In re Pinto
| Decision Date | 30 March 1989 |
| Docket Number | Bankruptcy No. 87-02493S,Adv. No. 87-1077S. |
| 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 |
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Michael D. Power, Janet M. Sonnenfeld, Philadelphia, Pa., for debtors.
Louis DiGiacomo, Philadelphia, Pa., for defendant.
Anthony R. Barone, Philadelphia, Pa., Interim Trustee.
James J. O'Connell, Philadelphia, Pa. Asst. U.S. Trustee.
Before us is the latest chapter in an adversarial proceeding involving the application of § 548 of the Bankruptcy Code to the termination of a lease at the Defendant food terminal and elimination of the value of the Debtors' stock in the Defendant. In an earlier Opinion issued in this matter, we concluded that the Defendant's actions effected a transfer of an interest of the Debtors for less than a reasonably equivalent value. In re Pinto, 89 B.R. 486 (Bankr.E. D.Pa.1988). However, we concluded that the Debtors had failed to establish that the transfer qualified as avoidable under § 548(a)(2), since they had failed to establish that they were either insolvent at the time of the transfer or rendered insolvent as a result of the transfer. Id. at 500-501. Upon the Debtors' post-trial motions, we re-opened this matter and may now assess the solvency of the Debtors at the time of the transfer upon a full record. Applying the Code's "balance sheet" test of insolvency, we find that, at the time of the transfer, the Debtors' liabilities greatly exceeded their non-exempt assets. As a result, we find that the Debtors were insolvent and have now established all of the requisite elements for avoidance of the transfer in issue as constructively fraudulent under 11 U.S.C. § 548(a)(2).
The Debtors pleaded, in their Amended Complaint, a cause of action on the basis of unjust enrichment. Id. at 502. However, we agree with the Defendant that this theory of recovery was never developed by the Debtors either at trial or in their post-trial submissions. Accordingly, we shall dismiss this Count of the Debtors' Amended Complaint.1
The Debtors, MARY PINTO and JOSEPH PINTO, SR. (herein "the Debtors"), individually and trading as East Coast Produce (hereinafter "ECP"), filed the present adversary action against the PHILADELPHIA FRESH FOOD TERMINAL CORPORATION (herein "the Defendant"), seeking compensatory and punitive damages for the allegedly fraudulent transfer of the Debtors' interests in a lease from the Defendant and twenty shares of the Defendant's stock. Hearings were originally held in this proceeding on April 12 and 29, 1988, and we issued an Opinion in this matter on August 11, 1988. Pinto, supra. In that Opinion we concluded that § 548 of the Bankruptcy Code did apply to the Defendant's actions. However, we concluded that the Debtors had failed to establish the elements of a fraudulent transfer under either § 548(a)(1) or § 548(a)(2) of that Code Section. With respect to § 548(a)(2), our conclusion was due solely to the Debtors' failure to establish that they met any of the three alternative requirements of § 548(a)(2)(B). 89 B.R. at 500-501. In addition, we refused to consider the Debtors' suggestion, raised for the first time in their post-trial submission, that the Defendant was unjustly enriched as a result of its actions, since this theory of recovery had not been raised in the pleadings. Id. at 502.
After issuance of the initial Opinion in this matter, the Debtors, undoubtedly motivated by our observations in that Opinion, sought to amend their pleadings by filing a Motion to Amend Pleadings and Court Findings and a Motion for a New Trial and to Amend Court Findings. A hearing on these Motions was held on September 28, 1988. By Order entered September 29, 1988, we granted the Debtors' Motions in part, reopening the record in this matter and giving the Debtors until October 11, 1988, to file an Amended Complaint setting forth any new legal theories. By that same Order, we gave the Defendant an opportunity to amend its answer; allowed the parties until November 25, 1988, to complete any additional discovery; and set a date for a supplemental trial, at which we assured the Defendant that it could attempt to mend any flaws in its case, on December 6, 1988.
By error, our Order of September 29, 1988, was misdirected. As a result, we granted the Debtors an extension of time until October 19, 1988, within which to file their amended pleading. The Debtors' Amended Complaint for Fraudulent Conveyance and Unjust Enrichment was filed on October 19, 1988, and the Defendant's Amended Answer was timely filed on October 31, 1988. Included in the Defendant's pleading was a Counterclaim seeking rental payments from the Debtors for the period between November 1, 1986, and June 30, 1987, including late charges and reimbursement for use and occupancy taxes. The Debtors' Answer to this Counterclaim was filed on November 14, 1988.
