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Gasser Chair Co., Inc. v. Infanti Chair Manufacturing Corp.

February 8, 2006

GASSER CHAIR COMPANY, INC. AND GEORGE GASSER, PLAINTIFFS,
v.
INFANTI CHAIR MANUFACTURING CORP. AND VITTORIO INFANTI, DEFENDANTS.
GEORGE GASSER AND GASSER CHAIR COMPANY, INC., PLAINTIFFS, INFANTI INTERNATIONAL, INC., MARK INFANTI, NANCY APONTE INFANTI, VITTORIA INFANTI, MARGUERITA INFANTI, MARIELLA INFANTI, AMBOY NATIONAL BANK, GEORGE E. SCHARPF AND SANDERS W. GROPPER, IN HIS CAPACITY AS RECEIVER OF INFANTI INTERNATIONAL, INC., DEFENDANTS.



The opinion of the court was delivered by: Glasser, United States District Judge

MEMORANDUM AND ORDER

INTRODUCTION

Plaintiffs Gasser Chair Company, Inc. and George Gasser ("plaintiffs") obtained a judgment in excess of $15 million (the "Judgment") against Infanti Chair Manufacturing Corporation ("Infanti Chair") and Vittorio Infanti ("Mr. Infanti") on August 9, 1996. Despite their persistent efforts, plaintiffs have been unable to satisfy the Judgment. In a related proceeding in which plaintiffs seek to impose liability upon Infanti International, Inc. ("Infanti International" or the "Corporation") as a successor to Infanti Chair, and to hold Infanti International liable on the Judgment, the Court issued a decision, familiarity with which is assumed, granting partial summary judgment to plaintiffs. See Gasser v. Infanti International, Inc., 353 F. Supp. 2d 342 (E.D.N.Y. 2005). In that decision, the Court held that a patent (the "Patent") once owned by Mr. Infanti, which he subsequently conveyed to his daughter, Vittoria Infanti ("Vicky"), is owned by plaintiffs because Mr. Infanti's assignment of the Patent to his daughter, without consideration, constituted a fraudulent conveyance under New York law.*fn1

Plaintiffs have filed this supplementary proceeding by order to show cause for, inter alia, the appointment of a receiver to sell the Patent. George E. Scharpf ("Scharpf"), the President of Amboy National Bank ("Amboy"), and a creditor of Infanti International, acting in his individual capacity, opposes plaintiffs' application and asserts that he has a valid security interest in the Patent superior to any claim to it asserted by plaintiffs. In response, plaintiffs argue, among other things, that Scharpf does not have a valid security interest in the Patent.

For the reasons that follow, the Court grants plaintiffs' motion and finds that there is no evidence that Scharpf has a valid security interest in the Patent superior to the plaintiffs' claim to it. Pursuant to N.Y. C.P.L.R. § 5228(a), the Court therefore will appoint a receiver to conduct a sale of the Patent.

BACKGROUND

The transactions entered into between Scharpf, on the one hand, and Infanti International and Mr. Infanti, on the other hand, determine the Court's resolution of plaintiffs' application. They are as follows. On or about September 10, 2001, and subsequently, on or about October 4, 2001, Scharpf and Infanti International entered into two identical collateral promissory notes in the amount of $500,000 and $135,000, respectively. In order to secure the extension of credit under these notes, Infanti International granted Scharpf a security interest in certain collateral, including the "[a]ssignment of all patents related to Infanti Versi Chairs." On or about July 22, 2002, and subsequently, on or about October 17, 2002, Scharpf and Infanti International entered into two identical collateral promissory notes, each in the amount of $100,000. In order to secure the extension of credit under these notes, Infanti International granted Scharpf a security interest in certain collateral, including "a chair with a releasably detachable and interchangeable seat cushion, and releasably detachable and interchangeable front and rear seat back cushions mounted to injection molded plates." All four of these notes (collectively, the "Notes") were "guaranteed" by Mr. Infanti.*fn2

They all contained a New Jersey choice of law provision.*fn3

Scharpf claims that he perfected his security agreement in the Patent by filing a UCC-1 financing statement (the "UCC Financing Statement") in the Richmond County Clerk's office on March 19, 2002 and by recording a security agreement in the United States Patent and Trademark Office (the "PTO Security Agreement") on October 8, 2002. The UCC Financing Statement lists Infanti International and Mr. Infanti as the debtors, and Scharpf as the secured party. The PTO Security Agreement identifies Mr. Infanti and his daughter "Vittoria Infanti Valentine [sic]" as the conveying parties, and Scharpf, as the receiving party. Only the PTO Security Agreement was signed.*fn4

DISCUSSION

A. Whether Scharpf Has A Valid Security Interest in the Patent

Based on the UCC Financing Statement and PTO Security Agreement, Scharpf asserts that "as the holder of a perfected security interest in the Patent, obtained for fair value," he "has priority over Gasser." (See January 14, 2005 Letter from Scharpf to Court). Scharpf relies on N.Y. C.P.L.R. § 5202(a), which provides that "[w]hen a judgment creditor has delivered an execution to a sheriff," as plaintiffs have done here, "the judgment creditor's rights in a debt owed to the judgment debtor or in an interest of the judgment debtor in personal property, against which debt or property the judgment may be enforced, are superior to the extent of the amount of the execution to the rights of any transferee of the debt or property, except a transferee who acquired the debt or property for fair consideration before it was levied upon." (emphasis added). Scharpf argues that plaintiffs have never levied on the Patent because the Supreme Court has held that a judgment creditor cannot enforce a judgment against a patent by execution and levy. (Id., citing Stephens v. Cady, 55 U.S. 528 (1852), Stevens v. Gladding, 58 U.S. 447 (1954)). Further, according to Scharpf, even if plaintiffs could and did levy on the Patent, he "acquired his interest in [it] for fair consideration ( i.e. , the value of all of his loans), before the Patent was levied upon."*fn5 (Id.)

As a threshold matter, the Court must determine whether Scharpf's contention is correct, namely, that he is a holder of a perfected security interest in the Patent. "Perfection of security interests is determined by state law." In re Investors & Lenders, Ltd., 165 B.R. 389, 393 (Bankr. D. N.J. 1994). Under New Jersey law (and the law of New York), a security interest is enforceable against the debtor "with respect to the collateral only if ... the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party." N.J. Stat. Ann. 12A § 9-203(b). "'Rights in the collateral' merely states a truism, namely, that the debtor can normally only convey what it has." 4 James J. White and Robert S. Summers, Uniform Commercial Code, at 127 (Ch. 31-3) (5 th ed. 2002).

The Notes pursuant to which Scharpf obtained a security interest in the Patent were signed between September 10, 2001 and October 17, 2002. However, at that time, neither Infanti International, nor Mr. Infanti, had any interest in the Patent to convey to Scharpf. The undisputed facts reveal that Infanti International never had an interest in the Patent at any time.*fn6 Mr. Infanti did not have an interest in the Patent because he "testified that he transferred the Patent to his daughter Victoria 'as a gift' at or around the time (September 10, 1999) he filed his patent application with the United States ...


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