In re Wingspread Corp.
| Decision Date | 05 January 1995 |
| Docket Number | Bankruptcy No. 87 B 10618(TLB) to 87 B 10630(TLB). Adv. No. 90-6406A(JHG). |
| Parties | In re WINGSPREAD CORPORATION, et al., Debtors. Harold YOUNG, as Trustee of Wingspread Corporation, and its subsidiaries, Debtors, Plaintiff, v. PARAMOUNT COMMUNICATIONS INC., f/k/a Gulf & Western Industries Inc., Kayser-Roth Corporation, Norman Hinerfeld and NCNB National Bank as successor to NCNB Financial Services, Inc., Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
Friedman & Kaplan by Bruce S. Kaplan and Andrew W. Goldwater, New York City, for Paramount and Kayser-Roth.
Wachtell, Lipton, Rosen & Katz by Eric M. Roth, New York City, for Nationsbank of North Carolina.
Hahn & Hessen by John P. McCahey and Joseph A. Vogel, New York City, for Harold Young, Chapter 7 Trustee.
DECISION ON MOTION AND CROSS-MOTION FOR SUMMARY JUDGMENT
This adversary proceeding was commenced by Harold Young ("Young" or "Trustee"), Chapter 7 Trustee of Wingspread Corporation ("Wingspread" or the "Debtor"), against Paramount Communications, Inc. ("Paramount"), Norman M. Hinerfeld ("Hinerfeld"), NCNB National Bank ("NCNB")1 and Kayser-Roth Corporation ("Kayser-Roth") to set aside elements of a management-led buyout of six divisions of Kayser-Roth on the grounds that the buyout constituted a fraudulent conveyance.2 Kayser-Roth, Paramount and Nationsbank of North Carolina (collectively the "Defendants") have moved for summary judgment on two grounds. The first is that the Trustee is time barred from bringing this proceeding because the two-year statute of limitations has run. The second is that the Trustee lacks standing to bring this proceeding because he has not established the existence of a specific unsecured creditor who would have standing to bring it. 11 U.S.C. 544(b). The Trustee has cross moved for summary judgment.
This motion concerns the 1985 management buyout of six divisions of Kayser-Roth. In 1975, Gulf & Western Industries, Inc. (later known as Paramount) acquired Kayser-Roth. Hinerfeld, who had been President and Chief Executive Officer of Kayser-Roth, became Chairman of its Executive Committee.
In the fall of 1984, Hinerfeld approached James Spiegal, then the President Gulf & Western's Consumer and Industrial Products Group, regarding the possible purchase of all or part of Kayser-Roth. Hinerfeld then hired an investment banker to assist him in formulating, negotiating and financing the buyout.
On March 6, 1985, Hinerfeld and Kayser-Roth signed a letter of intent, subject to a formal agreement, under which Wingspread, a new corporation controlled by Hinerfeld, would buy six Kayser-Roth divisions.
On June 20, 1985, a purchase agreement, which set May 25, 1985 as the date by which the risk of operations shifted from the seller to the buyer, was signed. The purchase price was the sellers' net investment, as determined by the May 25, 1985 balance sheet, less a discount of $12 million.
NCNB provided the financing for the buyout. It agreed to advance Wingspread up to $8 million, pursuant to factoring agreements on accounts receivable, and to provide a term loan of $3.8 million, which would be secured by a first security interest on the assets of Wingspread and its new subsidiaries.
On July 3, 1985, the transaction closed. At the closing, Wingspread authorized Kayser-Roth to receive the following consideration. First, NCNB was authorized to wire transfer (the "Wire Transfer") $12 million to Kayser-Roth, which it did. Second, Kayser-Roth received a $3.44 million promissory note (the "Promissory Note") which had its first payment of principal due in July 1989 and the balance payable in installments over the next seven years. Finally, Kayser-Roth received 33,000 shares of preferred stock (the "Preferred Stock") in Wingspread, which had an aggregate redemption value of $1,650,000.3
About two years later, Wingspread began to suffer financial difficulties and, on April 6, 1987, Wingspread and its subsidiaries filed bankruptcy petitions under chapter 11. On October 3, 1988, the cases were converted to chapter 7. On October 4, 1988, Young was appointed Trustee.
On September 27, 1990, the Trustee brought this proceeding to avoid certain elements of the buyout, including the Wire Transfer, the Promissory Note and the issuance of the Preferred Stock, as being fraudulent conveyances. At the time of the filing, no principal payments had been made on the Promissory Note, nor had any Preferred Stock been redeemed. The Trustee's complaint, which alleged that the Wire Transfer was constructively fraudulent with respect to creditors of "Wingspread and/or its subsidiaries" under Sections 4, 5 and 6 of New York's version of the Uniform Fraudulent Conveyance Act ("UFCA") (N.Y. Debtor and Creditor Law §§ 273, 274, 275), did not identify any particular creditor of Wingspread who would have such a cause of action. Rather, it alleged the existence of otherwise unidentified pre-buyout creditors. After the Trustee filed his action, Paramount served interrogatories asking the Trustee to identify the creditors alleged in the complaint. The Trustee identified "(i) those unsecured creditors included in the Debtors' schedules of unsecured creditors; and (ii) those unsecured creditors listed on Debtors' unsecured creditors registers." Those schedules and registers list nearly 2,000 unsecured claims. In addition, the Trustee listed the following creditors. (the "Listed Creditors"):
Both the Defendants and the Trustee have moved for summary judgment under Federal Rule of Civil Procedure 56, which is made applicable to this proceeding by Bankruptcy Rule 7056. Summary judgment is appropriate if the court determines that the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986); In re Ionosphere Clubs, Inc., 147 B.R. 855, 866 (Bankr.S.D.N.Y.1992). In considering a motion for summary judgment, "the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Cartier v. Lussier, 955 F.2d 841, 845 (2d Cir.1992); Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 11 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987). In fact, the allegations of the non-movant are to be taken as true and are to be given the benefit of doubt when they conflict with those of the movant. Cruden v. Bank of New York, 957 F.2d 961, 975 (2d Cir.1992); Taggart v. Time Inc., 924 F.2d 43, 46 (2d Cir.1991); Burtnieks v. City of New York, 716 F.2d 982, 985-86 (2d Cir.1983).
The moving party initially bears the burden of establishing the absence of a genuine issue as to any material fact. Celotex Corp. v. Catrett, 477 U.S. at 322-23, 106 S.Ct. at 2552-53; Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); In re Ionosphere Clubs, Inc., 147 B.R. at 861. That burden can be satisfied by demonstrating the absence of evidence supporting the non-movant's case. Celotex Corp. v. Catrett, 477 U.S. at 325, 106 S.Ct. at 2554. When a motion for summary judgment is made and supported by the movant, Rule 56(e) requires the non-moving party to set forth specific facts demonstrating that genuine issues of material fact remain for trial. Matsushita Elec. Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). The non-moving party may not defeat a properly supported motion for summary judgment by relying on self-serving and conclusory statements concerning the true nature of the facts. Wyler v. United States, 725 F.2d 156, 160 (2d Cir.1983). As the Supreme Court has noted, the non-moving party must do more than simply show that there is some metaphysical doubt as to the material facts. Matsushita Elec. Industrial Co. v. Zenith Radio, 475 U.S. at 586, 106 S.Ct. at 1355-56; cf. In re Ionosphere Clubs, Inc., 147 B.R. at 861.
The facts surrounding the statute of limitations issue are not in dispute. The Trustee filed his adversary proceeding more than two years...
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