In re Intern. Loan Network, Inc., Bankruptcy No. 91-01094
| Decision Date | 06 October 1993 |
| Docket Number | 92-0164,92-0171,92-0149,92-0220,92-0154 to 92-0162,92-0151,Adv. No. 92-0147,92-0231,92-0213,92-0222,92-0172,92-0234 and 92-0238.,Bankruptcy No. 91-01094 |
| Citation | 160 BR 1 |
| Parties | In re INTERNATIONAL LOAN NETWORK, INC., Debtor. Francis P. DICELLO, Plaintiff, v. Ethel JENKINS, Christopher Beal, Ellen Bristol, Peter Lor, George Miller, Minnie Moore, David Parker, Xay Fong Lee, Alice Jackson, Willie J. Henderson, Stephens Day Care, James W. Stephens, Phyllis Baughman, Mary Goldston, Eileen Hart, Edward Segers, Dorothy Thompson and Isabella Williams, Defendants. |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
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Philip M. Musolino, Musolino & Dessel, Washington, DC, for defendants.
Lee W. Morris and Ross P. Spicer, Hazel & Thomas, Washington, DC, for plaintiff.
DECISION GRANTING TRUSTEE'S MOTION FOR SUMMARY JUDGMENT
These eighteen adversary proceedings involve complaints filed by the trustee against investors in a Ponzi scheme to recover alleged fraudulent conveyances. The defendants contend that the funds are not recoverable by the trustee.
On October 10, 1991, Francis P. Dicello, as receiver of International Loan Network, Inc. ("ILN"), filed separate voluntary petitions on behalf of ILN and International Loan Network Development Corporation ("ILNDC") for relief under chapter 11 of the Bankruptcy Code. On October 11, 1991, Dicello was appointed trustee for both debtors. These two cases were later substantively consolidated by order of this court.
On August 26, 1992, the trustee filed a Complaint to Avoid and Recover Fraudulent Transfers and Conveyances pursuant to 11 U.S.C. §§ 548(b), 548(a) and 550 against eighteen investors. The trustee's principal cause of action alleges that transfers of money or payments to investors in amounts greater than the amount they invested ought to be recovered on the grounds that the payments constituted (1) fraudulent conveyances voidable under 11 U.S.C. § 548; or (2) fraudulent conveyances voidable pursuant to Md.Com.Law Code Ann. § 15-201 et seq. (Maryland Uniform Fraudulent Conveyance Act) and hence are voidable pursuant to 11 U.S.C. § 544(b).
On June 21, 1993, the trustee filed a motion for summary judgment supported by the affidavits of accountant Daniel G. Lentz and attorney Constance H. Francois, and a memorandum of points and authorities with accompanying exhibits. Thereafter, the defendants filed a response in opposition to the trustee's motion for summary judgment.1 The trustee filed a reply with a supplemental affidavit of Francois. The defendants responded with a supplemental appendix of exhibits. Oral argument was partially heard on August 31, 1993 and again on September 10, 1993, and the matter was taken under advisement.
F.R.Civ.P. 56 is made applicable to adversary proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Pursuant to this rule, summary judgment is only appropriate where there is no genuine issue of material fact when viewing the evidence most favorable to the opposing party and the movant is entitled to judgment as a matter of law. Adickes v. S.H. Kress & Co., 398 U.S. 144, 153-57, 90 S.Ct. 1598, 1606-08, 26 L.Ed.2d 142 (1970); In re Baker & Getty Fin. Serv. Inc., 98 B.R. 300, 304 (Bankr. N.D.Ohio 1989). Initially, the burden is on the movant to inform the court of the basis for the motion and to demonstrate the absence of a genuine issue of material fact. Bias v. Advantage Intern, Inc., 905 F.2d 1558, 1560 (D.C.Cir.), cert. denied, 498 U.S. 958, 111 S.Ct. 387, 112 L.Ed.2d 397 (1990) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). However, once a motion has been made and properly supported, the opposing party may not rely on mere allegations or denials, but instead the opponent must set forth specific facts showing that there is a genuine issue of material fact for trial. Clifton Terrace Assoc. v. United Technologies, 728 F.Supp. 24, 28 (D.D.C.1990), aff'd in part, rev'd in part, 929 F.2d 714 (D.C.Cir.1991) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256-57, 106 S.Ct. 2505, 2514-15, 91 L.Ed.2d 202 (1986)).
