In re All-Type Printing, Inc.

• Decision Date: 12 March 2002
• Docket Number: Bankruptcy No. 96-30564.,Adversary No. 96-3060.
• Citation: 274 B.R. 316
• Parties: In re ALL-TYPE PRINTING, INC., Debtor. Michael J. Daly, Trustee, Plaintiff, v. Ralph A. Fusco and Shirley Fusco, Defendants.
• Court: U.S. Bankruptcy Court — District of Connecticut

274 B.R. 316

In re ALL-TYPE PRINTING, INC., Debtor Michael J. Daly, Trustee, Plaintiff, v. Ralph A. Fusco and Shirley Fusco, Defendants.

Bankruptcy No. 96-30564.

Adversary No. 96-3060.

United States Bankruptcy Court, D. Connecticut.

March 12, 2002.

COPYRIGHT MATERIAL OMITTED

Douglas S. Skalka, Neubert, Pepe & Monteith, P.C., New Haven, CT, for Plaintiff-Trustee.

D. Kirt Westfall, Westfall & Rudnick, LLC, New Haven, CT, for Defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON TRUSTEE'S COMPLAINT FOR AVOIDANCE AND RECOVERY OF FUNDS

ALBERT S. DABROWSKI, Bankruptcy Judge.

I. INTRODUCTION

The captioned adversary proceeding presents a dispute concerning payments made by the Debtor to and on behalf of a retired principal of the Debtor. The Chapter 7 Trustee seeks to recover those payments from the principal and his spouse through utilization of certain of the avoidance and recovery powers provided him under the Bankruptcy Code. As set forth in more detail hereafter, judgment will enter in favor of the Plaintiff-Trustee, avoiding, as preferential, only those transfers made within the one-year period prior to the filing of the instant bankruptcy case.

II. JURISDICTION

The United States District Court for the District of Connecticut has subject matter jurisdiction over the instant adversary proceeding by virtue of 28 U.S.C. § 1334(b); and this Court derives its authority to hear and determine this proceeding on reference from the District Court pursuant to 28 U.S.C. §§ 157(a), (b)(1). This is a "core proceeding" pursuant to 28 U.S.C. §§ 157(b)(2)(A), (E), (F) and (H).

III. FINDINGS OF FACT

The Court's findings of fact are derived from (i) the evidence adduced at trial and (ii) the Court's independent examination of the official record of the instant case and adversary proceeding.

1. In or about 1960, three individuals — Dominic DiVerniero (hereafter, "Dominic"), Peter L. Fusco (hereafter, "Peter"), and Defendant Ralph A. Fusco (hereafter, "Ralph") — founded and incorporated All-Type Printing, Inc. (hereafter, "All-Type") as a general printing concern operating at a facility located at 1661 Dixwell Avenue, Hamden, Connecticut (hereafter, the "Real Estate").

2. At all relevant times, the shareholders of All-Type were Dominic, Peter and Ralph (hereafter collectively, the "Shareholders") — with each holding an approximate one-third equity interest. Also, each was a director and officer; and prior to March, 1992, all participated in the day-to-day operation of All-Type's business.

3. The Shareholders were also partners in Communications Realty (hereafter, the "Partnership") — an entity which owned the Real Estate and leased it to All-Type for what was, at all times relevant to this adversary proceeding, a below-market rental (hereafter, the "Lease").

4. During their employment by All-Type, the Shareholders each received a salary and certain customary perquisites. All-Type did not, however, establish a pension plan on their behalf, or otherwise provide for retirement income for them. Instead, it appears that they chose to rely upon personal savings and individual investments — specifically, the value of their shares in All-Type (hereafter, the "Shares") — to provide resources for their retirement years.

5. Ralph was the first of the Shareholders to decide to retire; as early as 1988, he began making preparations to leave the employ of All-Type. Negotiations among All-Type, Ralph, and the other Shareholders regarding Ralph's retirement focused upon a purchase of his Shares by All-Type.

6. On or about March 12, 1992, the Shareholders met in an attempt to reach a final agreement on the terms of Ralph's retirement (hereafter, the "March 12 Meeting"). Incident to the March 12 Meeting, the parties memorialized an interim agreement "with respect to [Ralph's] retirement" through their execution of a certain letter agreement on All-Type letterhead dated "March ___, [sic] 1992", and admitted into evidence in this proceeding as Exhibit F (hereafter, the "Letter Agreement"). Under the terms of the Letter Agreement, "pending the redemption of" his Shares, Ralph was to cease employment by All-Type effective March 28, 1992.

7. The terms of the Letter Agreement also included the following economic obligations on the part of All-Type:

(i) continued provision to Ralph of a "company car" (hereafter, the "Auto Benefit");

(ii) maintenance of existing or comparable "health and medical" insurance coverage for Ralph and his wife, Defendant Shirley Fusco (hereafter, "Shirley") (hereafter, the "Health Insurance Payments"); and

(iii) payment to Ralph of $750.00 per week (hereafter, the "Cash Payments").

