SER Corporation v. Nimberg

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
SER CORPORATION,
Debtor.
___________________________
SER CORPORATION,
Plaintiff,
v.
RAPID PAY, LLC, et al.,
Defendants.
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Case No. 04-01249
(Chapter 11)
Adversary Proceeding
No. 04-10086
OPINION RE MOTION TO REARGUE GRANTING OF SUMMARY JUDGMENT
The court will deny the pending Motion to Reargue
Granting of Summary Judgment whereby two of the defendants
seek reconsideration of this court's order that in large part
granted the plaintiff's motion for summary judgment imposing
sanctions for violation of the automatic stay of § 362(a) of
the Bankruptcy Code (11 U.S.C.).
The opinion below is hereby signed. Dated: March 1,
2006.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 Unless otherwise indicated, references in this opinion
to “the defendants” shall be understood as referring only to
Stephanie Nimberg and Rapid Pay, LLC, and not Gerald Nimberg.
2
I
The defendants' opposition to the Motion for Summary
Judgment was untimely and was not signed by a member of the
bar of this court. These defects justify denial of the motion
seeking reconsideration. First, contrary to the defendants'
contention, the granting of summary judgment as unopposed did
not arise from a docketing mistake by the clerk. Second, LBR
7056-1 in conjunction with F.R. Bankr. P. 9011(a) required any
opposition to include a memorandum signed by the defendants'
counsel of record. Instead of filing such an opposition, the
defendants filed only an affidavit of an individual who was
not an attorney authorized to appear in the proceeding.
On November 22, 2005, SER Corporation (“SER”), the
plaintiff in this adversary proceeding, filed a Motion for
Summary Judgment directed against defendants Rapid Pay, LLC
(“Rapid Pay”), and Stephanie S. Nimberg, Rapid Pay's
president.1 Under LBR 9013-1 and F.R. Bankr. P. 9006, an
opposition to that motion was due by December 7, 2005. After
that deadline passed without any timely opposition being
filed, the clerk transmitted the motion to the court for its
consideration. The court signed an order partially granting
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the Motion for Summary Judgment on Monday December 19, 2005.
At that time, no opposition had been docketed by the clerk.
However, on the preceding Friday, December 16, 2005, nine
days after the time to file an opposition had expired, Rapid
Pay, LLC and Stephanie Nimberg had filed a Motion to Extend
Time to File Opposition and Reply until December 15, 2005, and
an opposition in the form of the Affidavit of Gerald Nimberg
in Opposition to Motion for Summary Judgment. When the court
signed its order partially granting summary judgment on
December 19, 2005, the clerk's office had not docketed the
defendants' filings. Even if those papers had been docketed
on December 16, 2005, and the court had granted the Motion to
Extend Time, the opposition would have still been untimely as
the requested extension (to which SER had consented) was only
until December 15, 2005.
On January 3, 2006, Stephanie Nimberg and Rapid Pay, LLC
filed their Motion to Reargue Granting of Summary Judgment
under Fed. R. Civ. P. 60(a) and (b), urging that reargument be
allowed because (a) due to a docketing error, the court failed
to consider the allegedly timely opposition when ruling on the
motion, and (b) the opposition raises issues of material fact
such that summary judgment should be denied.
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2 The court's order partially granting summary judgment
was not a final appealable order as it did not fully dispose
of the proceeding. Technically, therefore, neither Rule 59 or
60 of the Federal Rules of Civil Procedure apply to the motion
for reconsideration. However, the court is still free to
disregard an opposition that was not filed by the due date.
Otherwise, deadlines would never have any effect with respect
to the court's ruling on motions seeking relief in the form of
a non-final judgment. The defendants have only themselves to
blame for filing their motion to extend time only after the
deadline for an opposition had long ago expired.
4
The defendants’ Motion to Extend Time and the opposition
to the motion for summary judgment were filed one day after
the expiration of the December 15, 2005 proposed deadline.
The opposition was thus untimely2 and this justifies
disregarding the opposition. When the court acted on SER's
Motion for Summary Judgment, the docket accurately reflected
that no timely opposition had been filed. The court thus
summarily rejects the defendants' contention that the court's
ruling was based on a docketing error: the court's treatment
of the Motion for Summary Judgment as not having been timely
opposed was absolutely correct. Moreover, the opposition will
also be overruled as violating Rule 9011 because it was not
signed by an attorney authorized to file papers in this court.
