In re Unger & Associates, Inc.

• Decision Date: 17 March 2003
• Docket Number: Bankruptcy No. 99-41872-S.,Adversary No. 01-4060.
• Citation: 292 B.R. 545
• Parties: In re UNGER & ASSOCIATES, INC., Debtor. Marla Reynolds, Plan Trustee for the Estate of Unger & Assoc., Inc., Plaintiff, v. Steven Feldman, Melvin I. Feldman, Harvey Shredrick, David Kalicka, John Sullivan, Barry Schulman, Alan Goodman, Bruce F. Hambro, Stanley Winer, Myron D. Rowland and W. Robert Lawhorn, Defendants. Steven Feldman, Melvin I. Feldman, Harvey Shredrick, David Kalicka, John Sullivan, Barry Schulman, Alan Goodman, Bruce F. Hambro, Stanley Winer, Third-Party Plaintiffs, v. Ronald E. Unger, Arlene M. Unger, Dennis Unger, Donald J. Hess and Cargill Financial Services Company XXX, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Texas

292 B.R. 545

In re UNGER & ASSOCIATES, INC., Debtor.

Marla Reynolds, Plan Trustee for the Estate of Unger & Assoc., Inc., Plaintiff, v. Steven Feldman, Melvin I. Feldman, Harvey Shredrick, David Kalicka, John Sullivan, Barry Schulman, Alan Goodman, Bruce F. Hambro, Stanley Winer, Myron D. Rowland and W. Robert Lawhorn, Defendants.

Steven Feldman, Melvin I. Feldman, Harvey Shredrick, David Kalicka, John Sullivan, Barry Schulman, Alan Goodman, Bruce F. Hambro, Stanley Winer, Third-Party Plaintiffs, v. Ronald E. Unger, Arlene M. Unger, Dennis Unger, Donald J. Hess and Cargill Financial Services Company XXX, Defendants.

Bankruptcy No. 99-41872-S.

Adversary No. 01-4060.

United States Bankruptcy Court, E.D. Texas, Sherman Division.

March 17, 2003.

COPYRIGHT MATERIAL OMITTED

Paul Keiffer, Hance, Scarborough, Wright, Ginsberg & Brusilow, Dallas, TX, for Plan Trustee.

Vernon Teofan, Jenkens & Gilchrist, P.C., Dallas, TX, for Defendants.

OPINION

DONALD R. SHARP, Chief Judge.

Now before the Court for consideration is the Defendants' Motion To Dismiss Amended Complaint and Answer And First Amended Third-Party Complaint Subject Thereto ("Motion I") filed by Defendants Steven Feldman, Melvin I. Feldman, Harvey Shredrick, David Kalicka, John Sullivan, Barry Schulman, Alan Goodman, Bruce F. Hambro, Stanley Winer (the "Longmeadow Group") and the Motion by Defendants Myron D. Rowland and W. Robert Lawhorn To Dismiss Complaint ("Motion II"). The Court considered the entire record, including the argument of counsel at a scheduled hearing, in connection with these Motions. This opinion constitutes the Court's findings of fact and conclusions of law required by Fed.R.Bankr.Proc. 7052 and disposes of all issues in connection with the Motion to Dismiss currently before the Court.

FACTUAL AND PROCEDURAL BACKGROUND

Stated briefly, this is a Complaint brought by Marla Reynolds the Plan Trustee under the confirmed Plan in this bankruptcy case. The Complaint seeks to avoid certain transfers and recover sums paid to eleven individuals who were alleged to be investors in Unger & Associates Inc. and received certain payments prior to the filing of bankruptcy which are subject to the avoidance actions provided in the Bankruptcy Code. Nine of those individuals have filed a Third Party Complaint against the principals of the company, and the primary lender who financed the operations of the company. The Third Party Complaint seeks contribution and/or indemnity from the principals of the company and the principal lender based on several theories including civil conspiracy, breach of fiduciary duty and the furnishing of incorrect information to the investors by the principals of the company. The Third Party Complaint is filed subject to the instant Motion to Dismiss. In order to better understand the scenario in which this action is presented to the Court a detailed recitation of the events leading up to the instant controversy as gleaned from the allegations of the Complaint and other pleadings in this action is necessary.

In April of 1990, Unger & Associates, Inc., (the "Debtor") won four contracts to collect defaulted student loans on behalf of the Department of Education (the "DOE"). In August of 1990, certain of the Defendants, referred to as "the Longmeadow Group", purchased a cumulative 20% interest in the Debtor for the cumulative sum of $500,000. Ron Unger, Arlene Unger and Dennis Unger (the "Ungers") were the initial principals of the Debtor. Mssrs. Rowland and Lawhorn also invested $750,000 into the business venture for a 50% interest in one of the four contracts. In connection with the latter transaction, regarding the one "East Coast" contract, a new business entity, NIC was formed. Ultimately, the aforementioned interests were transferred to the Debtor. The DOE awarded two additional contracts to the Debtor.

