Florists' Transworld, Inc. v New York Floral Group, Inc.

[*1] Florists' Transworld, Inc. v New York Floral Group, Inc. 2009 NY Slip Op 52292(U) [25 Misc 3d 1225(A)] Decided on November 12, 2009 Supreme Court, New York County James, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 12, 2009
Supreme Court, New York County

Florists' Transworld, Inc., Plaintiff,

against

New York Floral Group, Inc. d/b/a Flowers on First, and Constantine J. Rallis, Defendants.



650211/08



Plaintiff's attorney:

Ivars Berzins, Esq.

Ivars Berzins, P.C.

484 West Main Street

Babylon, NY 11702

631-661-3540

Defendant Pro Se:

Constantine Rallis

New York Floral Group

Flowers on First

1072 First Avenue

New York, NY 10022

Debra A. James, J.

Upon the foregoing papers, the motion of plaintiff Florists' Transworld Delivery Inc. ("Florists' Transworld Delivery") for an order directing entry of a default judgment for $84,918.89 with interest from January 1, 2008, plus attorneys fees equal to 23% of that amount and costs and disbursements and in favor of the plaintiff and against the defendants, jointly and severally, for defendants neglect to proceed, is DENIED, without prejudice to move upon vacatur, modification or final determination of the stay issued by the Bankruptcy Court.

Florists' Transworld Delivery moves for a default judgment against defendants for their failure to comply with this court's Preliminary Discovery Conference Order dated December 2, 2008.

The parties agree that the individual defendant Constantine J. Rallis has filed for bankruptcy protection in the United States Bankruptcy Court of the Southern District of New York, which petition remains pending before that court. The primary issue before this court is the scope of the Bankruptcy Code automatic stay [11 U.S.C. § 362(a)], i.e., whether such stay encompasses both defendant Rallis and the corporate defendant New York Floral Group, Inc.

By Order dated May 12, 2009 (Motion Sequence No. 01), this court relieved Mark Warren Moody, 185 Franklin Street, 5th Floor, New York, New York as attorney for both defendants. Although such Order directed attorney Moody, as outgoing attorney, to serve a copy of the order with notice of entry on his soon to be former clients at their last known address(es), he never did so. Instead, on June 4, 2009, plaintiff's counsel served such order with notice of entry on the defendants, thus effectuating the Order relieving their attorney thirty days after such service.

Defendant Constantine J. Rallis proceeds on his own behalf, and submits an affidavit in opposition to the motion at bar. Defendant New York Floral Group, Inc. ("New York Floral Group") is a corporation and therefore in default in opposing the motion at bar, as it has not retained substitute counsel pursuant to CPLR 321(a). Jimenez ex rel Disla v Brenillee Corp, 48 AD3d 351 (1st Dept 2008).

Florists' Transworld Delivery is an Ohio non-profit corporation. The gravamen of its [*2]complaint is that New York Floral Group, a member of the FTD Association, defaulted on a agreement that it has with respect to its use of Florists' Transworld Delivery's Clearing House. Under the agreement, Florists' Transworld Delivery extended credit to New York Floral Group, and is now owed $84,918.89, plus attorneys fees incurred in prosecuting this lawsuit as set forth under the agreement. Florists' Transworld Delivery also seeks to enforce a written guarantee, which the individual defendant Constantine J. Rallis, who is 100% owner of the corporate defendant, signed as a condition of the extension of credit to the corporate defendant.

This court determines, sua sponte, that the entire case must be stayed in order to effectuate the bankruptcy stay against debtor Rallis, since Florists' Transworld Delivery's claims against the individual defendant are entirely derivative of its claims against the corporation. Such is the case because any adjudication of the corporate defendant's breach of contractual duties under the credit agreement would necessarily decide Rallis's liability to Florists' Transworld Delivery under his personal guarantee. The stay must be extended to the corporate defendant since any adjudication against such defendant would diminish Rallis's estate in bankruptcy.

"An extension of the automatic stay protection to non-debtors is reserved for cases where the court finds "special or unusual circumstances." In re North Star Contracting Corp.125 B.R. 368, 370 (S.D.NY 1991). "Special or unusual circumstances" always involve "an immediate adverse consequence for the debtor's estate." Examples include an obligation of which the debtor is a guarantor, McCarney v. Integra National Bank North, 106 F.3d 506, 510-511 (3d Cir. 1997); a claim against the debtor's insurer, Johns-Manville Corp. v. Asbestos Litigation Group, 26 B.R. 435-436 (Bankr. S.D.NY 1983); an obligation of the debtor to provide indemnification, In re Lomas Financial Corp. 117 B.R. 64 (S.D.NY 1990); a claim that would reduce the debtor's limited insurance proceeds, A. H. Robins Co. v. Piccinin 788 F.2d 994 (4th Cir.), cert. denied, 479 U.S. 876 (1986); or "when an identity of interest between the debtor and third party non-debtor to the extent that the debtor is the real party defendant and a judgment against the third party non-debtor will affect directly the debtor", In re North Star Contracting Corporation at 370-371 (S.D.NY 1991).

In Queenie, Ltd. v. Nygard International, 321 F.3d 282 (2d Cir. 2003), the court found that "The automatic stay can apply to non-debtors, but normally does so only when a claim against the non-debtor will have an immediate adverse consequence for the debtor's estate." In extending the automatic stay to the non-debtor corporation, the Queenie court reasoned that since such corporation was wholly owned by the debtor, the adjudication of any claim against it would have an immediate adverse consequence for the estate of such debtor.

The motion papers before the court in this case likewise demonstrate such "special or unusual circumstances." The allegations of the Complaint, Florists' Transworld Delivery's pleading in this action, are that the corporate defendant is wholly owned by defendant Rallis. Such circumstance, i.e. that defendant Rallis is a 100% shareholder of New York Floral Group, is sufficient to establish an impact on Rallis's estate. The entry of a default judgment against the corporate defendant would have an immediate adverse impact on individual defendant Rallis's bankruptcy estate, since such judgment would trigger Rallis's personal liability to pay the obligation of the judgment debtor corporation.

Accordingly, it is hereby [*3]

ORDERED that plaintiff's motion for a default judgment against defendants is DENIED, without prejudice; and it is further

ORDERED that this action is stayed during the pendency of the proceeding on defendant Constantine J. Rallis's bankruptcy petition; and it is further

ORDERED that any party may make an application by order to show cause to vacate or modify this stay upon the final determination of, or vacatur of the stay issued by the Bankruptcy Court.This is the decision and order of the court.