In re Main, Inc.
| Citation | 239 BR 281 |
| Decision Date | 22 September 1999 |
| Docket Number | Bankruptcy No. 96-19098DAS. Adversary No. 98-0073. |
| Parties | In re MAIN, INC., Debtor. Mitchell Miller, Esq., Trustee, Plaintiff, v. Eric J. Blatstein, Lori J. Blatstein, Morris Lift Airbev, Inc., Cobalt, Inc., Delawareco, Inc., Engine 46 Steak House, Inc., Pier 53 North, Inc., Reedco, Inc., Waterfront Management Corp., and Waterfront Valet, Inc., Defendants. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Paul B. Maschmeyer, Ciardi, Maschmeyer & Karalis, PC, Philadelphia, for Main, Inc.
Mitchell W. Miller, Philadelphia, PA, Trustee for Main, Inc.
Eric L. Frank, Philadelphia, PA, General Counsel for Trustee Miller.
Steven M. Coren, Philadelphia, PA, Special Counsel for Trustee Miller.
Edward J. DiDonato, DiDonato & Winterhalter, P.C., Philadelphia, PA, for Eric J. Blatstein.
Michael H. Kaliner, Fairless Hills, PA, for Trustee in Blatstein case.
B. Christopher Lee, Philadelphia, PA, for Jacoby Donner and Corporate Defendants.
Kevin J. Carey, Mesirov Gelman Jaffe Cramer & Jamieson, Philadelphia, PA, for Lori J. Blatstein.
Morris Lift, Wyncote, PA, Pro Se.
W.J. Winterstein, Jr., Philadelphia, PA, Former Attorney for Morris Lift.
Frederic Baker, Philadelphia, PA, Ass't. U.S. Trustee.
This Opinion is a "companion piece" to our Opinion of September 17, 1999 ("the 9/17 Opinion"), in the bankruptcy case of MAIN, INC. ("Main"). It addresses the second of two separate recent decisions of the District Court ("the Court") arising out of the bankruptcy cases of Main and its principal, Eric J. Blatstein ("Eric") referenced in the 9/17 Opinion. The Court's decision relevant to the instant Opinion is reported at 1999 WL 424296 (E.D.Pa. June 23, 1999), and will be referenced here, as it was in the 9/17 Opinion, as "Main VII". Main VII reversed and remanded a portion of our decisions reported at 223 B.R. 457, 476-80 ("Main V"), supplemented & consideration denied, 1998 WL 601249 (Bankr.E.D.Pa., Sept. 4, 1998) ("Main VI") in the above-captioned proceeding.
In light of the mandates in Main VII, we conclude that Eric and his non-debtor spouse, Lori J. Blatstein ("Lori" with Eric "the Blatsteins"), who cannot be said to have fulfilled her duties as a corporate officer by delegating these duties to Eric, have failed to meet their burdens of proving that they had sound business reasons for allowing Main to make the loans to other entities owned by them on account of which we entered judgments in favor of Main and against these entities in the Main V and Main VI Orders, in the total amount of $739,060.78, $685,520.78 of which remains unpaid.
However, we note that, in Main V and Main VI, we held that the Plaintiff, Mitchell Miller, Esquire, the Trustee of Main ("the Trustee"), waived any claim that the Blatsteins were liable for certain penalties for filing late tax returns for Main because he failed to raise this issue in his post-trial brief and because submission of the tax returns was the Trustee's responsibility. The Court did not discuss these findings, and the record contains little, if any, basis on which to measure these claims. Finally, regarding the claims that the Blatsteins are liable for excessive salaries allegedly paid to principally Eric, we find ourselves unable to ascertain the applicable time-period for which excessive salaries as recoverable, precisely what salaries are claimed other compensation the Blatsteins received during the applicable periods, or what salaries would have been reasonable for them to have received. Therefore, we must schedule a supplemental hearing on the tax liability and salary issues in order to decide them, and we do so on October 6, 1999.
We refer the reader to pages 2-6 of the 9/17 Opinion for a history and perspective of the most important decisions arising out of the bankruptcies of Main and Eric. We will herein focus on the procedural history relevant to the matter before us.
On August 6, 1998, we rendered Main V, in which we entered a judgment in favor of the Trustee and against the following Defendants: MORRIS LIFT, the former and financial benefactor of the Blatstein entities, where liability is separate from the Blatstein entities and is not presently in issue, in the amount of $53,000; COBALT, INC. ("Cobalt"), in the amount of $85,563.68; DELAWARECO, INC. ("DECO"), in the amount of $76,950; ENGINE 46 STEAK HOUSE, INC. ("Engine 46"), in the amount of $136,628.45; PIER 53 NORTH, INC. ("Pier 53"), which has paid the judgment against it and the amount of whose liability is therefore no longer at issue, in the amount of $53,540; REEDCO, INC. ("Reedco"), in the amount of $46,398.55; WATERFRONT MANAGEMENT CORP. ("Management"), per Main VI, in the amount of $337,504.35; and WATERFRONT VALET, INC. ("Valet"), in the amount of $2,475.25. (Cobalt, DECO, Engine 46, Reedco, Management, and Valet are collectively referred herein as "the Corporate Defendants."). However, we entered no judgment against the Blatsteins or Airbev.
