Wells v. THB Am., LLC (In re Clements Mfg. Liquidation Co.), Bankruptcy No. 09–65895–TJT.
Decision Date | 17 October 2014 |
Docket Number | 10–7341.,Bankruptcy No. 09–65895–TJT.,Adversary Nos. 10–6123 |
Citation | 521 B.R. 231 |
Parties | In the Matter of CLEMENTS MANUFACTURING LIQUIDATION COMPANY, LLC fka Kensa, LLC fka Clements Manufacturing of Michigan, LLC dba Clements Manufacturing, LLC, Debtor. Charles L. Wells, III, Chapter 7 Trustee, Plaintiff, v. THB America, LLC, Tianhai Electric North America, and Sakoma, LLC, Defendants. Harold Zaima, an individual, Zaima Family LLC, a Michigan limited liability company, Sakoma, LLC, a Michigan limited liability company, and Kensa de Honduras S. de R.L., a Honduran company, Plaintiffs/Counter–Defendants, v. China Auto Electronics Group Ltd., a Bermudan corporation; Henan Tianhai Electric Co., Ltd., a Chinese corporation; Hebi Tianhai Huanqju Electric Company, Ltd., a Chinese corporation, Defendants, and Tianhai Electric North America, Inc., A Michigan corporation; THB America, LLC, A Michigan limited liability company, Defendants/Counter–Plaintiffs and Third Party Plaintiffs, v. Clements Manufacturing Liquidation Co., LLC, f/k/a Kensa, LLC, a Michigan limited Liability company, and Charles L. Wells, III, Chapter 7 Trustee, Third Party Defendants. |
Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Leonora K. Baughman, Shanna Marie Kaminski, Kilpatrick & Associates, Auburn Hills, MI, for Plaintiff.
Doron Yitzchaki, Ann Arbor, MI, Emily Hughes, Rochester, MI, for Defendants.
These consolidated adversary proceedings are before the Court on three motions for summary judgment, namely,(1) the Chapter 7 Trustee's motion for summary judgment entitled “Trustee's Motion for Summary Judgment as to Counts II and III of the Trustee's Complaint in Adversary No. 10–06123 and Counts II, III, and IX in Trustee's Cross Claim in Adversary No. 10–07341” (Docket # 104 in Adv. No. 10–6123);
(2) the Chapter 7 Trustee's motion for summary judgment entitled “Trustee's Motion for Summary Judgment as to Count I in Adversary No. 10–06123 Against Defendants THB America, LLC and Tianhai Electric North America, Inc.” (Docket # 107 in Adv. No. 10–6123); and
(3) the motion for summary judgment filed by THB America, LLC (“THB”) and Tianhai Electric North America, Inc. (“TENA”), entitled “THB America, LLC and Tianhai Electric North America, Inc.'s Motion for Summary Judgment as to Claims Asserted by Trustee” (Docket # 110 in Adv. No. 10–6123).
The Court held lengthy hearings on these motions, then took them under advisement. For the reasons stated in this opinion, the Court will deny each of the motions.
The following background facts are rather complicated, but they are undisputed.
Prior to January 1, 2008, the Chapter 7 Debtor in this case, Clements Manufacturing Liquidation Company, LLC, was known as Kensa LLC (“Old Kensa” or “Kensa”). It was one of five related companies operating out of Michigan, Mexico, and Honduras, which designed, manufactured, distributed, and sold wiring harnesses and battery cable assemblies for automotive companies and their tier one suppliers. All of the entities were controlled, either directly or indirectly, by Harold Zaima (“Zaima”), a Japanese–American citizen of the United States, who was the President of Old Kensa. Those five Zaima-controlled entities were Old Kensa; Deckerville Wire, Inc. (“Deckerville”); Sakoma, LLC (“Sakoma”); Kensa de Honduras S. de R.L. (“Kensa Honduras”); and Kensa de Mexico de S. de C.V. (“Kensa Mexico”) (collectively, the “Kensa Business Entity” or the “Kensa Enterprise”).1
Old Kensa designed, distributed, and sold the wiring harnesses and cable assemblies. Sakoma was a distributer of the electrical components of the wiring harnesses. Kensa Mexico and Kensa Honduras manufactured the wiring harnesses and battery cable assemblies. Deckerville was the employer of all the employees located in Deckerville, Michigan, and Sterling Heights, Michigan, who worked for Old Kensa. Because Zaima was Japanese–American, Kensa was a minority-owned business.
Old Kensa had term loans and a line of credit from Comerica Bank (“Comerica”), which were secured by liens on all of the assets of the Kensa Business Entity. Zaima had personally guaranteed these loans. During 2007, Old Kensa had defaulted numerous times under the terms of its loan documents with Comerica, had entered into forebearance agreements with Comerica, had defaulted under the terms of various forebearance agreements, and was having difficulty securing further loans needed for operating expenses.2 As a result, during 2007, the Kensa Business Entity was in financial distress and in need of a capital infusion.
In May or June of 2007, China Auto Electronics Group, Ltd. (“CAE”), a foreign corporation which desired to expand its business into the United States automotive market, and its wholly owned United States subsidiary, CAE US Holdings, Inc. (“CAE US”), asked Zaima about the possibility of CAE, either directly or indirectly, purchasing some or all of the assets of, and membership interests in, the Kensa Business Entity. As a result of this inquiry, CAE and Zaima entered into negotiations, which led to the execution of a transaction term sheet in January 2008, followed by a closing of a complex set of related transactions in late February 2008. Some more specific details are set forth later in this opinion, but the following description of the related transactions, quoted from a brief filed by THB and TENA, is a good summary:
1. The Transaction Term Sheet
In January 2008, CAE, Old Kensa, Kensa Honduras, Sakoma, and Zaima entered into an agreement, entitled “China Auto Electronics Group Limited–KenSa Transaction Term Sheet” (the “Transaction Term Sheet”), which expressed their “commitments ... with respect to a transaction in which certain assets of [Old Kensa, Kensa Honduras, and Sakoma, would] be sold to certain new entities, which entities [would] be owned, directly or indirectly, by CAE, or its affiliates, and Zaima, or his successors and assignees.”4 Under the Transaction Term Sheet, new entities were to be formed—THB America, LLC (“THB America”) and THB Honduras.5 The Transaction Term Sheet provided, in relevant part:
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