In Re: The Heritage Organization, L.L.C., Case No. 04-35574-BJH-11 (Bankr. N.D. Tex. 12/12/2008)
| Decision Date | 12 December 2008 |
| Docket Number | Case No. 04-35574-BJH-11.,Adv. Pro. No. 06-3377-BJH. |
| Parties | IN RE: THE HERITAGE ORGANIZATION, L.L.C., Debtor. DENNIS FAULKNER, TRUSTEE, Plaintiff, v. GARY M. KORNMAN, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
Before the Court is the Trustee's Motion for Partial Summary Judgment Against the Kornman Supplier Defendants for Single Business Enterprise Liability, and Brief in Support (the "Trustee Motion"),Defendants' Omnibus Motion for summary Judgment, and Brief in Support (the "Kornman Defendants' Motion"), Defendant Vickie Walker's Motion for Final Rule 56 Summary Judgment and Brief in Support Thereof (the "Walker Motion") (the Kornman Defendants' Motion and the Walker Motion will be referred to collectively as the "Defendants' Motions" and all of the motions will be referred to collectively as the "Motions"). The Trustee's Motion is opposed by the remaining defendants and the Defendants' Motions are opposed by the Trustee. The Court heard the Motions on November 12 and 14, 2008. The Court has jurisdiction over the parties and the issues raised in the Motions in accordance with 28 U.S.C. §§ 1334 and 157, either because the issues are core issues or because the parties have consented to the Court's entry of a final judgment. This Memorandum Opinion and Order contains the Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
The Heritage Organization, L.L.C. (the "Debtor" or "Heritage") is a Delaware limited liability company formed in 1994. Prior to Heritage's bankruptcy filing, Heritage provided various estate and tax planning strategies to extremely high net-worth individuals for a fee. Heritage commenced this bankruptcy case on May 17, 2004 by filing its voluntary petition under Chapter 11 of the United States Bankruptcy Code. On August 13, 2004, the Court entered an order directing the appointment of a Chapter 11 trustee. On August 16, 2004, the U.S. Trustee appointed Dennis S. Faulkner as the Chapter 11 trustee (the "Trustee"), which appointment was confirmed by order entered on August 18, 2004.
On May 16, 2006, the Trustee commenced the above-captioned adversary proceeding ("the "Adversary Proceeding") by filing a complaint (the "Complaint") against 31 defendants, most of whom are affiliated in some manner with Gary M. Kornman ("Kornman"), the former chief executive officer and president of the manager of the Debtor. Over time, the Trustee has settled with all of those parties except (i) Kornman; (ii) Kornman & Associates, Inc., a Tennessee corporation of which Kornman was the president, director and chief executive officer ("KA"); (iii) Tikchik Investment Partnership, L.P., a Delaware limited partnership of which Kornman was the director and president ("Tikchik"); (iv) GMK Corp., a Delaware corporation that served as the general partner of Tikchik ("GMK Corp."); (v) GMK Family Holdings, L.L.C., a Delaware limited liability company that was the managing member of the Debtor ("GMK"); (vi) the Ettman Family Trust I ("Ettman"); (vii) Heritage Organization Agency, Inc. ("Heritage Agency"); (viii) the Oak Group, LP ("Oak Group"); (ix) Steadfast Investments, L.P., a Delaware limited partnership that was a member of the Debtor ("Steadfast"); (x) Leasecorp, Inc., a Delaware corporation of which Kornman was resolved to be an authorized signatory ("Leasecorp"); (xi) Strategic Leasing L.P., a Delaware limited partnership of which Leasecorp was the general partner ("Strategic"); (xii) Valiant Leasing, L.L.C., a Delaware limited liability company of which K&A was the managing member ("Valiant"); (xiii) Executive Aircraft Management, L.L.C., a Delaware limited liability company of which K&A was the managing member ("Executive Aircraft"); (xiv) Executive AirCrews, L.L.C. , a Delaware limited liability company of which K&A was the managing member ("Executive Crews"); (xv) Heritage Advisory Group, L.L.C., a Delaware limited liability company of which K&A was the managing member ("Heritage Advisory"); (xvi) Heritage Properties, L.L.C., a Delaware limited liability company of which K&A was the managing member ("Heritage Properties"); (xvii) Vehicle Leasing, L.L.C., a Delaware limited liability company of which K&A was the managing member ("Vehicle Leasing"); (xviii) Financial Marketing Services, Inc., a Texas corporation of which Kornman was the vice president and Vickie Walker was the president ("Financial Marketing" and together with Leasecorp, Strategic, Valiant, Executive Aircraft, Executive Crews, Heritage Advisory, Heritage Agency, K&A, Heritage Properties and Vehicle Leasing, will be referred to collectively as the "Supplier Defendants") (Kornman, GMK, GMK Corp., Tikchik, Steadfast, Ettman, Oak Group and the Supplier Defendants will be referred to collectively as the "Kornman Defendants") and (xix) Vickie Walker, a longtime employee of various Kornman-controlled entities ("Walker") (the Kornman Defendants and Walker will be collectively referred to as the "Remaining Defendants").