We devoted much of our attention in Main V and Main VI to the following issues, which were those principally raised by the Trustee: (1) a claim that Airbev owed Main for the use of the "Philly Rock" trade name, id. at 465-66; (2) a contention that Cobalt was jointly liable with DECO for its obligation as DECO's successor-in-interest, id. at 466-67; (3) a claim that Management was accountable for excessive commissions charged to Main, id. at 471-76; and (4) a claim that the Blatsteins were both equally liable with the Corporate Defendants for all of the loan liabilities owed by them to Main, receipt of excessive salaries by them, and for certain tax penalties charged to Main. Id. at 476-80.
In Main VII the Court addressed issues (1), (2), and (4) referenced above at length, affirming our ruling in favor of the Trustee as to (1), 1999 WL 424296, at *3-*5; reversing our ruling adverse to the Trustee as to (2), id. at *5-*11, and requiring our entry of an additional judgment against Cobalt for the sum owed by DECO in the accompanying order; and remanding our ruling adverse to the Trustee as to (4). Id. at *11-*21. We therefore need not discuss issues (1), (2), or (3) further. We note that, despite that Cobalt is now described, as is DECO, Engine 46, Reedco, Management, and Valet, as an "assetless shell," Cobalt has appealed the Court's decision to the Third Circuit Court of Appeals.
Focusing only on issue (4) hereafter, i.e., the Trustees' claims against the Blatsteins, we observe that we recited, in Main V, two reasons why we were not receptive to these claims. First, we believed that they were in substance a rehashing of the alter ego claims, id. at 477, which we rejected in In re Main, Inc., 213 B.R. 67 ("Main II"), modified in part, 1997 WL 626544 (Bankr. E.D.Pa. Oct. 7, 1997) ("Main III"), aff'd in part & rev'd & remanded in part sub nom. In re Blatstein, 226 B.R. 140 (E.D.Pa.1998) ("Blatstein II"), reinstated as to issues remanded, 1998 WL 778017 (Bankr.E.D.Pa. Nov. 4, 1998) ("Main IV"), aff'd as to issues remanded sub nom. In re Blatstein, 1999 WL 689715 (E.D.Pa. Sept. 3, 1999) ("Blatstein III"), Blatstein II aff'd in part and rev'd in part as to issues not remanded, 192 F.3d 88 (3d Cir.1999) ("Blatstein IV"). The dismissal of these alter ego claims was ultimately affirmed in Blatstein IV. Second, we found that there was a lack of focused pleading and specific evidence presented by the Trustee on these issues, particularly when compared to the voluminous evidence presented by the Trustee on the issues of the use of the Philly Rock trade name by Airbev and the excessive amount of Management's fees. Id. Accordingly, we concluded that, in comparison with the aforesaid issues on which he certainly undertook to meet a burden of proving, the Trustee had failed to focus upon and establish (1) that the amount of compensation paid to the Blatsteins was excessive, or (2) that the Blatsteins were responsible for the fact that certain of the Corporate Defendants owed monies to Main. Id. at 480. Since it seemed to us that the second category of claims were based on the contention that the Corporate Defendants were positioned by the Blatsteins to take financial advantage of Main, we deemed it relevant to observe that the Trustee failed to present any evidence that Main had been in fact a chosen victim of plunder. Id. at 478-79. As a result, we rejected the Trustee's attempts to assert these "large, unfocused and unproven miscellaneous claims against the Blatsteins." Id. at 479.
As to the claim that the Blatsteins were liable for the penalties imposed by the taxing authorities upon Main for failure to timely file its tax returns and make the corresponding payments to the applicable taxing authorities, we noted that the Trustee was responsible for the preparation of the Debtor's tax returns and payment of the taxes in question. Id. at 479. In Main VI, without meaning to withdraw the prior reasoning, we held that this claim was not addressed in the Trustee's post-trial brief, which we held in Main V recited all of the claims which we would consider, 223 B.R. at 461, was "poorly-presented" and "obscure," and hence was effectively waived.
As to the Blatsteins' liability, the Court, in Main VII, at *12-15, found that we had accurately set down the law in Main V while describing the fiduciary duties which officers and directors of closely-held corporations owe to these corporations and their creditors in deciding the issue of Management's liability to Main for its inspection of excessive fees, 223 B.R. at 471-73, we had not correctly applied this law in analyzing the Blatsteins' individual liabilities to Main. Specifically, the Court found that we had erroneously placed the burden on the Trustee to prove a breach of their duties by the Blatsteins rather than requiring the Blatsteins to...
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