RULING ON OBJECTION TO NOTICE OF TRANSFER OF CLAIM FOR SECURITY PURSUANT TO FED. R.BANKP. 3001(e) (I)
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
I.
ISSUE
At issue in this proceeding is whether a foreign judgment creditor of a claimant who has filed a proof of claim in the debt- or’s estate may utilize Fed.R.Bankr.P. 3001(e)(4)
to effectuate a transfer for security of the claimant’s claim to the judgment creditor. The parties have submitted the matter upon a stipulation of facts and briefs. The court, in resolving this issue, also necessarily decides whether a holder of a foreign judgment can create in Connecticut a valid judgment lien on personalty without first making the foreign judgment a Connecticut judgment.
II.
BACKGROUND
Mi-Lyn, Inc. (“the claimant”) timely filed an amended proof of claim in the
amount of $1,381,000 in the Chapter 11 case of Infiltrator Systems, Inc. (“the debt- or”). The proof of claim is based upon asserted damages
arising from the failure of a drainage system, manufactured by the debtor, at a construction project in Boca Raton, Florida (“the project”). The claimant was a subcontractor on the project, at which Mike Carter Construction, Inc. (“Carter”) was the general contractor.
Carter brought suit in Florida against the claimant for breach of contract due to the drainage system failure, and, on November 1, 1999, Carter received a judgment against the claimant for $682,925.90. While an appeal of the judgment by both parties remains pending in the Florida courts, there is no stay of execution of the judgment since the claimant posted no bond.
Carter, on May 22, 2000, filed a “Judgment Lien Certificate” with the office of the Connecticut Secretary of the State, pursuant to Conn.Gen.Stat. § 52-355a.
On May 23, 2000, Carter filed a “Notice of Transfer of Claim Pursuant To Rule 3001(e)(4)” (“the Notice”) with the clerk of the bankruptcy court. The Notice stated that the transfer was for security purposes, pursuant to a judgment lien certificate, a copy of which was attached.
The claimant’s amended proof of claim includes $700,000 for the Carter judgment, $150,000 for monies due from Carter under the subcontract, and $230,000 for lost profits claimed by the project owner. Under an insurance contract with a predecessor of St. Paul Fire & Marine Insurance Company (“St.Paul”) Carter, on or about September 11, 1997, received $594,000 from St. Paul, based upon the failed drainage system. Carter simultaneously assigned any claim it held arising from the project to St. Paul. Thereafter, St. Paul sued Carter in Florida to recover the $594,000 in an action which remains pend
ing. Carter, on January 28, 2000, filed a proof of claim in the debtor’s estate, to which the debtor has filed an objection on the basis,
inter alia,
of timeliness of filing.
III.
DISCUSSION
A
The claimant’s brief contends that the court should disallow the transfer of its proof of claim to Carter as “not permissible under Rule 3001(e)(4)” for a number of reasons. (Claimant’s Brief at 2.) The claimant does not argue that Rule 3001(e)(4) is limited to voluntary transfers, inasmuch as the rule does not mention involuntary transfers. There appears to be no ease law directly on point, but a bankruptcy court has ruled that a Chapter 11 trustee was not subject to garnishment by a judgment creditor of a creditor or equity security holder and that the exclusive remedy of the judgment creditor would be to proceed according to the requirements of Rule 3001.
See NVLand, Inc. v. Vogel (In re Ocean Downs Racing Association, Inc.),
164 B.R. 249, 256 (Bankr.D.Md.1993) (“Bankruptcy Rule 3001 applies to substitution of claims by holders of judgments obtained against claimants in a bankruptcy case. While the rule appears to address only voluntary assignments and transfers of claims in a bankruptcy estate, the term ‘transfer’, as defined in Section 101(54) of the Bankruptcy Code, includes ‘every mode, direct or indirect, absolute or conditional,
voluntary or involuntary,
of disposing of or parting with property or with an interest in property.’ ”) (emphasis in original).
See also
9
Collier on Bankruptcy
¶ 3001.08[l][d] (Lawrence P. King ed., 15th ed. rev.2000) (although R. 3001(e) “does not on its face mention the involuntary transfer of a claim (e.g., by levy and execution) ... such an involuntary transfer would be governed by the rule.”). Taking into account this authority, the persuasive reasoning of the
Ocean Downs
court and the lack of any objection from the claimant, the court concludes Rule 3001(e)(4) applies to involuntary as well as voluntary transfers.
B.
The claimant’s objection to the transfer primarily focuses on whether and to what extent the liability of the claimant under the Florida judgment is affected by Carter’s assignment of its claim to St. Paul. However, the court need not reach that issue because the claimant also questions the validity under Connecticut law of the judgment lien.
