Connolly Geaney Ablitt & Willard, PC v. Durham Commercial Capital Corp., BAP NO. MB 19-022
| Decision Date | 07 April 2020 |
| Docket Number | Adversary Proceeding 16-01163-MSH, BAP NO. MB 19-022 , Bankruptcy Case No. 14-14164-MSH |
| Citation | 614 B.R. 133 |
| Parties | CONNOLLY GEANEY ABLITT & WILLARD, PC , a/k/a Ablitt Scofield, PC, a/k/a Ablitt Law Offices, PC, a/k/a Ablitt & Charlton, PC, Debtor. Stewart F. Grossman, Chapter 7 Trustee, Plaintiff-Appellee, v. Durham Commercial Capital Corp. and Maasai Holdings, LLC, Defendants-Appellants. |
| Court | U.S. Bankruptcy Appellate Panel, First Circuit |
Victor G. Milione, Esq., and Lee Harrington, Esq., on brief for Defendants-Appellants. David J. Reier, Esq., Adam J. Ruttenberg, Esq., and Nicholas J. Nesgos, Esq., on brief for Plaintiff-Appellee.
Before Cabán, Finkle, and Cary, United States Bankruptcy Appellate Panel Judges.
Durham Commercial Capital Corp. ("Durham") and Maasai Holdings, LLC ("Maasai")1 appeal from: (1) the bankruptcy court’s grant of summary judgment in favor of Stewart F. Grossman, chapter 7 trustee (the "Trustee"), on the counts in his complaint to avoid and recover fraudulent transfers under §§ 544(b), 548 and 550,2 and Mass. Gen. Laws ch. 109A, §§ 5 and 6 (the "Summary Judgment Order"); and (2) the final judgment entered against them in the amount of $1,342,487.31 (the "Judgment"). The Appellants assert that the bankruptcy court erred in granting summary judgment because there were genuine issues of material fact which required a trial, and abused its discretion in awarding the Trustee prejudgment interest at the Massachusetts statutory rate.
For the reasons set forth below, we AFFIRM both orders.
At the time of its bankruptcy filing, Connolly Geaney Ablitt & Willard, PC (the "Debtor") was operating as a Massachusetts law firm under the name "Ablitt Scofield, P.C." at property located in Woburn, Massachusetts (the "Property").3 The Debtor’s primary business was high-volume consumer home mortgage loan enforcement on behalf of national loan servicers and financial institutions.
Prior to the petition date, the Debtor was obligated to DCR Mortgage IV Sub III, LLC ("DCR") under a $1.5 million revolving line of credit note (the "DCR Note"), which was secured by a first priority lien on substantially all of the Debtor’s assets, including accounts receivable. The Debtor was also a guarantor of SAA’s obligations to DCR under a $4 million term note and a $560,000 promissory note. The two SAA notes were secured by senior mortgages on the Property. Through cross-guaranties and cross-collateralization agreements, the Debtor’s guaranty of the SAA loans was also secured by the Debtor’s accounts receivable.
By the fall of 2012, the Debtor’s financial situation was dire. All the loan obligations to DCR were in default, and the Debtor was operating under the terms of a forbearance agreement which expired in September 2012. SAA was also delinquent in real estate taxes, which further impaired DCR’s secured collateral position. The Debtor was unlikely to survive loan enforcement action by DCR and needed working capital to continue its business.
In November 2012, the Debtor and Durham executed a "Nonrecourse Receivables Purchase Contract and Security Agreement" (the "Factoring Agreement"), setting forth terms under which the Debtor would sell accounts receivable to Durham at a discounted price. Among other things, the Factoring Agreement required the Debtor to pay Durham an initial (and thereafter annual) $12,000 "origination fee" for the credit facility, plus an additional fee of 3.25% of the face amount of each account receivable purchased.5 On the date it purchased an account receivable, Durham would pay part of the purchase price to the Debtor (referred to as an "advance"), reserving from the total purchase price 35% of the face amount of each purchased account receivable. Later it would pay the balance of the purchase price as a "rebate" after the receivable was successfully collected. Under the agreement, pending collection of the full amount of the receivable, Durham could elect to apply the "reserve" account against any obligations the Debtor owed Durham. The Debtor also granted Durham a security interest in its assets, including accounts receivable, and all proceeds thereof to secure any of its obligations owed to Durham.
