Executive Ctr. III, LLC v. Meieran

• Decision Date: 23 January 2012
• Docket Number: Case No. 10–CV–263–JPS.
• Citation: 823 F.Supp.2d 883
• Parties: EXECUTIVE CENTER III, LLC, Plaintiff, v. Andrew MEIERAN and Andrew Meieran Family Trust, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

823 F.Supp.2d 883

EXECUTIVE CENTER III, LLC, Plaintiff,

v.Andrew MEIERAN and Andrew Meieran Family Trust, Defendants.

Case No. 10–CV–263–JPS.

United States District Court, E.D. Wisconsin.

Oct. 4, 2011.Order Denying Reconsideration Jan. 23, 2012.

Jeffrey D. Nordholm, Thomas L. Miller, Storm Balgeman Miller & Klippel SC, Wauwatosa, WI, for Plaintiff.

Michael P. Dunn, Kerkman & Dunn Milwaukee, WI, for Defendants.

ORDER

J.P. STADTMUELLER, District Judge.

In March of 2010, the plaintiff filed a complaint against the defendants alleging that they had received fraudulent transfers from BRIC Executive, LLC (“BRIC”). (Docket # 1). BRIC, a real estate holding company, transferred $400,000 to the defendants, former partial owners of BRIC, allegedly in satisfaction of a debt. (Def.'s Reply, 2). Unfortunately, this transfer left BRIC unable to pay amounts they owed to plaintiff under a real estate sale contract. (Compl. ¶¶ 14–37).

Now, the plaintiff alleges that BRIC's transfer to the defendants was improper, as it made BRIC insolvent and unable to pay its debts to plaintiff. (Compl., ¶¶ 14–37). Thus, the plaintiff seeks to have the defendants held liable for BRIC's debts to the plaintiff. ( Id.)

Discovery has now taken place, and the parties have fully briefed the issues raised in the defendants' May 10, 2011 Motion for Summary Judgment. (Docket # 33).

With the benefit of the parties' submissions, together with the analysis that follows, the motion before the Court will be granted in part and denied in part.

1. FACTUAL BACKGROUND1.1 General Background

1.1.1 Defendants' Association with BRIC

On November 1, 2007, the defendants bought a 12.5% interest in BRIC, and simultaneously entered into an agreement to liquidate that interest by March 1, 2008. (Pl.'s Resp., 2; Def.'s Reply, 2). There were two parts to the November 1, 2007 agreement between BRIC and the defendants. (Pl.'s Resp., 2; Def.'s Reply, 2). The first part, the Assignment of Membership Interest, gave defendants a 12.5% interest in BRIC in exchange for $250,000. (Pl.'s Resp., 2; Def.'s Reply, 2). BRIC and defendants contemporaneously agreed to the second part, called the Amendment. (Compl., ¶ 6). The Amendment provided the following:

(1) any of BRIC's net income would be applied to repaying the defendants' $250,000 investment until the defendants' interest was liquidated;

(2) the defendants' were to receive a 12% per-annum preferred return on their investment;

(3) by March 1, 2008, BRIC would pay a liquidating distribution to the defendants in redemption of the 12.5% interest; and

(4) if BRIC did not meet the March 1, 2008 deadline, it would be required to pay additional penalties to the defendants.

(Pl.'s Resp., 2–3; Def.'s Reply, 2).

In summary, on November 1, 2007, BRIC contractually agreed to redeem defendants' 12.5% interest by March 1, 2008.

1.1.2 Plaintiff's Agreement with BRIC

Approximately a year-and-a-half after BRIC agreed to the Assignment and Amendment with the defendants, the plaintiff began negotiating with BRIC to purchase an office building in Brookfield, Wisconsin. Plaintiff alleges that on June 5, 2008, BRIC agreed to sell the building—its primary asset—to the plaintiff. (Compl., ¶ 5).

Plaintiff also alleges that, under the terms of the sale agreement, BRIC agreed to a three-year lease of office space from the plaintiff. (Compl., ¶ 8). The lease term was expected to begin on or about the final date of sale, September 5, 2008, and bring approximately $167,000 to the plaintiff. (Compl., ¶ 11).

On September 5, 2008, the sale closed. plaintiff paid approximately $1.3 million to purchase the building from BRIC. (Compl., ¶ 11).

1.1.3 BRIC's Insolvency and Transfer of Assets to Defendants

Using the $1.3 million it received, BRIC paid off several debts, leaving itself unable to pay the rent due to plaintiff under the sale contract.

Most importantly, BRIC paid $400,000 to the defendants on the date the sale closed. The defendants allege that BRIC paid the $400,000 in satisfaction of amounts owed to the defendants under the November 1, 2007 Assignment and Amendment. (Def.'s Br. in Supp., 3). Because BRIC had not paid the $250,000 due on March 1, 2008, penalties began to apply. (Pl.'s Resp., 3; Def.'s Reply, 3). This resulted in BRIC owing approximately $435,000 to the defendants as of August 31, 2008. (Pl.'s Resp., 3; Def.'s Reply, 3). To deal with this debt, on August, 28, 2008, BRIC agreed to pay the defendants $400,000 at the closing of the sale. (Compl. ¶ 7).

Thus, on September 5, 2008, upon the sale closing, BRIC paid $400,000 to the defendants. (Pl.'s Resp., 3; Def.'s Reply, 3).