Even if the opposition had been timely filed and had
included a memorandum signed by the defendants' attorney, the
court concludes, for reasons stated below, that the
defendants’ opposition raises no issues of material fact or
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law that would alter the court’s determination that summary
judgment in SER’s favor is appropriate.
II
SER’s Motion for Summary Judgment asserts, inter alia,
that Rapid Pay’s post-petition seizure of funds from the
debtor, its post-petition attempt to perfect a security
interest against SER through the recording of a financing
statement under the Uniform Commercial Code (“UCC”) in the
Land Records of the District of Columbia, and the refusal to
return the seized funds constituted violations of the
automatic stay of 11 U.S.C. § 362(a). In their late-filed
opposition, the defendants urge that summary judgment is
inappropriate because there remains a factual dispute as to
whether the funds seized and retained were actually property
of the estate subject to the automatic stay. Similarly, the
defendants assert that the violations alleged by the plaintiff
did not constitute wilful violations of the automatic stay
because: (1) the debtor’s receivables had been assigned to
Rapid Pay, LLC pre-petition and were thus not property of the
debtor and did not become property of the estate subject to
the automatic stay; (2) the manager of the debtor told Rapid
Pay, LLC that it could take the subject funds; (3) the UCC
financing statement was filed pursuant to standard operating
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procedure, was terminated by the defendants when they learned
of their mistake, and such violation should thus not be
treated as wilful; and (4) Rapid Pay, LLC has been
experiencing monthly losses such that it is unable to return
the funds. Even if the court had taken the defendants’
opposition into account when ruling on SER’s motion, the court
would still have granted summary judgment in SER’s favor.
III
The court rejects the defendants' argument that summary
judgment is inappropriate because there remains a factual
dispute as to whether the $79,277.06 seized by the defendants
from SER in violation of the automatic stay was actually
property of the estate subject to the stay. In support of
their position, the defendants offer Gerald Nimberg’s
affidavit, which cites to a transcript in which Stephanie
Nimberg quotes to the contractual language that allegedly
transferred ownership interest in the accounts receivable to
Rapid Pay, and testified that “[t]hese credit card receivables
belong to Rapid Pay, LLC.” To the extent this would suffice
to create a factual dispute regarding whether the assignment
was intended as a sale, the dispute is immaterial as a matter
of well-established law.
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The UCC governs assignments of accounts receivable.
See D.C. Code §§ 28:1-201(37) (“security interest” includes an
interest of a buyer of accounts in a transaction subject to
Article 9); 28:9-109(a)(3) (Article 9 applies to a sale of
accounts). This leads to the conclusion that the accounts
receivable were property of the estate on the petition date
under 11 U.S.C. § 541(a). In other words, under Article 9 of
the UCC, accounts receivable that were the subject of a sale
nevertheless remain property in which the debtor has an
interest for purposes of 11 U.S.C. § 541, and in which the
assignee has only a security interest, regardless of whether
that security interest was properly perfected, as the concept
of title has no significance under Article 9. See Octagon Gas
Systems, Inc. v. Rimmer (In re Meridian Reserve, Inc.), 995
F.2d 948, 955-57 and particularly 957 nn. 8 and 9 (10th Cir.
1993).
Moreover, Rapid Pay failed to perfect the assignment to
it of SER’s accounts receivable under the UCC before SER filed
its voluntary petition. See D.C. Code § 28:9-310(a) (with
exceptions of no relevance here, filing of a financing
statement is necessary to perfect a security interest).
Accordingly, the estate's interest in the accounts was
unaffected by Rapid Pay's unperfected assignment which is
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treated as a nullity as against the estate.
The Bankruptcy Code mandates this conclusion by reason of
11 U.S.C. § 544. Octagon Gas, 995 F.2d at 955 n.6. Pursuant
to § 544(a), the debtor-in-possession (vested with the powers
of a trustee under 11 U.S.C. § 1107(a)), was clothed with the
rights and powers of a creditor who had a judicial lien on the
accounts receivable on the petition date. Rapid Pay's
assignment of the accounts receivable was unenforceable
against a creditor holding a judicial lien against the
accounts receivable as of the petition date. See D.C. Code §§
28:9-317(a)(2) (unperfected security interest is subordinate
to the rights of a lien creditor); 28:9-102(52) (defining
“lien creditor”). Moreover, under D.C. Code § 28:9-318(b):
For purposes of determining the rights of creditors
of . . . a debtor that has sold an account . . .
while the buyer's security interest is unperfected,
the debtor is deemed to have the rights and title to
the account . . . identical to those the debtor
sold.
