Matter of Silverman

• Court: U.S. District Court — District of New Jersey
• Writing for the Court: DEBEVOISE
• Citation: Matter of Silverman, 6 B.R. 991 (D. N.J. 1980)
• Decision Date: 14 October 1980
• Docket Number: 78-3122.,Bankruptcy No. 78-3121
• Parties: In the Matter of Irving SILVERMAN, Bankrupt. In the Matter of Dorothy SILVERMAN, Bankrupt. Edward A. GENZ, Trustee, Plaintiff, v. HALLMARK CARDS, INC., Lionel Solomon and Sheila Solomon, State of New Jersey, Beach Haven National Bank & Trust Co., and Gibson Greeting Cards, Inc., Defendants. GIBSON GREETING CARDS, INC., Plaintiff, v. Edward A. GENZ, Trustee, Defendant. HALLMARK CARDS, INC., Plaintiff, v. Edward A. GENZ, Trustee, Defendant.

6 B.R. 991 (1980)

In the Matter of Irving SILVERMAN, Bankrupt.

In the Matter of Dorothy SILVERMAN, Bankrupt.

Edward A. GENZ, Trustee, Plaintiff, v. HALLMARK CARDS, INC., Lionel Solomon and Sheila Solomon, State of New Jersey, Beach Haven National Bank & Trust Co., and Gibson Greeting Cards, Inc., Defendants.

GIBSON GREETING CARDS, INC., Plaintiff, v. Edward A. GENZ, Trustee, Defendant.

HALLMARK CARDS, INC., Plaintiff, v. Edward A. GENZ, Trustee, Defendant.

Bankruptcy Nos. 78-3121, 78-3122.

United States District Court, D. New Jersey.

October 14, 1980.

Edward A. Genz, Manasquan, N.J., Blankenhorn & Ragan, Asbury Park, N.J., for Edward A. Genz, Trustee.

Alan C. Sugarman, Asbury Park, N.J., for all other parties.

OPINION

DEBEVOISE, District Judge.

Gibson Greeting Cards, Inc. and Hallmark Cards, Inc. appeal from an order of the United States Bankruptcy Court granting a superior lien to the Trustee in Bankruptcy in the real property of the bankrupts, Mr. and Mrs. Irving Silverman, located at 45 Flipper Avenue, Manahawkin, New Jersey and granting leave to the Trustee to proceed with sale.

Gibson and Hallmark contend they have valid and superior liens in the Silvermans' real property because they executed on judgments more than four months before the adjudication of bankruptcy. The Trustee in Bankruptcy, however, argues that the appellants' executions were void because the Sheriff levied on the judgment debtors' real property before a good faith attempt had been made to locate and levy upon their personalty, in contravention of New Jersey law. The Trustee further claims that as a hypothetical judgment creditor, pursuant to Section 70 of the Bankruptcy Act of 1938, 11 U.S.C. § 110, he has a superior lien in the property. The sole issue on review is whether the Bankruptcy Judge properly determined the appellants' execution to be void under New Jersey law.¹

On June 22, 1977, Gibson Greeting Cards, Inc. obtained a default judgment in the amount of $10,503.71 against Irving and Dorothy Silverman in the Superior Court of New Jersey, Law Division, Ocean County. On August 8, 1977, Hallmark Cards, Inc. obtained a judgment against the Silvermans for $43,670.43 in the same court. Subsequent to obtaining their judgments, Gibson and Hallmark obtained standard writs of execution from the Superior Court, issued on July 12, 1977 and August 23, 1977 respectively. These writs directed the Sheriff of Ocean County to

satisfy the said judgment out of the personal property of the said judgment debtor within your County; or if sufficient personal property cannot be found, then out of the real property in your County belonging to such judgment debtor.

Gibson's writ of execution was returned by the Sheriff unsatisfied, with the following notation:

Kindly forward description of assets you wish us to levy upon, also advise if you wish us to levy upon real property at the same time. Charge $25.00 plus mileage, statement & return.

The Hallmark writ, the appellants contend, was never delivered to the Sheriff for execution at all.²

The appellants then sought and obtained an order of discovery of the Silvermans' assets from the Superior Court of New Jersey, pursuant to Rules 4:59-1(d)³ and 6:7-2(a)⁴ of the New Jersey Court Rules. Examination of the debtors was originally scheduled for January 26, 1978 but was periodically postponed, at the request of the Silvermans, until August 23, 1978.

On August 16, 1978, before examination of the debtors, Gibson and Hallmark caused to be issued from the Superior Court of New Jersey two alias writs. The appellants claim that these writs were not delivered to the Sheriff for execution until August 23, 1978, after the examination in aid of judgment had been completed.⁵

The August 23 examination was conducted by Attorney Kathleen Wall upon standard form interrogatories prepared by her law firm. Mr. Silverman advised her at the time, Attorney Wall testified by affidavit, "that the information that he was giving me applied to his wife as well as to himself and that the responses he gave to the questions directed toward him applied to his own financial status as well as to that of his wife."

