In re Blatstein
| Decision Date | 12 July 1999 |
| Docket Number | CV-07069,CV-07064,CV-07070,CV-07066,No. 98-1972,Nos. 97-,s. 97-,98-1972 |
| Citation | 192 F.3d 88 |
| Parties | (3rd Cir. 1999) IN RE: ERIC J. BLATSTEIN; MAIN, INC., DEBTORS 718 ARCH STREET ASSOCIATES, LTD. v. LORI J. BLATSTEIN; MORRIS LIFT; DELAWARECO, INC.(D.C.cv-07063) IN RE: MAIN, INC., DEBTOR 718 ARCH STREET ASSOCIATES, LTD.; MITCHELL M. MILLER, ET AL. v. ERIC J. BLATSTEIN; MAIN, INC.; LORI J. BLATSTEIN, ET AL; MORRIS LIFT, CPA; DELAWARECO, INC.; ENGINE 46 STEAK HOUSE, INC.; REEDCO, INC.; WATERFRONT MANAGEMENT CORPORATION; COLUMBUSCO, INC.; AIRBEV, INC.; PIER 53 NORTH, INC. (D.C. NO. 97-) IN RE: MAIN, INC., DEBTOR 718 ARCH STREET ASSOCIATES, LTD.; MITCHELL M. MILLER v. ERIC J. BLATSTEIN; LORI J. BLATSTEIN; MAIN, INC.; DELAWARECO, INC.; ENGINE 46 STEAK HOUSE, INC.; REEDCO, INC.; WATERFRONT MANAGEMENT CORPORATION; COLUMBUSCO, INC.; AIRBEV, INC.; PIER 43 NORTH, INC.; MORRIS LIFT, CPA; MAIN, INC. (D.C. NO. 97-) IN RE: MAIN INC.; DEBTOR 718 ARCH STREET ASSOCIATES, LTD.; MITCHELL M. MILLER v. ERIC J. BLATSTEIN; MAIN, INC.; LORI J. BLATSTEIN; MORRIS LIFT, CPA; DELAWARECO, INC.; ENGINE 46 STEAK HOUSE, INC.; REEDCO, INC.; WATERFRONT MANAGEMENT CORPORATION; COLUMBSCO, INC.; AIRBEV, INC.; PIER 53 NORTH, INC. (D.C. NO. 97-) IN RE: ERIC J. BLATSTEIN; MAIN, INC., DEBTORS 718 ARCH STREET ASSOCIATES, LTD. v. ERIC J. BLATSTEIN; MAIN, INC.; LORI J. BLATSTEIN; MORRIS LIFT, CPA; DELAWARECO, INC.; ENGINE 46 STEAK HOUSE, INC.; REEDCO, INC., T/A MARGARITA CAFE; WATERFRONT MANAGEMENT CORPORATION; COLUMBUSCO, INC.; AIRBEV, INC.; PIER 53 NORTH, INC. (D.C. NO. 97-) 718 ARCH STREET ASSOCIATES, LTD., MITCHELL W. MILLER, ESQ., TRUSTEE FOR THE MAIN, INC. BANKRUPTCY ESTATE AND MICHAEL H. KALINER, ESQ., TRUSTEE FOR THE BLATSTEIN BANKRUPTCY ESTATE, APPELLANTS |
| Court | U.S. Court of Appeals — Third Circuit |
On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. Nos. 97-07063/64/66/69/70) District Judge: Honorable Bruce W. Kauffman
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Steven M. Coren (argued) David Dormont Kaufman, Coren, Ress & Weidman 1525 Locust Street 17th Floor Philadelphia, PA 19102 Attorneys for Appellants
Eric L. Frank Miller, Frank & Miller 21 South 12th Street 640 Psfs Building Philadelphia, PA 19107 Attorneys for Appellant Mitchell W. Miller Trustee for the Main, Inc. Bankruptcy Estate
Edward J. DiDonato DiDonato & Winterhalter 1818 Market Street, Suite 3520 Philadelphia, PA 19103-3629 Attorneys for Appellee
Eric J. Blatstein Kevin J. Carey (argued) Mesirov Gelman Jaffee Cramer & Jamieson 1735 Market Street, Suite 3800 Philadelphia, PA 19103-7598 Attorneys for Appellee
Lori Blatstein B. Christopher Lee (argued) Jocoby Donner, P.C. 1515 Market Street, Suite 2000 Philadelphia, PA 19102 Attorneys for Non Debtor Corporate Appellees Delawareco, Inc., Engine 46 Steak House, Inc., Reedco, Inc., Waterfront Management Corporation, Columbusco, Inc., Airbev, Inc., Pier 53 North, Inc.
