombs. The Court in Fortson v. Morris held that because it had previously affirmed a withholding of action on a finding of constitutional defect in Toombs, the action of the Georgia Assembly after the finding of unconstitutionality was valid. Fortson v. Morris, 385 U.S. 231, 235, 87 S.Ct. 446, 449, 17 L.Ed.2d 330 (1966).

Similarly, the Court in Northern Pipeline has stayed all effect of its declaration of the unconstitutionality of Section 1471 in order to allow a smooth and orderly interim administration of the bankruptcy laws while Congress rectifies the asserted deficiency. See Northern Pipeline, supra 424 U.S. at 38, 96 S.Ct. at 644.

Accordingly, this Court is bound by the stay imposed by the Court in Northern Pipeline and will therefore exercise the full breadth of its authority under Section 1471 during this interim period. To grant defendant's motion to dismiss would fly in the face of that Supreme Court mandate directed at orderly administration and open the floodgates of the courthouse to a deluge of similar disruptive motions during this interim period.

Judge Motley articulated this same concern in her recent opinion in Ganz v. Lifland, 82 Civ. 390, (S.D.N.Y. June 25, 1982), a related case where the defendant herein sued for a preliminary and permanent injunction to prohibit this Court from conducting any proceedings in the instant case. In this opinion, Judge Motley denied Ganz' request for a preliminary injunction. In so doing, she analyzed the hardships that the bankruptcy courts would suffer if injunctive relief were granted. She stated:

"Preliminary injunctive relief would likely cause many other parties in cases before Judge Lifland (and other bankruptcy judges) to file similar motions in the hope of being granted similar relief, thus burdening him (and other bankruptcy judges) with having to respond to numerous injunctive actions. The court notes that these actions would likely be a burden on the district courts as well."

Ganz v. Lifland, supra at 7.

Therefore, I deny without prejudice defendant Ganz' motion to dismiss the complaint herein based on the lack of subject matter jurisdiction of this Court. This denial without prejudice will allow Ganz to reassert this motion to dismiss depending upon Congress' actions during the interim period.

II. Motion to Dismiss the First Claim

Alternatively, defendant Ganz has moved to dismiss the first cause of action. Ganz alleges that this first claim for relief requiring him to pay back salary and other payments he received from O.P.M. because of his faithless conduct and breach of fiduciary duty is an unprecedented extension of the faithless employee doctrine. For the reasons I will detail in full, this Court finds that plaintiff's first cause of action does indeed state a...

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