Zayler v. Miken Oil, Inc. (In re Slamdunk Enter., Inc.)

Decision Date29 January 2021
Docket NumberAdversary No. 18-6006,Case No. 17-60566
CourtU.S. Bankruptcy Court — Eastern District of Texas

Chapter 7


On this date the Court considered the competing Motions for Summary Judgments which have been filed in the above-referenced adversary proceeding:

(1) the Plaintiff's Motion for Summary Judgment [dkt #33] filed by the Plaintiff, Stephen J. Zayler (the "Trustee" or "Plaintiff"), in his official capacity as the duly-appointed Chapter 7 Trustee of the Bankruptcy Estate of Slamdunk Enterprises, Inc., to which a joint response in opposition was filed [dkt #41] by the Defendants, Miken Oil, Inc. and Larry Mike Tate, (collectively, the "Defendants"), followed by the Trustee's reply [dkt #43];
(2) the Defendants' Joint Motion for Summary Judgment [dkt #34], to which a response in opposition was filed by the Trustee [dkt #42], followed by the Defendants' reply [dkt #44]; (3) the Plaintiff's Supplemental Motion for Summary Judgment [dkt #59],1to which a joint response in opposition was filed by the Defendants [dkt #62]; and
(4) the Defendants' Joint Supplemental Motion for Summary Judgment [dkt #60], to which a response in opposition was filed by the Trustee [dkt #61].

The complaint in this action alleges that the Chapter 7 bankruptcy estate is entitled to recover the sum of approximately $1.55 million from Miken Oil, Inc. and approximately $187,000 from Larry Mike Tate based upon transfers which the Trustee asserts were either preferential transfers under 11 U.S.C. § 547 or fraudulent transfers under 11 U.S.C. §§ 544 or 548, or both.2 Based upon the Court's consideration of the competing Motions, the memoranda in support and opposition thereto, the proper summary judgment evidence tendered to the Court,3 and for the reasons stated in this Memorandum, the Court concludes that the Trustee's Motion for Summary Judgment as supplemented should be granted in part and denied in part, such that a summary judgment shall be awarded to theTrustee for the recovery of a preferential transfer and/or a constructive fraudulent transfer received by Miken Oil, Inc., in the amount of $1,462,635.88 and the recovery of a fraudulent transfer made to Larry Mike Tate in the amount of $21,917.00. The Trustee's motion as supplemented will also be granted so as to deny: (1) the Defendants' asserted affirmative defense pertaining to the Miken Payment and the Guaranteed Lender Payments based upon an alleged contemporary exchange for new value; and (2) the Defendants' claims regarding the applicability of any of the following defenses: (i) a failure to assert a claim upon which relief can be granted; (ii) a failure to plead with sufficient specificity; (iii) inequitable recovery; (iv) the doctrines of in pari delicto, unclean hands, unjust enrichment, and any other equitable doctrine; (v) the doctrines of release, waiver, ratification, accord and satisfaction, estoppel, judicial estoppel, setoff, recoupment, and/or equitable estoppel; and (vi) any state or federal statute of limitations or the doctrine of laches. The remainder of the Trustee's motion as supplemented will be denied. The Defendants' joint motion as supplemented shall be granted so as to deny the Trustee's claim that any of the Guaranteed Lender Payments can be recovered as constructive fraudulent transfers under § 24.006(b) of the Texas Uniform Fraudulent Transfer Act. The remainder of the Defendants' joint motion as supplemented will be denied. This memorandum disposes of all issues currently before the Court.4

I. Factual and Procedural Background5

The Debtor, Slamdunk Enterprises, Inc. ("Slamdunk" or the "Debtor"), is a Texas oil and gas service company which was owned and operated by the Defendant, Larry Mike Tate ("Tate"). Slamdunk was formed and organized on December 2, 2010 in accordance with the state laws of Texas. At all relevant times, Tate was one of two shareholders and he owned ninety (90%) percent of the Debtor's outstanding shares of stock.6 Tate further directed the Debtor's day-to-day operations as its president and sole officer.7 The Slamdunk shareholders elected under 26 U.S.C. § 1362 for their corporation to be treated as a subchapter S corporation for federal income tax purposes,8 thereby freeing the corporation from any obligation to pay taxes on its earnings, with such obligation passing through to each shareholder in proportion to his/her ownership percentage.

