In re RDM Sports Group, Inc.

• Citation: 250 BR 805
• Decision Date: 07 July 2000
• Docket Number: Bankruptcy No. 97-12788-WHD to 97-12796-WHD,Adversary No. 99-1063.
• Parties: In the Matter of RDM SPORTS GROUP, INC.; RDM Holdings, Inc.; Sports Group, Inc.; Diversified Products Corporation; Willow Hosiery Company, Inc.; Hutch Sports USA, Inc.; Diversified Trucking Corp.; International Sports and Fitness, Inc.; and T.Q., INC., Debtors. William G. Hays, Jr., as Chapter 11 Trustee for RDM Holdings, Inc. and Sports Group, Inc., Plaintiff, v. DMAC Investments, Inc., Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

250 B.R. 805 (2000)

In the Matter of RDM SPORTS GROUP, INC.; RDM Holdings, Inc.; Sports Group, Inc.; Diversified Products Corporation; Willow Hosiery Company, Inc.; Hutch Sports USA, Inc.; Diversified Trucking Corp.; International Sports and Fitness, Inc.; and T.Q., INC., Debtors William G. Hays, Jr., as Chapter 11 Trustee for RDM Holdings, Inc. and Sports Group, Inc., Plaintiff, v. DMAC Investments, Inc., Defendant.

Bankruptcy Nos. 97-12788-WHD to 97-12796-WHD, Adversary No. 99-1063.

United States Bankruptcy Court, N.D. Georgia, Newnan Division.

July 7, 2000.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

James C. Cifelli, Lamberth, Bonapfel, Cifelli & Stokes, P.A., Atlanta, GA, for Plaintiff.

Joseph J. Burton, Jr., Burton & Anderson, Atlanta, GA, for Defendant.

ORDER

W. HOMER DRAKE, Bankruptcy Judge.

Before the Court are cross motions for summary judgment filed by William G. Hays, Jr. (hereinafter the "Trustee") and DMAC Investments, Inc. (hereinafter "DMAC"). The cross motions arise in an adversary proceeding initiated by the Trustee in accordance with 11 U.S.C. §§ 547 and 548 to recover an alleged preferential or fraudulent transfer made by one of the Debtors to DMAC. This matter constitutes a core proceeding within the Court's subject matter jurisdiction, see 28 U.S.C. § 157(b)(2)(F) and (H), and it shall be disposed of in accordance with the reasoning which follows.

FINDINGS OF FACT

The relevant facts in this case are undisputed. Roadmaster Corporation (hereinafter "Roadmaster"), now known as RDM Holdings, Inc., one of the Debtors in the main bankruptcy case, executed an industrial building lease on September 1, 1993, with DMAC as the lessor. Rent in the amount of $22,916.67 was due on the first day of each month, and the term of the lease was five years. (Hays' Affidavit, Ex. B at ¶ 1 and 3). The manufacturing facility which was the subject of the lease is located in Tyler, Texas.

On October 27, 1996, Roadmaster sold and assigned its interest in the lease to DP Fitness, Inc. (Hays' Supplemental Affidavit, Ex. E at ¶ 4). As part of the sale and assignment, DP Fitness assumed Roadmaster's liabilities, including its lease obligations to DMAC. (Id., Ex. F at ¶ 1.2). Records maintained by the Alabama Secretary of State reflect that DP Fitness changed its name to Sports Group, Inc. (hereinafter "Sports Group") on December 19, 1996. (Id., Ex. G).

Beginning in February of 1997, Sports Group failed to make rent payments to DMAC. (McInnis Affidavit at ¶ 5). On April 18, 1997, DMAC filed an "Application for Issuance of Distress Warrant" against Roadmaster in the Justice Court, Precinct No. 4, Smith County, Texas. (Id., Ex. B). A distress warrant¹ was issued by the Justice Court on the same day. (Id.). Shortly thereafter, on May 19, 1997, the District Court, 241st judicial District, Smith County, Texas, entered a default judgment against Roadmaster in the principal amount of $699,833,40. (Id., Ex. C).

DMAC and Roadmaster executed a settlement agreement on June 18, 1997. Reference to the Texas state court lawsuit and the default judgment is made on the first page of the settlement agreement. (Hays' Affidavit, Ex. D at p. 1). Paragraph one of the agreement provides that "Roadmaster shall pay DMAC Three Hundred Twenty-Five Thousand Dollars ($325,000) in full satisfaction of all amounts due and remaining due under the Lease, including rent, additional rent, taxes, charges, repair, maintenance, damages, other obligations and legal fees, but excluding those other obligations specifically provided for in this Agreement." (Id. at ¶ 1). In addition, paragraph two states that "upon payment and collection of the $325,000, and the delivery of the letter of credit as hereinafter provided, DMAC shall execute a release . . ., and a release in satisfaction of the Judgment in the Case." (Id. at ¶ 2).