The 1991 Advisory Committee Note to Rule 3001(e) describes the court’s function following an objection to a notice of transfer. “If a timely objection is filed, the court’s role is to determine whether a transfer has been made that is enforceable under nonbankruptcy law. This rule is not intended ... to affect any remedies otherwise available under nonbankruptcy law to a transferor or transferee.... ”
Under Connecticut law, a judgment creditor who brings into Connecticut a foreign judgment can either register the judgment under the Uniform Enforcement of Foreign Judgments Act
or commence
an independent action to establish that judgment as a Connecticut judgment.
See Burchett v. Roncari,
181 Conn. 125, 129, 434 A.2d 941 (1980). Until one or the other of these procedures is employed, the foreign judgment is in limbo. “The full faith and credit clause ... does not make a sister-State judgment a judgment in another state.... To give it the force of a judgment in another state [a foreign judgment] must be made a judgment there.”
Krueger v. Krueger,
179 Conn. 488, 491, 427 A.2d 400 (1980) (citation and internal quotation marks omitted). Carter does not claim either to have filed an independent Connecticut action on the judgment or to have filed its Florida judgment with a Connecticut court for enforcement of the judgment, in accordance with Conn.Gen. Stat.
Free access — add to your briefcase to read the full text and ask questions with AI
RULING ON OBJECTION TO NOTICE OF TRANSFER OF CLAIM FOR SECURITY PURSUANT TO FED. R.BANKP. 3001(e) (I)
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
I.
ISSUE
At issue in this proceeding is whether a foreign judgment creditor of a claimant who has filed a proof of claim in the debt- or’s estate may utilize Fed.R.Bankr.P. 3001(e)(4)
to effectuate a transfer for security of the claimant’s claim to the judgment creditor. The parties have submitted the matter upon a stipulation of facts and briefs. The court, in resolving this issue, also necessarily decides whether a holder of a foreign judgment can create in Connecticut a valid judgment lien on personalty without first making the foreign judgment a Connecticut judgment.
II.
BACKGROUND
Mi-Lyn, Inc. (“the claimant”) timely filed an amended proof of claim in the
amount of $1,381,000 in the Chapter 11 case of Infiltrator Systems, Inc. (“the debt- or”). The proof of claim is based upon asserted damages
arising from the failure of a drainage system, manufactured by the debtor, at a construction project in Boca Raton, Florida (“the project”). The claimant was a subcontractor on the project, at which Mike Carter Construction, Inc. (“Carter”) was the general contractor.
Carter brought suit in Florida against the claimant for breach of contract due to the drainage system failure, and, on November 1, 1999, Carter received a judgment against the claimant for $682,925.90. While an appeal of the judgment by both parties remains pending in the Florida courts, there is no stay of execution of the judgment since the claimant posted no bond.
Carter, on May 22, 2000, filed a “Judgment Lien Certificate” with the office of the Connecticut Secretary of the State, pursuant to Conn.Gen.Stat. § 52-355a.
On May 23, 2000, Carter filed a “Notice of Transfer of Claim Pursuant To Rule 3001(e)(4)” (“the Notice”) with the clerk of the bankruptcy court. The Notice stated that the transfer was for security purposes, pursuant to a judgment lien certificate, a copy of which was attached.
The claimant’s amended proof of claim includes $700,000 for the Carter judgment, $150,000 for monies due from Carter under the subcontract, and $230,000 for lost profits claimed by the project owner. Under an insurance contract with a predecessor of St. Paul Fire & Marine Insurance Company (“St.Paul”) Carter, on or about September 11, 1997, received $594,000 from St. Paul, based upon the failed drainage system. Carter simultaneously assigned any claim it held arising from the project to St. Paul. Thereafter, St. Paul sued Carter in Florida to recover the $594,000 in an action which remains pend
ing. Carter, on January 28, 2000, filed a proof of claim in the debtor’s estate, to which the debtor has filed an objection on the basis,
inter alia,
of timeliness of filing.
III.
DISCUSSION
A
The claimant’s brief contends that the court should disallow the transfer of its proof of claim to Carter as “not permissible under Rule 3001(e)(4)” for a number of reasons. (Claimant’s Brief at 2.) The claimant does not argue that Rule 3001(e)(4) is limited to voluntary transfers, inasmuch as the rule does not mention involuntary transfers. There appears to be no ease law directly on point, but a bankruptcy court has ruled that a Chapter 11 trustee was not subject to garnishment by a judgment creditor of a creditor or equity security holder and that the exclusive remedy of the judgment creditor would be to proceed according to the requirements of Rule 3001.
