In re Cahillane, Bankruptcy No. 04-65210.
| Decision Date | 11 June 2009 |
| Docket Number | Bankruptcy No. 04-65210.,Adversary No. 06-6246. |
| Parties | In re Thomas J. CAHILLANE, Debtor. Gordon E. Gouveia, Plaintiff, v. Timothy J. Cahillane and New Technologies, Inc. a/k/a New Silicone Technologies, Inc., Defendants. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana |
Mark A. Carter, Esq., Adelman & Gettleman, P.C., Chicago, IL, on behalf of the Plaintiff, Chapter 7 Trustee Gordon E. Gouveia.
Kenneth A. Manning, Esq., James, James & Manning, P.C., Dyer, IN, on behalf of the Defendants, Timothy J. Cahillane and New Technologies, Inc.
MEMORANDUM AND DECISION OF FINAL JUDGMENT/FINDINGS OF FACT AND CONCLUSIONS OF LAW
This adversary proceeding was initiated by a complaint filed on October 13, 2006, by Gordon E. Gouveia, as Trustee of the Chapter 7 bankruptcy estate of Thomas J. Cahillane ("Trustee"). The complaint designated two defendants: Timothy J. Cahillane ("Timothy"), individually, and New Technologies, Inc. a/k/a New Silicone Technologies, Inc. ("New Silicone"). Subsequently, on November 2, 2006, the Trustee filed an amended complaint as to both Defendants. The underlying bankruptcy case itself was filed on October 15, 2004, by Thomas Cahillane—Timothy's brother.1
In the amended complaint, the Trustee alleged that Timothy and New Silicone were the recipients of certain preference payments pursuant to 11 U.S.C. § 547(b) and, as a result, the Trustee should be allowed to recover the transfers from the defendants as provided for by 11 U.S.C. § 550(a).2 Furthermore, it is alleged that the debtor made several fraudulent transfers to Timothy, which should be avoided pursuant to 11 U.S.C. § 548(a)(1)(A) and 11 U.S.C. § 548(a)(1)(B) and recovered from Timothy pursuant to 11 U.S.C. § 550(a).3 Alternatively, the Trustee alleged that the foregoing transfers were made to New Silicone and should be avoided pursuant to 11 U.S.C. § 548(a)(1)(A) and 11 U.S.C. § 548(a)(1)(B), and recovered from New Silicone pursuant to 11 U.S.C. § 550(a).4 The Trustee also requested that the court pierce the corporate veil of New Silicone to hold Timothy liable for transfers made to the corporation, based upon the allegation that New Silicone was controlled and manipulated by the debtor and Timothy.5 Finally, pursuant to 11 U.S.C. § 502(d), the Trustee requested that the court disallow any proof of claim Timothy may file in the Debtor's bankruptcy case to the extent Timothy is indebted to the estate for an avoidable transfer or transfers which are not subsequently paid back to the estate. In a separate count, the Trustee requested the same relief as to New Silicone.6
On January 16, 2007, the defendants filed an answer which denied the substantive allegations of the Trustee's complaint and raised certain affirmative defense. The defendants essentially contended that under 11 U.S.C. § 550(a), neither was an initial transferee, nor an entity for whose benefit the transfers were made. The defendants also denied that either of them was an immediate transferee under 11 U.S.C. § 550(b). The defendants take the position that, under principles of equity, neither of them should be liable as transferees. Lastly, Timothy Cahillane denies that he ever received any of the Debtor's property or that was he a recipient of the transfers as alleged by the Trustee.7
Trial of the case was held on March 13, 2008, at the conclusion of which, the court directed the parties to file briefs in support of their respective positions.
The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157, and N.D.Ind. L.R. 200.1(a) of the Rules of the United States District Court for the Northern District of Indiana. This adversary proceeding is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(F) and (H). This Memorandum and Decision constitutes the findings of fact and conclusions of law required by Fed.R.Bankr.P. 7052/ Fed.R.Civ.P. 52(a).
The record before the court for the purposes of final determination is comprised of the plaintiffs amended complaint, the defendants' answer, the joint Pre-Trial Order filed February 15, 2008, the Stipulation Regarding Documentary Evidence, and the following exhibits entered into evidence at the trial:
A. Plaintiff's Binder of Exhibits, Volume I: Exhibits 1, 2A-2I and 3;8 B. Plaintiff's Binder of Exhibits, Volume II: Exhibits 4A, 4B and 5-23;
C. Plaintiff's Binder of Exhibits, Volume III: Exhibits 24, 26A-26Z, 27, 29, 30 and 31;9
D. Defendants' Binder of Exhibits A-W;
E. Defendants' Exhibit X;
The issues of law presented by the parties to the court were stated as the following in the final Pre-Trial Order filed with the Court on February 15, 2008:
(1) Whether Timothy is liable for payments in excess of $10,300.00 made by Thomas to Timothy within one (1) year of the Petition Date pursuant to 11 U.S.C. § 547(b)?
