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PEREIRA v. RUGGERITE

February 18, 2004.

JOHN s. PEREIRA, Trustee of the Estate of the 1485 2nd Ave. Restaurant Corporation, d/b/a Boxers Appellant, -against- RUGGERITE, INC., Appellee


The opinion of the court was delivered by: THOMAS GRIESA, Senior District Judge

Opinion

This bankruptcy appeal arises from the sale of property belonging to the estate of the debtor, 1485 2nd Ave. Restaurant Corporation d/b/a Boxers ("Boxers"). Appellant John Pereira is trustee of the estate and made the sale in question. Appellee Ruggerite, Inc. claims that it holds a security interest in the property, and has brought an adversary proceeding in the bankruptcy court to assert that interest. Judge Gonzalez of the Bankruptcy Court granted summary judgment to Ruggerite, and the trustee appeals.

Facts

  Beginning some time in the early 1990s, Ruggerite operated a restaurant at a building known as 1481-1489 Second Avenue in Manhattan. On November 8, 1994 the owner of the building formally leased the premises to Ruggerite. This lease was Page 2 extended in an agreement of December 28, 1994.

  Ruggerite subsequently negotiated to sell its restaurant business. A contract of sale was executed on February 12, 1999, and on March 15, 1999 Ruggerite assigned its lease to Boxers. The building owner had consented to this lease assignment on February 4, 1999.

  Boxers gave Ruggerite two promissory notes for the purchase. The contract of sale stated that in the event that Boxers defaulted on payment of the balance of the purchase price, Ruggerite was entitled to recover possession of the leased premises. Additionally, Boxers executed a security agreement in favor of Ruggerite on March 15, 1999. Pursuant to this agreement, Ruggerite held possession of both the lease from the building owner and the lease assignment to Boxers. Boxers also executed a collateral lease assignment ("the lease reassignment") in favor of Ruggerite.

  Neither the lease from the building owner to Ruggerite, nor the lease assignment to Boxers, nor the lease reassignment to Ruggerite, was recorded by Ruggerite or Boxers in the office of the City Register in New York County as permitted by section 291 of the New York Real Property Law.

  Ruggerite did file UCC-1 financing statements with the State of New York and New York County to evidence its lien on the restaurant equipment located at the premises, which was granted Page 3 by a provision of the security agreement. These filings list "1485 Second Ave. Rest. Corp." as the debtor, and Ruggerite as the secured party. The filings also indicate that they extend to cover all property indicated in the "Rider A" attachment. Rider A, which accompanies both the state and county filings, lists articles of personal property covered by the filings, "[t]ogether with all right, title and interest of Debtor in and to (i) all leases and other agreements affecting the use or occupancy of the premises described in Exhibit A." Exhibit A appears not to have been attached to the state or county filings.

  On March 3, 2000 an involuntary Chapter 7 bankruptcy petition was filed against Boxers. The case was subsequently converted to a voluntary Chapter 11 bankruptcy, and then back to a Chapter 7 bankruptcy. Periera was appointed the Chapter 11 trustee, and then the Chapter 7 trustee.

  On June 21, 2000 Judge Gonzalez approved the trustee's proposed sale of the Boxers restaurant. As an element of this the judge gave permission to the trustee to assume and assign the lease of the premises and the personal property located therein free and clear of all liens and encumbrances. In accordance with that order, the trustee sold the restaurant equipment and assigned the lease to a third party on or about June 28, 2000.

  As will be described in more detail later, Ruggerite claims that the nature of the documentation furnished to the trustee Page 4 prior to the sale gave the trustee constructive notice of Ruggerite's security interest in the Boxers lease. It was Boxers, the debtor, who was responsible for turning over to the trustee the necessary documentation regarding its property. Boxers did not have the original copies of the lease from the building owner, the assignment of the lease to Boxers, or the reassignment of the lease to Ruggerite. These were all in the possession of Ruggerite. Boxers did, however, provide the trustee with photocopies of the lease and the assignment. Boxers did not provide even a copy of the lease reassignment.

  Ruggerite thereafter commenced an adversary proceeding before Judge Gonzalez asserting a security interest in the lease and the personal property located at Boxers' premises, and therefore in the proceeds of the sale of both.

  A hearing was conducted by Judge Gonzalez on September 25, 2002. He rendered a decision on October 25, 2002. Judge Gonzalez stated in the decision that he did not have a transcript of the hearing, but that on the basis of his notes it was unclear whether issues regarding the validity of Ruggerite's security interest in the Boxers personal property had been settled. He did not in his opinion address the Boxers personal property. He addressed the balance of the motion concerning the validity of Ruggerite's security interest against the Boxers lease, and it is from this ruling that the present ...


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