Accordingly, the assignment was ineffective against the
debtor-in-possession. Section 544(a) treats the accounts
receivable as property of the estate wholly unaffected by
Rapid Pay's unperfected assignment.
The defendants' acts thus violated § 362(a)(3) (barring
“any act to obtain possession of property of the estate or of
property from the estate or to exercise control over property
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of the estate”). Moreover, the defendants' retention of the
accounts receivable was an act to collect a prepetition debt
and thus violated 11 U.S.C. § 362(a)(6).
As held in Armstrong v. Executive Office of the
President, Office of Admin., 1 F.3d 1274 (D.C. Cir. 1993), for
civil contempt sanctions to be imposed there must be a
violation of an order that is clear and unambiguous and the
violation must be proven by clear and convincing evidence.
SER has made the required showing. As discussed above, well-
established law required treating the accounts receivable as
estate property, with SER having only a security interest
despite the “sale” character of the transaction, and, in any
event, required treating Rapid Pay's security interest as a
nullity because it was unperfected. Indeed, counsel for SER
communicated that position to Rapid Pay's counsel on or about
August 17, 2004, prior to Rapid Pay's commencing on August 25,
2004, improperly to exercise control over the accounts
receivable.
IV
The court also rejects the defendants' contention that
the seizure and retention of estate funds did not constitute a
wilful violation of the automatic stay because the debtor gave
Rapid Pay permission to take the accounts receivable. In
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support of this contention the defendants offer the affidavit
of Gerald Nimberg, in which he cites to the deposition
testimony of Stephanie Nimberg, who, in her deposition, stated
that “I know that Lance had spoken to I believe her name is
Gina to keep the American Express sales and I’m quite certain
Julio made a trip to DC and personally met with Roberto Donna,
who told him to take the credit card sales.” The persons to
whom these alleged statements were made (Lance and Julio) are
neither the affiant nor the deponent, and the affidavit and
deposition recitations of what those persons said they were
told are inadmissible hearsay. Even assuming the statements
were made, the debtor had no authority to unilaterally lift
the automatic stay, and would have been required--like any
party seeking relief from the automatic stay--to obtain an
order of the court before relinquishing estate assets. 11
U.S.C. § 362(d); F.R. Bankr. P. 4001(a) (requiring service of
a consent motion for relief from the automatic stay on the
unsecured creditors' committee or, if there is no committee,
the creditors listed under Rule 1007(d)).
V
The defendants urge that the recording of the UCC
financing statement was inadvertent, and was timely corrected,
and that the violation of the stay was thus not wilful.
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However, shortly after SER filed its bankruptcy petition, and
prior to the filing of the UCC financing statement, SER's
counsel informed Rapid Pay of the bankruptcy case. For civil
contempt purposes, good faith is not a defense when one acts
in violation of an injunction after being put on notice of the
injunction. McComb v. Jacksonville Paper Co., 336 U.S. 187,
191 (1949).
Moreover, SER's counsel had alerted Rapid Pay to its
failure to have perfected its security interest in the same
communication alerting it to the bankruptcy case. How Rapid
Pay's filing of a financing statement after that communication
could be “inadvertent” is not explained, and the assertion of
inadvertence is thus not credible.
Even if the defendants could make a credible showing that
this post-petition attempt to perfect a lien against SER was
inadvertent and promptly corrected (and that, despite McComb,
this is an adequate defense to civil contempt), such a showing
would be insufficient to overcome SER’s right to summary
judgment and compensatory damages. SER’s right to
compensatory damages is easily supported by the defendants’
improper seizure and retention of funds making it unnecessary
for SER to demonstrate that a further wilful violation of the
stay was committed when the defendants recorded a lien against
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3 Moreover, in objecting to the statement of attorney's
fees and expenses, the defendants had the obligation to object
to any fees and expenses they deemed attributable solely to
pursuit of contempt regarding the improper filing of the UCC
financing statement. They raised no such objection.
