BRUCE A. HARWOOD, Bankruptcy Judge.
Michael S. Askenaizer, the chapter 7 trustee (the "Trustee") of the bankruptcy estate of Catco Recycling, LLC ("Catco" or the "Debtor"), has filed a motion (Doc. No. 26) (the "Motion") seeking summary judgment in his favor against Jean Anderson ("Anderson" or the "Defendant") with respect to Counts I through VI of his amended complaint (Doc. No. 23) (the "Complaint"). Specifically, the Trustee seeks a determination that the sum of $7,314, which was given to the Defendant by Donald Belisle III ("Belisle III"), her son and the sole member of the Debtor, for the installation of a furnace at her home, was fraudulently transferred within the meaning of 11 U.S.C. §§ 544(b), 548(a)(1)(A), and 548(a)(1)(B) and NH RSA 545-A:4(I)(a), 545-A:4(I)(b)(1),
In bankruptcy, summary judgment is governed by Federal Rule of Bankruptcy Procedure 7056, which incorporates Federal Rule of Civil Procedure 56 and its standards into bankruptcy practice.
The summary judgment record establishes the following. The Debtor was in the business of recycling catalytic converters, other metals, and scrap produced by salvage yards. On June 18, 2013, the Debtor and Rebuilders Automotive Supply, Inc. ("RAS") executed a promissory note in which the Debtor agreed to pay the lesser of $75,000 or "the aggregate unpaid principal amount of outstanding advances made" by RAS pursuant to an advance agreement by and between the parties, which was executed that same date. Less than a month later, on July 12, 2013, Belisle III, the sole member of the Debtor, and Donald Belisle ("Belisle"), Belisle III's father and the sole member of Recore Trading Co. LLC ("Recore"), executed a document titled "Preliminary Purchase And Sale Agreement" (the "P&S Agreement"), which states in its entirety:
On July 12, 2013, pursuant to the P&S Agreement, Recore Trading issued and delivered to Belisle III the first $50,000 payment due under the P&S Agreement. The check was made payable to Belisle III, instead of the Debtor, at Belisle III's request.
On July 13, 2013, Belisle III withdrew $50,000 from the Debtor's bank account in the form of an official bank check for $45,000 and $5,000 in cash. Belisle III used that money to purchase a truck for $52,000; title was taken in Belisle III's name.
On July 18, 2013, the Debtor, through Belisle III as the Debtor's managing member, executed and delivered to RAS a security agreement granting to RAS "collateral security for the payment and performance of the obligations contained in the Note and Advance Agreement," which the parties had executed the month before.
On July 25, 2013, Belisle III, on behalf of the Debtor, wrote to Charles Zoulias ("Zoulias"), the Debtor's landlord since October 2011, to inform him that the Debtor had vacated its leased premises due to "black mold" issues; Belisle III also mentioned that he "needed to take the necessary precautions to keep my business going." On September 10, 2013, Zoulias, through his counsel, issued letters to the Debtor and Belisle III (each of whom was described as a "lessee") demanding payment for past due rent and damages to the leased premises in the total amount of $37,430.
Sometime in September 2013, the Debtor transferred a 2011 Cadillac Escalade, worth $28,000, to Belisle III for no consideration. The vehicle had not been included in the sale of Catco's assets to Recore Trading.
On September 13, 2013, Recore Trading issued and delivered to Belisle III a $15,000 check as part of the second installment due under the P&S Agreement. On September 17, 2013, Recore Trading issued and delivered to Belisle III two more checks, one for $2,500 and the other for $32,500, in order to pay the balance due on the second $50,000 installment. The $32,500 check was deposited into the Debtor's bank account. Like the earlier check, these three checks were made payable to Belisle III.
In September 2013, Belisle III gave cash to the Defendant in the amount of $7,314, which money she used to pay for the installation of a furnace in her home on September 25, 2013. This money came from Recore Trading's September 2013 payments. At the time of the transfer, the Debtor did not owe Anderson any money.
