In re Realsite, Inc.

• Decision Date: 15 March 1966
• Docket Number: No. 63-244-BK.,63-244-BK.
• Citation: 256 F. Supp. 322
• Parties: In the Matter of REALSITE, INC., a New York corporation, and its subsidiaries, Debtors.
• Court: U.S. District Court — Southern District of Florida

256 F. Supp. 322

In the Matter of REALSITE, INC., a New York corporation, and its subsidiaries, Debtors.

No. 63-244-BK.

United States District Court S. D. Florida.

March 3, 1966.

On Claim of Meadow Brook National Bank March 15, 1966.

FINDINGS AND CONCLUSIONS, AND ORDER REGARDING CLAIMS OF MURRAY HOMELSKY AND SAM DANIELS

FULTON, District Judge.

Exceptions were filed by the Trustee and the Claimant, Sam Daniels, to the Report of the Special Master, as to recommendations concerning the claims of Murray Homelsky and Sam Daniels.

The Master recommended that the claim of Murray Homelsky should be allowed, in the amount of $9,732.96, with interest at 6% from October 11, 1962, based on a judgment obtained by Claimant Homelsky against the Debtor on that date, in the Circuit Court of Dade County, Florida, for severance pay when Murray Homelsky terminated his employment with the Debtor.

The Savings Account, No. 301828, in the Washington Federal Savings & Loan Association of Miami Beach, pledged by the Debtor as security of Continental Casualty Company for a bond posted to supersede the Homelsky judgment, was recommended by the Special Master to be a fund to secure the payment of the Homelsky judgment.

The Master recommended that after satisfaction of the Homelsky claim from the Savings Account, No. 301828, that the proceeds of the account be used for the reimbursement of Continental Casualty Company's costs and expenses and, then, in the event there was an excess, such excess would be subject to a lien of Sam Daniels.

The Master further recommended that the claim of Sam Daniels be allowed in the amount of $7,050.00 and that it was further secured by an attorney's lien on the books, records and documents obtained by Daniels in the course of his employment as attorney for the Debtor.

The Special Master found that Sam Daniels, an experienced attorney, had been retained by the Debtor to represent it in certain litigation, for an agreed fee of $12,500.00, admitted by the Trustee to be a reasonable charge, of which sum, $7,000.00, together with a $50.00 costs advance, remains unpaid.

The pledge of the proceeds of the Savings Account, No. 301828, in favor of Claimant Sam Daniels, was pursuant to an agreement with the Debtor made December 2, 1962, in which all of the interest of the Debtor in the Account was transferred to him. In compliance with Florida law, a notice of assignment of accounts receivable was filed in the office of the Secretary of State of the State of Florida.

The Special Master found that the Claimant Murray Homelsky was an officer of the Debtor until February 17, 1961, and a stockholder of the Debtor, Realsite, Inc., at all times material to these proceedings, and up to and including the date of the filing of the Debtor's Petition for Reorganization under Chapter X of the Bankruptcy Act.

On April 28, 1963, Realsite, Inc. entered into a new agreement with Murray Homelsky, encompassing all of the respective rights and liabilities between Murray Homelsky and the Debtor. Under the terms of the agreement, Homelsky was to receive from the Debtor $10,000.00 cash, immediately, and $5,500.00 on terms, secured. In exchange, Homelsky surrendered a $15,000.00 debenture bond of the Debtor which was almost due, and transferred all of Homelsky's shares of stock in the Debtor, as well as delivery of a satisfaction of the judgment then on appeal.

The settlement proceeded to the point of delivery of the satisfaction of judgment, dismissal of the appeal, and delivery of the bond and stock to the Debtor's attorney, Sam Daniels. The filing of the Petition for Reorganization, on July 5, 1963, prevented full conclusion of the transaction and Homelsky remained as a major stockholder of the Corporation.

Continental Casualty Company intervened in these proceedings on petition and order of the Court permitting the intervention, and praying discharge from its obligation on the supersedeas bond posted in the appeal, or that the collateral savings account be released to it.

No evidence was brought before the Special Master to demonstrate that the Murray Homelsky judgment had been perfected to a lien on the property of the Debtor.

Claimant Homelsky, in addition to filing his claim, also requested the vacation of the temporary restraining order against his action in the State Court, where Continental Casualty Company had posted a supersedeas bond.

The exceptions of the Trustee and Claimant Daniels are directed to the portion of the Special Master's Report which sustained objections to certain testimony and exhibits offered in support of the Daniels claim and, also, to that portion of the Report which recommended the allowance of the Homelsky claim as a secured claim, entitled to first charge against the proceeds of the savings account pledged to the Surety, Continental Casualty Company.

