Appeal of HAROLD and BARBARA HEIN and DAVID DOLNY

In the Matter of a Mail Dispute		)  March 28, 1994
Between:				)
					)
HAROLD and BARBARA HEIN			)
					)
	and				)
					)
DAVID DOLNY				)  P. S. Docket No. MD-215

 
APPEARANCE FOR MR. AND MS. HEIN:	Eric S. Horowitz, Esq.
					Zane and Rudofsky
					152 West 57th Street
					New York, NY 10019-3310

APPEARANCE FOR MR. DOLNY:		Preston A. Leschins, Esq.
					Anzalone & Leschins
					888 Seventh Avenue, Suite 2808
					New York, NY 10106-1698

INITIAL DECISION

This mail dispute has been docketed pursuant to Domestic Mail Manual Transition Book §157.72, which requires the chief field counsel to forward certain unresolved mail disputes to the Judicial Officer for resolution. The mail in dispute is that addressed to Midcity Press, Inc., 140 East 34th Street, New York, New York 10016. Both claimants to the mail filed written materials in support of their claims. The Heins submitted a sworn statement as required by 39 C.F.R. § 965.5, and their counsel submitted a comment regarding Mr. Dolny's submittal, pointing out that Mr. Dolny did not submit a sworn statement and urging that Mr. Dolny's attorney's letter be disregarded. The disputed mail is currently being held by the New York Post Office.

The findings that follow are based on the parties' submittals and documents they previously sent to field counsel.

FINDINGS OF FACT

1. The Heins owned all of the stock and were the officers and directors of Midcity Press, Inc. ("Midcity"), a New York corporation which operated an office supply store (Stock Purchase Agreement, dated April 23, 1991, §5.1).

2. On April 23, 1991, the Heins entered a Stock Purchase Agreement whereby they agreed to sell the stock of Midcity to David Dolny for $500,000 (Stock Purchase Agreement; Joint Affidavit of Harold and Barbara Hein ("Hein Affidavit") ¶ 6).

3. The Stock Purchase Agreement called for Mr. Dolny to pay the Heins $150,000 and to execute a Note payable by Midcity Press, Inc., for $350,000 to be paid to the Heins in installments over 84 months (Id.). The Note was secured by a Security Agreement and Financing Statements establishing a security interest in "[a]ll furniture, accounts receivable, fixtures, inventory and all other personal property now owned or hereafter acquired by Midcity Press, Inc.," and all proceeds of the listed collateral (Hein Affidavit ¶¶ 9, 21-22; Security Agreement, dated April 23, 1991; Financing Statements; Stock Purchase Agreement §1.2). Upon default by Midcity, the Heins were authorized under the Security Agreement to "enter upon [Midcity's] premises peaceably . . . and take possession of the collateral." The Security Agreement and Financing Statements did not mention the corporation's mail.

4. The Stock Purchase Agreement called for the Heins to submit their resignations as officers and directors of the corporation, "to be effective forthwith" (Stock Purchase Agreement §5.1 (iv)). On April 23, 1991, Mr. Dolny signed the Stock Purchase Agreement, Promissory Note, Security Agreement, and Financing Statements on behalf of Midcity, being specifically identified as president of Midcity Press, Inc., on the Stock Purchase Agreement and the Promissory Note.

5. As further security for payment of the remainder of the purchase price, the stock certificates and the resignations were delivered into escrow with the Heins' attorney to be held until payment for the business was complete, at which time they would be released to Mr. Dolny. In the event of default, the Heins were authorized to issue a Notice of Default to Mr. Dolny, Midcity and the escrow agent. Absent cure of the default within 10 days, the Agreement directed the escrow agent to "forthwith deliver to the [Heins] all documents held in escrow." (Stock Purchase Agreement §3.1 A).

6. In January of 1993, Midcity ceased making the monthly payments due the Heins (Hein Affidavit ¶ 15). In about April of 1993, Midcity ceased its business operations at 140 East 34th Street and returned the premises to the owner of the building (Letter dated March 24, 1993; Hein Affidavit ¶ 25).

