In re L & D Interests, Inc.

• Decision Date: 27 September 2006
• Docket Number: Bankruptcy No. 03-81176-G3-7.,Adversary No. 05-8064.
• Citation: 350 B.R. 391
• Parties: In re L & D INTERESTS, INC., Debtor, Robbye R. Waldron, Trustee, Plaintiff, v. Moody National Bank, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Texas

350 B.R. 391

In re L & D INTERESTS, INC., Debtor,

Robbye R. Waldron, Trustee, Plaintiff, v. Moody National Bank, Defendant.

Bankruptcy No. 03-81176-G3-7.

Adversary No. 05-8064.

United States Bankruptcy Court, S.D. Texas, Galveston Division.

September 27, 2006.

COPYRIGHT MATERIAL OMITTED

Barbara Mincey Rogers, Rogers, Anderson & Bensey, PLLC, David W. Anderson, Deirdre Carey Brown, Kimberly Anne Bartley, Waldron & Schneider LLP, Houston, TX, for Trustee, Plaintiff.

Robbye R. Waldron, Waldron Schneider and Todd, Houston, TX, pro se.

MEMORANDUM OPINION

LETITIA Z. CLARK, Bankruptcy Judge.

The court has held a trial in the above captioned adversary proceeding. The following are the Findings of Fact and Conclusions of Law of the court. A separate conforming Judgment will be entered. To the extent any of the Findings of Fact are considered Conclusions of Law, they are adopted as such. To the extent any of the Conclusions of Law are considered Findings of Fact, they are adopted as such.

In the instant adversary proceeding, the Chapter 7 Trustee ("Trustee") seeks avoidance of sixty-two transfers paid by Moody National Bank ("Moody") out of the bank account of L D Interests, Inc. ("Debtor") between August 29, 2003 and September 23, 2003. Trustee asserts that the transfers were fraudulent conveyances under Section 548(a)(1)(A) or Section 548(a)(1)(B)(i) of the Bankruptcy Code, which may be recovered from Moody as an immediate transferee under Section 550 of the Bankruptcy Code. Alternatively, Trustee states a cause of action for damages based on Moody's alleged negligence. Trustee asserts that the total of funds debited from Debtor's account, $367,645.23, is the measure of recovery under either of the fraudulent transfer or negligence theories.

Findings of Fact

On September 19, 2003, Allied Houston Bank, Conmaco/Rector, L.P., and Minnwest Bank Central filed an involuntary petition under Chapter 7 of the Bankruptcy Code against Debtor. On October 6, 2003, the court ordered that an interim trustee be appointed. Robbye R. Waldron was appointed as interim trustee. An order for relief was entered on November 20, 2003, and Waldron remained as the Chapter 7 Trustee.

Larry Michael Nixon, the president and owner of Debtor, opened a bank account for Debtor at Moody on August 27, 2031. The initial persons whose signatures were authorized on the account were Nixon, listed as Debtor's president, and Heather Hopkins, listed as Debtor's office manager. Nixon also signed a corporate resolution, on a form provided by Moody, listing himself as secretary of Debtor, and authorizing himself to exercise all of the powers associated with the account. Hopkins also signed the form. Neither the initial signature card nor the initial corporate resolution was notarized. (Trustee's Exhibit 2).

Hopkins testified that, between August 27, 2001 and August 27, 2003, she wrote checks on Debtor's account at Moody, at Nixon's direction. She testified that Nixon also wrote checks on Debtor's account. Hopkins testified that Debtor was in the business of buying and selling construction cranes.

On either May 6, 2003 or June 6, 2003, Nixon revised the signature card to add Elizabeth Reeder¹ as a person whose signature was authorized on the account. (Trustee's Exhibit 75). Reeder, who was Nixon's former spouse, testified that she was not a director, officer, or employee of Debtor. At the same time the signature card was revised, Nixon, Hopkins, and Reeder signed a revised corporate resolution, on a form provided by Moody, identifying Nixon as the secretary of Debtor, and listing Nixon, Hopkins, and Reeder as persons authorized to exercise all of the powers associated with the account. The revised form of corporate resolution identifies Nixon as president and Hopkins as office manager. The revised corporate resolution does not list a position for Reeder. (Trustee's Exhibit 76).

Emily Balderas, who was then the assistant branch manager at Moody's Clear Lake branch, testified that she notarized the revised corporate resolution. She testified that, at the time when she notarized the revised corporate resolution, she had recently been promoted to the position of assistant branch manager, and was intraining on how to handle such matters. She testified that she notarized the revised corporate resolution "because that was what Mike [Nixon] was agreeing to."

