THERESA L. SPRINGMANN, District Judge.
Presently before the Court are motions for summary judgment and motions to strike by the Defendants as to Count III of the Second Amended Complaint [ECF No. 183], along with a motion by the Plaintiff to strike the Defendants' Count III motions for summary judgment. This Opinion and Order addresses all motions relating to Count III of the Second Amended Complaint, which are the last remaining outstanding motions in this case.
On December 8, 2008, this Court entered an Opinion and Order [ECF No. 181] allowing the Plaintiff to amend his complaint by filing a Second Amended Complaint incorporating evidence gathered through discovery and a new claim for attorney's fees. On April 17, 2009, Defendants GT Enterprises LLC, Christopher Gildea, Katherine Gildea, Mike Motter, and Matt Mercer ("GT Defendants") filed a Motion for Summary Judgment on Count III of Trustee's Second Amended Complaint [ECF No. 208], along with a Brief in Support [ECF No. 209], a Statement of Material Facts [ECF No. 210], and an Appendix of Designated Documents [ECF No. 211]. Also on April 17, Defendant Arlington Capital, LLC filed a Motion for Summary Judgment on Count III of the Trustee's Second Amended Complaint [ECF No. 212], along with a Brief in Support [ECF No. 213], a Statement of Material Facts [ECF No. 214], and an Appendix of Designated Evidence [ECF No. 215]. On May 18, the Plaintiff responded with a Memorandum of Law in Opposition [ECF No. 222] which addressed both Count III summary judgment motions, along with a Response to Defendants' Statements of Material Facts and Statement of Genuine Issues [ECF No. 223], and an Appendix of Additional Evidence [ECF No. 224]. On June 2, Defendant Arlington Capital filed a Reply [ECF No. 227] with respect to the Count III motion, and the GT Defendants filed a Reply [ECF No. 236] with respect to the Count III motion. Also on June 2, Defendant Arlington Capital filed a Motion to Strike Certain Statements that the
Additionally, on April 27, 2009, the Plaintiff filed a Motion for an Order Striking or Summarily Denying Defendants' Motions Addressed to Count III [ECF No. 216]. On May 12, the GT Defendants and Defendant Arlington Capital both filed Responses [ECF Nos. 217 & 218]. For the following reasons, the Court will deny the Defendants' Motions for Summary Judgment with respect to Count III of the Second Amended Complaint.
The Court has previously outlined the history of this case in its October 5, 2006, Opinion [ECF No. 112], its August 24, 2007, Opinion [ECF No. 124], its November 5, 2007, Order and Opinion [ECF No. 137], its December 8, 2008, Opinion and Order [ECF No. 181], and its February 21, 2012, Opinion and Order [ECF No. 258]. In the interest of completeness, the Court will supplement and update the case history.
This case arose out of the bankruptcy of GT Automation Inc. (the Debtor). Steven Gildea was the president of the Debtor and sole equity owner. Defendant Anita Gildea is Steven Gildea's wife. Steven and Anita Gildea were the only directors of the Debtor. Defendant Christopher Gildea, Steven and Anita Gildea's son, was an officer of the Debtor. Christopher Gildea also owned Defendant Gasson, LLC, which leased equipment to the Debtor. Defendant Katherine Gildea is Christopher Gildea's wife.
The Debtor filed for bankruptcy on October 9, 2001, and the bankruptcy court allowed the Debtor to continue operating as a debtor-in-possession. Comerica was the Debtor's largest secured creditor and held a first priority security interest and lien on all of its assets. Comerica filed a proof of claim in the bankruptcy proceedings for $7,818,406.10.
During the bankruptcy, Defendant Christopher Gildea and other Gildea family members and officers of the Debtor (the Gildea Group) made efforts to secure financing to purchase the Debtor's assets. There were negotiations between the Gildea Group and Comerica from the summer of 2002 until sometime in early 2003. The Gildea Group also began meeting with Defendant Arlington Capital in February 2003. On February 12, 2003, the Debtor moved for an order authorizing an auction of the Debtor's assets. The Gildea Group sought to purchase the Debtor's assets. The bankruptcy court issued an order allowing an auction of the Debtor's assets pursuant to 11 U.S.C. § 363, subject to conditions agreed to by the Debtor and its creditors.
The auction for the Debtor's assets was held on April 3, 2003. Defendant GTA Acquisition, LLC submitted a bid of
Pursuant to a Buyout Agreement dated April 7, 2003, Defendant GT Enterprises, LLC (Defendant GT/E) acquired Defendant GTA Acquisition. Defendant GT/E was formed and is owned by Defendants Katherine Gildea, Mike Motter, and Matt Mercer. Defendant Matt Mercer was a Vice President of the Debtor. Defendant Mike Motter was the Debtor's accountant.
This case was filed on April 7, 2004. The Plaintiff's Complaint stated claims against Defendants Christopher Gildea, Katherine Gildea, Michael Motter, Matt Mercer, Anita Gildea, Arlington Capital, LLC, GT Acquisition, LLC, GT/E, LLC, Gasson, LLC, and Gildea & Gorman, LLC. An Amended Complaint was filed on October 18, 2004, containing eight counts.
In its Opinion of October 17, 2005, the Court granted summary judgment to Defendant Arlington Capital on the Plaintiff's state law claims against it (Counts VI to VIII of the Amended Complaint), finding the bankruptcy court's April 16, 2003, Amended Sale Order precluded such claims. (Opinion, ECF No. 49.) The Court stated that the state law claims could be brought only if the Amended Sale Order was set aside. In response, the Plaintiff brought a separate case alleging fraud on the court and seeking to alter the Amended Sale Order. Boyer v. GT Acquisition, 1:06-CV-90 (N.D. Ind. filed March 22, 2006). The bankruptcy court declined to provide the relief sought by the Plaintiff, stating that granting the requested relief probably would not remove the preclusive effect of the Amended Sale Order, and holding that a judgment that is alleged to have been obtained by fraud on the court cannot be amended, it must be vacated. The Plaintiff appealed, and this Court agreed with the bankruptcy court as stated in its Opinion and Order of August 9, 2007. Boyer v. GT Acquisition LLC, No. 1:06-CV-90-TS, 2007 WL 2316520 (N.D.Ind. Aug. 9, 2007).
