Chapter 7, Case No. 808-73781-reg, Adv. Proc. no.
UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF NEW YORK
2009 Bankr. LEXIS 601
March 2, 2009, Decided
COUNSEL: For Anthony J Vitta, Debtor: Scott R Schneider, Hicksville, NY.
Trustee: Kenneth Kirschenbaum, Kirschenbaum & Kirschenbaum, P.C., Garden City,NY.
U.S. Trustee: Diana G. Adams, Office of the United States Trustee, CentralIslip, NY.
JUDGES: Robert E. Grossman, United States Bankruptcy Judge.
OPINION BY: Robert E. Grossman
Before the Court is a motion by the Nassau County District Attorney and theCounty of Nassau for summary judgment against the Chapter 7 Trustee in thisadversary proceeding. The Chapter 7 Trustee commenced this adversary proceedingseeking turnover of certain property belonging to the Debtor which was seized bythe Nassau County District Attorney prepetition pursuant to a civil order ofattachment. The Debtor agreed to consent to forfeiture of the subject propertyto Nassau County as part of a plea agreement in a criminal matter. The Debtorfiled the instant bankruptcy prior to the date that the Debtor entered into astipulation consenting to forfeiture of the property. For the reasons set forthbelow, the Court denies the motion for summary judgment and finds that as of thedate the Debtor filed his petition, the property previously seized by the Countyof Nassau remained property of the Debtor's estate and is subject to turnover tothe Chapter 7 Trustee.
Background and Facts
On November 14, 2007, the Debtor was arrested by the Nassau County PoliceDepartment and was charged with criminal sale of a controlled substance in thethird degree, criminal sale of a controlled substance in the fourth degree andcriminal sale of a firearm in the third degree. In conjunction with the criminalproceeding the Nassau County Civil Forfeiture Unit ("CFU") caused an ex parteorder of attachment to be submitted to the Nassau County Supreme Court for theState of New York for execution by a judge. The order of attachment was grantedon November 14, 2007 ("Order of Attachment"). On November 14, 2007, the NassauCounty Police Department executed the search warrant at the Debtor's home andbusiness premises. The Nassau County Police Department, pursuant to the Order ofAttachment seized currency, watches, jewelry, computers and other miscellaneousproperty (the "Property"). The Property does not constitute proceeds orsubstitute proceeds of the criminal enterprise relating to the criminal chargesthen pending against the Debtor.
On December 7, 2007, the CFU commenced a civil forfeiture action against theDebtor pursuant to Article 13-A of the New York Civil Practice Law and Rules("CPLR"). The complaint was served on the Debtor on January 3, 2008. The Orderof Attachment was confirmed on January 14, 2008. On June 17, 2008, the Debtorpled guilty to reduced felony charges. One of the conditions to the Debtor'splea was that the Debtor agreed to consent to forfeit the Property. At the pleahearing before New York Supreme Court Justice Tammy Robbins, Justice Robbinsstated that despite the Debtor's guilty plea, she retained the discretion towithdraw the reduced sentence being offered and if the reduced sentence waswithdrawn, the Debtor would have the right to withdraw his guilty plea and couldproceed to trial. The Debtor's criminal case was adjourned to August 14, 2008.
On July 15, 2008 (the "Petition Date"), the Debtor filed a petition forrelief under Chapter 7 of the Bankruptcy Code. On August 28, 2008, the Debtorexecuted a Stipulation and Order of Settlement and Discontinuance of Action toconclude the civil forfeiture action in Nassau County Supreme Court("Stipulation"). The Stipulation included a list of the Property. TheStipulation was "so ordered" by Justice Galasso on September 2, 2008. On October2, 2008, before the Debtor could be sentenced, the Debtor committed suicide.