BRIC also owed substantial sums on other debts, ultimately making it unable to afford to pay the amounts owed to plaintiff under the lease-back term of the sale agreement. (Compl., ¶ 11). After the payment to the defendants, BRIC had only $697,358 remaining from the sale. (Compl. ¶ 11). That money constituted BRIC's only assets. (Compl. ¶ 11). Plaintiff alleges that BRIC paid $516,860 to release a second mortgage on the building and an additional $144,898 on other liabilities. (Compl., ¶ 11).

Having pledged its money elsewhere, BRIC never paid any of the amounts due to plaintiff under the sale agreement. (Compl., ¶ 12). BRIC defaulted on the sale agreement almost immediately, failing to pay even its first rent payment due October 1, 2008. (Compl., ¶ 13).

Plaintiff then sought and received a money judgment against BRIC from the Waukesha County, Wisconsin state court. (Compl., ¶ 13). Plaintiff's judgment against BRIC is for $152,139. (Compl., ¶ 13).

1.1.4 Plaintiff's Filing of This Suit

Being insolvent, BRIC never paid on the plaintiff's judgment. Thus, plaintiff followed the money and came upon the defendants, who had received $400,000 immediately after the close of the sale. (Pl.'s Resp., 3; Def.'s Reply, 3). The plaintiff was understandably concerned that the defendants—partial owners of BRIC—had been paid a substantial sum of money, while the plaintiff was left without.

Thus, on March 26, 2010, the plaintiff filed this suit, challenging the transfer from BRIC to the defendants as fraudulent, and seeking an award of damages against the defendants. The plaintiff alleges that, in accepting the $400,000 transfer, the defendants: (1) violated several portions of Wisconsin's Uniform Fraudulent Transfer Act, Wis. Stat. § 242.01, et seq.; (2) breached a fiduciary duty they owed to the plaintiff; and (3) benefitted from inequitable preference. (Compl. ¶¶ 14–37).

The case was filed in this judicial district on the basis of diversity jurisdiction. (Compl. ¶ 1 (citing 28 U.S.C. § 1332); Ans. ¶ 1). The plaintiff is a Wisconsin business with total diversity from the defendants, who are residents of California. (Compl. ¶ 1; Ans. ¶ 1). And, because the amount in controversy is approximately $150,000, plus interest costs—exceeding the $75,000 required by statute for diversity—the Court can hear this case. (Compl. ¶ 1 (citing 28 U.S.C. § 1332); Ans. ¶ 1).

1.2. Admissible Evidence for Summary Judgment

The parties in this action have reached an agreement on several material facts in the case. ( See Def.'s Reply 1–3; Pl.'s Resp. 2–6). The defendants outlined these agreed upon in their Reply Brief, and the Court now recounts them. ( See Def.'s Reply 1–3; Pl.'s Resp. 2–6).

The parties agree on a substantial number of the facts that underlie the transactions between BRIC and the defendants. Importantly, both parties agree on the facts relating to the creation and terms of the November 1, 2007 Agreement and Amendment. (Def.'s Reply 2; Pl.'s Resp. 2–3). They also agree that BRIC did not pay any money in satisfaction of the Amendment by March 1, 2008, and that no payments were made by BRIC to the defendants until September 5, 2008. (Def.'s Reply 2; Pl.'s Resp. 3). The parties have also agreed that the defendants reassigned the 12.5% membership interest to BRIC on September 5, 2008. (Pl.'s Resp. 4). Finally, in reference to the financial relationship between BRIC and the defendants, the parties have agreed that BRIC owed $435,000 to the defendants as of August 31, 2008, pursuant to the Amendment. (Def.'s Reply 3; Pl.'s Resp. 3).

As to the relationship and transactions between the plaintiff and BRIC, the parties agree only that plaintiff is a creditor of BRIC. (Def.'s Reply 2; Pl.'s Resp. 2).

However, based upon the submitted affidavits, pleadings by the parties, and discovery responses, the Court is able to make additional findings of fact relating to BRIC's dealings with the plaintiff. The Court finds that BRIC agreed to a three-year lease from the plaintiff. (D. Heyes Aff. ¶ 6; P. Heyes Aff. ¶ 7; Ex. C, § 9.01(c)).

The Court can also look to the submissions of the parties and determine that BRIC became insolvent shortly after the September 5, 2008 sale. It sold its only asset, the office building, on September 5, 2008; after that point, BRIC immediately transferred $400,000 to defendants, leaving it with debts that exceeded its assets. (D. Heyes Aff. ¶ 8; P. Heyes Aff. ¶¶ 7–9). Thus, as of September 5, 2008, BRIC was insolvent. (P. Heyes Aff. ¶¶ 7–8).

Finally, from the submissions of the parties, the Court also determines that the defendants' 12.5% interest was not worth $250,000 or $400,000 as of the September 5, 2008 transfer. (Nordholm Aff. ¶¶ 3–5; Admitted Fact # 28–29)

2. DISCUSSION2.1 Summary Judgment Standard

Summary judgment is appropriate when the record shows that there is “no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Thomas v. H & R Block Eastern Enters., 630 F.3d 659, 663 (7th Cir.2011); Fed.R.Civ.P. 56(a).

A “genuine issue of material fact” exists only 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). To be “genuine,” the issue must create more than “some metaphysical...