12
SER. The improper retention of funds began three days after
the improper UCC filing. The court's review of the statement
of attorney's fees and expenses incurred convinces the court
that the debtor's damages in the form of such attorney's fees
and expenses would have been incurred to the same extent even
if SER had not pursued contempt based on the improper UCC
filing. Although the improper lien filing was briefly
addressed as part of SER's motion for summary judgment, it was
necessary to address the impropriety of that lien filing in
order to show that the postpetition retention of accounts
receivable could not be upheld on the basis of that filing.
In moving for reconsideration, the defendants have not
contended that there were any meaningful fees and expenses
that would not have been incurred but for the pursuit of
contempt based on the improper UCC filing.3 Accordingly, the
court finds that any inadvertence in the defendants’ improper
recording of a lien against SER is irrelevant for purposes of
this analysis.
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4 The defendants have not contested, as contemplated by
LBR 7056-1, SER's recitation in its statement of material
facts not in genuine dispute that “Additional efforts were
made to bring the seriousness of the apparent stay violations
to the Defendants' attention and those efforts were ignored as
exhibited by the letter from Defendant's President, Ms.
Nimberg, dated September 20, 2005.” That fact is thus taken
as established for summary judgment purposes.
5 Stephanie Nimberg is the president of Rapid Pay and as
she acknowledged at pages 38-39 of her deposition (attached as
part of Exhibit A to the Affidavit), her duties included
“managing the employees and the operations.”
13
VI
The defendants also contend that:
There has been no evidence to hold Stephanie Nimberg
as an individual liable for acts on behalf of a
corporate principal. The Plaintiff seeks to pierce
the corporate veil of Rapid Pay, LLC. The plaintiff
has failed to set forth the elements required to
pierce the corporate veil.
However, SER did not seek to pierce the corporate veil.
Instead, it sought summary judgment against Ms. Nimberg on the
basis that she acted on behalf of Rapid Pay to refuse to
release the improperly seized funds, as demonstrated by her
letter of September 20, 2004, effectively communicating to
counsel for SER a refusal to release the funds.4 The
Affidavit, which is the basis for the Motion to Reargue, does
not contest or dispute Stephanie Nimberg’s responsibility for
the decisions to seize and retain SER’s property.5 Just as a
corporation's officers are not immunized from liability for
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torts they commit on behalf of the corporation, such officers
are also not immunized from liability for civil contempt for
undertaking an act violating the automatic stay. See Phillips
v. Lehman Bros. Holdings, Inc. (In re FAS Mart Convenience
Stores, Inc.), 318 B.R. 370, 376 (Bankr. E.D. Va. 2004);
Nelson v. Post Falls Mazda (In re Nelson), 159 B.R. 924, 925
(Bankr. D. Idaho 1993). An injunction against an insolvent
corporation (which Rapid Pay suggests it is) would be an empty
remedy if corporate officers could with impunity take steps to
violate the injunction.
VII
Finally, the defendants urge that Rapid Pay is not in a
financial position to return the funds, that it is three
months in arrears to its landlord, and that this renders the
failure to return the funds a non-wilful violation of the
automatic stay. The seizure of funds, however, occurred
between August 25, 2004, and September 7, 2004, the defendants
were advised of the violation on or about September 8, 2004,
and Rapid Pay elected not to return the estate funds to the
debtor. That Rapid Pay has since fallen into arrears with its
other creditors does not mitigate the harm that was caused to
the debtor’s estate by virtue of Rapid Pay’s and Ms. Nimberg's
wilful violation of the stay.
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15	O:\JUDGEFIL\CONTEMPT\Order - SER v Rapid Pay - MFSJ and extend deadline.v5.wpd
VII
For all of the reasons stated above, the court will deny
the defendants’ Motion for Reconsideration and will deny the
defendant’s Motion to Extend Time.
An order follows.
[Signed and dated above.]
Copies to:
All counsel of record; Office of the United States Trustee;
and:
Lawrence Morrison, Esq.
17 Battery Place, Suite 1330
New York, NY 10004
Thomas J. Luz, Esq.
1500 Broadway, 21st Floor
New York, NY 10036
Stephanie S. Nimberg
6 Jodi Court
Cherry Hill, NJ 08003
Stephanie S. Nimberg
9 Quaker Road
Princeton Junction
New Jersey 08550
Rapid Pay, LLC
c/o Gerald Nimberg
6 Jodi Court
Cherry Hill, NJ 08003
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