In re Jim L. Shetakis Distributing Co., No. 2:08-cv-00832-RLH-GWF.
| Decision Date | 30 March 2009 |
| Docket Number | Bankruptcy No. BK-S-00-17939-LBR.,No. 2:08-cv-00832-RLH-GWF. |
| Parties | In re JIM L. SHETAKIS DISTRIBUTING CO., dba Shetakis Wholesalers, Inc., Debtor. Hunt, Ortmann, Blasco, Palffy & Rossell, Inc., a California corporation, Appellant, v. Jim L. Shetakis Distributing Co., a Nevada corporation, dba Shetakis Wholesalers, Inc.; NV Lease Option LLC, a Nevada limited liability company, Appellees. |
| Court | U.S. District Court — District of Nevada |
Jeanette E. McPherson, Schwartzer & McPherson Law Firm, Las Vegas, NV, for Debtor.
After filing for bankruptcy under Chapter 11, Jim L. Shetakis Distributing Co. assigned all of its rights under a lease and purchase option to Nevada Lease Option ("NVLO") on March 12, 2001—a transaction outside the ordinary course of its business. Shetakis did not notify its creditors of the transfer as required by 11 U.S.C. § 363(b)(1), and may have thus violated its creditors' due process rights. In 2004, one of its creditors, Appellant Hunt, Ortmann, Blasco, Palffy & Rossell, Inc., learned that the transfer to NVLO occurred in 2001 and, beginning in July 2007, seeks to have the transfer set aside through motions filed in the bankruptcy case and in this separate adversary action. In this appeal, the Court considers whether the bankruptcy court erred when it granted NVLO's motion for summary judgment. The bankruptcy court concluded that Shetakis' transfer of the lease and purchase option was not void, but voidable under 11 U.S.C. § 549, and that the statute of limitations applicable to voidable transfers, § 549(d), expired prior to the time Hunt Ortmann moved the bankruptcy court to set the transfer aside.
The Court concludes § 549—or at a minimum, its two-year limitations period— applies to Shetakis' transfer to NVLO. The Court further concludes that had Hunt Ortmann been reasonably diligent, it would have discovered Shetakis' failure to provide notice of the transfer soon after learning of the transfer in November 2004, and that the limitations period therefore began to run at that time. The Court additionally concludes the statute of limitations was not equitably tolled by circumstances beyond Hunt Ortmann's control. As such, the two-year limitations period expired shortly after November 2006— months before Hunt Ortmann filed its motion to avoid the transfer and its adversary Complaint on July 24 and 25, 2007. The Court therefore affirms the bankruptcy court's order of summary judgment.
Hunt Ortmann is a California law firm that represented Shetakis and its prior owners, Anthony DeGravina and Bruno Campo, from August 1999 to May 2000. Hunt Ortmann claims Shetakis owed it $4,279.37 in unpaid attorney fees at the time Hunt Ortmann terminated its representation of Shetakis. Hunt Ortmann advised Shetakis of the debt in a letter memorializing that termination, dated May 25, 2000, and did so again in a letter to Shetakis' subsequent counsel dated July 18, 2000.
In September 2000, Shetakis' prior owners sold Shetakis to LevelSource. On October 18, 2000, Shetakis' new owners filed a Chapter 11 bankruptcy petition on behalf of Shetakis, but did not schedule or otherwise list Hunt Ortmann as a creditor in its schedules or statement of financial affairs. Hunt Ortmann, not yet aware of Shetakis' pending bankruptcy petition, notified Shetakis' accountants of its claim for unpaid fees in December 2000 and, it claims, continued to send monthly invoices to Shetakis advising Shetakis of the balance. Hunt Ortmann also claims that in December 2000 it notified Shetakis of its additional claim for indemnification and reimbursement from Shetakis in connection with a separate lawsuit, DeGravina v. Brown (the "Brown action," filed in Los Angeles County Superior Court).
