In re Sheffield Steel Corp.

• Decision Date: 08 November 2004
• Docket Number: Adversary No. 03-0134-R.,Bankruptcy No. 01-05508-R.
• Citation: 320 B.R. 423
• Parties: In re SHEFFIELD STEEL CORPORATION, a Delaware corporation, Waddell's Rebar Fabricators, Inc., a Missouri corporation, Wellington Industries, Inc., a Delaware corporation, Debtors and Debtors in Possession. Sheffield Steel Corporation, Plaintiff, v. HMK Enterprises, Inc., Steven E. Karol, and Robert W. Ackerman, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Oklahoma

320 B.R. 423

In re SHEFFIELD STEEL CORPORATION, a Delaware corporation, Waddell's Rebar Fabricators, Inc., a Missouri corporation, Wellington Industries, Inc., a Delaware corporation, Debtors and Debtors in Possession.

Sheffield Steel Corporation, Plaintiff, v. HMK Enterprises, Inc., Steven E. Karol, and Robert W. Ackerman, Defendants.

Bankruptcy No. 01-05508-R. Adversary No. 03-0134-R.

United States Bankruptcy Court, N.D. Oklahoma.

November 8, 2004.

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Neal Tomlins, Ronald E. Goins, Tomlins & Goins, Tulsa, Oklahoma, for Plaintiff/Debtor.

Frederic Dorwart, Matthew J. Browne, Deirdre 0. Dexter, Frederic Dorwart Lawyers, Tulsa, Oklahoma, J. Owen Todd, Howard M. Cooper, Todd & Weld LLP, Boston, Massachusetts, for Defendants.

ORDER DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT

DANA L. RASURE, Bankruptcy Judge.

This matter is before the Court on—

• Defendants' Motion for Partial Summary Judgmment sic (First Amended Adversary Complaint) (With Request for Oral Argument) (Adv.Doc. 41), filed by Defendants HMK Enterprises, Inc. ("HMK"), Steven E. Karol ("Karol") and Robert W. Ackerman ("Ackerman") (collectively the "Defendants") on January 23, 2004 (the "Motion");

• Defendants' Brief in Support of Defendants' Motion for Summary Judgmement sic (First Amended Adversary Complaint) (Adv.Doc. 42), filed on January 23, 2004 ("Defendants' Brief");

• Affidavit of Howard Stevenson (Adv. Doc. 43) filed by Defendants on January 23, 2004 ("Stevenson Affidavit");

• Affidavit of Robert W. Ackerman (Adv.Doc. 44) filed by Defendants on January 23, 2004 ("Ackerman Affidavit");

• Defendants' Appendix (Vol. I and II) filed on January 23, 2004;

• Plaintiff's Brief in Opposition to Defendants' Motion for Summary Judgment (Adv.Doc. 48), filed by Plaintiff and Debtor Sheffield Steel Corporation ("Sheffield") on February 24, 2004 ("Sheffield's Brief);

• Affidavit of Stephen R. Johnson (Adv.Doc. 49), filed February 24, 2004 ("Johnson Affidavit");

• Appendix (Adv.Doc. 50), filed by Sheffield on February 24, 2004; and

• Defendants' Reply Brief in Support of Defendants' Motion for Summary Judgmement sic (First Amended Adversary Complaint) (Adv.Doc. 58), filed on March 15, 2004 ("Defendants' Reply Brief);

I. Jurisdiction

The Court has jurisdiction of this "core" proceeding by virtue of 28 U.S.C. §§ 1334, 157(a), and 157(b)(2)(B), (C), (H), and (O); Miscellaneous Order No. 128 of the United States District Court for the Northern District of Oklahoma: Order of Referral of Bankruptcy Cases effective July 10, 1984, as amended; and ¶ 13.01(f) of the Second Amended and Restated Joint Plan of Reorganization, as confirmed by the Order Confirming Second Amended and Restated Joint Plan of Reorganization of Sheffield Steel Corporation, Waddell's Rebar Fabricators, Inc. and Wellington Industries, Inc. (Doe. 734 in Sheffield's bankruptcy case, Case No. 01-05508-R).

II. Summary Judgment Standard

Summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c), made applicable to this proceeding by Bankruptcy Rule 7056. "A fact is `material' if under the substantive law it could have an effect on the outcome of the lawsuit." Adams v. American Guarantee & Liability Ins. Co., 233 F.3d 1242, 1246 (10th Cir.2000), citing EEOC v. Horizon/CMS Healthcare Corp., 220 F.3d 1184, 1190 (10th Cir.2000). "An issue is `genuine' if `a rational juror could find in favor of the nonmoving party on the evidence presented.'" Id., quoting Horizon, 220 F.3d at 1190.

