In re Fulghum Const. Corp.
| Decision Date | 07 April 1987 |
| Docket Number | No. 3-85-0713.,3-85-0713. |
| Citation | 78 BR 146 |
| Parties | In re FULGHUM CONSTRUCTION CORPORATION. Robert H. WALDSCHMIDT, Trustee, v. Harry RANIER, et al. |
| Court | U.S. District Court — Middle District of Tennessee |
Robert Waldschmidt, Hale, Fisher, Branham and North, Nashville, Tenn., for plaintiff.
L. Wearen Hughes, Bass, Berry & Sims, Nashville, Tenn., Tom H. Pierce, Robert L. Swisher, Rouse, Rouse, Combs & Pierce, Versaille, Ky., for defendants.
An involuntary petition was filed in the United States Bankruptcy Court for the Middle District of Tennessee against Fulghum Construction Corporation (Fulghum, debtor or Corporation) on January 25, 1980. An order for relief was entered on March 17, 1980. On February 6, 1980, the Trustee for Fulghum, Robert H. Waldschmidt, filed this proceeding against Harry Ranier, Algin Nolan, and Ranier & Associates. Ranier & Associates was the sole shareholder of Fulghum. The Trustee sought to set aside a sale of equipment from the debtor Fulghum to the defendant Ranier & Associates and also sought to avoid certain monetary transactions which occurred between the two parties in 1979, contending that such transactions constituted preferential transfers. This matter was tried before the bankruptcy court on May 22 and 23, 1980. On July 14, 1980, Judge Hippe entered a partial judgment and memorandum holding that the Trustee had no interest in the equipment. Judge Hippe applied the "net result rule" in connection with the analysis of 11 U.S.C. § 547(b)(5) and held on November 28, 1980, that the transactions were not preferences and that the creditor had not proven any damages. The determination that the transactions were not preferences eliminated the need to examine the 11 U.S.C. § 547(c)(1) and (c)(2) exceptions, although Judge Hippe stated that the exceptions "appeared" unavoidable. Waldschmidt v. Ranier (In re Fulghum Construction Company), 7 B.R. 629 (Bankr.M.D.Tenn.1980). An appeal was taken to the United States District Court for the Middle District of Tennessee. On September 18, 1981, Judge Wiseman affirmed the decision of Judge Hippe. Judge Wiseman did not address the issue of the applicability of § 547(c)(1) and (c)(2). In re Fulghum Construction Corporation, 14 B.R. 293 (Bankr.M.D.Tenn.1981).
The case was then appealed to the United States Court of Appeals for the Sixth Circuit. The Sixth Circuit reversed and remanded the case on the issue of whether the transactions constituted preferential transfers. It also made a determination on the issue of the application of the net result rule, holding that the judicial interposition of the net result rule into § 547(c)(5) vitiates the congressional intent clearly reflected both on the face of § 547 and in the legislative history of the enactment. It affirmed the lower courts in all other respects on May 9, 1983. Waldschmidt v. Ranier (In re Fulghum Construction Corporation), 706 F.2d 171 (6th Cir.1983). By order of the district court, the case was remanded to the bankruptcy court consistent with the Sixth Circuit decision. The bankruptcy court determined that the majority of the transactions between the debtor Fulghum and the defendant Ranier & Associates cannot be excepted from avoidance. The court determined that the defendant received preferential payments totaling $197,432.00. On December 7, 1984, the bankruptcy court ordered the defendant Ranier & Associates to turn over to the Trustee the $197,432.00 plus interest. Also, on December 7, 1984, the bankruptcy judge ruled that neither 11 U.S.C. § 547(c)(1) nor (c)(2) applied. On January 7, 1985, Judge Paine entered an order denying the motion to alter or amend to the extent the motion sought either the deletion of prejudgment interest or a later date for the commencement of the interest. On June 10, 1985, the bankruptcy judge entered an order to supplement the record on appeal adding the March 26, 1980, press release but denying Ranier & Associates' motion relative to the remaining press releases for 1980.1
On January 17, 1985, the defendants filed a notice of appeal for the judgment and memorandum entered December 7, 1984, 45 B.R. 112, and the order entered January 7, 1985, and they were transmitted to this Court. On June 20, 1985, the defendant Ranier & Associates appealed the order entered on June 10, 1985. The Trustee filed a motion in bankruptcy court seeking to modify the December 7, 1984, judgment to include Harry Ranier and Algin Nolen, individually. After a hearing on October 1, 1985, the bankruptcy judge entered an order granting the Trustee's motion. On October 9, 1985, this Court entered an order that the appeal presently pending before this Court shall be deemed to be an appeal filed by Harry Ranier, Algin Nolan and Ranier & Associates from the December 7, 1984, judgment and the January 7, 1985, order, as subsequently modified to include Harry Ranier and Algin Nolan, individually.
