In re Metro Sewer Services, Inc.

• Decision Date: 10 August 2007
• Docket Number: Bankruptcy No. 6:05-BK-13530-KSJ.,Adversary No. 6:06-AP-00112-KSJ.
• Citation: 374 B.R. 316
• Parties: In re METRO SEWER SERVICES INC., Debtor. Scott R. Fransen, Chapter 7 Trustee, Plaintiff, v. Nicassio Corporation, Stephen Cudd, and Louis V. Nicassio, Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Florida

374 B.R. 316

In re METRO SEWER SERVICES INC., Debtor.

Scott R. Fransen, Chapter 7 Trustee, Plaintiff, v. Nicassio Corporation, Stephen Cudd, and Louis V. Nicassio, Defendants.

Bankruptcy No. 6:05-BK-13530-KSJ.

Adversary No. 6:06-AP-00112-KSJ.

United States Bankruptcy Court, M.D. Florida, Orlando Division.

August 10, 2007.

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Richard B. Webber, II, Richard Blackstone Webber II PA, Winter Park, FL, for Debtor.

Andrew M. Brumby, Shutts & Bowen LLP, Orlando, FL, for Scott R. Fransen.

Denise D. Dell-Powell, Akerman Senterfitt, Orlando, FL, for Defendants.

AMENDED MEMORANDUM OPINION PARTIALLY GRANTING AND PARTIALLY DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

(To Correct Signature Date Only)

KAREN S. JENNEMANN, Bankruptcy Judge.

In this adversary proceeding, Scott R. Fransen, the Chapter 7 Trustee, filed a Motion for Partial Summary Judgment (the "Motion") (Doc. No. 34) in connection with six of the nine counts contained in his Complaint against the defendants, the Nicassio Corporation ("Nicassio"), Stephen Cudd ("Cudd"), and Louis V. Nicassio ("Louis") (collectively, the "Defendants"). The trustee is seeking, under a variety of legal theories, to recover funds of the debtor, Metro Sewer Services Inc. ("Metro"), allegedly transferred at the behest of one or more of the Defendants, and also to hold Nicassio responsible for the entire amount of the estate's debt. Specifically, the trustee argues that: (i) transfers of Metro's property totaling $1,764,743.93, occurring between February and October of 2005, are avoidable pursuant to Bankruptcy Code¹ Sections 548(a)(1)(A) and (B) (Counts I and II); (ii) Cudd and Louis are personally liable for improper transfers because they breached fiduciary responsibilities they owed to Metro as de facto officers of Metro (Count VI); and (iii) Metro incurred damages totaling at least $3,436,557.80 as a result of a de facto merger (Count IV) or a joint venture (Count V) between Nicassio and Metro. Lastly, the trustee argues that a proof of claim Nicassio filed should be disallowed in its entirety pursuant to Bankruptcy Code Section 502(d) (Count IX).

Although the Defendants filed an answer generally denying liability under the Complaint, raising a counterclaim, and asserting 24 affirmative defenses (Doc. No. 9), they filed no response to the Motion raising factual disputes or otherwise challenging the trustee's entitlement to a summary judgment. Rather, the Defendants appear to have abandoned any defense they may have had to the trustee's Complaint. Because the Defendants received notice of all pleadings and proceedings, have failed to respond or to demonstrate any factual dispute or any reason why a summary judgment should not be entered, the Motion is granted.

Relying on the affidavits submitted by the trustee in support of his Motion,² the Court finds that Metro, a Florida corporation, was in the business of rehabilitating sewer lines in Florida. Nicassio was engaged in the same business, primarily in Pennsylvania. When Metro started to have financial problems and was insolvent,³ Nicassio offered to intercede by either acquiring Metro or by merging the two companies into one. Nicassio's merger offer was premised on Nicassio obtaining complete control, management and ultimately ownership of Metro, and upon Botts, Metro's then-president, becoming an employee of the new company with a minority ownership interest.

On April 8, 2005, Metro, through Botts, and Nicassio, through Louis and Cudd, executed an Initial Agreement of Intent to Acquire Business (the "Initial Agreement") (Doc. No. 35, Exhibit A). The Initial Agreement details the formation of a new company, the Nicassio Group South ("NGS"), the salaries for the officials of NGS, and the company's business purpose. NGS was to operate as a division of Nicassio (Doc. No. 35, p. 2, ¶ 2), and Metro, in turn, was to operate as a division of NGS (Doc. No. 35, Exhibit B). The Initial Agreement also provided that NGS would purchase Metro's corporate stock from Botts for $1.00, attempt to obtain releases for any personal guarantees Botts had signed, and assume Metro's debts.

After signing the Initial Agreement, the parties understood Nicassio, through NGS, would immediately assume control of Metro's business affairs. Consistent with this understanding, the parties acted as if the two businesses had indeed merged. Nicassio/NGS started to perform Metro's outstanding contracts. Louis and Cudd took control of Metro's business and financial affairs. Nicassio/NGS paid some of Metro's bills, all as authorized by Louis and Cudd. Any monies received by Metro were deposited into Nicassio's bank accounts.

