In re Sal Caruso Cheese, Inc.

• Decision Date: 17 July 1989
• Docket Number: Bankruptcy No. 88-01008.
• Citation: 107 BR 808
• Parties: In re SAL CARUSO CHEESE, INC., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of New York

107 B.R. 808 (1989)

In re SAL CARUSO CHEESE, INC., Debtor.

Bankruptcy No. 88-01008.

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

July 17, 1989.

Frank G. Pratt, Utica, N.Y., for debtor.

Kim F. Lefebvre, Richard D. Croak, Albany, N.Y., Office of U.S. Trustee.

Kernan & Kernan, Utica, N.Y. (Gregory A. Hamlin, of counsel), for Key Bank of Central New York, N.A.

MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

STEPHEN D. GERLING, Bankruptcy Judge.

The United States Trustee ("UST") has moved the Court for an order converting this voluntary Chapter 11 case to a case under Chapter 7, or in the alternative, dismissing the case, contingent upon payment of all fees due and owing it pursuant to 28 U.S.C. § 1930(a)(6) (West 1989).

The UST's motion, made pursuant to § 1112(b) of the Bankruptcy Code, 11 U.S.C. §§ 101-1330 (West 1979 & Supp. 1989) ("Code"), was initially made returnable before this Court on August 31, 1988 and then adjourned to September 28, 1988 at which point Key Bank of Central New York, N.A. ("Key Bank") appeared in support. Thereafter, the UST and Sal Caruso Cheese, Inc. ("Debtor") executed a Stipulated Order entered October 7, 1988 which, while not disposing of the merits of the motion, did, in pertinent part, require the Debtor to file a Plan and Disclosure Statement by November 9, 1988, provide the UST with proof of insurance on certain real property of the Debtor, and segregate rents being received from that same property, or face immediate conversion to Chapter 7.

The motion was further adjourned on consent of the UST and Debtor's counsel to the date on which the hearing on the approval of Debtor's Disclosure Statement was scheduled and was thereafter adjourned several times until February 24, 1989, when an evidentiary hearing was commenced in Utica, New York. That hearing was resumed and concluded on March 3, 1989, and the Court took the matter under submission on March 23, 1989.

JURISDICTIONAL STATEMENT

The Court has jurisdiction of the parties and subject matter pursuant to 28 U.S.C.A. §§ 1334 and 157 (West Supp.1989). This is a core proceeding, 28 U.S.C.A. § 157(b)(2)(A) and (O). The following constitutes findings of fact and conclusions of law rendered in accordance with Bankruptcy Rules ("Bankr.R.") 1007, 1009, 1017, 2002, 7052, 9006, 9014 and 9017.

FACTS

On June 30, 1988, the Debtor, a closely held New York corporation, filed a voluntary petition pursuant to Chapter 11 of the Code, listing $734,530.81 in debt and $720,296.49 in property and identifying Salvatore R. Caruso ("Caruso") as its president and the sole stockholder of its 100 registered shares of common stock. See Movant's Exhibit A (copies of Petition, Schedules A-1, A-2, A-3 and amendments filed October 4 and December 15, 1988, Statement of Financial Affairs For Debtor Engaged In Business ("Statement") and related exhibits). Caruso is also a Chapter 13 debtor before this Court. In an Exhibit A, the Debtor claimed $409,318.00 in total assets and $702,871.00 in current and short term liabilities, referencing to an April 30, 1988 balance sheet. Id.

Schedule B-1 identified "1004 Tilden Avenue, Utica, New York, Belle Avenue, Utica, New York, 1326 Rutger Street, Utica, New York, 1012 Tilden Avenue, Utica, New York" as real property, with a market value of $168,500.00, in which the Debtor held a "fee title" interest. Id. In an Order entered January 31, 1989, the Court approved the sale of the Rutger Street property for the sum of $40,000.00 and the application of the net proceeds of $37,206.00 to the City of Utica ("City"). The City was listed in Schedule A-2 as holding a claim for $75,569.39 secured by a first mortgage on 1010 Tilden Avenue, Utica, New York ascribed a market value of $168,500.00. Id.

Included in Schedule B-2 as the Debtor's personal property was $59,455.54 in inventory, down from $62,946.00 as of April 30, 1988 in item four of the Statement, $84,098.22 in accounts receivables, $120,000.00 of equipment at 1010 Tilden Avenue, six vehicles valued at $79,000.00 (one 1985 Mercedes-Benz truck, two 1984 Chevrolet trucks, one 1984 International truck, one 1986 Ford truck and an "Omega"), $9,242.73 in Key Bank checking account # XXXXXXXXX and a $200,000.00 counterclaim in a state court action commenced by Moscahlades Bros., Inc. Id. A statement dated June 30, 1988 for the Key bank checking account indicated a balance of $2,525.71 on that date. See Movant's Exhibit O (copies of bank statements from March 31, 1988 through July 14, 1988).

