Lanik v. Smith (In re Cox Motor Express of Greensboro, Inc.), Case No. 14-10468
| Decision Date | 09 August 2016 |
| Docket Number | Adversary No. 15-02023,Case No. 14-10468 |
| Court | U.S. Bankruptcy Court — Middle District of North Carolina |
| Parties | In re: Cox Motor Express of Greensboro, Inc., Debtor. James C. Lanik Plaintiff, v. James W. Smith, Jr., Defendant. |
THIS CASE came before the Court for hearing on May 17, 2016, on the Motion for Summary Judgment [Doc. #32] filed by James C. Lanik (the "Plaintiff" or "Trustee"), as Chapter 7 Trustee for Cox Motor Express of Greensdboro, Inc. ("Debtor"). James C. Lanik and Andrew D. Irby appeared for the Plaintiff. Norman B. Smith appeared for James W. Smith, Jr. (the "Defendant"). Plaintiff filed a Brief in Support of Trustee's Motion for Summary Judgment [Doc. #32-1] (the "Plaintiff's Brief"). For the reasons stated herein, Plaintiff's Motion for Summary Judgment is granted in part and denied in part.
Plaintiff moves the Court to grant summary judgment and determine as a matter of law that the Trustee is entitled to recover $97,600.00 as preferential transfers, pursuant to 11 U.S.C. §§ 547 and 550(a). Plaintiff has conceded that the Defendant has a partial "new value" defense, under 11 U.S.C. § 547(c)(4), and the $97,600.00 is the net avoidable preference amount after taking into account any offsetting "new value" payments that were made.
On April 4, 2016, Defendant filed his Brief/Memorandum of Law in Opposition to Plaintiff's Motion for Summary Judgment [Doc. #34] (the "Defendant's Brief"). Defendant argues that the amount of contested factual issues in this case preclude the entry of summary judgment under Fed. R. Civ. P. 56. In particular, Defendant states that the Plaintiff has not met his burden in proving that Cox Motor Express of Greensboro, Inc. (the "Debtor"), was insolvent at the time the alleged preferential transfers were made, as required by 11 U.S.C. § 547(b)(3). Defendant further asserts the affirmative defenses "Ordinary Course of Business," under 11 U.S.C. § 547(c)(2), and"New Value," under 11 U.S.C. § 547(c)(4), and contends that these defenses are issues for trial. Filed contemporaneously with the Defendant's Brief was an Affidavit of James W. Smith Jr. [Doc. #33] (the "Defendant's Affidavit"), which includes facts (and legal conclusions) in support of Defendant's arguments.
In an attempt to establish insolvency for purposes of summary judgment, the Plaintiff has relied upon the Debtor's tax returns and the presumption of insolvency during the 90 days pre-petition under 11 U.S.C. § 547(f). The Defendant has attempted to rebut the presumption of insolvency during the 90 days pre-petition by arguing that the Debtor's schedules reflect that the Debtor was solvent on the petition date and by submitting his own affidavit as a former principal of the Debtor.
On April 18, 2016, Plaintiff filed Trustee's Reply Brief in Response to Defendant's Memorandum of Law [Doc. #37] (the "Plaintiff's Reply to Defendant's Brief"). In this brief, Plaintiff argues that any new facts asserted by the Defendant in the Defendant's Brief or Defendant's Affidavit should be stricken pursuant to Fed. R. Civ. P. 37(c)(1), made applicable to this adversary proceeding under Fed. R. Bankr. P. 9037. In particular, Plaintiff argues that the facts asserted in regard to the solvency of the Debtor are not competent evidence becausethey were not disclosed in response to the Trustee's specific discovery requests for such facts, and the content of the affidavit contradicts the content of the Schedules from the Debtor's Petition to which the Defendant swore as Debtor's principal.