The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. See Spaulding v. United Transp. Union, 279 F.3d 901, 904 (10th Cir.2002), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In attempting to meet that standard, a movant that does not bear the ultimate burden of persuasion at trial need not negate the other party's claim; rather, the movant need simply point out a lack of evidence for the other party on an essential element of that party's claim. See Adams, 233 F.3d at 1246, citing Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998).

Once the movant has met its initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Spaulding, 279 F.3d at 904, citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex, 477 U.S. at 324, 106 S.Ct. 2548. The nonmoving party may not simply rest upon its pleadings to satisfy its burden. Liberty Lobby, 477 U.S. at 256, 106 S.Ct. 2505. Rather the nonmoving party must "set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Mitchell v. City of Moore, 218 F.3d 1190, 1197-98 (10th Cir. 2000), quoting Adler, 144 F.3d at 671. To accomplish this, the facts "must be identified by reference to an affidavit, a deposition transcript, or a specific exhibit incorporated therein." Adams, 233 F.3d at 1246.

"At the summary judgment stage the judge's function is not ... to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Liberty Lobby, 477 U.S. at 249, 106 S.Ct. 2505. Reasonable inferences that may be made from the proffered evidentiary record should be drawn in favor of the non-moving party. See Adams, 233 F.3d at 1246. However, "if the non-moving party's evidence is merely colorable or is not significantly probative, summary judgment may be granted." Liberty Lobby, 477 U.S. at 249-50, 106 S.Ct. 2505 (citations omitted). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'" Matsushita, 475 U.S. at 587, 106 S.Ct. 1348. Conversely, even where a movant's facts are undisputed, if two reasonable factfinders could reach different conclusions or "ultimate inferences" from the undisputed facts, summary judgment is not warranted. See Luckett v. Bethlehem Steel Corp., 618 F.2d 1373, 1382 (10th Cir.1980).

III. Contentions of the parties

Sheffield filed its nine count First Amended Adversary Complaint (the "Complaint") on December 5, 2003 (Adv.Doc. 27). The Complaint challenges transfers made by Sheffield to Karol, Ackerman and HMK and the conduct of Karol and Ackerman, as directors of Sheffield, in authorizing the transfers. The transfers fall into three categories: dividends, stock repurchases, and a loan.¹

Sheffield alleges (1) that dividends paid to Karol, Ackerman and HMK in 1997 and 1999 were unlawful under the Delaware statute that prohibits a corporation from paying dividends except from its surplus and (2) that the dividends were fraudulent transfers that are avoidable under the Oklahoma Uniform Fraudulent Transfer Act. Sheffield seeks to recover the dividends directly from Karol, Ackerman and HMK on the grounds that they are the immediate transferees of fraudulent transfers and/or recipients of unlawful dividends. In the alternative, Sheffield seeks damages from Karol and Ackerman in the amount of the dividends under the Delaware statute that imposes liability on directors who authorize the payment of unlawful dividends. Sheffield also seeks to recover the amount of dividends from Karol and Ackerman on the ground that they breached fiduciary duties that they owed as directors to the corporation by authorizing the dividends.

With respect to the stock repurchase transfers, Sheffield alleges that it is entitled to avoid and recover, under Oklahoma fraudulent transfer law, certain payments made by Sheffield to Ackerman for its repurchase of common stock from Ackerman in 2000.

Defendants contend they are entitled to summary judgment on Count I (Avoidance and Recovery of Fraudulent Transfer of dividends—Section 117), Count II (Avoidance and Recovery of Fraudulent Transfer of dividends—Section 116), Count VII (Breach of Fiduciary Duty by Directors for authorizing payment of dividends), Count VIII (Avoidance and Recovery of Fraudulent Transfers stock repurchase— Section 117—Ackerman) and Count IX (Avoidance and Recovery of Fraudulent Transfer stock repurchase—Section 116—Ackerman) of the Complaint because the undisputed facts show that "Sheffield was not insolvent at the time of or as a result of any of the challenged transfers." Defendants' Brief at 1. Sheffield argues that contrary to Defendants' proffered evidence of solvency, Sheffield's audited financial statements clearly show that it had a negative net worth as a result of paying the 1997 dividends and at the time of payment of the 1999 dividends and the 2000 stock repurchases, and therefore a genuine issue of material fact exists that precludes summary judgment in favor of the Defendants. Sheffield's Brief at 3-4. Defendants also assert that Sheffield is not entitled to maintain an avoidance action because recovery of the transfers would not benefit the estate as required by Section 550(a) of the Bankruptcy Code. Defendants' Brief at 21.

Defendants also argue that they are entitled to prevail as a matter of law on Count III (Improper Dividend—Directors), Count IV (Improper Dividend— Shareholders) and Count VII (Breach of Fiduciary Duty by Directors for authorizing payment of dividends) of the Complaint, contending that the affidavits and exhibits tendered by Defendants demonstrate that it is undisputed that "the Directors determined that adequate capital existed to pay the 1997 and 1999 Dividends and in so doing, were entitled to and did...