Myers v. Blumenthal (In re M&M Mktg., L.L.C.)

• Decision Date: 18 June 2013
• Docket Number: CASE NO. A11-8033-TJM,CASE NO. BK09-81458-TJM
• Parties: IN THE MATTER OF: M & M MARKETING, L.L.C., and PREMIER FIGHTER, L.L.C., Debtor(s). RICHARD D. MYERS, Trustee of the Bankruptcy Estates of M & M Marketing, L.L.C. and Premier Fighter, L.L.C., Plaintiff, v. MICHAEL L. BLUMENTHAL, Defendant.
• Court: U.S. Bankruptcy Court — District of Nebraska

IN THE MATTER OF: M & M MARKETING, L.L.C.,

and PREMIER FIGHTER, L.L.C., Debtor(s).

RICHARD D. MYERS, Trustee of the Bankruptcy Estates of M & M Marketing,

L.L.C. and Premier Fighter, L.L.C., Plaintiff,

v.MICHAEL L. BLUMENTHAL, Defendant.

CASE NO. BK09-81458-TJM

CASE NO. A11-8033-TJM

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEBRASKA

DATED: June 18, 2013

CHAPTER 7 (involuntary)

ORDER

This matter is before the court on the motions for summary judgment by the plaintiff (Fil. No. 126) and the defendant (Fil. No. 138), and the plaintiff's motion for an award of fees and costs (Fil. No. 213). W. Patrick Betterman and Lindsay E. Pedersen represent the plaintiff, and Michael J. Whaley represents the defendant.

M & M Marketing, L.L.C., and Premier Fighter, L.L.C., were entities involved in promoting certain events, including mixed martial arts events, and selling merchandise related to those events. They were owned by Matthew Anselmo. In May 2007, Michael Blumenthal loaned $1,545,000 to M & M Marketing and Premier Fighter. When the loans were not repaid, Mr. Blumenthal filed a lawsuit in Illinois and obtained a default judgment against Mr. Anselmo and M & M Marketing for $2.2 million on one count of the complaint on January 31, 2008, from the federal court in the Northern District of Illinois. Mr. Blumenthal took steps to collect the debt, which included obtaining garnishment orders and Mr. Anselmo's transfer of the assets of M & M Marketing and Premier Fighter.

In the context of the collection efforts, a question arose as to whether the default judgment was a final judgment. The Illinois court entered an order in late May 2009 holding that the default judgment was not final because it did not dispose of all of the claims in the complaint, nor did it contain "an express determination that there is no just reason for delay" in entering a final judgment on fewer than all claims, as required by Federal Rule of Civil Procedure 54(b). Other creditors filed involuntary Chapter 7 petitions against M & M Marketing and Premier Fighter in early June 2009. After the petition date, the Illinois court reconsidered its order at Mr. Blumenthal's request and reversed itself, making a specific finding that the default judgment on Count I of the complaint wasfinal as of January 31, 2008.

Thereafter, the bankruptcy trustee filed this adversary proceeding to recover property transferred to Mr. Blumenthal as part of his efforts to collect his purported judgment debt. The trustee characterizes the transfers as preferential pursuant to 11 U.S.C. § 547(b) or fraudulent pursuant to 11 U.S.C. §§ 544 and 548(a)(1) and the Nebraska Uniform Fraudulent Transfer Act. He also alleges unjust enrichment and abuse of process, and seeks an accounting and the return of the property in assumpsit. Both parties have now filed motions for summary judgment on the merits of the complaint.

Summary judgment is appropriate only if the record, when viewed in the light most favorable to the non-moving party, shows 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. Fed. R. Civ. P. 56(c) (made applicable to adversary proceedings in bankruptcy by Fed. R. Bankr. P. 7056); see, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986). On a motion for summary judgment, "facts must be viewed in the light most favorable to the nonmoving party only if there is a 'genuine' dispute as to those facts." Ricci v. DeStefano, 557 U.S. 557, 129 S. Ct. 2658, 2677 (2009) (quoting Scott v. Harris, 550 U.S. 372, 380 (2007)). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Id. (quoting Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

At the hearing on these motions, the trustee offered Mr. Anselmo's declaration (Fil. No. 210). Mr. Blumenthal objected to the offer as an improper attempt to contradict Mr. Anselmo's deposition testimony and because it contains conclusory statements. The court deferred ruling on the declaration's admissibility, and now finds that it should not be admitted. It contains numerous legal conclusions and, in light of the reasons below for the denial of both summary judgment motions, would lend little to the findings the court must make.