Claimant Daniels also excepted to that portion of the Special Master's Report which denied his alternative claim for security in a parcel of real property known as the "Blanco Property" and, also, the denial by the Special Master's Report of an administrative claim for Daniels' unpaid compensation because of the court ordered destruction of his attorney's retaining lien.

Evidence introduced before the Special Master contained instances of unpaid obligations of the Debtor, Realsite, Inc., at the time of the transaction with its stockholder, Murray Homelsky. Included in the unpaid obligations was a $3,840.00 real estate commission, owing to Don E. Brinigar since May 2, 1962, and an obligation owing Jus' Rite Builders Supply Co. of Fort Lauderdale, for $1,192.26, since June 20, 1962, and, also, the claim of Daniels.

Also included in the testimony before the Special Master was evidence that the President of Realsite, Inc., Harold Diamond, told one creditor, in May, 1962, that the creditor would not be able to obtain payment of his over-due salary because, "there were no funds available" for Realsite, Inc. to satisfy the obligation.

Conclusions

It becomes readily apparent that the Exceptions of the Trustee and Sam Daniels, and the application of Murray Homelsky for vacation of the restraining order against prosecution of his State Court proceeding, revolve about the respective rights in the savings account pledged to Continental Casualty Company and assigned to Sam Daniels.

The Special Master found that the claim of Homelsky, grounded on a judgment obtained October 19, 1962, provided him a special right in the bank account pledged as collateral security with Continental Casualty Company for the posting of a supersedeas bond.

The problem raised by that conclusion, although not specifically considered by the Special Master, is that the Claimant Murray Homelsky concluded a settlement of all his rights with the Debtor within four months of the filing of the Petition for Reorganization on July 5, 1963. Included in the settlement proceedings was the delivery of a satisfaction of the judgment on which Claimant Homelsky's claim is based, and a dismissal of the appeal taken by Realsite, Inc. from the entry of that judgment.

The evidence does not establish that the Homelsky judgment was a lien on the assets of the Debtor. Florida law requires recording of a judgment to establish a lien upon real property. To perfect a lien upon personal property, execution must be placed in the hands of an appropriate officer. See 13 Florida Jurisprudence, Executions, Section 34, page 470, and Florida Statutes, 1963, Section 55.08, F.S.A.

Thus, Murray Homelsky must rely on any rights still remaining in his judgment to obtain the benefit of the security in the hands of the Surety, Continental Casualty Company, and those rights are necessarily merged into the partially concluded new settlement agreement.

The judgment that Murray Homelsky had obtained against the Debtor was a significant part of the settlement agreement that was partially performed. Included in the partial performance was a dismissal of the appeal from the judgment by the Debtor. A nullification of the settlement agreement now, in order to permit Claimant Murray Homelsky to rely only on his rights on the judgment, would be to the extreme prejudice of the Debtor. Such a hardship gives rise to an estoppel against the claim of Murray Homelsky. The judgment must be considered to have been merged into the rights of Claimant Homelsky in the partially concluded settlement agreement. Additionally, the Homelsky judgment had never become final because it had been superseded and appealed and the appeal had not been determined on the merits.

Exhibit 6 in the Daniels hearing, a letter from the attorney for Homelsky, dated April 29, 1963, is definitive of Mr. Homelsky's position in this proceeding. The first paragraphs of that letter state:

"I am in receipt of your notice of dismissal of the appeal of Realsite, Inc. against Murray Homelsky as per our agreement.

"This will have the effect of releasing the security which is up for this appeal."

The rights of Murray Homelsky are also subject to any impediment that would arise by reason of his relationship as a stockholder of the Debtor. Florida Statutes, 1963, Section 608.55, F.S.A., has application to transfers or transactions by Claimant Homelsky with his Corporation, Realsite, Inc. The Florida Statute is made applicable in this proceeding by Section 70(e) of the Bankruptcy Act which makes transfers fraudulent and void under state law also void as to the Trustee in Bankruptcy. Section 70(e) is applicable to Chapter X reorganization proceedings. See 6A Collier, 14th Ed., Section 8.06.

The Debtor, Realsite, Inc., although a New York corporation, was authorized to do business in the State of Florida, and carried on a substantial portion of its business activity in the State of Florida. This distinguishes these circumstances from that which existed in Crane Co. v. Richardson Construction Company, et al., (CCA 5), 312 F.2d 269.

Florida Statutes, § 608.55, s...