Graham v. Huntington Nat'l Bank (In re Medcorp, Inc.)
| Citation | 521 B.R. 259 |
| Decision Date | 31 October 2014 |
| Docket Number | Adversary No. 13–03065.,Bankruptcy No. 11–33239. |
| Parties | In re MEDCORP, INC., Stickney Avenue Investment Properties, LLC, Medcorp E.M.S. South, LLC, Debtors. John N. Graham, Trustee, Plaintiff, v. The Huntington National Bank, Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
OPINION TEXT STARTS HERE
Timothy P. Nackowicz, Connelly, Jackson & Collier LLP, Toledo, OH, H. Buswell Roberts, Blacksburg, VA, for Plaintiff.
Jeffrey Baddeley, Buckley King LPA, Stuart A. Laven, Cavitch Familo & Durkin Co. LPA, Daniel C. Wolters, Black Letter Discovery, Cleveland, OH, for Defendant.
This cause is before the court on Defendant The Huntington National Bank's (“Huntington” or “Bank”) Motion for Summary Judgment (“Motion”) [Doc. # 24], filed on January 3, 2014. The Affidavit of David Bartlett was filed as Exhibit A to the Motion, and the Credit and Security Agreement between Huntington, Medcorp, Inc., and Medcorp E.M.S. South, LLC was filed as Exhibit B
The Plaintiff is John N. Graham (“Plaintiff”), the Chapter 11 Trustee in the underlying bankruptcy case filed on June 10, 2011 by Medcorp, Inc. (“Medcorp”) 1. Plaintiff's Complaint (“Complaint”), filed on May 2, 2013, seeks to avoid and recover an alleged preferential transfer that was received by defendant Huntington within one year of Medcorp's petition date under U.S. Bankruptcy Code Sections 105(a), 547, 550, and 1106.
On January 16, 2014, Plaintiff filed a Brief in Opposition to Huntington's Motion for Summary Judgment. [Doc. # 30]. Huntington filed a Reply Brief on April 8, 2014 [Doc. # 44], and the Plaintiff, with leave of court, filed a Surreply Memorandum in Opposition on April 17, 2014. [Doc. # 49].
Huntington asserts two grounds for granting Summary Judgment in its favor: 1) Huntington had a security interest in the deposit accounts of Medcorp, and therefore a transfer of funds from that account could not enable Huntington to receive more than it would have received in a hypothetical Chapter 7 under § 547(b)(5); and, 2) that Huntington, based upon its conduct with the court appointed receiver 2 for MedCorp, cannot be deemed an “insider” for preferential transfer purposes based upon the definitional provision that includes a “person in control of the debtor” 3.
The Plaintiff has submitted documents obtained during discovery to support his opposition to the Motion for Summary Judgment.
The following facts are undisputed. On August 28, 2009, Medcorp executed a Credit and Security Agreement (“Security Agreement”) [Doc. # 24–2, Ex. B]. The Security Agreement granted Huntington a security interest in “all of [Medcorp'] s business assets,” including Medcorp's “Deposits.” [ Id. at Section 1.17]. In its Motion, Huntington states that at all times relevant to this case, Medcorp “maintained a bank account at Huntington which constitutes a ‘deposit account’ under UCC 9–102 (Ohio R.C. 1309.102(A)(29)).” [Doc. # 24].
On or about January 11, 2010, Medcorp filed a complaint in the Franklin County Court of Common Pleas against Ronald A. Fresco, Amy S. Thomas and Reminger Co., LPA (“the Reminger action”). The state court complaint sounded in malpractice, arising from Reminger Co., LPA's representation of Medcorp in proceedings before the Ohio Bureau of Workers' Compensation, including the appeals that followed. [Doc. # 1, Ex. 1].
Medcorp experienced financial difficulties, and on August 6, 2010, Huntington filed a complaint for cognovit judgment and a motion for the appointment of a receiver. [Doc. 42–1, Ex. 1, p. 81]. The motion requested the appointment of Mark S. Uhrich as receiver. Judgment was granted against Medcorp for approximately $10 Million [Doc. # 42–1, Ex. 1, pp. 77–79], and a “Consentual [sic] Order Appointing Receiver” was entered [Doc. # 42–1, Ex. 1, pp. 80–96] (hereinafter “Order Appointing Receiver”). The Order Appointing Receiver states that it was in the best interests of Medcorp and its creditors to appoint Mark Uhrich as the receiver. [Doc. # 6, p. 4; Doc. # 42–1, Ex. 1, pp. 80–96].
