Hulsing Hotels Tenn., Inc. v. Steffner (In re Steffner)

• Citation: 479 B.R. 746
• Decision Date: 17 August 2012
• Docket Number: Bankruptcy No. 11–51315.,Adversary No. 11–5053.
• Parties: In re Edward Benjamin STEFFNER and Pamela Denise Steffner, Debtors. Hulsing Hotels Tennessee, Inc., Plaintiff, v. Edward Benjamin Steffner and Pamela Denise Steffner, Defendants.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Eastern District of Tennessee

479 B.R. 746

In re Edward Benjamin STEFFNER and Pamela Denise Steffner, Debtors.
Hulsing Hotels Tennessee, Inc., Plaintiff,
v.
Edward Benjamin Steffner and Pamela Denise Steffner, Defendants.

Bankruptcy No. 11–51315.
Adversary No. 11–5053.

United States Bankruptcy Court,
E.D. Tennessee.

Aug. 17, 2012.

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Jason Brill Shorter, Esq., Johnson City, TN, for Plaintiff.

Margaret B. Fugate, Esq., Johnson City, TN, for Defendants.

MEMORANDUM
MARCIA PHILLIPS PARSONS, Chief Judge.

Hulsing Hotels Tennessee, Inc. (“Hulsing”) holds a state court judgment against Sleep Quest Diagnostics, LLC (“Sleep Quest”). In this adversary proceeding, Hulsing seeks to hold the debtors Edward Benjamin Steffner, Jr. and Pamela Denise Steffner liable for Sleep Quest's judgment by piercing its corporate veil. Hulsing also seeks a denial of the Debtors' discharge pursuant to 11 U.S.C. § 727(a)(2)(A), or alternatively, a determination of nondischargeability under 11 U.S.C. § 523(a)(4) and (a)(6). Presently before the court are Hulsing's and the Debtors' cross motions for summary judgment. For the reasons set forth below, Hulsing's motion will be denied, and the Debtors' granted. This is a core proceeding. See28 U.S.C. § 157(b)(2)(I) and (J).

I.

On May 30, 2011, the Debtors filed a petition for bankruptcy relief under chapter 7 of the United States Bankruptcy Code. Thereafter, on September 12, 2011, Hulsing timely commenced this adversary proceeding. On April 27, 2012, Hulsing filed the instant motion for summary judgment as to its piercing the corporate veil and denial of discharge claims. The motion is supported by excerpts from the Debtors' deposition transcripts, including exhibits to those depositions; bank statements of Sleep Quest and of a related entity, Specialty Respiratory Services, LLC (“SRS”); the Debtors' bank statements and federal income tax returns; a November 3, 2011 letter from attorney Kenneth Hood; and documents in connection with the state court action.

On May 24, 2012, the Debtors filed a response in opposition to Hulsing's motion, as well as their own motion for summary judgment on all claims asserted by Hulsing, including the § 523(a)(4) and (a)(6) claims. The Debtors' motion is supported by the affidavits of Mr. Steffner and Jana Cole, a former employee of SRS and a contract laborer with Sleep Quest, along with exhibits to those affidavits, including Quickbook banking ledgers for Sleep Quest and SRS, and the loan accounting ledger between the two companies.

The parties have also filed Statements of Undisputed Material Facts and responses thereto. The date for concluding all discovery passed on May 16, 2012, and the

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trial is presently scheduled for October 2, 2012. Accordingly, the cross summary judgment motions are ripe for resolution. From a review of the submitted material it appears that the facts are relatively undisputed. It is the legal significance of these facts, however, that is sharply in dispute.

As set forth in the parties' Statements, Sleep Quest is a Tennessee limited liability company formed in 2006 by Mr. Steffner, its sole member, to engage in polysomnography, or sleep studies to diagnose sleeping and respiratory disorders. On June 9, 2009, almost two years before the Debtors' bankruptcy filing, Hulsing obtained a state court judgment in the amount of $20,318 against Sleep Quest, arising out of Sleep Quest's use of hotel rooms in Johnson City, Tennessee for sleep studies. Hulsing's allegations about the Debtors that provide the factual basis for this adversary proceeding pertain not to the events that led to that state court judgment against Sleep Quest, but rather alleged efforts by the Debtors to thwart Hulsing's collection of the judgment.

On July 29, 2009, shortly after it obtained the judgment, Hulsing served a garnishment on Sleep Quest's bank account at GreenBank. On the day before the garnishment was served, the account had a balance of $5,343.47. However, on July 29, 2009, $4,886.00 from this account was transferred to the GreenBank account of SRS, another entity owned by Mr. Steffner, leaving an ending balance in Sleep Quest's account of $0.17. When the garnishment was received and processed at GreenBank's main office on August 3, 2009, there was only $42.43 in Sleep Quest's account, causing the garnishment to be returned for insufficient funds. In late July and early August 2009, both Sleep Quest and SRS had loan payments due to GreenBank as well as numerous other creditor obligations for which checks were written.

