In re Gruppo Antico, Inc.

• Decision Date: 07 February 2007
• Docket Number: Bankruptcy No. 02-1328 (PJW).,Adversary No. 03-58480 (KW).
• Citation: 359 B.R. 578
• Parties: In re GRUPPO ANTICO, INC., f/k/a Trend Holdings, Inc., et al., Debtors. Broadway Advisors, LLC, in its Representative capacity as the liquidating trustee of the Gruppo Antico Liquidating Trust, Plaintiff, v. Hipro Electronics, Inc. and Hipro Electronics, Ltd., Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

359 B.R. 578

In re GRUPPO ANTICO, INC., f/k/a Trend Holdings, Inc., et al., Debtors.

Broadway Advisors, LLC, in its Representative capacity as the liquidating trustee of the Gruppo Antico Liquidating Trust, Plaintiff, v. Hipro Electronics, Inc. and Hipro Electronics, Ltd., Defendants.

Bankruptcy No. 02-1328 (PJW).

Adversary No. 03-58480 (KW).

United States Bankruptcy Court, D. Delaware.

February 7, 2007.

COPYRIGHT MATERIAL OMITTED

Jeffrey Philip Wasserman, LLC, Wilmington, DE, for Defendant Kazi Food Inc.

Laura Davis Jones, Pachulski, Stang, Ziehl Young, Jones & W, Michael Seidl, Pachulski, Stang, Ziehl, Young & Jones, Wilmington, DE, for Plaintiff AFD Fund.

MEMORANDUM¹

KEVIN J. CAREY, Bankruptcy Judge.

On November 7, 2002 (the "Petition Date"), Gruppo Antico, Inc., f/k/a Trend Holdings, Inc., et al. (the "Debtor") filed a voluntary chapter 11 bankruptcy petition. On November 11, 2003, the Debtor commenced this adversary proceeding by filing a Complaint (the "Original Complaint") (docket no. 1) against Hipro Electronics, Inc. ("Hipro-USA"), alleging that transfers made by the Debtor to Hipro-USA within ninety days prior to the bankruptcy petition date (the "Preference Period") should be avoided as preferences pursuant to 11 U.S.C. § 547(b) and § 550.

Before the Court is Hipro-USA's Motion for Judgment on the Pleadings (docket no. 95) (the "Motion") seeking relief pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, made applicable hereto by Rule 7012 of the Federal Rules of Bankruptcy Procedure. The Motion is opposed by the plaintiff, Broadway Advisors, LLC in its representative capacity as the Liquidating Trustee of the Gruppo Antico Liquidating Trust (the "Plaintiff'). By agreement of the parties, Hipro-USA's Motion will be treated as a motion for summary judgment pursuant to Rules 12(c) and 56 of the Federal Rules of Civil Procedure, made applicable, respectively, by Rules 7012(c) and 7056 of the Federal Rules of Bankruptcy Procedure, and, for the reasons set forth below, it will be granted.

I. FACTS

The following facts are largely undisputed. Prior to the Petition Date, the Debtor was a global supplier' of integrated enclosures for the computer, networking, and communications industries. (JPM at 3). Co-defendant Hipro Electronics, Ltd. ("Hipro-Taiwan") was an electronics component manufacturer which sold power sources to the Debtor, with its principal place of business in Taiwan. (JPM at 4). Hipro-USA provided sales support, technical support and acted as a service arm to Hipro-Taiwan to support sales of Hipro-Taiwan's products being incorporated into Dell computer products, including Hipro-Taiwan's sales to the Debtor for integration into Dell computer products. (JPM at 5). Hipro-USA was located in Austin, Texas, and Hipro-Taiwan, while located in Taiwan, had a business office and bank account in California.

During the Preference Period, the Debtor paid twenty-seven (27) invoices issued by Hipro-Taiwan totaling $3,595,652.44 (the "Transfers"), either by wire transfer or check. (JPM at 8). The wire transfers from the Debtor during the Preference Period were made to Hipro-Taiwan's California bank account. (JPM at 10). Shortly before the Petition Date, the Debtor began forwarding payment in the form of checks to Hipro-USA in Austin, Texas. The checks were made payable to "Hipro Electronics, Inc." Hipro-USA requested that the Debtor stop sending the checks to Hipro-USA, and, instead, to recommence sending the payments via wire transfer directly to Hipro-Taiwan's bank account in California. The Debtor did not respond to this request, and continued to mail the checks to Hipro-USA's office in Austin, Texas, prior to and during the Preference Period. Each time Hipro-USA received a check on account of Hipro-Taiwan's invoices, it would forward the check to Hipro-Taiwan's California office, and then Hipro-Taiwan would deposit the check into its bank account. (JPM at 11).

The parties stipulated that during the Preference Period, Hipro-Taiwan provided new value to the Debtor totaling $1,430,100.00 for which Hipro-Taiwan was not paid. After application of new value to the amount of the Transfers made by the Debtor during the Preference Period, the Plaintiff seeks a net recovery of $2,165,552.44. (JPM at 13).