On appeal, there are three issues before this Court. The first issue is whether the bankruptcy court was correct in determining that the payment to Ranier & Associates on November 30, 1979, was not a substantially-contemporaneous exchange within the meaning of 11 U.S.C. § 547(c)(1) and was not in the regular course of business within the meaning of 11 U.S.C. § 547(c)(2). The second issue is whether the bankruptcy court should have permitted the record to be supplemented to include other press releases which were not related to the amount of interest being applied in this case. The third issue is whether the bankruptcy court was proper in awarding prejudgment interest.
Jurisdiction is based on 28 U.S.C. § 158. For the reasons set forth below, the judgment of the bankruptcy court is affirmed.
Fulghum Construction Corporation was incorporated in Texas in 1966. It was involved in the construction of oil and natural gas pipe lines. Fulghum's principal place of business was Lavergne, Tennessee. The Corporation was owned by James T. Fulghum and J.B. Miller. Mr. Miller also managed the operation of the business.
Fulghum had a long history in the construction business, during which time it accumulated a large amount of equipment. The losses it experienced through 1977, however, caused a need for additional operating capital. Consequently, in October 1977 all of the common stock of Fulghum was purchased by Mr. Ranier and Mr. Neale R. Hall. In July of 1978, Mr. Hall transferred his stock to Mr. Nolan and a partnership was formed between Mr. Ranier and Mr. Nolan under the name of Ranier & Associates. Ranier & Associates is a Kentucky general partnership formed in February 1978 and located in Mount Sterling, Kentucky. The partnership consists of Harry Ranier, who owns a 60 percent interest and Algin Nolan who owns a 40 percent interest. The partnership has owned real estate and stock in various companies, operated an equipment leasing business and served as a paid management, accounting and financial advisor primarily to companies in which it or the Ranier family had an interest. Ranier & Associates has continued as Fulghum's sole shareholder since July, 1978.
Mr. Fulghum and Mr. Miller continued to manage the Corporation after Ranier & Associates' acquisition. They retained the Corporation's principal place of business in Tennessee but opened an executive office in Mt. Sterling, Kentucky. Fulghum sublet space from, and paid rent to, Ranier & Associates at the Mt. Sterling office. Despite Fulghum's acquisition, the capital shortage continued and was in fact accentuated because Mr. Fulghum and Mr. Miller personally misappropriated funds of approximately $194,000.00. After July 1978, Mr. Miller and Mr. Fulghum were relieved of operational responsibilities when their misappropriation of funds was discovered. As a result of the misappropriation of funds, Mr. Nolan was given extraordinary powers to manage the Corporation. From this time on, Fulghum acted under the guidance of Ranier & Associates. Fulghum took no independent actions until it filed bankruptcy. Both Mr. Nolan and Mr. Ranier provided accounting and management services and arranged for the availability of operating funds for the Corporation on a short- and long-term basis.
In the months preceding September 1978, Fulghum had been at a standstill. In order to assist Fulghum, Ranier injected $188,000.00 of capital into the Corporation which resulted in an increase in Fulghum's net worth. On September 20, 1978, Fulghum and Rainer & Associates entered into a sale and leaseback agreement. Fulghum acknowledged receipt of $1,137,350.00 from Ranier & Associates, and Ranier & Associates agreed to lease the Corporation's equipment back for the Corporation's use. After the sale and leaseback transaction, Fulghum no longer represented to creditors that it owned the equipment, and its books and records, including audit reports, also reflected that it no longer owned the equipment. Fulghum did, however, retain possession of all the documentation concerning the equipment, as well as the equipment itself. The lease insured the availability of the equipment to Fulghum, but Fulghum only paid rent during the period the equipment was actually in use.
Michael Leatherman was hired as an expert to solicit work and get Fulghum, in its improved financial condition, back on bid lists across the country. The Corporation obtained several construction contracts shortly after September 1978 and the funding of these projects was supplied directly by Ranier & Associates in the form of short-term transfers to the Corporation. Fulghum was required by Ranier & Associates to loan Ranier & Associates approximately $187,000.00 of the sale and leaseback proceeds as security against another possible incident of misappropriation of corporate funds. Therefore, Ranier & Associates executed a promissory note to Fulghum for that amount, which was repaid by Ranier & Associates to Fulghum during the spring of 1979 when funds were needed...
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