(2) Whether Timothy is liable for payments in excess of $6,462.04 received by Timothy through the Mercantile Account within one (1) year of the Petition Date pursuant to 11 U.S.C. § 547(b)?
(3) Whether Timothy is liable for transfers made into the Mercantile Account in the amount of $11,3753.95 pursuant to 11 U.S.C. § 548(a)(1)(A) or 11 U.S.C. § 548(a)(1)(B)?
(4) Whether the corporate form of New Tech can be disregarded/ignored for failure to comply with corporate formalities and as a sham entity used as a fraud on creditors.
(5) The extent and liability of each Defendant as an initial transferee under 11 U.S.C. § 550(a)(1).
(6) The extent and liability of each Defendant as an entity for whose benefit any transfer was made under 11 U.S.C. § 550(a)(1).
(7) The extent and liability of each Defendant as an immediate/mediate transferee, 11 U.S.C. § 550(a)(2).
(8) The extent and liability of each Defendant as a first transferee under I.C. 32-18-2-18.
(9) The extent and liability of each Defendant as a subsequent transferee under I.C. 32-18-2-18.
(10) Does payment of an existing debt and obligation constitute fair consideration and reasonable equivalent value?
(11) When does pre judgment interest begin to accrue, and at what rate, on any judgment Plaintiff may obtain?
(12) Is Plaintiff entitled to attorney fees as part of any judgment?
(13) Is Plaintiffs damages and recovery limited to the extent of any transfers of Debtor's property received by a transferee?
(14) Does Plaintiff have the burden of proof to establish each Defendant's liability under 11 U.S.C. § 550?
The foregoing issues, as stated in the pre-trial order, supercede the pleadings and establish the issues to be considered by the court in the trial; Gorlikowski v. Tolbert, et al, 52 F.3d 1439, 1443-1444 (7th Cir.1995). However, in defining the issues, the parties have implicitly included legal issues not explicitly identified in the foregoing recitation. For example, the issue identified by the parties in paragraph 4 of their recitation includes an issue under 11 U.S.C. § 548 and parallel Indiana fraudulent conveyance law, i.e., the identity of the initial transferee of an alleged fraudulent conveyance. The issues identified in paragraphs 5, 6 and 7 of the parties' designation implicate 11 U.S.C. § 548 as well, in that 11 U.S.C. § 550 is not a provision which provides any avoidance powers, but rather is one which designates entities from whom a transfer avoided—in this case potentially under 11 U.S.C. § 548—may be recovered. This case is more easily stated, and resolved, by formulating the issues before the court as follows:
1. Whether, pursuant to 11 U.S.C. § 548(a)(1)(A) or § 548(a)(1)(B), transfers were made to New Silicone into the Mercantile account in the amount of $104,039.95.10
2. Whether, pursuant to 11 U.S.C. § 548(a)(1)(A) or § 548(a)(1)(B), transfers were made to Timothy Cahillane into the Mercantile account in the amount of $104.039.95.
3. Whether, pursuant to 11 U.S.C. § 550(a)(1), New Silicon is liable as an initial transferee.
4. Whether, pursuant to 11 U.S.C. § 550(a)(1), Timothy Cahillane is liable as an initial transferee.
5. Whether, pursuant to 11 U.S.C. § 550(a)(1), New Silicone is an entity for whose benefit the transfers to Mercantile Bank were made.
6. Whether, pursuant to 11 U.S.C. § 550(a)(1), Timothy Cahillane is ah entity for whose benefit the transfers to Mercantile Bank were made.
7. Whether, pursuant to 11 U.S.C. § 550(a)(2), New Silicone is liable as a immediate or mediate transferee.
8. Whether, pursuant to 11 U.S.C. § 550(a)(2), Timothy Cahillane is liable as a immediate or mediate transferee.
9. Whether the corporate form and identity of New Silicone should be disregarded and "pierced" as being used as a vehicle for assisting the Debtor to evade and defraud creditors, resulting in liability of Timothy for all transfers made by the Debtor into the Mercantile account.
10. Whether, pursuant to 11 U.S.C. § 547, Timothy Cahillane is liable for payments made to him, by Thomas Cahillane, in excess of $10,300.00.
11. Whether, pursuant to 11 U.S.C. § 547, Timothy Cahillane is liable for payments made to him, by Thomas Cahillane, in excess of $6,462.00.11
12. The extent to which the Trustee is entitled to obtain interest on the amount of avoided transfers determined to be recoverable from either of the defendants.
13. The extent to which the Trustee is entitled to recover attorney's fees from either of the defendants.12
The factual record before the court is in part comprised of the stipulation of facts ("Stipulation") contained in the joint Pre-Trial Order filed by the parties on February 15, 2008, which states verbatim:
(1) On October 15, 2004, (the "Petition Date") Thomas J. Cahillane ("Thomas" or the "Debtor") filed a voluntary petition under...
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