7. On April 20, 1993, the Heins issued the Notice of Default citing, among other reasons, Midcity's failure to make payments on the Promissory Note (Notice of Default; Hein Affidavit ¶¶ 16-17). The default was not cured (Hein Affidavit ¶¶ 18-20), but the record does not reflect that the Heins have recovered the stock of Midcity Press, Inc., or taken any steps to remove Mr. Dolny as president of the corporation.

8. The Heins claim mail addressed to Midcity Press, Inc., 140 East 34th Street, arguing that the security interest taken in the company's personal property, accounts, inventory and proceeds includes a security interest in the mail itself. As the Security Agreement allows the secured party to take peaceful possession of the collateral, they claim a right thereunder to have the mail addressed to Midcity delivered to them. Further, the Heins allege, on information and belief, that Mr. Dolny has abandoned any interest in Midcity Press, Inc., including the right to receive the corporation's mail.

9. Mr. Dolny argues that he remains the president of Midcity and that he should be able to control delivery of the corporation's mail.

CONCLUSIONS OF LAW

1. As pointed out by the Heins' counsel, the statement submitted by Mr. Dolny's counsel is not sworn. It has been considered as argument and has not been relied upon in reaching the above findings of facts. The documents submitted by Mr. Dolny in this proceeding and to the postmaster, however, have been considered, along with the documents submitted by the Heins and their affidavit.

2. Postal regulations provide that if disagreement arises regarding delivery of a corporation's mail, the mail shall be delivered according to the instructions of the president of the corporation. Domestic Mail Manual D042.4.1.

3. Notwithstanding the power granted the Heins in the Stock Purchase Agreement to recover Midcity's stock after default and their ability thereafter to vote out Mr. Dolny as president, he remains the president of Midcity Press, Inc. Therefore, unless the Security Agreement or other circumstances give the Heins a right to control mail addressed to Midcity, it will be delivered according to Mr. Dolny's instructions.

4. Lenders can reserve to themselves the power to control a debtor's mail in the event of the debtor's default on its obligations, and such agreements by debtors have been found to be enforceable in resolving mail disputes. See, e.g., G.I. Supply, Inc., P.S. Docket No. MD-98 (December 10, 1990). In this case, however, the Heins did not retain such a right; their financing documents do not mention delivery of the company's mail. While some of the mail might contain payments which could be considered proceeds of the collateral and would be covered by the Heins' security interest when received by Midcity, see New York Uniform Commercial Code § 9-306 and Official Comment 2(c); Lake Ontario Production Credit Assoc. v. Grove Partnership, 526 N.Y.S. 2d 985, 986 (A.D. 4 Dept. 1988) aff'd 532 N.Y.S. 2d 847 (Table), the mail itself is not subject to the Heins' security interest.

5. Additionally, the Security Agreement language does not support the Heins' claim to mail addressed to Midcity in the custody of the Postal Service. It provides for entry on Midcity's premises for purposes of recovering the collateral. It does not specifically authorize recovery of collateral in the hands of third parties before it is delivered to Midcity's premises.

6. So long as Mr. Dolny remains president, he has the authority under postal regulations to direct delivery of the corporation's mail. That the company has stopped operations, turned over the premises to the landlord and ceased paying its financial obligations does not establish that Mr. Dolny has abandoned all interest in the corporation or change his entitlement to direct the company's mail.

7. Resolution of this dispute determines only the right to delivery of mail addressed to Midcity Press, Inc., 140 East 34th Street, New York, New York 10016. This decision does not determine who is entitled to the contents of the mail once it is delivered. Therefore, the Heins' right under New York Uniform Commercial Code § 9-503 to take peaceful possession of any proceeds of collateral that have arrived in the mail has not been diminished.

8. The attached mail delivery order should be issued.

					Norman D. Menegat
					Administrative Judge