Robert Utzler v. John A. Braca, Jr. et al. (2010)

MEMORANDUM OF DECISION APPLICATION FOR TURNOVER ORDER RE BANKRUPTCY COURT CLAIM OF HOMES OF WESTPORT, LLC

The judgment creditor-plaintiff, Robert Utzler, has filed an application for turnover of the claim Homes of Westport, LLC, has asserted in a Chapter 11 bankruptcy case, In re Quality Landscaping, case number 09-51133, pending in the District of Connecticut.¹  Homes of Westport, LLC, has filed a proof of claim pursuant to 11 USC § 501(a) against the debtor, Quality Landscaping, in the amount of $155,956.76.   The question presented to the court is whether a court-ordered transfer of a bankruptcy claim is a violation of the automatic stay provisions of 11 USC § 362.

In the original lawsuit between the parties before this court, the plaintiff Utzler sought damages against the defendants, John A. Braca, Jr., his wife, Patricia Braca and John A. Braca, Jr.'s alter ego entities, Homes of Westport, LLC, Homes of Fairfield, LLC and the Braca Family Trust, LLC, for breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, conversion, statutory theft and a violation of the Connecticut Unfair Trade Practices Act (“CUTPA”).   On April 25, 2008, the court (Tyma, J.) entered judgment in favor of the plaintiff as against John A. Braca, Jr. for fraud, intentional misrepresentation, violation of CUTPA, breach of fiduciary duty and breach of contract.   The court awarded the plaintiff compensatory damages in the amount of $500,000 plus $140,000 in punitive damages and attorneys fees.  Utzler v. Braca, 115 Conn.App. 261, 271-72, 972 A.2d 743, 752 (2009).   Braca appealed the trial court's decision and a subsequent postjudgment decision by the court (Cocco, J.T.R.), allowing the plaintiff's attachment to remain on the assets of Braca's alter ego, Homes of Westport, LLC, while Braca's appeal was pending.   Subsequently, the Appellate Court affirmed the judgment and the post-judgment decision of Cocco, J., and affirming that the various business entities were the alter egos of Braca, Jr. Utzler v. Braca, supra, 115 Conn.App. 264.

Section 362(a) of Title 11 of the United States Code stays the commencement or continuation of virtually all proceedings against a debtor, including enforcement of judgments, that were or could have been commenced before the debtor filed for bankruptcy.   To the extent relevant here, § 362(a) provides:

(a) Except as provided in subsection (b) of this section, a petition filed ․ operates as a stay, applicable to all entities, of-

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate ․

11 U.S.C. § 362(a).

The general policy behind this section is to grant complete, immediate, albeit temporary relief to the debtor from creditors, and also to prevent dissipation of the debtor's assets before orderly distribution to creditors can be effected.   In addition, the automatic stay provision is intended “to allow the bankruptcy court to centralize all disputes concerning property of the debtor's estate so that reorganization can proceed efficiently, unimpeded by uncoordinated proceedings in other arenas.”

(Internal citations and quotation marks omitted) S.E.C. v. Brennan, 230 F.3d 65, 70 (2nd Cir.2000).

“Section 362 of the Bankruptcy Code provides that the filing of a petition in bankruptcy automatically stays certain actions directed against the debtor or against the debtor's property.   The automatic stay provisions promote two principal purposes of the Bankruptcy Code. First, the automatic stay “provides the debtor with a breathing spell from his creditors.   In addition, the automatic stay allows the bankruptcy court to centralize all disputes concerning property of the debtor's estate in the bankruptcy court so that reorganization can proceed efficiently, unimpeded by uncoordinated proceedings in other arenas.   The Bankruptcy Code provide[s] for centralized jurisdiction and administration of the debtor, its estate and its reorganization in the Bankruptcy Court, and [this policy] is effectuated by Sections 362 and 105 of the Code.”

(Internal citations and quotation marks omitted.)  In Re Ionosphere Clubs, Inc., 922 F.2d 984 (2nd Cir.1990), cert. denied, 502 U.S. 808 (2001).

Quality Landscaping is the debtor-in-possession in the Chapter 11 bankruptcy case.   Quality Landscaping has continued its business operation and will submit a plan or reorganization that provide for the payment of claims of creditors in the case.   Neither Quality Landscaping, as debtor, nor any other party of interest in the bankruptcy case has objected to the bankruptcy claim of Homes of Westport.  Section 502(a) of the Bankruptcy Code provides:  “A claim ․ proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest ․ objects.”   Because the Bankruptcy Claim is an allowed claim under 11 USC § 502(a), the holder of such claim is entitled to vote to accept or reject the plan of reorganization proposed by the debtor.   See. 11 USC § 1126(a).

