Mark G. Degiacomo, Chapter 7 Tr. of the Estate of Inofin Inc. v. Raymond C. Green, Inc. (In re Inofin Inc.)

• Decision Date: 12 June 2014
• Docket Number: Bankruptcy No. 11–11010–JNF.,Adversary No. 11–1136.
• Citation: 512 B.R. 19
• Parties: In re INOFIN INCORPORATED, Debtor. Mark G. DeGiacomo, Chapter 7 Trustee of the Estate of Inofin Incorporated, Plaintiff v. Raymond C. Green, Inc., Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

512 B.R. 19

In re INOFIN INCORPORATED, Debtor.Mark G. DeGiacomo, Chapter 7 Trustee of the Estate of Inofin Incorporated, Plaintiff

v.Raymond C. Green, Inc., Defendant.

Bankruptcy No. 11–11010–JNF.

Adversary No. 11–1136.

United States Bankruptcy Court, D. Massachusetts.

Signed June 12, 2014.

Ryan M. MacDonald, Thomas S. Vangel, Keri Linnea Wintle, Murtha Cullina LLP, Boston, MA, for Plaintiff.

Nicholas J. Nesgos, Laura Otenti, David J. Reier, Posternak Blankstein & Lund LLP, Boston, MA, Stanley N. Wallerstein, Meredith, NH, for Defendant.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

Mark G. DeGiacomo, the Chapter 7 Trustee (the “Trustee”) of Inofin Incorporated(“Inofin”) filed a Complaint against Raymond C. Green, Inc. (“RCG”) on April 25, 2011, one day before this Court conducted a hearing on RCG's Motion for Relief from the Automatic Stay and for Related Relief. Approximately one year later, on April 4, 2012, the Trustee filed a First Amended Complaint. RCG filed an Answer to the First Amended Complaint and a Counterclaim, together with a demand for a jury trial. In October of 2012, the Trustee withdrew numerous counts of his First Amended Complaint, rendering RCG's demand for a jury trial moot.¹

The Court conducted a trial in this adversary proceeding on September 16, 17, and 18, 2013 with respect to the following counts of the Trustee's First Amended Complaint:

Count I (Declaratory Judgment—Validity of the Defendant's Security Interest);

Count II (Declaratory Judgment—Defendant's Foreclosure Sale is Void Due to Lack of Security Interest);

Count III (Declaratory Judgment—Defendant's Foreclosure Sale is Void Due to Bad Faith);

Count IV (Violation of Mass. Gen. Laws c. 106, § 9–625(a));

Count V (Violation of Mass. Gen. Laws c. 93A, §§ 2 and 11);

Count IX (Preference Pursuant to 11 U.S.C. § 547(b)—Security Documents);

Count X (Preference Pursuant to 11 U.S.C. § 547(b)—Loan Payments);

Count XVII (Recovery Pursuant to 11 U.S.C. § 550); and

Count XVIII (Preservation of Avoided Transfers Pursuant to 11 U.S.C. § 551).

In addition, the Court tried the following counts set forth in RCG's Counterclaim:

Counterclaim Count I (Declaratory Judgment—Validity of RCG's Security Interest);

Counterclaim Count II (Accounting); and

Counterclaim Count III (Payment of Proceeds).²

Prior to the commencement of the trial, on September 9, 2013, in conjunction with their Joint Pretrial Memorandum, the parties submitted a Statement of Uncontested Facts.³ At the trial, eight witnesses testified and numerous exhibits were introduced into evidence.

The parties submitted post-trial memoranda on October 30, 2013. On December 4, 2013, the Trustee submitted a Supplemental Brief on the limited issue of whether he was required to include a count under 11 U.S.C. § 544(a)(1), to which RCG did not respond.

This Court has jurisdiction over the proceeding pursuant to 28 U.S.C. § 1334(b). With the exception of Count V, the Counts and Counterclaims involve core matters pursuant to 28 U.S.C. § 157(b)(2)(B), (C), (F), (K), and (O). Count V involves claims under Mass. Gen. Laws ch. 93A which are related to the bankruptcy case. See, e.g., In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir.1991). Accordingly, this Court is required to submit proposed findings of fact and conclusions of law to the United States District Court with respect to Count V as RCG did not consent to the entry of a final order by this Court on that count. See28 U.S.C. § 157(c)(1). The findings of fact and conclusions of law set forth in Section II.E, with respect to Count V, and Section III.E.3.b, therefore, are proposed findings of fact and conclusions of law subject to consideration by the United States District Court pursuant to 28 U.S.C. § 157(c)(1).