In September, 2010, a settlement of the Reminger action was reached (the “Reminger Settlement”). The Reminger Settlement called for the payment of $750,000 to Medcorp. On September 16, 2010, a $750,000 check from Navigators Insurance Company was deposited into Medcorp's operating account with Huntington. [Doc. # 24–1, Ex. A, p. 2 ¶ 4 & p. 3]. On September27, 2010, Huntington received check # 120670 dated September 21, 2010, payable to Huntington in the amount of $685,678.46. [Doc. # 24–1, Ex. A, p. 2 ¶ 5 & p. 6]. This amount was drawn from Medcorp's Huntington account, # 1479773860. [Doc. # 24–1, Ex. A, p. 2 ¶ 3]. This sequence of events, documented in the Affidavit of Huntington Senior Vice President David J. Bartlett, “Affidavit In Support Of Motion Of The Huntington National Bank For Summary Judgment” , has not been contradicted by the Trustee. The Reminger Settlement, the deposit of the Reminger Settlement funds into MedCorp's account, and the subsequent payment of $685,678.46 to Huntington, occurred during the period that Mark S. Uhrich was the receiver for Medcorp.
On June 20, 2011 (the “Petition Date”), Medcorp filed a petition seeking relief under Chapter 11 of the Bankruptcy Code.
Plaintiff, the Chapter 11 Trustee in the underlying bankruptcy case, filed the Complaint commencing this action on May 2, 2013. In the Complaint, Plaintiff alleges that the transfer of the Reminger Settlement, from Medcorp to Huntington, was a preferential transfer. Pursuant to 11 U.S.C. § 547, Plaintiff states that the transfer was made to a creditor of Medcorp, on account of an antecedent debt owed by Medcorp to Huntington, that occurred while Medcorp was insolvent, that the transfer was made to an insider within one year of Medcorp's petition date, and that the transfer enabled Huntington to receive more than it would have under a chapter 7 case had the transfer not occurred. [Doc. # 1].
After Huntington's Motion to Dismiss was denied by the court [Doc. # 14], the Bank filed an Answer [Doc. # 20], and then filed a Motion for Summary Judgment. [Doc. # 24].
Huntington's Motion seeks summary judgment, claiming that the Plaintiff is unable to prove, under 11 U.S.C. § 547(b)(5), that the alleged preferential transfer allowed Huntington to receive more than the bank would have received in a hypothetical Chapter 7 liquidation.
In the alternative, Huntington asserts that the court should grant it summary judgment because the Plaintiff is unable to meet his burden of proving, by a preponderance of the evidence, that Huntington was an “insider” for purposes of 11 U.S.C. § 547(b)(4)'s requirement that a transfer, if made between ninety days and one year, was made to an insider as defined by 11 U.S.C. § 101(31)(B). [Doc. # 24].
In response to Huntington's Motion, the Plaintiff–Trustee filed a Memorandum in Opposition. [Doc. # 42]. The Plaintiff asserts that the Motion should fail, as genuine issues of material fact still exist. Plaintiff notes that Huntington is not challenging that the requirements of subsections (1), (2) and (3) of § 547(b) have been met. Rather, Huntington challenges Plaintiff's claims regarding subsections (4) and (5). [ Id., at p. 8]. Plaintiff asserts, regarding subsection (5), that “Huntington did not have a lien on the Reminger claims, and thus, it did not have a lien on their proceeds.” [ Id. at p. 9]. Plaintiff argues that Huntington never had a lien on the Reminger proceeds, and because they did not, the question remains as to whether Huntington received more than it would have under a hypothetical Chapter 7 liquidation 4.
In the Trustee's Memorandum in Opposition, Plaintiff also addresses Huntington'sargument that the Bank is not an “insider” for purposes of § 547(b)(4) and § 101(31)5. As with his § 547(b)(5) argument, Plaintiff believes a genuine issue of material fact exists as to the “insider” issue. Plaintiff states that while Huntington argues that “creditors are not generally insiders of their borrowers ... [they] did not, however, assert that creditors cannot, as a matter of law, be insiders.” [ Id. at p. 14].
During discovery, Plaintiff obtained approximately 16,000 pages of evidence. These documents are largely comprised of e-mails “between combinations of receivership personnel, Huntington personnel, and their respective attorneys.” [ Id. at p. 18.] Plaintiff alleges that the voluminous e-mails show frequent contact between Huntington, the Receiver, and attorneys from both parties, and that contained in the evidence is proof that Huntington “directed the Receiver to pay the Reminger proceeds to the bank.” [ Id.] This alleged control of the debtor MedCorp, is evidenced by what the Plaintiff–Trustee argues is Huntington's control of the Receiver. Based on the amount of control Huntington is accused of exercising over the Receiver, Plaintiff asserts that the evidence creates a genuine issue of material fact as to Huntington's status as an “insider” for preference purposes. [ Id. at p. 24].
Huntington's reply brief focuses on the specific allegations in Plaintiff's Complaint regarding the transfer. [Doc. # 44]. Huntington states that, while Plaintiff “has made a lengthy presentation on facts demonstrating Huntington was an insider,” summary judgment should be granted based upon the inability of the Trustee to meet the requirement of Section 547(b)(5), because Huntington had a perfected security interest in the funds transferred to the Bank. [ Id.]. To paraphrase, Huntington believes that the court does not need to rule on Huntington's possible § 547(b)(4) “insider” status in order to grant the Motion for Summary Judgment.
Huntington's argument that it had a perfected security interest is based upon the transfer as described in Plaintiff's Complaint. In the...
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