In its Opinion of October 5, 2006, the Court denied summary judgment on Count I of the Amended Complaint, granted summary judgment on Counts III, IV, and V of the Amended Complaint, and withheld ruling on Count II of the Amended Complaint pending further briefing. (Opinion, ECF No. 112.) Counts I and II sought to set aside transfers of Debtor funds to Defendant Christopher Gildea, and Count III was to set aside a transfer of Debtor funds to Gildea & Gorman, LLC. Count IV was a state law claim alleging that Defendants Mike Motter and Christopher Gildea breached their fiduciary duties to the Debtor. Count V alleged that Defendants Arlington Capital, GT/E, Christopher Gildea, Katherine Gildea, Mike Motter, and Matt Mercer colluded to control the price of the Debtor's assets at the auction sale.
In its Opinion of August 24, 2007, the Court denied summary judgment on Count II of the Amended Complaint. (Opinion, ECF No. 124.) The Court additionally granted the Plaintiff's Motion to Alter its previous decision with respect to Count V of the Amended Complaint, vacating its previous Order granting summary judgment on Count V.
In its Opinion and Order of December 8, 2008, the Court granted the Plaintiff's request to file a Second Amended Complaint. (Opinion & Order, ECF No. 181.) The Second Amended Complaint includes four counts, the first three of which are functionally equivalent to Counts I, II and V of the Amended Complaint, with some additional factual allegations. Count I seeks to avoid the transfer of $170,000 from the Debtor to Defendant Christopher Gildea which the Plaintiff claims was setoff without approval of the bankruptcy court. Count II seeks to avoid more than $30,000 of the Debtor's payments to Defendant Christopher Gildea which the Plaintiff claims were not in the ordinary course of business. Count III alleges that Defendants Arlington Capital, GT/E, Christopher Gildea, Katherine Gildea, Mike Motter and Matt Mercer colluded to control the price of the Debtor's assets at the auction sale. Finally, Count IV is a request for attorney's fees.
In its Opinion and Order of February 21, 2012, the Court denied summary judgment to Defendants Gasson, LLC and Christopher Gildea on their Second Amended Complaint Count I motion, and denied summary judgment to Defendant Christopher Gildea on his Second Amended Complaint Count II motion. (Opinion & Order, ECF No. 258.)
This Opinion and Order addresses all motions relating to Count III of the Second Amended Complaint.
Summary judgment is appropriate if the facts supported by materials in the record show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. The motion should be granted so long as no rational fact finder could return a verdict in favor of the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A court's role is not to evaluate the weight of the evidence, to judge the credibility of witnesses, or to determine the truth of the matter, but instead to determine whether there is a genuine issue of triable fact. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505; Doe v. R.R. Donnelley & Sons Co., 42 F.3d 439, 443 (7th Cir.1994). The party seeking summary judgment bears the initial burden of proving there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also N.D. Ind. L.R. 56.1(a) (stating that the movant must provide a "Statement of Material Facts" that identifies the facts that the moving party contends are not genuinely disputed). In response, the nonmoving party cannot rest on bare pleadings alone but must use the evidentiary tools listed in Rule 56 to designate specific material facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir.2000); N.D. Ind. L.R. 56.1(b) (directing that a response in opposition to a motion for summary judgment must include "a section labeled `Statement of Genuine Disputes' that identifies the material facts that the party contends are genuinely disputed so as to make a trial necessary"). According to Rule 56:
Fed.R.Civ.P. 56(c)(1).
Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, the court must construe all facts in a light most favorable to the nonmoving party, view all reasonable inferences in that party's favor, see Bellaver v. Quanex Corp., 200 F.3d 485, 491-92 (7th Cir.2000), and avoid "the temptation to decide which party's version of the facts is more likely true," Payne v. Pauley, 337 F.3d 767, 770 (7th Cir.2003) (noting the often stated proposition that "summary judgment cannot be used to resolve swearing contests between litigants"). A material fact must be outcome determinative under the governing law. Insolia, 216 F.3d at 598-99. "Irrelevant or unnecessary facts do not deter summary judgment, even when in dispute." Harney v. Speedway SuperAmerica, LLC, 526 F.3d 1099, 1104 (7th Cir.2008).
Under Federal Rule of Civil Procedure 56(c)(4), any affidavit or declaration "used to support or oppose a motion [for summary judgment] must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated." On a motion for summary judgment, a court must disregard parts of an affidavit that fail to comply with this rule. Cooper-Schut v. Visteon Auto. Sys., 361 F.3d 421, 429 (7th Cir.2004); Friedel v. City of Madison, 832 F.2d 965, 970 (7th Cir.1987). The following statements do not comply with the rule and should be disregarded: "(1) conclusory allegations lacking supporting evidence; (2) legal argument; (3) self-serving statements without factual support in the record; (4) inferences or opinions not grounded in observation or other first-hand experience; and (5) mere speculation or conjecture." Heltzel v. Dutchmen Mfg., Inc., No. 3:06-CV-227, 2007 WL 4556735, at *4 (N.D.Ind. Dec. 20, 2007) (quotation marks and citations omitted). Although "self-serving statements in affidavits without factual support in the record carry no weight," Butts v. Aurora Health Care, Inc., 387 F.3d 921, 925 (7th Cir.2004) (emphasis omitted), "a self-serving affidavit supported by facts in the record [can] defeat summary judgment," and the record "may include the self-serving affidavit itself, provided that the affidavit meets the usual requirements for evidence on summary judgment — including the requirements that it be based on personal knowledge and that it set forth specific facts showing that there was a genuine issue for trial," Buie v. Quad/Graphics, Inc., 366 F.3d 496, 504 (7th Cir.2004) (quotation marks and citations omitted).
