Hagan v. Baird (In re B&P Baird Holdings, Inc.)

• Decision Date: 08 January 2019
• Docket Number: No. 18-1129,18-1129
• Parties: In re: B & P BAIRD HOLDINGS, INC., Debtor. KELLY M. HAGAN, Plaintiff, v. PAMELA A. BAIRD, Defendant.
• Court: U.S. Court of Appeals — Sixth Circuit

In re: B & P BAIRD HOLDINGS, INC., Debtor.KELLY M. HAGAN, Plaintiff, v. PAMELA A. BAIRD, Defendant.

No. 18-1129

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

January 8, 2019

NOT RECOMMENDED FOR PUBLICATION

File Name: 19a0006n.06

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN

BEFORE: CLAY and GRIFFIN, Circuit Judges; ZOUHARY, District Judge.^*

GRIFFIN, Circuit Judge.

This non-core bankruptcy adversary proceeding stems from the wind-up plan of debtor B & P Baird Holdings, Inc. Debtor entered into an asset purchase agreement in which it sold substantially all of its assets and arranged for the proceeds of the sale to be transferred to a personal bank account owned by defendant Pamela Baird and her now ex-husband, William Baird. Mr. Baird was the controlling shareholder, director, and officer of debtor. After debtor filed for bankruptcy under Chapter 7 with significant outstanding debts, trustee James W. Boyd¹ sued the Bairds to recover those funds, asserting a variety of state and federal causes of action.

This appeal concerns two conversion claims brought under Michigan law. The bankruptcy court granted summary judgment in favor of defendant with respect to both claims, and the district court affirmed. On appeal, we reject trustee's first theory of conversion on the merits and hold that her second theory is precluded by the doctrine of judicial estoppel. Because trustee made several arguments earlier in this litigation that contradict those she makes here—arguments that the bankruptcy court accepted when it granted partial summary judgment in her favor on a fraudulent transfer theory—she is precluded from maintaining an inconsistent position now. We therefore affirm the bankruptcy court's order granting summary judgment in favor of defendant. We also affirm the bankruptcy court's denial of trustee's motion for summary judgment.

I.

A.

Debtor, a Michigan corporation, was previously engaged in the business of designing, manufacturing, and selling golf equipment, bags, balls, and accessories. Debtor is closely held, with William Baird ("Mr. Baird" or "Bill") as its principal owner, director, and officer. Defendant ("Ms. Baird" or "Pam"), his now ex-wife, was also involved at various points as a director, officer, and shareholder. In Hagan v. Baird (In re B & P Baird Holdings, Inc.), 591 F. App'x 434, 435-37 (6th Cir. 2015) ("Baird I"), this court summarized the preliminary facts of the core bankruptcy and this adversary proceeding as follows:

A. Izzo Sues Debtor

On January 8, 2002, Izzo Golf, Inc. (Izzo), brought a patent-infringement action against Debtor, a golfing equipment company that was then known as King Par Corporation (Old King Par (OKP)), alleging that OKP's golf bags infringed on Izzo's patents. Izzo's motion for summary judgment was granted in part on July 5, 2007, resulting in OKP's liability to Izzo as well as continuing litigation. See Izzo Golf, Inc. v. King Par Golf Inc., No. 02-CV-6012 CJS, 2010 WL 86653 (W.D.N.Y. Jan. 6, 2010) (summarizing the proceedings).

B. Debtor Sells Substantially All Its Assets

On June 4, 2009, after lengthy negotiations and while Izzo's suit was still pending, OKP, Baird Family LLC and Bill entered into an Asset Purchase Agreement (APA) with KP Acquisition Company, LLC ("New King Par" or "NKP") for the sale of all OKP inventory and substantial portions of OKP's land to NKP for $3,400,000, subject to certain adjustments. The APA further provided that NKP would, for a fee, collect all OKP receivables outstanding as of March 31, 2009, as fiduciary, and use the funds to pay OKP debts accrued as of that date. Any funds remaining after OKP's debts were paid and NKP took its fees were to be paid to OKP regularly. OKP retained only what the APA identified as "Excluded Assets" and "Excluded Liabilities." Among the liabilities designated as excluded was liability related to the Izzo litigation. Thus, under the APA, OKP retained essentially only liabilities and the potential for receivables collected on its behalf by NKP.

At the closing of the sale, NKP wired $4,010,242 to one of the Bairds' joint personal accounts (the "Arvest account") at Bill's direction. On or about June 9, 2009, OKP changed its name to B & P Baird Holdings, Inc. Bill remained the president, director, and shareholder of the new entity. The July, August, and September 2009 excess receivables owed to Debtor were used to pay $384,334 on the Bairds' personal tax obligations. All subsequent monthly receivable collections owed to Debtor were wired to the Bairds' Arvest account.