As of September 25, 2013, the Debtor owed money to three creditors, Alpha Recycling, Zoulias, and RAS, totaling at least $118,819. As of that same date, the Debtor's assets totaled either $66,443 or $81,443.
The Debtor filed a chapter 7 bankruptcy petition on May 20, 2014. On July 3, 2014, the Debtor filed its schedules and statement of financial affairs. In response to Item 10, titled "Other transfers," in the Debtor's Statement of Financial Affairs, the Debtor indicated as follows:
The Debtor included with its Statement of Financial Affairs the following itemization of the assets sold to Recore Trading:
Based on this itemization, the Debtor estimated that the value of the items transferred totaled $144,500, not including the customer lists and the company name and rights.
On November 17, 2014, the Trustee sought the return of the $7,314 transfer from Anderson. When Anderson failed and refused to return the transfer to the Debtor's bankruptcy estate, the Trustee filed this adversary proceeding.
To the extent further facts are disputed, they will be discussed below.
In order to recover on each of the Trustee's claims in Counts I through V of the Complaint, the Trustee must establish a common element, i.e., that the transfer he seeks to avoid was of an "interest of the debtor in property."
"The Bankruptcy Code does not define the phrase `an interest of the debtor in property.' Courts have concluded, however, that the term is equivalent to the term `property of the estate' under 11 U.S.C. § 541. Courts turn then to § 541 in order to determine the scope of property interests that are recoverable under §§ 544, 547, and 548.'"
In this case, it is undisputed that the money that Belisle III gave to his mother to buy a new furnace came from a check dated September 17, 2013, from Recore Trading, made payable to Belisle III at his request, which was deposited into the Debtor's bank account. Anderson disputes, however, that this money was Catco's and instead contends that the money belonged to her son personally. Anderson argues that there is a genuine dispute regarding whose money was transferred, which precludes the granting of summary judgment.
In support of Anderson's position that the funds she received were her son's personal funds, she cites to an excerpt from the deposition of her son taken on September 22, 2014. When Belisle III was asked about the source of the funds he transferred to his mother, he responded that it was "[m]y own money that I had." However, Anderson's attorney indicated at the summary judgment hearing that Anderson does not contend that the money used to purchase the furnace came from Belisle's own "stash of money" or from the money he was then earning as an employee of Recore Trading; she acknowledges that the ultimate source of the funds was money received from Recore Trading.
Anderson argues that there was "confusion" over who were the parties to the P&S Agreement, how the purchase price was to be allocated, to whom the purchase monies were to be allocated initially, and how they were to be allocated under the contemplated final agreement mentioned in the P&S Agreement.
Anderson further argues that what was being purchased by Recore Trading "was not so much Debtor's assets, but rather a renewed relationship" between Belisle and Belisle III, who reportedly had a rocky relationship in the past. She contends that "there was a lack of valuable assets" being sold by the Debtor. Anderson's bald assertions are not supported by the summary judgment record.
First, the P&S Agreement provides that $150,000 was to be paid for Catco's assets, which it lists as "Peterbilt dump truck, Isuzu box truck, Nissan fork lift, Baler, Cat shear, wire stripper misc containers and shelving, customer lists, company name and rights." The P&S Agreement makes no mention that anything else is being sold. Further, the Debtor stated in response to Item 10 on the Statement of Financial Affairs that it sold assets on July 12, 2013, for $150,000, and the Debtor attached an itemization of those assets to its Statement of Financial Affairs. This itemization shows a total estimated value of $144,500 for the assets, without giving any value for the Debtor's customer lists and company name and rights. Thus, the Debtor's own statements under oath do not support Anderson's contention that there was confusion among the parties as to who was purchasing what and whether any of the purchase price was to be allocated to Belisle III.
Second, Belisle III's testimony at the Debtor's 341 meeting also does not support Anderson's position that there is a "genuine" dispute as to whether Belisle III was entitled to any funds. When asked how the $150,000 purchase price was arrived at, Belisle III testified that the $150,000 price was based on "what we thought the equipment was worth and what my customers were worth." Belisle III made no statement or contention that he personally was entitled to any of the sales price or that any of the $150,000 price should be attributed to his future services as an employee of Recore Trading.