In Count III, the Plaintiff alleges that Defendants Arlington Capital, GT/E, Christopher Gildea, Katherine Gildea, Mike Motter, and Matt Mercer colluded to
Due to the multiple motions and briefs filed regarding what is now Count III of the Second Amended Complaint, an in-depth recitation of the Court's previous rulings and rationales for those rulings is appropriate. Further, the Court will set out and summarize the evidence relied upon by the parties now that discovery is complete.
After the Debtor filed for bankruptcy, Defendant Christopher Gildea and other Defendants made several attempts to obtain financing in order to purchase the assets of the Debtor. But Defendants Christopher Gildea, Katherine Gildea, Mike Motter, and Matt Mercer did not bid on the assets of the Debtor when they went up for auction on April 3, 2003. Defendant Arlington Capital was the only bidder apart from Comerica's credit bid. The bankruptcy court held a hearing on the auction sale on April 7, 2003, and entered an order approving the sale on April 8. In a document dated April 7 and signed by Defendants Mike Motter and Christopher Gildea, Defendant GT/E (owned by Defendants Katherine Gildea, Mike Motter, and Matt Mercer) agreed to purchase the Debtor's assets from Defendant Arlington Capital.
Boyer v. Gildea, No. 1:05-CV-129-TLS, 2006 WL 2868924, at *15 (N.D.Ind. Oct. 5, 2006). Regarding the ability of the GT Defendants to submit a competitive bid, the Court stated:
Id., at *16. Accordingly, the Court's October 5, 2006, Opinion granted summary judgment to the Defendants on this count. However, the Plaintiff filed a motion to reconsider, and in an August 24, 2007, Opinion, the Court reversed itself, denying the Defendants summary judgment on this count. The Court explained that the Plaintiff had solidified the inference of collusion with evidence that the GT Defendants discontinued their vigorous pursuit of financing to purchase the assets of the Debtor only after beginning to meet with Defendant Arlington Capital, and with evidence that the GT Defendants had the possibility of obtaining financing sufficient to submit a competitive bid. Specifically, the Court stated as follows:
Boyer v. Gildea, 374 B.R. 645, 659-60 (N.D.Ind.2007). The Court concluded its analysis finding that an inference of collusion was reasonable by stating:
Id. at 661.
The GT Defendants and Defendant Arlington again challenge the Plaintiff's claim that they colluded to control the price at auction. The Defendants, in functionally congruent briefs, argue first, that Comerica's rights as an undersecured creditor negate the elements of a § 363(n) claim; second, that the Plaintiff has not produced evidence to raise even the inference that an agreement existed between Defendant Arlington and the GT Defendants prior to the auction sale, and that if the Court
In support, the Defendants submit three different offers tendered by the GT Defendants to Comerica from December 3, 2002, to January 6, 2003. (C. Gildea Aff., ECF No. 215-8 at 8-20.)
The Plaintiff responds to the Defendants' contentions by arguing, first, that the Court's previous analysis finding an inference of collusion between Defendant Arlington and the GT Defendants was correct; second, that the inference of collusion
In support, the Plaintiff relies on the Amended Plan Offer, submitted by Defendant Motter in July 2002, previously discussed by this Court and found to be admissible, which proposes Comerica financing a purchase of the Debtor's assets by Steven Gildea, Joe Siela, and Defendants Christopher Gildea and Matt Mercer. (Opinion & Order 12-13, ECF No. 258; Werling Aff. Ex. A, ECF No. 82-2.) The Plaintiff also submits, or directs the Court, to the following evidence: deposition testimony by Ernest Zarb, a senior vice president at Comerica, suggesting that the financing plan approved by Comerica on February 13, 2003, and communicated to the GT Defendants in the March 3 fax was actually an offer from the GT Defendants to Comerica, communicated by Defendant Christopher Gildea and/or Steven Gildea two to three weeks prior to February 13 (Zarb Dep. 72, ECF No. 224-2); deposition testimony by Zarb indicating that by February 5, 2003, Bill Badie from Arlington was calling and was "very interested" in purchasing the Debtor's assets (Zarb Dep. 149-50; Note, ECF No. 224-20 at 3); deposition testimony from Defendant Matt Mercer suggesting that from the beginning of the GT Defendants' association with Defendant Arlington, he viewed Defendant Arlington as a partner and not a competing bidder (Mercer Dep. 30-31, ECF No. 224-3); deposition testimony from Defendant Motter that recounts a meeting between executives of Defendant Arlington including Bill Badie and some of the GT Defendants including Christopher Gildea and Matt Mercer where Defendant Motter describes the meeting as occurring around February 27, 2003, but admits he was employed by the accounting firm of BKD and would have billed for his time (Motter Dep. 36-37, ECF No. 224-7); a BKD time report for Defendant Motter for the period ending February 15, 2003, indicating Defendant Motter met with Bill Badie on February 11, 2003, and billed his time to the Debtor (BKD Time Report, ECF No. 224-13 at 4); additional deposition testimony by Zarb, and the same exhibits relied upon by the Defendants, indicating that sometime between Comerica's February 13 approval of the GT Defendants' financing proposal and February 28, the GT Defendants revoked their offer (Zarb Dep. 191; Zarb Dep. I Exs. G & V, ECF No. 215-9 at 22-37, 39-56); Exhibit V to the Zarb Deposition — one of the exhibits submitted by the Defendants — suggesting that after the GT Defendants revoked the offer in late February, negotiations between the GT Defendants and Comerica continued (Zarb Dep. I Ex. V, ECF No. 215-9 at 47 (March 4 entry describing "[t]he new Gildeas' offer")); Exhibit G to the Zarb Deposition — also submitted by the Defendants — showing that on or about January 16, 2003, Steven Gildea submitted a financial statement to Comerica which was considered as part of Comerica's February 13 risk rating
The Defendants have moved to strike portions of the Plaintiff's Response to Statements of Material Facts and the Plaintiff's Memorandum of Law in Opposition. Because the Court finds enough admissible evidence to overcome summary judgment, the Court will here analyze the Defendants' arguments for striking only insofar as they are necessary to decide the motion for summary judgment.
