In re Bame
| Decision Date | 22 August 2000 |
| Docket Number | Bankruptcy No. 99-40683. Adversary No. 00-4011. |
| Citation | 252 BR 148 |
| Parties | In re Fred H. BAME, Debtor. James E. Ramette, Trustee, Plaintiff, v. Al & Alma's Supper Club Corp., Merritt Geyen, and Sidney Kaplan as Trustee of the Fred H. Bame Grantor Retained Income Trust, Defendants. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
FINDINGS OF UNDISPUTED FACT AND CONCLUSIONS OF LAW ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
The above entitled matter came on for hearing on June 9, 2000, and July 17, 2000, on cross-motions for summary judgment. Randall Seaver appeared on behalf of the Plaintiff, Trustee James Ramette ("Trustee"). Peter Johnson appeared on behalf of the Defendants Merritt Geyen and Al & Alma's Supper Club Corp. David Orenstein and William Fisher appeared on behalf of Defendant Sidney Kaplan. Based upon the files and records of the proceeding, the affidavits, and the arguments of counsel, the court makes the following:
FINDINGS OF UNDISPUTED FACT
1. This adversary proceeding centers around a dispute as to the ownership of certain stock certificates in Al & Alma's Supper Club Corp. ("Al & Alma's"). Al & Alma's was founded in September of 1983 with authorized capital stock of 1,000 shares. At the formation of the company, 100 shares of stock were issued. Debtor Fred Bame ("Debtor") received 50 of those 100 shares, which were represented by Certificate No. 1. The Debtor's daughter, Defendant Merritt Geyen ("Geyen"), was issued 25 shares. Geyen's husband Darryl Geyen received the remaining 25 shares. Al & Alma's was a private, family owned business, which operated a dinner cruise and restaurant facility in Mound, Minnesota. Darryl and Merritt Geyen ran the day to day affairs of the business.
2. In March of 1989, one of the Debtor's business entities, Gopher Oil Co., entered into a loan agreement with Diversified Business Credit, Inc. ("DBCI"). The Debtor personally guaranteed the loan, and as security therefor, he delivered Certificate No. 1 in Al & Alma's to DBCI.
3. On October 10, 1989, the Debtor established the Bame Grantor Retained Income Trust ("GRIT"). The GRIT was established as a tax-favorable means of transferring the Debtor's stock in Al & Alma's as a gift to Geyen. Essentially, the Debtor was to transfer his interest in Al & Alma's, represented by Certificate No. 1, to the trust for the benefit of Geyen.1 The Debtor would retain the right to the income from the stock for the term of the trust, which was 10 years. At the end of the term, the stock was to pass to Geyen. Defendant Sidney Kaplan ("Kaplan") was named trustee for the GRIT. The GRIT was an irrevocable trust; therefore, Kaplan was obligated to transfer the stock to Geyen at the end of the 10 year term.
4. Because DBCI held the Debtor's stock certificate, it could not be physically transferred to the trust. However, Kaplan was unaware that Certificate No. 1 had been pledged. Instead, he assumed, as is typical for closely held businesses, that the Certificate was held by the corporate attorney for Al & Alma's in the corporate record book. Accordingly, he contacted Al & Alma's corporate attorney, Robert Abdo ("Abdo"), and named him as an agent of the GRIT to retain the physical stock certificate.
5. Having been advised that the Debtor transferred his stock to the GRIT, Al & Alma's issued Certificate No. 4 in late 1989 or early 1990, which named the GRIT as the owner of 50 shares in Al & Alma's. The intention at the time was that Certificate No. 4 would replace Certificate No. 1. As requested by Kaplan, Abdo initially held Certificate No. 4 for the benefit of the GRIT.
6. In December of 1990, Abdo contacted counsel for DBCI, advising that the Debtor's shares in Al & Alma's had been transferred to the GRIT. In order to complete the transfer, Abdo requested that DBCI return Certificate No. 1 in exchange for Certificate No. 4. Some time later, in April of 1992, counsel for DBCI indicated that, upon receipt of Certificate No. 4 and a new pledge agreement executed by the GRIT, DBCI would return Certificate No. 1 to Al & Alma's.
7. Abdo immediately forwarded Certificate No. 4 to counsel for DBCI. However, there was some delay in preparing and executing the pledge agreement. Kaplan, as trustee of the GRIT and a fiduciary for Geyen, refused to sign the pledge agreement on behalf of the GRIT unless Geyen and the Debtor provided written authorization and an agreement to hold him harmless. The Debtor and Geyen initially failed to provide such authorization. However, on July 15, 1993, after the loan underlying the pledge had been refinanced, the Debtor and Geyen provided the necessary authorization for Kaplan to pledge the stock in connection with the refinanced loan.