Tate has also simultaneously owned all of the equity interests in, and served as the sole director and officer of, another Texas oil and gas company— the Defendant, Miken Oil, Inc. ("Miken")—which owns and operates various oil and gas properties under Tate'sexclusive direction and control.9 Neither of the sister companies owned any ownership interest in the other.10

Through the years, there was a growing debtor-creditor relationship between Slamdunk and Miken.11 Slamdunk was always the poorer sibling. Though Tate would occasionally direct Miken to utilize the services of Slamdunk to perform workovers or to provide other well services for its properties,12 Slamdunk accumulated significant indebtedness from its inception. It struggled to address that debt and yet it kept operating despite repeated annual losses. Tate would direct Miken at certain times to extend credit to Slamdunk, and Miken occasionally paid the financial obligations of Slamdunk directly.13

By the end of 2016, Slamdunk's accumulated business losses totaled more than $2.2 million14 and its unsecured debt to Miken was $1,612,771.07.15 Tate, as the controlling officer of both Slamdunk and Miken, knew that the indebtedness was pastdue,16 although there was no actual promissory note that evidenced that unsecured indebtedness to Miken,17 nor any specific written agreement that specified how and when the indebtedness owed by Slamdunk to Miken would be paid. Notwithstanding Slamdunk's growing financial distress, Tate never made capital contributions to Slamdunk after his initial capital investment in the company in 2010.18

By the fall of 2016, Slamdunk was in financial peril. Certain creditors had obtained judgments against it and others were seeking the entry of such judgments.19 Payroll taxes were delinquent.20 Tate engaged bankruptcy counsel and preparations began in October 2016 for a bankruptcy filing for Slamdunk.21 Drafts of bankruptcy schedules and statements were prepared.22 Meanwhile, Tate became acquainted with a gentleman named Robert Pulliam, a certified public accountant from Dallas. After meeting with Pulliam, Tate decided to delay the bankruptcy filing for Slamdunk and to engage instead in a series of financial transactions designed to solve his prior individual inability, as a Subchapter S shareholder with an insufficient basis in the company, toaccess the significant loss carryforwards which Slamdunk had accumulated over the years of its existence and to deduct those losses against the amounts of personal income which Tate had previously recognized on his individual income tax returns.

After the Pulliam consultation, and carrying specific instructions regarding the designated series of events to accomplish from John Pope,23 Tate went to Austin Bank on December 30, 2016, to orchestrate a series of transfers involving the respective bank accounts of Miken, Tate, and Slamdunk.24 Tate obtained a loan of $1.550 million in his individual capacity from Miken25 and, then acting as the sole officer of Miken, transmitted the loan proceeds from the Miken account into his personal bank account.26 Tate then transferred the entire $1.550 million which had been credited to his individual account to the Slamdunk bank account.27 Tate, then acting as the sole officer of Slamdunk, took the $1.550 million credited to Slamdunk and immediately transferred it to Miken in satisfaction of almost the entire amount of the unsecured indebtedness which was then owed by Slamdunk to Miken (the "Miken Payment").28 Each of theaforementioned transactions were all effectuated on December 30, 2016, within a relatively short span of time, and notwithstanding the fact that, at the beginning of that particular business day, none of the referenced bank accounts reflected an account balance exceeding the transfer amount. No portion of the capital contribution tendered to Slamdunk was used to address any other indebtedness owed by Slamdunk to any other creditor.29 Miken recorded its receipt of the $1.55 million payment on its books30 and reported it in its tax return.31 Slamdunk also noted the Miken Payment in its books and noted it on its return.32

Because that capital contribution increased his basis in his Slamdunk stock, Tate became eligible to deduct the accumulated losses sustained by Slamdunk that he had been unable to deduct on his personal tax returns in prior years.33 He accordingly filed his 2016 personal federal income tax return for 2016, as well as some amended personal returns for prior years, based upon this newly-acquired eligibility.34 As a result, Tate eventually received an aggregate federal tax refund of $407,114 from the IRS based uponthe pass-through of Slamdunk's previously-suspended losses which had been liberated due to the additional basis triggered by Tate's December 30, 2016 capital contribution to Slamdunk.35

In addition to the substantial reduction of its note payable to Miken, Slamdunk also tendered several payments in the pre-petition period to particular creditors on obligations that had been personally guaranteed by Tate and/or Miken. Between October 2016 and the petition date in August 2017, a period which notably was subsequent to its retention of bankruptcy counsel, Slamdunk tendered twenty-three (23) payments to Chase Bank totaling $94,537.37 on secured indebtedness36 which had been guaranteed by both Tate...

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