Defendants have objected to the admissibility of the two affidavits provided by the trustee in support of his motion for summary judgment, asserting that the trustee did not provide the proper foundation for the introduction of expert testimony and failed to meet numerous evidentiary requirements.2 In addition to objecting to the above affidavits, the defendants have objected to the court's consideration of trustee's exhibits 2, 4, and 5,3 asserting that the trustee did not properly authenticate the exhibits or establish the appropriate evidentiary foundations. Therefore, before reaching the issue of whether there are any genuine issues of material fact, the court must first determine whether it may properly consider the affidavits and supporting exhibits in support of the trustee's motion.
Lentz's affidavit satisfies the requirements of Fed.R.Evid. 703 and is therefore admissible.4Bulthuis v. Rexall Corp., 789 F.2d 1315, 1316-18 (9th Cir.1985); Bieghler v. Kleppe, 633 F.2d 531, 533 (9th Cir.1980). In forming his opinion regarding ILN's financial condition, Lentz relied upon the following documents: ILN literature, marketing brochures, memoranda, correspondence, financial statements, ILN's Schedules of Assets and Liabilities, interviews with former ILN employees, testimony given in connection with the Securities and Exchange Commission's injunction action against ILN, and upon the written opinions of the United States District Court for the District of Columbia, S.E.C. v. Int'l Loan Network, Inc., 770 F.Supp. 678 (D.D.C.1991) (Judge Hogan) and of the United States Court of Appeals for the District of Columbia Circuit affirming Judge Hogan's opinion. S.E.C. v. Int'l Loan Network, Inc., 968 F.2d 1304 (D.C.Cir.1992). (See Lentz Aff. ¶ 4.)
The information Lentz relied upon is of the type reasonably relied upon by accountants and auditors in forming an opinion or inference regarding the financial condition of a company. (Lentz Supp.Aff. ¶ 3.) See also Intern. Adhesive Coating Co. v. Bolten Emerson Intern., 851 F.2d 540, 545 (1st Cir. 1988) (); United States v. Affleck, 776 F.2d 1451, 1456-58 (10th Cir. 1985) (). That some of the evidence Lentz relied upon was hearsay does not affect the admissibility of his conclusions or opinions. Affleck, 776 F.2d at 1456-58; Paddack v. Dave Christensen Inc., 745 F.2d 1254, 1262 (9th Cir.1984).
The defendants had almost a full year to examine all of the business and financial records Lentz relied upon, yet chose not to investigate, expose or rebut any of Lentz's opinions. See In re Helionetics, Inc., 70 B.R. 433, 438 (Bankr.C.D.Cal.1987) (). Accordingly, Lentz's affidavit and supplemental affidavit are accepted as submitted in support of the trustee's motion for summary judgment.5
The defendant's objections to the admissibility of Francois' affidavit are simply without merit. Francois was a former director of legal services for the debtor and has personal knowledge of ILN's operations both pre-petition and post-petition. Her statements in the affidavits are based on her first hand experiences as an employee of ILN. Thus, the only issue regarding the affidavit, if one exists, is the weight to be given to her testimony as set forth in the affidavit. The court will consider these affidavits.
Defendants objected to the admissibility of exhibits 2, 4 and 5 to the trustee's motion for summary judgment, asserting various evidentiary inadequacies. Exhibit 2 consists of approximately nine items of correspondence allegedly from various regulatory bodies to ILN officers. However, there is no affidavit authenticating the letters as true and accurate copies and therefore the court agrees that this exhibit is not admissible as evidence in support of the trustee's motion.6
Exhibits 4 and 5, however, are admissible. Exhibit 5 consists of the Statement of ILN's Marketing Policies and Procedures, an excerpt from ILN's Membership Handbook entitled Property Rights Acquisition and an ILN circular entitled Continuing Education Institutes Circular. Francois' supplemental affidavit lays a sufficient foundation to admit these items as authenticated documents that fall within the business records exception to the hearsay rule.7 Fed.R.Evid. 803(6).
In the same fashion, Francois' affidavit properly authenticated exhibit 4, which consists of copies of checks issued by ILN to the individual defendants, and provided a sufficient foundation for their admissibility into evidence. (Francois Aff. ¶¶ 4, 5.) In addition, the trustee properly points out the self-authenticating nature of commercial paper and related documents pursuant to Fed. R.Evid. 902. See Baker & Getty Fin., 98 B.R. at 305 ().8
Accordingly, the affidavits, supplemental affidavits and all the exhibits introduced by the trustee, except for exhibit 2, are accepted as evidence submitted in support of the trustee's motion for summary judgment.
The trustee's argument in this case is dependent...
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