In Re French Bourekas, Inc.

175 B.R. 517, 1994 Bankr. LEXIS 2131, 26 Bankr. Ct. Dec. (CRR) 445, 1994 WL 700295
United States Bankruptcy Court, S.D. New York·Decided December 13, 1994·No. 19-35056·Published·Cited by 16 cases

Opinion

AMENDED DECISION ON SANCTIONS 1

TINA L. BROZMAN, Bankruptcy Judge.

Once in a long while an attorney for the debtor in possession in a chapter 11 case, who is an officer of the court, engages in *519 conduct which is sufficiently violative of that relationship that sanctions must be imposed so as to preserve the integrity of the bankruptcy process. This is such a ease.

I.

The sanctionable conduct arises from statements made by attorney Gerard Zwirn on the record on September 20, 1994. To understand why I am granting the request for sanctions, one must place those statements within the debtor’s course of conduct as a whole. Therefore, I will lay out the background, which is undisputed, in some detail 2 .

The relevant history begins in February, 1988, when the predecessor of United Capital Corporation (“UCC”) 3 sold certain premises to 183 Lorraine Street Associates (“LSA”), landlord of the debtor, French Bourekas, Inc. (“Bourekas”). To secure payment of part of the purchase price, UCC’s predecessor was granted a mortgage on the building. Boure-kas occupies space there pursuant to a lease executed after the granting of the mortgage and which specifically subordinates Boure-kas’ estate to the lien of the mortgage.

UCC instituted a foreclosure action against LSA in state court in June, 1990, without naming as a defendant Bourekas, of whose existence UCC was then ignorant. UCC moved successfully for summary judgment and a referee was immediately appointed to compute the amount of the debt owing. Just prior to the filing of the motion, UCC had learned of Bourekas’ tenancy, although it did not seek to add Bourekas as a party defendant prior to submitting the motion for decision.

Apparently rethinking its decision not to foreclose Bourekas’ tenancy, after the summary judgment had been granted UCC sought an order seeking permission to add Bourekas as a defendant and to serve a supplemental summons and amended verified complaint of foreclosure. In January, 1992, the state court granted the motion.

As soon as the order was issued joining Bourekas as a defendant, Bourekas commenced a separate action in state court against UCC. Seeking a preliminary injunction, Bourekas contended that because UCC had already obtained a foreclosure judgment (an assertion which was erroneous, UCC having received only an order granting summary judgment), and because Bourekas had not been served with process in that action, the state court was without jurisdiction to grant UCC’s application to add Bourekas as a party subsequent to judgment.

The state court took a decidedly different view of things, holding that its order was not a judgment, denying Bourekas’ request for injunctive relief, and treating UCC’s opposition as a cross motion for dismissal, which it granted. French Bourekas, Inc. v. United Capital Corp., et al., Kings Co. Index No. 3133/92. Bourekas filed a notice of appeal and unsuccessfully sought a stay of the foreclosure action from the appellate division. After perfecting its appeal, Bourekas asked the appellate division for a preference, which request was also denied. (It should be noted that in June, 1994, the appellate division unanimously affirmed the lower court’s order dismissing Bourekas’ action for an injunction.)

Having met with no success in its effort to prevent the foreclosure proceeding which would terminate its tenancy, Bourekas duly answered the amended verified foreclosure complaint, asserting a variety of defenses including that foreclosure should not be permitted because of UCC’s predecessor’s storage of hazardous waste at the premises now occupied by Bourekas. This, claimed Boure-kas, constituted illegality, unclean hands and unconscionable conduct such that foreclosure should not be granted. In addition, Boure-kas asked for judgment for $200,000 repre *520 senting its costs for improvements, fixtures, repairs and other expenses and the imposition of an equitable lien in that amount. On January 20,1993, Justice Shaw issued a decision dismissing Bourekas’ defenses and counterclaims and granting summary judgment to UCC. He noted that Bourekas offered no proof that the premises had been permeated by hazardous, toxic waste and that, in any event, Bourekas could not equitably challenge the mortgage since (1) it was not in privity of estate or contract with UCC because its lease was executed after the mortgage was granted and (2) the grounds asserted by Bourekas were personal to the parties to the mortgage. Further he held that Bourekas’ lease provided that fixtures installed by the tenant became property of LSA, disabling Bourekas from recovering for their loss. Justice Shaw did, however, deny UCC’s motion for confirmation of the referee’s report because Bourekas was not present at the hearing. Noting that Bourekas had the equity of redemption, which, of course, made it an interested party in the amount due UCC, he ordered a new hearing and a new report.

Needless to say, issuance of the order for summary judgment against Bourekas did not squelch Bourekas’ efforts. Bourekas appealed and followed that action with the filing of a Chapter 11 petition in the Southern District of New York on July 6, 1993. Postpetition, but without seeking relief from the automatic stay imposed by the filing of the chapter 11 case, Bourekas perfected its appeal of the order granting summary judgment against Bourekas. That order was also affirmed by the appellate division in June, 1994.

Free access — add to your briefcase to read the full text and ask questions with AI

In Re French Bourekas, Inc., 175 B.R. 517, 1994 Bankr. LEXIS 2131, 26 Bankr. Ct. Dec. (CRR) 445, 1994 WL 700295 (N.Y. 1994).

175 B.R. 517 (In Re French Bourekas, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

Related

Gordon v. Tese-Milner (In re Gordon)
577 B.R. 38 (S.D. New York, 2017)
In re Saint Vincents Catholic Medical Centers
506 B.R. 387 (S.D. New York, 2014)
Kramer ex rel. Estate of Khan v. Mahia (In re Khan)
488 B.R. 515 (E.D. New York, 2013)
In Re Davy
345 B.R. 337 (D. Colorado, 2006)
In Re Gorshtein
285 B.R. 118 (S.D. New York, 2002)
In Re Kliegl Bros. Universal Elec. Stage Lighting
238 B.R. 531 (E.D. New York, 1999)
Waller v. Kriss (In Re Kriss)
217 B.R. 147 (S.D. New York, 1998)
Matter of 183 Lorraine Street Associates
198 B.R. 16 (E.D. New York, 1996)
French Bourekas Inc. v. Turner
199 B.R. 807 (E.D. New York, 1996)
In Re Spectee Group, Inc.
185 B.R. 146 (S.D. New York, 1995)
In Re 72nd Street Realty Associates
185 B.R. 460 (S.D. New York, 1995)
In Re French Bourekas, Inc.
183 B.R. 695 (S.D. New York, 1995)
In Re Eatman
182 B.R. 386 (S.D. New York, 1995)