Coan v. MDC Corp. (In re Louis Gherlone Excavating, Inc.)
| Decision Date | 19 December 2014 |
| Docket Number | ADV. PRO. NO. 12-03073,CASE NO. 10-31517 (JAM) |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — District of Connecticut |
| Parties | IN RE: LOUIS GHERLONE EXCAVATING, INC. DEBTOR. RICHARD M. COAN, TRUSTEE PLAINTIFF v. MDC CORPORATION AND LEO D. CALDARELLA DEFENDANTS. |
Timothy D. Miltenberger, Esq.
Coan Lewendon Gulliver & Miltenberger
495 Orange Street
New Haven, CT 06511
Attorney for the Plaintiff
Mark Shipman, Esq.
Charles Scott Schwefel, Esq.
Shipman Stokesbury & Fingold LLC
20 Batterson Park Road, Suite 120
Farmington, CT 06032
The Plaintiff in this adversary proceeding is the Chapter 7 Trustee ("Plaintiff" or "Trustee"), of the Louis Gherlone Excavating, Inc., ("LGE"), bankruptcy case. At issue areseveral transfers allegedly made by LGE and/or Mr. Louis Gherlone ("Gherlone"), LGE's owner and principal, to or for the benefit of the Defendants, MDC Corporation ("MDC"), and its principal, Mr. Leo D. Caldarella ("Caldarella"). The Chapter 7 Trustee seeks a declaration that the transfers are avoidable as unauthorized postpetition transfers under 11 U.S.C. § 549 and seeks recovery of the transfers under 11 U.S.C. § 550.1 A trial was held in this matter on April 24, 2014 and May 12, 2014.
The United States District Court for the District of Connecticut has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). The Bankruptcy Court derives its authority to hear and determine this matter pursuant to 28 U.S.C. § 157(a) and the Order of Reference of the United States District Court for the District of Connecticut dated September 21, 1984. This is a "core proceeding" pursuant to 28 U.S.C. §§ 157(b)(1), (b)(2)(A) and (b)(2)(O).
The decisions of the United States Supreme Court in Stern v. Marshall, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), and Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165, 189 L. Ed. 2d 83 (2014), have cast doubt on the Constitutional authority of the bankruptcy court to enter a final judgment in some statutorily "core" proceedings. However, the Court concludes that this action to avoid and recover alleged unauthorized postpetition transfers lies outside the scope of Stern and Executive Benefits and does not implicate the Constitutional concerns addressed in those cases. As the United States Bankruptcy Court for the District of Massachusetts observed in Murphy v. Felice (In re Felice), 480 B.R. 401, 428 (Bankr. D. Mass. 2012):
An action . . . to recover an unauthorized postpetition transfer of property of the estate 'stems from the bankruptcy itself . . . . [Additionally, u]nlike the counterclaim in Stern, the recovery of an unauthorized post-petition [sic] transfer will not 'augment the estate.' . . . In this respect § 549 actions differ from actions to recover fraudulent conveyances, which, by definition, do not involve assets that were property of the estate on the petition date.
(quoting Stern v. Marshall, 131 S. Ct. at 2618). Thus, both the statutory and Constitutional authority for this Court to enter a final judgment exists in this case.
Pursuant to Fed. R. Civ. P. 52, made applicable to this matter by Fed. R. Bankr. P. 7052, the following are the Court's findings of fact and conclusions of law:
A. Findings of Fact
1. On May 20, 2010, LGE filed a voluntary Chapter 11 bankruptcy case in this Court entitled In re Louis Gherlone Excavating, Inc., Case No. 10-31517 (the "LGE bankruptcy"). (Plaintiff's Exhibit A).
2. In connection with its Chapter 11 case, LGE opened a debtor-in-possession bank account (the "LGE DIP account"). The LGE DIP account was used to facilitate LGE's operations as a Chapter 11 debtor-in-possession. (Plaintiff's Exhibit D; Testimony of Gherlone at April 24, 2014 trial).
3. While LGE was a Chapter 11 debtor-in-possession, several orders authorizing the interim use of cash collateral were entered in the case. (Plaintiff's Exhibit A).
4. On August 23, 2010, the final interim order authorizing the use of cash collateral was entered in the case. The final interim cash collateral order expired, according to its terms, on September 6, 2010. (Plaintiff's Exhibit A; Testimony of Gherlone at April 24, 2014 trial).
5. At all times relevant to the allegations in the Complaint,2 MDC was a corporation with offices in Old Saybrook, Connecticut. (Complaint at p. 2; Testimony of Caldarella at May 12, 2014 trial).
6. Caldarella was a resident of Connecticut and the owner and principal officer of MDC. (Complaint at p. 2; Testimony of Caldarella at May 12, 2014).
