Burtch v. Opus, LLC (In re Opus E., LLC)
| Decision Date | 23 March 2015 |
| Docket Number | Adv. No. 11–52423 MFW,Case No. 09–12261 MFW Jointly Administered |
| Citation | 528 B.R. 30 |
| Parties | In re: Opus East, LLC et al., Debtor. Jeoffrey L. Burtch, Chapter 7 Trustee for the Estate of Opus East, LLC, Plaintiff, v. Opus, LLC, a Minnesota limited liability company; Opus Corporation, A Minnesota Corporation; Gerald Rauenhorst 1982 Irrevocable Trust f/b/o Grandchildren and the Gerald Rauenhorst 1982 Irrevocable Trust f/b/o Children; Keith P. Bednarowski and Luz Campa, as Trustees thereof ; Opus Real Estate VII, L.P.; Opus Real Estate VIII, L.P. ; Mark Rauenhorst, individually; Keith P. Bednarowski, individually, Luz Campa, individually, Adler Management, LLC; Marshall M. Burton, individually; Opus Property Services, LLC ; Opus 2, LLC; Opus Architects & Engineers, P.C.; Opus Architects & Engineers, Inc.; Opus Core, LLC; Opus Northwest, LLC; Opus Design Build, LLC; Opus Development Corporation; Opus Holding, LLC; Opus Holding, Inc. ; Opus AE Group, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
In re: Opus East, LLC et al., Debtor.
Jeoffrey L. Burtch, Chapter 7 Trustee for the Estate of Opus East, LLC, Plaintiff
v.
Opus, LLC, a Minnesota limited liability company; Opus Corporation, A Minnesota Corporation; Gerald Rauenhorst 1982 Irrevocable Trust f/b/o Grandchildren and the Gerald Rauenhorst 1982 Irrevocable Trust f/b/o Children; Keith P. Bednarowski and Luz Campa, as Trustees thereof ; Opus Real Estate VII, L.P.; Opus Real Estate VIII, L.P. ; Mark Rauenhorst, individually; Keith P. Bednarowski, individually, Luz Campa, individually, Adler Management, LLC; Marshall M. Burton, individually; Opus Property Services, LLC ; Opus 2, LLC; Opus Architects & Engineers, P.C.; Opus Architects & Engineers, Inc.; Opus Core, LLC; Opus Northwest, LLC; Opus Design Build, LLC; Opus Development Corporation; Opus Holding, LLC; Opus Holding, Inc. ; Opus AE Group, Inc., Defendants.
Case No. 09–12261 MFW Jointly Administered
Adv. No. 11–52423 MFW
United States Bankruptcy Court, D. Delaware.
Signed March 23, 2015
Wesley J. Bailey, Patrick J. Coffin, Vickie L. Driver, Coffin & Driver, PLLC, M. Ross Cunningham, Michael R. Cunningham, Christopher M. McDowell, Martin E. Rose, Steve Sanfelippo, Rose Walker L.L.P., Dallas, TX, Dale R. Dube, Robert W. Pedigo, Cooch and Taylor, P.A., Wilmington, DE, for Plaintiff.
William Pierce Bowden, Amanda Winfree Herrmann, Leigh–Anne M. Raport, Ashby & Geddes, P.A. Wilmington, DE, Theresa H. Dycoschak, Peter J. Goss, Lariss Jude, Jane E. Maschka, Woodrow T. Roberts, Dennis M. Ryan, Zachary L. Stephenson, Wahl, Faegre & Benson LLP, Minneapolis, MN, for Defendants.