8. On September 2, 1993, the pledge agreement was finally delivered to counsel for DBCI. At that time, counsel for DBCI indicated that Certificate No. 1 was lost or destroyed. Accordingly, Certificate No. 1 was not returned to Al & Alma's, and it was never actually cancelled. In fact, despite belief that Certificate No. 1 had been misplaced, DBCI continued to hold it.
9. The status of the stock certificates remained unchanged when the Debtor's bankruptcy case was commenced on February 10, 1999, on the filing of an involuntary Chapter 7 petition. On February 16, 1999, the Debtor voluntarily converted the case to one under Chapter 11. The schedules filed by the Debtor did not indicate any ownership interest in Al & Alma's. The Debtor's disclosure statement indicated that he had transferred the stock in Al & Alma's to the GRIT ten years before.
10. On May 19, 1999, the Debtor's case was converted, over the Debtor's objection and at the urging of virtually all his creditors, back to a Chapter 7 proceeding. The Trustee was appointed to serve as the trustee of the Debtor's case. The Trustee demanded that the income owed to the Debtor pursuant to the GRIT be paid to the bankruptcy estate. Pursuant to this demand, Al & Alma's paid $116,115 to the Trustee as the Debtor's share of the 1998 annual income.
11. The Trustee deposed Kaplan, a small portion of which focused on the GRIT and the Al & Alma's stock. Specifically, the Trustee asked whether there was a stock certificate indicating the GRIT's ownership of the stock. Kaplan testified that he believed there was, but that it was not in his possession.
12. The term of the GRIT expired on October 10, 1999, which was during the pendency of the Debtor's bankruptcy case. Pursuant to the terms of the GRIT, Kaplan took steps to transfer the trust estate to Geyen. In furtherance thereof, Kaplan requested that DBCI return Certificate No. 4, which evidenced the GRIT's ownership interest in Al & Alma's. Instead, DBCI delivered Certificate No. 1, which had purportedly been lost and indicated the Debtor's ownership interest in Al & Alma's.
13. Having not received the necessary certificate, Kaplan contacted Abdo, Al & Alma's corporate counsel, in search of Certificate No. 4. Abdo provided Kaplan with a copy of Certificate No. 4 and a copy of the letter transmitting Certificate No. 4 to DBCI. With this information, Kaplan was able to complete the transfer of Certificate No. 4 to Geyen in accordance with the terms of the GRIT without have obtained physical custody of Certificate No. 4. Abdo later received the original Certificate No. 4 from DBCI. He stamped it "VOID" and, on behalf of Al & Alma's, issued new Certificate No. 5, indicating Geyen's ownership of 50 shares of stock in Al & Alma's.
14. In the meantime, Kaplan was in possession of Certificate No. 1. He regarded this Certificate as defunct, having been replaced by Certificate No. 4. Kaplan, therefore, marked on Certificate No. 1 that it had been assigned and transferred by the Debtor to the GRIT on October 10, 1989. He then forwarded Certificate No. 1 to Abdo. Abdo received the Certificate in early November 1999 and, also regarding it as defunct, marked it "VOID."
14. Meanwhile, the Trustee continued his investigation into the Debtor's assets. Trustee issued a subpoena to Al & Alma's requesting that the corporation produce all of its corporate records. In connection therewith, the Trustee received certain tax documents and other corporate records that still regarded the Debtor as a 50% shareholder even after the transfer of his shares to the GRIT. The Trustee also discovered that the minutes of Al & Alma's annual meetings from 1991 to 1999 were all created in November of 1999 using estimated dates and times of the meetings.
15. Pursuant to the subpoena of its corporate records, Al & Alma's also turned over the original Certificate No. 1, which at that point indicated that it was void. The Trustee then discovered that Certificate No. 1 had been altered during the pendency of the bankruptcy.
16. The Trustee, believing that the transfer of Certificate No. 1 to the GRIT was invalid, brought the present adversary proceeding, which contained five counts.2 The first three counts contend that, because the transfer of Certificate No. 1 had never been completed, Certificate No. 1 was property of the estate. Thus, the transfer of the stock to the GRIT and, ultimately, to Geyen in October of 1999 constituted an avoidable postpetition transfer, conversion of estate property, and/or a stay violation. Count four contends that any transfer of Certificate No. 1 to the GRIT was never perfected and, thus, was avoidable as a fraudulent or preferential transfer. Count five asserts that, even if the transfer to the GRIT was perfected, it was a sham transfer, and the Debtor remained a 50% shareholder in Al & Alma's. At its core, the complaint seeks a finding that the estate is the owner of the 50 shares in Al & Alma's and that alteration of Certificate No. 1 postpetition was in violation of the Bankruptcy Code.
17. The Defendants answered that Certificate No. 1 was no longer a viable document. They contend that Certificate No. 1 was replaced by Certificate ...
To continue reading
Request your trial