Geron v. Peebler (In re Pali Holdings, Inc.)

• Decision Date: 25 March 2013
• Docket Number: Bankruptcy No. 10–11727 (REG).,Adversary No. 11–02912 (REG).
• Citation: 488 B.R. 841
• Parties: In re PALI HOLDINGS, INC., Debtor. Yann Geron, Chapter 7 Trustee of the Estate of Pali Holdings, Inc., Plaintiff, v. David Peebler, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

488 B.R. 841

In re PALI HOLDINGS, INC., Debtor.

Yann Geron, Chapter 7 Trustee of the Estate of Pali Holdings, Inc., Plaintiff,

v.David Peebler, Defendant.

Bankruptcy No. 10–11727 (REG).

Adversary No. 11–02912 (REG).

United States Bankruptcy Court,

S.D. New York.

March 25, 2013.

Fox Rothschild LLP, By: John Wait, Esq., Oksana Wright, Esq. (argued), New York, NY, for Plaintiff Yann Geron, Chapter 7 Trustee.

Jones & Associates, By: Roland Gary Jones, Esq., New York, NY, Law Office of Ira R. Abel, By: Ira R. Abel, Esq. (argued), New York, NY, for Defendant David Peebler.

DECISION ON MOTION FOR SUMMARY JUDGMENT

ROBERT E. GERBER, Bankruptcy Judge.

In this adversary proceeding under the umbrella of the chapter 7 case of Debtor Pali Holdings, Inc., plaintiff Yann Geron, the chapter 7 Trustee (the “Trustee”), seeks turnover, under section 542 of the Bankruptcy Code, of the proceeds of a promissory note (the “Note”) defendant David Peebler executed in favor of Pali Holdings. Peebler's defenses to payment on the Note are frivolous. Peebler's only contention that even warrants a written opinion ¹ is his contention that a bankruptcyjudge lacks the constitutional power to issue a final judgment for the requested relief.

For the reasons that follow, the Court confirms its earlier oral ruling that when, as here, a trustee's turnover rights under section 542 of the Code are appropriately invoked ( e.g. to secure the return of property of the estate, or to monetize it), bankruptcy judges plainly have the constitutional power to issue final judgments for turnover. On the merits, the Court confirms its oral ruling that there here are no material disputed issues of fact, and that Peebler has no defenses under the Note.

Facts

1. The Loan

Beginning in January 2004, defendant Peebler was a full-time employee of the Debtor's affiliate, Pali Capital, Inc. Peebler was employed as a trader at Pali's Global Derivatives Desk.

In June 2007, in connection with a share purchase plan Debtor Pali Holdings, Inc. (“Pali”) offered to certain employees, Peebler borrowed $105,000 (the “Loan”) from Pali. Peebler signed the Note in exchange for the money he borrowed. The Note obligated Peebler to repay the $105,000 principal amount of the Loan, plus interest at 8% per annum, in monthly installments of $700 commencing June 30, 2007.

Peebler then used the Loan amount to purchase shares in Pali. In connection with his purchase, Peebler executed a subscription agreement (the “Subscription Agreement”) under which he agreed to purchase 4,000 shares. Peebler also executed a pledge agreement (the “Pledge Agreement”) under which he granted Pali a security interest in the shares he purchased.

Each of the Subscription Agreement, the Pledge Agreement and the Note also provided, expressly, that Pali would have recourse against both the shares purchased under the Subscription Agreement and borrower Peebler personally, for full satisfaction of his obligations under the Note. The Subscription Agreement stated, at the end of its first page and running on to the second:

The undersigned understands and agrees that the Shares shall be collateral under the Pledge Agreement, that upon an Event of Default (as defined in the Pledge Agreement), the Company shall have recourse to the Shares and to the undersigned for full satisfaction of the undersigned's obligations with respect to payment of the unpaid portion of such balance, together with accrued and unpaid interest, and that the Company shall be entitled to initiate a claim of any nature against the undersigned, regarding payment of such obligations hereunder.²

Likewise, the Pledge Agreement provided:

Full Recourse. Without limiting the applicability of any provision herein, Pledgor assumes full liability for the payment of the Obligations.³

Likewise the Note provided:

Full Recourse. Without limiting the applicability of the foregoing Section 2, Borrower assumes full liability for the payment of the Obligations (as defined in the Pledge Agreement).⁴

Peebler contends that notwithstanding the unambiguous language of each of those three documents, he was “led to believe” that the Loan was without recourse to his personal assets, and that the estate's recovery was limited to the security for the Loan. But he offers no evidentiary support for that contention—not even telling the Court the source of that understanding.

