In re E. Coast Custom Coaches, Inc.
| Decision Date | 11 December 2020 |
| Docket Number | Case No. 19-11536-KHK |
| Citation | 624 B.R. 390 |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | IN RE: EAST COAST CUSTOM COACHES, INC., Debtor. |
Alan D. Eisler, Eisler Hamilton, LLC, Rockville, MD, for Debtor.
Janet M. Meiburger, The Meiburger Law Firm, P.C., McLean, VA, for Trustee.
Before the Court are cross-motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure (the "Civil Rules"), as incorporated by Rule 7056 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), filed by Janet M. Meiburger, as Trustee (the "Trustee") on behalf of the estate of East Coast Customs Coaches, Inc. (the "Debtor") and by Carey Alan Snyder ("Mr. Snyder"), a judgment creditor and former board member of the Debtor. The summary judgment motions each seek judgment as a matter of law as to whether Mr. Snyder should be permitted to offset his breach of contract judgment (the "Contract Judgment") against the bankruptcy estate, in the amount of $746,320.23 (Claim No. 19), by the $165,000.00 amount of the Debtor's breach of fiduciary duty judgment (the "Fiduciary Judgment" and together with the Contract Judgment, the "Judgments"). The Trustee's Motion (Docket No. 88) asserts that setoff should not be permitted because (i) the state court that entered the Judgments denied Mr. Snyder's request for setoff and therefore, issue preclusion1 prevents relitigating the issue; (ii) state law does not permit setoff in this case because the Fiduciary Judgment is against Mr. Snyder as a fiduciary, and therefore mutuality is lacking; and (iii) Mr. Snyder's purported lien on the Fiduciary Judgment is inferior to the Trustee's interest in such judgment by virtue of 11 U.S.C. § 544 because Mr. Snyder failed to properly attach and perfect such lien. Mr. Snyder's Motion and brief (Docket Nos. 86, 87) assert that setoff should be permitted because (i) issue preclusion is inapplicable here because the state court did not decide the issue of setoff; (ii) mutuality exists for purposes of setoff; (iii) Mr. Snyder's claim is secured as a commercial tort claim by virtue of his proof of claim; and (iv) that equitable considerations warrant allowing setoff here. Based on the record before the Court and the reasons that follow, the Court will grant summary judgment in favor of the Trustee and will enter a separate order denying Mr. Snyder's Motion for Relief from the Automatic Stay to Allow Offset of Claims (Docket No. 78). This Memorandum Opinion sets forth the Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.2
The Court has subject-matter jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 157 and 1334 and the General Order of Reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(E), (G), (K) and (O). Venue is appropriate pursuant to 28 U.S.C. § 1409.
The Debtor was a Virginia corporation engaged in the business of acquiring motor trailers and refurbishing them into food trucks. The Debtor's principals included Eduardo Bocock, as President and CFO, and Jason Tipton, as Vice President of Operations.
Sometime prior to May of 2016, Mr. Snyder was approached by Bocock and Tipton about advising the Debtor with respect to growth and its technology capabilities. In connection with Mr. Snyder's advisory role he was made minority shareholder and a member of the board of directors of the Debtor.
In May of 2016, Mr. Snyder loaned the Debtor $300,000 and in June of 2016, Mr. Snyder loaned the Debtor an additional $200,000 (together, the "Loans"). On May 19, 2016 the Debtor, as grantor, and Mr. Snyder as secured party, executed a security agreement granting Mr. Snyder a blanket lien on substantially all assets of the Debtor (such security agreement, as amended by that certain amendment to security agreement dated June 24, 2016, the "Security Agreement"). Claim No. 19-2, pgs. 7-18. A UCC-1 Financing statement was filed with the Virginia State Corporation Commission as well. Claim No. 19-2, pgs. 28-29. The Security Agreement does not specifically identify, nor could it possibly identify, the Fiduciary Judgment, which was entered in 2018. In connection with obtaining the Loans, the Debtor furnished Mr. Snyder with a balance sheet (the "2016 Balance Sheet"). The 2016 Balance sheet indicated that the Debtor had no debt. In 2017, a dispute arose between the Debtor and Mr. Snyder when a 2017 balance sheet showed $450,000 in debt. As a result, Mr. Snyder declared a default on the Loans and resigned from the Debtor's board.