On August 28, 2008, the Trustee commenced this adversary proceeding againstthe Nassau County District Attorney and the County of Nassau (the "Defendants")seeking turnover of the Property pursuant to 11 U.S.C. Ã‚Â§Ã‚Â§ 543(b) and 542,alleging that the Property is property of the Debtor's estate. On September 23,2008, the Defendants filed an answer and asserted that the Debtor was divestedof his interest in the Property prepetition and therefore the Property neverbecame property of the Debtor's estate. On December 11, 2008, the Defendantsmade a motion to dismiss the complaint, which the Trustee opposed. At thehearing held on January 12, 2009, the Court denied the motion to dismiss thecomplaint and since both parties relied on materials beyond the complaint insupport of their arguments, the Court converted the motion to dismiss to amotion for summary judgment. 1
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -1 Wherematters outside the pleadings are presented and not excluded by the Court, theCourt has the discretion to convert a motion to dismiss into a motion forsummary judgment pursuant to Federal Rule of Civil Procedure 12(b)(6), madeapplicable to these proceedings through Bankruptcy Rule 7012. In this case, theCourt has accepted materials outside the pleading and both parties rely on theStipulation, among other documents, in support of their position. In addition,the parties have consented to the conversion of the motion to dismiss to amotion for summary judgment.- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
The Defendants argue that any and all interest the Debtor had in and to theProperty was terminated as of the date of the hearing before Justice Robbinswhere the Debtor pled guilty and agreed to forfeit the Property. Therefore, asof the date of the petition, the Debtor had no interest in the Property and itnever became property of the estate. Furthermore, based on the legal theory ofrelation back, title to the Property vested in Nassau County from the time ofthe illegal acts, on May 18, 2007. As a result, the Defendants argue that theProperty was not part of the Debtor's estate as of the Petition Date. TheDefendants also assert that the fact that the Stipulation had not been executedor "so-ordered" as of the Petition Date did not change this result because bothactions were merely ministerial and did not constitute the continuation of ajudicial proceeding under 11 U.S.C. Ã‚Â§ 362(a)(1). Because the forfeiture wascompleted prior to the Petition Date as a matter of law, the actions whichoccurred post-petition did not violate the automatic stay. In the alternative,the Defendants assert that the civil forfeiture proceeding was excepted from theautomatic stay pursuant to 11 U.S.C. Ã‚Â§ 362(b)(4) as it was a continuation of anaction to enforce the Defendants' police and regulatory powers. Therefore, theactions taken by the Defendants, including the signing and entry of theStipulation, did not violate the automatic stay. The Defendants conclude thatdue to the theory of relation back, the post-petition entry of the Stipulationresulted in vesting the Property with the Defendants as of the date of thecommission of the Debtor's criminal acts.
The Trustee asserts that as of the Petition Date, the Debtor still retainedan interest in and to the Property, and this interest became property of theDebtor's estate. The Order of Attachment by itself did not divest the Debtor ofhis interest in the Property. The Trustee also asserts that the necessity ofrequiring the execution and the "so ordering" of the Stipulation by a Judge wasnot a ministerial act. The judge specifically retained the right to considerwhether to sign the Stipulation, and upon signing the Stipulation, the onlyministerial act involved would have been the clerk's entry of the Stipulation onthe docket. The Trustee argues that because all of these acts, and not just thedocketing, took place post petition, the automatic stay was violated unless theactions fell within one of the exceptions enumerated in Ã‚Â§ 362(b) of theBankruptcy Code. Finally, the Trustee argues that as the administrator of theDebtor's estate, the Trustee was the only party that could have executed theStipulation post-petition. Since the Trustee was not a party to the Stipulation,the Trustee's due process rights were violated.
1) Standard for Summary Judgment
Under Federal Rule of Civil Procedure 56(c), made applicable to thisproceeding pursuant to Fed. R. Bankr. P. 7056, a court may not grant summaryjudgment unless "the pleadings, depositions, answers to interrogatories, andadmissions on file, together with the affidavits . . . show that there is nogenuine issue as to any material fact and that the moving party is entitled tosummary judgment as a matter of law." Marvel Characters, Inc. v. Simon, 310 F.3d280, 285-86 (2nd Cir. 2002). In making this determination, the court is requiredto resolve all ambiguities and draw all factual inferences in favor of the partyopposing summary judgment. Cifra v. G.E. Co., 252 F.3d 205, 216 (2nd Cir. 2001).It is not the Court=s province to weigh the evidence, assess the credibility ofwitnesses or resolve issues of fact - merely to determine whether genuine issuesof material fact exist. Rodriguez v. City of New York, 72 F.3d 1051, 1061 (2ndCir. 1995). In this case, neither party raises any material facts requiringadjudication or discovery. The essential facts encompassed by this adversaryproceeding are undisputed and therefore summary judgment is appropriate.