Belisle III further testified at the 341 meeting that if he had sold the Debtor's business in the open market, the Debtor would have received more than $200,000. He stated additionally that "I think I could have got more if I sold it privately, yes." He explained that "one of my Peterbilt trucks was worth more than $50,000 bucks and I sold equipment to him that just my shear was worth $30,000." He also stated that "I gave him I think 12 dumping containers and I bought them new for—I mean $2,000 apiece." Nowhere during this discussion did Belisle III assert (as Anderson alleges) that he personally was entitled to any of the sale proceeds on account of his becoming a buyer for Recore Trading or on account of his father's desire to renew his relationship with his son.
Third, Belisle III's September 22, 2014, deposition testimony does not help Anderson. On that date, Belisle III testified that Recore Trading still owed Catco $50,000. He explained that the money was for "the equipment that he bought from me." He indicated "the bonus that was just thrown in was the customers." Nowhere in this discussion did Belisle III mention that he personally was entitled to any of the remaining sales proceeds on account of his own personal services or for the renewal of his relationship with his father, as argued by Anderson. Belisle III explained that "I got $2,000 salary a week," which was the agreed-upon salary "over and above the purchase price," for the services he provided as a buyer for Recore Trading beginning in July 2013. Thus, to the extent Anderson alleges that part of the purchase price should have been allocated to Belisle III on account of the personal services he was to render as an employee of Recore Trading, Belisle III himself testified that he was paid separately for those services.
Fourth, Belisle testified about the sale of Catco's assets to Recore Trading at his deposition on August 28, 2014. At the deposition, Belisle reviewed the P&S Agreement and acknowledged that he had drafted it, as this "was a significant monetary transaction" and it just made "good business sense." He described the P&S Agreement as "pertaining to the purchase of certain assets of Catco by me." Belisle indicated that Belisle III wanted a lot more than $150,000 for the assets. Initially he wanted $250,000, but they negotiated. In Belisle's mind, "the assets didn't justify the price, but the potential new business with customers coming in, I justified the price of $150,000."
Belisle also testified that he made additional payments to Belisle III: "He told me he was trying to pay his bills, in addition to his pay [Belisle III] needed more money, so I was giving him an extra thousand dollars every week he told me he was paying his bills with, and was to be deducted from the final payment . . . the final 50,000." Belisle described these payments as "goodwill" payments. Belisle testified that "[w]hat we paid toward the business was [$]127,000 and change." In Belisle's view the unpaid balance due under the P&S Agreement was only $23,000. Again, during this questioning at his deposition, Belisle never indicated that a portion of the $150,000 purchase price was to be allocated to Belisle III personally.
Thus, while Anderson argues that the purchase price should be allocated between Catco and her son, because Belisle testified that part of what he was buying was "the customers and him working for me," the summary judgment record reveals that Belisle III was paid separately for his services at the rate of $2,000 per week.
Finally, filings in Belisle III's own chapter 13 bankruptcy case filed on May 20, 2014 (Bk. No. 14-11022-BAH) do not support Anderson's contentions. In response to Item 10 in his Statement of Financial Affairs, Belisle III listed the transfer to Recore Trading stating he "believes, per his accountant that the assets sold
While Anderson contends there was confusion over how the purchase price was to be allocated, the summary judgment record does not bear out her bald assertion. Rather, Anderson's contentions are inconsistent with the Debtor's bankruptcy filing, Belisle III's testimony from the Debtor's 341 meeting and his deposition, and Belisle's testimony from his deposition. These statements, under oath, do not reveal any discussion that the $150,000 sales price outlined in the P&S Agreement was to be allocated between Catco and Belisle III personally. Belisle III clearly thought the assets being sold were worth $150,000 (and even more according to his testimony). The Debtor's Statement of Financial Affairs also supports the $150,000 value with a detailed listing of the items being sold. While Belisle's testimony indicates that he did not believe that the physical assets supported the $150,000 sales price but instead believed the real value was in obtaining the Debtor's customers, the Debtor's customer list was an asset of the Debtor, and not of Belisle III. Therefore, to the extent the sales price should be allocated between the physical assets and obtaining the customer list, the Debtor still would be the one entitled to receive the consideration for the customer list, not Belisle III personally.
