In re Prosser, Bankruptcy No. 06-30009 (Bankr. V.I. 10/10/2009)
| Decision Date | 10 October 2009 |
| Docket Number | Bankruptcy No. 06-30009.,Adversary No. 08-03002. |
| Parties | IN RE: JEFFREY J. PROSSER, Chapter 7, Debtor. STAN SPRINGEL, TRUSTEE OF THE BANKRUPTCY ESTATE OF INNOVATIVE COMMUNICATION CORPORATION, Chapter 11, Plaintiff, v. DAWN PROSSER; JEFFREY J. PROSSER; JAMES P. CARROLL, CHAPTER 7 TRUSTEE OF THE BANKRUPTCY ESTATE OF JEFFREY J. PROSSER; GREENLIGHT CAPITAL QUALIFIED, L.P.; GREENLIGHT CAPITAL, L.P.; AND GREENLIGHT CAPITAL OFFSHORE, LTD., Defendants. |
| Court | U.S. District Court — Virgin Islands, Bankruptcy Division |
On January 31, 2008, Trustee Springel, the chapter 11 trustee of the bankruptcy estate of Innovative Communication Corporation (hereinafter "New ICC"),1 commenced this adversary proceeding seeking to avoid the transfer and recover certain real property, i.e., 252 El Bravo Way, Palm Beach, Florida ("the Palm Beach property"), transferred by New ICC to Jeffrey Prosser, the Chapter 7 Debtor, and his nondebtor wife, Dawn Prosser.2 The statutory bases for the actions are 11 U.S.C. §§544 and 550. Before the court are Jeffrey Prosser's Motion for Summary Judgment, Doc. No. 139, and Trustee Springel's Motion for Summary Judgment, Doc. No. 141.3 Trustee Springel filed a response to Jeffrey Prosser's motion, Doc. No. 146. Objections to Trustee Springel's motion were filed by Jeffrey Prosser, Doc. No. 147, James P. Carroll, the chapter 7 trustee of the bankruptcy estate of Jeffrey Prosser, Doc. No. 149, and Dawn Prosser, Doc. No. 152.
On March 28, 2008, Dawn Prosser filed a Motion for Withdrawal of Reference, Doc. No. 20. On August 21, 2008, the District Court of the Virgin Islands Division of St. Thomas and St. John issued an opinion and order denying the motion. Case No. 3:08-CV-00054-CVG, Doc. No. 7. However, the District Court provided that "Dawn Prosser may renew her motion with respect to the Palm Beach Action...if and when the Bankruptcy Division certifies such action as trial-ready."4 The District Court's opinion and order, Doc. No. 184, were not entered on the Bankruptcy Court's docket until April 23, 2009, and consequently, the court was unaware of the order when it was issued by the District Court. As a result of that order, this opinion constitutes our proposed findings of fact and conclusions of law, which we recommend for adoption by the District Court. If the District Court does not adopt this opinion, we certify that the Palm Beach Action is ready for trial for purposes of Dawn Prosser's ability to renew her Motion for Withdrawal of Reference.
On September 23, 1999, Jeffrey and Dawn Prosser entered into a contract to purchase the property located at 252 El Bravo Way, Palm Beach, Florida ("the Palm Beach property"). See Contract for Sale and Purchase, Tab 2 to Doc. No. 141, Trustee Springel's Motion for Summary Judgment, at PB0011-14. In December 1999, the Prossers executed an assignment of that contract to New ICC. See Assignment Agreement, Tab 3 to Doc. No. 141, Trustee's Motion for Summary Judgment, at PB0015. Jeffrey Prosser, in his capacity as New ICC's president, was the sole signatory on the agreement on behalf of New ICC. Id. On December 14, 1999, New ICC purchased the Palm Beach property. See Purchaser's Closing Statement, Tab 9 to Doc. No. 141, Trustee Springel's Motion for Summary Judgment, at PB0058. On April 10, 2000, New ICC transferred title to Jeffrey and Dawn Prosser, as husband and wife.5 See Warranty Deed, Tab 12 to Doc. No. 141, Trustee Springel's Motion for Summary Judgment, at PB0063-64. The deed was executed by Jeffrey Prosser, as chairman of New ICC. Id. at PB0064. The Prossers made no payment to New ICC at the time of the transfer and have made none since.6 Thirteen months later, on May 1, 2001, Jeffrey Prosser, but not Dawn Prosser, executed an unsecured promissory note in favor of New ICC in the amount of $5.65 million, the original purchase price of the property. See Promissory Note, Tab 13 to Doc. No. 141, Trustee Springel's Motion for Summary Judgment, at PB0065. The note was made retroactive to April 10, 2000, the date that New ICC transferred the property to the Prossers. Id. The note provided for no periodic principal or interest payments and for only one balloon payment for the full amount due on April 10, 2007. Id. No payment was ever made on the note by Jeffrey Prosser. See Transcript of 6/11/2008, Tab 4 to Doc. No. 141, Trustee Springel's Motion for Summary Judgment, at PB0028. In addition to transferring the Palm Beach property to the Prossers for no consideration, New ICC also paid for remodeling of the Palm Beach property, the insurance premiums and taxes related to that property. See Deposition of Jeffrey J. Prosser (7/22/2008), Tab 7 to Doc. No. 141, Trustee Springel's Motion for Summary Judgment, at PB0043. The Prossers pledged the property as collateral for three loans from Bank of America and kept the proceeds for their own use. See Transcript of 8/25/2008, Tab 20 to Doc. No. 141, Trustee Springel's Motion for Summary Judgment, at PB0123. None of the proceeds from these loans went to New ICC. Id.