The Defendants argue that the series of documents containing Arlington Capital's offer for the GT Defendants to participate with Defendant Arlington in the purchase of the Debtor's assets [Arlington Offer, ECF No. 224-18] is inadmissible. They argue that the documents are unauthenticated, and are hearsay. The Plaintiff makes no response to the Defendants' arguments except to suggest that the Arlington Offer is "redundant evidence supporting a particular fact." (Pl.'s Mem. of Law Opp'n Defs.' Mot. to Strike 10, ECF No. 239.) The Court notes that the Plaintiff offered the documents to show that Bill Badie of Arlington calculated that the net profit on purchase for Defendant Arlington and the GT Defendants would be $1,013,000. At his deposition, Badie confirmed that the $1,013,000 figure appearing in the first page of the Arlington Offer was based on his own calculation. Accordingly, while the Plaintiff has failed to show that the Arlington Offer documents contained in ECF No. 224-18 are authentic or nonhearsay, the Court will deny the Motions to Strike with respect to Badie's statement that the anticipated net profit on purchase for Defendant Arlington and the GT Defendants was $1,013,000. The Motions to Strike will be granted with respect to the remainder of the contents of the Arlington Offer documents. If the Plaintiff can lay a proper foundation for the Arlington Offer documents at trial, the Court will reconsider the Motions to Strike.
The Defendants argue that the email [Email and Attachment, ECF No. 224-9] sent by Defendant Motter to representatives of Defendant Arlington on April 9,
Defendant Arlington argues that Paragraph 22 of Mark Werling's Affidavit, concerning a conversation with Defendant Christopher Gildea on February 27, 2003, is hearsay as to Defendant Arlington. The Plaintiff responds that the statements attributable to Defendant Christopher Gildea are not hearsay under Rule 801(d)(1), 801(d)(2)(A), and 801(d)(2)(E). In the alternative, the Plaintiff argues Defendant Christopher Gildea's statements should be admissible against Defendant Arlington under Rule 807. Defendant Arlington replies that Rule 801(d)(1) is inapplicable, that Rule 801(d)(2)(A) admissions by Defendant Christopher Gildea are not admissible against Defendant Arlington, see Corner Pocket, 979 F.Supp. at 1283, and that the Plaintiff has not shown why Rule 801(d) (2)(E) or Rule 807 should apply. The Court agrees with Defendant Arlington that Rule 801(d)(1) appears inapplicable, and that Defendant Christopher Gildea's admissions are not admissible against Defendant Arlington under Rule 801(d)(2)(A). Further, the Court agrees that the Plaintiff has failed to make any showing that Defendant Christopher Gildea's statements are coconspirator statements admissible under Rule 801(d)(2)(E) or that they should be admitted under Rule 807. The Court notes, however, that both Defendant Mercer and Defendant Motter stated in their depositions that they were aware of a proposal for Comerica to finance the GT Defendants up to $3.7 million to purchase the assets of the Debtor. (Mercer Dep. 42, ECF No. 224-3; Motter Dep. 48, ECF No. 224-7.) Defendant Mercer stated he heard about the proposal from Defendant Christopher Gildea. Accordingly, the Court will consider the existence of a proposal for Comerica to finance the GT Defendants' attempt to purchase the assets of the Debtor up to $3.7 million. But the Court will grant the Motion to Strike as to Defendant Arlington with respect to paragraph 22 of Werling's Affidavit. If the Plaintiff can lay a proper foundation for this evidence at trial, the Court will reconsider the Motion to Strike.
The Defendants argue that Defendant Motter's Time Line [ECF No. 224-11] and BKD Time Report [ECF No. 224-13] are unauthenticated, and Defendant Arlington argues they contain hearsay statements as to Defendant Arlington. The GT Defendants also argue that the BKD Time Report is hearsay as to "Defendants," but make no hearsay argument with respect to the Time Line. The Plaintiff responds that Defendant Motter authenticated the Time Line at his deposition (Motter Dep. 57, ECF No. 240-3), and offers the subpoena and production email for the BKD Time Report (see ECF Nos. 240-4 & 240-5) in order to authenticate it. The Plaintiff makes no response to the Defendants' hearsay arguments. Because the Time Line appears to be an out of court statement offered for the truth of the matter asserted — that Defendant Motter was informed on December 31, 2002, that he would be leaving BKD, and because the Plaintiff has not shown why an exception would apply, the Court will grant the Motion to Strike with respect to Defendant Arlington. Further, the BKD Time Report appears to be an out of court statement offered for the truth of the matter asserted — that Defendant Motter met with Bill Badie on February 11, 2003. Although the Plaintiff has not shown why an exception would apply, viewing all reasonable inferences in favor of the non-moving party, because it appears that the BKD Time Report is a business record admissible under Rule 803(6), the Court will deny the Motions to Strike with respect to the BKD Time Report.