The appellants' standard form interrogatories, which have been submitted as part of the record on appeal, contain no generalized question as to the personal property owned by the debtor. The interrogatories do, however, contain numerous particular questions about the debtor's ownership of such personalty as motor vehicles, other vehicles or trailers, aircraft, firearms, coin or stamp collections, tools or equipment, sporting goods or equipment, paintings or other art objects, interests in businesses, bank accounts, securities, patents or copyrights, and insurance policies. Notably missing from the interrogatories are inquiries into the debtor's cash on hand and ownership of furniture, appliances, and other household goods. The interrogatories appear to have been thoroughly and conscientiously covered. Virtually all areas in which information was not forthcoming were marked "NO" or "N/A." The inference can be drawn, therefore, that Attorney Wall addressed all the questions contained in the interrogatories in her examination of Mr. Silverman.

The appellants have submitted for consideration by this Court on review an affidavit made by Attorney Kathleen Wall on September 8, 1980 supplementing the information contained in the record about the scope of her inquiry into the Silvermans' personal property. The Trustee in Bankruptcy objects to the affidavit on the ground that the District Court should not consider on review any evidence not before the Bankruptcy Court at the original hearing. This is indeed the law, In Re MidCenter Redevelopment Corp., 383 F.Supp. 954, 957 n. 3 (D.N.J.1974),⁶ and the affidavit will not be considered here.

On August 23, 1978, presumably after the conclusion of the Silvermans' examination, the appellants forwarded the alias writs of execution, issued upon August 16, 1978, to the Sheriff of Ocean County with explicit instructions to levy upon the real property located at 45 Flipper Avenue, Manahawkin. On August 28th, 1978, the appellants sent the following letter to the Sheriff in connection with the Gibson and Hallmark levies:

Gentlemen: Pursuant to your request of this date, please be advised that we conducted a Supplementary Proceeding in this matter and ascertained that there is no personal property of the Defendant, and you are therefore instructed to issue Execution on the real property pursuant to our letters of August 23rd, 1978.

On August 28, 1978, the record indicates, the Sheriff did levy upon the debtors' real property and filed the execution with the Superior Court. On November 29, 1978, the Sheriff levied upon personal property contained in the Silvermans' house, including a refrigerator, washer, dryer, living room sofa, and other household furniture and appliances. This execution was also filed with the Superior Court.

On December 22, 1978, Mr. and Mrs. Silverman were adjudicated bankrupts, having filed Voluntary Petitions under Chapter III of the Bankruptcy Act, 11 U.S.C. §§ 21-35. The Trustee in Bankruptcy thereby acquired title to the property at 45 Flipper Avenue and filed a complaint returnable April 23, 1979 ordering all defendants, including Gibson and Hallmark, to prove their liens. On April 24, 1979, Gibson and Hallmark each filed complaints to fix their liens and for a judgment permitting them to sell the real estate.

After considering the claims of all the parties, the Bankruptcy Court held that, because the Sheriff executed upon the real property before exhausting the personal property of the debtors, and because discovery was held after the writs of execution were issued rather than before, the appellants' executions were void under Raniere v. I & M Investments, Inc., 159 N.J.Super. 329, 387 A.2d 1254 (1978), aff'd, 172 N.J.Super. 206, 411 A.2d 719 (1980). The Bankruptcy Court further ruled that, under Section 70(c) of the Bankruptcy Act, 42 U.S.C. § 110, the Trustee in Bankruptcy held in the bankrupts' property the rights not only of a hypothetical judgment creditor but of a hypothetical levying judgment creditor as well. Matter of Blease, 605 F.2d 97 (3rd Cir. 1979). Under the New Jersey law of lien priority, therefore, which is the applicable law in bankruptcy proceedings, Carina Mercury, Inc. v. Igaravides, 344 F.2d 397 (3rd Cir. 1965), the Trustee obtained a lien superior to that of the appellants, and the Bankruptcy Court permitted him to proceed with sale.

Gibson and Hallmark assert that the Bankruptcy Court erred in holding that Raniere v. I & M Investments, Inc. required the invalidation of their executed liens in the Silvermans' real property. Interpreting N.J.S.A. 2A:17-1,⁷ the Superior Court in Raniere held that:

an execution sale against realty held without a prior, good faith attempt to locate, levy upon and execute against personalty of the judgment debtor located within the county is in direct violation of the positive command of the legislature and is therefore void. (cite omitted). The vendee at such a sale, although a bona fide purchaser for value, acquires absolutely no title thereby. In order to satisfy the requirements of N.J.S.A. 2A:17-1 the judgment creditor or his attorney must make a good faith attempt to ascertain the location of the debtor\'s personalty within the county and supply this information to the sheriff along with the writ of execution. Before levying and executing on the debtor\'s realty the sheriff must return a writ of nulla bona, certifying that he has made a strict and diligent search and has been unable to locate any personalty of the debtor within the county. Id. 159 N.J.Super. at 337-38, 387 A.2d 1254.

The appellants argue that Raniere should not be determinative in their case because it dealt with an execution sale made before any attempt had been made to locate or levy upon personalty. Here, the appellants...