7. On or around September 21, 2010, TVJL Management Co. ("TVJL"), a third-party entity, issued a check in the amount of $62,500.00 to MDC (the "$62,500.00 check"). (Plaintiff's Exhibit I; Testimony of Gherlone at April 24, 2014 trial; Testimony of Caldarella at May 12, 2014 trial). The Plaintiff asserts that the $62,500.00 check is an account receivable of LGE and therefore is property of LGE's bankruptcy estate. The Plaintiff further asserts that the $62,500.00 check is an unauthorized postpetition transfer of property of LGE's bankruptcy estate.
8. On or around September 23, 2010, a check in the amount of $30,000.00 was issued to MDC from the LGE DIP account (the "$30,000.00 check"). (Plaintiff's Exhibit D; Testimony of Gherlone at April 24, 2014 trial). The Plaintiff asserts that the $30,000.00 check was an unauthorized postpetition transfer of property of LGE's bankruptcy estate.
9. On or around October 7, 2010, A. Prete Construction Co., Inc. ("Prete"), a third-party entity, issued a check in the amount of $111,108.37 to MDC (the "$111,108.37 check"). (Plaintiff's Exhibit G; Testimony of Gherlone at April 24, 2014 trial; Testimony of Caldarella at May 12, 2014 trial). The Plaintiff asserts that the $111,108.37 check is an account receivable of LGE and therefore is property of LGE's bankruptcy estate. The Plaintiff furtherasserts that the $111,108.37 check is an unauthorized postpetition transfer of property of LGE's bankruptcy estate.
10. On or around November 24, 2010, a check in the amount of $50,000.00 (the "$50,000.00 check") was issued to MDC from the LGE DIP Account. (Plaintiff's Exhibit E; Testimony of Gherlone at April 24, 2014 trial). The Plaintiff asserts that the $50,000.00 check was an unauthorized postpetition transfer of property of LGE's bankruptcy estate.
11. The $62,500.00 check was issued in connection with work done on a particular demolition job, referred to in testimony as "Gloria's." (Plaintiff's Exhibit I; Testimony of Gherlone at April 24, 2014 trial; Testimony of Caldarella at May 12, 2014 trial).
12. The $111,108.37 check was issued in connection with work done on a particular construction job, referred to in testimony as "Saint Francis." (Plaintiff's Exhibit G; Testimony of Gherlone at April 24, 2014 trial; Testimony of Caldarella at May 12, 2014 trial).
13. No evidence was presented at trial to establish that the funds transferred to MDC by the $62,500.00 and $111,108.37 checks were ever property of the LGE bankruptcy estate. (Plaintiff's Exhibit G; Plaintiff's Exhibit I; Testimony of Gherlone at April 24, 2014 trial; Testimony of Caldarella at May 12, 2014 trial).
14. At trial, Gherlone testified about LGE construction projects for which the $30,000.00 check may have been issued, specifically mentioning two jobs referred to as the "Center for Child Development" job and the "Pepperidge Farm" job. (Plaintiff's Exhibit D; Testimony of Gherlone at April 24, 2014 trial). However, Gherlone ultimately testified at trialthat without the benefit of invoices to refer to, he did not know with any certainty to which job the $30,000.00 check applied. (Testimony of Gherlone at April 24, 2014 trial).
15. Gherlone further testified that two invoices - apparently generated in connection with the $30,000.00 check, but not offered into evidence by any party - had been "fabricated." (Testimony of Gherlone at April 24, 2014 trial).
16. Caldarella denied that either he or MDC fabricated any invoices. He further testified that he could not specifically recall to which job the $30,000.00 check was related. (Plaintiff's Exhibit D; Testimony of Gherlone at April 24, 2014 trial; Testimony of Caldarella at May 12, 2014 trial).
17. Gherlone testified at trial that he "guessed" that the $50,000.00 check was issued in connection with the Pepperidge Farm job but that, ultimately, he did "not know" why the $50,000.00 check was issued. (Testimony of Gherlone at April 24, 2014 trial).
18. Caldarella again denied that either he or MDC fabricated any invoices. (Testimony of Caldarella at May 12, 2014 trial). Caldarella further testified that the $50,000.00 check was issued to MDC by LGE, at the insistence of NewAlliance Bank, a secured creditor in the LGE bankruptcy case which was involved in the Pepperidge Farm job. (Plaintiff's Exhibit E; Testimony of Caldarella at May 12, 2014 trial).
19. Caldarella testified that the $50,000.00 check was issued to MDC so that Caldarella would exert his "influence" over LGE to ensure that LGE's "punch list" on the Pepperidge Farm job was completed. (Plaintiff's Exhibit E; Testimony of Caldarella at May 12, 2014 trial). In the absence of evidence substantiating Gherlone's vague assertions regarding the $50,000.00 check, the Court finds that the check was issued under the circumstances and for the reasons testified to by Caldarella.Conversion of the LGE bankruptcy from Chapter 11 to Chapter 7
20. On February 16, 2011, the LGE Chapter 11 case was converted to a Chapter 7 case and the Plaintiff was appointed to serve...
To continue reading
Request your trial