In Re Bruno Machinery Corporation

• Decision Date: 09 June 2010
• Docket Number: Adversary No. 07-90028.,Bankruptcy No. 05-20412.
• Citation: 435 B.R. 819
• Parties: In re BRUNO MACHINERY CORPORATION, Debtor. Bruno Machinery Corporation, Plaintiff, v. Troy Die Cutting Company, LLC and Herbert Chorbajian, an individual, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of New York

435 B.R. 819

In re BRUNO MACHINERY CORPORATION, Debtor.Bruno Machinery Corporation, Plaintiff,

v.Troy Die Cutting Company, LLC and Herbert Chorbajian, an individual, Defendants.

Bankruptcy No. 05-20412.

Adversary No. 07-90028.

United States Bankruptcy Court,N.D. New York.

June 9, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Lisa M. Penpraze, Esq., Segel, Goldman, Mazzotta & Siegel, P.C., Albany, NY, Attorneys for Debtor/Plaintiff.

Phillip G. Steck, Esq., Michael A. Kornstein, Esq., Cooper Erving & Savage LLP, Albany, NY, Attorneys for Defendants.

MEMORANDUM-DECISION AND ORDER

ROBERT E. LITTLEFIELD, JR., Chief Judge.

On February 13, 2007, the reorganized debtor Bruno Machinery Corporation (“BMC”) commenced the above-captioned adversary proceeding against Troy Die Cutting Company, LLC (“TDC”) and Herbert Chorbajian (“Chorbajian”) (collectively, the “Defendants”) by filing a complaint (the “Complaint”) to avoid certain alleged preferential transfers and fraudulent conveyances and to recover transferred property pursuant to 11 U.S.C. §§ 544, 547 and 550, and sections 273-276 of the New York Debtor and Creditor Law (“DCL”). ¹ (No. 1.) The Defendants filed an answer denying the material allegations of the Complaint, asserting affirmative defenses, and interposing counterclaims for intentional tortious interference with business operations and conversion. (No. 5.)

The Defendants moved for summary judgment pursuant to Federal Rule of Civil Procedure 56, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056. (No. 24.) The court sua sponte denied the motion without prejudice on the basis that the Defendants failed to comply with the provisions of Local Bankruptcy Rule 7056-1, which requires the filing of a concise statement of the material facts as to which the moving party contends there is no genuine issue. (No. 27.) The Defendants refiled the motion, which was denied at the hearing held July 30, 2008. On consent of the parties, the court granted BMC's oral application to amend its Complaint to correct typographical errors to include § 548 as a basis for its second through sixth causes of action. BMC filed an amended complaint on August 22, 2008. (No. 46; the “Amended Complaint.”) The Defendants did not file an answer to the Amended Complaint, and none was required, as the parties agreed that the relevant allegations had been addressed in the Defendants' original answer.

A bench trial in this proceeding was held on October 3, 2008, October 6, 2008, October 7, 2008, November 24, 2008, November 26, 2008, and December 3, 2008. During this six-day trial, the court received a number of exhibits into evidence and heard testimony from nine witnesses: Raymond Dufresne; Joao Raquel; Thomas Blair; Ronald Henderson, an expert witness called by BMC to value the information technology services allegedly provided by BMC to TDC; Sean Bruno; Robert F. Bruno, Sr.; Herbert Chorbajian; Dr. James Lambrinos, an expert witness called by BMC to value the managerial services allegedly provided by BMC to TDC; and Patricia Toftegaard.

At the close of BMC's case, the Defendants moved to dismiss all claims on the basis that BMC failed to make out a prima facie case. (Trial Tr. vol. 4, 152, Nov. 24, 2008.) The court indicated that it would grant the Defendants' motion to dismiss the claims related to the alleged provision of managerial services. (Trial Tr. vol. 5, 21-23, Nov. 26, 2008.) The Defendants then proceeded to the presentation of their case. (Trial Tr. vol. 5, 24, Nov. 26, 2008.)

At the close of the Defendants' case, both parties made oral motions for a “directed verdict.” ² (Trial Tr. vol. 5, 108-09, 113, Nov. 26, 2008.) The court adjourned the motions. On the final day of trial, the court granted the Defendants' motion, in part, and denied BMC's motion. (Trial Tr. vol. 6, 47-48, Dec. 3, 2008.) At the same time, the Defendants withdrew their counterclaims. (Trial Tr. vol. 6, 46-47, Dec. 3, 2008.)

The court entered a Judgment on Partial Findings dismissing BMC's fraudulent conveyance claims as regards the provision of managerial services and the subletting of 8,000 square feet of space at a below-market rate. (No. 104.) BMC filed a Motion for Retrial pursuant to Federal Rule of Civil Procedure 59, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 9023. (Nos.106, 107.) Following a denial of its Motion for Retrial, BMC appealed. (Nos.117, 118.) BMC eventually withdrew its appeal because the Judgment on Partial Findings was not a “final judgment” and as such did not qualify as an appealable order under Federal Rule of Civil Procedure 54(b). (No. 142.)

The court gave the parties an opportunity to submit post-trial memoranda of law, which the parties accepted, and the matter was submitted for decision. The court, having heard sworn testimony and arguments of counsel and having considered the parties' pleadings and submissions in this proceeding, makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

JURISDICTION

The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a), 157(b)(1), 157(b)(2)(F), 157(b)(2)(H), and 1334.

