In re Parr

• Decision Date: 22 February 1982
• Docket Number: 79-B-2205 and 879-02996-20,Bankruptcy No. 79-B-1643,Adv. No. 880-0361-20.
• Parties: In re Ronald J. PARR, Alfred R. Parr, Bankrupts. FLUSHING SAVINGS BANK, Plaintiff, v. Harvey L. GOLDSTEIN, as trustee in bankruptcy for Alfred R. Parr, and Ronald J. Parr, Defendants. In re PARR MEADOWS RACING ASSOCIATION, INC., Debtor. James BARR, as trustee in bankruptcy of Parr Meadows Racing Association, Inc., Debtor, v. Harvey L. GOLDSTEIN, as trustee in bankruptcy of Ronald J. Parr, Bankrupt.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

17 B.R. 801 (1982)

In re Ronald J. PARR, Alfred R. Parr, Bankrupts.

FLUSHING SAVINGS BANK, Plaintiff, v. Harvey L. GOLDSTEIN, as trustee in bankruptcy for Alfred R. Parr, and Ronald J. Parr, Defendants.

In re PARR MEADOWS RACING ASSOCIATION, INC., Debtor.

James BARR, as trustee in bankruptcy of Parr Meadows Racing Association, Inc., Debtor, v. Harvey L. GOLDSTEIN, as trustee in bankruptcy of Ronald J. Parr, Bankrupt.

Bankruptcy Nos. 79-B-1643, 79-B-2205 and 879-02996-20, Adv. No. 880-0361-20.

United States Bankruptcy Court, E.D. New York, at Westbury.

February 22, 1982.

Skadden, Arps, Slate, Meagher & Flom, New York City, for Flushing Sav. Bank; William J. Rochelle, III, New York City, of counsel.

Hahn & Hessen, New York City, for Trustee James Barr; Kevin Charles Kelley, New York City, of counsel.

Harvey L. Goldstein, New York City, trustee for Ronald J. Parr and Alfred R. Parr.

ROBERT JOHN HALL, Bankruptcy Judge.

The Court has before it the motions of James Barr, Trustee in Bankruptcy of Parr Meadows Racing Association, Inc. ("Barr" and "the Association") for leave to intervene in the pending adversary proceeding commenced by the Flushing Savings Bank ("Flushing") against Ronald J. Parr ("Parr") and Harvey L. Goldstein ("Goldstein"), Trustee in Bankruptcy of Alfred R. Parr and Ronald J. Parr, to vacate the stay imposed by Rule 601 of the Federal Rules of Bankruptcy Procedure, Fed.R.Bankr.P. 601, and to stay the trial of that complaint pending the determination of Barr's pending complaint against Goldstein which seeks a reconveyance of the Parr Meadows Race Track ("the Track") from Parr's estate to the Association's estate. Simultaneously, Flushing moves to intervene in the Barr-Goldstein proceeding and further moves to stay that proceeding pending the completion of a pending state court action involving related issues. With the battle lines so drawn, the Court rules that Barr may intervene as of right in the Flushing-Goldstein action, but the trial thereof will not be stayed; similarly, Flushing is granted permission to intervene in the Barr-Goldstein action, and the trial thereof will not be stayed.

The factual background of this case as alleged by the various parties may be summarized as follows:¹

In August of 1976, Flushing and twenty-one other lenders loaned the Association $14 million to finance the construction of a quarterhorse race track in Suffolk County, New York in return for which the Association gave its note and a first mortgage on the property in question. As further security, the Parrs, who owned all of the stock in the Association, guaranteed the note and pledged the stock.

In May of 1977, the Association defaulted on the note. Thereafter, on October 17, 1977, the Association filed a petition in this Court for an arrangement under Chapter XI of the now repealed Bankruptcy Act which petition was dismissed on June 12, 1979. More or less simultaneously on June 12, 1979, Parr filed his own individual Chapter XI petition, again with this Court, and two days later caused the Association to transfer title to the Track to himself. In the interim, however, Flushing had obtained a state court judgment in the amount of over $16 million against the Parrs on their guarantee and claims a concomitant judicial lien on the Parrs' real property.

Thereafter, by leave of this Court, in August 1979, Flushing commenced an action in New York Supreme Court, Suffolk County against, among others, Parr and the Association seeking a declaration that the transfer of the Track from the Association to Parr was fraudulent under New York law. This action, however, did not seek a reconveyance of the Track. Both sides cross-moved for summary judgment which motion was denied by the trial court. The Appellate Division, Second Department reversed on April 27, 1981 and granted summary judgment for Flushing. See Flushing Savings Bank v. Parr, 81 A.D.2d 655, 438 N.Y.S.2d 374 (2d Dep't 1981). The defendants' appeal therefrom was dismissed by the New York Court of Appeals on September 2, 1981 as not being a final order.

Meanwhile, on October 4, 1979, the Association filed a second petition for a reorganization with this Court, this time under Chapter 11 of the new Bankruptcy Code which case was converted to a Chapter 7 liquidation on April 7, 1980 with Barr appointed trustee. Moreover on the same day, Parr was adjudged a bankrupt and and Goldstein was appointed his trustee.