Additionally, Peebler executed a shareholders' agreement (the “Shareholders' Agreement”) which provided, among other things, that if any court proceeding were brought in connection with the Shareholders' Agreement, the prevailing party “shall be entitled to recover from the other party all costs, expenses and reasonable and verifiable attorneys' fees incidental to any such proceeding.” ⁵ But the Shareholders' Agreement (whose subject matter was principally Pali's rights with respect to Peebler's conduct and shares after he purchased them, including in connection with a desire by Peebler to transfer the shares, or his death, disability, insolvency, divorce or termination of employment) did not incorporate into it Peebler's duty to pay on the Note. And neither the Subscription Agreement, the Pledge Agreement nor (most significantly) the Note had a comparable attorneys fees provision.

2. Peebler's “Bonus” or “Commission”

During the time at which Peebler was employed at Pali, derivatives traders at Pali were compensated in various forms in addition to a base salary. According to Richard Anthony, (former Head of Global Derivatives at Pali), in addition to base salary, derivatives traders were “entitled to commissions,” which were collected into a “bonus pool” to be distributed to derivatives traders. ⁶ Also according to Anthony, as head of the derivatives desk he had sole authority to decide the amount of each person's bonus based on his or her performance.⁷ In an affidavit provided in connection with this litigation, Anthony stated that he intended to “give David Peebler $169,000.00 as his share in the ‘bonus pool’ ” but that this amount was never paid to Peebler because of Anthony's resignation from his position at Pali on December 10, 2009.⁸

Importantly, Peebler provided no evidence that Anthony communicated this intention to anyone at Pali, or that Anthony otherwise acted on his stated intention. Nor did Peebler introduce any evidence showing that Anthony or Pali promised him anything by way of bonus or commission.

3. Peebler's Resignation; Pali's Bankruptcy Filing

On December 15, 2009, Peebler resigned from Pali. On April 1, 2010, Pali filed a voluntary chapter 11 petition in this Court. About six months later, upon a motion of the Debtor, the case was converted to chapter 7. By letter dated October 11, 2011, the Trustee demanded that Peebler pay the amount due under the Loan. But Peebler failed to do so.

4. Attorneys Fees

After summary judgment was granted, the Trustee submitted evidence of his legal fees in collecting on the Note. The amount shown was reasonable. But the Trustee did not offer any evidence of a contractual entitlement to fees except under the Shareholders' Agreement.

Discussion

I.The Merits

A. Summary Judgment Standards

Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” ⁹ The moving party bears the initial burden of showing that the undisputed facts entitle it to judgment as a matter of law.¹⁰ Then, if the movant carries this initial burden, the non-moving party must set forth specific facts to show that there are triable issues of fact, and cannot rely on pleadings containing mere allegations or denials.¹¹

In determining a summary judgment motion, it is well settled that the court should not weigh the evidence or determine the truth of any matter, and must resolve all ambiguities and draw all reasonable inferences against the moving party.¹² A fact is material if it “might affect the outcome of the suit under the governing law.” ¹³ An issue of fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” ¹⁴

B. Application to Facts Here

The Trustee contends that the Note was full recourse, as the three documents Peebler signed provided, and that there are no other defenses to payment. This aspect of the Trustee's motion requires minimal discussion.

“Cases seeking recovery on promissory notes are particularly suitable for disposition via summary judgment, as the moving party need merely establish the absence of a genuine issue as to execution and default.” ¹⁵ After a prima facie case for judgment on the note is made, the burden shifts to the non-moving party to present competent evidence establishing a genuine issue for trial.¹⁶

Here it is undisputed that payment under the Note was due, and that Peebler has not repaid it. But he attempts to defeat summary judgment by raising, as asserted genuine issues for trial, defenses that (1) he believed the Note to be non-recourse; and (2) that he was entitled to bonus compensation which would offset amounts due under the Note. Neither is a satisfactory defense here.

The first contention is frivolous. Documents that Peebler signed provided in three separate places that his duty to pay on the Note was full recourse to him personally. In fact, two of them—the Note and the Pledge Agreement—said that in bold face. The third—the Subscription Agreement—said that again, and went on to say that Pali (in whose shoes the Trustee now stands) would have the right to initiate a claim of any nature against him.

The Court does not need to decide whether the parol evidence rule would here apply in the absence of express integration clauses. There here is no basis in the record for Peebler's contention that there was any agreement to the contrary, much less that documents he signed should be nugatory because of his wholly unsupported assertion that he was “led to believe” otherwise. Particularly...