Ultimately, the Loan dispute became the subject of state court litigation in Fairfax County Circuit Court. Mr. Snyder filed suit against the Debtor for breach of contract, while the Debtor filed a countersuit against Mr. Snyder for breach of fiduciary duty. During the discovery process, Mr. Snyder learned that the Debtor's undisclosed debt was approximately $2 million. On October 1, 2018, a jury trial was held on both claims and the final Judgment Order (as defined below) was entered on January 30, 2019. Docket No. 88, Exhibit G, pg. 83. On the breach of fiduciary duty claim, the jury found for the Debtor and entered the Fiduciary Judgment against Mr. Snyder. On the breach of contract claim, the jury found for Mr. Snyder and entered the Contract Judgment against the Debtor. See Claim No. 19-2, pgs. 31-34 (the "Judgment Order"). The Judgment Order includes Mr. Snyder's objection that the Judgments were not setoff against one another.
Mr. Snyder appealed the Fiduciary Judgment and posted a supersedeas bond in the amount of $165,000 (the "Supersedeas Bond"). In a post-judgment motion to enforce the Contract Judgment, Mr. Snyder asserted that "Snyder moved to have these judgments offset but the [Fairfax County Circuit Court] denied the motion and issued a Final Order on January 30, 2019." See Docket No. 88, Exhibit G, pg. 83. The Fairfax County Circuit Court granted the post-judgment motion. Although the Virginia Supreme Court declined to hear the appeal, the Supersedeas Bond is being held in the Fairfax County Circuit Court pending the outcome of the instant matter.
In May of 2019, certain creditors of the Debtor filed an involuntary chapter 7 petition against the Debtor. The petition was unopposed, and the Court entered an Order for relief on June 7, 2019. Docket Nos. 1, 13. On June 14, 2019, Janet M. Meiburger, was appointed as the chapter 7 trustee. Docket No. 17. The Debtor's schedules and statement of financial affairs disclosed certain assets and liabilities, among them, an undisputed secured claim in favor of Mr. Snyder in the amount of $667,100. See Schedule D.2.2. In November of 2019, Mr. Snyder filed an amended secured proof of claim in the amount of $746,320.23. Claim No. 19-2.
In March of 2020, the Trustee made demand on Mr. Snyder to pay the Fiduciary Judgment. In response, Mr. Snyder filed a Motion for Relief from the Automatic Stay to allow Mr. Snyder to offset the Fiduciary Judgment against the Contract Judgment (Docket No. 78) (the "Motion for Relief"). The Court held a hearing on the Motion for Relief and the Trustee's response thereto on May 6, 2020. At the hearing the parties agreed that they would submit the issue of setoff to the Court via summary judgment motions.
Summary judgment "is favored as a mechanism to secure the ‘just, speedy and inexpensive determination’ of a case." Thompson Everett, Inc. v. Nat'l Cable Adver., L.P. , 57 F.3d 1317, 1322-23 (4th Cir. 1995) (quoting Fed. R. Civ. P. 1 ). Under Civil Rule 56(a), as made applicable hereto by Bankruptcy Rule 7056, the court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; Fed. R. Bankr. P. 7056. The party moving for summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 321-22, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining whether this burden has been met, the court will consider all evidence in the light most favorable to the nonmoving party. Charbonnages de France v. Smith , 597 F.2d 406, 414 (4th Cir. 1979) (citing United States v. Diebold, Inc. , 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962) (per curiam)). "[O]nce the moving party has identified the absence of a genuine issue of material fact, the nonmoving party bears the burden of identifying specific facts that demonstrate the existence of a genuine issue for trial." Hopkins v. Horizon Mgmt. Servs., Inc. , 302 F. App'x 137, 139 (4th Cir. 2008) (citations omitted). Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The disputed facts must be material to an issue necessary for the proper resolution of the case, and the quality and quantity of the evidence offered to create a question of fact must be adequate to support a jury verdict. Thus, if the evidence is ‘merely colorable’ or ‘not significantly probative,’ it may not be adequate to oppose entry of summary judgment.
Thompson Everett, Inc. , 57 F.3d at 1323 (quoting Anderson , 477 U.S. at 249-50, 106 S.Ct. 2505 ). "Neither conclusory allegations, speculative scaffolding of one inference upon another, nor the production of a ‘mere scintilla of evidence’ in support of a nonmovant's case suffices to forestall summary judgment." Moody v. Arc of Howard Cty., Inc. , 474 F. App'x 947, 949 (4th Cir. 2012).
The Trustee's Motion (Docket No. 88)...
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