In re Main, Inc.
| Decision Date | 06 August 1998 |
| Docket Number | Adversary No. 98-0073DAS.,Bankruptcy No. 96-19098DAS |
| 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 |
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Paul B. Maschmeyer, Ciardi, Maschmeyer & Karalis, PC, Philadelphia, PA, for debtor.
Mitchell W. Miller, Philadelphia, PA, trustee of debtor.
Eric L. Frank, Miller, Frank & Miller, Philadelphia, PA, Steven M. Coren, Philadelphia, Pa, for debtor's trustee.
Edward J. DiDonato, DiDonato Winterhalter, P.C., Philadelphia, PA, for Eric Blatstein.
Michael H. Kaliner, Fairless Hills, PA, trustee in Blatstein Case.
Mary F. Walrath, Philadelphia, PA, for Corporate defendants.
W.J. Winterstein, Jr., Philadelphia, PA, for Morris Lift.
Kevin J. Carey, Mesirov, Gelman, Jaffe, Cramer & Jamieson, Philadelphia, PA, for Lori J. Blatstein.
George L. Miller, Miller Tate & Co., Philadelphia, PA, for interested party in motion scheduled per order.
Frederic Baker, Philadelphia, PA, Ass't. U.S. Trustee.
The instant adversary proceeding ("the Proceeding") arising in the now-Chapter 7 bankruptcy case of MAIN, INC. ("the Debtor"), is in substance an effort by the driving force in a predecessor proceeding reported at 213 B.R. 67 (Bkrtcy. E.D.Pa.1997) ("Main II"), 718 ARCH STREET ASSOCIATES ("Arch"), a creditor of the Debtor whose counsel has now been appointed as special counsel for MITCHELL W. MILLER, the Debtor's Trustee ("the Trustee"), to clean up a few issues left unresolved by our decision in Main II. In Main II we decided that Defendant ERIC J. BLATSTEIN ("Blatstein"), the Debtor's principal who is also a debtor in his own individual Chapter 7 case and whose discharge was denied in Main II, 213 B.R. at 83-87, (1) had fraudulently transferred his successful restaurant, the Philly Rock Bar & Grill ("Philly Rock"), from the Debtors to a new entity, COLUMBUSCO, INC. ("CCO"), to avoid paying the Debtor's creditors, specifically Arch, and was obliged as reconvey Philly Rock to the Debtor; but (2) was not subject to an alter ego claim which would have collapsed his many non-debtor entities into one entity in this court.
The Trustee now asserts certain specific claims which Debtor has against the non-debtor entities, as well as Blatstein, which claims appear to have been subsumed within the unsuccessful alter ego claims prosecuted in Main II. In addition, the Trustee attacks certain of the Debtor's dealings with non-debtor entities which he asserts were aspects of the fraudulent conveyance of Philly Rock from the Debtor to CCO. Specifically, the Trustee attacks the failure of Defendant AIRBEV INC. ("Airbev"), which operates a Philly Rock establishment at the Philadelphia International Airport ("the Airport"), to pay licensing fees to the Debtor for the use of the "Philly Rock" trade name. He also seeks to recover allegedly excessive management fees paid by the Debtor to another Blatstein-controlled entity which manages all of these entities, Defendant WATERFRONT MANAGEMENT CORP. ("Management"). Finally, the Trustee seeks to recover accounts receivable due to the Debtor from the non-debtor entities.
The substance of the Proceeding as a kind of band-aid placed upon a variety of issues either created by, or left unresolved by, Main II causes the Proceeding to be a potpourri in which the pleadings and the legal theories articulated therein do not, in several respects, mesh very well with the record and the issues argued in post-trial briefing.
In these circumstances, we are inclined to address and decide the issues as laid out in the post-trial briefing as opposed to the issues as set forth in the pleadings where the two diverge. Approaching the Proceeding in that way, we proceed to take on the issues articulated in the post-trial submissions and disregard the residuum of claims raised which now appear unrelated to the matters ultimately argued in these post-trial briefings.
