James P. Carroll, Liquidation Tr. of the Liquidation Trust for the Bankr. Estates of Innovative Commc'ns Co. v. Robert F. Craig P.C. (In re Innovative Commc'n Corp.)

• Citation: 507 B.R. 841
• Decision Date: 19 March 2014
• Docket Number: Adversary No. 09–03070 (MFW).,Adversary No. 09–03010(MFW).,Adversary No. 09–03089(MFW).,Bankruptcy No. 07–30012 (MFW).,Adversary No. 09–03090(MFW).,Adversary No. 009–03009(MFW).,Adversary No. 09–03012(MFW).
• Court: Bankr. V.I.
• Parties: In re INNOVATIVE COMMUNICATION CORPORATION, Debtor. James P. Carroll, Liquidation Trustee of the Liquidation Trust for the Bankruptcy Estates of Innovative Communications Co., LLC, Emerging Communications, Inc., and Innovative Communication Corp., Plaintiff, v. Robert F. Craig P.C., John P. Raynor, Peter Weisman and Peter Weisman & Associates, Prosser & Campbell, P.C., Raynor, Rensch & Pfeiffer, Banco Popular de Puerto Rico, Defendants.

507 B.R. 841

In re INNOVATIVE COMMUNICATION CORPORATION, Debtor.James P. Carroll, Liquidation Trustee of the Liquidation Trust for the Bankruptcy Estates of Innovative Communications Co., LLC, Emerging Communications, Inc., and Innovative Communication Corp., Plaintiff,

v.Robert F. Craig P.C., John P. Raynor, Peter Weisman and Peter Weisman & Associates, Prosser & Campbell, P.C., Raynor, Rensch & Pfeiffer, Banco Popular de Puerto Rico, Defendants.

Bankruptcy No. 07–30012 (MFW).

Adversary Nos. 09–03070 (MFW), 09–03012(MFW), 09–03089(MFW), 09–03009(MFW), 09–03010(MFW), 09–03090(MFW).

United States Bankruptcy Court,

D. Virgin Islands,

Division of St. Thomas and St. John.

Signed March 19, 2014.

Joseph L. Steinfeld, Jr., Ask LLP, St. Paul, MN, for Plaintiff.

Robert F. Craig, Robert F. Craig, P.C., John P. Raynor, Omaha, NE, Jeffrey B.C. Moorhead, Jeffrey B.C. Moorhead, P.C., CRT Brow Building, St. Croix, VI, for Defendant.

MEMORANDUM OPINION¹

MARY F. WALRATH, Bankruptcy Judge.

Before the Court are the Motions of James P. Carroll, the Trustee of the Liquidation Trust for the bankruptcy estates of Innovative Communications Co., LLC (“ICC–LLC”), Emerging Communications, Inc. (“Emerging”), and Innovative Communication Corp. (“New ICC”) (collectively the “Debtors”) and the responses and cross Motions of the various Defendants in the above-captioned adversaries for partial summary judgment on the issue of whether the Trustee's complaints against the Defendants are time-barred by the applicable statute of limitations. For the reasons set forth below, the Court concludes that the applicable statute of limitations does not bar the Trustee's Complaints and accordingly will grant the Motion of the Trustee for Partial Summary Judgment on this point.

I. BACKGROUND

On February 10, 2006, involuntary chapter 11 cases were filed against ICC–LLC, Emerging, and Jeffrey J. Prosser.² On July 31, 2006, ICC–LLC, Emerging, and Prosser filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. On March 15, 2007, Stan Springel was appointed the chapter 11 Trustee of ICC–LLC and Emerging. On October 3, 2007, the Prosser case was converted to chapter 7 and James P. Carroll was ultimately appointed the chapter 7 Trustee.

On July 5, 2007, an involuntary chapter 11 case was filed against New ICC and on September 21, 2007, an order for relief under chapter 11 was entered. On October 4, 2007, Stan Springel was appointed the chapter 11 Trustee of New ICC.

ICC–LLC is a holding company that owns approximately 51% of Emerging, which owns 100% of New ICC. New ICC was a holding company which owned various operating subsidiaries that provided telephone, newspaper, and other services to the citizens of the United States Virgin Islands, British Virgin Islands, surrounding Caribbean locations, and portions of France.

In 2009, the chapter 11 Trustee commenced the above adversary proceedings by filing complaints against the Defendants to recover various pre-petition transfers (the “Transfers”) as preferential under section 547 and as actually or constructively fraudulent pursuant to section 548, section 544, and Virgin Islands law.

On October 31, 2012, an Order was entered confirming the joint liquidating plan of ICC–LLC, Emerging, and New ICC. Pursuant to that plan, all causes of action of the estates were vested in a liquidating trust and Carroll was approved as the Liquidation Trustee. The Liquidation Trustee succeeded the chapter 11 Trustee as Plaintiff in these actions.

On August 29, 2013, Banco Popular de Puerto Rico (the “Bank”) filed a motion for partial summary judgment contending that the statute of limitations bars the recovery under section 544 and Virgin Islands law of any constructively fraudulent Transfers that occurred more than two years before the petition date. The Trustee responded to the Motion and filed his own motion for partial summary judgment contending that the Virgin Islands statute of limitations is tolled until the Transfers could reasonably have been discovered by creditors (the “Discovery Rule”). The Trustee contends that creditors could not have reasonably discovered the Transfers in these adversaries before the petition date.