On December 6, 2000, Shetakis, as debtor-in-possession in the bankruptcy case, filed a motion pursuant to 11 U.S.C. § 365(a) to assume a lease of real property it had entered with the lessor in 1999.1 The lease required Shetakis to pay annual rent of $24,000 over a fifteen-year term and included an option to purchase the real property that was the subject of the lease—a warehouse located in Las Vegas—for $5 million. On January 4, 2000, and in the course of its representation of Shetakis, Hunt Ortmann recorded a Memorandum of Lease in the Clark County Recorder's Office, which described the lease and purchase option to which Shetakis was a party. Hunt Ortmann alleges that the rent due under the agreement and the purchase price of the option were low relative to the market value of the property, and that the lease and option were therefore highly valuable assets. The bankruptcy court did not finally approve Shetakis' assumption of the lease until March 29, 2001. However, it is undisputed that while final approval of the assumption motion was pending in the bankruptcy court, Shetakis, through its CEO, Gerry Zobrist, and its President, Lloyd Neher, and without providing notice to creditors or seeking approval of the bankruptcy court, entered into a contract with NVLO regarding the property. In the agreement, Shetakis assigned all of its rights under the lease, including the purchase option, to NVLO, and NVLO agreed to loan Shetakis $1.1 million (minus a $50,000 loan fee) at 5.6% annual interest and to sublease the property back to Shetakis for a four-year term with two one-year extensions for a monthly rent of $25,000 (with an annual rent increase of $1000). The transfer occurred on March 12, 2001. On April 6, 2001, NVLO recorded a "Concent [sic] to Assignment" (hereafter the "Consent") with the Clark County Recorder's Office, which described Shetakis' assignment of the lease and option to NVLO in the chain of title for the property.
NVLO was formed in February 2001 for the sole purpose of investing in the subject property. Zobrist has a 27.3% membership interest in NVLO, Neher has a 3.2% membership interest, and Neher's wife has a 5.9% membership interest—a 36.4% total membership interest between them. In short, Zobrist and Neher, CEO and President, respectively, of Shetakis, assigned the lease and purchase option to an entity in which they hold significant financial interests.
In its Debtor's Disclosure Statement, filed with the bankruptcy court on February 9, 2001, Shetakis listed the lease, but represented that Shetakis thus reported that the lease and option had no value. For reasons not revealed to the Court (nor, apparently, to the bankruptcy court), Shetakis did not disclose the March 2001 transfer of the lease and option to its creditors or to the bankruptcy court in its bankruptcy filings, including its Debtor's Disclosure Statement, Debtor's Plan of Reorganization, and Debtor's First Amended Plan of Reorganization. The bankruptcy court entered its Order Confirming Plan of Reorganization on April 26, 2001.
Richard Blasco, a named partner of Hunt Ortmann and designated by Hunt Ortmann as the person most knowledgeable regarding the facts of this case, testified that in December 2001, during his deposition in the Brown action, he learned Shetakis had filed for bankruptcy. (Blasco Dep., 4 Appellant's Excerpts of R. at A.E.R. 0578, 13:23-14:8.) Having previously represented Shetakis, Hunt Ortmann was, in December 2001, also aware of Shetakis' lease and purchase option. (6 Appellant's Excerpts of R. at 1240.)
Hunt Ortmann claims that after the bankruptcy case was closed on July 5, 2002, it continued to send Shetakis notices of its alleged unpaid claims. On February 28, 2003, Hunt Ortmann sent Shetakis an additional demand letter for indemnification and reimbursement arising out of yet another case, DeGravina v. Hunt, Ortmann, Blasco, Palffy & Rossell, Inc. (the "HOBPR action"), also filed in Los Angeles County Superior Court.
On March 1, 2004, and in connection with the HOBPR action, counsel for Hunt Ortmann deposed Shetakis CFO Andrew Dannin, who testified that the lease and option were assigned and transferred to NVLO. (Dannin Dep., 6 Appellant's Excerpts of R. at 1070-72.) According to Hunt Ortmann, Dannin erroneously testified the lease and option were transferred around October 2001, approximately seven months after the transfer actually occurred, and more than five months after confirmation of Shetakis' reorganization plan. Hunt Ortmann concedes that in or about November 2004, it obtained actual knowledge of the transfer of the lease and option to NVLO in a telephone conversation with its counsel. (4 Appellant's Excerpts of R. at A.E.R. 0560.)
Two weeks after Dannin's deposition, Shetakis advised Hunt Ortmann that it no longer intended to participate in the California-based arbitration proceedings in the HOBPR action because Hunt Ortmann's claims against Shetakis were discharged in the bankruptcy case. In Shetakis' absence, the arbitrator entered default judgment against Shetakis for $925,752, plus interest.
Hunt Ortmann subsequently domesticated the default judgment in Nevada and began collection efforts against Shetakis. In response, Shetakis sought to include Hunt Ortmann in the bankruptcy case for the first time by filing with the bankruptcy court a "Motion for Leave to Reopen the Chapter 11 Bankruptcy to Include Omitted Creditor and for Emergency Stay" on November 13, 2006. On December 13, 2006, the bankruptcy court re-opened the bankruptcy case. Hunt Ortmann claims that only during the 2006 bankruptcy proceedings, which began on November 13 of that year, did it more fully become aware of the facts concerning the transfer of the lease and option. Hunt Ortmann also claims that during the 2006 proceedings, Shetakis advised it for the first time that if Shetakis was required to pay Hunt...
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