From April 8, 2005, through October 2005, Nicassio wired nearly all the money Metro received to Nicassio's bank accounts in Pittsburgh (Doc. No. 35, p. 4, ¶ 7). However, these monies earned in connection with Metro's existing contracts, were not used to pay Metro's bills (Doc. No. 35, p. 4, ¶ 7). Rather, the funds were used primarily to pay Louis' personal obligations or to pay Nicassio's debts (Doc. No. 35, p. 5, ¶ 9). Metro received nothing of value in return for these transfers (Doc. No. 35, p. 5, ¶ 9). Botts, as then-president of Metro, had no "material control or direction over the manning or completion of jobs, ordering of inventory and parts, payment of debts, the disposition of cash, or virtually any other aspect of the management of Metro Sewer's business and financial affairs — as such had been assumed ... by Nicassio acting through [Louis] and Cudd." (Doc. No. 35, p. 5, ¶ 9). Nicassio/NGS purchased supplies using Metro's funds, incurred unsecured debt in Metro's name, and operated from Metro's business location and address (Doc. No. 35, p. 4, ¶ 9).

Nicassio publicized its merger/acquisition of Metro to the outside world. Metro's clients and creditors were informed that Metro was a subsidiary of Nicassio (Doc. No. 35, p. 4, ¶ 8). Louis and Cudd bought and distributed business cards which indicated Metro was a division of NGS (Doc. No. 35, p. 4, ¶ 8). These business cards contained Metro's logo and represented that Louis was president/CEO of Metro and that Cudd was vice president/COO of Metro (Doc. No. 35, Exhibit B). A prominent industry trade directory listed Metro as a division of NGS (Doc. No. 35, Exhibit C).

Meanwhile, Metro and Nicassio apparently continued to negotiate a final agreement for the acquisition/merger of Metro. During this period, Metro's debt increased (Doc. No. 35, p. 6, ¶ 13). Negotiations deteriorated, and Nicassio/NGS abandoned its business relationship with Metro.⁴ After incurring substantial new debt on behalf of Metro, stripping Metro of existing contracts and accounts receivables, and transferring all incoming funds to Nicassio's bank accounts, Nicassio, Louis, and Cudd simply walked away, leaving Metro with increased debt and few assets.

Metro filed this Chapter 7 case shortly thereafter, on October 11, 2005. The trustee then brought this adversary proceeding against the Defendants asserting nine counts, of which six are the subject of the trustee's Motion for Partial Summary Judgment. The Defendants were given 28 days to respond to the Motion (Doc. No. 39). The Defendants filed no pleading or response to the Motion.

Further, on December 21, 2006, the Court ordered the parties to attempt to mediate their dispute (Doc. No. 16). A mediator was selected, and the mediation was scheduled for January 22, 2007; however, because the Defendants did not attend, the mediation did not occur. The Court then issued an Order to Show Cause as to why sanctions should not be imposed for the Defendants failure to comply with the order directing mediation (Doc. No. 26). Although the Defendants did not respond, the mediator's affidavit indicates that counsel for the Defendants had called the trustee's lawyer to notify him that Cudd and Louis would not be attending the mediation because two of the defendants, Louis and Nicassio, consented to the entry of final judgments against them (Doc. No. 28). The Defendants did not attend the hearing, held on June 21, 2007, on the Order to Show Cause and for the oral argument on the trustee's Motion. They apparently do not contest the trustee's version of the facts or that he is entitled to a summary judgment as a matter of law.

However, even in the face of no opposition, a party seeking summary judgment still must prove "there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In determining entitlement to summary judgment, a court must view all evidence and make all reasonable inferences in favor of the opposing party. Haves v. City of Miami, 52 F.3d 918, 921 (11th Cir.1995) (citing Dibrell Bros. Int'l S.A. v. Banca Nazionale Del Lavoro, 38 F.3d 1571, 1578 (11th Cir. 1994)). A material factual dispute precludes summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The non-movant may not simply rely on his pleadings, but must show, by reference to depositions, affidavits or other evidence, that a material issue of fact is present. Roche v. Pep Boys, Inc. et. al. (In re Roche), 361 B.R. 615, 620 (Bankr.N.D.Ga. 2005). Specifically:

[t]he party seeking summary judgment bears the initial burden to demonstrate to the [trial] court the basis for its motion for summary judgment and identify those portions of the pleadings, depositions, answers to interrogatories, and admissions which it believes show an absence of any genuine issue of material fact ... If the movant successfully discharges its burden, the burden then shifts to the non-movant to establish, by going beyond the pleadings, that there exist genuine issues of material facts.

Roche, 361 B.R. at 620 (citing Hairston v. Gainesville Sun Publ'g Co., 9 F.3d 913, 918 (11th Cir.1993)). Because the Defendants have filed nothing in opposition...