Brandt v. FDIC (In re Equip. Acquisition Res., Inc.)
| Decision Date | 21 November 2016 |
| Docket Number | Bankruptcy No. 09 B 39937,Adversary No. 11 A 02215 |
| Citation | 560 B.R. 501 |
| Parties | In re: Equipment Acquisition Resources, Inc., Debtor. William A. Brandt, Jr., in his capacity as Plan Administrator for Equipment Acquisition Resources, Inc., Plaintiff, v. FDIC, as Receiver for Charter National Bank and Trust, N.A., Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Jon M. Beatty, Allan B. Diamond, Diamond McCarthy LLP, Houston, TX, for Plaintiff.
Francis X. Buckley, Jr., Matthew Johns, Todd A. Rowden, Thompson Coburn LLC, Scott P. Clair, Chicago, IL, Michael A. O'Brien, O'Brien Law Offices PC, Wheaton, IL, for Defendant.
This matter is before the Court on the motion of the Federal Deposit Insurance Corporation (the "FDIC"), as receiver for Charter National Bank and Trust ("Charter"), for summary judgment on the second amended complaint brought by William A. Brandt, Jr. (the "Plaintiff") in his capacity as plan administrator for Equipment Acquisition Resources, Inc. ("EAR").
EAR filed a Chapter 11 bankruptcy petition on October 23, 2009. A plan was confirmed on July 15, 2010. Under the terms of the plan, the Plaintiff was appointed plan administrator with the authority to pursue "Litigation Claims" as defined in the plan. The Plaintiff filed this adversary proceeding against Charter on October 21, 2011. On February 10, 2012, Charter was closed and the FDIC was appointed as its receiver.
The second amended complaint seeks avoidance and recovery of transfers from EAR to Charter. Counts I and II seek relief for actual fraud pursuant to 11 U.S.C. § 548(a)(1)(A) and 740 Ill. Comp. Stat. 160/5(a)(1). The Plaintiff seeks to recover $1,496,514.72 in payments previously made by EAR to Charter. Count III seeks to recover the value of the transfers pursuant to 11 U.S.C. § 550, and Count IV seeks to disallow the claim Charter has against EAR pursuant to 11 U.S.C. § 502(d).1 The FDIC now stands in the shoes of Charter and has intervened in this action as a defendant.
In support of its motion, the FDIC argues that there are no material facts in dispute and that, as a matter of law and regardless of whether the elements of a fraudulent transfer can be proven, the Plaintiff cannot avoid the transfers in light of the doctrine outlined by the Supreme Court in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942) or under Congress's enactment of 12 U.S.C. § 1823(e) and § 1821(d)(9)(A). Specifically, the FDIC argues that the allegedly fraudulent transfers in question were necessarily based on a secret agreement not reflected in Charter's books and records and therefore the Plaintiff's claims must be denied.
The Court has reviewed the briefs submitted, heard oral arguments on the matter, and weighed the competing interests of the parties. For the reasons stated herein, the Court grants the motion for summary judgment in favor of the FDIC.
The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code. 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under title 11 of the United States Code, or arising in or related to cases under title 11. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with 28 U.S.C. § 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).
A bankruptcy judge to whom a case has been referred has the statutory authority to issue final orders and judgments only in "core proceedings arising under title 11, or arising in a case under title 11." 28 U.S.C. § 157(b)(1). Section 157(b)(2) contains a non-exhaustive list of "core proceedings" in which the bankruptcy court may enter a final order or judgment. 28 U.S.C. § 157(b)(2). That statutory list includes proceedings to determine, avoid, or recover fraudulent conveyances. 28 U.S.C. § 157(b)(2)(H).
By contrast, when the bankruptcy court has jurisdiction over a matter only because it is in some way "related to" the bankruptcy case, the court may not enter final judgment, but may only enter proposed findings of fact and conclusions of law. 28 U.S.C. § 157(c)(1). The proceedings in this latter category are known as "non-core" proceedings.
