Sklar v. Susquehanna Bank (In re Global Prot. USA, Inc.), Case No.: 12–16322–ABA

Citation546 B.R. 586
Decision Date26 February 2016
Docket NumberCase No.: 12–16322–ABA,Adv. No.: 12–1879–ABA
Parties In Re: Global Protection USA, Inc., Debtor Andrew Sklar, Chapter 7 Trustee of the Bankruptcy Estate of Global Protection USA, Inc., Plaintiff v. Susquehanna Bank, Defendant.
CourtU.S. Bankruptcy Court — District of New Jersey

John S. Mairo, Robert M. Schechter, Porzio, Bromberg & Newman, P.C., Morristown, NJ, for Plaintiff.

William G. Wright, Capehart & Scatchard, P.A., Mt. Laurel, NJ, for Defendant.

MEMORANDUM DECISION

Andrew B. Altenburg, Jr., United States Bankruptcy Judge

INTRODUCTION

Before the court is an adversary proceeding of Andrew Sklar, Chapter 7 Trustee of the Bankruptcy Estate of Global Protection USA, Inc. (the "Trustee")1 against Susquehanna Bank (the "Bank"), seeking avoidance of certain transfers. After four days of trial, including testimony and admission of documentary evidence, an Updated Joint Stipulation of Undisputed Facts and Witness Lists ("JS") (Doc. No. 120)2 and post-trial memorandums from the parties, the proceeding is now ripe for consideration. The court concludes that all of the transfers may be avoided and recovered by the Trustee. The court denies the Trustee's request for attorney's fees and costs for this proceeding, but grants $2,000 as a sanction for the Bank's late production of its expert's report.

JURISDICTION AND VENUE

The court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a)and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended October 17, 2013, referring all bankruptcy cases to the bankruptcy court. JS, ¶ 7. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), (F), (H), and (O). Id., ¶ 9. Venue is proper in this Court pursuant to 28 U.S.C. § 1409. Id., ¶ 10. The statutory predicates for the relief sought herein are 11 U.S.C. §§ 547, 548, 549and 550.

Pursuant to Federal Rule of Bankruptcy Procedure 7052, the court issues the following findings of fact and conclusions of law.