Before: Greenberg, Alito, and Rosenn, Circuit Judges
This case concerns the bankruptcy proceedings of Eric J. Blatstein ("Blatstein") and the attempt by one of his creditors joined by bankruptcy trustees to bring assets into his bankruptcy estate. The creditor, 718 Arch Street Associates, Ltd. ("Arch Street"), brought these adversary proceedings in the bankruptcy court accusing Blatstein of fraudulently transferring his income and his shares in a number of corporations in the restaurant and bar businesses he controlled to his wife, Lori J. Blatstein. Arch Street also asked the bankruptcy court to reverse pierce the veils of the corporations so as to bring their assets into the bankruptcy estates. The trustees of the Blatstein bankruptcy estate and of the bankruptcy estate of Main, Inc. ("Main"), one of the Blatsteins' jointly-held corporations, have intervened as plaintiffs in this action. Arch Street predicated its piercing the veil argument on the contention that the corporations were Blatstein's "alter egos." As we shall explain, a court in a successful reverse piercing case disregards the corporate existence so that the corporation's assets become available to a controlling party's creditors to satisfy his debts. Thus, a reverse piercing case differs from a classical piercing case as in the latter the controlling party is responsible for the corporation's debts. The bankruptcy court and the district court on appeal rejected these fraudulent transfer and reverse piercing claims insofar as the claims are now before us. Arch Street and the trustees then appealed to this court. We will reverse in part, as we find that Eric Blatstein fraudulently transferred his income to his wife in an effort to keep the money from his creditors. We, however, will affirm in part, as we conclude that the bankruptcy and district courts correctly found that there had not been a fraudulent transfer of corporate shares and correctly refused to pierce the corporate veils.
This case grew out of Main's September 20, 1996 voluntary Chapter 11 petition. See In re Main, Inc., 213 B.R. 67, 72 (Bankr. E.D. Pa. 1997) ("Main II"), rev'd in part and aff'd in part sub nom., In re Blatstein, 226 B.R. 140 (E.D. Pa. 1998).1 Main converted its case from a Chapter 11 to a Chapter 7 proceeding after a December 18, 1996 hearing in the bankruptcy court on a motion to dismiss its petition. Blatstein then filed a personal Chapter 7 proceeding on December 19, 1996.
Arch Street subsequently brought these adversary proceedings in both the Blatstein and Main bankruptcy cases against Eric and Lori Blatstein, Morris Lift, who was the Blatsteins' accountant and Main's president, and the Blatsteins' various jointly-held corporations.2 For simplicity's sake, however, we will refer to the appellees collectively as "Blatstein" or "the Blatsteins," as appropriate in the context. Michael H. Kaliner, trustee of the Blatstein bankruptcy estate, and Mitchell Miller, trustee of the Main bankruptcy estate, intervened as plaintiffs in the proceedings and are appellants here. Nevertheless, we will refer to the appellants collectively as "Arch Street."
Before filing these proceedings, 718 Arch Street Associates, Ltd. obtained a judgment by confession in state court against Blatstein individually on November 12, 1992, for $2,774,803 on account of a breach of a commercial lease. Subsequently, in connection with garnishment proceedings to enforce the judgment, the state court entered the judgment against Main.
In its complaints in the bankruptcy court, Arch Street alleged, inter alia, that Lori Blatstein was not truly a co-owner of the corporations, Blatstein fraudulently transferred all of his income from the corporations to her to avoid paying his creditors, Blatstein fraudulently transferred Main's assets to Lift and other corporations he controlled, and the Blatsteins' corporations were Blatstein's alter egos and should be held responsible for his debts.
The bankruptcy court held that Blatstein fraudulently conveyed his assets in Main to Lift and other corporations Blatstein controlled in a ruling which is not before us for review. Accordingly, pursuant to 11 U.S.C. SS 727(a)(2)(A) and (a)(7) the bankruptcy court refused to discharge him. Main II, 213 B.R. at 85. The court, however, rejected Arch Street's arguments that the corporate defendants were the alter egos either of Blatstein or of each other and that Blatstein fraudulently transferred his assets to his wife. Id. at 87-95. The bankruptcy court on further proceedings, which included Arch Street's motion for reconsideration of the order in Main II, calculated Arch Street's claim for rents due as $582,443.65. In re Main, Inc., 1997 WL 626544, at *12 (Bankr. E.D. Pa. Oct. 7, 1997) ("Main III"). The court partially granted the motion for reconsideration with respect to the procedural implementation of the order in Main II but did not disturb the substantive Dispositions we have described.
On appeal, the district court affirmed the bankruptcy court's rejection both of Arch Street's claims that the Blatsteins' corporations were Blatstein's alter egos and that he had fraudulently transferred his corporate shares and income to his wife, but reversed and remanded for further proceedings in the bankruptcy court that court's ruling that Blatstein fraudulently transferred Main's assets. In re Blatstein, 226 B.R. 140, 148 (E.D. Pa. 1998). 3 Arch Street now appeals the district court's order affirming the bankruptcy court's ruling against its alter ego and fraudulent transfer claims. As we have indicated, we will reverse in part and affirm in part.
Arch Street contends that the district court erred in rejecting the fraudulent transfer claims because the court failed to take into account (1) Blatstein's insolvency at the time of the transfers, (2) the Blatsteins' fraudulent intention in effectuating the transfers, and (3) Lori Blatstein's failure to prove that she gave reasonably equivalent value for the transfers. Arch Street contends that because of these legal errors, the district court erroneously failed to recognize that Arch Street had proven that the transfers were fraudulent as a matter of law.
Arch Street also contends, on the theory that the Blatsteins' corporations were his alter egos, that the district court erred in affirming the bankruptcy court's refusal to pierce the corporate veils. Arch Street argues that the court did not account properly for its contentions that (1) the corporations operated as facades for Blatstein, (2) Blatstein used the corporations to hinder, delay, and defraud his creditors, and (3) Blatstein commingled corporate funds with his personal funds.
Blatstein initially argues, however, that we should not reach the merits of the appeal as we lack jurisdiction to do so. Because this jurisdictional argument would require us to dismiss the appeal...
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