2) Property of the Debtor's Estate
The fundamental issues raised in this adversary proceeding are whether theDebtor retained an interest in the Property as of the Petition date and whetherthat interest was transferred to the Debtor's estate as of the Petition Date.Resolution of these issues rest in part on whether the Defendants satisfied allof the statutory predicates required to divest the Debtor of any interest he hadin the Property prior to the Petition Date. According to the Defendants, theprepetition entry of the Order of Attachment was sufficient to divest the Debtorof his interest in the Property, and based on the theory of relation back, theactual date the Debtor lost any interest in the Property is fixed as of the datethe criminal acts were committed. The Defendants commenced the civil forfeitureaction pursuant to Article 13-A of the C.P.L.R., which authorizes the DistrictAttorney having jurisdiction over the offenses committed by the Debtor, as a"claiming authority", to recover real property, personal property and otherproperty of value, which constitute the proceeds, substituted proceeds orinstrumentalities of crime. CPLR Ã‚Â§ 1310. 2 The actual language of Article13-A of the CPLR is the starting point for determining whether the Defendantsare correct. Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102,108 (1980).
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -2 The NewYork Court of Appeals has held that this statute does not limit the claimingauthority to attachment of assets that can only be linked directly to thealleged crimes. Rather, attachment under Article 13-A may be used "to reach anyassets of the defendants that could be used to satisfy a potential judgment inthe forfeiture action." Morgenthau v. Citisource, Inc., 68 N.Y.2d 211, 220, 508N.Y.S.2d 152, 500 N.E.2d 850 (1986).- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Article 13-A of the CPLR provides in relevant part as follows:
A civil action may be commenced by the appropriate claiming authority against a criminal defendant to recover the property which constitutes the proceeds of a crime, the substituted proceeds of a crime, an instrumentality of a crime or the real property instrumentality of a crime or to recover a money judgment in an amount equivalent in value to the property which constitutes the proceeds of a crime, the substituted proceeds of a crime, an instrumentality of a crime, or the real property instrumentality of a crime. . . . Any action under this article . . . shall be civil, remedial, and in personam in nature and shall not be deemed to be a penalty or criminal forfeiture for any purpose. Except as otherwise specially provided by statute, the proceedings under this article shall be governed by this chapter. An action under this article is not a criminal proceeding and may not be deemed to be a previous prosecution under article forty of the criminal procedure law.
(a) Actions relating to post-conviction forfeiture crimes. An action relating to a post-conviction forfeiture crime must be grounded upon a conviction of a felony defined in subdivision five of section one thousand three hundred ten of this article, or upon criminal activity arising from a common scheme or plan of which such a conviction is a part, or upon a count of an indictment or information alleging a felony which was dismissed at the time of a plea of guilty to a felony in satisfaction of such count. A court may not grant forfeiture until such conviction has occurred. However, an action may be commenced, and a court may grant a provisional remedy provided under this article, prior to such conviction having occurred.
(b) Actions relating to pre-conviction forfeiture crimes. An action relating to a pre-conviction forfeiture crime need not be grounded upon conviction of a pre-conviction forfeiture crime, provided, however, that if the action is not grounded upon such a conviction, it shall be necessary in the action for the claiming authority to prove the commission of a pre-conviction forfeiture crime by clear and convincing evidence. An action under this paragraph shall be stayed during the pendency of a criminal action which is related to it; provided, that upon motion of a defendant in the forfeiture action or the claiming authority, a court may, in the interest of justice and for good cause, and with the consent of all parties, order that the forfeiture action proceed despite the pending criminal action; and provided that such stay shall not prevent the granting or continuance of any provisional remedy provided under this article or any other provision of law.
CPLR Ã‚Â§ 1311.
The difference between forfeiture actions applicable to post-convictionforfeiture crimes (which do not include the drug-related felonies with which theDebtor was charged) and forfeiture actions applicable to pre-convictionforfeiture crimes (which apply in this case) is that with pre-convictionforfeiture crimes, there is no requirement that the defendant be convicted ofthe crime. If the defendant is not convicted of the crime, the claimingauthority must prove the commission of such a crime "by clear and convincingevidence." CPLR 1311[b]; Hendley v. Clark, 147 A.D.2d 347, 349, 543 N.Y.S.2d554, 556 (3d Dep't 1989). As a result, the only difference between these twoforfeiture provisions is that the commission of a pre-conviction forfeiturecrime may be proven, even in the absence of a criminal conviction, by a showingof clear and convincing evidence of the commission of the crime. Id.