We should note that Main II remains on appeal and that the effectuation of the centerpiece relief granted therein, i.e., the transfer of Philly Rock to the Trustee, has been stayed pending appeal. Nevertheless, the results here are, we believe, entirely consistent with the Main II result, especially because the record of the instant Proceeding tended to reinforce rather than undermine our earlier conclusions. In this regard, we reject the Trustee's attempts to reiterate alter-ego-like claims to render Blatstein and his non-debtor wife, Defendant LORI J. BLATSTEIN ("Lori;" with Blatstein, "the Blatsteins"), liable to the Debtor for its payments to them in the nature of compensation or equity distributions. We reject a claim that the Blatsteins are liable to the Debtor for its payments to them in the nature of compensation or equity distributions. We reject a claim that the Blatsteins are liable to the Debtor for imposition of tax penalty liabilities. We reject the claim that Airbev owes licensing fees to the Debtor. However, we sustain in part a claim that Management was paid excessive fees and that certain non-debtor liabilities owe accounts receivable to the Debtor. In assessing the amount of the latter, we tend to favor the analysis of the Defendants expert accountant, George L. Miller, in most instances where a conflict with the Trustee's expert accountant, Harvey W. Grossman, arose because, although the explanations by each accountant were extracted from the largely inscrutable records of the Blatstein entities, Miller has far superior experience in the specific area of bankruptcy claims at issue in the Proceeding. The only claims which were identifiable as preferences were those asserted against Lift. We utilized a fraudulent conveyance theory only to support the Debtor's claims against Management.
The instant adversary action is the latest and hopefully the last of the efforts of Arch, now standing in the shoes of the Trustee, to attempt to recover on a claim arising from a confessed judgment which Arch obtained against Blatstein in the state court in the amount of $2,774,803.09 for rent due under an acceleration of rent clause in a lease which a corporation formerly co-owned by the Blatsteins had entered into with Arch. After Blatstein's appeal from an unsuccessful attempt to open the confession judgment failed, Arch served Interrogatories in the nature of garnishment upon the Debtor. When the Debtor failed to answer the Interrogatories, Arch obtained a default judgment in state court for the same sum of $2,774,803.09 against the Debtor. The Debtor's appeal from denials of motions to open the default judgment entered against it were unsuccessful.
On September 20, 1996, the Debtor filed the case underlying the Proceeding as a voluntary Chapter 11 bankruptcy case, apparently to prevent Arch from executing on its judgment against it. This case was converted to a Chapter 7 case on December 18, 1996, and Blatstein filed his own individual voluntary Chapter 7 case, originally pro se, on the next day, December 19, 1996.
We will not herein reiterate all of the facts and procedural history of the underlying bankruptcy case and several related contested matters and adversary proceedings which arose out of it. For a full discussion of this history we will refer the reader to the prior opinions arising out of these matters. The first is reported as at In re Main, Inc., 207 B.R. 832 (Bankr.E.D.Pa.1997) ("Main I"), aff'd in part & rev'd in part sub nom., In re Blatstein, 1997 WL 560119 (E.D.Pa. Aug. 26, 1997) ("Blatstein"). In that decision we fixed Arch's claim at $269,159 pursuant to 11 U.S.C. § 502(b)(6). The Main II outcome is basically described at page 460 supra. In In re Main, Inc., 1997 WL 626544 (Bankr. E.D.Pa. Oct. 7, 1997) ("Main III"), we granted in part motions of the Trustee to reconsider and effectuate certain aspects of Main II, e.g. enjoining Eric from, inter alia, transferring Philly Rock; establishing a procedure whereby Grossman was permitted to review the books of the Debtor, CCO, and REEDCO, INC. ("Reedco") and file a report by November 21, 1997; and scheduling a hearing thereafter on November 25, 1997, to determine what other actions were necessary to enforce the Order of Main II, including setting up a schedule for the transfer of Philly Rock to the Trustee. Also, in Main III, we considered the Main I rent claim issue reversed in part in Blatstein and, in line with the directives of Blatstein, the claim of Arch was recomputed at $582,443.65. Finally, in In re Main, Inc., 1998 WL 156684 (Bankr.E.D.Pa. March 31, 1998) ("Main IV"), we denied the Defendants' motion to dismiss the instant Proceeding.
Subsequent to our decision in Main II, the decision in Blatstein was appealed to the Third Circuit Court of Appeals. Also, the Trustee and the Defendants filed various motions, including, as we noted at page 461 supra, a motion to stay certain aspects of our Main II and Main III decisions in the District Court. On November 3, 1997, the District Court stayed that aspect of our Main III decision contemplating a final transfer of Philly Rock to the Trustee on or after November 25, 1997, and, in a later order of November 7, 1997, set the fee that Management could charge for the operation of Philly Rock at six (6%) percent of the gross revenues. Thereafter, on another motion filed by the Trustee, the District Court, on June 23, 1998, reduced Management's fee to 2.5% of Philly Rock's gross revenues. The Court of Appeals has stayed the appeals to it pending the resolution of the matters in the District Court.
While the parties' appeals were still before the...
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