In re Houston Drywall, Inc., Case No. 05-95161-H4-7 (Bankr. S.D. Tex. 7/10/2008), Case No. 05-95161-H4-7.
| Decision Date | 10 July 2008 |
| Docket Number | Case No. 05-95161-H4-7.,Adversary No. 06-03415. |
| Parties | IN RE: HOUSTON DRYWALL, INC., CHAPTER 7, Debtor WILLIAM WEST, CHAPTER 7 TRUSTEE FOR CLASSIC CONTRACTORS OF HOUSTON, LTD. Plaintiff, v. MATT L. SEIFFERT, MICHELLE C. SEIFFERT, MELANIE K. DURANT, GENE MENDEL, LARRY T. MASON, MELINDA A. SEIFFERT, AND PARTNERS LAND DEVELOPMENT, L.P. Defendants |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
The plaintiff, William West (West or Trustee), is the Trustee for the Chapter 7 bankruptcy estate of Classic Contractors of Houston, Ltd. (Classic or the Debtor). On February 6, 2007, Lowell Cage (Cage) and Janet Casciato-Northrup (Northrup)—the Chapter 7 trustees for the bankruptcy estates of Gary Mendel (Mendel) and Robert G. Marek (Marek), respectively— filed an involuntary petition against Classic.1 This Court entered an order for relief in Classic's case on March 15, 2007.
The defendants are legion. Matt Seiffert (Seiffert) is a sophisticated businessman who has two prior criminal convictions for white-collar felonies. For the past several years, he has been engaged in land development through Classic and defendant Partners Land Development LP (PLD). Melanie Durant (Melanie), Seiffert's eldest daughter, assisted him in these business activities. Michelle Seiffert (Michelle) and Melinda Seiffert (Melinda), Seiffert's other daughters, are not actively involved in these businesses, but their father has ensured that they each own partnership interests in both Classic and PLD.
A considerable source of revenue for land developers comes in the form of Tax Increment Reinvestment Zone (TIRZ) payments. The TIRZ payments are made by a municipality—here, the city of Houston, Texas—to a developer as reimbursement for constructing roads, sewers, and other infrastructure. Until the municipality actually makes the payments, the asset on the developer's books is a receivable (TIRZ receivable). Classic was involved with land development in the City of Houston Tax Increment Reinvestment Zone #10 and, in exchange for its development activities in this area, became entitled to TIRZ receivables having a substantial value. Thereafter, Classic, through the machinations of its principal Seiffert, surreptitiously transferred the TIRZ receivables to Seiffert, Melanie, Michelle, Melinda, PLD, and other parties who are no longer defendants in this suit.2
This adversary proceeding was originally filed on June 2, 2006 by Gulf Coast Bank & Trust Company (the Bank), one of the unsecured creditors of Houston Drywall, Inc. (HDI), an entity that filed a voluntary Chapter 7 petition on November 17, 2005.3 On September 27, 2004, the Bank and HDI entered into a Receivables Purchase Agreement which granted the Bank a security interest in all accounts receivable and debts owed to HDI. During the existence of HDI and Classic, HDI made loans totaling approximately $1.3 million to Classic. Because (a) Classic owed HDI this debt, (b) HDI had defaulted under its obligations to the Bank, and (c) the Bank had a properly perfected lien on monies owed to HDI, the Bank brought suit against Classic and its various insiders for these monies, and for other transfers that Classic had made to various insiders, including Seiffert, Gene, and Mason.
At the time that the Bank brought this suit, Classic was not yet in bankruptcy; therefore, it made sense for the Bank to file the suit in HDI's Chapter 7 case. The Bank sought to recover monies that Classic had received and transferred to its insiders which deprived non-insider creditors of both HDI and Classic from receiving payment on their claims. However, once this Court entered an order for relief in Classic's case on March 15, 2007, and West became Classic's Trustee, it made sense for West to substitute in for the Bank as plaintiff and continue this adversary proceeding on behalf of all of the creditors of Classic, including: (a) the Bank (which, in addition to being a creditor in HDI's case, is also a creditor in Classic's case); (b) the Chapter 7 Trustee in HDI's case (who has filed a proof of claim for $ 1.3 million in Classic's case); and (c) Cage and Northrup (who are creditors of Classic because, as holders of limited partnership interests in Classic, they were entitled to a distribution of the TIRZ receivables just as the other limited partners received).
As the plaintiff, West now to recover the TIRZ receivables which have been transferred, plus interest, as well as reasonable costs and attorney's fees, for Classic's Chapter 7 estate. He seeks such relief pursuant to 11 U.S.C. § 547, the Texas Uniform Fraudulent Transfer Act (TUFTA), 11 U.S.C. § 548, and common law fiduciary duties.
The facts, as stipulated to or admitted by the parties, or as adduced from testimony of various witnesses, or as established by the introduction of exhibits, are as follows:
1. Robert G. Marek, Gary S. Mendel, and Larry T. Mason owned an entity known as Houston Drywall, Inc. (HDI). [Seiffert Ex. No. 31].
