In re Shapiro, Bankruptcy No. 89-13772S
| Decision Date | 08 March 1991 |
| Docket Number | Adv. No. 90-0026.,Bankruptcy No. 89-13772S |
| Parties | In re Frederic A. SHAPIRO and Rosalie B. Shapiro, Debtors. OFFICIAL COMMITTEE OF UNSECURED CREDITORS, Plaintiff, v. CUSHMAN AND WAKEFIELD OF PENNA., INC., Frank-Lynn Realty, and Maytor H. McKinley, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Mark S. Kenney, Klehr, Harrison, Harvey, Branzburg & Ellers, Philadelphia, Pa., for plaintiff.
Richard B. Miller, Spector, Gadon & Rosen, P.C., Philadelphia, Pa., for defendants.
H. Marvin Mercer, III, Krusen, Evans & Byrne, Philadelphia, Pa., for debtors.
James J. O'Connell, Asst. U.S. Trustee, Philadelphia, Pa.
The issue presented by this proceeding is the disposition of an escrow deposit made by a Debtor-buyer of real estate under an agreement of sale and an escrow agreement allowing delivery of the fund only upon agreement by the parties or court authorization in light of (1) the Debtor's pre-petition default of the agreement; and (2) his post-petition consent to the release of the fund to the Sellers. We hold that, in these circumstances, the fund was "property of the estate" of the Debtor at the time of the filing and that therefore the Sellers cannot summarily take it. However, we further hold that the Sellers retain a special interest in the fund, which, in light of the absence of an offer of adequate protection by any party on behalf of the Debtors' estate, precludes the turnover of the fund to the estate. We also conclude that (1) no transfer of the fund took place in the 90-day period prior to bankruptcy, which precludes the use of 11 U.S.C. § 547 to acquire the fund for the estate; and (2) there is insufficient evidence of lack of "reasonably equivalent value" in exchange for the Debtor's deposit of the fund to allow the invocation of 11 U.S.C. § 548. We are therefore obliged to deny the requested relief of turnover of the fund to the estate and must leave the fund where it is.
The underlying voluntary joint Chapter 11 bankruptcy case of FREDERIC A. SHAPIRO ("the Debtor") and his wife, ROSALIE B. SHAPIRO (collectively the Debtor and his wife are referred to as "the Debtors"), had an unusual beginning. At its outset, on October 12, 1989, this court, the Debtors and the United States Attorney requested that this court seal and impound the file of this case. We denied this request, believing that such an action was inconsistent with the basic tenet of the open disclosure required of all debtors in a bankruptcy proceeding. As a result, the Debtors ultimately, on January 31, 1990, moved the district court to withdraw the reference of this entire case and have it proceed there under seal. This motion was granted by the Honorable Joseph L. McGlynn of the district court on February 12, 1990, and the case was therefore administered in the district court. On July 10, 1990, Judge McGlynn entered an Order "unsealing" and "impounding" the case. On October 25, 1990, he entered a further Order referring this case back to this court.
In the phase of the case in this court prior to its removal, on December 6, 1989, we were confronted with two significant motions. One, a motion by Liberty Savings Bank for relief from the automatic stay to foreclose on certain realty owned by the Debtors in Ocean City, N.J., was heard that day and decided in an Opinion of January 4, 1990, published at 109 B.R. 127. The other was a motion by one of the defendants in the instant proceeding, CUSHMAN AND WAKEFIELD OF PENNA., INC. ("C & W"), seeking relief from the automatic stay to pursue a pre-petition state-court interpleader action to determine the rights of the Debtor on one hand, and those of the other defendants in the proceeding, FRANK-LYNN REALTY and MAYTOR H. McKINLEY (collectively referred to as "the Sellers"), on the other hand, to the escrow fund of $40,000 in dispute.
As a result of a colloquy including counsel for C & W and the Plaintiff in this proceeding, the OFFICIAL COMMITTEE OF UNSECURED CREDITORS ("the Plaintiff"), on December 6, 1989, we entered an Order on December 7, 1989, providing, inter alia, as follows:
On January 16, 1990, the Plaintiff filed the instant proceeding, seeking, alternatively, the turnover of the escrow fund to the Debtors' estate or the avoidance of the transfer of the fund as a preference, pursuant to 11 U.S.C. § 547(b), or as a fraudulent conveyance, pursuant to 11 U.S.C. § 548(a)(2)(A). However, the Plaintiff did not serve copies upon C & W or the court on January 16, 1990, as per the directive in the December 7, 1989, Order. Further, the plaintiff erroneously designated the main case number on its filing as Bankr. No. 89-13722S (instead of Bankr. No. 89-13772S), which resulted in the absence of any reference to this proceeding on the main case docket.
