In re Whitacre Sunbelt, Inc.
| Decision Date | 02 June 1997 |
| Docket Number | Adversary No. 95-6615.,Bankruptcy No. A94-61954-JB |
| Parties | In re WHITACRE SUNBELT, INC., Debtor. John W. RAGSDALE, JR., as Trustee for the Estate of Whitacre Sunbelt, Inc., Plaintiff, v. SOUTH FULTON MACHINE WORKS, INC., and David A. Whitacre, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
COPYRIGHT MATERIAL OMITTED
William Russell Patterson, Jr., Ragsdale, Beals, Hooper & Siegler, Atlanta, GA, for Plaintiff.
F. Carlton King, Jr., King & Croft, L.L.P., Atlanta, GA, for Defendant.
James Hugh Potts, II, Potts & Badaruddin, Richard K. Valldejuli, Atlanta, GA, for Professional Asset Services, Inc.
This matter is before the Court on an objection by Professional Asset Services, Inc. ("PAS") to a motion by John W. Ragsdale, Jr., as Trustee for the Estate of Whitacre Sunbelt, Inc. ("Whitacre Sunbelt" or "debtor"), to compromise and settle a claim in Adversary Proceeding No. 95-6615, Ragsdale v. South Fulton Machine Works, Inc., and David A. Whitacre. To understand the nature of PAS's objection and the responses by the trustee and Defendant South Fulton Machine Works, Inc. ("South Fulton") to the objection, it is necessary to set out in some detail the background and procedural posture of both the main case and this adversary proceeding. This is a core proceeding under 28 U.S.C. § 157(b)(2)(H).
On February 9, 1994, both Whitacre Sunbelt and a related corporation, Whitacre International, Inc. ("Whitacre International"), filed petitions for bankruptcy relief. Whitacre Sunbelt originally filed the case under Chapter 11 of the Bankruptcy Code, but the case was converted to a Chapter 7 case almost immediately, and plaintiff Mr. Ragsdale was appointed the Chapter 7 Trustee. On July 25, 1995, Defendant David A. Whitacre filed a personal bankruptcy under Chapter 7.1
On April 21, 1994, the trustee notified the Clerk of the Bankruptcy Court that there would be a distribution in the Whitacre Sunbelt case. Pursuant to this notification, the Clerk notified all creditors and other interested parties that "a distribution appears possible," and that "therefore, all creditors are hereby notified that they have through July 27, 1994, in which to file their proofs of claim if they wish to participate in any dividend which might be paid from the estate." This notice is dated April 28, 1994, and was mailed to PAS at 458 East Cherry Street, Columbus, OH XXXXX-XXXX. It is undisputed that PAS did not file a proof of claim in this bankruptcy case.
Mr. Ragsdale filed this adversary proceeding on September 26, 1995, against Defendants South Fulton and David Whitacre, seeking to avoid a $325,000.00 payment as a fraudulent transfer under 11 U.S.C. §§ 544(b) and 548, and O.C.G.A. § 18-2-22, and to recover $325,000.00 from South Fulton under 11 U.S.C. § 550. The parties engaged in extensive discovery, and South Fulton and the trustee filed cross-motions for summary judgment. The Court entered an Order on May 9, 1996,2 finding that Mr. Whitacre was the initial transferee and not a "conduit," and that South Fulton was not an initial transferee under § 550(a)(1) of the Bankruptcy Code. The Court denied the summary judgment motions due to genuine issues of material fact pertinent to South Fulton's defense under § 550(b)(1).
In the Order denying the cross-motions for summary judgment, the Court found a number of facts existed without substantial controversy, narrowing the issues for trial. The Court found that defendant David A. Whitacre was an insider of both Whitacre Sunbelt and of Whitacre International. Defendant South Fulton was a supplier and trade creditor of Whitacre International, not Whitacre Sunbelt. Whitacre International's debt to South Fulton was personally guarantied by Mr. Whitacre.
In 1992, approximately 75% of South Fulton's business was its business with Whitacre International. As of May 11, 1992, Whitacre International owed South Fulton $303,778.14 in unpaid invoices, and South Fulton had committed an additional $924,487.60 to production work for Whitacre International. Between July and September of 1992, Whitacre International and South Fulton negotiated an agreement regarding payment and delivery terms. Balance sheets and income statements of Whitacre International from 1992 given to South Fulton show that Whitacre International's liabilities exceeded its assets and that it was losing money. Whitacre International and South Fulton signed an agreement on September 10, 1992, at which time Mr. Whitacre signed a personal guaranty of Whitacre International's debt to South Fulton in the amount of $467,887.07, plus amounts that may become due for parts inventory up to $250,000.00.
