In re Everfresh Beverages, Inc.

• Decision Date: 25 August 1999
• Docket Number: Adversary No. 97-9148A.,95-B-45406(JHG),Bankruptcy No. 95-B-45405(JHG)
• Citation: 238 BR 558
• Parties: In re EVERFRESH BEVERAGES, INC. and Sundance Beverages, Inc., Debtors. Bryan D. Barr and Gary Walters, Trustees for Liquidating Trust for EBUS Liquidation Corp. and SBUS Liquidation Corp. (formerly known as Everfresh Beverages, Inc. and Sundance Beverages, Inc.), Plaintiffs, v. Charterhouse Group International, Inc., Tellin, Inc., Tellin Holdings LLC, Charterhouse Equity Partners, CHUSA Equity Investors, L.P., and Charterhouse Equity Inc., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

238 B.R. 558 (1999)

In re EVERFRESH BEVERAGES, INC. and Sundance Beverages, Inc., Debtors.

Bryan D. Barr and Gary Walters, Trustees for Liquidating Trust for EBUS Liquidation Corp. and SBUS Liquidation Corp. (formerly known as Everfresh Beverages, Inc. and Sundance Beverages, Inc.), Plaintiffs, v. Charterhouse Group International, Inc., Tellin, Inc., Tellin Holdings LLC, Charterhouse Equity Partners, CHUSA Equity Investors, L.P., and Charterhouse Equity Inc., Defendants.

Bankruptcy Nos. 95-B-45405(JHG), 95-B-45406(JHG), Adversary No. 97-9148A.

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

August 25, 1999.

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Obermayer, Rebmann, Maxwell & Hippel, LLP, Haddonfield, NJ, By Gregory D. Saputelli, Lawrence J. Tabas, and Kimberly D. Sutton, for Plaintiffs.

Proskauer Rose LLP, New York City, By Claire P. Gutekunst, and Bruce E. Fader, for Defendants.

DECISION ON MOTION TO AMEND COMPLAINT

JEFFRY H. GALLET, Bankruptcy Judge.

BACKGROUND

Bryan D. Barr and Gary Walters, Trustees of the Liquidating Trust for EBUS Liquidation Corp. and SBUS Liquidation Corp. (collectively, the "Plaintiffs") move pursuant to Rules 7015 and 7019 of the Federal Rules of Bankruptcy Procedure¹ to amend their complaint and join additional parties as defendants.² Charterhouse Group International, Inc. ("Charterhouse Group"), Tellin, Inc. ("Tellin"), Tellin Holdings LLC ("Tellin Holdings"), Charterhouse Equity Partners ("CEP"), CHUSA Equity Investors, L.P. ("CHUSA"), and Charterhouse Equity Inc. ("CEI") (collectively, the "Defendants") support the motion to the extent that the Plaintiffs, in the proposed amended complaint³ (the "Proposed Amended Complaint"), withdraw certain claims asserted in the initial complaint ("Initial Complaint") but oppose the remainder of the motion on several grounds. Defendants primarily argue that amending the complaint would be futile because the Proposed Amended Complaint could not withstand a motion to dismiss. Thus, the Defendants' papers, although styled as "opposition," read, in part, as a cross-motion to dismiss the Plaintiffs' complaint and, in part, as opposition to the Plaintiffs' motion for leave to amend.

The Plaintiffs' motion for leave to amend their complaint is GRANTED.

PROCEDURAL HISTORY

Everfresh Beverages, Inc. ("Everfresh") and Sundance Beverages, Inc. ("Sundance"), a whole owned subsidiary of Everfresh, (collectively, the "Debtors") filed petitions under chapter 11 of the United States Bankruptcy Code, (the "Code") on November 17, 1995. The Debtors remained in possession of their assets and business affairs as debtors-in-possession pursuant to § 1108 of the Code. On January 5, 1996, the Debtors completed the sale of substantially all of their Canadian assets to Sweet Ripe Drinks, Ltd. and ceased their Canadian business operations. On March 15, 1996, the Debtors completed a sale of substantially all of their assets in the United States to EB Acquisition Corp. and ceased their American business operations. After the sales, Everfresh and Sundance changed their names to EBUS Liquidation Corp. and SBUS Liquidation Corp., respectively.

On August 17, 1997, I entered an Order confirming the Debtors' consolidated plan of liquidation. The plan provided, inter alia, for the appointment of the Plaintiffs as trustees of the Liquidating Trust for EBUS Liquidation Corp. and SBUS Liquidation Corp.

Exactly two years to the day after the petitions were filed, on November 17, 1997, the Plaintiffs brought this proceeding. The Initial Complaint consists of ten causes of action against the Defendants pursuant to §§ 544(b) and 550 of the Code and, by incorporation, the New York fraudulent conveyance law, §§ 270 to 278 of the New York Debtor and Creditor Law.

Following the commencement of this adversary proceeding, the parties engaged in extensive document discovery. More than 20,000 documents were exchanged. No depositions, however, have been taken. The Plaintiffs contend that, upon reviewing these documents they deemed it necessary to amend their pleadings. They also claim that, in an effort to mitigate the prejudice that naturally arises when a party significantly modifies its pleadings during the course of a case, they strove to amend their pleadings before depositions were conducted.