The plaintiff, Utzler, argues that important rights are at issue in the transfer of the claim that Homes of Westport currently holds in the bankruptcy case.   Braca's alter ego, Homes of Westport, has a claim against Quality Landscaping that is significantly less than the amount owed to Utzler under the judgment in this action.   Utzler has more of an interest in pursuing or maximizing the bankruptcy claim than Braca.   In addition, Braca has had a history in this matter of attempting to prevent Utzler from being paid the debt he is owed by Braca and his alter ego defendants.   Utzler argues that because the holder of an allowed bankruptcy claim is entitle to vote on the debtor's plan of reorganization, it is essential that he have Home of Westport's claim transferred to him, so that he can participate in that process and not be left at “Mr. Braca's mercy.”   The court agrees.

The transfer of claims in a bankruptcy case do not violate the automatic stay provision of 11 USC § 362(a).²  See, In re R & L Engineering Co., 182 F.Sup. 317, 319 (S.D.Cal.1960).  “Rule 3001(e)(4) applies to involuntary as well as, voluntary transfers.”  In re Infiltrator Systems, Inc., 251 B.R. 773, 776 (Bankr.D.Conn.2000), (citing 9 Collier on Bankruptcy ¶ 3001.08[1][d] (Lawrence P. King ed. 15th ed.   Rev.2000)).

The court has statutory authority to transfer assets from a judgment debtor to a judgment creditor.   The bankruptcy claim of Homes of Westport, LLC, the alter ego of John Braca, Jr. is an asset of the judgment debtor, which can be transferred to the judgment creditor Utzler.   Accordingly, the court grants Utzler's request and orders that the bankruptcy claim of Homes of Westport, LLC in the case of In re Quality Landscaping shall be transferred by Homes of Westport, LLC to, and for the benefit, of Robert Utzler.

THE COURT

By Judge Richard E. Arnold

FOOTNOTES

FN1. The Superior Court (Hiller, J.), in this action, has granted an attachment to Utzler on the chose in action Homes of Westport, LLC v. Quality Landscaping, Inc., Superior Court, judicial district of Fairfield at Bridgeport, Docket No. FBT-CV06-5003843.   That action has been subject to a stay due to the Quality Landscaping bankruptcy petition.   11 USC § 362.   Homes of Westport, LLC has not sought relief from the automatic stay to proceed with its action..  FN1. The Superior Court (Hiller, J.), in this action, has granted an attachment to Utzler on the chose in action Homes of Westport, LLC v. Quality Landscaping, Inc., Superior Court, judicial district of Fairfield at Bridgeport, Docket No. FBT-CV06-5003843.   That action has been subject to a stay due to the Quality Landscaping bankruptcy petition.   11 USC § 362.   Homes of Westport, LLC has not sought relief from the automatic stay to proceed with its action.