The Defendant also contests insolvency during the extended preference period for insiders under 11 U.S.C. § 547(b)(4)(B). Plaintiff contends that the Debtor's tax returns establish insolvency during the insider preference period. In the alternative, the Plaintiff contends that he is entitled to summary judgment for preference payments made during that 90 days, minus any "new value" from the Defendant, which results in a net avoidable preference amount of $63,200.00.
Defendant argues that the Motion to Exclude Evidence should be denied, see Brief/Memorandum in Opposition to Plaintiff's Motion to Exclude Evidence [Doc. #41] (the "Defendant's Reply to Motion to Exclude Evidence"), and has filed a further Notice of Correction to Defendant's Affidavit [Doc. #38] in which Defendant states that there were "typographical errors" in the Defendant's Affidavit and in responses to requests for admission, interrogatories, and requests for production of documents.1
The Debtor filed a voluntary petition under chapter 7 of the United States Bankruptcy Code on April 30, 2014 (the "Petition Date"), Bankr. Case No. 14-10468 (the "Main Case"). The Plaintiff-Trustee initiated this adversary proceeding on May 22, 2015. Plaintiff seeks to avoid a number of alleged preferential transfers made to the Defendant within the one year prior to the Petition Date pursuant to 11 U.S.C. § 547, and to recover those funds for the benefit of the estate pursuant to 11 U.S.C. § 550(a).
The Debtor, Cox Motor Express of Greensboro, Inc., is a trucking company. James W. Smith Jr., the Defendant, was the President of the Debtor on the Petition Date and executed the Debtor's bankruptcy petition under penalty of perjury in his capacity as President. For the past 15 years, Defendant has also been the general manager of the Debtor and responsible for all of its day-to-day activities. See Defendant's Affidavit, ¶2. Defendant is married to Pamela C. Smith, an officer and shareholder of the Debtor. See Motion for Summary Judgment, Exhibit B, Requests for Admission 6 and 7, p. 4 [Doc. #32-4]. Defendant has been married to Pamela Smith at all relevant times to this adversary proceeding. Id.
The first loan made from the Defendant to the Debtor occurred on March 18, 2011, and was in the amount of $10,000. Defendant's Affidavit, p. 4. This was followed by one more loan prior to the beginning of the Preference period, which occurred on July 15, 2011, and was in the amount of $1,200. Id. There is no evidence of the Debtor repaying any of these loans prior to the start of the Preference Period. During the Preference Period, the Defendant made additional loans to the Debtor, and the Debtor began making repayments to the Defendant. The history of loans and repayments during the Preference Period is summarized in the following table:
The table above was created by the Plaintiff based upon information provided by the Defendant in response to discovery requests (the "Transfer Table").2 Defendant disputes the repayment from the Debtor to Defendant on March 12, 2014, in the amount of $50,000.00. Defendant's Affidavit, p. 4, ¶ 8. Although the Transfer table included in the Debtor's petition and schedules includes reference to this $50,000.00 payment, the schedules reflect that the payment was made to the Defendant by another creditor (the "Marquette Transfer"). The nature and circumstances of the Marquette Transfer are disputed, and the record is insufficient to establish the circumstances of that transfer for purposes of summary judgment. The Defendant also avers that he made two additional loans to the Debtor which the Plaintiff has not included in the summary: a loan of $8,000.00 on May 1, 2013, and a loan of $8,000.00 on December 18, 2013. According to the Plaintiff, he did not include these additional loans because the Defendant failed to provide documentation of them. Plaintiff concedes that, to the extent the Defendant can prove the existence of either of these loans, he does not opposeeither being classified as "new value" and reducing the preference claim by that amount.3
The Defendant made a series of loans to the Debtor by check. See Transfer Table (including check numbers for each loan). The first loan, on September 18, 2011, has a description that it is "Earnest Money given to Eric P Handler, PC for purchase of Lexington, NC property." Id. The second loan, on July 15, 2011, has a description that it is "Cash given to Everett B Saslow Jr a lawsuit concerning NE Cox/ Cox Motor Exp." Id. The third loan, on May 1, 2013,...
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