Under either post- conviction forfeiture or pre-conviction forfeiture,attachment may be obtained as a provisional remedy prior to a conviction, but noactual forfeiture or money judgment is granted until either a conviction isentered, or in the case of a pre-conviction forfeiture proceeding, a finding ismade in the civil forfeiture action that the crime was committed. "In fact, thecivil action [for forfeiture] is stayed during the pendency of the criminalproceeding, but the stay does not prevent the granting of provisional remedies."Kuriansky v. Bed-Stuy Health Care Corp., 135 A.D.2d 160, 164, 525 N.Y.S.2d 225,227 (N.Y. App. Div. 1988). The provisional remedy of attachment only "'result[s]in a freezing of defendants' assets and not a forfeiture.'" In re Wolfson, 261B.R. 369, 374 (Bankr. E.D.N.Y. 2001) (citing Kuriansky v. Bed-Stuy Health CareCorp., 135 A.D.2d at 180, 525 N.Y.S.2d at 237)).
In this case, the Defendants acknowledges that the only action which tookplace prepetition was the seizure of the Property pursuant to the Order ofAttachment and the Defendants' guilty plea. The Stipulation was executed by theparties, "so-ordered" by the court and entered on the docket post-petition. Theentry of the Order of Attachment is a provisional remedy only, and under theterms of the statute, does not transfer title in and to the property so seizedto the claiming authority. There is nothing in the applicable statute or caselaw which supports the Defendants' position that the plea hearing alone servedto transfer title in the Property to the Defendants. This contention is not evensupported by the transcript from the plea hearing itself. Justice Robbinsacknowledged that her offer of a reduced sentence was just an offer. She alsostated that she retained the right to withdraw the offer, and if she did so, theDebtor could withdraw his guilty plea and proceed to trial. Since no order wasentered either convicting the Debtor or finding that the Defendants had provenby clear and convincing evidence that the felonies had been committed, therecould be no forfeiture order. Without entry of such forfeiture order prior tothe Petition Date, the Property remained property of the Debtor's estate.
Because the Court finds that the Property was property of the estate as ofthe Petition Date, the Defendants' argument that the post-petition act ofsigning the Stipulation by the Defendant and the "so-ordering" of theStipulation by Justice Galasso was a ministerial act fails as a matter of law.It is well settled that acts taken in violation of the automatic stay are voidand of no effect. Kalb v. Feuerstein, 308 U.S. 433, 439-440 (1940) (citingVallely v. Northern Fire Ã‚Â§ Marine Ins. Co., 254 U.S. 348, 353 (1920)); In re48th Street Steakhouse, Inc., 835 F.2d 427, 431 (2d Cir.1987); Maritime Elec.Co. v. United Jersey Bank., 959 F.2d 1194, 1206 (3d Cir.1991); In re Shamblin,890 F.2d 123, 125-26 (9th Cir.1989). The Defendants assert that the actionswhich took place post petition, including the "so-ordering" of the Stipulationby Justice Galasso, were ministerial acts, and not violative of the automaticstay. Case law is clear that judicial proceedings are not concluded until thejudge directs entry of a judgment. If the judge has not decided the meritsprepetition, then any acts taken by the judge subsequent to the filing is aviolation of the automatic stay. See Teacher's Ins. & Annuity Ass'n v. Butler,803 F.2d 61, 66 (2d Cir.1986) (clerk's subsequent entry of a judgment after theautomatic stay became effective did not violate the automatic stay because thejudge had rendered its decision prepetition). An analysis of the very statutesrelied upon by the Defendant makes it abundantly clear that under nocircumstances can the post-petition events in the forfeiture action, includingthe Debtor's execution of the Stipulation, be deemed "rote" or "ministerial."
