In re Wolensky's Ltd. Partnership

• Decision Date: 27 January 1994
• Docket Number: Bankruptcy No. 92-01435. Adv. No. 93-0025.
• Citation: 163 BR 629
• Parties: In re WOLENSKY'S LIMITED PARTNERSHIP, Debtor. FEDERAL KEMPER LIFE ASSURANCE CO., Plaintiff, v. WOLENSKY'S L.P., et al., Defendants.
• Court: United States Bankruptcy Courts – District of Columbia Circuit

163 B.R. 629 (1994)

In re WOLENSKY'S LIMITED PARTNERSHIP, Debtor FEDERAL KEMPER LIFE ASSURANCE CO., Plaintiff, v. WOLENSKY'S L.P., et al., Defendants.

Bankruptcy No. 92-01435. Adv. No. 93-0025.

United States Bankruptcy Court, District of Columbia.

January 27, 1994.

COPYRIGHT MATERIAL OMITTED

Jeffrey M. Sherman, Trustee, Washington, DC, for debtor.

Robert N. Levin, Schweitzer, Bentzen & Scherr, Washington, DC, for movant.

Bryan S. Ross, Washington, DC.

David M. Katinsky, U.S. Dept. of Justice, Tax Div., Washington, DC.

Mary C. Zinsner, Mays & Valentine, Alexandria, VA.

DECISION PARTIALLY GRANTING UNITED STATE'S MOTION FOR SUMMARY JUDGMENT AND GRANTING SUMMARY JUDGMENT IN FAVOR OF THE TRUSTEE

S. MARTIN TEEL, Jr., Bankruptcy Judge.

In its prior decision in the above-captioned adversary proceeding, In re Wolensky's Limited Partnership, 163 B.R. 615 (Bankr.D.D.C. 1993), this court set forth an analysis of the issues it found to be pertinent to the resolution of who was entitled to the insurance proceeds at issue.¹ One such issue was whether Sullivan, acting for the general partner of Wolensky's L.P., was capable of acting on behalf of the limited partnership with respect to such changes in the policy absent authorization by the partnership. Id. at 621.

This court previously determined that if the transfer by Sullivan was not related to the ordinary business of the partnership, Sullivan's act of transferring the policy and changing the beneficiary was ultra vires and thereby ineffective to deprive the partnership of its interest in the policy. Id. at 621-22. The court further found that it would be difficult, if not impossible, to conclude that the transfer of the policy, without consideration, to Sullivan's family member was an act effectuating the partnership's business. However, because only the Balls had moved for summary judgment, the court declined at that time to grant summary judgment in favor of the trustee or the United States.

With the benefit of extensive discovery, the United States, acting on behalf of the Internal Revenue Service ("IRS"), has now moved for summary judgment, contending that not only is the limited partnership entitled to the proceeds as opposed to the Balls or Mrs. Sullivan, but that the IRS is entitled to the funds as opposed to the trustee of the limited partnership's bankruptcy estate.

For the reasons below, the United States' motion for summary judgment is partially granted to hold that the Balls and Mrs. Sullivan are not entitled to the funds but denied insofar as the request for a ruling that the IRS is entitled to the funds instead of the trustee. Further, the court will grant summary judgment sua sponte in favor of the trustee for Wolensky's L.P.

DISCUSSION

A. The Balls' Interest as Opposed to the Limited Partnership's

In its earlier decision, the court found that "no evidence had been presented which suggests that Sullivan's change in ownership and beneficiary was within the normal course of the partnership's business." 163 B.R. at 622. Although the Balls have now had the opportunity to introduce evidence establishing that the transfer did effectuate partnership business, they have failed to do so. There is simply no evidence even remotely suggesting that the transfer in some way advanced the purposes of the partnership.² To the contrary, the evidence establishes that the transfer was outside the ordinary partnership business. The Balls do not contest that Sullivan transferred the policy to his wife, who was not involved in the partnership, without consideration. Nor have they asserted that the partnership business was not as described in the Agreement and by Mr. Borut.³ Such an act is in no way necessary, proper or advisable to the operation of the partnership business — the operation of Wolensky's restaurant. Accordingly, this court finds that the transfer was not within the ordinary course of partnership business.

In response, however, the Balls appear to contend that Sullivan was authorized to make the changes to the policy. They allege that in 1985, Sullivan agreed to provide the insurance policy to protect certain investors in the event of his death provided that after the first two years of the restaurant's operations, he could "take back" the policy. (Balls' Resp. at 2.) In essence, the Balls claim that Sullivan pledged the policy to the partnership as collateral securing the investors/guarantors for a limited period of two years. However, the Balls have failed to provide any evidence in support of this purported arrangement.