The Defendants argue that the Sales Transactions Spreadsheet [ECF No. 224-17] submitted by the Plaintiff is unauthenticated, is hearsay, and cannot be used by the Plaintiff to support the statement that the Debtor's accounts receivable had rebounded to over $628,000 by April 10, 2003. The Plaintiff offers no response to the Defendants' arguments. Accordingly, the Motions to Strike will be granted with respect to the Sales Transactions Spreadsheet. If the Plaintiff can lay a proper foundation for this evidence at trial, the Court will reconsider the Motions to Strike. The Court notes that none of the Defendants have objected to the Debtor's Ledger, which states that the Debtor's trade accounts receivable dipped below $300,000 on March 10, 2003, and amounted to over $628,000 by April 10. (Ledger, ECF No. 224-14 at 6-7.) The Court will therefore consider those facts.
The Defendants argue the financial statement submitted by Steven Gildea and dated January 15, 2003, is unauthenticated, and Defendant Arlington argues it is also hearsay as to Defendant Arlington. The Plaintiff does not respond to either the authentication or hearsay arguments against admissibility. Accordingly, the Motions to Strike will be granted. If the Plaintiff can lay a proper foundation for the financial statement at trial, the Court will reconsider the Motions to Strike. However, the Court notes that the Defendants submitted the second page of the
Defendant Arlington argues that Zarb's deposition statement that the assets of the Debtor were worth $4.895 million should be stricken because Zarb did not have personal knowledge of that fact and because Zarb did not have the qualifications to make such a valuation. Defendant Arlington also argues that the statement on page 13 of Exhibit G to Zarb's Deposition is unauthenticated, and is hearsay. The Plaintiff does not respond to any of these arguments. The Court finds that Zarb testified the value of the Debtor's assets was $4.895 million. At his deposition, the Defendants did not attempt to undercut his personal knowledge of that fact or his qualifications to give an opinion about the value of the property. Although Zarb's testimony appears to reference Exhibit G, the words he used do not suggest he lacked a basis upon which to testify to this fact. Accordingly, the Court will deny the Motions to Strike as to Zarb's statement that the assets of the Debtor were worth $4.895 million. Furthermore, the Court notes that the Defendants submitted Exhibit G to Zarb's Deposition as part of their summary judgment motions. Accordingly, Exhibit G being offered without limitation by the Defendants, Capital Sav. Ass'n, 576 F.Supp. at 797, the Court will deny the Motions to Strike with respect to Exhibit G and consider it for its internal assertion that the assets of the Debtor were worth $4.895 million.
Section 363(n) of the Bankruptcy Code states:
11 U.S.C. § 363(n). The Plaintiff alleges that the Defendants entered into an agreement controlling the sale price of the Debtor's assets and seeks compensatory damages, costs, fees, and punitive damages for willful disregard of § 363(n). For the Plaintiff to prevail, "(1) there must be an agreement; (2) between potential bidders; (3) that controlled the price at bidding." Birdsell v. Fort McDowell Sand & Gravel (In Re Sanner), 218 B.R. 941, 944-45 (Bankr.D.Ariz.1998). An agreement controls the sale price where an intended objective of the agreement is to influence the sale price, and where the sale price is actually controlled by the agreement. In re N.Y. Trap Rock Corp., 42 F.3d 747, 752 (2d Cir.1994). Where potential bidders enter
The Court must decide whether there is a triable issue of material fact as to 1) the existence of an agreement between the Defendants to control the price of the Debtor's assets at auction; 2) whether any agreement by the Defendants could have actually controlled the price at auction in light of Comerica's statutory rights as an undersecured creditor; and 3) whether the Plaintiff can show that the actual value of the Debtor's assets exceeded the price paid at auction.
The Court notes that the evidence submitted by the Defendants alone is significant, and raises a new inference not present before the Court when it issued its August 24, 2007, Opinion. The Defendants have submitted Exhibits G and V to Ernest Zarb's Deposition. Exhibit G is a Comerica Bank risk rating and loan recommendation dated February 13, 2003. It indicates that a Comerica loan department representative recommended financing the Gildeas' attempt to purchase the assets of the Debtor with several different loan transactions totaling approximately $3.7 million. It includes a valuation of the total assets of the Debtor at $4.895 million. It also indicates that the liquidation value of the Debtor's assets is $3.1-3.2 million. Exhibit V is an internal Comerica document with status updates regarding the loan to the Debtor. The entries begin September 14, 2001, and continue through August 20, 2003. The December 5, 2002, entry indicates Comerica's receipt of the Gildeas' first offer. The December 20 entry indicates Comerica's receipt of the Gildea's second offer, described as "still too low." (Zarb Dep. I Ex. V, ECF No. 215-9 at 48.) The January 9, 2003, entry indicates the Gildeas had "counter offered their first bid" and that as "the Gildeas are the only viable bidder," Comerica would continue to work with the Gildeas. (Id.) The February 13 entry indicates that
