In Re Bolin & Company Llc. Roland Chorches

• Decision Date: 22 September 2010
• Docket Number: Civil Action No. 3:08cv1793 (SRU).
• Citation: 437 B.R. 731
• Court: U.S. District Court — District of Connecticut
• Parties: In re BOLIN & COMPANY, LLC. Roland Chorches, Trustee of the Estate of Bolin & Company, LLC, Plaintiff, v. Sally Ogden, Defendant.

437 B.R. 731

In re BOLIN & COMPANY, LLC.

Roland Chorches, Trustee of the Estate of Bolin & Company, LLC, Plaintiff,

v.Sally Ogden, Defendant.

Civil Action No. 3:08cv1793 (SRU).

United States District Court,D. Connecticut.

Sept. 22, 2010.

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Carol A. Felicetta, Reid & Reige, New Haven, CT, for Plaintiff.

Jeffrey R. Hellman, Kellianne Baranowsky, Zeisler & Zeisler, P.C., Bridgeport, CT, for Defendant.

MEMORANDUM OF DECISION

STEFAN R. UNDERHILL, District Judge.

This case arises from the bankruptcy of Bolin & Company, LLC (“Bolin”), a jewelry retailer in Greenwich, Connecticut. It concerns actions the defendant, Sally Ogden, took during the week of July 30, 2004 that the plaintiff claims to have precipitated Bolin's bankruptcy. The United States Bankruptcy Court for the District of Connecticut previously had jurisdiction over this case pursuant to 28 U.S.C. § 157(b), which permits bankruptcy courts to exercise jurisdiction over “all core proceedings” under the Bankruptcy Code, including matters affecting the liquidation of the assets of the bankrupt estate. This court has jurisdiction under 28 U.S.C. § 1334(b), which grants district courts original jurisdiction over civil actions arising in or related to bankruptcy proceedings.

On April 30, 2007, the plaintiff, the Chapter 7 bankruptcy trustee for Bolin's estate ¹ commenced this lawsuit in the United States Bankruptcy Court for the District of Connecticut as an adversary proceeding against Ogden and Shannon Howey, a former Bolin employee. On November 24, 2008, I withdrew reference to the bankruptcy court of the plaintiff's claims against Howey, and on December 19, 2008, I consolidated the proceedings against Howey and Ogden in this court. Howey was then dismissed as a defendant on August 6, 2009. A bench trial began on September 29, 2009 and ended on October 8, 2009. ²

My findings of fact and conclusions of law are set forth below. I proceed in two parts. First, I discuss the facts and law relevant to Ogden's liability. I then turn to the damages that Ogden owes.

I. Ogden's LiabilityA. Findings of fact

The relevant history of Bolin from its inception until the week of its closing can be divided into three parts. First, there are the facts of Bolin's history before the week of July 26, 2004; second, there are the facts leading to the closing of Bolin on July 30, 2004; and, finally, the aftermath of Bolin's demise.

1. Bolin's history before July 26, 2004

a. Bolin's origins

Andrea Ulanoff and her partner, Noah Citrin, opened Bolin in 2000 as a retail shop for antique, custom, and unusual or niche pieces of jewelry. Ulanoff, a former advertising and marketing professional, was to be responsible for the business and management sides of the store, and Citrin, a jeweler by trade, was to be responsible for the design and repair of the store's jewelry. In August 2000, Andrea Ulanoff registered Bolin as a Connecticut limited liability company in which she was the only principal. Citrin was not designated a principal because he had recently closed his own jewelry store and declared bankruptcy; in addition, Ulanoff's mother, Sylvia Ulanoff, loaned start-up money to help Bolin on the condition that Citrin not be a principal in the venture. Ulanoff and Citrin both signed Bolin's lease on Bolin's behalf, however; the landlord was never notified that Citrin was not a principal in the LLC. ³

Bolin borrowed $500,000 from several sources to finance its start-up costs. Bolin borrowed $100,000 from Ulanoff and another $400,000 from her mother, Sylvia Ulanoff. Sylvia Ulanoff lent the $400,000 in two installments: in November 2000, she lent Bolin $150,000, and in January 2001, she lent another $250,000. Sylvia Ulanoff and Bolin entered promissory notes and security agreements for both of those loans, but the security agreement for the first loan of $150,000 was never properly filed as a UCC-1 agreement with the Connecticut Secretary of State. That fact was discovered only after Bolin declared bankruptcy.