OPINION1
Mary F. Walrath, United States Bankruptcy Judge
I. PROCEDURAL BACKGROUND ...48
II. JURISDICTION ...48
III. FACTUAL BACKGROUND ...48
IV. DISCUSSION ...50
A. Insolvency ...50
1. Balance Sheet Test ...51
2. Inadequate Capital and Cash Flow Tests ...53
B. Piercing the Corporate Veil ...57
1. Undercapitalization and Insolvency ...59
2. Facade for Shareholder ...60
3. Observance of Corporate Formalities ...62
4. Siphoning of Funds by Shareholder ...63
5. Element of Injustice or Unfairness ...64
C. Breach of Fiduciary Duty ...66
1. Standard of Fiduciary Duty ...66
2. Specific Breaches ...68
a. Transfer of ME to GAMD ...68
b. Management Co Property Transfers ...72
i. Contracts ...72
ii. April Management Fees ...––––
iii. Funds Transferred to Northwest Management ...74
c. Transfers Related to ODP Entities ...74
i. Creation of ODP Entities ...75
ii. Fees Owed by ODP Entities ...76
d. $5 Million Transfer ...76
e. Tax Scheme ...78
D. Aiding and Abetting Breach of Fiduciary Duty ...80
E. Successor Liability ...80
F. Avoidance of Fraudulent Transfers ...82
1. Standards for Avoidance ...82
2. Specific Transfers ...83
a. Distributions to LLC and Trusts ...83
b. Transfers to Corp for Shared Services ...84
c. Transfers Related to ODP Entities ...85
d. Transfers to Core ...86
e. Transfers to Northwest ...87
f. Transfers to A&E and A&E PC ...88
g. Transfer of Management Co Property ...88
h. Transfer to TFC ...89
G. Avoidance of Preferential Transfers ...90
1. Insider Preferences ...90
a. Insider Preference Period ...93
b. Proof of Insider Preferences Beyond 90 Days ...94
2. Defenses to Remaining Preferences ...95
a. New Value ...95
i. Corp ...95
ii. A&E ...95
iii. A&E PC ...95
b. Ordinary Course of Business Defense ...95
i. Corp ...97
ii. A&E ...98
iii. A&E PC ...99
c. No Defenses Offered ...100
i. Core ...100
ii. Northwest ...101
H. Unjust Enrichment ...101
1. Standard of Review ...101
2. Specific Transfers ...102
a. Northwest Management Transfers ...102
b. $5 Million Transfer ...102
c. Tax Scheme ...102
d. GAMD, Management Co, and ODP Transfers ...104
I. Disallowance of Claims ...104
J. Equitable Subordination of Claims ...105
K. Revocation of Core's Certification of Dissolution ...105
L. Constructive Trust ...106
M. Tortious Interference with Contract ...107
N. Conversion/Conspiracy to Commit Conversion ...107
O. Pre-judgment Interest ...108
V. CONCLUSION ...109
Ex. A–1 Corp Historical Period
Ex. A–2 Corp Preference Period
Ex. B–1 A&E Historical Period
Ex. B–2 A&E Preference Period
Ex. B–3 A&E New Value Analysis (on or after 4/2/09)
Ex. B–4 A&E New Value Analysis (2/1/09–4/1/09)
Ex. C–1 A&E PC Historical Period
Ex. C–2 A&E PC Preference Period
Ex. C–3 A&E PC New Value Analysis
Before the Court is the Third Amended Complaint filed by Jeoffrey L. Burtch (the “Trustee”), the chapter 7 trustee of Opus East LLC (the “Debtor”), which seeks recovery against former fiduciaries of the Debtor and related business entities on theories of piercing the corporate veil, breach of fiduciary duty and aiding and abetting such a breach, successor liability, avoiding fraudulent and preferential transfers, unjust enrichment, disallowance and equitable subordination of claims, revocation of a certificate of dissolution, imposition of a constructive trust, tortious interference with contract, and conversion and conspiracy to commit conversion.2 After a trial on the merits and for the reasons set forth below, the Court concludes that the Trustee is entitled to partial judgment (and pre-judgment interest): against Opus Core, LLC, on Counts 31, 32, and 33 for preferences and fraudulent transfers, and on Count 47 for revocation of its certificate of dissolution; against Opus Northwest, LLC, on Counts 35 and 36 for fraudulent transfers; and against Opus Core, LLC, and Opus Northwest, LLC, on Count 39 for disallowance of their claims. Judgment on the remaining counts will be entered in favor of the Defendants.
I. PROCEDURAL BACKGROUND
On July 1, 2009 (the “Petition Date”), the Debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code. (JPTO at § IV, ¶ 1.)3 The Trustee was appointed the chapter 7 trustee of the Debtor's estate shortly thereafter. As of February, 2014, the estate had approximately $5.9 million in a bank account and no other assets except this lawsuit. (Tr. 2/4/14 at 174–75.) There are $138 million to $500 million in creditor claims against the estate. (Tr. 2/4/14 at 176–77; Ex. P–1360.) The matter is ripe for decision.
On June 30, 2011, the Trustee filed a complaint against the above-named Defendants. After the Third Amended Complaint was filed on August 7, 2013, the Defendants' answer was filed on August 30, 2013. (Adv. D.I. 160 & 183.) Trial was held over ten days, commencing on December 16, 2013, and concluding on February 7, 2014. Post-trial briefing, which included proposed findings of fact and conclusions of law, was completed on May 24, 2014. The matter is ripe for decision.
II. JURISDICTION
The Court has core and related to jurisdiction over the counts in this adversary proceeding. 28 U.S.C. §§ 1334(b) & 157(a) & (b). The parties have consented to the entry of a final judgment by this Court on all counts. (JPTO at § III.)
III. FACTUAL BACKGROUND
The Debtor is a Delaware limited liability company which was formed on September 14, 1994, to develop and sell commercial real estate projects in the Northeastern and Mid–Atlantic United States. (JPTO at § IV, ¶¶ 19 & 25.) It was a...
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...Hon. Christopher S. Sontchi, Valuation Methodologies: A Judge's View, 20 ABI L. Rev. 1, 16 (2012).[149] Id.[150] See In re Opus East LLC, 528 B.R. 30, 55 (Bankr. D. Del. 2015) (rejecting expert's cash-flow projections created for litigation purposes).[151] See In re Oneida Ltd., 361 B.R. 79......