Holber v. Pocius (In re Pocius)

Decision Date29 August 2016
Docket NumberBky. No. 12-19380 ELF,Adv. No. 14-0438
Citation556 B.R. 658
Parties In re: Edward W. Pocius, Debtor. Robert H. Holber, Trustee, Plaintiff, v. Edward W. Pocius, Ruth J. Pocius, Thomas Flaherty, Audra Flaherty, Endless Mountain Investors, LLC, Evergreen Valley Nursery, LLC, Defendants.
CourtU.S. Bankruptcy Court — Eastern District of Pennsylvania

Joshua T. McNamara, Joshua T. McNamara, Attorney at Law, Philadelphia, PA, Michael Alan Siddons, Law Office of Michael Alan Siddons Esq., Media, PA, for Debtor.

William J. Burnett, Harry J. Giacometti, Flaster/Greenberg P.C., Philadelphia, PA, Dexter K. Case, Case & Digiamberardino, P.C., Wyomissing, PA, for Plaintiff.

Michael P. Donohue, Smith Kane, LLC, Malvern, PA, for Defendants.

MEMORANDUM

ERIC L. FRANK, CHIEF U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

In this adversary proceeding, the Plaintiff Robert Holber, the chapter 7 trustee (“the Trustee), seeks to avoid certain transfers under 11 U.S.C. § 548 and recover the value of the transferred property under 11 U.S.C. § 550 from both the initial transferee, several alleged subsequent transferees, and the debtor.

The Trustee contends that Debtor Edward Pocius (“the Debtor”) and several other defendants orchestrated an intricate scheme to fraudulently transfer real property, a related oil and gas lease and certain cash payments the Debtor received under the lease to various insider entities as well as the individual defendants.

On March 4, 2015, I granted the Trustee's motion for default judgment and, pursuant to 11 U.S.C. § 548, avoided three (3) specific transfers made by the Debtor (collectively referred to as “the Transfers”).

Presently before the court is the Trustee's motion for summary judgment (“the Motion”). Through the Motion, the Trustee seeks to recover the value of the Transfers under 11 U.S.C. § 550(a) in the form of two (2) money judgments against all of the defendants: one (1) for $990,000.00 and the other for $799,000.00.

For the reasons set forth below, the Motion will be granted in part, and denied in part.

II. PROCEDURAL HISTORY

The Debtor filed a voluntary petition under chapter 11 of the Bankruptcy Code on October 2, 2012. The bankruptcy case was converted to chapter 7 on December 12, 2012.

On October 1, 2014, the Trustee, filed a complaint, initiating this adversary proceeding, against: the Debtor, Ruth Pocius (the Debtor's deceased wife) (“Mrs. Pocius”),1 Thomas Flaherty (T. Flaherty), Audra Flaherty (A. Flaherty) (T. Flaherty and A. Flaherty collectively, “the Flahertys”), Endless Mountains Investors, LLC (Endless), and Evergreen Valley Nursery, LLC (Evergreen).

In the adversary complaint, the Trustee seeks to avoid the Transfers and recover their value for the benefit of the bankruptcy estate.

The Transfers consist of:

(1) the transfer to Endless of real property consisting of six (6) parcels owned by the Debtor and his wife (collectively referred to as “the Doty Hill Property”);
(2) the transfer to Endless of an Oil and Gas Lease related to the Doty Hill Property (“the O/G Lease”); and
(3) the transfer to Evergreen of a $799,000.00 payment made in connection with the O/G Lease (“the $799,000 Lease Payment”).

On November 17, 2014, T. Flaherty filed an Answer and New Matter as “pro se attorney,” on behalf of himself, as well as A. Flaherty, Endless and Evergreen. (Doc. # 7). On December 22, 2014, I granted the Trustee's motion to strike that Answer as to all defendants, except T. Flaherty. (Doc. #s 9, 12). A. Flaherty filed her own Answer and New Matter on December 18, 2014. (Doc. # 11). Defendants Endless and Evergreen filed no response to the Complaint.

On January 13, 2015, the Trustee moved for a default judgment against Defendants Endless and Evergreen. On March 4, 2015, I entered an order granting the Trustee's motion and avoiding the Transfers. (Doc. # 21).

On September 9, 2015, the Trustee filed the Motion seeking, inter alia, to recover the avoided transfers pursuant to 11 U.S.C. § 550(a). (Doc. # 34). I held a hearing on the Motion on February 25, 2016. Following the hearing, I issued an order on March 2, 20162 granting: (1) the Trustee leave to supplement the summary judgment record with additional evidentiary matter and a supplemental memorandum of law; and (2) the Flahertys time to respond. (Doc. # 46).3

The parties filed supplemental submissions, the last of which was filed on June 28, 2016. (Doc. #s 48-51, 53).4 The Motion is ready for disposition.

