In re GREEKTOWN HOLDINGS, LLC, et al., Debtors

Citation516 B.R. 445
Decision Date12 August 2014
Docket NumberBankruptcy No. 08–53104.,Adversary No. 10–05712.
PartiesIn re GREEKTOWN HOLDINGS, LLC, et al., Debtors. Buchwald Capital Advisors, LLC, solely in its capacity as Litigation Trustee to the Greektown Litigation Trust, Plaintiff, v. Dimitrios (“Jim”) Papas, Viola Papas, Ted Gatzaros, Maria Gatzaros, Barden Development, Inc., Lac Vieux Desert Band of Lake Superior Indians, Sault Ste. Marie Tribe of Chippewa Indians, Kewadin Casinos Gaming Authority, and Barden Nevada Gaming, LLC, Defendants.
CourtUnited States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

OPINION TEXT STARTS HERE

Joel D. Applebaum, Shannon L. Deeby, Clark Hill PLC, Linda M. Watson, Birmingham, MI, Edward Todd Sable, Detroit, MI, Mark Parry, New York, NY, for Plaintiff.

Michael O. Fawaz, Lisa Sommers Gretchko, Nancy K. Stone, Royal Oak, MI, Patrick M. McCarthy, Ann Arbor, MI, David A. Lerner, Bloomfield Hills, MI, Douglas L. Lutz, Cincinnati, OH, for Defendants.

OPINION DENYING DEFENDANTS DIMITRIOS (“JIM”) PAPAS, VIOLA PAPAS, TED GATZAROS, AND MARIA GATZAROS' MOTION FOR SUMMARY JUDGMENT (DKT. 187)

WALTER SHAPERO, Bankruptcy Judge.

Introduction

Plaintiff, as Litigation Trustee, seeks to avoid transfers made by a debtor corporation to Defendants, arguing that the transfers were fraudulent transfers under applicable Michigan law. Defendants moved for summary judgment on the basis that Plaintiff's action is an “impermissible collateral attack” on the order of the Michigan administrative agency that investigated and approved the overall transaction, including the subject transfers to Defendants. The motion is denied.

Undisputed Facts

Prior to 2000, Dimitrios (“Jim”) and Viola Papas (together, the Papases) and Ted and Maria Gatzaros (together, the Gatzaroses), owned approximately 86% of the membership interests in Monroe Partners, LLC (“Monroe”). Monroe owned a 50% interest in Greektown Casino, LLC (“Greektown Casino”). Kewadin Greektown Casino, LLC (“Kewadin”) owned the other 50% interest. Greektown Casino owned and operated a casino in downtown Detroit, Michigan. On or about July 28, 2000, by agreement, Monroe redeemed the membership interests of the Papases and the Gatzaroses (together, Defendants) in exchange for specified installment payments. Incident thereto, Kewadin contemporaneously purchased equivalent membership interests in Monroe and agreed to make the installment payments on Monroe's behalf. Thus, in effect, Monroeand Kewadin became obligated, either directly or indirectly, to make the installment payments to Defendants. The casino opened in November 2000. By 2004, these payment obligations to Defendants were in default.

In 2005, the various parties negotiated a multi-faceted amended redemption agreement and financing arrangement (“the Transaction”) whereby, among other things, (a) the Papases would agree to a discounted cash buyout of about $95 million and (b) the Gatzaroses would agree to a partial payment of about $55 million, leaving about $50 million outstanding. As part of the Transaction, Monroe and Kewadin would convey all their membership interests in Greektown Casino to a new special-purpose entity called Greektown Holdings, LLC (“Holdings”). Holdings was formed in September 2005 and its assets would be limited to a subsidiary corporation and the 100% interest in Greektown Casino.

The Transaction required the approval of the Michigan Gaming Control Board (MGCB), a state regulatory agency created by the Michigan Gaming Control and Revenue Act, Mich. Comp. Laws § 432.201 et seq. (“the Gaming Act). The MGCB's authority is defined as “the powers and duties specified in this act and all other powers necessary and proper to fully and effectively execute and administer this act for the purpose of licensing, regulating, and enforcing the system of casino gambling established under this act.” Mich. Comp. Laws § 432.204(1). Mich. Comp. Laws § 432.203(3) states [a]ny other law that is inconsistent with this act does not apply to casino gaming as provided for by this act.” Additionally, Mich. Comp. Laws § 432.204(17)(d) empowers the MGCB to promulgate appropriate rules, which are codified as Mich. Admin. Code r. § 432.1101 et seq.Mich. Admin. Code r. § 432.1509 requires that a casino licensee “may not enter into any debt transaction affecting the capitalization or financial viability of its Michigan gambling operation or casino operation without first receiving the approval of the board.”

