Gonzales v. Sun Life Ins. Co. (In re Furr's Supermarkets, Inc.)

• Decision Date: 20 December 2012
• Docket Number: Bankruptcy No. 7–01–10779 SA.,Adversary No. 03–1072 S.
• Citation: 485 B.R. 672
• Parties: In re FURR'S SUPERMARKETS, INC., Debtor. Yvette J. Gonzales, Trustee, Plaintiff, v. Sun Life Insurance Company, Defendant.
• Court: U.S. Bankruptcy Court — District of New Mexico

485 B.R. 672

In re FURR'S SUPERMARKETS, INC., Debtor.Yvette J. Gonzales, Trustee, Plaintiff,

v.Sun Life Insurance Company, Defendant.

Bankruptcy No. 7–01–10779 SA.

Adversary No. 03–1072 S.

United States Bankruptcy Court, D. New Mexico.

Dec. 20, 2012.

Thomas D. Walker, Albuquerque, NM, for Plaintiff.

Victor E. Carlin, Moses Law Firm, Albuquerque, NM, for Defendant.

Office of the United States Trustee, Albuquerque, NM.

MEMORANDUM OPINION ON: DEFENDANT SUN LIFE INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT (doc 50); PLAINTIFF'S MOTION TO STRIKE AFFIDAVIT OF GENE DENISON (doc 71); and PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (doc 121)

JAMES S. STARZYNSKI, Bankruptcy Judge.

This matter is before the Court on the Motion for Summary Judgment filed by Defendant Sun Life Insurance Company (“Sun Life” or “Defendant”)(doc 50) with supporting Memorandum (doc 52) and numerous exhibits, Plaintiff's Response and Memorandum in Support (doc 70), and Defendant's Amended Statement of Material Facts in Support of Motion for Summary Judgment (doc 92), Plaintiff's Response to the Amended Statement of Material Facts (doc 97), and Defendant's Reply Brief (doc 101). Also before the Court are Plaintiff's Motion to Strike Affidavit of Gene Denison (doc 71) and Defendant's Response (doc 93) ¹. And, finally, before the Court are Plaintiff's Motion for Summary Judgment (doc 121) with Brief in Support (doc 122), and Supporting Third Affidavit of Rachel Kefauver (doc 124), Defendant's Response to the Motion (doc 125) and Plaintiff's Reply (doc 126). This is a core proceeding to recover preferential transfers. 28 U.S.C. § 157(b)(2)(F)².

Plaintiff filed this adversary proceeding on January 30, 2003 (doc 1), an amended complaint on February 7, 2003 (doc 3), and a second amended complaint (hereafter “Complaint”) on May 12, 2004 (doc 15). Defendant filed an answer to the Complaint on February 10, 2005 (doc 21), an amended answer on March 16, 2005, and a second amended answer (hereafter, “Answer”) on July 28, 2005 (doc 42). Defendant also filed a “Waiver of Ordinary Course of Business Defense” on June 29, 2005 (doc 38). Later, Defendant conceded its Priority Claim Affirmative Defense included in its Second Amended Answer to Second Amended Complaint, doc 42, p. 4, ¶ I. See Doc 125, p. 3.

Plaintiff's complaint is a straightforward preference complaint under 11 U.S.C. § 547(b)³. Defendant's Answer admits all allegations except three: 1) it denies that Plaintiff's Exhibit A to the Complaint, which lists 16 payments, is correct and affirmatively states that it received only 3 separate checks; 2) it denies that the payments enabled it to receive more than it would have received had the bankruptcy case at all times been a case under chapter 7 of the Bankruptcy Code, the payments had not been made, and the Defendant had received payment of its antecedent debt to the extent provided under the bankruptcy code; and 3) it denies that Plaintiff has the right to a judgment. The Answer also contains 11 affirmative defenses: A) the payments received were authorized by the February 8, 2001 “Employee Benefits Order” (main case, doc 28); B) the payments were authorized by estoppel and the “necessity of payment rule”; C) if Defendant had not received the 3 payments during the preference period, it would have received payment postpetition pursuant to the Employee Benefits Order, D) the payments were made from moneys held in trust by Furr's and did not belong to Furr's, E) a portion of the payments were “withheld” from employee's paychecks and did not constitute Furr's property, F) Plaintiff should be estopped by the “Employee Benefits Motion” (main case, doc 12, ¶¶ 7, 25 and 26) from arguing that the withheld amounts constituted property in which the Debtor had an interest, G) subsequent new value in the form of continuing insurance coverage, H) new value (contemporaneous exchange) in the form of continued services of the Furr's employees themselves, I) Sun Life would have received these payments as Section 507(a)(4) priority claims anyway, therefore would not have received less in a hypothetical chapter 7 case,⁴ J) the Plaintiff should be estopped by the Employee Benefits Motion (main case, doc 12, ¶ 36) from arguing that the payments enabled Defendant to receive more than it would have received in a chapter 7 case, and K) ordinary course of business.⁵

First, the Court will decide the motion to strike.