The Defendants argue in the alternative that the post-petition acts whichoccurred in the forfeiture action were exempt from the automatic stay, and thatonce the Stipulation was "so ordered" by Justice Galasso, the forfeiture wasdeemed to have occurred on the date the illegal acts took place. The Defendantsassert that this is sufficient to divest the Debtor of any interest in theProperty prior to the petition date. The Defendants base their argument on thelegal doctrine of relation back, which is set forth in U.S. v. Stowell, 133 U.S.1 (1890). U.S. v. Stowell does stand for the proposition under common law thatif, upon the commission of a crime, the property used in or connected with thecriminal act is to be forfeited, the forfeiture is deemed to have taken effectat the time the offense is committed. U.S. v. Stowell, 133 U.S. at 16-17. U.S.v. Stowell has been codified in various federal forfeiture statutes including 21U.S.C. Ã‚Â§ 853(c), the Federal Comprehensive Forfeiture Act, which provides that"all right, title, and interest in [forfeitable] property . . . vests in theUnited States upon the commission of the act giving rise to forfeiture underthis section." In contrast, Article 13-A of the CPLR only applies to civilforfeiture proceedings commenced in New York state courts under New York law.Furthermore, there is nothing in the language of Article 13-A providing thattitle in the forfeited vests with the claiming authority as of the commission ofthe crime. The court in Kuriansky v. Bed-Stuy Health Care Corp., 135 A.D.2d at175, 525 N.Y.S.2d at 234, pointed out this difference between the federalforfeiture statutes and forfeitures under Article 13-A of the CPLR as well, andnoted that the relation back provisions of this statute only permits forfeitureagainst third parties in limited circumstances which are not applicable in thiscase. In In re Wolfson, Judge Bernstein held that under Article 13-A of theCPLR, the defendant was divested of his interest in the forfeited assets as ofthe date of entry of the stipulation and order, which took place prepetition.261 B.R. at 374. There is no case cited by the Defendants which finds thatrelation back applies in an Article 13-A forfeiture. proceeding. 3
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -3 TheDefendants' reliance on In re Chapman, 264 B.R. 565 (B.A.P. 9th Cir. 2001) ismisplaced as well. In re Chapman involved a forfeiture action commenced by thefederal government pursuant to 21 U.S.C. Ã‚Â§ 881 which specifically provides thattitle in the forfeited property vests in the federal government as of the dateof the criminal activity. Article 13-A of the CPLR has no similar provision.- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Given that relation back is not applicable in this case, the Property did notvest in the Defendants prepetition. Therefore, the issue of whether the actionstaken by the Defendants post- petition were exempt under section 362(b)(4) ofthe Bankruptcy Code is not relevant to this analysis.
3) Applicability of the Automatic Stay
Even if the Court were to decide this issue, nothing would change the Court'sfinding that the Property belonged to the Debtor as of the Petition Date. TheDefendants' assertion that the execution and "so-ordering" of the Stipulationdid not violate the automatic stay is based on the Defendants' belief that thepost-petition actions taken by the Defendants are exempt from the automatic stayunder 11 U.S.C. Ã‚Â§ 362(b)(4). According to the Defendants, all of the actionstaken by the Defendants post-petition fall within this exemption, includinghaving the Stipulation "so ordered" by Justice Galasso. However, the language ofsection 362(b)(4) makes clear that under this subsection, acts taken by thegovernment in furtherance of its police or regulatory powers to enforce ajudgment "other than a money judgment" are exempt from the automatic stay.Therefore, any action to enforce the Stipulation and seize the Property, whichbelongs to the Debtor, would violate the automatic stay. In re Chapman, 264 B.R.at 571.
Any rights the Defendants have in the forfeiture action result in a claimagainst the Debtor's estate. The Defendants may file a claim in this case andhave their rights adjudicated in the claims process along with the otherclaimants in the Debtor's case.
For the reasons set forth in this Memorandum Decision, the Court finds thatthe Property was property of the Debtor's estate as of the Petition Date. Thecivil forfeiture proceeding did not divest the Debtor of title to the Property.Therefore, the Trustee is entitled to judgment in his favor in this adversaryproceeding, and the Defendants are directed to turn over the Property to theTrustee. A separate order memorializing these findings shall be enteredforthwith.
Dated: Central Islip, New York
March 2, 2009
By: /s/ Robert E. Grossman
Robert E. Grossman
United States Bankruptcy Judge