Wagner v. Ultima Homes, Inc. (In re Vaughan Co.)

• Decision Date: 24 May 2013
• Docket Number: Adversary No. 12–01110.,Bankruptcy No. 10–10759.
• Citation: 493 B.R. 597
• Parties: In re VAUGHAN COMPANY, REALTORS, Debtor. Judith A. Wagner, Chapter 11 Trustee of the bankruptcy estate of the Vaughan Company, Realtors, Plaintiff, v. Ultima Homes, Inc., Kenneth Hightower, as trustee of the Ultima Homes, Inc. Defined Benefit Plan and Trust, John Doe, as trustee of the Ultima Homes, Inc. Defined Benefit Plan and Trust, Defendants.
• Court: U.S. Bankruptcy Court — District of New Mexico

493 B.R. 597

In re VAUGHAN COMPANY, REALTORS, Debtor.

Judith A. Wagner, Chapter 11 Trustee of the bankruptcy estate of the Vaughan Company, Realtors, Plaintiff,

v.Ultima Homes, Inc., Kenneth Hightower, as trustee of the Ultima Homes, Inc. Defined Benefit Plan and Trust, John Doe, as trustee of the Ultima Homes, Inc. Defined Benefit Plan and Trust, Defendants.

Bankruptcy No. 10–10759.

Adversary No. 12–01110.

United States Bankruptcy Court,

D. New Mexico.

May 24, 2013.

Douglas F. Vaughan, Director, The Vaughan Company, Realtors, Albuquerque, NM, for Debtor.

James A. Askew, Edward Alexander Mazel, Askew & Mazel, LLC, Albuquerque, NM, for Plaintiff.

Francie D. Cordova, Maria Weddige–Gurney, The Ahr Law Offices, PC, Albuquerque, NM, for Defendants.

MEMORANDUM OPINION

ROBERT H. JACOBVITZ, Bankruptcy Judge.

THIS MATTER is before the Court on the Defendants' Motion for Summary Judgment (“Motion for Summary Judgment”).¹See Docket Nos. 18, 19, and 23. Plaintiff Judith Wagner, Chapter 11 Trustee of the bankruptcy estate of the Vaughan Company Realtors (the “Trustee”), filed a response and a supplemental response in opposition to the Motion for Summary Judgment. See Docket Nos. 16, 20, and 33. This adversary proceeding is one of many adversary proceedings initiated by the Trustee seeking to recover payments made by Vaughan Company Realtors (“VCR”) to parties who invested in VCR's promissory note program. The Trustee asserts that VCR operated its business as a Ponzi scheme. She seeks to recover certain transfers made to Defendants under several theories, including avoidance of transfers under the actual fraud and constructive fraud provisions of 11 U.S.C. § 548 and applicable state law.

After consideration of the Motion for Summary Judgment, the responses thereto, and the supporting papers, and being otherwise sufficiently informed, the Court finds that the Motion for Summary Judgment should be granted as to the Trustee's claims for turnover (Count 1) and denied as to all remaining claims.

SUMMARY JUDGMENT STANDARDS

Summary judgment, governed by Rule 56, Fed.R.Civ. P., will be granted when the movant demonstrates that there is no genuine dispute as to a material fact and that the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a), made applicable to adversary proceedings by Rule 7056, Fed.R.Bankr.P. “[A] party seeking summary judgment always bears the initial responsibility of informing the ... court of the basis for its motion, and ... [must] demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The party seeking summary judgment must set forth by number all material facts the movant contends are not subject to genuine dispute, and refer with particularity to the portions in the record upon which the movant relies. NM LBR 7056–1(b). In considering a motion for summary judgment, the Court must “examine the factual record and reasonable inferences therefrom in the light most favorable to the party opposing summary judgment.” Wolf v. Prudential Ins. Co. of America, 50 F.3d 793, 796 (10th Cir.1995) (quoting Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990)).

“[A] party opposing a properly supported motion for summary judgment may not rest on mere allegation or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial” through affidavits or other supporting evidence. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Furthermore, New Mexico Local Bankruptcy Rule 7056–1(c) provides that the party opposing summary judgment must: 1) list the material facts as to which the party contends a genuine fact exists; 2) “refer with particularity to those portions of the record upon which the opposing party relies;” and 3) “state the number of the movant's fact that is disputed.” NM LBR 7056–1(c). Properly supported material facts set forth by the moving party are “deemed admitted unless specifically controverted” by the party opposing summary judgment. NM LBR 7056–1(c).

COUNTS CONTAINED IN THE COMPLAINT

The Complaint contains ninety numbered paragraphs and consists of nine separate counts. Paragraphs 1 through 52 include allegations regarding the nature of the proceeding, jurisdiction and venue, the alleged transfers, and the fraudulent Ponzi scheme allegedly perpetrated by Douglas Vaughan and his company, VCR. Paragraphs 53 through 90 incorporate paragraphs 1 through 52 by reference and set forth each claim as a separate count. The counts are:

Count 1 Turnover and Accounting under 11 U.S.C. § 542

Count 2 Actual Fraud under 11 U.S.C. § 548(a)(1)(A) based on alleged transfers to the Defendants made within two years of the date of the filing of the VCR bankruptcy case

Count 3 Constructive Fraud under 11 U.S.C. § 548(a)(1)(B) based on alleged transfers to the Defendants made within two years of the date of the filing of the VCR bankruptcy case