Because DCR’s first priority security interest in the Debtor’s accounts receivable would have prevented the Debtor from selling any receivables to Durham under the Factoring Agreement, on February 7, 2013, the Debtor, DCR, Durham, and Maasai executed several additional instruments to facilitate the factoring arrangement as well as an assignment of the DCR Note (collectively, the "February 7, 2013 Transactions"). These documents included: (1) a loan sale contract under which DCR sold and assigned the $1.5 million DCR Note to Maasai for the discounted price of $700,000; (2) a forbearance agreement among DCR, SAA, the Debtor and Ablitt, providing for the release of the Debtor’s accounts receivable from the collateral securing the Debtor’s guaranty of the SAA notes and a reaffirmation of the Debtor’s guaranty; and (4) a forbearance agreement among Maasai, the Debtor, and Ablitt, providing that the Debtor was not obligated to remit any payments to Maasai under the DCR Note for two years.
Well before the February 7, 2013 Transactions, in December 2012, Durham informed two of the Debtor’s clients that the Debtor’s accounts had been "assigned" to Durham and that all payments of the Debtor’s invoices should be made directly to Durham. At the time, Durham had not yet purchased any accounts receivable from the Debtor—in fact no accounts were factored until February 7, 2013.6 Nonetheless, between January 14 and February 4, 2013, Durham collected payments totaling $198,100.33 from these clients (the "Unfactored Invoices"), but it never advanced any funds to the Debtor as payment for these Unfactored Invoices.
In her expert report, Penelope Bley, a forensic analyst employed by the Trustee in connection with the adversary proceeding, described the transfers relating to the Unfactored Invoices:
The Unfactored Collections Report shows that between January 14 and February 4, 2013, Durham reported collecting $198,100.33 on account of the Debtor’s invoices ("Unfactored Invoices"). No invoices were factored prior to February 7, 2013. Yet, Durham started collecting invoices before any invoices were actually sold to Durham and before Durham made any cash advances to the Debtor. In its answers to interrogatories, Durham has never contended that any of the Unfactored Invoices were ever sold to Durham. Durham has never produced any evidence that it purchased such invoices, such as, an Account Purchase Addendum, which was a form Durham used to document the purchase and sale of specific invoices. Based on my review of the accounting records, Durham never remitted any of the $198,100.33 to the Debtor.
On February 7, 2013, the Debtor sent by wire transfer $200,000 to Durham. The record reflects that the funds came from the Debtor’s collection on a sizeable invoice for legal services provided to JPMorgan Chase. That invoice had not been sold to Durham and Durham did not at any time return the $200,000 to the Debtor. Ms. Bley in her expert report concluded that no consideration was provided to the Debtor in exchange for such funds. She explained:
Also on February 7, 2013, the Debtor sold to Durham hundreds of invoices under the Factoring Agreement having an aggregate face value of $951,719.81 (collectively, the "Factored Invoices"). These sales were documented by "Account Purchase Addenda" identifying each invoice the Debtor was "sell[ing] and assign[ing]" to Durham. According to Durham’s records, it "advanced" $626,699.15 to the Debtor towards the purchase price of the Factored Invoices.
Thereafter, Durham collected $894,403.88 on account of the Factored Invoices. Durham’s accounting records show, however, that the only amount Durham ever paid to the Debtor to purchase the Factored Invoices was $235,366.46. In reality then, on the date it purchased the Factored Invoices, Durham did not actually advance $626,699.15 to the Debtor, nor did it pay such funds any time thereafter. Ms. Bley opined in her report:
To continue reading
Request your trial
-
Rentas v. Mapfre Praico Ins. Co.
...date that such transfer was made or became insolvent as a result of the transfer." Grossman v. Durham Com. Cap. Corp. (In re Connolly Geaney Ablitt & Willard, PC), 614 B.R. 133, 148-49 (B.A.P. 1st Cir. 2020) (citation omitted) (internal quotation marks omitted). Once the trustee has success......
-
M&M Elec. Supply Co. v. Blais (In re Blais)
...reasonably equivalent to what the debtor gave." Grossman v. Durham Commercial Capital Corp. (In re Connolly Geaney Ablitt & Willard, PC), 614 B.R. 133, 153 (B.A.P. 1st Cir. 2020) (quotation marks omitted). Reasonably equivalent value assessments are a gestalt, informed by all the circumstan......
-
M&M Elec. Supply Co. v. Blais (In re Blais)
...reasonably equivalent to what the debtor gave." Grossman v. Durham Commercial Capital Corp. (In re Connolly Geaney Ablitt & Willard, PC), 614 B.R. 133, 153 (B.A.P. 1st Cir. 2020) (quotation marks omitted). Reasonably equivalent value assessments are a gestalt, informed by all the circumstan......