Manchester v. Sharpton (In re All Phase Roofing & Const.), Case No. 17-12414-SAH
| Decision Date | 17 January 2020 |
| Docket Number | Case No. 17-12414-SAH,Adv. Pro. 17-01070-SAH |
| Parties | In re: ALL PHASE ROOFING AND CONSTRUCTION, LLC Debtor. SUSAN MANCHESTER, Trustee of ALL PHASE ROOFING AND CONSTRUCTION, LLC, Plaintiff, v. RICKY SHARPTON, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Oklahoma |
In re: ALL PHASE ROOFING AND CONSTRUCTION, LLC Debtor.
SUSAN MANCHESTER, Trustee of ALL PHASE ROOFING AND CONSTRUCTION, LLC, Plaintiff,
v.
RICKY SHARPTON, Defendant.
Case No. 17-12414-SAH
Adv. Pro. 17-01070-SAH
UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF OKLAHOMA
January 17, 2020
The following is ORDERED:
Chapter 7
FINDINGS OF FACT AND CONCLUSIONS OF LAW
On August 26 and 27, 2019, the Court conducted a trial on the Complaint [Doc. 1], filed on November 1, 2017 (the "Complaint") by Susan Manchester ("Plaintiff"), Trustee of All Phase Roofing and Construction, LLC ("All Phase LLC"), against Ricky Sharpton ("Defendant"),
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president and owner of All Phase LLC. Attorney Susan Manchester appeared on behalf of Plaintiff, and Gary Hammond appeared on behalf of Defendant.1 As directed by the Court at the conclusion of trial, but after obtaining an extension of time, the parties filed their written closing arguments on October 10, 2019.2
The Court has jurisdiction to hear the Complaint pursuant to 28 U.S.C. § 1334(b), and venue is proper pursuant to 28 U.S.C. § 1409. Reference to the Court of this matter is proper pursuant to 28 U.S.C. § 157(a), and this is a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(E) and (H). Additionally, the parties consented to this Court's entry of final orders pursuant to Federal Rules of Bankruptcy Procedure 7008 and 7012.
Defendant previously operated a roofing and construction business in the form of All Phase LLC, a single member limited liability company organized in February 2012. In December of 2016, All Phase LLC allegedly ceased operations, and Defendant began conducting the same roofing business as All Phase Roofing Systems ("All Phase Systems"), a sole proprietorship or D/B/A. All Phase LLC's bank statements and Defendant's income tax returns clearly indicate Defendant had a serious gambling habit during this same time period. All Phase LLC filed its chapter 7 bankruptcy petition on June 18, 2017. Defendant filed his personal chapter 7
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bankruptcy petition on December 31, 2017. In her capacity as trustee of the bankruptcy estate of All Phase LLC, Plaintiff filed her Complaint asserting numerous causes of action under 11 U.S.C. §§ 544, 548(a)(1)(A) and (B), 542 and 550(a) and (b),3 and the Oklahoma Uniform Fraudulent Transfer Act, 24 O.S. §§112, et. seq., for avoidance and recovery of fraudulent transfers.4 In his Answer [Doc. 9], Defendant counterclaimed asking the Court to order Plaintiff to abandon All Phase LLC's assets. The Court declines to consider Defendant's counterclaim because a request for such relief should have been brought pursuant to motion under Section 554.5
In making the following Findings of Fact and Conclusions of Law, the Court considered:
a. The Final Pretrial Order [Doc. 82] (the "Pretrial Order"), entered on August 19, 2019;
b. The trial record, including exhibits introduced by Plaintiff and Defendant and admitted by the Court, and the testimony of Defendant;
c. Ricky Sharpton's Closing Arguments filed by Defendant on October 10, 2019 [Doc. 89] ("Defendant's Closing Arguments"); and
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d. Plaintiff-Trustee's Closing Argument filed by Plaintiff on October 10, 2019 [Doc. 90] ("Plaintiff's Closing Argument").
1. Defendant filed the Articles of Organization of a Limited Liability Company for All Phase LLC with the Oklahoma Secretary of State on February 16, 2012. Trustee Ex. 5. All Phase LLC was a single member LLC, and Defendant was the sole owner and president thereof.
2. On July 2, 2013, Defendant transferred real property located at 3400 East Airport Road, Stillwater, Oklahoma (the "Real Property") by quit claim deed from himself to All Phase LLC. Trustee Ex. 20. Defendant claims the Real Property was conveyed to All Phase LLC to facilitate All Phase LLC obtaining a loan, but that it was "really" owned by Defendant.
3. At all relevant times, Defendant lived in a mobile home located on the Real Property (the "Mobile Home").
4. In October 2014, All Phase LLC borrowed money from BancFirst and granted a mortgage lien on the Real Property to BancFirst to secure such indebtedness. Trustee Ex. 23. Defendant did not reveal to BancFirst that he, rather than All Phase LLC, "really" owned the Real Property.
5. Defendant personally guaranteed All Phase LLC's indebtedness to BancFirst. Defendant Ex. 3.
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6. In October 2016, Defendant, on behalf of All Phase LLC, entered into a Payment Rights Purchase and Sale Agreement ("Funding Agreement") with Everest Business Funding ("Everest"). Defendant personally guaranteed payment under the Funding Agreement. Trustee Ex. 13.
7. In conjunction with the Funding Agreement, and around the time he received funds thereunder during the first week of November 2016, Defendant executed an Affidavit of Confession of Judgment to be filed in the event of default. Trustee Ex. 14.
