Mangan v. Mason (In re Save Home Energy, Inc.)
| Decision Date | 31 March 2017 |
| Docket Number | CASE No. 14–20301 (JJT),ADV. PRO. No. 15–02048 (JJT) |
| Citation | 567 B.R. 1 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | IN RE: SAVE HOME ENERGY, INC., Debtor. Bonnie C. Mangan, Chapter 7 Trustee, Plaintiff, v. Robert K. Mason and Rosemary F. Mason, Defendants. |
Lawrence W. Andrea, Esq., 40 Richards Avenue, 3rd Floor, Norwalk, CT 06854, Attorney for the Plaintiff
Gregory Arcaro, Esq., Grafstein and Arcaro, LLC, 10 Melrose Dr., Farmington, CT 06032, Attorney for the Defendants
Bonnie C. Mangan, Esq., The Law Office of Bonnie C. Mangan, P.C., 1050 Sullivan Avenue, Suite A3, South Windsor, CT 06074, Chapter 7 Trustee
Before the Court is an adversary proceeding in which the Plaintiff, Bonnie C. Mangan, the duly appointed Chapter 7 Trustee ("Trustee"), seeks to avoid and recover, pursuant to 11 U.S.C. § 547(b), several prepetition transfers of funds from the Debtor, Save Home Energy ("Debtor" or "SHE") to the Defendants, Robert K. Mason and Rosemary Mason (collectively, the "Defendants" or "Mr. and Mrs. Mason"). On June 30, 2016, the Defendants filed a Motion for Summary Judgment with a Memorandum of Law in Support of Motion for Summary Judgment on Counts One and Two of Plaintiff's Amended Adversary Complaint ("Summary Judgment Motion", ECF No. 25), and a Supplemental Local Rule 56(a) 1 Statement ("Rule 56(a)1 Statement"). On July 21, 2017, the Trustee filed a Memorandum in Opposition to Motion for Summary Judgment ("Opposition Motion", ECF No. 27) with a Supplemental Local Rule 56(a)2 Statement ("Rule 56(a)2 Statement"). On August 8, 2016, the Defendants filed a Memorandum in Reply to Trustee's Objections to Motion for Summary Judgment ("Reply Motion", ECF No. 30). For the reasons herein, the Summary Judgment Motion is granted in part and denied in part.
The United States District Court for the District of Connecticut has original jurisdiction over the instant adversary proceeding pursuant to 28 U.S.C. § 1334(b). This Court possesses the authority to hear and determine the proceeding on reference from the District Court pursuant to 28 U.S.C. § 157(a) and (b)(1).1 This is a ‘core proceeding’ pursuant to 28 U.S.C. § 157(b)(2)(I).
The Court finds that the following facts are undisputed based upon a review of the record, the relevant pleadings of this adversary proceeding and the bankruptcy case, and the Rule 56(a)1 Statement of the Defendants and the Rule 56(a)2 Statement of the Plaintiff.
At all relevant times, the Debtor and its related companies were engaged in the construction business. Defendant Robert K. Mason ("Mr. Mason"), was an officer of SHE, and Defendant Rosemary Mason ("Mrs. Mason") was a 51% owner of SHE. Mr. Mason served as the company's president and was actively involved in the business affairs of the company, as well as, to some extent, the company's financial affairs. Mrs. Mason did not participate in the business activities of SHE. Ronald Biffinger ("Mr. Biffinger") was a 49% shareholder of SHE and served as the company's vice-president. Mr. Magdalenski, another employee of SHE, served as its bookkeeper with the primary function of recording its financial transactions. Mr. Mason and Mr. Biffinger were also members of a related company, Executive Interiors Construction, LLC ("EIC"), and acted as its principal agents with signatory authority on EIC's accounts. Funds were transferred between the accounts of SHE and those of EIC during 2012 and 2013, on more than one occasion. In the normal course of its business operations, officers and employees would pay for SHE expenses on their personal credit cards.
On November 21, 2011, the Debtor executed a promissory note ("Mason Note") in favor of Mr. Mason. Mr. Mason received monthly payments from SHE in the amount of $1,288.00 from February of 2013 through August of 2013 pursuant to the Mason Note. Payments were made on March 6, 2013, March 21, 2013, April 8, 2013, May 6, 2013, June 25, 2013, July 10, 2013, and August 7, 2013, totaling $9,016.00. The last payment made to Mr. Mason pursuant to the Mason Note was made in August 2013.
On September 26, 2013, Mr. Mason withdrew $4,500.00 from the SHE bank account. On October 10, 2013, Mr. Mason withdrew $1,120.00 from the SHE bank account. On October 17, 2013, Mr. Mason withdrew $1,000.00 from the SHE bank account.