2. Partners Land Development, LP (PLD) is owned by the following persons and entities in the following amounts and percentages: (i) Matt Seiffert, $585,000 (65%); (ii) Melanie Durant, $117,000 (13%); (iii) Melinda Seiffert, $63,000 (7%); (iv) Michelle Seiffert, $63,000 (7%); and (v) Partners Land Development, GP, $72,000 (8%). [Trustee Ex. No. 38-39]. Melanie is the manager, president, and sole member of Partners Land Development, GP. [Joint Ex. No. 1],
3. On July 31, 2000, an Agreement of Limited Partnership of Classic Contractors of Houston, Ltd. (the Agreement) was executed, and as a result thereof, an entity known as Classic Contractors of Houston, Ltd. (Classic) was formed from its predecessor, Classic Contractors of Houston, Inc. [Seiffert Ex. No. 2]. The signatories to the Agreement were Marek (then president), Seiffert, Mendel, and Mason. Id. Classic's business was primarily in residential real estate development. [Docket No. 231, p. 2]. Accordingly, it acquired real estate and helped to develop lots. [Docket No. 230, p. 3].
4. The Agreement expressly provides that on the transfer of a general or limited partner's interest without the unanimous consent of the limited partners, the interest transferred is limited to the transferor's allocations and distributions and the transferee shall have no right or authority to: (i) participate in any decisions required or permitted by a partner, or (ii) inspect the partnership's books, or (iii) exercise any rights or powers of a partner or to otherwise be treated as a general or limited partner of Classic. [Seiffert Ex. No. 2].
5. Although Classic was originally formed by Seiffert, Marek, Mendel, and Mason, eventually other individuals, including Seiffert's three daughters—Melanie, Melinda, and Michelle—obtained limited partnership interests in this entity. Seiffert is a sophisticated businessman, and each of the other limited partners were less sophisticated than Seiffert.
6. Seiffert was not only an officer of Classic, but also exerted control over Classic. [June 3, 2008 Tr. 4:27:46-4:28:495]; [Seiffert Ex. No. 14, p. 3]. Additionally, as of February 1, 2006, Seiffert was president of Classic. [Trustee Ex. No. 10]. Seiffert has previous felony convictions for bank fraud and tax fraud. [Trustee Ex. No. 47]. His daughters were aware of his felony convictions.
7. The initial partnership interests in Classic were divided as follows: (i) Seiffert, 50%; (ii) Marek, 15.666%; (iii) Mendel, 16.667%; (iv) Mason, 16.667%; and (v) Classic GP, LLC (Classic GP), 1% as general partner. [Seiffert Ex. No. 1, § 4.1]. Marek was the sole member of Classic GP. In this capacity, Marek—and only Marek—had authority to take action for Classic GP, in its capacity as the general partner of Classic.
8. The Agreement forming Classic prohibits a general partner or a limited partner from transferring a general partnership interest without the unanimous consent of all of the general partners and limited partners. [Trustee Ex. No. 1, p. 12]. Further, the Agreement prohibits a general partner or a limited partner from transferring a limited partnership interest without the consent of the general partner. [Trustee Ex. No. 1, p. 10],
9. Seiffert is the father of Melanie, Melinda, and Michelle. [Trustee Ex. No. 35, p. 4]; [Trustee Ex. No. 36, p. 5]; [Trustee Ex. No. 37, p. 4-5]. All three daughters are adults who are not dependants of Seiffert.
10. On January 1, 2005, Seiffert gave percentages of his limited partnership interest in Classic to his three daughters. The percentages were divided as follows: Melanie, 15%, Melinda, 15%, and Michelle, 15%. [Joint Ex. No. 1], Thus, Seiffert's own limited partnership interest decreased from 50% to 5%. [Trustee Ex. Nos. 3, 4, 5]. Classic's internal, unaudited balance sheet dated February 1, 2006 shows that the partnership interests were valued between $13,575.00 and $42,250.00. [Trustee Ex. No. 23, p. 1]. Melanie, Melinda, and Michelle did not participate in any negotiations regarding their respective receipt of the TIRZ receivables from Classic. Although Seiffert's daughters became owners of limited partnership interests, they did not have extensive knowledge of their involvement with Classic.
11. Melanie and Michelle voluntarily appeared at trial to testify at the request of counsel for the Defendants.6 [June 3, 2008 Tr. 5:28:00-5:28:54]. During the discovery period, the Trustee and his agents made repeated efforts to serve Melanie with a subpoena so that the Trustee's counsel could depose her. Melanie deliberately evaded the process server who attempted to serve her with the deposition notice and subpoena duces tecum by refusing to answer the door when the process server came to her residence. [June 4, 2008 Tr. 3:09:24-3:10:04].
12. In addition to generating cash flow from the sale of developed...
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