Thus, even reviewing the record in the light most favorable to Anderson, and indulging all reasonable inferences in her favor, the record does not support a finding that some of the $150,000 purchase price should be allocated to Belisle III personally, let alone a genuine dispute as to that fact. For that reason, Anderson has not demonstrated that a genuine dispute exists as to whether the money that Belisle III transferred to her was property of the Debtor. As the First Circuit has recently stated, "`factually unsupported claims [and] defenses' are insufficient to withstand summary judgment."
Because there is no dispute whatsoever that the money transferred to Anderson came from the Debtor's bank account, which held the proceeds from the sale of Catco's assets, and because Anderson has not rebutted the presumption that this money was the Debtor's property, the Court finds that the Trustee has established the first element of each of his claims in Counts I through V of the Complaint, i.e., that the transfer he seeks to avoid was of an "interest of the debtor in property."
The Trustee contends that the Debtor's transfer of money to Anderson was constructively fraudulent both under the Bankruptcy Code and New Hampshire state law. In Count II, the Trustee contends that he can avoid the Debtor's transfer pursuant to 11 U.S.C. § 548(a)(1)(B)(i) and (ii)(I), which provide in relevant part:
11 U.S.C. § 548(a)(1)(B)(i) and (ii)(I). In Count IV, he contends that he can avoid the Debtor's transfer pursuant to 11 U.S.C. § 544(b)(1) and RSA 545-A:4(I)(b)(1). Section 544(b)(1) of the Bankruptcy Code provides:
11 U.S.C. § 544(b)(1).
RSA 545-A:4(I)(b)(1). In Count V, the Trustee contends that he can avoid the Debtor's transfer pursuant to 11 U.S.C. § 544(b)(1) and RSA 545-A:5(I), the latter of which provides:
RSA 545-A:5(I).
As the party seeking to avoid the transfer at issue, the Trustee bears the burden of proof on each element and must discharge that burden by a preponderance of the evidence.
Anderson has not challenged the Trustee's assertion that at the time the challenged transfer took place, the Debtor had creditors who held existing claims against it, e.g., RAS, Zoulias, and Alpha Recycling. Accordingly, to establish the voidability of the Debtor's transfer under Counts II and V, which assert claims under § 548(a)(1)(B) and RSA 545-A:5(I), the Trustee must establish substantively identical elements:
To establish voidability under Count IV, which asserts a claim under RSA 545-A:4(I)(b)(1), the Trustee must establish the first two elements outlined above as well as the following additional element:
Anderson has not challenged the Trustee's proof on the elements of his claims under Counts II, IV, or V, except to the extent discussed earlier in this opinion, i.e., that the transfer of $7,314 to Anderson was not a transfer of property of the Debtor. However, the Court has determined that the Debtor did in fact transfer $7,314 to the Defendant on September 25, 2013. Thus, the first element has been established.
Second, the summary judgement record is clear that the Debtor received nothing of value in exchange for the Debtor's transfer. Belisle III simply gave the Debtor's money to his mother so that she could purchase a new furnace. The Debtor did not owe Anderson any money at that time.
Third, Anderson admitted at the summary judgment hearing that the Debtor was insolvent
Fourth, to the extent the Debtor was still engaged in business as of September 25, 2013, its remaining assets were unreasonably small. Whatever assets remained in the Debtor's bank account and in its possession did not cover the Debtors' outstanding liabilities, as Anderson has admitted.
