In re Pinto
| Decision Date | 11 August 1988 |
| Docket Number | Bankruptcy No. 87-02493S.,Adv. No. 87-1077S |
| Citation | 89 BR 486 |
| Parties | In re Mary PINTO, Individually, and Joseph Pinto, Individually and trading as East Coast Produce, Debtors. Mary PINTO, Individually, and Joseph Pinto, Individually and trading as East Coast Produce, Plaintiffs, v. PHILADELPHIA FRESH FOOD TERMINAL CORPORATION, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Michael D. Power, Janet M. Sonnenfeld, Philadelphia, Pa., for plaintiffs/debtors.
Anthony R. Barone, Philadelphia, Pa., trustee.
Louis DiGiacomo, Philadelphia, Pa., for defendant.
The Debtors herein seek application of § 548 of the Bankruptcy Code, relating to fraudulent transfers, to a transaction that included both the termination of their lease with the Defendant, the Philadelphia Fresh Food Terminal Corporation (hereinafter referred to as "the Defendant"), and the Defendant's effective elimination of the value of the Debtors' stock in the Defendant-corporation. The Defendant argues that, for a variety of reasons, § 548 is inapplicable to the facts involved in the present case. We conclude that § 548 can be applied to the "transfer" of the Debtors' interest in both the lease and the stock effected by the Defendant. However, we find that the Debtors have failed to establish a fraudulent transfer under § 548(a)(1) because the Debtors did not intend to hinder, delay, or defraud a creditor in the "transfer" in issue. The Debtors have also not satisfied §§ 548(a)(2)(A)-(B)(i) and (ii) due to their failure to establish insolvency on the date of the transfer or that the transfer left an unreasonably small amount of capital as to them, as opposed to their business.
On May 21, 1987, a Chapter 11 Petition was filed by Mary Pinto, individually, and Joseph Pinto (hereinafter referred to as "Pinto, Sr."), individually and trading as East Coast Produce. (Mary Pinto and Pinto, Sr. are hereinafter referred to collectively as "the Debtors.") The Debtors filed their Complaint in the present Adversary Proceeding against the Defendant on December 28, 1987. An Order was entered on June 9, 1988, converting the case to Chapter 7 upon an unopposed Motion of the United States Trustee.
The Debtors' Complaint sought compensatory and punitive damages from the Defendant as the result of an alleged transfer of both its interest in a lease with the Defendant and stock held by Debtors in the Defendant-corporation. The Debtors alleged that the transfer constituted both a fraudulent conveyance under 11 U.S.C. § 548 and a preferential transfer under 11 U.S.C. § 547. The Debtors sought punitive damages for what they characterized as the Defendant's outrageous, wanton, and malicious conduct. The Defendant, through its Answer, denied that either a fraudulent or preferential transfer had occurred.
Hearings were held in this matter on April 12 and 29, 1988. In the course of those proceedings, the Debtors indicated that they would not pursue Count Two of their Complaint, alleging that a preferential transfer had occurred.
The Debtors presented testimony from Joseph Pinto, Jr. (hereinafter referred to as "Pinto, Jr."), son of the Debtors; Stanley Sussman, a former business partner of Pinto, Jr.; and Harold Goldberg, Esquire, an attorney who had represented a potential purchaser of Debtors' major assets. At the close of the Debtors' case, the Defendant moved for dismissal pursuant to Bankruptcy Rule (hereinafter "B.Rule") 7041, which motion was denied. The Defendant then called Raymond Farber, general manager of the Defendant; William T. Morgen, corporate secretary of the Philadelphia Produce Credit Bureau; and Marvin J. Levin, Esquire, who had represented the Receiver appointed in state court for East Coast Produce (hereinafter "East Coast"), as its witnesses.
By Order dated May 3, 1988, a briefing schedule was established. On June 3, 1988, and June 24, 1988, the Debtors and the Defendant made timely submissions to us supporting their respective positions. We are obliged to render our decision in the form of Findings of Fact, Conclusions of Law, and a Discussion by the terms of B.Rule 7052.
1. The Defendant is a Pennsylvania business corporation incorporated in 1953. It leases approximately twenty (20) acres of property in South Philadelphia from the Food Distribution Center. This twenty-acre property (hereinafter referred to as "the Terminal") includes seventy-three (73) enclosed units or stalls which are leased by the Defendant to wholesale produce merchants. The Terminal also includes two (2) restaurants and approximately one hundred (100) office tenants.
