In re OPM Leasing Services, Inc.

• Decision Date: 10 March 1983
• Docket Number: Adv. No. 81-5486A.,Bankruptcy No. 81 B 10533,81 B 11203
• Citation: 28 BR 740
• Parties: In re O.P.M. LEASING SERVICES, INC., Debtor. In re CALI TRADING INTERNATIONAL, LTD., Debtor. James P. HASSETT, as Chapter 11 Trustee of O.P.M. Leasing Services, Inc., and James P. Hasett, as Chapter 11 Trustee of Cali Trading International, Ltd., Plaintiffs, v. Daniel McCOLLEY, as Chapter 7 Trustee of Myron S. Goodman, Albert E. Reisman, as Chapter 7 Trustee of Mordecai Weissman, Federal Deposit Insurance Corporation, Louisiana National Bank of Baton Rouge, Rhode Island Hospital Trust National Bank, the Lincoln National Life Insurance Company, Westdeutsche Landesbank Girozentrale, the First National Bank of St. Paul, the Paul Revere Life Insurance Company, the Paul Revere Variable Annuity Insurance Company, Avco Corporation Retirement Income Trust and the Paul Revere Protective Life Insurance Company, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

28 B.R. 740 (1983)

In re O.P.M. LEASING SERVICES, INC., Debtor In re CALI TRADING INTERNATIONAL, LTD., Debtor James P. HASSETT, as Chapter 11 Trustee of O.P.M. Leasing Services, Inc., and James P. Hasett, as Chapter 11 Trustee of Cali Trading International, Ltd., Plaintiffs, v. Daniel McCOLLEY, as Chapter 7 Trustee of Myron S. Goodman, Albert E. Reisman, as Chapter 7 Trustee of Mordecai Weissman, Federal Deposit Insurance Corporation, Louisiana National Bank of Baton Rouge, Rhode Island Hospital Trust National Bank, the Lincoln National Life Insurance Company, Westdeutsche Landesbank Girozentrale, the First National Bank of St. Paul, the Paul Revere Life Insurance Company, the Paul Revere Variable Annuity Insurance Company, Avco Corporation Retirement Income Trust and the Paul Revere Protective Life Insurance Company, Defendants.

Bankruptcy Nos. 81 B 10533, 81 B 11203, Adv. No. 81-5486A.

United States Bankruptcy Court, S.D. New York.

March 10, 1983.

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Zalkin, Rodin & Goodman, New York City, for OPM/CALI; Henry L. Goodman, Harold N. Schwinger, Nadine S. Liebhardt, New York City, of counsel.

Rogers, Hoge & Hills, New York City, for Louisiana Nat. Bank; James Blair, New York City, of counsel.

DECISION ON LOUISIANA NATIONAL BANK'S MOTION FOR SUMMARY JUDGMENT

BURTON R. LIFLAND, Bankruptcy Judge.

The centerpiece of this litigation is a fund of approximately $17 million representing the proceeds of the sale of the controlling interest of a National Bank in Louisiana. During the course of the litigation many of the parties have resolved their claims against the fund by stipulations, compromises or settlements, the details of which have no impact on this motion for summary judgment.

The controversy presently before the Court concerns 164,366 shares of common stock which represent an interest of approximately 52% of shares in the First National Bank of Jefferson Parish, Louisiana ("FNJ"). This stock was pledged as security for a loan secured by Myron S. Goodman ("Goodman") and Mordecai Weissman ("Weissman") from the Louisiana National Bank of Baton Rouge ("LNB").

I. The Pleadings and Instant Motion

Through his amended complaint of November 12, 1981, James P. Hassett (the "Trustee"), acting as Chapter 11 trustee of both O.P.M. Leasing Services, Inc. ("OPM") and Cali Trading International, Ltd. ("Cali"), is seeking the turnover of the FNJ stock by LNB and the recovery of payments received by one or more parties including Daniel McColley, as Chapter 7 trustee of Goodman and Albert F. Reissman, as Chapter 7 trustee of Weissman, the Federal Deposit Insurance Corporation ("FDIC") and/or LNB. The complaint is based on alternative claims reflecting fraud, unfair consideration and constructive and purchase money resulting trusts.

Specifically, Part II of the amended complaint comprises the bulk of the pleading and alleges that Goodman and Weissman, both New York domicilliaries, each owned half of the shares of Cali which, in turn, owned all of the shares of OPM. The complaint further recites that Goodman and Weissman constituted the majority of the OPM and Cali Boards of Directors and its controlling officers, and in April 1978, while OPM and Cali were insolvent within the meaning of the Bankruptcy Code ("the Code") Section 101(26) and New York Debtor and Creditor Law §§ 270 et seq., entered into negotiations to purchase, and indeed contracted to purchase from the FDIC, the controlling shares of stock in FNJ for $9.5 million. In addition, the complaint avers that the contract was entered into by Goodman and Weissman "d/b/a O.P.M. Leasing Services, Inc." and that the $1 million contract down payment was made with OPM funds.

Thereafter, the complaint continues, LNB officials came to New York to negotiate, and on July 18, 1978, made a loan agreement to finance Goodman and Weissman's purchase of the FNJ stock. LNB lent Goodman and Weissman $6 million secured by a pledge of the FNJ stock, with OPM and Cali guaranteeing repayment of the loan. Simultaneously with the closing of the loan agreement, the purchase of the FNJ stock from the FDIC closed by payment to the FDIC of an additional $2.5 million of OPM funds and the $6 million loaned by LNB. At that time, the Trustee avers, Goodman and Weissman admitted in writing that it was intended that Cali be the legal and beneficial owner of the FNJ stock.

