Cage v. WorldFab, Inc. (In re Technicool Sys., Inc.)

Decision Date31 October 2018
Docket NumberCASE NO: 15-34435,ADVERSARY NO. 17-03265
Citation594 B.R. 383
Parties IN RE: TECHNICOOL SYSTEMS, INC., Debtor(s) Lowell T. Cage, et al., Plaintiff(s) v. WorldFab, Inc., et al., Defendant(s)
CourtU.S. Bankruptcy Court — Southern District of Texas

Chris A Stacy, Brian A. Baker, Douglas Saul Friedman, Stacy and Baker P.C., Houston, TX, for Plaintiff(s).

Annie E. Catmull, Sanders McGarvey LLP, Suzanne Lehman Johnson, Lehman Johnson Law, Thomas Michael Ballases, Hoover Slovacek LLP, Houston, TX, for Defendant(s).

MEMORANDUM OPINION

Marvin Isgur, UNITED STATES BANKRUPTCY JUDGE

The Trustee filed his second amended complaint on November 6, 2017, alleging that WorldFab, Inc; Safe-T-Cool, Inc.; Robert Furlough; and Jeff Huckaby fraudulently transferred assets and abused the corporate form to perpetuate a fraud on Technicool. (See generally ECF No. 27). The Trustee sought turnover of estate property, avoidance of fraudulent transfers, a declaratory judgment regarding corporate veil piercing, and injunctive relief for the valid causes of action. (ECF No. 27 at 14–29).

WorldFab, Safe-T-Cool, and Furlough filed a motion for summary judgment which argued the Trustee's complaint is barred under res judicata and Texas law regarding veil piercing. (ECF No. 77).

The Defendants' motion for summary judgment is granted in part and denied in part.

Background 1

Robert Furlough founded Powerhouse Marine International, Inc., in the 1970s to sell industrial heating, ventilation, and air conditioning ("HVAC") units to the oil and gas industry. (ECF No. 27 at 4). Furlough's business grew to include the production of modular control houses as well as HVAC units. In 1997, Furlough founded Safe–T–Cool, Inc., in order to spin off the HVAC producing portion of Powerhouse into a separate company. (ECF No. 27 at 4). After the split, Powerhouse continued to build modular control houses until 2006, when Furlough created WorldFab, Inc., which assumed all of Powerhouse's modular building assets and operations. (ECF No. 27 at 5).

In 2006, Safe–T–Cool was accused of trademark infringement and became involved in a dispute over the right to use the Safe–T–Cool name. (ECF No. 27 at 5). Furlough decided to create a new entity to assume Safe–T–Cool's operations. To effectuate this, Furlough founded Technicool in 2008, naming himself as the sole owner and his then son-in-law, Robert Huckaby, as President. (ECF No. 27 at 5–6). All of Safe–T–Cool's assets and operations were transferred to Technicool which operated until August 14, 2015, when it filed for chapter 7 bankruptcy in this Court. (ECF No. 27 at 4).

One of Technicool's principal customers was National Oilwell Varco ("NOV"). (ECF No. 27 at 11). On November 10, 2014, NOV sued the Technicool in Texas state court. (ECF No. 27 at 11). The lawsuit alleged various causes of action, including breach of contract, breach of warranty, negligent misrepresentation, and product liability. (ECF No. 27 at 13).

In Technicool's bankruptcy case, NOV has been the only active creditor. (See generally Case No. 15–34435). NOV developed an alliance with the Trustee in which NOV's counsel was retained by the Trustee to represent the Trustee in litigation against Technicool's former owners and affiliates. As an accommodation to the Trustee (and to overcome any potential conflict), NOV agreed to subordinate its claims against the Estate to 100% payment of all administrative expenses and to 100% recoveries by all other unaffiliated, general unsecured creditors in this case.

In light of NOV's agreement to fully subordinate its interest and other factors, the Court approved NOV's state court counsel as Trustee's counsel in this present litigation. (Case No. 15–34435; ECF No. 96).

The Trustee's complaint alleged four general causes of action against Furlough, Huckaby, WorldFab, and Safe-T-Cool:

• Count I seeks a declaratory judgment piercing the corporate veil against Furlough, WorldFab, and Safe-T-Cool.
• Count II seeks turnover of estate property if the Trustee successfully establishes the veil piercing cause of action in Count I.
• Count III seeks to avoid alleged fraudulent transfers made to and among Furlough, Huckaby, WorldFab, and Safe-T-Cool.
• Count IV seeks injunctive relief if the Trustee succeeds in prosecuting the other causes of action in his complaint.

Furlough, Huckaby, WorldFab, and Safe-T-Cool filed a joint motion to dismiss, arguing that the Trustee's amended complaint failed to state a claim upon which relief may be granted. (ECF No. 31). The Court granted Huckaby's motion to dismiss with regard to the alter ego and turnover claims but denied the remainder of the Defendants' requested relief. (ECF No. 42 at 11).