The Balls offer an affidavit from Timothy Sullivan, dated December 6, 1993, in support of the notion that the policy was to be changeable at Sullivan's option after two years. (Balls' Resp. ¶ 5.) However, it is clear upon reading the affidavit that the two year limitation mentioned by Timothy Sullivan refers to a policy, different from the one at issue, that never came to fruition. (Sullivan Aff. ¶ 5, Balls' Resp., Ex. 1.) Thus, the Affidavit fails to provide any evidence as to the existence of the alleged arrangement. In addition, the assertion that such an arrangement existed is belied by evidence suggesting that Sullivan knew that he was deceiving the other partners in and creditors of the partnership in his dealings with the insurance policy. Wolensky's bookkeeper, Donna Clancy Anthony, did not learn until after the fact, and then only indirectly, that Sullivan had unilaterally transferred the policy. (Clancy Anthony Dep. at 34-35, 61-62, U.S. Mot. for Summ. J., Ex. 6.) Upon learning of the transfer, Ms. Anthony expressed to Sullivan her understanding that the purpose of the policy was to protect the partnership. Sullivan responded that while the policy in the beginning belonged to Wolensky's, "it is mine now to do with what I want." (Id. at 62.) Sullivan's actions, however, contradict that belief. As late as May of 1991, six years after the policy was obtained, the evidence suggests that Sullivan himself understood the policy to be owned by the partnership. On both forms sent to Kemper requesting a change of ownership and beneficiary, the first in June of 1990 and the second in May of 1991, Sullivan himself listed Wolensky's L.P. as the owner of the policy. (Crawley Dep. at 58, U.S. Mot. for Summ. J., Ex. 3; Thomas Dep. at 11, U.S. Mot. for Summ. J., Ex. 4.) In addition, in a suicide note to his wife, Sullivan told her not to disclose the existence of the insurance policy to anyone. (U.S. Mot. for Summ. J., Ex. 5 (under seal).)

Even if the court assumes that Sullivan believed that he was free to treat the policy as his own, that belief does not equate to authorization. And there is no evidence in the record suggesting that he was authorized to treat the policy as his own at any time, let alone after two years. Further, a finding that Sullivan was free to "take back" the policy and treat it as his own would entirely defeat the expressed purposes of the policy. The Corporate Minutes in Lieu of a Meeting of Wolensky's Inc. Board of Directors, dated May 24, 1985, expressly provided that the proceeds from any keyman insurance policy were to be used either to pay debts guaranteed by principals in the corporation or partners in the limited partnership or for other corporate purposes. (Balls' Resp., Ex. 2.) Thus, the policy was intended to either protect guarantors of the corporation's or limited partnership's debts or to benefit the corporation. Moreover, Borut, the treasurer and a director of Wolensky's Inc. until 1990⁴ who was also a personal guarantor on certain debts of the limited partnership, stated that "to the best of my knowledge, there was no subsequent amendment to the bylaws, board of directors resolution, or any other corporate action which modified or changed" the intended purpose of the policy. (Borut Decl., ¶¶ 1, 7-9.)

Despite the numerous documents produced and depositions taken in this proceeding, the Balls have offered nothing more than the bare assertion that the policy at issue was merely pledged to the partnership for two years subject to Sullivan's right to "take back" the policy after that period lapsed.⁵ And a bare assertion is not enough to establish a genuine issue of material fact sufficient to bar a grant of summary judgment.

The Balls' statement that they will be asking for a missing witness rule due to the allegation that the business records of Wolensky's L.P. and Wolensky's Inc. have been destroyed is insufficient to bar a grant of summary judgment in this case. The Balls have simply alleged that the documents have been destroyed without providing evidence of the circumstances of the destruction, for example, who destroyed them and the motivation for such destruction. Nor have the Balls stated what relevance they believe those documents would have to the case or to what issue those documents would apply. Moreover, any inference that arises "does not amount to substantive proof and cannot take the place of proof of a fact necessary to the other party's case." See Battocchi v. Washington Hospital Center, 581 A.2d 759, 765 (D.C.App.1990) (citing Burkowske v. Church Hosp. Corp., 50 Md.App. 515, 439 A.2d 40, 45 (1982), quoting Maszczenski v. Meyers, 212 Md. 346, 129 A.2d 109, 114 (1957)). And as the court has expressed in this opinion, the Balls have failed to provide any evidence in support of their allegation that Sullivan was authorized to make the changes at issue. Therefore, the Balls are unable to rely on this inference to bar the grant of summary judgment. See Burkowske, 439 A.2d at 45 (rule applies to determining whether sufficient evidence has been produced in deciding summary judgment motion). Additionally, the Balls had ample opportunity to examine those documents at issue, having known as of April 6, 1993 that the United States was subpoenaing them for examination (see U.S. Reply to Balls' Opp. to Mot. for Summ. J., Ex. A) and having themselves known of the existence of such...