In re Last

• Decision Date: 08 December 2010
• Docket Number: Adversary No. 10-01511,Bankruptcy No. 10-11537 (NLW)
• Citation: 440 B.R. 642
• Parties: In re Andrew Harvey LAST, Debtor. Costa Transports, Inc., Plaintiff v. Andrew Harvey Last, Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

440 B.R. 642

In re Andrew Harvey LAST, Debtor.

Costa Transports, Inc., Plaintiff

v.Andrew Harvey Last, Defendant.

Bankruptcy No. 10-11537 (NLW).

Adversary No. 10-01511.

United States Bankruptcy Court,

D. New Jersey.

Dec. 8, 2010.

Darren C. Barreiro, Esq., Greenbaum, Rowe, Smith & Davis, LLP, Woodbridge, NJ, Attorney for Costa Transports, Inc.

Scott S. Rever, Esq., Wasserman, Jurista & Stolz, PC, Millburn, NJ, Attorney for Andrew Harvey Last.

OPINION

NOVALYN L. WINFIELD, Bankruptcy Judge.

In this matter Andrew Harvey Last ("Debtor") moves for summary judgment claiming that he is entitled to a discharge under 11 U.S.C. § 727(a)(2)(A). Costa Transports, Inc. ("Costa Transports") cross moves for summary judgment asserting that (i) the Debtor should be denied a discharge under 11 U.S.C. § 727(a)(2)(A) and (ii) the Debtor's counterclaim alleging automatic stay violations under 11 U.S.C. § 362 should be dismissed. Furthermore, Costa Transports seeks leave to file amended complaint. As set forth below, the aforesaid motions are denied.

This court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 1334 and 157 and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on July 23, 1984. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(H), (J) and (O).

STATEMENT OF FACTS

A. Procedural History

On January 20, 2010, the Debtor filed for relief under Chapter 7 of title 11 of the United States Code ("Bankruptcy Code") and Charles M. Forman ("Trustee") was appointed by the United States Trustee to administer the Debtor's case. On April 15, 2010, Costa Transports filed an adversary complaint ("Complaint") to challenge the Debtor's discharge under 11 U.S.C. § 727 of the Bankruptcy Code ¹. The Complaint contains two counts: (i) an objection to the discharge under 11 U.S.C. § 727(a)(2) and (7); and (ii) a request for declaratory judgment finding that Costa Transports holds an equitable lien against Last's residence at 8 Canterbury Drive, North Caldwell, NJ ("Residence").

The Debtor timely filed an Answer with affirmative defenses and a counterclaim. The counterclaim requests (i) damages based on Costa Transports' alleged violation of the automatic stay and (ii) avoidance of Costa Transports' lien under § 522(f)(1). Shortly after the Answer was filed, Costa Transports filed a Motion for Leave to File an Amended Complaint Pursuant Rule 7015 and to Dismiss Count One of the Debtor's Counter Claim Pursuant to Rule 7041(b) ( "Amendment Motion"). The primary purpose of Costa Transports' Amendment Motion was to join the Trustee as a necessary party to the count asserting an equitable lien against the Residence. In response, the Trustee objects to the Amendment Motion, contending that because the two counts of Costa Transports' Complaint seek divergent relief, separate adversary proceedings are more appropriate.

The Debtor thereafter filed a Cross Motion for a Judgment on the Pleadings or for Summary Judgment ("The Debtor's Summary Judgment Motion"). Subsequently, Costa Transports withdrew its request to dismiss Count One of the Debtor's Counterclaim, answered the Debtor's Counterclaim, and filed a Summary Judgment Motion to Deny the Debtor's Discharge under Section 727 and Dismiss Count One of the Debtor's Counterclaim Alleging Violation of Automatic Stay ("Costa Transports' Summary Judgment Motion"). The Debtor objected to Costa Transports' Summary Judgment Motion.

Though not a party to this adversary proceeding, the Trustee filed several letter briefs objecting to Costa Transports' claimed equitable lien. Subsequently, Costa Transports filed a brief responding to the letter briefs of the Trustee and in further support of its Motion to Leave.

After conducting a hearing on the motions, this court reserved its ruling and allowed the Trustee, Costa Transports and the Debtor to further brief the question of whether the equitable lien issue should be determined in the instant adversary proceeding or resolved in a separate litigation.

B. The Underlying Debt and the Arbitration Proceeding

Last is the owner of two companies, Everlast Logistics, LLC and Blue Star Logistics, LLC ("Companies"), currently also in Chapter 7 liquidation.