The Court now addresses the Defendants' motions for summary judgment which argue that the Trustee's misappropriation cause of action is barred by res judicata and his veil piercing claim contains legal and factual flaws which make recovery impossible. (See ECF No. 77)

Jurisdiction

The District Court has jurisdiction over this proceeding under 28 U.S.C. § 1334(a). Pursuant to 28 U.S.C. § 157(a), this proceeding has been referred to the Bankruptcy Court by General Order 2012-6.

Summary Judgment Standard

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). FED. R. BANK. P. 7056 incorporates FED. R. CIV. P. 56 in adversary proceedings. A party seeking summary judgment must demonstrate the absence of a genuine dispute of material fact by establishing the absence of evidence supporting an essential element of the non-movant's case. Sossamon v. Lone Star State of Tex. , 560 F.3d 316, 326 (5th Cir. 2009). A genuine dispute of material fact is one that could affect the outcome of the action or allow a reasonable fact finder to find in favor of the non-moving party. Gorman v. Verizon Wireless Tex., LLC , 753 F.3d 165, 170 (5th Cir. 2014) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).

In cases involving the interpretation of a contract, summary judgment is only appropriate where the language of the contract is unambiguous. See Nowak v. Ironworkers Local 6 Pension Fund , 81 F.3d 1182, 1192 (2d Cir. 1996) ; Cooper Indus., LLC v. Precision Castparts Corp. , 2016 WL 4939565, at *6 (S.D. Tex. Sept. 14, 2016).

A court views the facts and evidence in the light most favorable to the non-moving party at all times. Ben-Levi v. Brown , ––– U.S. ––––, 136 S.Ct. 930, 194 L.Ed.2d 231 (2016). Nevertheless, the Court is not obligated to search the record for the non-moving party's evidence. Keen v. Miller Envtl. Grp., Inc. , 702 F.3d 239, 249 (5th Cir. 2012). "Summary judgment may not be thwarted by conclusional allegations, unsupported assertions, or presentation of only a scintilla of evidence." Hemphill v. State Farm Mut. Auto. Ins. Co. , 805 F.3d 535, 538 (5th Cir. 2015), cert. denied , ––– U.S. ––––, 136 S.Ct. 1715, 194 L.Ed.2d 811 (2016).

A party asserting that a fact cannot be or is genuinely disputed must support that assertion by citing to particular parts of materials in the record, showing that the materials cited do not establish the absence or presence of a genuine dispute, or showing that an adverse party cannot produce admissible evidence to support that fact. FED. R. CIV. P. 56(c)(1). The Court need consider only the cited materials, but it may consider other materials in the record. FED. R. CIV. P. 56(c)(3). The Court should not weigh the evidence.

Wheat v. Fla Par. Juvenile Justice Comm'n , 811 F.3d 702, 713 (5th Cir. 2016). A credibility determination may not be part of the summary judgment analysis. E.E.O.C. v. LHC Grp., Inc. , 773 F.3d 688, 694 (5th Cir. 2014). However, a party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence. FED. R. CIV. P. 56(c)(2). Moreover, the Court is not bound to search the record for the non-moving party's evidence of material issues. Willis v. Cleco Corp. , 749 F.3d 314, 317 (5th Cir. 2014).

"The moving party bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact." Nola Spice Designs, LLC v. Haydel Enterprises, Inc. , 783 F.3d 527, 536 (5th Cir. 2015). The evidentiary support needed to meet the initial summary judgment burden depends on whether the movant bears the ultimate burden of proof at trial.

If the movant bears the burden of proof on an issue, a successful motion must present evidence entitling the movant to judgment at trial. Celotex Corp. v. Catrett , 477 U.S. 317, 326, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Upon an adequate showing, the burden shifts to the non-moving party to establish a genuine dispute of material fact. FED. R. CIV. P. 56(c)(1) ; Celotex , 477 U.S. at 322–24, 106 S.Ct. 2548. The non-moving party must cite to specific evidence demonstrating a genuine dispute. FED. R. CIV. P. 56(c)(1) ; Celotex , 477 U.S. at 324, 106 S.Ct. 2548. The non-moving party must also "articulate the manner in which that evidence supports that party's claim." Duffie v. United States , 600 F.3d 362, 371 (5th Cir. 2010). Even if the movant meets its initial burden, the motion should be granted only if the non-movant cannot show a genuine dispute of material fact.

Analysis
Evidentiary Objections

The Trustee's response requests that the Court strike a number of exhibits the Defendants offered as summary judgment evidence on hearsay and relevance grounds. (ECF No. 98 at 32–35). The Court did not consider any of the evidence in question in ruling on this summary judgment motion, rendering the Trustee's request moot.

The Defendants also filed a similar motion to strike unnecessary evidence presented in the Trustee's response to...

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