These obligations of All-Type are hereafter referred to collectively as the "Retirement Debt". The Letter Agreement and the broader record make clear that these obligations were intended to exist only through the time of redemption of Ralph's Shares, and that the amount of the Health Insurance Payments and Cash Payments would ultimately be credited in All-Type's favor against the "redemption value" of Ralph's Shares.

8. The agreement reached at the March 12 Meeting was not intended by any of the parties to be a final agreement.¹ There is some evidence in the record that a final agreement was elusive due to Ralph's insistence that his interest in the Partnership also be addressed, either through a buyout of that interest, or by a modification of the Lease to provide for payment of a market rate rental by All-Type.

9. No final agreement regarding the redemption of Ralph's Shares was ever reached among the parties, and those Shares were never redeemed.

10. Ralph ceased his full-time employment at All-Type on or about March 28, 1992.

11. All-Type made 77 weekly Cash Payments of $750.00 each between April 15, 1992 and October 15, 1993, after which time All-Type unilaterally ceased making the Cash Payments.

12. All-Type made Health Insurance Payments² to an insurance carrier on behalf of Ralph over the period April 1992 through March, 1995, in the total amount of $10,327.62.³ In the same time period (hereafter, the "Benefit Period"), All-Type also made Health Insurance Payments in the total amount of $9,625.53 on behalf of Shirley.⁴

13. In connection with the Auto Benefit, All-Type made payments to an auto insurance carrier on behalf of Ralph in the Benefit Period in the total amount of $4,626.74 (hereafter, the "Auto Insurance Payments").⁵

14. The Health Insurance Payments and the Auto Insurance Payments are hereafter referred to collectively as the "Insurance Payments".

15. The percentage of the Insurance Payments paid by All-Type on behalf of the respective Defendants is as follows: Ralph — 61%; Shirley — 39%.

16. The Insurance Payments and Cash Payments (hereafter collectively, the "Payments") were consistently designated as "loans" to Ralph in All-Type's books and records.

17. The parties agree that a total of $1,346.21 of the Insurance Payments was payed on behalf of Ralph and/or Shirley in the one-year period preceding February 28, 1996 (hereafter, the "One-Year Payments").

18. In March of 1992, the financial health of All-Type was extremely poor, with no reasonable possibility of recovery. Although its balance sheet at that time showed a technically solvent entity, then, and at all times thereafter until its cessation of business, All-Type was engaged in a business for which its remaining assets were unreasonably small. And in the one-year prior to the Petition Date, All-Type was insolvent.

19. On February 28, 1996 (hereafter, the "Petition Date"), All-Type filed a voluntary petition seeking relief under Chapter 7 of the Bankruptcy Code. Thereafter Michael J. Daly was appointed as trustee of All-Type's bankruptcy estate, and has actively engaged in the liquidation of its assets.

20. At the time of the trial of this adversary proceeding, Proof of Claim No. 12 — the claim of Resource Net International (hereafter, "Resource Net"), in the unsecured amount of $57,694.30 — had been filed with the Clerk in the instant bankruptcy case. That Proof of Claim states that Resource Net obtained a judgment against All-Type on February 28, 1996, for a debt incurred "2/92 — 12/94". The Trustee filed an objection to the Resource Net Proof of Claim on May 6, 1997, on the basis of insufficient supporting documentation. On June 17, 1997, however, the Trustee's Objection was formally withdrawn.

21. At the time of the trial of this adversary proceeding, Proof of Claim No. 24 (amending No. 23) — the claim of Ralph Fusco in the unsecured amount of $160,620.67 — had been filed with the Clerk in the instant bankruptcy case. That Proof of Claim states a claim for "retirement/severance" and "rent". The Trustee objected to that Proof of Claim on May 6, 1997, as lacking a basis; and the Objection is still pending.

IV. CONCLUSIONS OF LAW

The Trustee's Complaint states that he brings his Claims for Relief under the authority of Bankruptcy Code Sections 542(b), 544(b), 547(b) and 548(a).

A. Trustee's Collection of a Debt — Code Section 542(b).

The Complaint's First Claim for Relief seeks a recovery from the Defendants under the authority of Bankruptcy Code Section 542(b), which provides in pertinent part as follows:

"... an entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee...."

11 U.S.C. § 542(b) (1996) (emphasis supplied).

The term "debt" is defined by the Bankruptcy Code as "liability on a claim". 11 U.S.C. § 101(12) (1996). The term "claim", in turn, means "right to payment ... or... right to an equitable remedy for breach of performance if such breach gives rise to a right to payment ...." 11 U.S.C. § 101(5) (1996).

All-Type had no general "right to payment" from Ralph and/or Shirley by virtue of the Payments it made to them, and on their behalf. The Letter Agreement states that such payments would be credited...