On March 24, 2010, Hulsing served a garnishment on BlueCross and BlueShield (“BCBS”), seeking to obtain insurance reimbursement claims owed by BCBS to Sleep Quest. BCBS acknowledged that it owed approximately $2,200 to Sleep Quest, listed under the name of Dr. Frederic Seifer, and paid these funds into state court. Upon learning of the garnishment, Mr. Steffner discussed the matter with GreenBank, which held a perfected lien on Sleep Quest's accounts receivables. After this discussion, GreenBank filed a motion in state court to quash Hulsing's garnishment. In an email communication to GreenBank, Mr. Steffner advised GreenBank that Sleep Quest had temporarily stopped filing claims for reimbursement with BCBS. On June 29, 2010, the state court denied GreenBank's motion to quash, after which Sleep Quest filed on July 13, 2010, a motion to pay the Hulsing judgment in installments. By operation of law, the filing of both the motion to quash and the motion to pay in installments stayed Hulsing's collection efforts. SeeTenn.Code Ann. § 26–2–408; Tenn.Code Ann. § 26–2–216(a)(1). In June, July, and August 2010, Sleep Quest continued to operate and provide sleep study services, for which it received payment by direct deposit from Cahaba GBA, LLC.

During unspecified times, Sleep Quest submitted claims to BCBS under a NPPES (National Plan and Provider Enumeration System) identifier other than its own. The number used by Sleep Quest belonged to a physician who did not work for Sleep Quest and was not involved in administering the sleep studies.

In February 2011, Sleep Quest went out of business. SRS, which had been formed in 1998 by Mr. Steffner, its sole member, became inactive in early 2011 because its

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10–year term of duration under Tennessee law had run. On February 10, 2011, Mr. Steffner formed a third entity also named Specialty Respiratory Services, LLC, which engaged in the same business as its namesake-providing durable medical equipment for at-home treatment of sleep disorders.

When the Debtors filed for personal bankruptcy relief in May 2011, they listed in their schedules the business debts of the two defunct entities, Sleep Quest and SRS, regardless of whether there was a personal guaranty of these debts, in order to provide notice to creditors who might assert any personal claim against the Debtors. At their 11 U.S.C. § 341(a) meeting of creditors, the Debtors denied any personal liability for Sleep Quest and SRS's debts, and on July 12, 2011, they amended their Schedule F to state that they disputed any personal liability for these entities' debts.

Other facts undisputed by the parties are that Mrs. Steffner had no ownership interest in either Sleep Quest or SRS, although she did help out her husband when he needed her, and she “routinely made transfers between Sleep Quest and SRS.” In addition to the business accounts of Sleep Quest and SRS at GreenBank, the Debtors also maintained a personal account at GreenBank. Sleep Quest, SRS, and the Debtors were each indebted to GreenBank on separate loans. All used the same accounting firm to prepare their tax returns, and all were represented in the state court action by the same attorney. Intra-company transfers of funds between Sleep Quest and SRS are apparent in numerous months, but both companies maintained internal accounting records to document the transfers between the companies and the reasons for the transfers. Sleep Quest and SRS had different business addresses on file with the Tennessee Secretary of State and operated at different business addresses.

II.

Rule 56 of the Federal Rules of Civil Procedure, as incorporated by Federal Rules of Bankruptcy Procedure 7056, mandates the entry of summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law.” In ruling on a motion for summary judgment, the court is not to “weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Browning v. Levy, 283 F.3d 761, 769 (6th Cir.2002) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).

The moving party bears the initial burden of showing that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Adickes v. S.H. Kress & Co., 398 U.S. 144, 159, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970)). The burden then shifts to the nonmoving party to produce evidence that would support a finding in its favor. Anderson, 477 U.S. at 250–52, 106 S.Ct. 2505. In considering the motion, the court must construe all reasonable inferences in favor of the nonmoving party. Spradlin v. Jarvis (In re Tri–City Turf Club, Inc.), 323 F.3d 439, 442 (6th Cir.2003) (citing Braithwaite v. Timken Co., 258 F.3d 488, 493 (6th Cir.2001)). The party opposing a motion for summary judgment “ ‘may not rest upon mere allegations or denials of his pleading, but ... must set forth specific facts showing that there is a genuine issue for trial.’ The

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party opposing the motion must ‘do more than simply show that there is some metaphysical doubt as to the material facts.’ ” Id. at 442–43 (citations omitted). “If the evidence...