Because the other Defendants raised similar defenses and because the applicability of the Discovery Rule is common to all these adversaries, the Court entered a scheduling order providing for discovery and the timing of the filing of motions and briefs on this issue. In accordance with that scheduling order, the Trustee filed an amended motion for partial summary judgment on the Discovery Rule issue in each of the other adversaries in early January 2014. The other Defendants filed their responses and cross Motions, to which the Trustee replied. Oral argument was held on February 11, 2014, and the matter was held under advisement.

II. JURISDICTION

The Court has subject matter jurisdiction over these adversary proceedings. 28 U.S.C. §§ 1334(b) & 157(b)(1). The count based on section 544 and Virgin Islands law is a “state law” claim which is not a core matter. 28 U.S.C. § 157(b)(2) & (c)(1). Therefore, while the Court has jurisdiction to hear the adversary proceedings, it may not enter a final judgment on the merits absent consent but must, instead, present proposed findings of fact and conclusions of law to the district court which will enter any final judgment. Id. at § 157(c)(1).

Nonetheless, the Court does have the power to enter a final order on pre-trial issues. See, e.g., Boyd v. King Par, LLC, Case No. 11–CV–1106, 2011 WL 5509873, at *5 (W.D.Mich. Nov. 10, 2011) (“[U]ncertainty regarding the bankruptcy court's ability to enter a final judgment ... does not deprive the bankruptcy court of the power to entertain all pretrial proceedings, including summary judgment motions.”); In re Trinsum Grp., Inc., 467 B.R. 734, 739 (Bankr.S.D.N.Y.2012) (“After Stern v. Marshall, the ability of bankruptcy judges to enter interlocutory orders in proceedings ... has been reaffirmed....”); Luna & Glushon v. Tri–Valley Corp. (In re Tri–Valley Corp.), Adv. No. 12–50989, 2013 WL 1910287, at *1 (Bankr.D.Del. May 1, 2013) (concluding that bankruptcy court had authority to decide motion to dismiss even if the court lacked authority to enter final order on the merits).

III. DISCUSSIONA. Standard of Review

The Court should grant a motion for summary judgment “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c).³

In considering a motion for summary judgment under Rule 56, the Court must view the inferences from the record in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Hollinger v. Wagner Mining Equip. Co., 667 F.2d 402, 405 (3d Cir.1981). If there does not appear to be a genuine issue as to any material fact and on such facts the movant is entitled to judgment as a matter of law, the Court must enter judgment in the movant's favor. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322–24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Carlson v. Arnot–Ogden Mem'l Hosp., 918 F.2d 411, 413 (3d Cir.1990).

The movant bears the burden of establishing that no genuine issue of material fact exits. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585 n. 10, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Integrated Water Res., Inc. v. Shaw Envtl., Inc. (In re IT Grp., Inc.), 377 B.R. 471, 475 (Bankr.D.Del.2007). A fact is material when it could “affect the outcome of the suit.” Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

Once the moving party has established its prima facie case, the party opposing summary judgment must go beyond the pleadings and point to specific facts showing there is a genuine issue of fact for trial. See, e.g., id. at 252, 106 S.Ct. 2505;Matsushita, 475 U.S. at 585–86, 106 S.Ct. 1348;Michaels v. New Jersey, 222 F.3d 118, 121 (3d Cir.2000); Robeson Indus. Corp. v. Hartford Accident & Indem. Co., 178 F.3d 160, 164 (3d Cir.1999). If the moving party offers only speculation and conclusory allegations in support of its motion, its burden of proof is not satisfied. See Ridgewood Bd. of Educ. v. N.E. ex rel. M.E., 172 F.3d 238, 252 (3d Cir.1999).

B. Constructive Fraud Claim

The Trustee seeks to avoid certain Transfers which he alleges were constructively fraudulent pursuant to section 544 and the applicable laws of the United States Virgin Islands. Section 544 authorizes the trustee to “avoid any transfer of an interest of the debtor in property ... that is voidable under applicable [non-bankruptcy] law by a creditor holding an unsecured claim that is allowable under section 502 of this title.” 11 U.S.C. § 544(b)(1).

1. Existence of eligible creditor

In order to succeed on his claims against the Defendants under section 544, the Trustee must show the existence of an actual creditor with an allowable unsecured claim who, under applicable non-bankruptcy law, could avoid the Transfer. The Trustee contends that Comstar, Inc., is just such a creditor.

a. Creditor as of petition date

The Defendants contend that Comstar is not an eligible creditor for purposes of section 544(b) because it did not hold a claim against New ICC as of the petition date. It only became a creditor during the gap period, between the filing of the involuntary petition and the entry of the order for relief. The Defendants argue that because property of the estate is fixed as of the petition date, the Trustee's right to pursue a claim under section 544 must also be fixed as of the petition date and cannot be expanded by the existence of an unsecured creditor whose claim arose after that date. They quote language in cases that suggests that the eligible creditor must actually hold a claim on the petition date. See, e.g., Cadle Co. v. Mims (In...