In re Flanagan
| Decision Date | 15 August 2006 |
| Docket Number | Adversary No. 04-3146.,Bankruptcy No. 99-30565 (ASD). |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — District of Connecticut |
| Parties | In re Charles Atwood FLANAGAN, Debtor. Titan Real Estate Ventures, LLC, Plaintiff, v. M.J.C.C. Realty L.P., et al., Defendants. |
Douglas S. Skalka, James A. Lenes, Neubert, Pepe, and Monteith, Leonard A. Fasano, Fasano, Ippolito & Lee, New Haven, CT, James F. Cirillo, Jr., Branford, CT, for Debtor.
James C. Graham, Pepe and Hazard, Hartford, CT, James M. Nugent, James R. Winkel, Stephen P. Wright, Harlow, Adams, and Friedman, Milford, CT, for Plaintiff.
Edward C. Taiman, Jr., Sabia & Hartley, LLC, Hartford, CT, James G. Verrillo, Lawrence S. Grossman, Louis J. Testa, Zeisler and Zeisler, P.C., Bridgeport, CT, for Defendants.
Charles Nygard, pro se.
Before the Court at this time are two Applications for Prejudgment Remedies (hereafter, "Applications") filed by the Plaintiff. The Applications require the Court to determine whether the Plaintiff has demonstrated "probable cause" that it will prevail on the merits at trial against Defendants Steven and Amy Sullivan and MJCC Realty, L.P. On the record as a whole, and for the reasons stated more fully below, this Court concludes that the Plaintiff has failed to meet its burden in the instant matters.
The following facts, which the Court deems material to its ruling in the instant matters, are derived from the record of a two-day evidentiary hearing, as well as this Court's review and noticing of the official files and records of the instant adversary proceeding and underlying bankruptcy case.
Prior to the commencement of the underlying bankruptcy case, the Cadle Company and/or D.A.N. Joint Venture (hereafter collectively referred to as "Cadle") purchased a delinquent debt instrument(s) on which Charles Atwood Flanagan (hereafter, "Flanagan") was an obligor. Cadle then obtained a judgment against Flanagan, and aggressively pursued collection of the same for several years. Flanagan, in turn, engaged in an evasive course of conduct designed to preserve his lifestyle by preventing Cadle from executing upon any of his property.
Flanagan's evasive conduct appears to have included the creation and funding of a limited partnership — M.J.C.C. Realty L.P. (hereafter, "MJCC") — which purchased and/or held legal title to at least two parcels of Connecticut real property in which Flanagan arguably held equitable interests, namely (i) 230 Millbrook Road in the Town of North Haven (hereafter, the "Millbrook Property"), and (ii) 25 Queach Road in the Town of Branford (hereafter, the "Queach Property").
The principal of MJCC was Angela Cimino Burr (hereafter, "Burr") — Flanagan's mother-in-law. According to Burr's testimony, her role with MJCC was merely one of a figurehead. While she was nominally the general partner of MJCC, and owned at least 95% of its equity, in reality Flanagan supplied all of the capital for its activities, and solely directed its management. Burr further testified that she undertook her nominal role with MJCC out of love and concern for her daughter and grandchildren.
On February 17, 1999, Flanagan commenced the underlying bankruptcy case through the filing of a voluntary petition under Chapter 11. Although the fact and circumstances of Flanagan's alleged equitable interest in MJCC, and its real estate holdings, were known to Flanagan, his attorney, and the Official Unsecured Creditors' Committee (hereafter, the "Committee"), during the pendency of the Chapter 11 case neither the Committee nor Flanagan as debtor-in-possession ever pursued an action to bring MJCC and/or its assets into the bankruptcy estate.
On January 16, 2003, Flanagan's Chapter 11 case was converted to a case under Chapter 7. Bonnie Mangan (hereafter, the "Trustee") was thereupon appointed trustee of Flanagan's bankruptcy estate. Almost immediately upon her appointment the Trustee became aware of Flanagan's putative interest in MJCC and its assets. The Trustee declined to initiate an adversary proceeding in pursuit of MJCC or its assets for the benefit of the bankruptcy estate. Instead, on August 4, 2004, she sold to Titan Real Estate Ventures, LLC — the Plaintiff here (hereafter, "Titan" or "Plaintiff") — for the sum of $15,000.00 cash and 2.5% of "any net recovery ... [Titan] receives as a direct result of its purchase of" the subject rights and interests.
Meanwhile Cadle had become increasingly frustrated by Flanagan's evasive conduct, and the failure of bankruptcy estate fiduciaries to pursue MJCC or its assets for the benefit of the bankruptcy estate. Among other things, Cadle commenced litigation in the United States District Court for the District of Connecticut, on or about April 4, 2001, in which it sued some 13 defendants on civil RICO claims, alleging that the defendants were co-conspirators in an effort to assist Flanagan in evading Cadle's judgment execution activity (hereafter, the "RICO Litigation").
