In re Target Industries, Inc.
| Decision Date | 11 July 2005 |
| Docket Number | Adversary No. 02-3267(RG).,Bankruptcy No. 99-43998(RG).,Bankruptcy No. 99-43997(RG). |
| Citation | 328 B.R. 99 |
| Parties | In re TARGET INDUSTRIES, INC. and Lance Plastics, Inc., Debtors. Thomas F. Fox, Target Holdings, Inc., Target Industries, Inc. and Robert B. Wasserman, Plaintiffs, v. Congress Financial Corporation, Martin Goz, Sr., ABC Companies 1-20, John Does 1-20 and Jane Does 1-20, Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Andrew J. Kyreakakis, P.C., by Andrew J. Kyreakakis, Bloomfield, NJ, for Plaintiffs Thomas F. Fox, Target Holdings, Inc., Target Industries, Inc. and Robert B. Wasserman.
Duane Morris LLP, by William S. Katchen, Joseph H. Lemkin, Newark, NJ, for Defendant Congress Financial Corporation.
Otterbourg, Steindler, Houston & Rosen, PC, by Stanley L. Lane, Jr., New York City, for Defendant Congress Financial Corporation.
McNally & Busche LLC, by Stephen B. McNally, Newton, NJ, for Defendants Martin Goz, Sr., Arlene Goz and Target Industrial Packaging.
Before the Court is a Motion to Dismiss the instant Adversary Complaint filed on behalf Congress Financial Corporation ("Defendant" or "Congress"). The motion is filed in response to the Complaint filed on behalf of Thomas F. Fox ("Fox") and Robert B. Wasserman, Chapter 11 Trustee for Target Industries, Inc. and Lance Plastics, Inc. (collectively the "Plaintiffs") against Congress, the Debtors' former principal, and numerous other defendants (the "Complaint"). The Plaintiffs have filed opposition to the Motion to Dismiss as well as a cross-motion to compel compliance with this Court's April 12, 2001 Order and for fees. In addition to the Motion to Dismiss, the Congress brings a Motion in Limine to Suppress the Transcript and Tape of Telephone Conversations between Jean Milman and Principals of Target Industries, Inc (the "Milman Tapes"). The Plaintiffs oppose the Defendant's motion to suppress. A hearing on the motions was conducted on January 30, 2003.
The following constitutes this Court's findings of fact and conclusions of law.
Target Industries, Inc. and Lance Plastics, Inc. (the "Debtors") are New Jersey corporations engaged at the time of the bankruptcy filing in the manufacture and sale of customized plastic bags. (See, Plaintiffs' Complaint, at 4). Acting in concert, Lance Plastics, Inc. ("Lance") manufactured plastic bags which Target Industries ("Target") then sold and distributed. On December 30, 1999, Target and Lance each filed separate voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code ("Bankruptcy Code"). On February 2, 2001, this Court entered an order substantively consolidating the bankruptcy estates of Target and Lance Plastics. Mr. Wasserman was appointed Chapter 11 Trustee.
Although not clear from the record how long Target and Lance had been in operation, the corporations existed as early as 1979. On or about September 21, 1979, Congress began providing asset based lending services to Target and Lance. Throughout the relationship, Congress' loans, advances and other forms of credit were secured by the assets of Target and Lance. When the Debtors ultimately filed for bankruptcy, nearly all of the consolidated estate's assets were subject to security interests held by Congress.
In the years preceding the Debtors' bankruptcy petitions, Martin Goz, Sr. a/k/a Martin Gozdenovich ("Goz"), was the president, chief executive officer and director of Target and Lance; he was also the sole pre-petition shareholder of the companies.
According to Fox, in the Fall of 1990, Goz approached Fox about the possibility of entering a business venture. See May 30, 2000 Deposition of Thomas F. Fox (hereinafter "Fox Dep.") at 37-40, contained in, Certification of Joseph H. Lemkin in Support of Motion to Dismiss Complaint Pursuant to Federal Rule of Bankruptcy Procedure 7012(b) (hereinafter, "Lemkin Cert.") at Exhibit F. Apparently, Target and Lance had been operating out of multiple buildings that were unsuited to the businesses. In an effort to improve the profitability of both Target and Lance, Goz had located and obtained a purchase option on a property in Flanders, New Jersey (the "Flanders Property"), that could house both companies, as well as an expanded manufacturing site. See id. In his deposition, Fox testified that Goz was interested in finding a partner to purchase the realty and ultimately invest in the manufacturing aspect of the Debtors. Id. Specifically, Goz suggested that he would sell Fox a 50% interest in Lance for $300,000.00 to $400,000.00. Id.