Therefore, on January 18, 1990, C & W was unaware of a filing by the Plaintiff or any other party and presented a praecipe to this court requesting relief from the stay. Likewise unaware of this filing, we entered the proposed Order on January 23, 1990, granting this relief.
On January 31, 1990, the Plaintiff filed a motion seeking to vacate the Order of January 23, 1990. This motion was listed for a hearing before us on March 14, 1990. However, Judge McGlynn's Order of February 12, 1990, withdrawing the reference of this case took that matter temporarily out of our hands.
On February 16, 1990, the Defendants filed a pleading including a Motion to Dismiss this proceeding for failing to state a cause of action and an Answer to the Complaint. The matter next re-surfaced on May 31, 1990, when Judge McGlynn conducted a consolidated hearing on both the Plaintiff's motion and the instant adversary proceeding. Brief testimony was adduced at that time, but no decisions were rendered.
On December 18, 1990, shortly after receipt of the Order of Judge McGlynn referring the case back to us, we conducted a conference of all interested parties to ascertain the status of outstanding matters related to this case. At that conference, the occurrence of the trial and status of this proceeding were related to us. Counsel for all parties agreed that we could decide the matters on the basis of a transcript of the hearing before Judge McGlynn on May 31, 1990,1 briefs to be submitted by January 18, 1991 (the Plaintiff), and January 28, 1991 (the Defendants). We shall proceed to do so.
The transaction underlying this dispute was a contract for the sale of real estate at 1719 Rittenhouse Street, Philadelphia, Pennsylvania ("the Property"), executed on or about January 18, 1989. Pursuant to this contract, the Debtor was to purchase the Property from the Sellers for $840,000 as part of a tax-free exchange. The parties executed an Agreement of Sale amended by a Rider dated February 16, 1989 ("the A/S"), which increased the purchase price from $840,000 to $900,000.
Pursuant to the A/S, the Debtor placed a deposit of $40,000 in escrow with the real estate agent involved in the transaction, C & W. The Debtor, the Sellers, and C & W executed an Escrow Agreement ("the EA") on March 6, 1989. The EA provides, in pertinent part, as follows:
If there is any dispute as to whether Escrow Agent C & W is obligated to deliver the Escrow Fund, or as to whom it is to be delivered, Escrow Agent will not be obligated to make any delivery of the Escrow Fund, but in such event may hold the Escrow Fund until receipt by the Escrow Agent of an authorization in writing, signed by all the persons having interest in such dispute, directing the disposition of the Escrow Fund, or in the absence of such authorization, Escrow Agent may hold the Escrow Fund until the final determination of the rights of the parties in an appropriate proceeding. If such written authorization is not given or proceedings for such determination are not begun and diligently continued, Escrow Agent may at its option bring an appropriate action or proceeding for leave to deposit the Escrow Fund in court, pending such determination provided, however, that should Escrow Agent elect to do so it will be reimbursed by Seller and Purchaser for all expenses (including attorneys fees) incurred by Escrow Agent.
Pursuant to the A/S, the closing was to take place on May 22, 1989. However, the Debtor informed the Sellers, on May 19, 1989, that he would not be completing the settlement, nor did he wish to extend the closing date. In fact, just before May 19, 1989, the Debtor surrendered to the United States Attorney, confessing to a fraudulent scheme whereby he bought parcels of real estate by the use of funds obtained through fraudulent financial statements.
On May 22, 1989, the Sellers wrote to C & W, demanding delivery of the escrowed fund because the Debtor had breached the agreement of sale. On the same day, the Debtor wrote to C & W advising that the escrowed fund "should not be released until you hear further from me."
C & W did not release the fund. Instead, on August 7, 1989, it instituted an interpleader action in the Court of Common Pleas of Philadelphia County, August Term, 1989, No. 279 ("the CP Action"), for guidance as to the disposition of the fund. Before any...
To continue reading
Request your trial