Because the Trustee has established the required elements of his claims under § 548(a)(1)(B) and § 544(b) and RSA 545-A:4(I)(b)(1) and 545-A:5(I), summary judgment can be entered in his favor on Counts II, IV, and V of the Complaint. The Debtor's transfer of $7,314 to the Defendant on September 25, 2013, can be avoided as a constructively fraudulent transfer.
The Trustee contends that the Debtor's transfer of money to Anderson was made with actual fraudulent intent within the meaning of both the Bankruptcy Code and New Hampshire state law. In Count I, the Trustee contends that he can avoid the Debtor's transfer pursuant to 11 U.S.C. § 548(a)(1)(A), which provides:
11 U.S.C. § 548(a)(1)(A). In Count III of the Complaint, the Trustee seeks to avoid the Debtor's transfer pursuant to 11 U.S.C. § 544(b)(1) and RSA 545-A:4(I)(a). The UFTA provides:
RSA 545-A:4(I)(a). The UFTA further explains:
RSA 545-A:4(II).
In addressing fraudulent transfers under § 548(a)(1)(A), the First Circuit Court of Appeals has explained that "[t]he transfer of any interest in the property of a debtor . . . is voidable by the trustee in bankruptcy if the purpose of the transfer was to prevent creditors from obtaining satisfaction of their claims against the debtor by removing the property from their reach. It is often impracticable, on direct evidence, to demonstrate an actual intent to hinder, delay, or defraud creditors."
The Trustee asserts that the Court can infer the Debtor's fraudulent intent from the following badges of fraud: (1) Catco removed nearly all its assets when it sold them to Recore Trading on July 12, 2013, pursuant to the P&S Agreement; (2) the Debtor's principal withdrew the initial $50,000 payment from Recore Trading to purchase a truck, taking title in Belisle III's own name; (3) the Debtor received no value at all for the transfer to Anderson; (4) the Debtor was insolvent at the time of the transfer to Anderson; (5) the transfer occurred shortly after the Debtor had executed the advance and security agreement with RAS, with the security agreement postdating the P&S Agreement; (6) the Debtor had been threatened with litigation by Zoulias; and (7) Anderson was an "insider" within the meaning of the Bankruptcy Code, as she is a relative of Belisle III, the person in control of the Debtor.
While the Court may agree that these factors constitute badges of fraud under both federal and state law, the Court does not find that they clearly establish on this summary judgment record that the Debtor had fraudulent intent when it transferred money to the Defendant.
Reviewing the summary judgment record in the light most favorable to Anderson, the Court is unable to conclude that the Debtor had actual fraudulent intent when it transferred money to the Defendant. Accordingly, the Court must deny summary judgment with respect to Counts I and III of the Complaint.
In Count VI of the Complaint, the Trustee seeks to recover the value of any transfer avoided in Counts I through V of the Complaint in accordance with the provisions of 11 U.S.C. § 550.
The Defendant was the initial transferee of the Debtor's transfer of $7,314. Belisle III took sale proceeds from Catco's bank account and gave this property of the Debtor to his mother. As the initial transferee, Anderson is strictly liable under § 550(a)(1) and must return the money transferred. Accordingly, summary judgment can be granted with respect to Count VI of the Complaint, and the Trustee may recover the funds transferred to the Defendant for the purchase of her furnace in the amount of $7,314.
For the reasons outlined above, the Court will issue a separate order granting the Motion with respect to Counts II, IV, V, and VI of the Complaint and denying the Motion with respect to Counts I and III.
11 U.S.C. § 548(a)(1). Section 544(b)(1) of the Bankruptcy Code, which forms the basis of Counts III, IV, and V, states in pertinent part and with emphasis added:
11 U.S.C. § 544(b)(1).
RSA 545-A:2(I) and (II). The Bankruptcy Code defines the term "insolvent" as "financial condition such that the sum of such entity's debts is greater than all of such entity's property at fair valuation," excluding property fraudulently "transferred, concealed, or removed" and property exempted under 11 U.S.C. § 522. 11 U.S.C. § 101(32).
11 U.S.C. § 550(a).
