In re Pinto Trucking Service, Inc.
| Decision Date | 21 November 1988 |
| Docket Number | Bankruptcy No. 85-04753S,Adv. No. 87-0829S. |
| Citation | 93 BR 379 |
| Parties | In re PINTO TRUCKING SERVICE, INC., Debtor. William SCHAPS, Trustee for Pinto Trucking Service, Inc., Plaintiff, v. JUST ENOUGH CORPORATION, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Stephen Raslavich, Philadelphia, Pa., for Trustee.
George Luskus, Philadelphia, Pa., for defendant.
Marvin Krasny, Philadelphia, Pa., for Debtor.
The instant proceeding features a creative invocation by the Trustee of a Chapter 7 business Debtor of his powers to avoid certain transactions of the Debtor as fraudulent conveyances. Herein, the Trustee attempts to set aside a transfer of the Debtor's stock, ultimately proven worthless, to one of the factions involved in pre-petition litigation over control of the Debtor to settle that litigation. However, the disputes resolved by the transfer were multifaceted, and the resolution was made in arms-length negotiations which were approved by all parties engaged in the dispute, including a neutral peacemaker, a court-approved "conservator" of the Debtor, and the court in which the litigation was pending. We therefore conclude that the Trustee failed to meet his burden of proving that the Debtor failed to receive adequate consideration in the settlement of the litigation. We also fail to find any intent to defraud creditors on the part of the Debtor-transferee in entering into the settlement transaction. These conclusions are fatal to the Trustee's claims under 11 U.S.C. § 548(a) of the Bankruptcy Code, as well as his claims based on state fraudulent conveyance and corporate laws. We therefore render judgment in favor of the Defendant.
On or about November 5, 1985, the Debtor filed the underlying bankruptcy case under Chapter 11 of the Bankruptcy Code. On January 31, 1986, upon motion of the Debtor to convert this case to a proceeding under Chapter 7 of the Bankruptcy Code, an Order of conversion was entered and William Schaps, the Plaintiff herein, was appointed Interim Chapter 7 Trustee (herein "the Trustee"). On September 11, 1987, the Trustee instituted the instant adversary proceeding against the Defendant, JUST ENOUGH CORPORATION (hereinafter "JEC").
After a series of continuances, the matter came before us for trial on May 25, 1988. On that date, the Trustee presented all of his witnesses, Accountant Stanton Remer, the Trustee himself, and, as of cross-examination, Biagio (Bob) Pinto, the principal of JEC. The trial was adjourned by agreement of counsel, until June 24, 1988, at which time JEC called its witnesses: Mr. Pinto again; the counsel who represented his faction in the state court litigation, John M. Gallagher, Esquire; the state-court conservator, Charles F. Knapp, Esquire; the "peacemaker," Accountant Stephen A. Cohen; and three expert witnesses on the issue of the improvements made to the property transfer to JEC subsequent to the transfer. Since we deem it unnecessary to rule on the issue of such improvements, we do not refer to the testimony of the last three witnesses hereafter.
At the close of the case, we issued an Order allowing the parties an opportunity to submit Proposed Findings of Fact, Proposed Conclusions of Law, and Briefs at 30-day intervals after completion of the Transcript, and the Trustee an opportunity to file a Reply Brief a week thereafter. All of these submissions were timely filed as of October 20, 1988. We note that the submissions of the parties amounted to 157 pages of materials, mostly in the form of long, analytical Briefs. These submissions were generally thoughtful and helpful, as no precedent presenting an analogous factual setting to the instant proceeding has been identified.
Pursuant to Bankruptcy Rule 7052 and Federal Rule of Civil Procedure (hereinafter "F.R.Civ.P.") 52(a), we shall present our decision in the form of Findings of Fact and Conclusions of Law/Discussion, including, in the latter, our reasoning as to each conclusion reached immediately after its recitation.
1. The Debtor, PINTO TRUCKING SERVICE, INC. (hereinafter "the Debtor"), was incorporated in 1952 by Biagio and Joseph Pinto and engaged in an air-freight pick-up and delivery business.
2. Biagio Pinto (hereinafter "Bob") was President and/or Chairman of the Debtor from 1952 until October, 1982, when he was incarcerated for matters apparently unrelated to this litigation.
3. In some fashion unexplained in the record, Joseph Pinto (hereinafter "Joe"), in charge of maintenance in the business prior to Bob's departure, allowed ownership of the Debtor's stock, which had previously been exclusively in the hands of the Pinto family, to be transferred in whole or in part to one Henry Bono (hereinafter "Bono"), who previously had operated only a New York City terminal of the Debtor.
