In the Matter of Modern Settings, Inc.

• Decision Date: 28 May 1987
• Docket Number: Bankruptcy No. 086-60030.
• Citation: 74 BR 358
• Parties: In the Matter of MODERN SETTINGS, INC., Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of New York

74 B.R. 358 (1987)

In the Matter of MODERN SETTINGS, INC., Debtor.

Bankruptcy No. 086-60030.

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

May 28, 1987.

C. Steven Hackeling, Huntington, N.Y., trustee.

Pinks, Brooks, Stern & Arbeit, Hauppauge, N.Y., for trustee.

Nachamie, Kirschner, Levine & Spizz, P.C., New York City, for Modern Settings, Inc.

Jaffe and Asher, New York City, for Bialystock & Bloom Productions, Inc.

DECISION

MARVIN A. HOLLAND, Bankruptcy Judge:

The debtor, Modern Settings, Inc., sustained a $5,364,674 burglary loss over the Memorial Day weekend of 1982. The debtor's insurers, First State Insurance Company and Federal Insurance Company (collectively referred to as "insurers") paid to the debtor the sum of $3,875,000 and commenced an action in the name of the insured debtor in the Supreme Court, State of New York, County of New York against A.D.T. Company, Inc., et ano, who, it was alleged, had with gross negligence failed to properly maintain the debtor's alarm system.

An offer of settlement has now been made on behalf of A.D.T. in a sum in excess of $1,000,000, which, if consummated, will be divided between the insurers who paid a portion of the loss, and the debtor (or the debtor's assignee) in proportion to the amount of net loss sustained by each.

The matter comes before this court on an application for leave to compromise a claim. Such leave is opposed by Bialystock & Bloom Productions, Inc. (hereinafter referred to as "B & B"), whose principals are also the principals of the debtor and who claim that prior to the filing of the bankruptcy petition, the debtor made an assignment of its right, title and interest in and to any recovery to it in consideration of an advancement by B & B to the debtor of funds to prosecute that claim.

The validity and indeed the very existence of that assignment is contested by the trustee. B & B points out that the validity of this assignment, as well as other transfers, is the subject matter of a case now pending in the District Court for the Southern District of New York which is about to or may have already gone to trial. B & B maintains that the offer is insufficient and asks this court to defer consideration of approval of the settlement until the validity of the alleged assignment of the debtor's interest in the settlement fund to B & B has been determined in the Southern District proceeding.

At the initial hearing on the application for leave to settle, the court inquired of the attorneys for the alleged assignee, as well as of the other attorneys present at the hearing, as to the earliest date when it would be claimed that notice of the alleged assignment from the debtor to B & B was given either to the insurers (the debtor's insurers) or to the entity now offering to pay the settlement on behalf of A.D.T. No attorney present in the courtroom was aware of such notice ever having been given prior to the filing of the petition herein.

At an evidentiary hearing held on April 29, 1987, it was conceded that prior to the filing of the petition no notice of the alleged assignment of the debtor's claim to B & B had been given to either the debtor's insurers or to A.D.T.

B & B has submitted a memorandum of law which acknowledges the debtor's trustee as being clothed with the rights and powers of "a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists" by virtue of 11 U.S.C. § 544(a)(1). The memorandum goes on to cite Law Research Service, Inc. v. Crook, 524 F.2d 301, 317 (2d Cir.1975); Malone v. Bolstein, 151 F.Supp. 544 (N.D.N.Y.1956) aff'd 244 F.2d 954 (2d Cir.1957) and Stathos v. Murphy, 26 A.D.2d 500, 276 N.Y.S.2d 727 (1st Dep't 1966), aff'd, 19 N.Y.2d 883, 227 N.E.2d 880, 281 N.Y.S.2d 81 (1967) for the proposition that the rights of an assignee are superior to those of creditors of the assignor, whether or not the assignee has given notice to the obligor. While such a statement is certainly the correct law of the state of New York as far as it goes, it does not go far enough.

An assignment of a legally transferable claim (N.Y.Gen.Oblig.Law, § 13-101) is complete when made despite any failure to notify third parties. E.g. Fortunato v....