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In re M. Frenville Co.

United States Court of Appeals for the Third Circuit

June 15, 1984, Argued ; September 17, 1984, Decided

No. 83-5789

Opinion

 [*333]  OPINION OF THE COURT 

ADAMS, Circuit Judge.

This is an appeal by Avellino & Bienes (A&B) from a ruling by the district court, affirming the judgment of the bankruptcy court, that A&B's action against M. Frenville Co., Inc. and Rudolf Frenville, Sr. was barred by the automatic stay provision of the Bankruptcy Reform Act of 1978 (the Code), 11 U.S.C. § 362(a)(1) (1982). The critical issue is whether the automatic stay provision [**2]  applies to situations in which the acts of the debtor occurred before the filing of the bankruptcy petition yet the cause of action stemming from those acts arose post -petition. For the reasons set forth, we reverse the district court's judgment.

The facts of this case are undisputed. A&B is a certified public accounting firm located in New York City. From 1977 to 1979 A&B was engaged by M. Frenville Co., Inc. as an independent auditor and accountant. As part of its duties, A&B prepared certified financial statements of the company for fiscal years 1978 and 1979.

In July 1980, creditors of Frenville filed an involuntary petition for bankruptcy against the company under chapter 7 of the Bankruptcy Reform Act of 1978, 11 U.S.C. §§ 701 et seq. (1982). In January 1981, creditors also filed involuntary petitions under chapter 7 of the Code against two principals of the company: Rudolph Frenville, Sr. and Rudolph Frenville, Jr. 2 

 [**3]  The Chase Manhattan Bank, N.A., the Fidelity Bank, Fidelity International Bank and Girard International Bank (the banks) filed suit in the Supreme Court of New York on November 16, 1981, against A&B. The complaint alleged that A&B negligently and recklessly prepared the Frenville financial statements, that the statements were false, and that because of their reliance on the statements, the banks had collectively suffered losses in excess of five million dollars.

As a result of the suit by the banks, A&B filed a complaint on January 10, 1983, in the Bankruptcy Court for the District of New Jersey, which was administering the Frenvilles' chapter 7 proceedings. In the bankruptcy court, A&B sought relief from the automatic stay provision of § 362(a) in order to include the Frenvilles  [*334]  as third-party defendants in the New York state proceeding. The purpose of the third-party complaint was to obtain indemnification or contribution from the Frenvilles for any loss suffered by A&B as a result of the suit by the banks.

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744 F.2d 332 *; 1984 U.S. App. LEXIS 18535 **; 11 Collier Bankr. Cas. 2d (MB) 491; 12 Bankr. Ct. Dec. 396; Bankr. L. Rep. (CCH) P70,024

In the Matter of: M. FRENVILLE CO., INC., RUDOLPH F. FRENVILLE, JR. and RUDOLPH F. FRENVILLE, SR. AVELLINO & BIENES, A Partnership, Appellant v. M. FRENVILLE CO., INC. and RUDOLPH F. FRENVILLE, SR., and CHARLES STANZIALE, ESQ., Interim Trustee

Subsequent History:  [**1]   Cert. Denied, Reported at: 469 U.S. 1160(1985).

Prior History: On Appeal from the United States District Court for the District of New Jersey.

Disposition: Reversed and Remanded.

CORE TERMS

automatic stay, pre-petition, right to payment, indemnity, banks, automatic stay provision, indemnification, proceedings, contingent, third-party, bankruptcy petition, bankruptcy court, cause of action, post-petition, unliquidated, undisputed, unmatured, shipping

Bankruptcy Law, Administrative Powers, Automatic Stay, General Overview, Scope of Stay, Contracts Law, Remedies, Equitable Relief, Torts, Multiple Defendants, Contribution, Procedural Matters, Commencement & Prosecution, Claims, Types of Claims, Definitions, Business & Corporate Compliance, Contracts Law, Types of Contracts, Guaranty Contracts, Civil Procedure, Preliminary Considerations, Federal & State Interrelationships, Erie Doctrine