Lubetkin v. Anthony Brusco Consulting & Content Critical, LLC (In re Astoria Graphics, Inc.), Case No.: 10-21948 (DHS)

• Decision Date: 14 February 2013
• Docket Number: Case No.: 10-21948 (DHS),Adv. Pro. No.: 11-1915 (DHS)
• Parties: In re: ASTORIA GRAPHICS, INC., Debtor. JAY L. LUBETKIN, CHAPTER 7 TRUSTEE FOR ASTORIA GRAPHICS, INC., Plaintiff, v. ANTHONY BRUSCO CONSULTING and CONTENT CRITICAL, LLC, Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

In Re: ASTORIA GRAPHICS, INC., Debtor.

JAY L. LUBETKIN, CHAPTER 7 TRUSTEE FOR ASTORIA GRAPHICS, INC., Plaintiff,

v.ANTHONY BRUSCO CONSULTING and CONTENT CRITICAL, LLC, Defendants.

Case No.: 10-21948 (DHS)

Adv. Pro. No.: 11-1915 (DHS)

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY

Dated: February 14, 2013

NOT FOR PUBLICATION

Judge: Donald H. Steckroth, U.S.B.J.

OPINION

APPEARANCES:

Rabinowitz, Lubetkin & Tully, LLC

Laura E. Quinn, Esq.

Counsel for Plaintiff,

Jay L. Lubetkin, Chapter 7 Trustee

Becker Meisel LLC

David J. Sprong, Esq.

Counsel for Defendant,

Content Critical, LLC

THE HONORABLE DONALD H. STECKROTH, BANKRUPTCY JUDGE

Before the Court is a motion filed by Jay L. Lubetkin (the "Trustee" or "Plaintiff"), Chapter 7 Trustee for Astoria Graphics, Inc. (the "Debtor"), seeking summary judgment on preference related counts of the complaint ("Complaint") filed on June 6, 2011 as well as a cross-motion by Content Critical, LLC ("CC" or "Defendant") seeking summary judgment in its favor on all counts of the Trustee's Complaint ("Plaintiff's Motion" and "Defendant's Cross-Motion," respectively). The Complaint includes seven counts alleging that certain transfers are voidable pursuant to §§ 547, 548(a)(1)(A) and (B), the New Jersey Fraudulent Transfer Act, N.J.S.A. 25:2-25, made applicable herein by 11 U.S.C. § 544, and that the Trustee is entitled to recover the transfers pursuant to 11 U.S.C. § 550.

The Plaintiff argues that a voidable preferential transfer occurs when a purchaser of a debtor's assets assumes liabilities as part of the purchase price and makes payments on the assumed liabilities to a creditor of the debtor. Specifically, the Plaintiff contends that: (1) the right to receive consideration for the sale of its assets is an interest of the Debtor; (2) that interest is transferred to or for the benefit a creditor when a debt owed to that creditor was assumed by the purchaser of the Debtors assets, which then made payments directly to that creditor; (3) those payments were on account of an antecedent debt because payment had become due to the creditor; (4) the transfer occurs within 90 days of the filing of the involuntary chapter 7 petition; (5) the Debtor is insolvent pursuant to the presumption of insolvency under 547(f); and (6) the creditor receives more than it would have under a chapter 7 liquidation because it will receive 100% of payments owed to it.

The Defendant counters that: (1) its transfer was neither preferential nor fraudulent; (2) the Trustee cannot recover from CC until the transfer is deemed preferential; (3) even if an interest was preferentially transferred, CC is not the recipient of that interest; and (4) there are genuine issues of material fact due to the inaccurate assertions in the "undisputed facts" and inconsistencies in the Trustee's pleadings, and, therefore, summary judgment is inappropriate. Additionally, the Defendant's Cross-Motion seeks to dismiss Counts II and III of the Complaint, alleging fraud, for Plaintiff's failing to meet the pleading standards required by Federal Rule of Procedure 9(b).

Federal Rule of Civil Procedure 56 is made applicable to this proceeding pursuant to Federal Rule of Bankruptcy 7056. The Court has jurisdiction over this motion pursuant to 28 U.S.C. §§ 1334(b), 157(a), and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984 as amended September 18, 2012. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E), (F), and (H). Venue is proper under 28 U.S.C. §§ 1408 and 1409(a). The following shall constitute the Court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.

FACTUAL BACKGROUND

In January of 2006, the Debtor entered into a Guaranteed Consulting Agreement ("Brusco Contract") with Anthony Brusco Consulting ("Brusco"). (Certification of Laura E. Quinn ("Quinn Cert."), Ex. B) The Brusco Contract provides that Brusco was to provideconsulting services to the Debtor until such time that Butterfly Press, Inc. ("Butterfly") or Butterfly's designee shall acquire title to the Debtor's business location. (Quinn Cert., Ex. B, ¶¶ 2-3) Additionally, the Brusco Contract states that,

BRUSCO shall be deemed to have irrefutably completed the provision of services contemplated hereby, earned the compensation to be paid to BRUSCO hereunder, and Entitled to payments hereunder, without setoff or abatement or defense as to payment of any kind, upon Butterfly or Butterfly's designee acquiring title to the Business Location under the terms of Butterfly's lease for the Business Location . . .