FN2. Federal Rule of Bankruptcy Procedures-Rule 3001.   Proof of Claim reads in relevant part:(e) TRANSFERRED CLAIM.(1) Transfer of claim other than for security before proof filed.   If a claim has been transferred other than for security before proof of the claim has been filed, the proof of claim may be filed only by the transferee or an indenture trustee.(2) Transfer of Claim Other than for Security after Proof Filed.   If a claim other than one based on a publicly traded note, bond, or debenture has been transferred other than for security after the proof of claim has been filed, evidence of the transfer shall be filed by the transferee.   The clerk shall immediately notify the alleged transferor by mail of the filing of the evidence of transfer and that objection thereto, if any, must be filed within 21 days of the mailing of the notice or within any additional time allowed by the court.   If the alleged transferor files a timely objection and the court finds, after notice and a hearing, that the claim has been transferred other than for security, it shall enter an order substituting the transferee for the transferor.   If a timely objection is not filed by the alleged transferor, the transferee shall be substituted for the transferor.(3) Transfer of claim for security before proof filed.   If a claim other than one based on a publicly traded note, bond, or debenture has been transferred for security before proof of the claim has been filed, the transferor or transferee or both may file a proof of claim for the full amount.   The proof shall be supported by a statement setting forth the terms of the transfer.   If either the transferor or the transferee files a proof of claim, the clerk shall immediately notify the other by mail of the right to join in the filed claim.   If both transferor and transferee file proofs of the same claim, the proofs shall be consolidated.   If the transferor or transferee does not file an agreement regarding its relative rights respecting voting of the claim, payment of dividends thereon, or participation in the administration of the estate, on motion by a party in interest and after notice and a hearing, the court shall enter such orders respecting these matters as may be appropriate.(4) Transfer of Claim for Security after Proof Filed.   If a claim other than one based on a publicly traded note, bond, or debenture has been transferred for security after the proof of claim has been filed, evidence of the terms of the transfer shall be filed by the transferee.   The clerk shall immediately notify the alleged transferor by mail of the filing of the evidence of transfer and that objection thereto, if any, must be filed within 21 days of the mailing of the notice or within any additional time allowed by the court.   If a timely objection is filed by the alleged transferor, the court, after notice and a hearing, shall determine whether the claim has been transferred for security.   If the transferor or transferee does not file an agreement regarding its relative rights respecting voting of the claim, payment of dividends thereon, or participation in the administration of the estate, on motion by a party in interest and after notice and a hearing, the court shall enter such orders respecting these matters as may be appropriate.(5) Service of objection or motion;  notice of hearing.   A copy of an objection filed pursuant to paragraph (2) or (4) or a motion filed pursuant to paragraph (3) or (4) of this subdivision together with a notice of a hearing shall be mailed or otherwise delivered to the transferor or transferee, whichever is appropriate, at least 30 days prior to the hearing..  FN2. Federal Rule of Bankruptcy Procedures-Rule 3001.   Proof of Claim reads in relevant part:(e) TRANSFERRED CLAIM.(1) Transfer of claim other than for security before proof filed.   If a claim has been transferred other than for security before proof of the claim has been filed, the proof of claim may be filed only by the transferee or an indenture trustee.(2) Transfer of Claim Other than for Security after Proof Filed.   If a claim other than one based on a publicly traded note, bond, or debenture has been transferred other than for security after the proof of claim has been filed, evidence of the transfer shall be filed by the transferee.   The clerk shall immediately notify the alleged transferor by mail of the filing of the evidence of transfer and that objection thereto, if any, must be filed within 21 days of the mailing of the notice or within any additional time allowed by the court.   If the alleged transferor files a timely objection and the court finds, after notice and a hearing, that the claim has been transferred other than for security, it shall enter an order substituting the transferee for the transferor.   If a timely objection is not filed by the alleged transferor, the transferee shall be substituted for the transferor.(3) Transfer of claim for security before proof filed.   If a claim other than one based on a publicly traded note, bond, or debenture has been transferred for security before proof of the claim has been filed, the transferor or transferee or both may file a proof of claim for the full amount.   The proof shall be supported by a statement setting forth the terms of the transfer.   If either the transferor or the transferee files a proof of claim, the clerk shall immediately notify the other by mail of the right to join in the filed claim.   If both transferor and transferee file proofs of the same claim, the proofs shall be consolidated.   If the transferor or transferee does not file an agreement regarding its relative rights respecting voting of the claim, payment of dividends thereon, or participation in the administration of the estate, on motion by a party in interest and after notice and a hearing, the court shall enter such orders respecting these matters as may be appropriate.(4) Transfer of Claim for Security after Proof Filed.   If a claim other than one based on a publicly traded note, bond, or debenture has been transferred for security after the proof of claim has been filed, evidence of the terms of the transfer shall be filed by the transferee.   The clerk shall immediately notify the alleged transferor by mail of the filing of the evidence of transfer and that objection thereto, if any, must be filed within 21 days of the mailing of the notice or within any additional time allowed by the court.   If a timely objection is filed by the alleged transferor, the court, after notice and a hearing, shall determine whether the claim has been transferred for security.   If the transferor or transferee does not file an agreement regarding its relative rights respecting voting of the claim, payment of dividends thereon, or participation in the administration of the estate, on motion by a party in interest and after notice and a hearing, the court shall enter such orders respecting these matters as may be appropriate.(5) Service of objection or motion;  notice of hearing.   A copy of an objection filed pursuant to paragraph (2) or (4) or a motion filed pursuant to paragraph (3) or (4) of this subdivision together with a notice of a hearing shall be mailed or otherwise delivered to the transferor or transferee, whichever is appropriate, at least 30 days prior to the hearing.

Arnold, Richard E., J.