When the Court issued its August 24, 2007, Opinion, the evidence before the Court showed only that the GT Defendants and Defendant Arlington began meeting together sometime in February 2003, that Comerica faxed the GT Defendants a financing proposal on March 3, 2003, and that the GT Defendants chose to reject the terms communicated by Comerica. All indications were that the terms communicated on March 3 came as the result of an offer from Comerica to the GT Defendants. The Defendants continue to hold to this assertion, arguing in their briefs that "the alleged financing proposal was in no way related to any offers the Gildeas had made to Comerica." (GT Defs.' Br. in Supp. 10, ECF No. 209; Def. Arlington's Br. in Supp. 10, ECF No. 213.) The evidence submitted by the Defendants, however, suggests another possibility. The log entries in Exhibit V show that time and again Comerica representatives were considering offers described as the "Gildea's offer." The February 28 entry indicates that the Gildeas revoked their offer and suggests they submitted a lower offer. As late as March 4, Comerica describes the offer on the table as "[t]he new Gildeas' offer." The evidence submitted by the Defendants shows that negotiations between Comerica and the GT Defendants for financing continued into March 2003. The Defendants have averred in their Statement of Material Facts that "[t]he First Offer, Second Offer, Third Offer, and the proposal attached to the Sale Motion were the only offers that Christopher Gildea, Anita Gildea, and/or Matt Mercer made to purchase GT Automation Group's assets." (GT Statement of Material Facts ¶ 23, ECF No. 210; Arlington Capital Statement of Material Facts ¶ 23, ECF No. 214.) But the Defendants' evidence suggests that a reasonable jury could find the opposite to be true — that the GT Defendants communicated one or more other offers after the Third Offer,
The Court finds, first, that there is substantial evidence upon which a rational
Boyer v. Gildea, 374 B.R. at 660. The Court notes that with only two exceptions, its analysis is the same today as it was in 2007. The first exception is that in 2007 the Court was assuming that "Comerica proposed" to finance the GT Defendants' attempt to purchase the Debtor's assets for $3.7 million, whereas the evidence submitted by the Defendants suggests that the financing proposal may have originated with the GT Defendants themselves. Secondly, in 2007 the Court was assuming that the first meeting between the GT Defendants and Defendant Arlington occurred in "late February 2003," id. at 559, whereas the evidence submitted from discovery suggests the first meeting actually occurred even earlier — on February 11, 2003. Both of these new facts only strengthen the inference that the reason the GT Defendants in March declined the financing they had been so fervently seeking since the previous summer was that they had an agreement with Defendant Arlington which had been developing since February 11. The Defendants still insist that "negotiations between the Gildeas and Comerica broke down on January 6, 2003 — well before any conversations with Arlington Capital." (GT Defs.' Br. in Supp. 17; Def. Arlington's Br. in Supp. 17.) But evidence of a February 11 meeting between the GT Defendants and Defendant Arlington, combined with a Comerica entry on March 4 discussing "[t]he new Gildeas' offer," casts doubt on the Defendants' position.
As before, the GT Defendants argue they had legitimate reasons for declining Comerica's financing. The question of whether their purported reasons were their real reasons is a question for a jury. But as the Court previously stated:
Id. at 661. All of these factors remain before the Court, and all of them strengthen the inference from which a jury could find that the Defendants entered into an agreement with the intent to control the
The Defendants argue that they have produced evidence that the refusal of the terms in the March 3 fax represented sound business judgment, and thus under anti-trust case precedent, the burden is on the Plaintiff to show that "the inference of conspiracy is reasonable in light of the competing inference[ ] of independent action." Serfecz v. Jewel Food Stores, 67 F.3d 591, 599 (7th Cir.1995) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). As the Supreme Court has stated: "Conduct that is as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy." Id. (quoting Matsushita, 475 U.S. at 588, 106 S.Ct. 1348) (brackets omitted). The Seventh Circuit set forth its formulation for sufficiency of the evidence in an antitrust conspiracy case as follows:
Market Force Inc. v. Wauwatosa Realty Co., 906 F.2d 1167, 1171 (7th Cir.1990) (quoting Gibson v. Greater Park City Co., 818 F.2d 722, 724 (10th Cir.1987)); see Serfecz, 67 F.3d at 599.
The Court did not previously decide and does not now hold that the standard for evaluating evidence of a conspiracy in the antitrust context should always be applied to allegations of fraud in a bankruptcy case. On this issue, the Court previously held only that the Plaintiff's evidence of conspiracy was sufficient to overcome summary judgment even with the application of a heightened conspiracy standard. As the Court held: "the full context of the parties' dealings makes the inference of collusion more reasonable" than the inference of independent action, and therefore whether or not the heightened standard for substantiating a conspiracy in the antitrust context applied, the evidence produced by the Plaintiff satisfied that standard. Boyer, 374 B.R. at 662. For the reasons discussed below, the Court finds that the Plaintiff's evidence still establishes an inference of collusion between the GT Defendants and Defendant Arlington which is more reasonable than the inference that the GT Defendants and Defendant Arlington were merely pursuing independent interests. Because the Court finds that the evidence of conspiracy is not ambiguous, i.e., it is not as consistent with the Defendants' permissible independent interests as with an illegal conspiracy, the Court does not require the Plaintiff to produce evidence tending to exclude the possibility that the Defendants were pursuing independent interests instead of colluding.
Specifically, the Defendants offer the following arguments that they engaged in independent, legitimate business conduct. The Defendants argue that the February
The Defendants cite the Supreme Court's opinion in First National Bank of Arizona v. Cities Service Co. for the proposition that declining a business deal only raises the inference of collusion if the business deal was a good one. 391 U.S. 253,
As the Trap Rock court noted, agreements to control the price of a debtor's assets at auction are not likely to be reduced to writing. Trap Rock, 42 F.3d at 753. The Plaintiff's evidence is therefore — necessarily — circumstantial evidence showing why an inference of collusion is reasonable in light of the relationship between the parties. Because the Court finds that the inference of collusion is more reasonable than the inference that the Defendants acted independently, a reasonable jury could conclude from all the evidence that there was an agreement between the Defendants intended to control the price of the Debtor's assets at auction.