2. The merchants who lease units from the Defendant are the stockholders of the Defendant (hereinafter referred to as "the Stockholders"). Each of the Stockholders owns twenty (20) shares of stock per unit leased. None of the office tenants or restaurants are stockholders. A tenant must be actively engaged in the wholesale fruit and produce business to be a Stockholder.
3. Only Stockholders can lease produce units from the Defendant at the Terminal. However, the Defendant, by its Board of Directors (hereinafter referred to as "the Board"), may refuse to lease to even a Stockholder. A Stockholder receives no dividend payment or other benefit from stock ownership, other than the right to lease a produce unit from the Defendant. Raymond Farber, its general manager, admitted that nobody would want to buy Defendant's stock if that person could not also lease a unit.
4. Each Stockholder has signed both a store lease (hereinafter referred to as "Lease") and an Agreement Restricting Transfer of Stock (hereinafter referred to as "Stock Agreement") with the Defendant. The Lease and the Stock Agreement for each Stockholder are identical.
5. Stockholders are able to transfer their interests in their stock and leasehold with the approval of the Board. Under the Stock Agreement, a sale or transfer of stock may not be consummated without the consent, by resolution, of the Board. Also pursuant thereto, Stockholders are required to give written notice of any proposed transfer to the Defendant including the name, address, and nature of the business of the prospective buyers, and such other information concerning the prospective buyer as the Board may require. According to Farber, the Defendant generally required the following information regarding prospective buyers: (1) A financial statement; (2) The identity of the principals; and (3) If the buyer is a corporation, then the name of the corporation; the identity of the Corporation's officers and directors; and the percentage of any stock owned by any principals.
6. When a Stockholder sells the stock, the Defendant issues a new lease and new shares of stock to the purchaser. The transferor surrenders his or her stock to the Defendant. Any consideration for the transfer is paid by the transferee to the transferor-Stockholder. Normally, no payment is made to the Defendant in a transaction involving sale of stock. The transferee-Stockholder thereafter pays monthly rental payments to the Defendant under the new lease. A diagram of the transaction would appear as follows:
All transfers of stock also involve the transfer of the transferor's leasehold at the Terminal.
7. Pinto, Sr. and Pinto, Jr. were both wholesale produce merchants at various times in their lives.
8. In or about June, 1982, Pinto, Jr. and Stanley Sussman, doing business as Angelo DiGiacomo (hereinafter referred to as "DiGiacomo"), purchased an interest in a double unit1 at the Terminal for approximately $250,000.00. As part of this transaction, Pinto, Jr. and Sussman received forty (40) shares of Defendant's stock and a lease from the Defendant for the double unit. Pinto, Jr. subsequently terminated his involvement with this partnership.
9. In or about January, 1985, Pinto, Jr. purchased twenty (20) shares of Defendant's stock and a leasehold interest from the Defendant in unit 110 at the Terminal for $145,000.00. As part of this transaction, Pinto, Jr. also obtained three 40-foot refrigerated trailers that were attached to unit 110. Pinto, Jr. thereafter operated a business at this unit called Joseph Pinto & Sons.
10. Pinto, Jr. subsequently also purchased and sold twenty (20) shares of Defendant's stock and an interest in a leasehold from the Defendant in unit 112 of the Terminal. Pinto, Jr., sold his interest in unit 112 to an unrelated party for $150,000.00.
11. Pinto, Jr.'s purchase of stock and leasehold interests in units 110 and 112 were financed by Frankford Trust. As security for these loans, Frankford Trust took a security interest in the units as well as the homes of both Pinto, Jr. and the Debtors.
12. In or about May, 1986, the United States Perishable Acts Commodity Association terminated Pinto, Jr.'s license to sell produce due to "bookkeeping irregularities."
13. In or about May, 1986, Pinto, Jr. allegedly transferred his stock and interest in leasing unit 110 to Pinto, Sr., doing business as East Coast Produce Company (hereinafter referred to as "East Coast"). In that transaction, Pinto, Jr. allegedly sold his stocks and lease to Pinto, Sr. for $150,000.00, which amount was payable in monthly installments. According to the Agreement of Sale of Assets between these parties, there was also a sale of accounts receivable of Pinto, Jr.'s business to East Coast for a purchase price of $231,405.92.
14. The transfers described in paragraphs 8 through 13 supra, were approved by the Defendant's Board.
15. Pinto, Jr. remained active in the business of East Coast after sale of the business to Pinto, Sr.
16. In August, 1986, Pinto, Sr. suffered a stroke. In that month, East Coast ceased doing business due to financial difficulties and Pinto, Sr.'s poor health. As a result, Pinto, Sr. decided to sell the stock and leasehold interest in unit 110....
To continue reading
Request your trial