(Quinn Cert., Ex. B, ¶¶ 2-3) The amount originally due under the Brusco Contract was $594,000 to be paid in $9,900 monthly installments. (Quinn Cert., Ex. B, ¶ 6)

In March of 2010, prior to its involuntary bankruptcy, the Debtor entered into an Asset Purchase and Sale Agreement with CC and other entities (the "APA"). (Plaintiff's Rule 56.1 Statement in Support of Motion for Summary Judgment ("Pl.'s Statement"), ¶ 5) It is alleged and undisputed that the Debtor was insolvent at this time. (Pl.'s Statement, ¶ 1; see Defendant's Cross-Motion for Summary Judgment ("Def.'s Motion")) Pursuant to the APA, the Debtor sold certain assets to CC. (Pl.'s Statement, ¶ 6) As consideration for the sale, and in addition to $470,000 paid to the Debtor in cash, CC assumed certain liabilities of the Debtor including the obligation to make payments to Brusco under the Brusco Contract. (Pl.'s Statement, ¶¶ 7-8) In relevant part, Article 1.3 of the APA provides that,

[i]n consideration for the sale, assignment and delivery of the Purchased Assets under this Agreement: (a) Buyer shall pay to Sellers a purchase price of U.S. $470,000 (the "Cash Amount"); and (b) Buyer shall assume the Assumed Liabilities (as defined herein) (together with Cash Amount, the "Purchase Price").

(Quinn Cert., Ex. A, Article 1.3) Pursuant to Schedule 1.5 of the APA, "Assumed Contracts" included the Brusco Contract. (Quinn Cert., Ex. A, Schedule 1.5) At the time the Brusco Contract was assumed by CC, an aggregate of $227,200 remained due to Brusco for services rendered under the Brusco Contract. (Quinn Cert., Ex. A of Ex. A, ¶ 7)

On April 20, 2010 (the "Petition Date"), an involuntary petition was filed against the Debtor. Jay L. Lubetkin was appointed Chapter 7 Trustee on May 19, 2010. CC made a total of $128,700 in monthly payments to Brusco from the time the liability was assumed until February 15, 2011, when it received notice from the Trustee requesting that all such future payments be remitted to the Trustee. (Quinn Cert., Ex. D) CC has not made any payments since and is still liable to Brusco in the amount of $148,500 pursuant to the APA and Brusco Contract. (Pl.'s Statement, ¶¶ 20-21) By way of the Complaint and motion for summary judgment, the Trustee seeks to avoid the past payments totaling $128,700 as preferential and have future payments under the Brusco Contract and APA redirected to the Trustee for inclusion in the Debtor's estate. The Court has been advised that a settlement was reached between the Plaintiff and Brusco, and for that reason the Opinion does not address any relief the Trustee sought against Brusco.

DISCUSSION

I. Summary Judgment Standard

A court may grant summary judgment under Federal Rule of Civil Procedure 56(c), made applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056, "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Id. At the summary judgment stage, the role of the court "is not to weigh evidence, but to determine whether there is a genuine issue for trial." Knauss v. Dwek, 289 F. Supp. 2d 546, 549 (D.N.J. 2003) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). The court must construe facts and inferences in a light most favorable to the non-moving party. See Am. Marine Rail NJ, LLC v. City of Bayonne, 289 F. Supp. 2d 569, 578 (D.N.J. 2003) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986)). "Only evidence admissible at trial may be used to test a summary judgment motion. Thus, evidence whose foundation is deficient must be excluded from consideration." Williams v. Borough of West Chester, Pa., 891 F.2d 458, 471 (3d Cir. 1989) (citations omitted).

The moving party must make an initial showing that there is no genuine issue of material fact. See Knauss, 289 F. Supp. 2d at 549 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). The burden then shifts to the non-moving party to "'make a showing sufficient to establish the existence of [every] element essential to the party's case, and on which that party will bear the burden of proof at trial.'" Cardenas v. Massey, 269 F.3d 251, 254-55 (3d Cir. 2001) (questioned on other grounds) (quoting Celotex Corp., 477 U.S. at 322). The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48 (emphasis in original). An issue of fact is "genuine" if a reasonable juror could return a verdict for the non-moving party. See id. at 248. Furthermore, a material fact is determined by the substantive law at issue. See Crane v. Yurick, 287 F. Supp. 2d 553, 556 (D.N.J. 2003) (citing Anderson, 477 U.S. at 248). A fact is "material" if it might affect the outcome of the suit under governing law. Id. Disputes over irrelevant or unnecessary facts are insufficient to defeat a motion for summary judgment. Anderson, 477 U.S. at 248 (citation omitted).

However, even if material facts remain disputed, summary judgment may be proper if, after all inferences...