III. FACTS
A. The Doty Hill Property and the O/G Lease—2008

As of May 6, 2008, the Debtor and Mrs. Pocius owned the Doty Hill Property, which consists six (6) parcels of land consisting of over 470 acres with access to oil and gas rights in two (2) different townships of Pennsylvania. For ease, I will refer to the four (4) parcels located in Ridgebury Township as Parcels 1 through 4 and the two (2) parcels located in South Creek Township and Parcels 5 and 6.5

On May 6, 2008, the Debtor and his wife entered into the O/G Lease with an entity named East Resources, Inc. (See Ex. P-1).6 In July 2008, the Debtor and his wife received an initial payment of $141,000.00 under the O/G Lease. (See Exs. P-1 & P-2). The balance, i.e., what was to become the $799,000 Lease Payment, was scheduled to be paid roughly two and one half (2 ½) years after that initial payment, i.e., within ninety (90) days after February 24, 2011. (See Ex. P-1).

1. the Pocius-Endless transfers—2009

On August 6, 2009, a little more than a year after receiving the initial payment under the O/G Lease and about a year and one half before the $799,000 Lease Payment was due to be paid, the Debtor and his wife transferred the entire Doty Hill Property (all six parcels) and assigned the O/G Lease to Endless. (Exs. P-4 & P-5).7

The exact details of the Pocius-Endless transaction in 2009 are not entirely clear, but the documents in the summary judgment record suggest that:

• Endless paid the Debtor and his wife $1,020,000.00 in consideration, (see Ex. D-1); and
• Endless financed the purchase price;
• Endless may have granted Susquehanna Bank8 a mortgage on the property, (see Ex. D-9);9 and
• Endless may have assigned its rights under the O/G Lease to Susquehanna Bank, (Ex. D-7).10
2. the Endless-SPI mortgage transaction—2009

After acquiring the Doty Hill Property, Endless granted a mortgage on the property to Select Properties, Inc. (“SPI”) on December 11, 2009 to secure a note in the amount of $282,000.00 (“the SPI Mortgage”). (Ex. P-28).11 The SPI Mortgage contains a clause generally purporting to assign all of the Doty Hill Property leases to SPI. Endless also executed a separate “Assignment of Rents, Leases, Contracts or Agreements of Sale” in SPI's favor. (Id.).12 T. Flaherty executed the mortgage and assignment on Endless' behalf as Manager of the LLC.

3. the SPI Mortgage assignment to Mountain View—2011

The SPI Mortgage was assigned to Mountain View Financial, LLC (“Mountain View”) on May 13, 2011. (Ex. P-28).13

4. the Endless-Mountain View transfer—2012

On August 13, 2012, about three (3) years after the Pocius-Endless transfers of the Doty Hill Property and the O/G Lease, and a little more than one (1) year after Mountain View took the assignment of the SPI Mortgage, Endless transferred title of Parcels 2 and 6 of the Doty Hill Property to Mountain View. This transfer was effected through a deed, purportedly given in lieu of foreclosure by Mountain View on the mortgage that SPI assigned to it. (Ex. P-24).14 T. Flaherty executed the deed on Endless' behalf, this time as “Member.” The deed does not specifically reference a transfer of the O/G Lease.

B. The $799,000 O/G Lease Payment

In March 2011, the Debtor received the $799,000 Lease Payment in the form of a check. When the check was issued, the Debtor had already transferred his rights in the O/G Lease to Endless. Nonetheless, for some unexplained reason, the oil and gas lessee issued the check to the Debtor and Mrs. Pocius. (Ex. P-10).

On March 9, 2011, the Debtor and his wife endorsed the $799,000.00 check and deposited it into a bank account owned by Evergreen, not Endless. (Id.). Although the $799,000 Lease Payment represented Endless' income (albeit apparently pledged to Susquehanna), the Debtor reported $800,000.00 of income from “Drilling Rights” on Schedule C of his personal income tax return for 2011. (Ex. P-12). He testified that he did this out of a concern that Talisman would issue an IRS Form 1099 attributing the income to him personally. (See Ex. 11 at 21). T. Flaherty concurs that the $799,000 Lease Payment went to the Debtor, but asserts that the payment should have been made to Susquehanna Bank in light of the assignment it received in connection with the loan it provided to Endless to facilitate Endless' acquisition of the Doty Hill Property. (See Ex. 31, ¶ 6).

After the Debtor deposited the check into the Evergreen account, there were several withdrawals from the account.

First, on April 16, 2011, the Debtor withdrew $500,000.00 in the form of two (2) checks:

(1) a $200,000.000 check used to open a new account at TD Bank in the name of Mountain View; and
(2) a $300,000.00, check endorsed by the Debtor and paid to the order of Benner & Piperato Trust Account on April 27, 2011.15

(Ex. P-27).

As to the remaining $299,000.00, the Trustee claims that the Flahertys are liable under 11 U.S.C. § 550, an issue that will be discussed below.

IV. SUMMARY JUDGMENT STANDARD

The legal standard for the entry of summary judgment under Fed. R. Civ. P. 56, incorporated into bankruptcy adversary proceedings by Fed. R. Bankr. P. 7056, is well established.

Summary judgment is appropriate only when, drawing all reasonable inferences in favor of the nonmoving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. E.g., Tri – M Group, LLC v. Sharp, 638 F.3d 406, 415 (3d Cir.2011) ; In re Bath, 442 B.R. 377, 387 (Bankr.E.D.Pa.2010). In other words, summary judgment may be entered if there are no...

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