Counts I, II, and III are brought by the Plaintiff under 11 U.S.C. § 548, 740 Ill. Comp. Stat. 160/5, and 11 U.S.C. § 550 to avoid and recover alleged fraudulent transfers made by EAR to Charter. Even though fraudulent-conveyance claims are listed by statute as core claims, the Supreme Court has made clear that, due to Constitutional limitations upon the power of bankruptcy judges to issue final judgments in certain types of cases, fraudulent transfer claims are to be treated as non-core claims that are "related to" the bankruptcy case. Exec. Benefits Ins. Agency v. Arkison , ––– U.S. ––––, 134 S.Ct. 2165, 2174, 189 L.Ed.2d 83 (2014). See Krol v. Key Bank Nat'l Ass'n ( In re MCK Millennium Ctr. Parking, LLC) , 532 B.R. 716, 720–21 (Bankr. N.D. Ill. 2015). However, where the parties have knowingly consented to entry of a final judgment of such claims, the bankruptcy court may enter a final judgment. Wellness Int'l Network Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1948–49, 191 L.Ed.2d 911 (2015). Here, the parties have so consented.
The remaining count, Count IV, seeks the disallowance of Charter's claim under 11 U.S.C. § 502(d). The allowance or disallowance of a claim arises in a bankruptcy case and is listed as a core proceeding under 28 U.S.C. § 157(b)(2)(B). In re Montalbano, 486 B.R. 436, 438–39 (Bankr. N.D. Ill. 2013). Thus, the Court may enter final judgment on this count with or without the parties' consent.
Summary judgment is appropriate when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c)(2) (made applicable by Fed. R. Bankr. P. 7056 ). A genuine issue of material fact is present when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When a defendant moves for summary judgment his burden is merely "to point out problems plaintiff would face in proving its claims[.]" Wisconsin Compressed Air Corp. v. Gardner Denver, Inc. , 571 F.Supp.2d 992, 1000 (W.D. Wis. 2008) (citing Celotex Corp. v. Catrett , 477 U.S. 317, 323–24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ).
In this matter, both parties have submitted statements of material facts and both parties concede that there are no material facts which are in dispute.2 As a result, this matter is ripe for summary judgment.
Charter agreed to fund equipment-leasing arrangements with EAR. EAR entered into a number of similar lease-financing transactions with other parties, and it is undisputed for purposes of this motion that EAR and its principals were fraudulently refinancing and re-leasing the same small pool of equipment over and over again, without disclosing that fact to its financers. The history of EAR's behavior with respect to its financers has been discussed at length by this Court in a related matter and need not be repeated here.3
In this matter, the Plaintiff specifically alleges that EAR used an affiliated corporation, Machine Tools Direct, Inc. ("MTD"), as a straw man to conceal the fraudulent nature of the equipment-lease transactions. (FDIC Statement of Facts ¶ 1.) The Plaintiff has alleged that, in all of these transactions, EAR sold equipment to MTD, which then resold the equipment to an equipment leasing company. (Id. ) The equipment leasing company, in turn, would lease the equipment back to EAR. (Id. ) In return, MTD would keep a 1–2% fee for the transaction and remit the remaining funds to EAR, which then would use the funds to satisfy prior and ongoing lease obligations. (Id. ) The fraud occurred when EAR repeated this pattern of selling and releasing equipment to and from new equipment financers, but did so with the scone equipment it had previously sold to other financers, without disclosing to any of them that it was selling equipment to which it no longer owned title.
In the transactions at issue in this matter, the Plaintiff alleges that EAR entered into leasing agreements with Advanced Financial Solutions, Inc. ("AFS"). (Id. at ¶ 3.)
Those leasing agreements were later assumed by and rolled into promissory notes with Charter as lender and EAR as the borrower. (Id. ) The relationship between Charter and EAR is evidenced by three promissory notes. The first promissory note, for $277,018.27, was dated May 22, 2009, and was accompanied by a corresponding security agreement. (Id. at ¶¶ 3 & 6.) The second promissory note was for $155,556.82, dated June 24, 2009, with a corresponding security agreement. (Id. at ¶¶ 8 & 9.) The third promissory note was for $146,824.54, dated July 31, 2009, with a corresponding security agreement. (Id. at ¶¶ 14 & 17.) The total principal obligation on the three notes owed by EAR to Charter as of the petition date was $593,964.99. (Id. at ¶ 19.) EAR made regular monthly payments on the three notes to Charter from November 2007 through July 2009, totaling $1,496,514.72. (Second Am. Compl. ¶¶ 22 & 27.) Charter filed a proof of claim in the sum of $593,964.99, which represents the outstanding amounts due on the promissory notes (Claim No. 89–1).
In Count I of the second amended complaint, the Plaintiff seeks to avoid the $786,840.92 in transfers made by EAR...
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