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In re Emergency Beacon Corp.

decided: November 23, 1981.

IN THE MATTER OF: EMERGENCY BEACON CORPORATION, DEBTOR; MONTCO, INC., PLAINTIFF-APPELLEE,
v.
STEPHEN G. GLATZER, DEFENDANT-APPELLANT ; STEPHEN G. GLATZER, THIRD-PARTY PLAINTIFF-APPELLANT, V. GEORGE HORVATH, ROCCO SCAPPATURA, JACK POLISH, LANGER AND POLISH, DANA JERRY HORVATH, SPENCER KELLOGG II, CECIL CITRON, SHERMAN AND CITRON, ELLIOT LUBARSKY, RALPH BARBER, ROLSLYN TABOT, MONTMARTRE INC., CRAFTS SPUN YARN INC., MT. CLEMENS CORP., BALDER ENTERPRISES, DJH CORPORATION, MONTMARTCO, INC. ET AL., THIRD-PARTY DEFENDANTS-APPELLEES



Appeals from an order of the United States District Court for the Southern District of New York, Lee P. Gagliardi, Judge, affirming two orders of the Bankruptcy Court that dismissed third-party complaint for lack of jurisdiction and directed defendant to surrender two automobiles or pay the book value thereof to plaintiff. Affirmed in part, reversed and remanded in part.

Before Oakes and Kearse, Circuit Judges, and Re, Chief Judge.*fn*

Author: Kearse

The principal foci of this appeal are two Buick automobiles, one vintage 1973, the other 1974. Appellant Stephen G. Glatzer appeals from an order of the United States District Court for the Southern District of New York, Lee P. Gagliardi, Judge, which, inter alia, affirmed an order of the bankruptcy court directing Glatzer to surrender or pay the book value of the two automobiles, previously owned by the debtor, Emergency Beacon Corporation ("EBC"), to appellee Montco, Inc. Although we affirm so much of the district court's order as affirmed dismissal of a third party complaint,*fn1 we reverse and remand the order requiring Glatzer to surrender the cars or pay their book value.

BACKGROUND

The controversy arises out of the financial difficulties of EBC, which was formed by Glatzer and Rocco Scappatura in 1968. Glatzer was EBC's president, Scappatura was vice-president, and after the firm went public each owned 28% of the issued and outstanding shares. Disputes arose, however, and by late 1974 there were discussions as to the possibility that either might buy the other's stock. Of greatest relevance here are the negotiations that took place at a meeting on November 3, 1974. In attendance were Glatzer, Scappatura, EBC's accountant Elliot Lubarsky, EBC's attorney Jack Polish, and an EBC director Spencer Kellogg II. At this meeting, as the bankruptcy court later found, Glatzer agreed to resign as an officer and director of EBC, EBC agreed to pay Glatzer $100,000 per year for two years, Glatzer agreed to serve as a consultant to EBC and agreed not to compete with EBC in the United States or Canada for three years, and Scappatura agreed to buy Glatzer's EBC shares for $200,000. EBC also agreed that Glatzer could keep any EBC equipment in his possession and that he was to pay EBC the book value of the company cars in his possession, i.e., the two Buicks.

Immediately after that meeting, Scappatura and Kellogg had second thoughts about the deal with Glatzer, although they held Glatzer to his resignation and refused to continue his salary. Despite renewed negotiations, EBC defaulted on its payments to Glatzer, who never received any part of the $200,000 he was to be paid by EBC, nor any payment from Scappatura.

EBC's Claim and the 1977 Decision

On March 18, 1976, EBC filed a petition for an arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C. §§ 701-99 (1976), and continued to manage its business and property as a debtor-in-possession. It then commenced an adversary proceeding before the bankruptcy court for an order directing Glatzer to turn over certain property. Glatzer answered that his possession of the property was lawful and he counterclaimed for $200,000 for EBC's breach of the November 3, 1974 contract. In a decision rendered on December 28, 1977, the bankruptcy court, Howard Schwartzberg, Judge, ruled against EBC. The court found that at the November 3, 1974, meeting the parties had made the agreements described above and intended to be bound by those agreements. It found that the minutes of the meeting satisfied the formal requirements of New York's Statute of Frauds as set forth in either N.Y.U.C.C. § 2-201 (McKinney 1964), governing sales of goods, or N.Y.Gen.Oblig.Law § 5-701 (McKinney 1978), governing contracts not to be performed within one year. The court ruled, therefore, that EBC was obligated to pay Glatzer $200,000.

With regard to the two Buicks, the court found that "it was agreed that Glatzer was to keep whatever equipment in his possession that he wanted to keep and that he would pay for company cars at book value." The court ordered that the $200,000 owed by EBC to Glatzer "be reduced by the book value of the automobiles now in Glatzer's possession." The court's conclusions of law stated as follows:

4. The debtor, EBC, breached its agreement with Stephen Glatzer, whose proof of claim in the sum of $200,000 is sustained, less the book value as of March 18, 1976, of the debtor's automobiles now in his possession.

5. The parties agreed that Glatzer may retain these items of the debtor's equipment in his possession on November 3, 1974, and therefore, his retention of these items is not unlawful, nor may they be recovered, as prayed for in the debtor's complaint.

In accordance with his opinion, Judge Schwartzberg entered an order, also on December 28, 1977, dismissing EBC's complaint, stating that EBC had "failed to sustain its action against Stephen Glatzer for a turnover of the debtor's equipment in his possession as of November 3, 1974," and upholding Glatzer's counterclaim, providing in part as follows:

Ordered, that Stephen Glatzer's proof of claim filed in this Chapter XI proceeding is hereby allowed in the sum of $200,000, less the book value, as of March 18, 1976, of ...


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