Matter of Colonial Realty Co.
| Decision Date | 24 December 1991 |
| Docket Number | Bankruptcy No. 2-90-01980. |
| Citation | 134 BR 1017 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | In the Matter of COLONIAL REALTY COMPANY, Jonathan Googel, Benjamin Sisti, Consolidated Debtors. |
John R. Mallin, Annamarie DiBartolo, Cynthia A. Jaworski, Corcoran, Mallin & Aresco, P.C., Hartford, Conn., and D. Michael Tranum, and Mark M. Sadlon, East Hartford, Conn., for Federal Deposit Ins. Corp.
Hal M. Hirsch, Gainsburg & Hirsch, Purchase, N.Y., for trustee in bankruptcy-movant.
Honor S. Heath, Attorney/Advisor, U.S. Trustee's Office, New Haven, Conn.
Michael P. Richman, Mayer, Brown & Platt, New York City, for Merrill Lynch Private Resources, creditor.
Barry S. Feigenbaum, Rogin, Nassau, Caplan, Lassman & Hirtle, Hartford, Conn., for Citybank, N.A., creditor.
Stuart Bear, Zeldes, Needle & Cooper, Bridgeport, Conn., for Benjamin Sisti, Helen L. Sisti, Kevin Sisti, Panda Angel, Inc., Martin Marina Corp., Southern Ties, Inc. and Cohen, Cohn & Silverman, P.A.
On December 16, 1991, following a duly-noticed hearing, this court entered an oral ruling in which the court concluded that the Federal Deposit Insurance Corporation (FDIC) was in violation of the automatic stay provisions of 11 U.S.C. § 362(a) when it commenced and continued to prosecute a fraudulent conveyance action in Florida to recover from alleged transferees monies received from Benjamin Sisti, one of the debtors in this consolidated chapter 7 case. The court also stated it would enter a written order the following day1 to be supplemented, as promptly as circumstances would permit, with a memorandum of decision. The chapter 7 trustee had requested the prompt rulings in light of indicated continued FDIC prosecution of the Florida action on December 17, 1991.
This chapter 7 case is a substantive consolidation of the three individual bankruptcy estates of Colonial Realty Company, a Connecticut general partnership, and Jonathan Googel and Benjamin Sisti, the two general partners of Colonial Realty Company.2 These cases were commenced simultaneously by involuntary petitions filed on September 14, 1990. The court entered an order consolidating the cases on August 9, 1991, and Hal M. Hirsch, Esq. became permanent trustee for the consolidated estates on October 19, 1991. Colonial Realty Company had been involved in the formation and syndication of approximately 60 real estate limited partnerships throughout the United States. These cases have become one of the most widely-publicized bankruptcies in recent Connecticut history due to significant losses sustained by thousands of investors. The FDIC, after commencement of the cases, either by order of the Connecticut Superior Court or the order of the Comptroller of Currency, became the receiver of five former Connecticut state or national banks—Citytrust, The Landmark Bank, Community National Bank, Suffield Bank and the New Connecticut Bank and Trust Company, N.A. These banks had dealings with Colonial Realty Company ventures and the general partners, and had filed proofs of claim in the consolidated cases. The FDIC, upon assuming its role as receiver, has been an active participant during the progress of the case. The claims filed by all creditors total billions of dollars.
The trustee, as part of his duties, has been investigating the complicated financial dealings of the debtors, including negotiating with the FDIC to examine the financial records of the five banks in receivership to secure bank records as they apply to the debtors and their transactions. The trustee claims to have issued over 400 subpoenas to various parties during this investigation.
On December 2, 1991, the FDIC, as receiver of the five banks, commenced an action in the United States District Court for the Southern District of Florida seeking to recover alleged fraudulent transfers totaling approximately $20,000,000 made by Benjamin Sisti to his wife, his son, and several other entities (the Florida action). The complaint alleges Benjamin Sisti's obligations to the five banks total $66,169,921 arising primarily out of his status as guarantor of bank loans made over a period of five years to various Connecticut limited partnerships. In the instance of The Landmark Bank, the FDIC alleges Benjamin Sisti was "a former insider", with an unpaid obligation of $3,397,396. The FDIC's complaint names neither Benjamin Sisti nor the trustee as party-defendants, and the trustee first learned of the Florida action on December 13, 1991. This court, on December 16, 1991, commenced a hearing on the trustee's "Motion On Short Notice Pursuant To Bankruptcy Rule 9006(c) For Order Enforcing The Section 362 Stay Against The FDIC."3 The FDIC, on the same day, pursuant to 28 U.S.C. § 157(d)4, filed with the United States District Court for the District of Connecticut a motion to withdraw to the District Court the contested matter commenced by the trustee's motion. The District Court (Honorable Jose A. Cabranes), after hearing, denied the motion, and the hearing before the bankruptcy court continued.5 The trustee argued that fraudulent conveyance actions asserted in the Florida action are property of the debtors' estate over which the bankruptcy court has exclusive jurisdiction and that the statutory automatic stay provisions apply to the FDIC.
In contending that it is not subject to the automatic stay, the FDIC relies upon the following provisions contained in § 2528 of the Comprehensive Crime Control Act of 1990, 104 Stat. 4789 (1990), 12 U.S.C. § 1821(d)(17) (West Supp.1991).
The FDIC further contends that the bankruptcy court lacks jurisdiction to make any determination because of the limitations in 12 U.S.C. § 1821(d)(13)(D) and § 1821(j).6
In alternative arguments, the trustee (1) denies that these statutes modify the requirements of the automatic stay, (2) contends that the rights of the debtors' estates were in place prior to the enactment or effective date of 12 U.S.C. § 1821(d)(17) and its provisions do not have retroactive effect; and (3) that if applicable to this estate, the statute would be in violation of the Fifth Amendment to the United States Constitution. As the court sustains the trustee's position on the applicability of the automatic stay, his remaining contentions are not addressed.
All appearing parties, except the FDIC, support the trustee's position. At the hearing, the trustee and Stuart Bear, Esq., attorney for all of the defendants in the Florida action, submitted for court approval a "Stipulation" by those defendants which states, inter alia, "Defendants have a desire to cooperate with the trustee in the recovery of assets" and they will not transfer any assets without a three-day "prior written notice by hand delivery to the Bankruptcy Court, to the United States Trustee and to the Trustee."
The bankruptcy court upon reference of Title 11 cases by the district court pursuant to 28 U.S.C. § 157(a), has "exclusive jurisdiction of all the property wherever located of the debtor, as of the commencement of such case, and of property of the estate." 28 U.S.C. § 1334(d). It is well settled that fraudulent conveyance actions based upon prepetition transfers by a debtor are property of the estate; that the estate trustee has...
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