Holber v. Segal (In re Segal)

• Decision Date: 31 March 2016
• Docket Number: Bankruptcy No. 10-16822,Adversary No. 14-504,CIVIL ACTION No. 15-1938
• Citation: 579 B.R. 734
• Parties: IN RE: Stanley J. SEGAL, Debtor Robert H. Holber, In His Capacity as Chapter 7 Trustee of the Bankruptcy Estate of Stanley Segal, Debtor, Plaintiff, v. Stanley J. Segal, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

579 B.R. 734

IN RE: Stanley J. SEGAL, DebtorRobert H. Holber, In His Capacity as Chapter 7 Trustee of the Bankruptcy Estate of Stanley Segal, Debtor, Plaintiff,

v.Stanley J. Segal, Defendant.

CIVIL ACTION No. 15-1938

Bankruptcy No. 10-16822

Adversary No. 14-504

United States District Court, E.D. Pennsylvania.

Signed March 31, 2016

Mark L. Rhoades, Gowen Rhoades Winograd & Silva PLLC, Philadelphia, PA, for Plaintiff.

Jordan D. Cunningham, Marc W. Witzig, Robert E. Chernicoff, Cunningham & Chernicoff, P.C., Harrisburg, PA.

MEMORANDUM

Juan R. Sánchez, J.

Three days after receiving a discharge in his Chapter 7 bankruptcy case, debtor Stanley J. Segal filed a lawsuit in federal district court seeking to recover monies allegedly owed to him under a consulting agreement he entered before filing for bankruptcy protection. Faced with a dispute between the parties as to whether Segal's claim to the monies belonged to Segal or his bankruptcy estate, the District Court transferred the case to the Bankruptcy Court for a determination whether the consulting agreement had been disclosed during the Chapter 7 proceedings. The Bankruptcy Court thereafter reopened the Chapter 7 case. In October 2014, Robert H. Holber, the Trustee of Segal's bankruptcy estate, brought the underlying adversary proceeding seeking a declaration that any monies owed under the consulting agreement are property of the estate and, after a period of discovery, moved for summary judgment. Segal appeals from the Bankruptcy Court's April 1, 2015, Order granting summary judgment in favor of the Trustee, arguing the monies in question are not property of the estate because they are post-petition wages, because the consulting agreement is a personal services contract, and because the Trustee abandoned any interest he may have had in the monies upon the closure of the bankruptcy case. Segal also maintains the Bankruptcy Court exceeded the scope of the District Court's referral order in allowing the Trustee to pursue the underlying adversary proceeding. Because the unrebutted evidence produced by the Trustee in support of his summary judgment motion establishes the monies in question are not post-petition wages but proceeds from the pre-petition sale of Segal's largest asset, and because Segal's remaining arguments lack merit, the judgment of the Bankruptcy Court will be affirmed.

FACTS

Before filing for bankruptcy protection, Segal and his wife owned a nursing home/long-term care facility known as Ashton Hall and an assisted living facility known as Ashton Terrace (collectively, the Facilities) through Ardsley Group, Inc., a company in which they were the sole shareholders.¹ In April 2008, the Segals, on behalf of Ardsley, entered into a Real Estate Purchase Agreement with Green Lion Group, LLC, and Capital Family Partners, LLC (collectively, the Purchasers), wherein the Purchasers agreed to buy the Facilities from Ardsley for $8,225,000, approximately $4 million lower than the appraised value of the Facilities six months earlier.² The parties simultaneously entered into an Asset Purchase Agreement, in which the Purchasers agreed to buy substantially all of Ardsley's assets used in or necessary for the operation of the Facilities for $50,000.

The sale of the Facilities closed on April 27, 2008. Despite the $8,225,000 purchase price, Ardsley ended up paying the Purchasers $145.17 at the closing. See R.67, Ex. E.³ Approximately $3.6 million of the purchase price went to pay off first and second mortgages on the property. Approximately $2.4 million was credited to the Purchasers: $1.3 million for a "repair credit" and $1.1 million for a "payroll credit." "Settlement charges" accounted for most of the remaining $2.2 million.

On April 25, 2008, two days before the sale of the Facilities closed, the Purchasers entered into a Consulting Agreement with Segal, contingent upon the sale closing. See R.67, Ex. F, at ¶ 3 (cited hereinafter as "Consulting Agreement ¶ __"). In the Consulting Agreement, the Purchasers agreed to "engage [Segal] as an independent contractor to provide consulting services for the management of the Facilities for the review of finances, managerial decision making processes, reimbursements, collections and accounts receivable to aid [Purchasers] with [their] transition in ownership of the Facilities," and to "consult with [Purchasers] as to availability of real estate and health care facilities in eastern Pennsylvania." Id. ¶ 1. The Agreement specifies Segal "shall make himself available to consult with the Board of Directors, the officers of [Purchasers], and the staff, at reasonable times, concerning matters pertaining to the consultant functions listed above," but does not require him to perform any specific tasks or to work any set number of hours. Id. ¶ 4. The Agreement also includes a non-compete provision, prohibiting Segal from "serv[ing] in a consulting capacity for a nursing home or assisted living/personal care facility within a 15 mile radius of the Facilities during the term of this Agreement." Id. ¶ 8.