Several financial transactions occurred subsequently among the entities in attempts to fund unprofitable endeavors. The details are enumerated in the Complaint initiating these adversary proceedings ("the Complaint"). Pursuant to the Complaint, and for purposes of the instant matter only, suffice it to say that by July, 1996, the Debtor was operating at a loss from which it never recovered. The Debtor continued operations on existing accounts through 1998 and even obtained new contracts. To service the new contracts, the Debtor sought additional loans from Cargill Financial Services Company XXX ("Cargill"). Cargill requested stock in the Debtor to secure the approximately $2.2 million loan. The Longmeadow Group were the holders of certain Class "B" common stock of the Debtor. Under its 1990 agreement with the Longmeadow Group, on November 25, 1997, the Debtor exercised its option to call the stock of the Longmeadow Group effective in December, 1997. According to a pre-set formula, the price was $1,414,350.

The Complaint alleges that Steven Feldman and Harvey Shredrick were on the Board of Directors during this transaction and that S. Feldman and David Kalicka served as attorneys in fact for the members of the Longmeadow Group in this transaction. Also in connection with the Cargill funding transaction, the Complaint alleges Rowland and Lawhorn, referred to as "the GRC Group", were paid $1,850,000 to release their lien against stock in the Debtor. Further, the Complaint alleges Rowland received $1,110,000, Lawhorn received $740,000, S. Feldman, Goodman and Schulman each received $282,869.70, M. Feldman, Hambro, Winer and Sullivan each received $70,717.42 and Shredrick and Kalicka each received $141,434.85 in connection with the Cargill financing of the Debtor.

Allegedly, the Debtor continued to operate at a loss of some $200,000 to $300,000 a month until it filed its petition on June 11, 1999. 11 U.S.C. § 546(a)(1)(A) limits the filing of actions under sections 544, 545, 547, 548 or 553 to "two years after the entry of the order for relief ...". 11 U.S.C. § 546(a)(1)(A). The Complaint requests that the Court employ 11 U.S.C. § 544(b) of the Bankruptcy Code to avoid the payments made to the Longmeadow Group for the repurchase of their Class "B" shares of stock that had been called in by the Debtor and to avoid the payments to the GRC Group.

After the Debtor filed its petition for relief under the Bankruptcy Code on June 11, 1999, William Eschrich was appointed Chapter 11 Trustee. On May 29, 2001 this Court entered its Order Confirming the Jointly Proposed First Amended Plan of Liquidation For Unger & Assoc., Inc., And Findings of Fact And Conclusions of Law In Support Thereof confirming the Plan, as Modified (the "Plan Order"). Central to the Confirmed Plan is the creation of a Liquidating Trust and the appointment of a Liquidating Trustee. The Plan, at Article 9.1, specifically identifies Marla Reynolds, the Plaintiff in this Adversary Proceeding, as Liquidating Trustee under the confirmed Plan ("Reynolds"). The Effective Date of the Plan, as defined by the confirmed Plan, is "the thirtieth (30) business day after the Confirmation Order becomes a Final Order."¹ Jointly Proposed First Amended Plan Article 1-1.01.28. Articles 2.01 and 6.01 of the confirmed Plan specifically contemplate that the Liquidating or Plan Trustee shall "prosecute claims and causes of action previously owned by the Debtor or Estate ...". Jointly Proposed First Amended Plan Article 2.01, 6.01. The Plan is binding upon all parties and the order confirming the plan is res judicata.

On June 6, 2001, Special Counsel for the Plan Trustee, filed the Complaint on behalf of Marla Reynolds, Plan Trustee, initiating this adversary proceeding under 11 U.S.C. § 544(b). On December 7, 2001, an Amended Complaint was filed on behalf of Marla Reynolds, as Plan Trustee; the Amended Complaint further identifies Reynolds as "successor in interest to William Eschrich, Chapter 11 Trustee" and adds a count under the Texas Business Corporation Act. In the interim period between June 6, 2001 and December 7, 2001, the time within which the Longmeadow Defendants might file their answers was extended eight times by agreement with Marla Reynolds in her capacity as Liquidating Trustee. Each order recites that the Defendants do not waive their rights to assert any defenses, including Rule 12 defenses, by agreeing to the entry of the order. Lawhorn and Rowland, however, filed their Answer on July 20, 2001. The first three motions requesting the extension of time within which to respond did not elucidate the Court as to the basis for the request. The fourth through eighth motions seeking extensions advise the Court that the parties are engaged in settlement discussions with the Plan Trustee. A few days following the filing of the Amended Complaint, the Longmeadow Group filed its Motion To Dismiss and Answer And Third Party Complaint (as thereafter amended) ("Motion To Dismiss" or "Motion I") together with a Demand for Jury Trial, a Motion to Withdraw the Reference and a motion for stay pending resolution of the motion to withdraw the reference. The Bankruptcy Court granted the motion for stay. Following its review of the pleadings, the District Court found that the Motion To Withdraw the reference should be referred to the U.S. Bankruptcy Court for an evidentiary hearing and recommended disposition, if necessary. Following on the heels of the District Court's Order, Donald J. Hess filed his Motion To Dismiss the Third Party Complaint and Answer ("Hess' Motion"). The Longmeadow Group's Motion To Dismiss was adopted by Rowland and Lawhorn ("Motion II"). The Court set the Motion I, Hess' Motion and Motion II for hearing together. At the hearing, Hess' Motion was passed pending the Court's determination of the Motion I and Motion II. Following a full hearing on the merits, the issues raised by the Defendants' respective Motions to Dismiss were taken under advisement. Subsequently, Defendants filed an Affidavit of William Eschrich, Chapter 11 Trustee as supplemental evidence...