Count 4 Actual Fraud under state law, N.M.S.A. § 56–10–18(A)(1) based on alleged transfers to the Defendants made within four years of the date of the filing of the VCR bankruptcy case

Count 5 Constructive Fraud under state law, N.M.S.A. § 56–10–18(A)(2) based on alleged transfers to the Defendants made within four years of the date of the filing of the VCR bankruptcy case

Count 6 Fraudulent transfer (present creditors) under state law, N.M.S.A. § 56–10–19(A) and/or 11 U.S.C. § 544 as to the Defendants

Count 7 Fraudulent transfer (past creditors) under state law, N.M.S.A. § 56–10–19(A) and/or 11 U.S.C. § 544 as to the Defendants

Count 8 Undiscovered fraudulent transfers based on state law

Count 9 Disallowance of the Defendants' Claims under 11 U.S.C. § 502(d), or, alternatively, Equitable Subordination of her Claims under 11 U.S.C. § 510(c)

FACTS NOT SUBJECT TO DISPUTE

The following facts are not subject to genuine dispute: ²

1. Ultima Homes, Inc. (“Ultima Homes”) maintains a Defined Benefit Pension Plan and Trust (the “Ultima Plan”). See generally Defendants' Reply in Support of Motion for Summary Judgment and Memorandum in Support Thereof (Docket No. 23) (“Defendants' Reply”), ¶ 1; Trustee's Sur–Response in Opposition to Defendants' Reply in Support of Motion for Summary Judgment and Memorandum in Support Thereof (Docket No. 33) (“Trustee's Sur–Reply”), p. 6.

2. Jon K. Hightower is the trustee of the Ultima Plan. See Defendants' Reply, ¶ 3; Trustee's Sur–Reply, p. 7.

3. Ultima Homes and the Ultima Plan maintain separate bank accounts.³See Defendants' Reply, ¶ 4; Hightower Affidavit, ¶ 24. Funds belonging to Ultima Homes were kept separate from funds belonging to the Ultima Plan. ⁴Id. at ¶ 10; ¶¶ 24–25 4. Ultima Homes entered into a contract with Douglas Vaughan in his personal capacity for the construction of Mr. Vaughan's personal residence. See Defendants' Reply, ¶ 11; Trustee's Sur–Reply, p. 8.

5. Ultima Homes had access to information pertaining to Mr. Vaughan's personal financial situation in 2003 and 2004, including information about loans for which Mr. Vaughan had been approved. See Defendants' Reply, ¶ 12; Trustee's Sur–Reply, p. 8.

6. From 2004 through 2009, the Ultima Plan invested a total of $100,000 into VCR's promissory note program with a promised rate of return of 16% per annum. See Complaint (Docket No. 1), ¶¶ 31–32; Defendants' Answer to Complaint (Docket No. 5) (“Answer”), ¶ 31–32; Defendants' Reply, ¶¶ 5–7, 13; Trustee's Sur–Reply, p. 7–8.

7. The investments were evidenced by one or more promissory notes executed by VCR in favor of the Ultima Plan. See Complaint, ¶ 34; Answer, ¶ 34.

8. VCR made periodic payments to the Ultima Plan in connection with VCR's promissory note program. See Defendants' Reply, ¶ 6; Trustee's Sur–Reply, p. 7. All such payments were made directly to the Ultima Plan and deposited into a bank account for the Ultima Plan. See Defendants' Reply, ¶ 8; Trustee's Sur–Reply, p. 7; Hightower Affidavit at ¶ 24.

9. The Ultima Plan received at least $79,342.37 in payments from VCR. See Defendants' Reply, ¶ 13; Trustee's Sur–Reply, p. 8.

10. Ultima Homes did not receive funds from VCR in connection with the note program. See Defendants' Reply, ¶ 9; Trustee's Sur–Reply, p. 8.

DISCUSSION

The Trustee seeks to recover transfers made by VCR to the Defendants under 11 U.S.C. §§ 544 and 548 and New Mexico's version of the Uniform Fraudulent Transfer Act (“UFTA”). The Trustee consents to the dismissal, without prejudice, of her claim for turnover based on 11 U.S.C. § 542. ⁵ Accordingly, the Court will dismiss Count 1.

With respect to the remaining counts, the Defendants contend that they are entitled to judgment in their favor because: (1) the Trustee lacks standing to sue under the Employee Retirement Income Security Act (“ERISA”); (2) the Trustee is prohibited from recovering transfers to the Ultima Plan under ERISA and the Internal Revenue Code (“IRC”); and (3) the Defendants acted in good faith pursuant to N.M.S.A. § 56–10–22(A). The Defendants also contend that Mr. Hightower and Ultima Homes are not proper parties to the suit because they did not receive any transfers from VCR. As discussed below, the facts not in genuine dispute are insufficient to demonstrate that the Defendants are entitled to judgment as a matter of law on Counts 2 through 9.

1. Whether the Trustee has standing to pursue her fraudulent transfer claims

As an initial matter, the Defendants contend that the Trustee lacks standing to sue the Ultima Plan under ERISA. They argue that the only persons authorized to sue an ERISA-qualified plan are: (1) a participant or beneficiary; (2) the Secretary of Labor; and (3) a fiduciary of the plan. Section 502 of ERISA, 29 U.S.C. § 1132(a) enumerates the parties that are entitled to maintain a civil claim under the statute. That section provides that a civil action may be brought by a participant, a...