MOTIONS TO STRIKE PORTION OF DENISON AFFIDAVIT

Summary judgment is governed by Bankruptcy Rule 7056, which incorporates Fed.R.Civ.P. 56.⁶Rule 56(e)(2001) stated as follows:

Form of Affidavits; Further Testimony; Defense Required. Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith. The court may permit affidavits to be supplemented or opposed by depositions, answers to interrogatories, or further affidavits. When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

Thus, there are three requirements for an affidavit submitted in conjunction with a motion for summary judgment: 1) it shall be based on personal knowledge, 2) it shall set forth facts that would be admissible in evidence, and 3) it shall show affirmatively that the affiant is competent to testify to the stated facts. Giles v. University of Toledo, 241 F.R.D. 466, 469 (N.D.Ohio 2007). An affidavit that fails to satisfy these three requirements is subject to a motion to strike and will not be considered by the Court. Id. “The United States Court of Appeals for the Tenth Circuit has explicitly held that legally insufficient affidavits under Rule 56(e) are subject to a motion to strike.” Servants of the Paraclete, Inc. v. Great American Ins. Co., 866 F.Supp. 1560, 1564 (D.N.M.1994) (citing Noblett v. General Elec. Credit Corp., 400 F.2d 442, 445 (10th Cir.)), cert. denied,393 U.S. 935, 89 S.Ct. 295, 21 L.Ed.2d 271 (1968).) “Furthermore, the United States Court of Appeals for the Tenth Circuit has held that ‘conclusory’ summary judgment affidavits are legally insufficient.” Id. An affidavit is conclusory when it draws inferences. Id. at 1565. Similarly, affidavits that contain inadmissible hearsay are legally insufficient. White v. Wells Fargo Guard Services, 908 F.Supp. 1570, 1578 (M.D.Ala.1995); Giles, 241 F.R.D. at 471;compare Servants of the Paraclete, 866 F.Supp. at 1567 (out-of-court statements offered in affidavit were not hearsay because they were not offered for their truth; the affidavit was admissible.) Any defects in an affidavit are waived if not challenged. Meinhardt v. Unisys Corp. (In re Unisys Savings Plan Litigation), 74 F.3d 420, 437 n. 12 (3rd Cir.), cert. denied,519 U.S. 810, 117 S.Ct. 56, 136 L.Ed.2d 19 (1996). And, if a statement is successfully challenged, the Court does not strike the entire affidavit; it disregards only the offending statement. Perez v. Volvo Car Corp., 247 F.3d 303, 315 (1st Cir.2001)(“The rule requires a scalpel, not a butcher knife.”) Finally, it is proper for the Court to consider a later deposition of the affiant to determine whether the affidavit contains impermissible material. Flair Broadcasting Corp. v. Powers, 733 F.Supp. 179, 182–83 (S.D.N.Y.1990).

The Denison affidavit (doc 43) is the source of many of the facts in Defendant's Motion for Summary Judgment's Statement of Undisputed Facts. Plaintiff seeks to strike portions of it because it is not based on personal knowledge, does not set forth facts that would be admissible in evidence, and contains both legal conclusions and hearsay. Doc 71. Defendant replies (doc 93) that Plaintiff's motion to strike is moot because Defendant filed an Amended Statement of Material Facts in Support of Defendant's Motion for Summary Judgment (doc 92) that added additional citations to the record other than just Denison's statements. The Court disagrees that the motion to strike is moot; if the affidavit contains inadmissible statements, the filing of other and additional references to the record does not make the statements in the first affidavit admissible and the Court would prefer a clear factual record. Defendant also replies that, since filing the affidavit, Plaintiff deposed Denison on substantially all of the statements and asks the Court to consider the deposition testimony before striking anything. Finally, Defendant denies that any of the affidavit is not based on personal knowledge or is based on hearsay.

The Court has reviewed the affidavit, the objection and response, portions of the deposition testimony, and exhibits submitted therewith, and finds that portions of the affidavit should be stricken. Paragraphs 1 through 6 are admissible. Plaintiff seeks to strike the last sentence of paragraph 7, based on Denison Deposition, doc 71, Exh. A, Pt. 1, p. 89, ln. 6–20 (he had no knowledge if withheld amounts were actually segregated); p. 93, ln. 19–23 (same); p. 96, ln. 6–13 (he did not know if funds could be traced); p. 97, ln. 1–15 (funds were possibly commingled, he just did not know). The Court agrees. Therefore, the last sentence of paragraph 7 is stricken.

Plaintiff moves to strike paragraph 8 because Denison is expressing the intent of Debtor when it purchased the insurance, claiming that he could not possibly know Debtor's intent. The Court disagrees, and finds that based on his...