The Court finds, secondly, that if an agreement existed between the GT Defendants and Defendant Arlington, it could have controlled the price at auction within the meaning of § 363(n). As the Trap Rock court stated: "To control a price is to exercise restraining or directing influence over it; to regulate or curb, dominate, or rule it. In such context the term control implies more than acts causing an incidental or unintended impact on the price; it implies an intention or objective to influence the price." Trap Rock, 42 F.3d at 752 (quotation marks and citation omitted). The Court has previously held that the agreement between Comerica and Defendant Arlington to accept Defendant Arlington's $2.725 million offer as a stalking horse bid at the auction was not an agreement to control the price at auction within the meaning of § 363(n) because it was designed to set the floor for bidding, not to bring down the final sale price. The Court agrees with the Defendants that an agreement proscribed by § 363(n) must do more than have the intention of influencing the sales price — it must actually influence the
The Defendants argue that Comerica's right to credit bid the total amount of its claim against the assets of the Debtor — which all parties acknowledge was well in excess of the amount paid for the assets of the Debtor at auction
In support, the Defendants cite to cases and a statute with varying degrees of connection to the statutory right to credit bid. They cite a United States Bankruptcy Court decision stating that an undersecured creditor "could simply bid in the amount of its debt at the sale and thereby control the amount of the sales price." In re Dewsnup, 87 B.R. 676, 683 (Bankr. D.Utah 1988). They point the Court to the exception to the protections offered to nonrecourse creditors under § 1111(b)(1)(A)(ii) of the Bankruptcy Code, providing no protection to a nonrecourse creditor if such creditor already has the right to credit bid under § 363. Finally, the Defendants argue that the case of In re Hat, 310 B.R. 752 (Bankr.E.D.Cal.2004), shows that a court-designed equitable remedy similar to credit bidding ensures competitive bidding.
The Court agrees with the Defendants that the ability to credit bid could allow an undersecured creditor to control the price at auction. See Dewsnup, 87 B.R. at 683 (the undersecured creditor "could ... control the amount of the sales price") (emphasis added). However, where the potential bidders at a § 363 sale collude to control the price and their collusion is not uncovered, it is their agreement, and not the undersecured creditor's bid, that actually controls the price at auction within the meaning of § 363(n). "To control a price is to exercise restraining or directing influence over it; to regulate or curb, dominate, or rule it." Trap Rock, 42 F.3d at 752 (quotation marks omitted). If the undersecured creditor has full information about the value of the assets as determined by the interest the assets generate at auction and the number of parties interested in bidding on them, then the undersecured creditor's credit bid could dominate or rule the price at auction. But if the undersecured creditor's belief about the value of the collateral is clouded by deception, then it is the agreement of the colluding parties and not the misinformed credit bid that dominates or rules the price at auction. The Defendants' citation to In re Hat illustrates the point. The Hat
Thus, the Defendants' arguments about the impossibility of anyone except Comerica controlling the price at auction ring hollow. The Defendants argue that no agreement between the Defendants could have actually controlled the price at auction "as the parties had no ability to control the bidder with the right of first refusal — which solely was Comerica." (GT Defs.' Br. in Supp. 19; see Def. Arlington's Br. in Supp. 19.) But making all reasonable inferences in favor of the Plaintiff, the Defendants did have the ability to control Comerica — by a less than full disclosure about the identities of the parties to Defendant Arlington's bid, which convinced Comerica to enter a low credit bid in order to get some recovery. It is undisputed that the bankruptcy court's order required all bids to fully disclose the identities of the bidding parties, yet the schedule that would have identified the bidders was not included with Defendant Arlington's April 2, 2003, bid. As Comerica Vice President Zarb stated in his deposition, part of the reason Comerica accepted a low bid from Defendant Arlington instead of entering a higher credit bid was that "Cash is king. Cash has more value than other things." (Zarb Dep. 149.) The Plaintiff argues this point, urging that had Comerica known the GT Defendants were involved with Defendant Arlington's bid, it would have entered a credit bid more in line with the financing proposal for the GT Defendants already approved by Comerica. The Plaintiff's argument on this point is strengthened by the transcript from the March 5 hearing before the bankruptcy court which shows that both Comerica and the Committee of Unsecured Creditors were ready to oppose any effort by the GT Defendants to purchase the assets of the Debtor cheaply. The Defendants, in response to the Plaintiff's argument, appear to make the Plaintiff's point, stating: "Comerica was not obligated to consent to a sale for an amount less than it believed would be in its best interest." (Def. Arlington's Reply 9, ECF No. 227; GT Defs.' Reply 9, ECF No. 236.) The Defendants are quite correct that Comerica's action was based on what it believed was in its best interest. But § 363(n) exists to protect all creditors from being deceived by a collusive agreement between potential bidders, including
Making all reasonable inferences in favor of the Plaintiff, the Defendants formed a collusive agreement to control the price at auction by not bidding against each other, and by not revealing that the GT Defendants were part of Defendant Arlington's bid. The Court finds that such an agreement — if it existed — could have actually controlled the price at the auction by influencing Comerica's credit bid.
The Court finds, thirdly, that the Plaintiff has enough admissible evidence that the value of the assets sold at auction exceeds the auction price to overcome summary judgment. Because the Plaintiff is seeking damages under § 363(n) instead of an avoidance action, the Plaintiff must show that there are actual damages. He can do this by showing that the value of the Debtor's assets at the time of the auction exceeded the auction price. See Landscape Props., 46 F.3d at 1423 (upholding a district court jury instruction which listed the following as an element of the § 363(n) claim: "that the value of the property at the time of the approval of the sale by the Court ... exceed[ed] the purchase price"); In re Edwards, 228 B.R. 552, 566 (Bankr.E.D.Pa.1998) ("Absent a showing that the agreement actually did deprive the estate of fair value for the assets, the sale should be confirmed."). The Defendants argue that the Debtor's assets were necessarily sold for their fair market value because Comerica consented to the sale. The Defendants also argue that the Plaintiff has no admissible evidence from which he can show that the actual value of the assets on the date of the auction exceeded the auction price. For the reasons below, the Court disagrees on both points.