See NVLand, Inc. v. Vogel (In re Ocean Downs Racing Association, Inc.),
164 B.R. 249, 256 (Bankr.D.Md.1993) (“Bankruptcy Rule 3001 applies to substitution of claims by holders of judgments obtained against claimants in a bankruptcy case. While the rule appears to address only voluntary assignments and transfers of claims in a bankruptcy estate, the term ‘transfer’, as defined in Section 101(54) of the Bankruptcy Code, includes ‘every mode, direct or indirect, absolute or conditional,
voluntary or involuntary,
of disposing of or parting with property or with an interest in property.’ ”) (emphasis in original).
See also
9
Collier on Bankruptcy
¶ 3001.08[l][d] (Lawrence P. King ed., 15th ed. rev.2000) (although R. 3001(e) “does not on its face mention the involuntary transfer of a claim (e.g., by levy and execution) ... such an involuntary transfer would be governed by the rule.”). Taking into account this authority, the persuasive reasoning of the
Ocean Downs
court and the lack of any objection from the claimant, the court concludes Rule 3001(e)(4) applies to involuntary as well as voluntary transfers.
B.
The claimant’s objection to the transfer primarily focuses on whether and to what extent the liability of the claimant under the Florida judgment is affected by Carter’s assignment of its claim to St. Paul. However, the court need not reach that issue because the claimant also questions the validity under Connecticut law of the judgment lien.
The 1991 Advisory Committee Note to Rule 3001(e) describes the court’s function following an objection to a notice of transfer. “If a timely objection is filed, the court’s role is to determine whether a transfer has been made that is enforceable under nonbankruptcy law. This rule is not intended ... to affect any remedies otherwise available under nonbankruptcy law to a transferor or transferee.... ”
Under Connecticut law, a judgment creditor who brings into Connecticut a foreign judgment can either register the judgment under the Uniform Enforcement of Foreign Judgments Act
or commence
an independent action to establish that judgment as a Connecticut judgment.
See Burchett v. Roncari,
181 Conn. 125, 129, 434 A.2d 941 (1980). Until one or the other of these procedures is employed, the foreign judgment is in limbo. “The full faith and credit clause ... does not make a sister-State judgment a judgment in another state.... To give it the force of a judgment in another state [a foreign judgment] must be made a judgment there.”
Krueger v. Krueger,
179 Conn. 488, 491, 427 A.2d 400 (1980) (citation and internal quotation marks omitted). Carter does not claim either to have filed an independent Connecticut action on the judgment or to have filed its Florida judgment with a Connecticut court for enforcement of the judgment, in accordance with Conn.Gen. Stat. §§ 52-604 to 52-609 (Uniform Enforcement of Foreign Judgments Act).
The court further notes that § 52-355a •requires that a judgment lien certificate be signed by the “judgment creditor” or his representative. Conn.Gen.Stat. § 52-350a, which contains definitions for § 52-355a and other statutes comprising Chapter 906 of the Connecticut General Statutes, in subsection (10) defines a “judgment creditor” as “a person in whose favor a money judgment was rendered,” and in subsection (13) defines a “money judgment” as including “any foreign money judgment filed with the superior court pursuant to the general statutes.” In addition, in subsection (15), “postjudgment procedure” is defined as “any procedure commenced after rendition of a money judgment, ... involving ... a placing of a lien on property.”
In light of the decisional and statutory law cited, § 52-355a necessarily applies only to a Connecticut judgment, so that the holder of a foreign judgment not made a Connecticut judgment does not create a valid judgment lien by filing the judgment lien certificate.
Cf. Williamson v. Vara,
1998 WL 855452 (Conn.Super.1998) (An asserted judgment lien is invalid if the holder of-a foreign judgment who filed the judgment lien certificate was not in compliance with Conn.Gen.Stat. § 52-605.). Accordingly, the Florida judgment and the judgment lien certificate filed in Connecticut do not suffice to give Carter a valid judgment lien against the claimant’s claim under Connecticut law. This being so, Carter cannot utilize Rule 3001(e)(4) to achieve a result not otherwise available to it. The objection of the claimant to Carter’s notice of transfer must be sustained, and the transfer for security denied. In view of this conclusion, other objections of the claimant to the transfer need not be considered.
IV.
CONCLUSION
For the reasons stated, the objection filed by Mi-Lyn, Inc. to the Notice of Transfer of Claim filed by Mike Carter Construction, Inc. is sustained, and the transfer is denied. It is
SO ORDERED.