John K Fort v. Kudeviz (In re, Genesis Press, Inc.)

• Decision Date: 27 May 2016
• Docket Number: C/A No. 13-01376-HB,Adv. Pro. No. 15-80026-HB,Adv. Pro. No. 15-80025-HB,Adv. Pro. No. 15-80027-HB,Adv. Pro. No. 15-80024-HB
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
• Parties: In re, Genesis Press, Inc., Debtor(s). John K Fort, Plaintiff(s), v. Larry Kudeviz, Defendant(s). John K. Fort, Plaintiff(s), v. Christopher Petrone, Defendant(s). John K Fort, Plaintiff(s), v. Bruce Kudeviz, Defendant(s). John K. Fort, Plaintiff(s), v. Michael Kudeviz, Defendant(s).

In re, Genesis Press, Inc., Debtor(s).

John K Fort, Plaintiff(s),
v.
Larry Kudeviz, Defendant(s).

John K. Fort, Plaintiff(s),
v.
Christopher Petrone, Defendant(s).

John K Fort, Plaintiff(s),
v.
Bruce Kudeviz, Defendant(s).

John K. Fort, Plaintiff(s),
v.
Michael Kudeviz, Defendant(s).

C/A No. 13-01376-HB
Adv. Pro. No. 15-80024-HB
Adv. Pro. No. 15-80025-HB
Adv. Pro. No. 15-80026-HB
Adv. Pro. No. 15-80027-HB

UNITED STATES BANKRUPTCY COURT DISTRICT OF SOUTH CAROLINA

May 27, 2016

Chapter 7

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ORDER ON MOTIONS FOR JUDGMENT ON THE PLEADINGS AND SUMMARY JUDGMENT

THIS MATTER came before the Court upon the Motions for Judgment on the Pleadings and Summary Judgment filed by Defendants Larry Kudeviz, Christopher Petrone, Bruce Kudeviz, and Michael Kudeviz (collectively, "Defendants").¹ Plaintiff John K. Fort ("Trustee") filed an Objection. This adversary proceeding concerns loans made to Debtor Genesis Press, Inc. ("Genesis") and Trustee's effort to avoid and recover alleged pre-petition overpayments of principal and/or interest on the loans made by Larry and Christopher and pre-petition overpayments of interest on the loans made by Bruce and Michael. The Motions assert Defendants are entitled to a judgment on the pleadings and/or summary judgment because Trustee failed to adequately plead and prove fraud, Trustee's claims are barred by the statute of limitations, and Trustee's claims are unsubstantiated based on the evidence. For the reasons set forth below, the Motions are denied.

FACTS

The parties submitted, inter alia, copies of available loan documents and agreements, e-mail correspondence between Larry and a creditor of Genesis, a purchase and sale agreement for the purchase of a membership interest in Genesis, a complaint filed against Genesis in Florida, certain proofs of claims filed in Genesis' bankruptcy case, the recalculations of interest and principal owed conducted by Robert E. Faulkner, CPA ("Faulkner"), and deposition testimony from Larry, Christopher, Bruce, Michael, Faulkner,

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and Bryan Jeter.² Many of the relevant facts in the record are not in dispute, but the parties disagree as to the interpretation of the facts.

Genesis, a South Carolina corporation with its principal place of business in Greenville, South Carolina, was in the business of printing books primarily regarding healthcare and religion. Larry was the Chief Executive Officer and a shareholder; Bruce was the Chief Financial Officer and a shareholder; Michael was a shareholder; and Christopher was an employee.

Prior to 2008, Genesis experienced financial difficulties and Larry, Christopher, and Michael loaned money to Genesis. Pursuant to a memorandum drafted by Bruce and dated December 31, 2007 (the "2007 Memorandum"), Genesis recognized in writing that these loans existed and they were due fifteen (15) months from that date on March 31, 2009.³ The 2007 Memorandum acknowledged that as of that date, Larry was owed $1,486,115.01, Christopher was owed $170,000.00, and Michael was owed $325,000.00.⁴ The 2007 Memorandum also stated:

[The lenders] agree[d] to waive any interest payments and thus will not accrue during this time period. Thirty days before March 31, 2009 the interest rate and payment plan will be negotiated in good faith reflecting the borrowing environment for an "arms length" transaction . . . . I also agree to a 30 day LIBOR as the interest rate for these Loans.

In a deposition, Bruce testified that the parties held a meeting in his office to discuss the terms of the 2007 Memorandum. He testified that his understanding of the 2007 Memorandum and

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the parties' intent was that Larry, Christopher, and Michael would defer collecting interest during the 15-month period therein, interest would accrue during that period at the LIBOR rate, and the parties were to meet later at the end of the 15-month period to discuss the repayment of interest and the interest going forward. However, that anticipated meeting never occurred. Michael's deposition testimony indicated that he did not believe the 2007 Memorandum waived his right to collect interest.