4. In June, 1984, upon Bob's release from prison, he, Joe, and JEC instituted a so-called1 stockholder's derivative action in the Court of Common Pleas of Delaware County, Pennsylvania (hereinafter "the C.P.Ct."), against several Defendants, including the Debtor and Bono, in order to attempt to regain control of the Debtor.2
5. The plaintiffs in this action were represented by John M. Gallagher, Esquire (hereinafter "Gallagher"). On June 28, 1984, the C.P.Ct. issued a Preliminary Injunction, which, inter alia, appointed Charles F. Knapp, Esquire (hereinafter "Knapp"), as "conservator" of the Debtor. This term was utilized instead of "receiver" to allay any concerns that the Debtor was financially troubled.
6. Knapp ascertained that the incumbent Bono faction presented a more competent management team than the Pinto faction, and therefore, over the protests of the Pinto faction, he refused to oust the Bono faction from management.
7. Ultimately concluding that the opposing factions were destructively intractable, Knapp, in late summer, 1984, engaged Stephen A. Cohen (hereinafter "Cohen"), an accountant who had previously worked with both factions and was trusted by both, to assist him in attempts to settle this litigation and all differences between the two factions.
8. On October 3, 1984, after a lengthy negotiating session orchestrated by Knapp and Cohen and conducted at Knapp's law office, the parties settled this litigation as well as all other differences between them, which included a lawsuit brought against the Debtor by another Pinto-owned entity, Pennsylvania Stable and Terminals, Inc. (hereinafter "PST"), seeking to recover, inter alia, a balance of about $850,000.00 remaining from sums which PST had allegedly advanced to the Debtor from 1972 to 1979.
9. Featured in the settlement was the Debtor's agreement to transfer a portion of the real estate from which it operated its business headquarters at 1414 Calcon Hook Road, Darby Township, Pennsylvania, to JEC, subject to JEC's agreement to lease back the property to the Debtor for not more than one year. Counsel in this proceeding agree that the property transferred was worth $250,000.00 at the time. Also, the Debtor agreed to transfer, to the Pinto faction, $250,000 from the Debtor's profit-sharing plan. In addition, each faction released the members of that faction from liability from all past claims against members of the other faction, which eliminated the suit brought by PST in the C.P.Ct. and wiped out accounts receivable of the Pinto family in favor of the Debtor in the amount of $639,129.13 which had previously been carried on the Debtor's books.
10. The legitimacy of the claims set forth in the suit brought by PST and the accounts receivable of the Pinto family listed on the Debtor's books is difficult to measure. Bob testified, not surprisingly but without any direct rebuttal, that the claims asserted by PST were meritorious; that the accounts receivable listed were unknown to him and without basis; and that he was very reluctant to accept the settlement offered. He stated that the solvency of the Debtor was not a factor in the negotiations.
11. Gallagher had little knowledge of the PST suit, because he was not handling same directly. He had no apparent knowledge of the book entries or the status of the Debtor's solvency. He counselled the Pinto faction to accept the settlement as an expedient alternative to long, acrimonious litigation.
12. Cohen, an accountant, testified that he believed that the Debtor was solvent at the time that the settlement was reached and that he urged the settlement as a fair means of bringing peace to a mutually-destructive situation.
13. Knapp did not engage in a weighing process in evaluating the settlement, nor did he consider the Debtor's solvency, but he believed that a resolution was important for the same reasons as Cohen, and that the parties were likely to have reached an agreement that was equitable to all interests, in light of the hard feelings between them.
14. Bob's evaluation of the strength of his bargaining position was probably unrealistic, but the cumulative testimony of all of these witnesses, particularly the disinterested and hence highly credible testimony of Knapp and Cohen, established that, from the vantage point of everyone involved in the transaction, the settlement was totally fair to both sides.
15. The settlement terms were presented to the Honorable Joseph T. LaBrum, Jr. of the C.P.Ct. and approved by him in an Order of October 4, 1984.
16. The Debtor delivered an executed deed to the Pinto family and JEC at a real estate settlement on November 1, 1984, in furtherance of the settlement. However, the parties were unable to record the executed and delivered deed at that time because approval of the subdivision of the Calcon Hook Road property and bulk sales certificates were required. These documents were hence held in escrow until all approvals were obtained. The Deed was not recorded until April 18, 1985, after...
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