On March 9, 1993, Whitacre International sent South Fulton a financial statement for 1992, showing that Whitacre International was insolvent and was losing money. By letter dated May 21, 1993, counsel for South Fulton informed Mr. Whitacre and Whitacre International that Whitacre International owed South Fulton $932,425.07, and was in breach of the September 10, 1992 agreement. South Fulton refused to provide any parts or service to Whitacre International until the parties entered into a new agreement providing for, among other things, regular payments and unlimited personal guaranties from Mr. Whitacre and his wife. On July 14, 1993, Whitacre International's counsel wrote South Fulton's counsel with the terms of a new agreement, and he enclosed the payment in issue of $325,000.00.
The basic facts relating to the $325,000.00 transfer are not in dispute. On July 14, 1993, debtor issued a check for $325,000.00, drawn on its account at Bank South, payable to "David A. Whitacre" and signed by Mr. Whitacre. Mr. Whitacre took the check to Bank South the same day and exchanged it for a Bank South official check for $325,000.00 made payable to South Fulton. Mr. Whitacre was listed as the remitter on the official check, and the official check contained no reference to the debtor. Mr. Whitacre tendered the check to South Fulton on July 14, 1993, and South Fulton accepted the official check on July 15, 1993.
The $325,000.00 payment was made as part of the new agreement among Mr. Whitacre, Whitacre International, and South Fulton. The Trustee asserted that the new agreement was intended to pay South Fulton enough to stop it from cutting off supplies to Whitacre International. South Fulton argued that the agreement and the $325,000.00 payment were intended to release Mr. Whitacre from his personal guaranty to South Fulton. Prior to this payment, Mr. Whitacre had never personally paid a Whitacre International obligation. At the time of this payment, debtor was insolvent, owed no debts to South Fulton, and received no consideration for the transfer.
In the May 9, 1996 Order, the Court concluded that the transfer of $325,000.00 to Defendant David Whitacre was not made for reasonably equivalent value, such that it was voidable under state or federal law. See 11 U.S.C. § 548(a)(2); O.C.G.A. § 18-2-22(3). The Court held that Mr. Whitacre was the "initial transferee" under 11 U.S.C. § 550(a)(1) of the transfer from Whitacre Sunbelt. The Court found that South Fulton was the immediate or mediate transferee and thus entitled to assert the good faith taker defense of 11 U.S.C. § 550(b)(1). The Court concluded that there were genuine issues of material fact as to whether South Fulton took the payment from Mr. Whitacre in good faith, without knowledge that the initial transfer from debtor to Mr. Whitacre was fraudulent or that debtor was the source of the funds. As this defense rests primarily on determinations of credibility that could not be determined from the existing record, this final issue was to be set for trial.
On August 29, 1996, PAS filed a motion to intervene in this adversary proceeding, to which the trustee objected. On September 9, 1996, Plaintiff Ragsdale filed an application to compromise and settle the claims against Defendant South Fulton for $20,000.00, to which PAS objected. The Court held a hearing on October 9, 1996, on both the application to compromise and settle and on the motion to intervene. After hearing argument of counsel, the Court denied PAS's motion to intervene. See Order entered October 17, 1996.
PAS's objections to the trustee's proposed settlement were not altogether clear. In the one-page objection filed October 4, 1996, PAS alleged that it advanced $199,000.00 to the debtor on July 12, 1993, and $299,000.00 on July 14, 1993, to finance the purchase of two used printing presses. PAS argued that rather than purchasing the printing presses, the debtor fraudulently conveyed $325,000.00 of the funds advanced by PAS to Defendant David Whitacre, who in turn paid this amount to Defendant South Fulton. The objection did not set forth any legal ground for denying the trustee's application to settle his claim against South Fulton for $20,000.00.
At the October 9, 1996 hearing, there was no objection to $20,000.00 as being an unreasonable amount to settle the claims against South Fulton. In an Order entered October 24, 1996, the Court found that the trustee had satisfied the four-part test3 set forth in Wallis v. Justice Oaks II, Ltd. (In re Justice Oaks II, Ltd.), 898 F.2d 1544, 1549 (11th Cir.1990), cert. den., 498 U.S. 959, 111 S.Ct. 387, 112 L.Ed.2d 398 (1990), and that the settlement proposed by the trustee was fair and in the best interest of the estate. However, at the hearing, counsel for PAS argued that the trustee had no claim and that any claim belonged to PAS. PAS argued that the acquisition and use of PAS's money by Defendant David Whitacre constituted "theft by deception," citing O.C.G.A. § 16-8-3(4); that PAS acquired a "lien" when it loaned the money to Whitacre Sunbelt, and that if the property were stolen, then even a bonafide purchaser could not take good title to it. PAS further argued that the trustee's claim under § 548...
To continue reading
Request your trial
-
In re Sacks
... ... of the joint motion of the Chapter 7 Trustee and creditor, Kidder, Peabody & Company, Inc. ("Kidder") for an extension of time to object to the Debtor's claim of exempt property (the "Joint ... ...