Nixon disappeared on August 27, 2003. News reports indicated that Nixon's speedboat had crashed in the Houston Ship Channel, and that neither Nixon nor his body had been found. Nixon was later found alive, and was apprehended by United States Marshals on January 9, 2004.

Trustee and Moody have stipulated that Debtor was insolvent from August 27, 2003, the date on which Nixon disappeared, through November 20, 2003, the date on which an order for relief was entered. (Docket No. 35). Moody has filed a proof of claim in Debtor's Chapter 7 case, asserting a claim in the amount of $168,099.70, based on Debtor's guaranty of notes made by Nixon and secured by Nixon's speedboat, a vehicle, and deposit accounts.

Several employees of Moody at its Clear Lake branch, including Balderas, Michael Hazelwood, who was then a commercial loan officer and vice president, and Michele Rutherford, who was Hazelwood's assistant, testified that, on the morning of August 28, 2003, the day after Nixon's disappearance, they were aware of the news reports surrounding Nixon's disappearance.

On August 28, 2003, Reeder entered Moody's Clear Lake branch, and requested to withdraw all the funds in Debtor's account. On August 28, 2003, the balance in Debtor's account was $594,271.95. (Trustee's Exhibit 11).

Reeder's request was directed to Hazelwood. Hazelwood testified that he discussed Reeder's request with Balderas. Balderas testified that, because the branch manager, Sylvia Montalvo, was not present in the office, Balderas and Hazelwood jointly decided to contact Moody's senior management.

Balderas initiated a telephone call to Michael Christiansen, Moody's executive vice president and chief administrative officer. Christiansen then conferred with Moody's counsel, and initiated a conference call with Balderas and Hazelwood.

Christiansen testified that he made a decision "that we would go forward, allowing the corporation to do its business. We did not see a compelling reason to shut down the corporation by freezing its account, nor did X believe the right and prudent thing to do would be to allow any individual to drain the account or take a large bonus from the corporation that would have been completely out of the realm of normalcy."

After the conference call, Balderas refused to allow Reeder to withdraw the funds in Debtor's account. She told Reeder that Moody's counsel would contact Reeder's counsel (though Balderas admits that she did not know whether Reeder or Debtor was represented by counsel).

Balderas testified that, after August 28, 2003, it was her understanding that all transfers from Debtor's account required Christiansen's approval. She testified that she placed an instruction on the account noting that no transfers from the account were to be made, and directing that either Balderas or Montalvo be contacted if an attempt was made to transfer funds from the account. Christiansen testified that he had not instructed that all transfers required his approval. He testified that his instruction was that funds should not be transferred from the account to an individual, in a large amount.

Between August 29, 2003 and September 23, 2003, eighty-one debits to Debtor's account were presented to Moody. These debits include fourteen checks signed by Nixon (of which eight were paid by Moody), sixty-one checks signed by Reeder (of which forty-eight were paid by Moody) two wire transfers, and four debits for fees paid to Moody. Between August 29, 2003 and September 23, 2003, Moody transferred $367,645.23 out of Debtor's account in payment of the approved debits, leaving a balance of $226,626.72. (Trustee's Exhibit 10).

The two wire transfers were the largest debits against the account between August 29, 2003 and September 23, 2003. On September 5, 2003, Moody paid a wire transfer, in the amount of $75,298.00, from Debtor's account to Blake D. Aldridge, Inc. dba Texas Tires. The transfer was requested on a form prepared by Rutherford, signed by Reeder, and approved by Balderas and Christiansen. On September 11, 2003, Moody paid a wire transfer, in the amount of $210,000, from Debtor's account to Hobbs Trailer & Equipment, Inc. The transfer was requested on a form prepared by Rutherford, and signed by Reeder. The form states that "approval will "come from Mike Christiansen." (Trustee's Exhibit 44).

Trustee and Moody have stipulated that payment was stopped as to nineteen of the debits. The parties are not in agreement as to how the payments were stopped. Rutherford testified that Reeder requested that she stop payment on several items. She testified that stop payment forms were filled out for each payment stopped. She testified that the forms are maintained by Moody "behind the teller line" in the bank branch office. Reeder testified that she has no recollection of having requested that payments from the account be stopped. Balderas testified that Reeder and Rutherford went through the outstanding checks together on August 28, 2003, in order to determine which checks to stop. She testified that a stop payment on Debtor's account could not have been processed without approval from senior management. She testified that every stop payment required that a stop payment form be filled out. Christiansen testified that he has not seen any stop payment forms for the account. No stop payment forms were offered as evidence in the instant adversary proceeding.

The court finds that Balderas' testimony is the most credible regarding Christiansen's instructions for treatment of the account, and as to the manner in which stop payments...