Bolin opened its store in December 2000 at 356 Greenwich Avenue, where it would continue to operate until closing on July 30, 2004. Business hours were Tuesday through Saturday, from 9 to 5, a schedule that Bolin maintained until it shuttered. Bolin sold jewelry that it owned and that it held on consignment. Under a consignment agreement, Bolin sold jewelry on loan from a vendor and would collect a fee from the vendor on each completed sale; if Bolin was unable to sell a consigned piece, the store would return it to the vendor. Bolin usually held more consigned jewelry than owned jewelry in its inventory; several witnesses testified that, at the time of the store's closing, one-third of Bolin's inventory consisted of owned items, while the remaining two-thirds were consigned pieces. Bolin also repaired jewelry for customers and would sometimes sell customers' jewelry on consignment. Ulanoff and Citrin were Bolin's only employees in the store's early days. They worked in the store during business hours and conducted themselves as the store's managers, together buying insurance and installing a security system. Ulanoff received between $100,000 and $150,000, and Citrin received approximately $60,000, in annual compensation.

Business was slow at the outset-by opening in December 2000, Bolin was too late to capitalize on the holiday shopping season, which had started weeks earlier-and the store reported a loss for the 2000 fiscal year. (Ex. 92.) But Bolin proceeded to grow in 2001. Between 2000 and 2001, Bolin held on average 150 pieces of jewelry worth, in sum, $500,000 at cost; the average price for an item was $2,500. By the end of 2001, Ulanoff claims, the store held $1 million in inventory. That year, as the store grew, Bolin hired three part-time employees: Kathleen Raby, Joan Goss, and Elaine Tracy. Raby was paid between $18 and $20 an hour, and Goss received less than $20,000 a year. Tracy's salary was never stated at trial but, according to Ulanoff, it was not significant.

From 2001 to 2002, Bolin's sales traced the arc of the national economy: business ground to a near halt following September 11, 2001-the store reported a net loss for 2001 (Ex. 91)-and rebounded as the market recovered. Despite increasing sales in 2002, however, Bolin faced significant management problems. Ulanoff had trouble establishing relationships with jewelry vendors and adjusting to the business practices of the jewelry industry. Ulanoff also struggled to keep adequate records of the items she was receiving in inventory and the sales that Bolin was making. Although Bolin had an electronic inventory system for its jewelry, Ulanoff failed to update it consistently.

Finally, Bolin had significant cash-flow difficulties. Ulanoff often bought jewelry with a series of post-dated checks, each reflecting partial payment, for vendors to deposit over time once each check's date had passed. In effect, Ulanoff was buying jewelry on credit, and would pay vendors in installments after receiving their jewelry. Ulanoff's post-dated checks bounced frequently, however. Indeed, Bolin's habit of bouncing checks continued until it went out of business in 2004; Bolin bounced 660 checks, including paychecks to its employees, between April 2003 and July 2004, amassing more than $12,000 in overdraft fees. (Ex. 309.) Bolin also had problems paying vendors for jewelry it sold on consignment. The store had a reputation for being very slow to repay vendors for the consigned pieces it sold. It took Bolin an average of 122 days to pay its accounts payable. (Ex. 1031.) That was well above the time it took other comparable retail shops to make similar payments.

Several parties won judgments for unpaid debts against Bolin between 2002 and 2004. The New York Times Company won a judgment of $6,400 against Bolin on October 18, 2002 (Ex. 134); Walter Bernd won a judgment of $3,535 against the store on October 21, 2003 (Ex. 133); Albert Tsang Jewelry Design Ltd. won a judgment of $18,112.39 against the store on June 28, 2004 (Ex. 317); and Wartski, Ltd. won a judgment of $13,092.44 on August 16, 2004 (Ex. 132). Besides those judgments, it was common for vendors to call Bolin to complain about not being paid. Joan Goss, another Bolin part-time worker, testified that she quit her job in February 2004 because she felt constantly harassed by phone calls from unhappy and unpaid vendors.

b. Sally Ogden's involvement in Bolin

Because of those problems, Ulanoff became interested in finding another principal for Bolin. That potential partner was Sally Ogden, the defendant in this case. Ogden, a Greenwich homemaker, had been a frequent customer at Bolin beginning in 2001. Ulanoff knew her from her visits to the store and from conversations they had while Ogden was shopping; the two developed a friendship based on their interactions in the store. Ulanoff believed that Ogden would be a strong addition to Bolin because she had worked previously in a retail couture business. She also thought that Ogden, who had contacts with other potential jewelry consumers, could attract more customers to the store. Ulanoff was prepared to offer Ogden a 50 percent stake in the store and shared management responsibilities.

Ogden loaned $270,000 to Bolin in July 2002. That loan was to help Bolin with its business; Ogden did not intend it as an equity investment in Bolin. Several months later, in November 2002, Ogden submitted an application for “key man” insurance in which Bolin was the beneficiary. (Ex. 457.) This required her to meet with Bolin's insurance agent, have blood tests performed, and give information about her health and medical history. The application was accepted, and Bolin was responsible for paying the premium. The key man insurance is the only evidence that conclusively points toward some intent by Ogden to become a principal in Bolin. Evidence of...