With respect to compensation, the Consulting Agreement provides the Purchasers will pay Segal a total of $1.9 million over a term of ten years according to a fixed schedule. Under that schedule, the Purchasers were to make two initial $250,000 payments to Segal on May 28, 2008, and June 28, 2008, and to pay the remaining $1.4 million in quarterly installments of $49,387.47, beginning June 1, 2010. Id. Ex. A. The Agreement specifies these payments "shall survive the death or disability of [Segal] and shall be paid to his rightful heirs, successors or assigns," id. ¶ 13, and, in the event the Purchasers sell the Facilities to a third party, the Purchasers must pay Segal the balance due under the Agreement in full upon settlement, id. ¶ 15. Although the Purchasers entered the Consulting Agreement with Segal individually, the Agreement allows the Purchasers to set off against the payments due to Segal certain pre-sale obligations of Ardsley for which the Purchasers might become liable as a result of their acquisition of the Facilities. See id. ¶ 10. Finally, the Consulting Agreement purports to shield the payments due thereunder from creditors of Segal or his entities, providing:

No creditor of Stanley [Segal], Ashton Hall, Inc., Ashton Terrace, Inc. or Ardsley Group, Inc. (All four collectively "Debtors") shall have any right or power to sell, assign, convey, mortgage, pledge, anticipate, hypothecate, or otherwise dispose of any right, title, or interest that the creditor may acquire in the fees to be paid under this agreement until the fees have actually been paid over to Stanley [Segal]. Nor shall the fees to be paid or any part of them be liable for, or to any extent subject to, any debts of any kind or nature incurred or contracted by any of the Debtors. Any right granted to Stanley [Segal] to receive fees under this agreement shall not be available for the satisfaction of any claims of the creditors of any of the Debtors. Any right of receipt by Stanley [Segal] shall be suspended and may not be exercised by Stanley [Segal] on the filing of a proceeding in bankruptcy by Stanley [Segal]. The suspension shall be continued during bankruptcy proceedings and shall be restored only after the entry of a final order of discharge of Stanley [Segal]. In the event a bankruptcy court finds part or all of this paragraph invalid or unenforceable, then, in the event a voluntary or involuntary bankruptcy is filed by or on behalf of any of Selling Entities or any shareholder thereof, and a bankruptcy court enters an order against [Purchasers] to pay any additional amounts due to a finding of a preferential transfer or otherwise, [Purchasers] may set this off against any amounts due to [Segal] under this agreement upon payment of these amounts to any of Selling Entities' creditors. The terms of paragraph 10 of this Agreement shall supercede those of paragraph 11.

Id. ¶ 11 (emphasis added).

Eliezer Friedman and Naftali Weinberger (hereinafter, the Guarantors) personally guaranteed the Purchasers' performance of their obligations under the Consulting Agreement, id. ¶ 9, and also entered into a separate Unconditional Joint and Several and Irrevocable Guaranty and Suretyship Agreement (Guaranty Agreement) with Segal, personally guaranteeing "to [Segal], his heirs, executors, administrators, successors and assigns, the payment of all monies due under the [Consulting] Agreement as and when such payments shall respectively become due and payable, in accordance with the terms of the Agreement, and whether by maturity or acceleration or otherwise," see R.67, Ex. G. By separate agreement, the Purchasers also granted Segal a security interest in the furniture and equipment used to operate the Facilities. See R.67, Ex. H.

The Purchasers made the first two $250,000 payments to Segal on May 28, 2008, and June 6, 2008, R.67, Exs. I, J & N, at 6, though, by Segal's own admission, he had not done any work under the Consulting Agreement when these payments were made.⁴ The Purchasers did not make the first $49,387.47 payment on June 1, 2010, however, and on June 3, 2010, Segal wrote to the Guarantors reminding them the payment was due and asking them to contact him to make arrangements for him to pick up a check as soon as possible.⁵ R.67, Ex. O (Ex. C to Dist. Ct. Compl.). The Guarantors failed to respond to the letter, and on June 18, 2010, Segal's counsel wrote to both the Guarantors and the Purchasers, again advising that the first quarterly payment of $49,387.47 was due on June 1, 2010, and stating unless the payment was made within ten days, Segal would commence legal action to enforce the Consulting Agreement. Id. (Ex. D to Dist. Ct. Compl.). Counsel for the Guarantors and the Purchasers responded on June 30, 2010, enclosing a copy of a July 16, 2008, release, allegedly signed by Segal, which purports to terminate the Consulting Agreement and the Purchasers' and Guarantors'...