Despite the initial meeting between Fox and Goz in 1990, the purchase of the Flanders Property was not consummated until 1993. Id. In the intervening years, Target and Lance moved their operations onto the Flanders Property. Target moved onto the property first, on or about Memorial Day of 1991. Id. at 44. Lance, as a manufacturer, required extensive renovations to the property before it could move in and begin operations. According to Fox, he paid for these renovations personally, by making direct payments to the contractors who performed the work. Id. at 45-51. Apparently, Fox spent approximately $1.35 million on improvements to the Flanders Property. Certification of Thomas F. Fox in Support of Order to Show Cause ("Fox Cert.") at ¶ 3, contained in, Lemkin Cert. at Exhibit J.
In order to acquire the Flanders Property, Fox and Goz formed a New Jersey general partnership, Landfall Associates ("Landfall"), on February 2, 1993. Id. at ¶ 2. Fox and Goz each owned a 50% interest in the partnership. On or about the day that Landfall was created, the Flanders Property was purchased for approximately $1,102,783.00. See Fox Dep. at 42; Fox Cert. at ¶ 3. Allegedly, the entire purchase price was paid solely by Fox.2 Fox Cert. at ¶ 3.
In addition to the funds spent by Fox in acquiring and improving the Flanders Property, beginning in 1991, Fox made numerous loans and advances of operating funds to Target and Lance. Fox Dep. at 50-57. See also Fox Cert. at ¶ 5. According to Fox, these loans and advances were made "in reliance on representations and promises from Mr. Goz, which were false." Apparently, Goz would ask for more money in order to "keep things going," and Fox would advance funds "to protect my interest in the real estate...." Fox Dep. at 53. Although these loans were made without a writing, they were subject to some degree of interest. Id. at 53-54. Fox's loans to the companies ultimately came to total approximately one million dollars. Fox Cert. at ¶ 5. The last loan was made in March of 1995. Fox Dep. at 59, 60, 69.3
As time passed and the loans were not being repaid, Fox became suspicious of Goz. See Fox Dep. at 53-54. Fox allegedly inquired further about acquiring an interest in Lance. In an effort to determine the true state of the company, Fox hired an accountant to conduct a business evaluation in 1995. Id. at 54-58. That accountant's report indicated the value of Lance to be in line with what Goz had purported it to be. Fox attempted to persuade Goz to transfer the previously discussed 50% share of Lance, but was ultimately unsuccessful.
By 1996, Fox came to realize that the companies were not as profitable as Goz had claimed them to be. Fox Cert. at ¶ 11. Fox then brought in new accountants that revealed a previously unreported $1.7 million inter-company loss. Id. This realization coupled with a variety of other alleged malfeasances on the part of Goz caused Fox to sever their business relationship in March of 1996. See id.4 In the years following 1996, Fox continued his efforts to obtain both the repayment of the monies he loaned Target and full title to the Flanders property. Id. at ¶ 12. However, no agreement was ever executed by Goz. Id.
As noted above, On December 30, 1999, Target and Lance Plastics each filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code ("Bankruptcy Code").
Following the Debtors filing their petitions for relief, numerous motions and adversary proceedings have been filed and commenced. Only those matters relevant to the instant dispute will be noted in this recitation of fact. For the sake of clarity, the post-petition history will be broken into two periods: (1) pre-confirmation activity; and (2) post-confirmation activity.
Shortly after the Debtors' bankruptcy filings, on or about January 5, 2000, Target and Lance filed a Motion for an Order Pursuant to § 364(c) of the Bankruptcy Code and Rule 4001 of the Federal Rules of Bankruptcy Procedure Authorizing the Debtors (1) to obtain post-petition financing; (2) granting senior liens and priority administrative expense status; (3) modifying the automatic stay; and (4) authorizing Debtors to enter into agreements with Congress Financial ("Financing Motion"). On January 11, 2000, this Court entered an Order authorizing interim post-petition financing and permitting the Debtors to enter into agreements with Congress Financial ("Interim Financing Order"). This Court ordered two (2) extensions for the Interim Financing Order on February 1, 2000 and February 15, 2000.
On February 23, 2000, Fox filed a Notice of Appearance and Request for Service of Notice with this Court.
On February 29, 2000, this Court entered the Final Order pursuant to § 364(c) of the Bankruptcy Code and Rule 4001 of the Federal Rules of Bankruptcy Procedure Authorizing the Debtors to (1) obtain post-petition financing; (2) granting senior liens and priority administrative expense status; (3) modifying the automatic stay; and (4) authorizing debtors to enter into agreements with Congress Financial ("Final Financing Order").
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