The Order setting August 9, 1988 as the first meeting of creditors pursuant to Code § 341, as well as containing notice of the automatic stay and a November 7, 1988 bar date for filing proofs of claim was circulated to all entities on the mailing matrix upon its entry July 12, 1988. It appears from the case docket that the Code § 341 meeting was either adjourned to or continued on September 27, 1988, October 25, 1988, November 8, 1988, November 27, 1988, January 24, 1989 and March 7, 1989. The Debtor filed a Resolution on July 15, 1988 empowering Caruso to take the necessary steps on its behalf to facilitate the bankruptcy. On August 1, 1988, the UST appointed the committee of unsecured creditors pursuant to Code § 1102(a)(1).

At the time of filing, it appears that the Debtor, which specialized in retail and wholesale cheese processing and distribution, was a going concern located in Utica, New York. Prior to the fall of 1987, the Debtor had also produced cheese for sale, but had since terminated that portion of its business. Federal income tax returns for the years 1985, 1986 and 1987 indicated gross receipts or sales in those years of between $2.3 million and $3.8 million. See Movant's Exhibit E (copy of proof of fire loss).

When it filed its Chapter 11 petition, the Debtor was engaged in litigation with the United States Department of Labor regarding the status of its truck driver/salesmen and so reflected in its Schedule A-1 as a disputed claim for $80,000.00 and at item twelve of its Statement. See Movant's Exhibit A. That litigation was continued postpetition in the United States District Court for the Northern District of New York when that Court apparently concluded that the stay imposed pursuant to Code § 362(a) was inapplicable. An Order Authorizing Compromise Pursuant To Bankruptcy Rule 9019(a) was entered December 20, 1988, wherein the Court approved a settlement in the sum of $30,000.00.

Subsequent to filing, and on or about August 11, 1988, the Debtor's main business premises at 1010 Tilden Avenue were substantially destroyed by a fire, effectively causing a cessation of all of Debtor's business operations. Debtor's Amended Disclosure Statement noted that this interruption to its business resulted in a reduction to its work force of one employee, Caruso. See id. at 2.

On September 9, 1988, the Court, on application of the Debtor, appointed the licensed public adjustment firm of Basloe, Levin & Cuccarro, Ltd. ("Basloe") to independently prepare, present and adjust the claim for the loss or damage caused by the fire as demanded by its insurer carrier under its three policies. See Movant's Exhibit P (copy of letter from Bouck, Holloway, Kiernan and Casey, Esqs. to Sal Caruso Cheese, Inc. (Sept. 9, 1988)); Movant's Exhibit R (copy of transcript of Caruso's sworn examination conducted on November 4, 1988). Completed on November 4, 1988 and filed on November 7, 1988, the proof of fire loss fixed the Debtor's loss at $440,154.94 which was approximately allocated to a building loss of $300,154.94, a building contents loss of $120,000.00 — including plant, store and office stock, supplies and equipment — and a business interruptions loss of $20,000.00. See Movant's Exhibit E. It also indicated that the Debtor's business was "completely closed" and that it would take in excess of twelve months to rebuild the premises. See id.

At the time of the hearing on this contested matter, the Home Insurance Company, Debtor's insurer, had not voluntarily paid any portion of the fire loss and Debtor's counsel had demanded a written explanation for its failure to pay the Debtor's claim. See Debtor's Exhibit 8 (copy of letter from Frank G. Pratt, Esq. ("Pratt") to Bouck, Holloway, Kiernan & Casey, Esqs. (Feb. 22, 1989)).

On November 7, 1988, the Debtor filed a Disclosure Statement and Plan of Reorganization.

At the hearing held before the Court on the instant motion, Caruso, who identified himself as the Debtor's president and sole stockholder, testified that it was his intention to utilize the yet to be received fire insurance proceeds to reopen the Debtor's retail store first and then revive its wholesale operation.

On cross-examination by the UST, Caruso testified that on the night of the fire he was playing cards with several men at an athletic club, but that he could only recall the name of one of the card players. Caruso also recalled being questioned by the insurance company's attorney about a container of gasoline found at the fire scene but did not remember being told that the fire marshall is alleged to have found that an accelerant had been used in connection with the fire. See generally Movant's Exhibit R.

In preparing the proof of fire loss, Caruso utilized a list of equipment he had made in October or November of 1987 when the Debtor ceased cheese production. Caruso denied that any of the equipment listed in the proof of loss had been transferred prior to the fire to Falbo Dairy of Carbondale, Pennsylvania ("Falbo"), owned by his cousin, or Cheese's of Monroe ("Monroe").

Caruso also testified that he had been a patient at the Duke Medical Center in North Carolina, suffering from uncontrolled diabetes, in the spring of 1988 prior to the filing. Caruso acknowledged that since the filing of the petition he draws the sum of $250.00 per week from the Debtor. However, he was unclear on whether that weekly amount, from which no tax is deducted, is...