During the year before SHE filed for bankruptcy, Mr. Mason provided services to SHE. During this time, SHE paid premiums to Chubb Insurance Company ("Chubb") for Mr. Mason's property insurance. SHE's payments to Chubb inured to the personal benefit of Mr. and Mrs. Mason.
After incurring substantial losses that SHE could not recover from, Mr. Mason made the decision to wind-down the business in August of 2013. All, or mostly all, of its employees were laid off, and Mr. Mason filed for unemployment compensation in September of 2013. On February 20, 2014, SHE filed for relief under Chapter 7 of the Bankruptcy Code, and Mr. Mason signed the petition as the responsible party. At the time, there was approximately $50,000 in its bank accounts. During the year before SHE filed for bankruptcy relief, it paid several creditors, including those to which Mr. Mason had not pledged a personal guarantee, as well as certain debts owed that were owed to the Defendants.
This adversary proceeding was commenced by the Trustee on September 22, 2015. The Trustee subsequently filed an Amended Complaint to Avoid Preferential Transfers2 on March 16, 2016 ("Amended Complaint", ECF No. 12). Count One of the Amended Complaint seeks to avoid and recover, pursuant to 11 U.S.C. § 547, the value of the aforementioned allegedly preferential transfers made by SHE to the Defendants. The Trustee alleges that during the one year period prior to the date that SHE filed for relief, at Mr. Mason's direction, SHE made: 1) a series of direct payments to the Defendants totaling $22,882; 2) premium payments to Chubb Insurance on behalf of the Defendants totaling $6,232.75; and 3) a payment made by SHE or EIC on a Bank of America debt owed by the Defendants totaling $5,472. The transfers that the Trustee seeks to avoid are as follows:
Count Two also seeks equitable subordination of the Defendants' claims against the estate to those of the other creditors.3
The Defendants filed their Summary Judgment Motion on June 30, 2016. The Defendants do not dispute that certain payments were made to them or on their behalf during the one year period of time prior to filing, but instead claim that the payments are either subject to defenses pursuant to 11 U.S.C. § 547(c)(1) and (2), or that the Defendants never received the alleged transfers at all. Finally, the Defendants also assert that their claims are not subject to subordination for inequitable conduct.4
The Trustee filed the Opposition Motion on July 21, 2016, requesting denial of the Summary Judgment Motion on the following grounds: 1) genuine issues of material fact are in dispute; 2) the representations made by Mr. Mason are uncorroborated and supported by no evidence; and 3) assuming the accuracy of his statements, Mr. Mason can be considered an initial transferee under 11 U.S.C. § 550(a)(1) and some of the transfers to him are avoidable under 11 U.S.C. § 547. The Defendants filed the Reply Motion on August 4, 2016, limited to Transfers Two, Three, Four and Five. They argue first that they properly relied on Mr. Mason's affidavits in compliance with Fed. R. Civ. P. 56(c)(1)(A). With respect to Transfer Two, the Defendants argued that the Trustee failed to comply with Rule 56(e) in its reliance on an affidavit in the record, and ask that the related facts be deemed admitted, and summary judgment granted, as to that transfer. As to Transfers Three, Four and Five, the Defendants argue that the Trustee failed to establish facts supporting an essential element of the preference claim, that the payments were for or on account of an antecedent debt.
In her Opposition Motion, the Trustee argues that the Defendants rely nearly exclusively upon the affidavit of Mr. Mason ("Mason Affidavit") and the affidavit of Mr. Magdalenski ("Magdalenski Affidavit") and, running afoul of Fed. R. Civ. P. 56(c), refer to almost no supporting evidence. It is the Trustee's position that the sworn affidavits submitted in support of the Defendants' Rule 56(a) 1 Statement assertions must also be supported by other evidence in the record. The Defendants respond that Mr. Mason's affidavit is proper factual support under Fed. R. Civ. P. 56(c)(1) and Local Rule 56(a)1. The Court agrees.
Fed. R. Civ. P. 56(c) provides that a party asserting that a fact cannot be genuinely disputed must support the assertion by citing to "particular materials in the record", which include "affidavits or declarations". Fed. R. Civ. P. 56(c)(1) (emphasis added). The affidavit or declaration must "be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated." Id.
Local Rule 56(a) mirrors the Fed. R. Civ. P. 56 in requiring that a movant "set forth a concise statement of each material fact as to which the moving party contends there is no genuine issue to be tried" and provides that the facts "set forth in said statement and supported by the evidence...
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