In July 2007, Companies purchased a trucking business from Costa Transports for the sum of $1,065,000.00. (Certification of Andrew Last ("Last Cert.") ¶ 2) To satisfy the purchase price, a loan in the amount of $832,500.00 was obtained from GE Capital and Companies executed a Promissory Note ("Note") in favor of Costa Transports for 232,500.00. (Last Cert. ¶ 2; Adversary Complaint ¶ 3) Last alsoexecuted a personal guaranty of the Companies' obligations to Costa Transports. (Last Cert. ¶ 2; Adversary Complaint ¶ 4) Companies made monthly payments under the Note for the period September 2007 through January 2008, but ceased making payments thereafter. (Adversary Complaint ¶ 6-7) The Debtor alleges that Companies stopped making payments on the Note because, while Costa Transports represented in the purchase agreement that no customer had terminated or reduced its business with Costa Transports in the eight months prior to the closing, 25% of the business volume was lost within 30 days of closing. (Last Cert. ¶ 3) Thus, the Debtor claims that he believed that Costa Transports was in violation of the terms of the purchase agreement between Costa Transports and Companies. ( Id.)

Subsequent to the Companies' cessation of payments, in August 2008, Costa Transports accelerated the Note and demanded payment in full. (Adversary Complaint ¶ 8) After acceleration of the Note and demand for payment, the parties engaged in settlement discussions. (Last Cert. ¶ 5) On or about October 7, 2008, in the middle of the settlement discussions, Costa Transports served a Demand for Arbitration ("Arbitration Demand") upon the Debtor and Companies. ( Id. ¶ 6; Adversary Complaint ¶ 12) Costa Transports sought the Debtor's consent to submit to arbitration as only Companies, not the Debtor, were subject the mandatory arbitration clause. (Adversary Complaint ¶ 15) Costa Transports asserts that on October 31, 2008, the Debtor notified Costa Transports that he would not submit to arbitration. ( Id. ¶ 16; see also Id. Ex. C) Arbitration hearings were held with regard to Costa Transports' claims against companies and a final award was entered in Costa Transports' favor and against Companies on February 25, 2009. ( Id. ¶ 14)

C. The Alleged Fraudulent Conveyance

In May, 2008, the Debtor and his wife entered into a contract to purchase the Residence. (Certification of Christine Last ("C. Last Cert.") ¶ 4) At about the same time, the Lasts sold their prior residence realizing net proceeds of $112,000.00. ( Id. ¶ 5) The Debtor and Christine Last then allegedly moved into the Residence and attempted to secure a mortgage loan to finalize its purchase. ( Id. ¶ 6-7)

Christine Last claims she had to qualify for a mortgage in her name only because of the Debtor's business debts and minimal income. ( Id. ¶ 7) Christine Last contends that because the mortgage was obtained solely by her, she intended to purchase the Residence in her name only. ( Id. ¶ 9) Furthermore, she asserts that the downpayment of $185,000.00 came mostly from her funds. ( Id. ¶ 10) Specifically, Christine Last certified as to the following:

Part of the down payment came from a loan from my 401(k) account and a portion was from my personal savings. While some of the down payment came from the proceeds from the sale of the Bethpage Property that was owned by my husband and I, we considered the net proceeds to be my funds to reimburse me for my portion of the funds my husband used to operate his business. When my husband purchased his business from Costa, my husband used approximately $70,000.00 of our joint funds to operate the business.

(C. Last Cert. ¶ 10)

On or about July 18, 2008, the Debtor and Christine Last took title to the Residence. (Initial Andrew Last Certification ¶ 4) Christine Last claims that at the closing for the Residence, "some of the documents mistakenly reflected that my husband and I were purchasing the property together. The deed and the mortgage had both of our names on them however, theNote was in my name only." (C. Last Cert. ¶ 12) Christine Last claims that she advised the attorney at the closing of this mistake. ( Id. ¶ 13) She further states that in order not to delay the closing, the documents were executed with the expectation that the Debtor would reconvey his interest in the Residence shortly thereafter. ( Id. ¶ 13-14) The real estate agent in the matter, Denny Tsettos, who was also present at the closing, certifies as to the same. (Certification of Denny Tsettos ("Tsettos Cert.") ¶ 3-4) Approximately four months later, on November 18, 2008, the Debtor executed a deed transferring his interest in the Residence to Christine Last in consideration for $1. (C. Last Cert. ¶ 16; Adversary Complaint ¶ 19)

In December 2008, Costa Transports filed a complaint against the Debtor in the Superior Court of New Jersey to enforce the guaranty. (Adversary Complaint ¶ 17) The Debtor did not answer the complaint and a default judgment was entered against him. ( Id. Ex. D) Costa Transports also commenced another proceeding in the Superior Court of New Jersey to avoid the Debtor's transfer of his interest in the Residence as a fraudulent transfer on April 1, 2009 ("State Court Fraudulent Transfer Action"). ( Id. ¶ 22) Pending the resolution of that litigation, Costa Transports filed a lis pendens on the Residence. ( Id. ¶ 23) On December 11, 2009, upon advice of the Debtor's bankruptcy attorney, Christine Last reconveyed one-half interest in the Residence to the Debtor in light of his impending bankruptcy petition filing. (C. Last Cert. ¶ 21-22)

D. Alleged Automatic Stay Violations

1. Postpetition State Judgment

Just prior to the Debtor's bankruptcy filing, Costa Transports moved for summary judgment in the ...