Seitz v. Carbone (In re Carbone)

• Decision Date: 17 October 2022
• Docket Number: Bky. 18-13403 ELF,Adv. 19-068
• Parties: IN RE: SALVATORE CARBONE v. SALVATORE CARBONE, WENDY CARBONE, RAYMOND CARBONE, CATHY BIRD SIKORA, CARBONE BROTHERS, L.P., BUILDER PROS CONSTRUCTION LLC, and BUILDER PROS CONTRACTORS LLC Defendants GARY SEITZ, Trustee Plaintiff
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

IN RE: SALVATORE CARBONE

GARY SEITZ, Trustee Plaintiff v. SALVATORE CARBONE, WENDY CARBONE, RAYMOND CARBONE, CATHY BIRD SIKORA, CARBONE BROTHERS, L.P., BUILDER PROS CONSTRUCTION LLC, and BUILDER PROS CONTRACTORS LLC Defendants

Bky. No. 18-13403 ELF

Adv. No. 19-068

United States Bankruptcy Court, E.D. Pennsylvania

October 17, 2022

Chapter 7

OPINION

ERIC L. FRANK U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

In this adversary proceeding, Gary Seitz, the chapter 7 trustee ("the Trustee"), seeks to transform an ostensibly no-asset chapter 7 case into an asset case. The Trustee has named as defendants several individuals:

(a) the Debtor, Salvatore Carbone (also referred to as "Sal");

(b) the Debtor's wife, Wendy Carbone ("Wendy");

(c) the Debtor's brother, Raymond Carbone ("Ray"); and

(d) Ray's girlfriend, with whom he resides, Cathy Bird Sikora ("Cathy").

The Trustee has also named as defendants three (3) entities, in which various individual defendants hold an interest:

(a) Carbone Brothers, L.L.P. ("Carbone Bros.");

(b) Builder Pros Construction, LLC ("Builder Pros-1"); and

(c) Builder Pros Contractors, LLC ("Builder Pros-2").

This adversary proceeding has its genesis in a state court collection action instituted by John Antonucci in 2009 against Carbone Brothers and its principals, the Debtor, Ray Carbone and their third brother, Bruno Carbone. The Trustee contends that various transactions were designed to prevent Antonucci from collecting on his claim.

The main focus of this action involves Cathy's construction of two (2) homes, known to the parties as "the Mt. Kirk House" and "the Sellersville House."

Reduced to its essence, the Trustee theory of liability is based on three (3) propositions:

1. Carbone Bros. constructed the two (2) houses on the properties owned by Cathy, in one case fraudulently transferring its right to payment to Builder Pros-1 and, in the other case, receiving no payment at all from Cathy.

2. Carbone Bros.' right to payment is included in the Debtor's bankruptcy estate because the Carbone Bros "corporate veil" should be pierced and the company should be treated as the Debtor's alter ego.^[1]

3. Alternatively, the bankruptcy estate is entitled to the payments received by Builder Pros-1 for construction of the Mt. Kirk House based on the doctrine known variously as "single-entity," "enterprise liability" or "horizontal liability" doctrine, "the thrust of [which] is that, just as a corporation's owner or owners may be held liable for judgments against the corporation when equity requires, so may affiliated or 'sister' corporations - corporations with common ownership, engaged in a unitary commercial endeavor - be held liable for each other's debts or judgments. Mortimer v. McCool, 255 A.3d 261, 266 (Pa. 2021).^[2]

Based on these contentions,^[3] and citing 11 U.S.C. § 548(a)(1) and 11 U.S.C. § 544(b) as statutory authority for the fraudulent transfer claims, the Trustee seeks a judgment of $556,000.00 from the Defendants, calculated as follows: $306,000.00 in funds for the construction of the Mt. Kirk House and $250,000.00 representing the value of the construction services provided for the Sellersville House.

For the reasons explained below, I find that the Trustee has not proven his claims. Therefore, judgment will be entered in favor of the Defendants on all claims.

II. PROCEDURAL HISTORY

The Debtor commenced the underlying bankruptcy case under chapter 7 of the Bankruptcy Code on May 22, 2018 and received his discharge approximately five and half months later, on November 8, 2018.^[4]

The Trustee commenced this adversary proceeding on March 29, 2019, by filing a three (3) count Complaint against the Defendants. After I granted the Defendants' Motion to Dismiss the Complaint, but with leave to amend, the Trustee timely filed an Amended Complaint on June 10, 2019.

The Amended Complaint asserted six (6) claims against the Defendants.

In Counts I and II, the Trustee asserted claims for avoidance and recovery under 11 U.S.C. §548(a)(1)(A) and §550(A).

In Counts III and IV, the Trustee invoked 11 U.S.C. §544(b) and asserted claims for avoidance and recovery under the Pennsylvania Uniform Void Transactions Act ("PUVTA") 12 Pa. C.S. §§5104(a)(1), (a)(2), pursuant to §544(b).

In Count V, the Trustee asserted a claim to pierce the corporate veil of one of the defendant entities, Carbone Bros., under an alter ego theory. Based on this theory, the Trustee requested the court disregard the limited liability entities' separate existences and attribute any and all of the Carbone Bros.' assets to the Debtor and Ray.

Finally, in Count VI, the Trustee sought turnover of certain property pursuant to 11 U.S.C §542.