Despite the fact that the parties had resolved their differences, DMAC was authorized, until such time as it received payment, to take the necessary steps to collect its judgment. (Id.). To that end, on June 19, 1997, DMAC caused an abstract of its judgment to be filed in the Smith County, Texas property records. (McInnis Affidavit, Ex. E). A writ of execution was issued on June 19, 1997 by the Clerk of the District Court, 241st Judicial District, Smith County, Texas. (Id., Ex. F). A Smith County deputy sheriff levied on Roadmaster's personal property on June 23, 1997, and a public sale of the property was scheduled for July 3, 1997. (Id., Ex. G).

The public sale never took place, as DP Fitness paid $325,000 to DMAC on June 26, 1997. (Hays' Affidavit, Ex. A). DMAC immediately negotiated the check and it was honored on June 27, 1997.(Id.).

RDM Holdings and Sports Group filed Chapter 11 petitions on August 29, 1997. On May 18, 1999, the Trustee filed a complaint against DMAC to recover the $325,000 as either a fraudulent conveyance or a preferential transfer. With respect to said complaint, both parties contend that they are entitled to a judgment as a matter of law.

CONCLUSIONS OF LAW

I. The Summary Judgment Standard

In accordance with Rule 56 of the Federal Rules of Civil Procedure (applicable to bankruptcy pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure), the Court will grant summary judgment only if "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "Material facts" are those which might affect the outcome of a proceeding under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Furthermore, a dispute of fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. Lastly, the moving party has the burden of establishing the right of summary judgment. Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir.1991); Clark v. Union Mut. Life Ins. Co., 692 F.2d 1370, 1372 (11th Cir.1982).

In determining whether a genuine issue of material fact exists, the Court must view the evidence in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Rosen v. Biscayne Yacht & Country Club, Inc., 766 F.2d 482, 484 (11th Cir.1985). It remains the burden of the moving party to establish the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Fed.R.Civ.P. 56(e). Once the movant has made a prima facie showing of its right to judgment as a matter of law, the nonmoving party must go beyond the pleadings and demonstrate that there is a material issue of fact which precludes summary judgment. Celotex, 477 U.S. at 324, 106 S.Ct. 2548; Martin v. Commercial Union Ins. Co., 935 F.2d 235, 238 (11th Cir.1991). In the case sub judice, the Court will examine the record to determine whether the cross motions provide a sufficient legal basis which would entitle either party to a judgment as a matter of law. Dunlap v. Transamerica Occidental Life Ins. Co., 858 F.2d 629, 632 (11th Cir.1988); Kelly v. United States, 924 F.2d 355, 358 (1st Cir.1991).

II. The Trustee's Fraudulent Conveyance Claim

11 U.S.C. § 548(a)(1)(B)(i)² authorizes a bankruptcy trustee to "avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily received less than a reasonably equivalent value in exchange for such transfer or obligation." 11 U.S.C. § 548(a)(1)(B)(i). At the time the Trustee filed his motion for summary judgment, he did not know that Sports Group had assumed Roadmaster's obligations under the DMAC lease. He reasoned that Sports Group's payment of Roadmaster's debt constituted an exchange for which Sports Group received "less than a reasonably equivalent value." Documentation evidencing Sports Group's legal assumption of Roadmaster's liabilities has now been made part of the record. (See Hays' Supplemental Affidavit). Inasmuch as Sports Group changed its name to DP Fitness, there is nothing fraudulent about DP Fitness' payment of $325,000 to DMAC. DMAC is therefore entitled to summary judgment as to the fraudulent conveyance count (count two) of the Trustee's complaint.³

III. The Trustee's Preference Claim

One of the fundamental tenets of the law of bankruptcy is the equality of distribution of a debtor's usually limited assets. See H.R.Rep. No. 595, 95th Cong., 1st Sess. 177-78 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6138 (noting the "prime bankruptcy policy of equality of distribution among creditors"). In furtherance of that policy, § 547 authorizes the postpetition recovery of a debtor's prepetition transfers that are deemed to be preferential in nature. In essence, the central purpose of § 547 is to discourage creditors "from racing to the courthouse to dismember the debtor during his slide into bankruptcy." Id. The elements of a preference are set forth in § 547(b), which provision permits a trustee to avoid any prepetition transfer of an interest of a debtor in property —

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made —

(A) on or within 90 days before the date of the filing of the petition; or (B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time was an insider; and

(5) that enables such creditor to receive more than such creditor would receive if —

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

11 U.S.C. § 547(b)....