Hipro-USA's Answers to the Original Complaint.

The Original Complaint was served upon Brett Brewer, former President and registered agent of Hipro-USA. Hipro-USA filed and served its Answer to the Complaint on December 11, 2003 (docket no. 3), in which it admitted receiving the Transfers in question, and admitted being a vendor to the Debtor, but denied that the Transfers received were avoidable "transfers" within the meaning of 11 U.S.C. § 547(b). Hipro-USA also denied that each of the Transfers were on account of an antecedent debt owed by the Debtor to Hipro-USA, and further denied that the Transfers enabled it to receive more than it would have received if the Debtor's case were a case under Chapter 7, if the Transfers had not been made, and if Hipro-USA received payment on the debt to the extent provided by Title 11 of the United States Code.

Hipro-USA's First Amended Answer and Answers to Interrogatories.

On October 27, 2004, the Plaintiff and Hipro-USA entered into a stipulation permitting the Plaintiff to file a First Amended Complaint (docket no. 18), which the Plaintiff filed and served the same day (docket no. 19). In response, on November 8, 2004, Hipro-USA filed its First Amended Answer (docket no. 24), in which it denied being a vendor to the Debtors, and additionally claimed that it was not a transferee of the challenged Transfers. That same day, the Plaintiff received Hipro-USA's Responses to its Discovery Requests. In the Answers to Interrogatories, Hipro-USA asserted that "it was not a vendor of the Debtor, rather Defendant assisted in servicing the Plaintiff's account with Hipro Electronics Co. Ltd. A Taiwanes [sic] corporation . . . [and that] Defendant was a mere conduit for payments between Plaintiff and its vendor . . . (Answers to Interrogatories, No. 1).

The Deposition of Brett Brewer.

On November 19, 2004, the Plaintiff took the deposition of Brett Brewer (the "Brewer Deposition"), during which he was examined, in part, about the factual basis for Hipro-USA's Answer to the First Amended Complaint. The deposition transcript reflects, inter alia, Mr. Brewer's testimony that: (i) Hipro-USA received the checks for the Transfers in question; (ii) Hipro-USA requested that the Debtor direct payment to Hipro-Taiwan directly; and (iii) either Mr. Brewer and/or his employees at the time forwarded such checks to Hipro-Taiwan's office in California. (See Brewer Deposition, pp. 153-156).

The Second Amended Complaint.

On January 6, 2005, the Plaintiff filed its Motion for Leave to File a Second Amended Complaint (docket no. 25), proposing to add Hipro-Taiwan as a co-defendant. On January 21, 2005 Hipro-USA filed its Objection to that Motion (docket no. 26), and on January 27, 2005, the Plaintiff filed its Reply to Hipro-USA's Objection (docket nu. 27). On February 16, 2005, the Court entered its Order Granting the Plaintiff's Motion for Leave to File a Second Amended Complaint (docket no. 33).

The Letters Rogatory.

On March 8, 2005, the Plaintiff attempt ed to serve its Second Amended Complaint for Avoidance and Recovery of Preferential Transfers (docket no. 37) upon Hipro-Taiwan, but was unsuccessful. Subsequently, the Plaintiff requested (docket no. 42) and the Court issued (docket no. 49) its Order Granting Plaintiffs Motion for Issuance of Letter of Request for International Judicial Assistance for Service of Summons in a Foreign Country to perfect service upon Hipro-Taiwan.² On July 7, 2005, service was ultimately perfected upon Hipro-Taiwan. (JPM at 36).

Hipro-USA's Motion for Judgment on the Pleadings.

Trial is set to take place on February 8, 2007, and on December 15, 2006 the parties filed a Joint Pretrial Memorandum (docket no. 93). Hipro-USA now moves for judgment on the pleadings because, although Hipro-USA received the Transfers in question from the Debtor, Hipro-USA immediately forwarded the checks to Hipro-Taiwan's office in California. Thus, Hipro-USA argues that the Transfers cannot be avoided pursuant to § 547(b) and § 550(a)(1), because it did not receive a "transfer of an interest of the debtor in property," and that it was a "mere conduit" rather than an "initial transferee." On January 7, 2007, the Plaintiff filed its Response to Hipro-USA's Motion (docket no. 96), arguing, first, that Hipro-USA's actions and representations estop it from denying liability; and second, that such bad-faith acts bar Hipro-USA from asserting the "mere conduit" defense. On January 12, 2007 Hipro-USA filed a Reply Brief in Support of its Motion for Judgment on the Pleadings (docket no. 106). Oral argument on Hipro-USA's Motion was held on January 17, 2007.

I. STANDARD — SUMMARY JUDMENT

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In a motion for summary judgment, the moving party "always bears the initial responsibility of informing the . . . court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of fact" Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

Once the moving party has made a proper motion for summary judgment, the burden shifts to the non-moving party, pursuant to Rule 56(e), which states, "[w]hen a motion for summary judgment is made and supported as provided in...