FINDINGS OF FACT3
A. The Parties
1. The Trustee is the duly appointed, qualified and acting trustee in the above-captioned case. The Trustee is prosecuting this action on behalf of the Debtor's bankruptcy estate. JS, ¶ 1.
2. At all relevant times, the Bank was a financial services institution headquartered at 26 North Cedar Street, Lititz, PA 17543–7000, but as of August 1, 2015, merged with Branch Banking and Trust Company, a North Carolina banking corporation. JS, ¶ 2.
3. Jane Homon was designated by the Bank as its Rule 30(b)(6) witness for the categories listed in the Rule 30(b)(6) notice dated October 18, 2013. JS, ¶ 32.
4. The Debtor, Global Protection USA, Inc., purports to be "a distributor of protective suits, respiratory masks, and a variety of equipment used for protection from the effects of nuclear, biological and chemical agents. [It] is located in Berlin, New Jersey[,] and sells its products to governmental agencies and commercial organizations throughout the world." Ex. T–68.
5. Steven Guarino ("Mr.Guarino") is the 100% owner of the Debtor. JS, ¶ 6; ex. T–9, p. 11.
6. Mr. Guarino's brother, Thomas,4 and Louis Schiliro worked for the Debtor. See ex. D–8; Tr–25 10/26/15, 38–39.
B. Procedural history
7. On March 12, 2012, the Debtor commenced its bankruptcy case by filing a voluntary petition under Title 11, Chapter 11 of the United States Code (the "Bankruptcy Code"). JS, ¶ 11.
8. Mr. Guarino asserted that the petition was filed because "too much debt and not enough money." Additionally, Mr. Guarino explained that certain monies were due to the Debtor and some vendors were no longer doing business with the Debtor. JS, ¶ 12 (quoting 341 Hearing Transcript at 9:10–12).
9. On March 12, 2012, the Debtor filed its schedules of assets and liabilities and its Statement of Financial Affairs (the "SOFA"). On April 2, 2012 and May 1, 2012, the Debtor amended its schedules. On April 2, 2012, the Debtor amended its SOFA. The schedules, SOFA and all amendments thereto were signed off on by Mr. Guarino. JS, ¶ 13.
10. On March 30, 2012, the Office of the United States Trustee held a formation meeting for an Official Committee of Unsecured Creditors ("Creditors' Committee") of the Debtor and appointed the Creditors' Committee pursuant to section 1102 of the Bankruptcy Code. That same day, the Creditors' Committee selected Porzio, Bromberg & Newman, P.C. to serve as its counsel. JS, ¶ 14.
11. On August 29, 2012, the Creditors' Committee filed a complaint commencing the instant action against the Bank. Doc. No. 1; JS, ¶ 15.
12. On October 1, 2012, the Bank filed an answer to the complaint. On October 5, 2012, the Bank filed a first amendment to its answer to the complaint. Doc. Nos. 3, 6; JS, ¶ 16.
13. On October 12, 2012, the Debtor's bankruptcy case was converted from chapter 11 to chapter 7, and the Trustee was appointed. JS, ¶ 17.
14. On March 27, 2014, the Trustee, substituted in for the Creditors' Committee as plaintiff, filed an amended complaint against the Bank (the "Complaint") Doc. No. 20; JS, ¶ 18.
15. On April 11, 2014, the Bank filed an answer to the Complaint. Doc. No. 25. JS, 19.
16. In the Complaint, the Trustee seeks to recover from the Bank a $500,000 transfer made on December 13, 2011 (the "$500K Prepetition Transfer") and $655,000 in five postpetition transfers (the "$655K Postpetition Transfers") received by the Bank, and be granted such other relief that the court deems just and equitable. JS, ¶ 20.
17. On May 30, 2014, the Bank filed a motion for partial summary judgment, seeking judgment in favor of the Bank on the count of the Trustee's Complaint that sought to avoid and recover from the Bank the $655K Postpetition Transfers. Doc. No. 35; JS, ¶ 22.
18. The Bank's motion for partial summary judgment was opposed by the Trustee, and was denied by an Order of the court dated July 17, 2014. Doc. No. 60. JS, ¶ 23.
19. On January 13, 2015, this court entered an Order Granting a Temporary Stay of the Adversary Proceeding until April 28, 2015. Doc. No. 86. JS, ¶ 24.
20. On May 15, 2015, this court entered an Order Regarding Temporary Stay Initially Imposed on January 13, 2015, temporarily continuing the stay of this action. Doc. No. 97; JS, ¶ 25.
21. On July 15, 2015, this court entered an Order Lifting Temporary Stay. Doc. No. 106; JS, ¶ 26.
C. The Bank Line of Credit
22. Pursuant to a Loan and Security Agreement dated October 29, 2007 (the "Bank Line"), the Bank provided certain financing in the amount of $3,500,000 to the Debtor and Amerinova LLC ("Amerinova," to be described, below). JS, 3, ¶¶ 72; ex. D–4.
23. The Bank Line is personally guaranteed by Mr. Guarino and his wife, Kathleen Guarino ("Mrs. Guarino," and collectively, the "Guarinos"). JS, ¶ 6.
24. While the original maturity date of the note was July 31, 2008, ex. D–4 (§ 1.1.23), by an Amendment to Loan and Security Agreement and an Amended and Restated Revolving Credit Note, both dated June 30, 2010, the note was changed to a demand note. Ex. D–5.
25. The Bank Line provided that it was secured by all of the assets of the Debtor and Amerinova including all accounts receivable, license and contract rights, and inventory, together with all cash and non-cash proceeds thereof. The Bank Line "use of proceeds" provided that the proceeds shall be used to support short-term working capital obligations and for general business purposes. JS, ¶ 4; ex. D–4.
26. Prior to the bankruptcy filing, the Debtor would periodically make payments to pay down the Bank Line. JS, ¶ 5.
D. The Bank's Proofs of Claim
27. On July 25, 2012, the Bank filed a proof of claim asserting a secured claim against the Debtor in the principal amount of $1,704,436.62 as of March 12, 2012 (the "Bank's Claim") based on the amount owed on the Bank Line. JS, ¶ 27; Bankr.No. 12–16322–ABA claims register # 49–1.
28. The Bank's Claim against the Debtor was reduced by the $655K Postpetition Transfers it received on May 1, 2012 and June 11, 2012. JS, ¶ 28.
29. The Bank's Claim was further reduced by the Guarinos' payment to the Bank in the amount of $750,000 pursuant to a settlement agreement dated March 29, 2013 between the Bank and the Guarinos. JS, ¶ 29.
30. On December 10, 2013, the Bank amended its proof of claim against the Debtor to assert a claim of $299,436.62. JS, ¶ 30; Bankr.No. 12–16322–ABA claims register # 49–3.
E. The $500K Prepetition Transfer
31. The Guarinos had a $602,000 home equity line of credit with the Bank ("HELOC"), account number 1000639266. JS, ¶ 174; ex. D–27. The HELOC is dated March 26, 2009. Ex. D–27.
32. The HELOC was secured by a first mortgage on the Guarino's residence. JS, ¶ 175; ex. D28.
33. Mr. Guarino testified that the purpose of the HELOC was for his wife to purchase a house in Florida. See Tr–2 10/26/15, p. 35.
34. Sometime in September 2011, the Bank suspended the Debtor's right to make further draws on the Bank Line. JS, ¶ 176.
35. On September 22, 2011, Mr. Guarino went to a branch of the Bank and arranged with branch personnel to debit $500,000 from the HELOC and to credit that amount to the Debtor's checking account, number 20001051109, also maintained at the Bank. JS, ¶¶ 177, 178. See Tr–2 10/26/15, pp. 31–32.
36. Mr. Guarino testified that he and his wife lent the company the money as a bridge loan until the credit line was restored and "the monies came in from California." Tr–2 10/26/15, p. 31.
37. In connection with the transfer, the Debtor executed and delivered a promissory note to the Guarinos, dated September 20, 2011. JS, ¶ 179, exs. T–4, D–8.
38. The promissory note provided, in part, the following:
Promissory Note 09/21/2011
$500,000
This note supersedes all Global Protection USA Inc.['s] existing or previous obligations. For value received, Global Protection USA INC [sic], a Delaware corporation, (company) promises to pay to the order of Stephen and Kathleen Guarino (payees) the principal amount of five hundred thousand dollars ($500,000.00) with interest of 10% thereon from the date hereof to
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