At the time the APA closed, OKP had liabilities in excess of one million dollars, including a $350,000 obligation to Izzo for the claim for which Izzo was granted summary judgment. The Bairds made payments totaling at least $263,269.67 to a number of OKP's creditors, not including Izzo, from their personal bank accounts while continuing to incur costs and fees associated with the ongoing patent-infringement litigation. Izzo obtained a judgment against Debtor for $3,286,476.65, and later successfully petitioned for post-verdict enhanced damages.

C. Bankruptcy Filing and Instant Adversary Proceeding

On September 9, 2010, Debtor filed a voluntary Chapter 7 bankruptcy petition, listing Izzo among six unsecured creditors and stating that Debtor's total liability was $3,676,741.95.

On August 23, 2011, Trustee initiated this adversary proceeding against the Bairds and NKP based on the Bairds' designation of the Arvest account for receipt of funds generated by the sale of Debtor's assets. On January 6, 2012, Trustee requested leave to amend the complaint, which the court granted on January 25, 2012. The first four counts of Trustee's first amended complaint sought the avoidance and recovery of allegedly fraudulent transfers to the Bairds; Count V alleged that the Bairds violated the Michigan Business Corporation Act; and Counts VI and VII alleged Michigan common-law and statutory conversion. The conversion claims alleged that the proceeds of sale were diverted to the Bairds as part of a scheme developed and carried out by Pam and Bill, who were in control of Debtor's management and direction, or, alternatively, carried out only by either Pam or Bill.

(Footnotes omitted).

B.

The Bairds moved to dismiss the conversion claims against them pursuant to Federal Rule of Civil Procedure 12(b)(6). See Fed. R. Bankr. P. 7012(b). The bankruptcy court granted the motion, finding that trustee had not properly pleaded conversion in the complaint. When trustee moved to amend the complaint to cure the deficiency, the bankruptcy court denied leave to do so, finding that trustee's revised theory, while successfully alleging conversion, also implicated the doctrine of in pari delicto,² which would apply to the conversion claims and make any amendment to the complaint futile. The bankruptcy court denied trustee's motion to alter or amend and the district court affirmed its denial of leave to amend the complaint. Boyd v. Baird (In re B & P Baird Holdings, Inc.), No. 1:13-CV-424, 2013 WL 6858456, at *1, *6 (W.D. Mich. Dec. 30, 2013).

On appeal, we reversed, holding that "[b]ecause [defendant's] role in the conversion of Debtor's assets has not been resolved, it cannot be determined at this stage whether the in pari delicto doctrine" applies. Baird I, 591 F. App'x at 442-43. For this reason, and because trustee's proposed amended complaint adequately pleaded conversion, we found that "[t]he proposed amendment therefore was not futile and the motion to amend should have been granted." Id. at 443.

Two significant events transpired in the bankruptcy court while the appeal was pending. First, on August 8, 2012, the bankruptcy court granted trustee's motion for partial summary judgment with respect to Count I of the complaint, finding that the four transfers to the Arvest account were constructively fraudulent because they left debtor "unreasonably undercapitalized" and thus unable to pay its creditors. See 11 U.S.C. § 548(a)(1)(B)(ii)(II). Accordingly, the bankruptcy court avoided the transfers pursuant to 11 U.S.C. § 548(a)(1).

Second, the parties then reached a settlement, which was approved by the bankruptcy court and supported by Izzo, debtor's largest creditor. See Baird I, 591 F. App'x at 438 nn. 9-10 (citing filings from the core proceeding not in the current record). Pursuant to the agreement, defendant paid $1,875,000 into the bankruptcy estate, while William Baird paid $1,900,000. 591 F. App'x at 438. This settled all claims against all defendants in the adversary proceeding except for the two conversion claims under Michigan law against defendant that were the subject of Baird I.

C.

So, on remand, the resurrected conversion claims against defendant were all that remained of this adversary proceeding. Trustee and defendant each filed competing motions for summary judgment. The bankruptcy court granted defendant's motion and denied trustee's motion. Hagan v. Baird (In re B & P Baird Holdings, Inc.), No. 11-80397, 2015 WL 6152959, at *1 (Bankr. W.D. Mich. Oct. 15, 2015).

The bankruptcy court noted that trustee made "two significant concessions" at oral argument. Id. at *4. First, she conceded that she had uncovered "no evidence that [defendant] was involved in structuring or effecting the sale of the Debtor's assets, or the decision to transfer the Sale Proceeds into the Arvest Account." Id. Second, trustee admitted that there was no evidence that either of the Bairds embezzled the sale proceeds. 2015 WL 6152959, at *4. The bankruptcy court then found that debtor consented to the APA, including the wire transfers to the Arvest account, noting that trustee submitted no evidence to the contrary and concluding that "[i]n short, the Trustee asserts that the Debtor should not have transferred the funds, not that the Debtor did not transfer them." Id. at *6. The court also found that debtor "retained no property interest in the funds" after the...