One of the defendants in the RICO Litigation was Burr. In or about January 2003, Cadle settled its RICO claims against Burr in the following manner: in exchange for a full release of any and all claims Cadle had against her, Burr agreed to assign to Cadle her interest in MJCC. By virtue of that assignment Cadle achieved control over MJCC and its assets, and, through MJCC, began a process of marketing those assets to compensate for its losses vis-a-vis Flanagan.
On or about March 30, 2004, Cadle, through MJCC, sold the Millbrook Property to Defendants Steven and Amy Sullivan (hereafter, the "Sullivans") for approximately $475,000.00. With respect to the Queach Property, Cadle, through MJCC, has attempted to evict a tenant there in a preliminary step toward its intended marketing and sale of that property. The Queach Property tenant is one William Nygard (hereafter, "Nygard"), who is the former owner of that Property. Flanagan and/or MJCC (while under Flanagan's control) purchased the Queach Property from Nygard, but granted a 15-year lease to allow him to remain in possession of the property.
As assignee of the Trustee's rights, Titan now seeks to recover the Millbrook and Queach Properties, or their value, for its own benefit. As Plaintiff here, Titan is prosecuting claims against MJCC and the Sullivans, inter alia, via a Second Amended Complaint (hereafter, the "Complaint"). The pending Applications represent the Plaintiff's effort to secure, through prejudgment attachment, what it hopes will be a judgment rendered in its favor after a trial on the merits.
The parties to the Applications conducted a two-day evidentiary hearing before the Court, followed by extensive briefing. The Court having now fully reviewed the evidentiary record, as well as the oral and written arguments of the parties, provides the following observations in connection with its ruling.
Connecticut prejudgment remedies are generally available to litigants in federal court through Fed.R.Civ.P. 64's incorporation of state law rights and procedures.1 Under Connecticut General Statutes § 52-278d(a) prejudgment remedies are available only if, inter alia, "the plaintiff has shown probable cause that ... a judgment will be rendered in the matter in the plaintiff's favor...." Thus, the Plaintiff, as applicant, must shoulder the burden of demonstrating the requisite "probable cause". E.g., Bosco v. Arrowhead by the Lake, Inc., 53 Conn.App. 873, 875, 732 A.2d 205 (Conn.App.1999).
The Court's function in a prejudgment remedy dispute is not to provide a final ruling on the merits, but "to determine whether there is probable cause to believe that a judgment will be rendered in favor of the plaintiff in a trial on the merits." Bank of Boston Connecticut v. Schlesinger, 220 Conn. 152, 156, 595 A.2d 872 (1991) (emphasis supplied). In this respect, the Court enjoys broad discretion. E.g., Nash v. Weed & Duryea Co., 236 Conn. 746, 749, 674 A.2d 849 (1996).
The starting point for an analysis of probable cause is necessarily an assessment of the claims made by the Plaintiff against those parties from whom prejudgment relief is sought. The 12-count Complaint states five such claims — (i) "piercing the corporate veil", (ii) turnover, (iii) conversion (iv) unjust enrichment, and (v) constructive trust (hereafter, the "Titan Claims").
As noted in the Factual Background, above, the Titan Claims are derivative of the rights of the Trustee. That means that the Plaintiff will prevail here only if, and to the extent that, the Trustee would have prevailed on such claims at a point in time immediately prior to her assignment of rights and interests to the Plaintiff. Accordingly, the Court now turns to an analysis of the viability of the Titan Claims in the hands of the Trustee.
The claim denominated as "piercing the corporate veil" in Count Eleven of the Complaint is a bit of a misnomer. In fact, that claim does not involve a corporate entity; it more accurately concerns "piercing the veil" of an individual — Flanagan — to access the assets of MJCC — a limited partnership allegedly under his complete dominion and control. This type of action is sometimes referred to as "reverse piercing".
In the classic corporate veil piercing scenario the proponent seeks to disregard an entity's nominal (corporate) form and subject the estate of a shareholder, or other equitable owner, to claims against the (corporate) entity. By contrast, in the present case of reverse piercing, an attempt is being made to render the assets of an entity — the limited...
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In re Flanagan
...against Steve and Amy Sullivan (collectively, the "Sullivans") and MJCC Realty Limited Partnership ("MJCC"), In re Flanagan ("Flanagan I"), 348 B.R. 81 (Bankr.D.Conn.2006); and (2) granting MJCC's motion for summary judgment on the remaining counts of Titan's Second Amended Complaint dated ......
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