On October 16, 2006, pursuant to Court order, see Case No. 06-3377, Docket No. 74, the Trustee amended the Complaint (the "First Amended Complaint"). After a tortured history leading to this point in the Adversary Proceeding, including the substitution of at least four (4) law firms as counsel for various of the Remaining Defendants, the Motions were filed, along with the Trustee's motion for leave to file a second amended complaint and Daubert motions by the Kornman Defendants.1 The Daubert motions, directed against the Trustee's solvency expert, were heard on September 10, 2008. At the conclusion of that hearing, the Court granted the Daubert motions, finding the Trustee's solvency expert's testimony unreliable and excluding his testimony.
Because the Motions should have been substantially narrowed by the exclusion of the testimony of the Trustee's solvency expert, the Court directed the parties to file a stipulation advising the Court as to which portions of the Motions remained to be decided by the Court. That stipulation was filed on September 22, 2008. See Docket No. 437.2
The Defendants' Motions address all of the Trustee's remaining claims against them. In other words, the Remaining Defendants seek a summary judgment on all of the Trustee's remaining claims. In contrast, the Trustee's Motion seeks only a partial summary judgment on one of his claims against the Supplier Defendants — i.e., his claim that each of the Supplier Defendants is liable for Heritage's debts because they were all part of a single business enterprise.
In deciding a motion for summary judgment, a court must determine whether the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c).3 In deciding whether a fact issue has been raised, the facts and inferences to be drawn from the evidence must be viewed in the light most favorable to the non-moving party. Berquist v. Washington Mut. Bank, 500 F.3d 344, 349 (5th Cir. 2007). A court's role at the summary judgment stage is not to weigh the evidence or determine the truth of the matter, but rather to determine only whether a genuine issue of material fact exists for trial. Peel & Co., Inc. v. The Rug Market, 238 F.3d 391, 394 (5th Cir. 2001) () (citing Reeves v. Sanders on Plumbing Prods, Inc., 530 U.S. 133, 135 (2000)); see also U.S. v. An Article of Food Consisting of 345/50 Pounds Bags, 622 F.2d 768, 773 (5th Cir. 1980) . A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Pylant v. Hartford Life and Acc. Ins. Co., 497 F.3d 536, 538 (5th Cir. 2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
If the moving party makes an initial showing that there is no evidence to support the non-moving party's case, the non-moving party must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
A. The Defendants' Motions
The Trustee seeks recovery of various transfers pursuant to section 544(b) of the Bankruptcy Code and section 24.005(a)(1) of the Texas Uniform Fraudulent Transfer Act ("TUFTA"). Specifically, the Trustee asserts these intentional fraudulent transfer claims against three of the Kornman Defendants — GMK, Tikchik, and Steadfast. The Trustee alleges that in the four years prior to Heritage's bankruptcy filing,4 specifically between 2001 and 2003, Heritage transferred millions of dollars to GMK, Tikchik and Steadfast with the actual intent to hinder, delay or defraud Heritage's creditors. As with the other claims upon which the Remaining Defendants seek summary judgment, GMK, Tikchik, and Steadfast assert that the Trustee has failed to adduce summary judgment evidence to support one or more elements of the Trustee's prima facie case.
Section 544(b) of the Bankruptcy Code grants the Trustee 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 . . ....
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