Part III of the Amended Complaint is the first count and is directed against all defendants seeking to recover OPM's aggregate payments to all defendants from 1978 to March 11, 1981, the date when OPM filed in Chapter 11, of $8,428,358.76 as a fraudulent conveyance, under Code Section 544(b) and New York Debtor and Creditor Law §§ 270 et seq. This figure encompasses all expenses in acquiring the FNJ stock by Goodman and Weissman and in servicing the LNB loan. The Trustee contends, inter alia, that these payments were made without fair consideration at times when OPM was engaged in a business for which the property in its hands after such payments constituted an unreasonably small capital. Thus, he avers that these payments were fradulent as to then existing and future creditors. The Trustee also seeks to impress a resulting or constructive trust pursuant to, e.g., New York Estates, Powers and Trusts Law ("EPTL") Section 7-1.2 upon the stock in favor of OPM by reason of the breach of fiduciary duties of Goodman and Weissman to OPM as its directors and officers pursuant to New York Business Corporation Law ("BCL") Section 720(a)(2) and to require the Goodman and Weissman Chapter 7 trustees, pursuant to Code § 550(a), to transfer the stock or its proceeds to him free of the claims of any of the defendants, including LNB.

Part IV is the second count by the Cali trustee and is one for alternative relief against all defendants claiming the execution of a trust in favor of the OPM or Cali trustee in the pledge of stock or its proceeds based upon the facts pleaded in the other parts. The alternative third count (Part V, paragraphs 47-49) in favor of the OPM trustee seeks to recover $3.5 million from the FDIC which OPM paid it directly to purchase the FNJ stock and $4,498,769.76 from LNB as fraudulent conveyances of OPM funds. This $4,498,769.76 amount represents OPM's principal and interest loan payments to LNB. The final alternative count (Part VI, paragraphs 50-52) on behalf of the Trustee against LNB seeks recovery of $1,676,808.37 paid to LNB with OPM funds within one year of the filing of OPM's Chapter 11 petition on March 11, 1981.

Defendant LNB moves pursuant to Rule 56 of the Federal Rules of Civil Procedure ("FRCP") as applied in bankruptcy matters by Rule 756 of the Rules of Bankruptcy Procedure¹ for summary judgment against the Trustee in his capacity as trustee of the OPM and Cali estates to dismiss the Amended Complaint insofar as it states claims against LNB. LNB's prior motion pursuant to Rule 12(b)(6) of the FRCP and Rule 712 of the Bankruptcy Rules to dismiss the amended complaint upon the ground that it fails to state a claim was denied by this Court on January 20, 1982.

LNB's answer and the Statements Under Local Rule 3(g) put into dispute the following issues: (1) the insolvency of Cali and OPM at the time the loan agreement was entered into; (2) LNB's actual or constructive knowledge that OPM and Cali were the true owners of the FNJ stock and that these corporations were insolvent; (3) that OPM's payments on behalf of Goodman and Weissman aggregating $8,428,358.76 constituted fraudulent conveyances; (4) that these payments were made without fair consideration at times when OPM was engaged in business for which the property remaining in its hands after such payments constituted an unreasonably small capital, thereby defrauding creditors; and (5) that these debts were incurred when Goodman and Weissman intended that OPM incur obligations beyond OPM's ability to repay. Moreover, LNB has asserted as affirmative defenses that Louisiana law applies and that the Trustee may not recover payments made by OPM to LNB under Code Section 544 because these transfers may not be avoided under Louisiana law, except upon a showing of bad faith by the transferee. LNB, of course, contends that it received payment in good faith. LNB also contends alternatively in its affirmative defenses, that recovery of payments received by LNB from OPM within one year of the filing of OPM's petition may not be had because the payments were not made with the intent to hinder, delay or defraud, and OPM received equivalent value in exchange therefore.

Accordingly, these defenses alone, which are deemed controverted, raise disputed fact questions going to the heart of the legal determination required of the Court herein.

II. Background Facts

From affidavits relating, inter alia, deposition testimony, the following additional background has been ascertained by this Court. OPM, a New York Corporation, was engaged in the business of buying, selling and leasing new and old computer equipment. At all pertinent times, OPM has been a wholly-owned subsidiary of Cali, a holding company incorporated in New York. The issued and outstanding stock of Cali was owned entirely by Goodman and Weissman. In addition, Goodman and Weissman have always made up at least a majority of the Board of Directors of OPM and Cali. Singer, Hutner, Levine and Seeman, P.C. ("Singer Hutner") was the law firm that represented both OPM and Cali and Goodman and Weissman. See Opinion Letter to LNB dated July 26, 1978 from Singer, Hutner attached as Exhibit 7 to the Affidavit of Robert C. Sutton, Jr., a Vice President of LNB, sworn to October 18, 1982 (the "Sutton Affidavit"). Prior to the transactions at issue, Andrew Reinhard of Singer Hutner was a member of the Board of Directors of OPM and Cali. Two other members of Singer Hutner or an affiliated law firm acted as directors of FNJ. Both OPM and Cali are debtors in...