Greektown Casino first began discussions with the MGCB regarding the Transaction around June 2005. Because the Transaction qualified as a “debt transaction,” the MGCB conducted an investigation over several months, pursuant to its authority and procedures. SeeMich. Admin. Code r. § 432.1509. The MGCB contemplated and understood that the discounted redemption payments to Defendants would be part of the Transaction, and that such funds would be sourced from Holdings issuing unsecured senior notes to qualified institutional buyers (“Noteholders”).1 The Transaction also included other financing and restructuring aspects, which need not be discussed in detail here. At these hearings before the MGCB, Merrill Lynch, Pierce, Fenner & Smith Inc., the issuer and initial purchaser of the senior notes and predecessor in interest to the Noteholders, participated in the discussions regarding the Transaction and advocated for its approval. The MGCB unanimously approved the Transaction and issued a written order on November 15, 2005 (Order”). Dkt. 187 Ex. 5–A. On November 22, 2005, Holdings issued an Offering Memorandum for the senior notes, advising potential note purchasers that Holdings “will not be insolvent or rendered insolvent as a result of issuing the notes; we will be in possession of sufficient capital to run our business effectively; and we will have incurred debts within our ability to pay as the same mature or become due.” Dkt. 187 Ex. 5–K, at 25. On December 2, 2005, the monetary transfers were made to Defendants via wire payments, together with other monetary transfers contemplated as part of the Transaction. More or less contemporaneously, Holdings acquired 100% ownership of Greektown Casino.

The Basis of this Adversary Proceeding

After Greektown Casino, Holdings, Monroe, Kewadin, and other related entities filed their present Chapter 11 bankruptcies on May 29, 2008, the Litigation Trustee (Plaintiff), on behalf of the Noteholders and other creditors, sought to avoid the aspects of the Transaction whereby Holdings transferred money to Defendants and other persons.2 Plaintiff brought this action under 11 U.S.C. §§ 544 and 550 and two provisions of the Michigan Uniform Fraudulent Transfer Act (MUFTA): Mich. Comp. Laws §§ 566.34 and 566.35. Plaintiff's principal allegation against Defendants is that Holdings did not receive fair consideration for these transfers to Defendants, thereby rendering Holdings insolvent or inadequately capitalized. Defendants moved for summary judgment on the basis that Plaintiff's action is an “impermissible collateral attack” on the MGCB's Order, which (a) approved the Transaction and (b) stated that the Transaction “has a low probability of having an adverse impact on the ongoing financial viability of [Holdings] and Greektown [Casino].” Dkt. 187 Ex. 5–A, at 3.

The starting point of Plaintiff's case is 11 U.S.C. § 544(b)(1), which provides:

Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.

(emphasis added). In Plaintiff's complaint, “under applicable law” solely incorporates and alleges the pertinence of MUFTA. Thus, the Court's task is to determine the extent to which MUFTA is “applicable” to the present situation in light of the asserted arguments. If the Gaming Act renders MUFTA inapplicable here, as Defendants argue, then there exists no “applicable law” by which Plaintiff can avoid the transfers under § 544. At one point, Plaintiff contended that Defendants are improperly arguing that MUFTA limits the jurisdiction of federal courts, particularly regarding enforcement of § 544. However, the Court views Defendants' allegations as instead only attempting to define whether MUFTA is “applicable” in light of the asserted arguments. Similarly, Defendants argued that if Plaintiff's case is successful, it would allow federal action to improperly impinge upon the important state interests of regulating casinos, discussing BFP v. Resolution Trust Corp., 511 U.S. 531, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994). Again, because the Court is only asked to determine the applicability of a state statutory cause of action, as it might be incorporated into this adversary proceeding, that argument is irrelevant.

Plaintiff brings MUFTA allegations pursuant to Mich. Comp. Laws § 566.34, which states:

(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation in either of the following:

(a) With actual intent to hinder, delay, or defraud any creditor of the debtor.

(b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor did either of the following:

(i) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.

(ii) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.

Plaintiff also brings makes MUFTA allegations pursuant to Mich. Comp. Laws § 566.35, which states:

(1) A...

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