The issues presented in this adversary proceeding include whether RCG established that it has a perfected security interest in Retail Installment Sales Contracts (“Installment Contracts”) in its possession in light of an authenticated Security Agreement between Inofin's predecessor and RCG through which RCG obtained a security interest, perfected by filing, in “all of the Debtor's rights in and to chattel paper.... and all motor vehicle installments sales contracts [sic] purchased by Debtor with the proceeds of loans from Secured Party and assigned and delivered to Secured Party.” ⁴ Resolution of the issue requires an examination of provisions of both the Uniform Commercial Code (“UCC”), as enacted in Massachusetts, and the Bankruptcy Code. Additional issues include whether RCG's foreclosure sale of its collateral was commercially unreasonable, and, if so, whether the Trustee sustained his burden of proof as to the measure of damages; whether the Trustee's claims under Mass. Gen. Laws ch. 93A are viable; whether the Trustee satisfied his burden of proof under 11 U.S.C. § 547(b) with respect to his claims that RCG received preferential transfers in the form of payments and the conveyance of Installment Contracts; and whether any exceptions to avoidance under 11 U.S.C. § 547(c) apply.

II. FACTSA. Background

On February 9, 2011, approximately 38 creditors holding claims in the stated amount of $12,927,517.75 filed an involuntary petition against Inofin under Chapter 7 of the Bankruptcy Code. The Court, on February 16, 2011, entered an order for relief, and the Trustee became the permanent trustee on April 19, 2011.

RCG filed a Motion for Relief from the Automatic Stay and Related Relief on March 9, 2011. In its Motion for Relief from the Automatic Stay, RCG sought a determination that the automatic stay did not apply to its rights with respect to its portfolio of Installment Contracts in its possession, which were assigned to it by Inofin, purportedly to secure RCG's loans to Inofin in excess of $8 million, or, in the alternative, relief from the automatic stay pursuant to 11 U.S.C. § 362(d) to obtain the portfolio which RCG contended was its collateral and the subject of valid, prepetitionforeclosure sales. RCG also sought a finding that it was entitled to possession of the portfolio, including, without limitation, all of the proceeds of the portfolio and all documents, books and records in the possession of the Trustee relating to the portfolio, by reason of two foreclosure sales conducted prior to the entry of the order for relief.

The Trustee filed an Objection to the Motion for Relief from the Automatic Stay, and the Court conducted an evidentiary hearing on May 16, 2011. The Court, on July 27, 2011, issued a Memorandum and Order denying the Motion, finding that RCG did not establish a colorable claim to relief. See In re Inofin Inc., 455 B.R. 19 (Bankr.D.Mass.2011). RCG appealed the decision; the United States Bankruptcy Appellate Panel of the First Circuit dismissed the appeal because of the absence of a final order. See Raymond C. Green, Inc. v. DeGiacomo ( In re Inofin Inc.), 466 B.R. 170 (1st Cir. BAP 2012).

The parties raised a number of issues in the litigation in connection with the Motion for Relief from Stay. There are, however, a number of additional issues presented in this litigation. The Motion for Relief from the Automatic Stay was a summary proceeding at which the ultimate issue was whether RCG established a colorable claim to the estate's property. As the United States Court of Appeals for the First Circuit observed in Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 32 (1st Cir.1994), stay relief proceedings “do not involve a full adjudication on the merits of claims, defenses, or counterclaims, but simply a determination as to whether a creditor has a colorable claim to property of the estate.” Thus, the findings of fact and conclusions of law set forth below are more developed and different from those that informed the Court's decision with respect to the Motion for Relief from the Automatic Stay which was preliminary in nature. Not only have the parties presented substantially more testimony and documentary evidence, the present litigation will result in final determinations of the Trustee's claims (except as to Count V) and RCG's counterclaims. Indeed, the findings and rulings in the decision issued with respect to the Motion for Relief from the Automatic Stay do not bind the Court now. See Grella v. Salem Five Cent Savs. Bank, 42 F.3d at 32. As will be evident from the Court's decision, the issues posed in this proceeding regarding the extent and enforceability of RCG's security interest and the validity of its foreclosure sales pose complex and challenging problems in commercial law.

B. The Debtor's Business and Its Written Agreements with Dealers and RCG

Inofin was a licensed financial services company, specializing in purchasing and servicing sub-prime automobile loans. Used car dealers (“Dealers”) in Massachusetts and other states up and down the Eastern Seaboard would sell vehicles to consumers for small cash down payments. The balance of the purchase price was financed by the Dealers using Installment Contracts. Each Installment Contract set forth the buyer's weekly payment obligations to the Dealer and also granted the Dealer a security interest in the vehicle. Pursuant to the Installment Contracts, the buyer of the automobile granted the Dealer a security interest “in the collateral and all parts or other goods put on the collateral,” as well as “all money or goods received for the collateral and all insurance premiums, service and other contracts we finance.” ⁵

The Dealers then sold and assigned the Installment Contracts to Inofin pursuant to a Seller Agreement.” Each Installment Contract, such as the one introduced as an exhibit, was signed by the Dealer as Seller and Inofin and contains the following assignment clause:

By Signing below the Dealer/Creditor accepts this Contract and Assigns it to Inofin Incorporated in accordance with the Assignment of Seller below. Stoughton Motor Mart, Inc.

Dealership

By:

L. Jack Giandomenico

Title:

President

Date:

8/23/2008

Assignment of...