Thereafter, on June 5, 1980, Barr commenced an action in this Court against Goldstein seeking a reconveyance of the Track to the Association. Finally, on August 15, 1980, Flushing commenced an action against Goldstein in this Court seeking to vacate the Rule 601 stay that Flushing might foreclose its liens on the Track in state court.

Barr now moves to intervene and stay the Flushing-Goldstein action. Similarly, Flushing moves to intervene and stay the Barr-Goldstein action.

I. Intervention by Barr

Rule 24(a) of the Federal Rules of Civil Procedure made applicable to these proceedings by virtue of Rule 724 of the Federal Rules of Bankruptcy Procedure, Fed.R. Bankr.P. 724, provides in pertinent part:

Intervention of Right. Upon timely application anyone shall be permitted to intervene in an action: . . .

(2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant\'s interest is adequately represented by existing parties.

Fed.R.Civ.P. 24(a).

Thus, in order to intervene of right under Rule 24, an applicant must show that (1) he claims an interest relating to the property which is the subject of the action, (2) his ability to protect that interest may be impaired or impeded as a practical matter if he is not allowed to intervene, and (3) his interest is not adequately represented by the existing parties. United States Postal Service v. Brennan, 579 F.2d 188, 191 (2d Cir. 1978); Commodity Futures Trading Commission v. Carter Rogers and Whitehead & Co., 497 F.Supp. 450, 451, 452 (E.D.N.Y.1980).

Barr's position is that he has an interest in the Track by virtue of his demand that it be reconveyed to the bankruptcy estate of which he is the trustee and from which it was fraudulently transferred; that if it is so reconveyed, any judgment liens based on judgments docketed against Parr which attached to the Track due to the conveyance could be avoided or subordinated; that due to Flushing's inequitable conduct, the Association was forced into bankruptcy justifying subordinating Flushing's mortgage lien; that if Barr is not allowed to intervene and the Rule 601 stay is unconditionally lifted, Flushing will be able to foreclose its liens, sell the Track and distribute the proceeds according to New York law under which there is no provision for the equitable sub-ordination of claims; and that these interests are not adequately represented by Goldstein whose position must necessarily be that the title to the Track is and should remain in him as trustee of Parr's estate and who represents a different set of creditors who may not have been similarly prejudiced by Flushing's actions.

In response, Flushing argues that neither Parr's nor the Association's estates have any equity in the Track; that that is the test for vacating a Rule 601 stay; that the alleged invalidity of the mortgage is no defense to that action but would be appropriately arguable in the state foreclosure action (assuming Barr's intervention therein); and therefore, that any interest Barr might claim in the Track would not be impaired or impeded by the denial of intervention in the Rule 601 action.

In summary, Flushing's response essentially argues that to allow Barr to intervene would serve no purpose other than to delay these proceedings inasmuch as Barr has no valid defense.²

Whether or not Barr has a valid defense to the Rule 601 action is yet to be determined. Moreover, the Court is hampered in evaluating this contention due to Barr's failure to file a proposed answer as required by Rule 24(c).³ Suffice it to say, however, that Barr has alleged sufficient facts to justify his entitlement to file and defend an answer as a party in this proceeding.

First, a colorable claim of ownership is certainly a sufficient interest to justify Rule 24(a) relief.⁴Atlantis Development Corporation v. United States, 379 F.2d 818, 825-26 (5th Cir. 1967); American Jerex Company v. Universal Aluminum Extrusions, Inc., 340 F.Supp. 524, 531 (E.D.N.Y. 1972); In re Oceana International, Inc., 49 F.R.D. 329, 332 (S.D.N.Y.1969); cf. Reedsburg Bank v. Appollo, 508 F.2d 995 (7th Cir. 1975) (intervention in foreclosure action denied where intervenors claimed no rights in subject property.)

In the instant case, Barr has commenced an action seeking the reconveyance of the Track. Whether he is entitled to that relief remains to be seen; suffice it to say, however, that the action is not frivolous.

Second, Flushing is seeking to foreclose and sell off the property in which Barr claims this interest. While it may be true that Barr could raise defenses in the state foreclosure action, it is certainly true that Flushing's action to vacate the Rule 601 stay is the first step looking towards the termination of Barr's interests in the Track. Furthermore, it may well be the case that Barr has defenses available to him under federal law that might be lost in a state foreclosure action. Compare Prudence Realization Corporation v. Geist, 316 U.S. 89, 95, 62 S.Ct. 978, 982, 86 L.Ed. 1293 (1942); In re Multiponics Incorporated, 622 F.2d 709, 713 (5th Cir. 1980); In re Mobile Steel Company, 563 F.2d 692, 698-99 (5th Cir. 1977); In re Lockwood, 14 B.R. 374 (Bkrtcy. E.D.N.Y.1981) (appeal pending) with Jo Ann Homes at Bellmore, Inc. v. Dworetz, 25 N.Y.2d 112, 250 N.E.2d 214, 302 N.Y.S.2d 799 (1969). Consequently, a...