The supplemental trial in this matter was conducted on December 6, 1988, as scheduled. The Debtors recalled Joseph Pinto, Jr. (hereinafter "Pinto, Jr.") and Mary Pinto (hereinafter "Mary") to testify regarding the assets and liabilities of ECP and the individual Debtors. While Joseph Pinto, Sr. (hereinafter "Pinto, Sr.") was also called to testify, his testimony was brief and not very helpful. As a result of a stoke that he had suffered in August, 1986, it was clear that he had little recollection of the relevant facts. The Defendant called Michael Piccolo (hereinafter "Piccolo"), a real estate broker, to testify regarding the value of the Debtors' residence. In addition, the Defendant recalled Raymond Farber (hereinafter "Farber"), its general manager.
A transcript of the trial was ordered and was filed on January 23, 1989. On January 24, 1989, we entered an Order requiring that the parties file their Supplemental Proposed Findings of Fact and Conclusions of Law by February 8, 1989 (Debtors), and February 23, 1989 (Defendant). The parties' post-trial submissions were timely filed.
We have already made extensive Findings of Fact and Conclusions of Law in this matter, which are set forth in our previous decision, 89 B.R. at 489-502. We will not restate those here, as we have concluded that there is no basis for reconsideration of any of them. However, we will supplement same based upon the new evidence and arguments presented at the supplemental trial and in the post-trial submissions. We render our decision in the form of Findings of Fact and Conclusions of Law as required by Bankruptcy Rule (hereinafter "B.Rule") 7052 and Federal Rule of Civil Procedure 52(a).
1. As of November 11, 1986, which we previously determined and reaffirm was the date of the transfer in issue, 89 B.R. at 496-97, the Debtors owned a home located at 2129 Porter Street in the Girard Estate section of south Philadelphia, Pennsylvania, in which they had resided for years.
2. The Debtors' home was sold on November 14, 1988, for $112,000.00. However, the proceeds from this sale were exhausted by satisfaction of mortgages against the property and other expenses associated with the sale. None of the proceeds from this sale were paid to the Debtors.
3. The Debtors' home had originally been listed for sale for $139,900.00. However, the only other offer made for the property was for $107,000.00.
4. Piccolo testified that the value of the property in November, 1986, was in the range of $140,000.00. Piccolo attributed the alleged decline in value over the two-year period prior to the sale to city-wide increases in transfer, business use, and occupancy taxes which occurred between 1986 and 1988, and to the low supply of homes available for sale in the Girard Estate area in 1986.
5. Piccolo also testified that he checked the sale prices of several comparable properties located near the Debtors' residence that were sold in 1986. According to Piccolo, the sale price of these properties ranged from $106,000.00 to $160,000.00. However, the higher priced properties did not appear to be comparable to the Debtors' residence, since they were larger or possessed additional amenities. For example, he referenced a property that sold for $160,000.00 that was a larger home containing apartments. Another property referenced, which was sold for $155,000.00, was located on a corner lot. The additional properties which Piccolo used as comparables had sold for $120,000.00, $122,000.00, and $130,000.00.
6. Piccolo testified that, on a city-wide basis, real estate had appreciated at a rate of seven (7%) percent to eight (8%) percent per year between 1986 and 1988, which appears inconsistent with his contention that city-wide increases were the cause for the decline in the value of the Debtors' property. Equally paradoxically, he contended that values in the Girard Estates section as a whole did not depreciate during the relevant period.
7. Mary, displaying an overly-generous objectivity which suggested that she was ignorant of the legal ramifications of her testimony, concurred with Piccolo's opinion that the property in her neighborhood had declined.2 We found this testimony, however, uninformed and of little assistance.
8. While the value of the Debtors' property may have declined somewhat between the period of November, 1986, and November, 1988, we believe that Piccolo's estimate of the property's value in 1986 to be inflated. The comparability of the other properties cited by Piccolo is questionable in light of the additional features which they offered. The real estate values for Philadelphia in general had appreciated rather than depreciated over this period even though the increases in...
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