As an initial matter, consistent with the discussion above, Comerica's approval of Defendant Arlington's bid was based upon what Comerica knew about the value of the assets. The Defendants argue from the case of In re Dever, 164 B.R. 132 (Bankr.C.D.Cal.1994), that an undersecured creditor at a § 363 sale must necessarily receive either the fair market value of the collateral or the collateral itself. Id. at 135 ("If an undersecured creditor forecloses, one of two things happens: either the creditor is paid in cash the fair market value of the property ... or the creditor buys the property itself by credit-bid."). But the Defendants' statement of their argument is again instructive: "The statutory protections built into the Bankruptcy Code assure that undersecured creditors receive either what they believe is the value of their collateral or the collateral itself." (GT Defs.' Br. in Supp. 8; Def. Arlington's Br. in Supp. 8.) The Defendants acknowledge that undersecured creditors' recovery is based on "what they believe is the value of their collateral." When the bidding process is not manipulated, an undersecured creditor's informed belief about the value of its collateral will likely ensure that the undersecured creditor either consents to an auction price
As to the evidence necessary to show that the value of the Debtor's assets on the date of the auction exceeded the auction price, the Court has already addressed the admissibility of many documents, and finds that the Plaintiff has produced enough evidence to overcome summary judgment on this issue. Specifically, again making all reasonable inferences in favor of the Plaintiff, the Court notes the following evidence, all of which suggests the Plaintiff will be able to prove damages at trial: Exhibit G to Zarb's deposition, admitted by the Defendants, includes a valuation of the Debtor's assets at $4.895 million as of February 12, 2003 (Zarb Dep. I Ex. G, ECF No. 215-9 at 35); Badie admitted that he calculated a net gain of over $1 million on the purchase of the Debtor's assets, to be realized by the GT Defendants and Defendant Arlington (Badie Dep. 67-68); Exhibit V to Zarb's deposition suggests that the financing proposal approved by Comerica represented the GT Defendants' offer to purchase the Debtor's assets for approximately $3.7 million; even the liquidation value of the assets as of the risk rating and loan recommendation of February 13, 2003, was at least $3.1 million — still $375,000 more than the price Defendant Arlington paid at auction (Zarb Dep. I Ex. G, ECF No. 215-9 at 29). Furthermore, Defendant Christopher Gildea's August 15, 2003, letter to First Federal Bank of Huntington is admissible against Defendant Christopher Gildea and indicates that the value of the assets purchased at auction was $5 million. (Letter, ECF No. 80-2.) Finally, it is undisputed that the GT Defendants purchased GTA Acquisition from Defendant Arlington on July 25, 2003, for $625,000, and that they paid Defendant Arlington $300,000 on the date of the Buyout Agreement. The Court understands the Defendants' argument that Badie's calculation was merely a profit projection based on the investment of time and money, and based on incurring the risk of the investment. Nevertheless, the Court finds that his projection of a net profit, a profit Defendant Arlington realized shortly after the transaction, is not irrelevant to the question of the value of the assets on the date of the auction. The Court also understands the Defendants' argument that the values in Exhibit G were calculated two months before the auction. But the Court finds that these valuations are also not irrelevant to the value of the assets on the date of the auction. As to whether and how much money the Debtor was losing, the Court finds that a jury can answer that question in light of the evidence adduced by the Plaintiff.
Further, the Court need not decide whether a liquidation value of the assets or a going concern value was appropriate as of the auction date. The Seventh Circuit has stated — not in the context of
Because it appears that the Plaintiff has put forward evidence sufficient to support a jury finding of damages, the Court finds the Plaintiff has introduced enough admissible evidence to overcome summary judgment on the question of damages.
The Plaintiff again urges the Court to award him his fees incurred in opposing these motions under 28 U.S.C. § 1927, which allows a court to award attorney's fees where an attorney "multiplies the proceedings in any case unreasonably and vexatiously." The Seventh Circuit has stated that a court may award attorney's fees under § 1927 where an attorney has acted in an "objectively unreasonable manner." Jolly Grp., Ltd. v. Medline Indus., Inc., 435 F.3d 717, 720 (7th Cir.2006) (quoting Pacific Dunlop Holdings, Inc. v. Barosh, 22 F.3d 113, 119 (7th Cir.1994)). "The purpose of § 1927 is to deter frivolous litigation and abusive practices by attorneys and to ensure that those who create unnecessary costs also bear them." Riddle & Assocs., P.C. v. Kelly, 414 F.3d 832, 835 (7th Cir.2005) (quotation marks omitted). The Plaintiff argues that in light of the February 26, 2009, telephonic conference where this Court ordered the Defendants not to file summary judgment motions on issues already decided by the Court, the present motions before the Court deserve sanctions.
The Court disagrees. The present Motions for Summary Judgment and Motions to Strike involve the tail end of an extended discovery and litigation process, and contain evidentiary and legal arguments not previously raised. Under the circumstances before the Court, § 1927 sanctions are inappropriate, and the Plaintiff's requests for attorney's fees will be denied.
Because the Court has considered and ruled on all dispositive motions, the Plaintiff's Motion for an Order Striking or Summarily Denying Defendants' Motions Addressed to Count III [ECF No. 216] will be denied as moot.
For the reasons stated, the GT Defendants' Motion for Summary Judgment on Count III of Trustee's Second Amended Complaint [ECF No. 208] and Defendant Arlington Capital's Motion for Summary Judgment on Count III of the Trustee's Second Amended Complaint [ECF No. 212] are DENIED. Defendant Arlington Capital's Motion to Strike [ECF No. 225] and the GT Defendants' Motion to Strike [ECF No. 234] are GRANTED IN PART, DENIED IN PART and DENIED IN PART AS MOOT. Finally, the Plaintiff's Motion for an Order Striking or Summarily Denying Defendants' Motions Addressed to Count III [ECF No. 216] is DENIED AS MOOT.
SO ORDERED.