FACTS

Prior to bankruptcy, BMC manufactured and sold presses for a variety of industries. BMC also performed die-cutting services for 3M Company (“3M”) at BMC's facilities in Troy, New York. (Trial Tr. vol. 3, 43:21-44:9, Oct. 7, 2008; Trial Tr. vol. 1, 77:19-78:2, Oct. 3, 2008.) Those services were governed by a contract that BMC and 3M renewed annually. (Trial Tr. vol. 3, 45-46, Oct. 7, 2008.) Briefly, BMC used a Sheridan mechanical press upon which it mounted cutting dies, supplied by 3M, to cut turn arrows, lane markings, and other reflective decals into materials supplied by 3M. ³ (Trial Tr. vol. 3, 45:15-17, Oct. 7, 2008.) At all relevant times, Robert F. Bruno, Sr. (“Bruno”) was the majority shareholder and president of BMC. (Joint Stipulation of Facts (No. 52.) ¶¶ 36-37; Trial Tr. vol. 3, 117:15-22, Oct. 7, 2008.)

The events giving rise to this action began in the late-1990s, when BMC spun off its die-cutting business to form Troy Die Cutting, Inc. (“Old TDC”), a separate entity owned by Bruno's two adult sons, Robert F. Bruno, Jr. and Sean Bruno. (Trial Tr. vol. 4, 57:22-58:5, Nov. 24, 2008; Trial Tr. vol. 3, 15:18-24, Oct. 7, 2008; Joint Stipulation of Facts ¶¶ 5-6.) His sons owned Old TDC, but Bruno retained control and ran the operations. (Trial Tr. vol. 3, 15:18-24, 157:2-13, Oct. 7, 2008; Trial Tr. vol. 4, 57:20-58:15, Nov. 24, 2008.) Old TDC assumed the 3M contract and operated the die-cutting business in the same capacity as had BMC. (Trial Tr. vol. 3, 45:1-13, 20:2-5, Oct. 7, 2008.)

Despite the spin-off, BMC and Old TDC were significantly intertwined. BMC and Old TDC occupied the same L-shaped building at 1 Madison Street in Troy, New York. (Trial Tr. vol. 1, 77:19-78:17, Oct. 3, 2008.) While the building was divided for separate occupancy, BMC and Old TDC occupied the same undivided space and shared a common entrance. (Trial Tr. vol. 1, 79:24-81:7, 78:18-78:22, Oct. 3, 2008; Trial Tr. vol. 3, 157:14-21, Oct. 7, 2008.) The upper part of the “L” housed BMC, the lower, Old TDC. (Trial Tr. vol. 1, 78:8-17, Oct. 3, 2008.) BMC and Old TDC shared a telephone system; their calls came in through the same switchboard. (Trial Tr. vol. 1, 78:23-79:16, Oct. 3, 2008.) Both companies relied on the same, highly integrated computer system and accounting software. (Trial Tr. vol. 2, 181:7-21, 185:10-16, Oct. 6, 2008; Trial Tr. vol. 1, 29:17-30:14, Oct. 3, 2008.) BMC and Old TDC shared utilities, in BMC's name. (Trial Tr. vol. 1, 79:17-23, Oct. 3, 2008.) Old TDC had no employees of its own; BMC supplied the labor to operate Old TDC. (Joint Stipulation of Facts ¶¶ 19-20; Trial Tr. vol. 3, 157:14-17, Oct. 7, 2008; Trial Tr. vol. 4, 65:4-11, Nov. 24, 2008.)

In 2000, BMC sought capital to expand and relocate its facilities. (Trial Tr. vol. 4, 58:21-59:2, Nov. 24, 2008.) To this end, Bruno approached his longtime friend Herbert Chorbajian (“Chorbajian”) and discussed with him the possibility of acquiring Old TDC. (Trial Tr. vol. 3, 161:3-10, Oct. 7, 2008; Trial Tr. vol. 4, 42:5-43:8, Nov. 24, 2008.) Chorbajian was not interested in personally running the die-cutting business. (Trial Tr. vol. 3, 161:11-18, Oct. 7, 2008; Trial Tr. vol. 4, 43:9-22, 44:17-45:3, Nov. 24, 2008.) Instead, he agreed to infuse capital into BMC by purchasing Old TDC with the understanding that BMC would buy it back at some point in the future. (Trial Tr. vol. 4, 46:22-47:5, 64:9-13, Nov. 24, 2008.) Bruno would sell Old TDC on behalf of his sons, who agreed to reinvest the proceeds of the sale back into BMC. (Joint Stipulation of Facts ¶¶ 5-6; Trial Tr. vol. 3, 161:3-10, 164:7-15, Oct. 7, 2008; Trial Tr. vol. 4, 63:1-64:13, Nov. 24, 2008; Def.'s Ex. B.)

Chorbajian formed TDC to acquire Old TDC. (Trial Tr. vol. 4, 70:20-71:5, Nov. 24, 2008; Pl.'s Ex. 33; Joint Stipulation of Facts ¶ 7.) At all relevant times, Chorbajian was the sole member of TDC. (Joint Stipulation of Facts ¶ 2.) On August 1, 2000, Old TDC and TDC entered into an asset purchase agreement, whereby TDC acquired substantially all of the assets of Old TDC's die-cutting business for $100,000. (Joint Stipulation of Facts ¶¶ 4, 7; Trial Tr. vol. 3, 163:1-5, Oct. 7, 2008; Trial Tr. vol. 4, 59:11-14, 61:2-15, 70:20-71:5, Nov. 24, 2008; Pl.'s Exs. 28, 33-35.)

BMC agreed to sub-let approximately 8,000 square feet of space to TDC for gross annual rent of $28,212 on a month-to-month basis. (Joint Stipulation of Facts ¶ 8; Def.'s Exs. D, E.) BMC would provide TDC with labor and services, for which BMC would charge TDC an hourly rate. (Joint Stipulation of Facts ¶¶ 10-11.) BMC also agreed to service and maintain TDC's equipment at no...