In re Smith Corset Shops, Inc., Bankruptcy No. 80-00399-JG

• Decision Date: 07 October 1980
• Docket Number: Bankruptcy No. 80-00399-JG,Adv. No. A80-234.
• Citation: 6 BR 324
• Parties: In re SMITH CORSET SHOPS, INC., Debtor. SMITH CORSET SHOPS, INC., Plaintiff, v. Laurent BRODEUR, Meredith Brodeur, Defendants.
• Court: U.S. Bankruptcy Court — District of Massachusetts

6 B.R. 324 (1980)

In re SMITH CORSET SHOPS, INC., Debtor SMITH CORSET SHOPS, INC., Plaintiff, v. Laurent BRODEUR, Meredith Brodeur, Defendants.

Bankruptcy No. 80-00399-JG, Adv. No. A80-234.

United States Bankruptcy Court, D. Massachusetts.

October 7, 1980.

Samuel Newman, Boston, Mass., for plaintiff, debtor.

MEMORANDUM AND ORDER

JAMES N. GABRIEL, Bankruptcy Judge.

The adversary proceeding before this court has been brought by Smith Corset Shops, Inc., for damages for the conversion of its personal property. Plaintiff, a Massachusetts corporation is the debtor in a Chapter 11 proceeding. The defendants are landlords under a lease entered into between the parties on December 29, 1978.

Findings of Facts:

According to its terms, the lease for the premises located at 276 Main Street, Woonsocket, Rhode Island, commenced on January 1, 1979 and was to expire on December 31, 1981. Rental payments, in equal monthly installments, were to be paid in advance, on the first business day of each month during said term.

On or about March 22, 1980, the plaintiff ceased doing business at the leased premises and closed its shop. No rental payment for the month of March had been received by the defendants at that time, and none was subsequently tendered.

Defendants commenced suit for trespass and ejectment against the plaintiff on March 25, 1980 in the 7th Division District Court for Providence County, Rhode Island. (C/A No. 80-268). Pursuant to Rhode Island law, an order of notice issued directing the landlord to serve process on Smith Corset by sending a copy of the complaint by certified and regular mail to Smith Corset Shops, Inc., at 242 Main Street, Brockton, Massachusetts (the corporation's principal place of business) and by posting a copy of the summons and complaint on the leased premises in Rhode Island. Smith Corset received notice on March 26, 1980 as verified by return receipt.

The District Court defaulted Smith Corset for failure to file an appearance in the case, and on April 7, 1980, entered an execution ordering that Smith Corset be evicted. On April 10 and April 11, 1980 a duly licensed constable removed the items from the premises at 276 Main Street, Woonsocket, and caused their transfer for storage to Jones Storage Warehouse, 59 Central Street, Providence, Rhode Island.

On March 21, 1980, prior to the commencement of any action by the landlord, Smith Corset filed a petition for reorganization under Chapter 11, Title 11 with the United States Bankruptcy Court for the District of Massachusetts. At the time of filing the bankruptcy petition, Smith was in default of its lease obligations. The landlord did not receive notice of the filing of the debtor's petition until April 15, 1980, at least four days after the goods had been removed from the leased premises.

Subsequent to receiving notice of the bankruptcy filing, on April 22, 1980, Mr. DiGianfilippo, the attorney for the defendants, sent a letter to the warehouse with the debtor's knowledge that it authorized the release of the stored merchandise to Smith Corset. All storage charges, through June 15, 1980 were paid by the defendants who caused the goods to be continually held available for the debtor.

Conclusions of Law:

The sole issue before this court is whether or not defendant's actions constitute a conversion such that defendant is justly required to pay the full value of the chattels.

Plaintiff argues that defendants' actions causing the removal of goods from the leased premises, alone, constitute a conversion. Plaintiff further contends that upon the filing of the bankruptcy petition, and the vesting of title of the goods in the debtor in possession, any action against the chattels is protected by the provisions of the automatic stay, 11 U.S.C. Section 362. This court does not agree. Automatic Stay:

Section 362 of the Bankruptcy Code provides in relevant part:

(a) "a petition filed under Section 301 . . . of this title operates as a stay, applicable to all entities, of-(3) any act to obtain possession of property of the estate or of property from the estate."

The intent of the automatic stay provisions is clearly to act as an injunction. Neither party has cited any case law in which a court has penalized a party for violating the provisions of a stay, whether it be a temporary restraining order or a preliminary injunction, where the party is without notice of its issuance. Moreover, the provisions of the Code itself protect a party who, without notice of the commencement of a case, transfers property of the estate in good faith. Section 542(c) specifically provides that:

"an entity that has neither actual notice nor actual knowledge of the commencement of the case concerning the debtor may transfer property of the estate, . . . in good faith, and other than in the manner specified in subsection (d) of this section, to an entity other than the trustee, with the same effect as to the entity making such transfer as if the case under this title concerning the debtor had not been commenced."

In the case currently before this court, both parties have agreed, and the court has found, that at the time of the commencement of legal process in Rhode Island and at the time of the alleged conversion, defendant was without knowledge of the bankruptcy proceedings.

The statutory provision of Section 542 in the new Code codifies prior case law. The Supreme Court, in the leading case of Bank of Marin v. England, 385 U.S. 99, 87 S.Ct. 274, 17 N.Ed.2d 197 (1966), held that it would be inequitable to hold a drawee bank liable for paying checks duly issued by the bankrupt prior to filing but presented to and honored by the bank after adjudication, where the bank had no notice of the pending bankruptcy case.

Even without the use of Section 542, recent Bankruptcy Court decisions have interpreted that actions which violate the provisions of Section 362 must be considered in light of whether the actor had actual knowledge that the debtor had sought relief under the Bankruptcy Code at the time the violation occurred. See: In re ABT, 2 B.R. 323 (E.D.Pa.1980) Accordingly this court finds that the debtor's filing for relief and the concomitant provisions triggered thereby, are not dispositive for a final determination of this complaint.

Conversion:

This court must look to the law of the situs to determine whether defendants' actions constitute a conversion.

Applicable Rhode Island law suggest that "the acts alleged to constitute a conversion must be positive and tortious."...