The Defendants filed a Motion to Dismiss the Amended Complaint on June 28, 2019. On January 27, 2020, I dismissed Count II which asserted a claim under 11 U.S.C. §548(a)(1) with respect to the alleged transfer of the Mt. Kirk House.^[5] I also dismissed the portion of Count VI that sought turnover of property located in Montrose County, Pennsylvania.

Thereafter, on February 17, 2020, the Debtor filed an Answer to the Amended Complaint. The parties filed competing Motions for Summary Judgment on December 21, 2020, that I denied on January 4, 2021.

Although the parties were unable to agree to any uncontested facts, they filed a Joint Pre-Trial Statement on February 8, 2021. Beginning May 20, 2021, I conducted a two (2) day trial by video conference. I heard testimony from Cathy, Paulette Finney (an insurance agent), Bruce Lazar (a real estate appraiser), Ray, the Debtor, and Wendy and numerous exhibits were admitted into evidence. Thereafter, the parties filed post-trial memoranda.^[6]

III. FINDINGS OF FACT

Based on the credibility and demeanor of the trial witnesses, the plausibility of their testimony, the existence of corroborating circumstantial, testimonial or documentary evidence, the totality of the evidentiary record presented at the trial and my consideration of the parties' post-trial submissions, I make the following findings of fact.

A. Carbone Bros. - Sal, Ray and Bruno

1. Carbone Bros. was formed initially as a general partnership in 1994 and registered as a limited liability partnership on October 22, 1996. (Defs' Ex.1).^[7]

2. The Debtor, Ray, and Bruno Carbone were equal partners in Carbone Bros., each owning a one-third interest. (Defs' Ex.1, and 2; May 20, 2021 File 4 at 21:10, 1:35:10; May 21, 2021 File 2 at 1:00:30).

3. The Debtor, Ray, and Bruno executed a partnership agreement, but the agreement has since been lost. (May 20, 2021 File 4 at 20:20, 1:35:10).

4. Carbone Bros. provided carpentry and framing services for real estate developers such as Toll Brothers, David Cutler, and Gambone. (May 20, 2021 File 1 at 25:30; May 20, 2021 File 4 at 1:43:15).

5. Carbone Bros., acting as general contractor, while also providing labor on projects built from the ground up, constructed approximately twenty-five (25) houses for property owners or investors. (Pl.'s Ex. 22 at 2; May 20, 2021 File 1 at 26:30).

6. Carbone Bros. never owned a building lot. The Debtor, Ray, Bruno, and sometimes other investors, would own the building lot in their individual names. (May 20, 2021 File 1 at 26:30; 37:30).

7. Carbone Bros.' profit margins on construction of new homes were 8%-10%. (May 20, 2021 File 1 at 40:26).

8. The Debtor kept Carbone Bros.' books and Ray and the Debtor both worked on project invoicing. (May 21, 2021 File 1 at 12:25).

9. For most of the Carbone Bros. existence, its business address was the Debtor's home located at 368 Old Morris Road, Harleysville, PA.

10.John Antonucci was an investor in Carbone Bros.' residential construction projects in Delaware. (Pl.'s Ex. 22 at 16-17). He filed suit against Carbone Bros., the Debtor, Ray, Bruno, and John Stolfi on July 21, 2009.

11.On February 23, 2017, a state court arbitrator granted Antonucci an award of $456,860.52 against Carbone Bros., the Debtor, Ray, Bruno, and Stolfi. (Amended Complaint at ¶18). The award was confirmed by court order dated October 2, 2017. (Id. Ex. A).

12. Carbone Bros. ceased operations in 2009 and its last filed tax return was for the year 2009. (Defs' Ex.2; May 20, 2021 File 4 at 15:14, 31:51).

13. Carbone Bros. primarily ceased operations because of the economic conditions in 2009. (May 20, 2021 File 4 at 1:35:40).

14. Carbone Bros. did not perform any construction work or earn any revenue after 2009. (May 20, 2021 File 4 at 1:02:00, 1:36:01).

15. After 2009, the Debtor, Ray, and Bruno never worked together again with the exception of a single project in Florida in 2018 when Ray employed the Debtor. (Defs' Ex.30 at D929; May 20, 2021 File 4 at 1:36:01, 2:00:36).

16. Carbone Bros. retained an active contractor's registration with the Commonwealth of Pennsylvania as late as 2017. (Pl.'s Ex. 10 at 30).

B. Parkside American Grille - Sal and Wendy

17. From 2009 until 2014, the Debtor and Wendy opened a restaurant called Parkside American Grille. (Defs' Ex.26a).

18. The Debtor and Wendy were the 100% owners of the LLC that owned the restaurant (Parkside American Grille, LLC). (Defs' Ex.3 at D26).

19. Ray and Bruno did not have any involvement with Parkside American Grille.

20. As reflected on the Debtor's and Wendy's tax returns, from 2009 through a portion of 2013, Parkside American Grille was the sole source of the Debtor's income. (Defs' Ex.26a).

21. The Debtor and Wendy's tax returns from 2010 through 2018 did not reflect any income attributable to Carbone Bros. (Defs' Ex.26b).

C. Carbone Construction - the Debtor

22. In 2013, the Debtor operated a sole proprietorship known as Carbone Construction that performed small construction jobs such as installing...