8. All Phase LLC defaulted under the Funding Agreement with Everest on approximately December 7, 2016. Everest filed Defendant's Confession of Judgment in the Supreme Court for Nassau County, New York, on March 17, 2017. Trustee Ex. 14.
9. According to Defendant, All Phase LLC ceased conducting business on December 9, 2016. Defendant consulted an attorney who advised him to file bankruptcy with respect to All Phase LLC. Defendant planned to file bankruptcy at the beginning of 2017. However, Defendant continued to do business ostensibly as All Phase Systems, a sole proprietorship/D/B/A.
10. Per Defendant, after All Phase LLC shut down, it transferred the Real Property and various other assets - a Trailer, a 2011 Truck, Equipment, and Inventory (all defined below) - on December 12, 2016, to Defendant for no consideration. Defendant testified that he made such transfers on the advice of his late bankruptcy counsel.6 Trustee Ex. 21.
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11. In March 2017, All Phase LLC entered into a subcontract with Rupe Building Company (the "Rupe Helmer Contract"). The Rupe Helmer Contract was not entered into by Defendant d/b/a All Phase Systems, but by All Phase LLC. Although the Rupe Helmer Contract itself refers simply to "All Phase," the cover sheet clearly reflects "All Phase Roofing and Construction LLC" in three places. Trustee Ex. 30. Additionally, the Notice of Assignment attached thereto, which is dated in April 2017, assigns the payments due to "All Phase Roofing and Construction, LLC" thereunder to BancFirst and is signed by Defendant as Member/Manager of All Phase LLC, BancFirst, and Rupe Helmer. Trustee Ex. 30.
12. Notwithstanding having allegedly ceased business in 2016, All Phase LLC continued to issue invoices to customers in 2017 prior to its bankruptcy filing, directing customers to make checks payable to "All Phase Roofing and Construction, LLC."7 Trustee Ex. 31.
13. Similarly, numerous customers issued 1099s to All Phase LLC for 2017 using its employer identification number, totaling $121,925.25. Trustee Ex. 33. Notwithstanding issuance of these 1099s, All Phase LLC reported no income for 2017.
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14. Notwithstanding All Phase LLC's alleged cessation of business in December 2016, money continued to move in and out of All Phase LLC's bank accounts up to the bankruptcy filing in June 2017, and for several months thereafter. Trustee Ex. 39
15. All Phase LLC filed a voluntary petition under chapter 7 of the Bankruptcy Code on June 18, 2017 ("Petition Date"). Together with the voluntary petition, All Phase LLC filed its Schedules and Statement of Financial Affairs, which were signed by Defendant under penalty of perjury and on the reasonable belief that the information was true and correct. Trustee Ex. 1, pp. 5 and 48.
16. Defendant reviewed the voluntary petition, Schedules, and Statement of Financial Affairs and believed them to be correct. At trial, he was not sure of their accuracy and frequently stated he relied on the advice of his late counsel.
17. Defendant signed the All Phase LLC bankruptcy filings as President/Manager.
18. Plaintiff is the duly appointed chapter 7 trustee assigned to the All Phase LLC bankruptcy case.
19. All Phase LLC's Schedule A/B provides that it owned the following property on the Petition Date:
| BancFirst Account ending 7529 ("7529 Account")8 | $ 187.78 |
| 1999 SKYL HT WINN Mobile Home9 | 15,000.00 |
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| Miscellaneous machinery & equipment ("Equipment")10 | 77,800.00 |
| Miscellaneous inventory of roofing materials ("Inventory") | 53,632.16 |
| Claim against JD McBride Construction LLC | 25,508.63 |
| Account Receivable | 6,208.71 |
| 2014 Ford F250 Super Duty-V8 | 25,375.00 |
Trustee Ex. 1, pp. 8-11.
19. Per All Phase LLC's Schedule A/B, the total value of its assets as of the Petition Date was $203,712.28. Trustee Ex. 1, p. 6.
20. All Phase LLC's Statement of Financial Affairs provides that it transferred the following assets to Defendant on December 12, 2016:
| 3400 East Airport Road, Stillwater, Oklahoma | $76,000.00 |
| 2011 Ford F350 ("2011 Truck") | 7,225.00 |
| 2014 Cargo Craft of Texas Expedition 7022 trailer ("Trailer") | 4,300.00 |
Trustee Ex. 1, p. 41.
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21. Per All Phase LLC's Schedule D, its assets were subject to liens held by the following secured creditors:
| Creditor | Property subject to lien | Amount | Incurred |
| BancFirst | Real Property, inventory, accounts and equipment | $ 40,000.00 | 10/04/2013 |
| BancFirst | Inventory, accounts, equipment | 60,000.00 | 07/14/2016 |
| BancFirst | Inventory, accounts, equipment | 40,095.00 | 01/20/2016 |
| Bank of Lake Mills | All assets of All Phase LLC | 111,300.00 | 08/22/2016 |
| Comm'l Finance and Leasing | Business equipment, personal property, inventory, real property | 118,000.00 | 08/15/2016 |
| EBF Partners, LLC | All assets of All Phase LLC | 76, 218.94 | 10/26/2016 |
| Fora Fin'l Business Loans LLC | All assets of All Phase LLC | 113,052.72 | 08/22/2016 |
| Ford Motor Credit | 2014 Ford F250 Super Duty-V8 | 24,759.02 | 06/06/2014 |
| Green |
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