An involuntary bankruptcy petition was filed against New ICC on July 5, 2007, (approximately three months after Jeffrey Prosser's note for the $5.65 million was due in full and unpaid) and an order for relief was entered on September 21, 2007. See Involuntary Petition, Case No. 07-30012, Doc. No. 1; Order for Relief, Case No. 07-30012, Doc. No. 60. Trustee Springel seeks to avoid the transfer by New ICC of the Palm Beach property as a fraudulent conveyance pursuant to §544(b) of the Bankruptcy Code and applicable state law. Jeffrey Prosser avers that the statute of limitations has expired, no creditor as required by §544(b) was identified,7 and Trustee Springel has failed to plead fraud with requisite particularity.8
Pursuant to Federal Rule of Civil Procedure 56(c), the moving party is entitled to summary judgment where the evidence shows that "there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." The non-moving party can defeat summary judgment if it produces evidence in the record creating a genuine issue of material fact. El v. SEPTA, 479 F.3d 232, 238 (3d Cir. 2007). However, where the moving party has satisfied its burden under Rule 56(c), the non-moving party cannot "rely merely on allegations or denials in its own pleading; rather, its response must...set out specific facts showing a genuine issue for trial." Fed. R. Civ. Pro. 56(e)(2). The party opposing the motion "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
Section 544(b)(1) of the Bankruptcy Code provides the trustee with the power to "avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title." Because the action is based upon §544, the court must determine which state's fraudulent conveyance law applies. Bankruptcy courts must apply the choice of law rules of the state in which the court sits. See In re PHP Healthcare Corp., 128 Fed. Appx. 839, 843 (3d Cir. 2005); Bohm v. The Horsley Co., 333 B.R. 261, 276 (Bankr. W.D. Pa. 2005). This case is pending in the Virgin Islands. By statute, the Virgin Islands applies the Restatement (Second) of Conflict of Laws,9 and the law applied by the courts of the situs will be followed.10 Inasmuch, as Florida is the location of the real property, Florida law will determine whether the conveyance was fraudulent. However, bankruptcy courts apply the limitations period of the state in which they sit. In re W.R. Grace & Co., 397 B.R. 701, 704 (Bankr. D. Del. 2008) (). Therefore, the Virgin Islands' applicable statute of limitations governs.11
We address first Jeffrey Prosser's Motion for Summary Judgment. Doc. No. 139 Jeffrey Prosser's Motion for Summary Judgment
Jeffrey Prosser contends that this action is time barred. There are two time requirements implicated when a trustee files an avoidance action under §544(b). If the creditor in whose place the trustee stands under §544(b) would have been barred by the statute of limitations on the bankruptcy petition date, then the trustee may not proceed. See Haskell v. Bruno's, Inc., 303 F.3d 308, 314 (3d Cir. 2002); Orr v. Bernstein, 259 B.R. 555, 559 (Bankr. D.N.J. 2001). However, if the limitations period did not expire with respect to the creditor as of the petition date, then §546(a) provides the trustee with a two year period after the entry of the order for relief in which to bring an avoidance action. Id. at 558-59. The order for relief was entered on September 21, 2007, and the adversary proceeding was commenced on January 31, 2008. It is clear that Trustee Springel timely filed his complaint under §546(a). However, the parties dispute whether the action was time-barred under §544(b) as of the bankruptcy petition date, thereby precluding the trustee from proceeding.
The central issue raised by the parties is whether the Virgin Islands would apply a two year or twenty year limitations period. The twenty year limitations period applies to "[a]ctions for the recovery of real property, or for the recovery of the possession thereof; and no action shall be maintained for such recovery unless it shall appear that the plaintiff, his...
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