I am faced with essentially two motions. One by the Plaintiffs for leave to amend, which is opposed by the Defendants, and one by the Defendants to dismiss for failure to state a cause of action, which is opposed by the Plaintiffs. In addition, each of the prayers for relief have a different standard that the movant must meet. As a result, I divide my discussion into separate parts and address each motion in turn.

FACTS

In examining the sufficiency of a pleading, I must accept as true all facts alleged. See Suna v. Bailey Corp., 107 F.3d 64, 66 (1st Cir.1997); Shields v. City-trust Bancorp, Inc., 25 F.3d 1124, 1125 (2d Cir.1994).

Prior to the filing date, Everfresh manufactured and distributed juices, juice drinks, lemonade and related products throughout the United States and Canada under the brand name Everfresh and, in the United States only, under the brand name Wagner. Sundance manufactured sparkling juice products consisting of 70 percent juice and 30 percent sparkling water. The Debtors distributed their products via a network of more than 250 distributors who purchased the product from the Debtors and then distributed it to retail stores.

In the Initial Complaint the Plaintiffs make a series of background allegations regarding the Defendants and their relationships to the Debtors. They are "based upon information and belief" and can be summarized as follows:

(1) that the Defendants are related entities, have interlocking ownership and are insiders of the Debtors (Tellin owns approximately 75% of Everfresh; Tellin Holdings owns 100% of Tellin; CEP owns 100% of Tellin Holdings and 4.5% of Everfresh; CHUSA is a general partner of CEP; and CEI is a general partner of CHUSA);⁴

(2) that "prior to the Filing Date, the Debtors encouraged and induced vendors and creditors, inter alia, to continue to supply product and to provide services without advising vendors and creditors that the Debtors . . . either were insolvent, had unreasonably small capital for their business, or believed that they would incur or intended to incur debts beyond their ability to pay as they matured;"⁵

(3) that "while the creditors remain unpaid . . . the Defendants . . . siphoned off the Debtors\' assets to themselves and/or for the benefit of themselves. According to the Debtors\' audited financial statements for the years ending 1992, 1993 and 1994, more than 6.0 million dollars ($6,000,000) was transferred to the Defendants and/or related parties during the period of 1992 through 1994;"⁶ and

(4) that the transfers of assets occurred at times shortly before and after substantial debt was incurred by the Debtors.

In addition to the preliminary allegations, the Initial Complaint contains ten counts against the Defendants regarding five alleged fraudulent transfers to one or more of the Defendants. These transfers, as alleged in the Initial Complaint, can be briefly summarized:

Counts I and III: The Plaintiffs allege in these two counts that the Debtors transferred approximately $1.477 million to defendant Charterhouse Group as an "Acquisition Fee Payment." The Plaintiffs further allege in Count I that this transfer was a fraudulent transfer-constructive fraud as that term is defined in the New York Debtor and Creditor Law §§ 273 to 275. In Count III, the Plaintiffs allege that the Acquisition Fee Payment was a fraudulent transfer-actual fraud as that term is defined in § 276 of the New York Debtor and Creditor Law.

Counts II and III: The allegations in these two counts are similar, except that there is more than one transfer to Charterhouse Group at issue and they are described as "Management Fee Payments." The Management Fee Payments alleged are $1 million in 1992, $1 million in 1993, and $46,000 in 1994. In Count II the Plaintiffs allege that these payments were fraudulent transfers-constructive fraud and in Count III they allege that they were fraudulent transfers-actual fraud.

Counts IV and V: Counts IV and V are similar to Counts II and III except that different Management Fee Payments are alleged. Here, the alleged beneficiary of the payments is Tellin. The total amount allegedly transferred is $804,000. The Plaintiffs allege in Count IV that these payments were fraudulent transfers-constructive fraud and in Count V they allege that they were fraudulent transfers-actual fraud.

Counts VI and VII: Counts VI and VII allege that approximately $2 million was transferred to one or more unnamed Defendants or persons related to these entities as "advances." In Count VI the Plaintiffs allege that the Advances were fraudulent transfers-constructive fraud and in Count VII they allege that they were fraudulent transfers-actual fraud.

Counts VIII and IX: Counts VIII and IX mirror Counts VI and VII, except that the payment is entitled "RD Expense Payment" and the amount is $480,000.

Count X: In Count X the Plaintiffs allege that the Defendants are alter egos of the Debtors and, as such, are liable for all of the debts of the Debtors.

Seven months after the Initial Compliant was filed, and following extensive documentary discovery by both parties, the Plaintiffs moved to amend their complaint. In the Proposed Amended Complaint the Plaintiffs allege slightly different background facts from those in the Initial Complaint, none of which are significant to this motion. The Proposed Amended Complaint also increases the amount sought from approximately $6.7 million to approximately $57 million. In addition, the Proposed Amended Complaint provides more detail than the Initial Complaint and no longer pleads on ...