The first substantive issue that needs to be resolved is the finality of the Illinois judgment. Generally, courts within the Eighth Circuit consider any action taken in violation of the automatic stay to be void ab initio. LaBarge v. Vierkant (In re Vierkant), 240 B.R. 317, 325 (B.A.P. 8th Cir. 1999). The Illinois court order granting Mr. Blumenthal's motion to reconsider on June 16, 2009, and purporting to make the judgment final as of January 31, 2008, was entered after the automatic stay was in effect. The automatic stay prohibits "the . . . continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title." 11 U.S.C. § 362(a)(1). The bankruptcy court did not receive or grant a request for relief from the stay to permit the parties to proceed with the Illinois litigation in any respect. The Vierkant opinion explains that the stay is triggered upon the filing of a bankruptcy petition, regardless of whether any creditor is aware of the bankruptcy filing. 240 B.R. at 320. The opinion also makes clear that while a ministerial or clerical act in a lawsuit would not violate the stay, a judicial act requiring the exercise of discretion or judgment assuredly does violate the stay. Id. at 321 n.2. Even though the Illinois court professed to enter the order nunc pro tunc to January 31, 2008, to clarify that theoriginal order was final, the court nevertheless exercised discretion and judgment in reaching that decision, as demonstrated in the Statement portion of the docket entry, so it was an order issued in violation of the stay. While in most other circumstances, the timing of such a nunc pro tunc order would be harmless, the intervening bankruptcy petition added another layer of legal considerations to already convoluted litigation.

The Illinois order in effect as of the petition date was the May 29, 2009, order wherein the court confirmed that the January 31st order was not final because it did not dispose of all the claims in the complaint and did not expressly state that it was final. The court went on to dismiss Count II of the complaint and enter default only as to liability on Counts III and IV, scheduling a hearing on damages. The May 29th order clearly could not be considered a final order. See Acton v. City of Columbia, Mo., 436 F.3d 969, 973 (8th Cir. 2006) ("For an order to be final, it must end the litigation on the merits and leave nothing for the court to do but execute the judgment.") (citations omitted); Ellis v. Board of Jewish Educ., 722 F. Supp. 2d 1006, 1011 (N.D. Ill. 2010) ("[A] judgment is final if it determines the litigation on the merits so that, if affirmed, the only thing remaining is to proceed with the execution of the judgment.").

For purposes of the trustee's complaint in this case, Mr. Blumenthal did not have a final order or judgment to rely on before taking steps to collect a debt.

The next question to be addressed is the trustee's allegation that the transfers from M & M and Premier Fighter to Mr. Blumenthal were preferential transfers avoidable by the trustee under 11 U.S.C. § 547(b).

The Eighth Circuit Court of Appeals discussed the rationale and requirements for avoiding preferences:

"Under the Bankruptcy Code's preference avoidance section, 11 U.S.C. § 547, the trustee is permitted to recover, with certain exceptions, transfers of property made by the debtor within 90 days before the date the bankruptcy petition was filed." Barnhill v. Johnson, 503 U.S. 393, 394, 112 S. Ct. 1386, 118 L. Ed. 2d 39 (1992). "This rule 'is intended to discourage creditors from racing to dismember a debtor sliding into bankruptcy and to promote equality of distribution to creditors in bankruptcy.'" Lindquist v. Dorholt (In re Dorholt, Inc.), 224 F.3d 871, 873 (8th Cir. 2000) (quoting Jones Truck Lines, Inc. v. Cent. States, Se. & Sw. Areas Pension Fund (In re Jones Truck Lines, Inc.), 130 F.3d 323, 326 (8th Cir. 1997)).

"Title 11 U.S.C. § 547(b) requires that in order for a transfer to be subject to avoidance as a preference, (1) there must be a transfer of an interest of the debtor in property, (2) on account of an antecedent debt, (3) to or for the benefit of a creditor, (4) made while the debtor was insolvent, (5) within 90 days prior to the commencement of the bankruptcy case, (6) that left the creditor better off than it would have been if the transfer had not been made and the creditor asserted its claim in a Chapter 7 liquidation." Buckley v. Jeld-Wen, Inc. (In re Interior Wood Prods. Co.), 986 F.2d 228, 230 (8th Cir. 1993). The trustee must establish each of theseelements by a preponderance of the evidence. Stingley v. AlliedSignal, Inc. (In re Libby Int'l, Inc.), 247 B.R. 463, 466 (8th Cir. B.A.P. 2000).

Wells Fargo Home Mortgage, Inc. v. Lindquist, 592 F.3d 838, 842 (8th Cir. 2010).

If the creditor who received the transfers is an insider of the debtor, the recapture period is extended to a year before the petition date. § 547(b)(4)(B).

When the debtor is a corporate entity as in this case, "insider"includes:

(i) director of the debtor;

(ii) officer of the debtor;

(iii) person in control of the debtor;

(iv) partnership in which the debtor is a general partner;

(v) general partner of the debtor; or

(vi) relative of a general partner, director, officer, or person in control of the debtor[.]

11 U.S.C. § 101(31)(B).

An insider is one who has a sufficiently close relationship with the debtor...