In 2008, Genesis' printing facility was damaged by a series of fires. Genesis notified its insurer, Hartford Casualty Insurance Company ("Hartford"), of its losses and Hartford began an investigation into the origin of the fires. Hartford ultimately refused to make payments to Genesis for its losses. As a result, Genesis filed a lawsuit against Hartford in June 2008 alleging it breached the parties' insurance contract and made a bad faith denial of the losses claimed. Larry, Christopher, and Bruce were then arrested and charged with arson, but the charges were later dismissed.

While the litigation with Hartford was pending, Genesis was in need of additional operating capital and sought commercial loans, but was unable to find a lender. As a result, Larry and Christopher loaned additional money to Genesis in various amounts and at different times in an effort to sustain the business through the litigation. Some, but not all, of these loans are evidenced by promissory notes. With regard to Larry, a total of $242,978.00 subsequently loaned is evidenced by promissory notes dated April 28, 2008 through October 15, 2009.⁵ With regard to Chris, a total of $150,000.00 subsequently loaned is evidenced by promissory notes dated March 30, 2009 and August 7, 2009. These promissory notes provide

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in relevant part that the principal amount of the note will be repaid by Genesis "together with interest of [a certain] percent per annum, payable on demand."⁶ Trustee asserts Christopher made another loan on August 31, 2009, for $5,000.00 and Larry made additional loans in 2010 totaling $47,240.66 for which there are no writings or promissory notes.⁷

Bruce also made loans to Genesis while the litigation with Hartford was pending. Although Bruce's loans are not evidenced by any writing or promissory notes, it is undisputed that his loans were made in April 2010 in the principal amounts of $25,000 and $12,000.

On May 20, 2010, a jury returned a verdict awarding $14,500,000.00 in favor of Genesis against Hartford. The case was appealed and settled shortly thereafter for $18,000,000.00.⁸ Of that amount, Larry received approximately $1,650,000.00, Christopher received approximately $2,400,000.00, and Bruce received approximately $1,950,000.00. Trustee has not raised any issues related to these distributions.

Genesis received approximately $12,000,000.00 from the settlement proceeds. Disbursements from this amount included paying vendors and satisfying outstanding loans, including those owed to Defendants. On July 6, 2010, Genesis transferred a sum of $1,110,069.21 to Larry, a sum of $435,326.45 to Christopher, and a sum of $193,362.00 to Bruce. On July 13, 2010, Genesis transferred a sum of $390,010.00 to Michael.

At that time, Genesis was indebted to the following creditors whose debts were not satisfied: (1) the Internal Revenue Service ("IRS") in the amount of $21,737.46; (2) Realty

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Associates in the amount of $120,246.86; and (3) Barbara Levin in the amount of $863,658.41 (collectively, the "Existing Creditors").

Genesis filed a voluntary petition for Chapter 11 relief almost three years later on March 6, 2013. On June 11, 2013, the case was converted to Chapter 7 and Trustee was appointed.

The Existing Creditors filed proofs of claims in the bankruptcy case and those obligations remain unpaid. The IRS's proof of claim asserts an unsecured priority claim for unpaid taxes owed during the December 31, 2005 tax period and assessed on August 17, 2009.⁹ The Realty Associates' proof of claim indicates it is owed for Genesis' failure to pay rent on real property located in Florida and other associated charges through the term of the lease, which expired on December 31, 2009. Lastly, Levin's proof of claim indicates amounts due pursuant to the agreement for the purchase of her late husband's ownership interest in Genesis ("Share Purchase Agreement").¹⁰ The Share Purchase Agreement states that until Levin's debt is satisfied in full, Genesis "covenants and agrees that it shall promptly provide, upon demand by [Levin] from time to time, such financial statements and other documentation as reasonably requested including, but not limited to, notices, financial statements, certificates and other documentation[.]" On May 23, 2010, Levin e-mailed Larry to congratulate him on the favorable verdict against Hartford. Larry responded, informing Levin that some time would pass before they received any money, but he intended to resume making payments to her as soon as he received the funds, including stating, "I will never give up and rest assured you will be paid all that is owed—I still have a large uphill battle until we do get paid, but it

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is not a battle I am afraid of." Levin responded, "[j]ust keep me informed and somehow we'll work things out." A review of the record indicates that the exact repayment terms anticipated by the parties at that time is unclear. Eventually, Levin sued Genesis in Florida on August 24, 2012, for breach of contract and specific performance, asking for money damages and that Genesis provide financial statements and other documentation as required by the agreement between the parties.

Trustee employed Faulkner, an accountant, to review Genesis' books and records and Trustee conducted discovery prior to these adversary proceedings. From information available, Faulkner reconstructed and recalculated the principal and interest due on the loans from Larry and Christopher and concluded that they were overpaid. Faulkner determined that based on his calculations, Larry was overpaid $154,822.00 for principal and $136,717.00 in interest, for a total of $291,539.00, and Christopher was overpaid $45,000.00 for principal and $23,471.45 in interest, for a total of $68,471.45. Generally, Faulkner's calculations differed from the actual payments made in July 2010 because he and Trustee...