Coan v. Orlando Predators Sports Grp., LLC (In re People's Power & Gas, LLC)

608 B.R. 333

IN RE: PEOPLE'S POWER AND GAS, LLC, Debtor

Richard M. Coan, Trustee, Plaintiff

v.Orlando Predators Sports Group, LLC, Defendant

Case No. 14-50574

Adv. Pro. No. 16-05025

United States Bankruptcy Court, D. Connecticut.

Signed November 13, 2019

Timothy D. Miltenberger, Coan Lewendon Gulliver & Miltenberger, 95 Orange Street, New Haven, CT 06511, Attorney for the Plaintiff

Mr. David Pearsall, 501 North Wymore, Winter Park, FL 32789-2808, Pro Se¹

MEMORANDUM OF DECISION ON MOTION FOR PARTIAL SUMMARY JUDGMENT

Julie A. Manning, Chief United States Bankruptcy Judge

I. Introduction

On April 18, 2014, Connecticut Light & Power Company, Yankee Gas Services Company, and the United Illuminating Company filed an involuntary Chapter 7 petition against People's Power and Gas, LLC (the "Debtor"). An Order for Relief entered on May 21, 2014 and Richard M. Coan was appointed as the Chapter 7 Trustee (the "Trustee").

In this adversary proceeding, the Trustee filed a complaint (the "Complaint") seeking to avoid preferential transfers made to Orlando Predators Sports Group, LLC (the "Defendant") under: (i) 11 U.S.C. § 547(b) (Count I); (ii) constructively fraudulent transfers made to the Defendant pursuant to 11 U.S.C. § 548(a)(1)(B) (Count II); (ii) constructively fraudulent transfers made to the Defendant under 11 U.S.C. § 544(b)(1) and Conn. Gen. Stat. § 52-552a, et seq. (Counts III and IV); and (iv) actual fraudulent transfers made to the Defendant (Count V). The Complaint also seeks to recover those transfers from the Defendant pursuant to 11 U.S.C. § 550 (Count VI). See ECF 1. The Trustee has moved for summary judgment on the constructive fraudulent transfer claims in Counts II, III, and IV of the Complaint. The Defendant has not filed any response to the Motion for Summary Judgment.

Because the Motion for Summary Judgment only addresses the constructive fraudulent transfer counts of the Complaint, the Court deems it a Motion for Partial Summary Judgment and this decision, accordingly, will only address Counts II, III, IV and VI of the Complaint. For reasons discussed below, the Motion for Partial Summary Judgment is GRANTED.

II. Jurisdiction

The United States District Court for the District of Connecticut has jurisdiction over the instant proceedings pursuant to 28 U.S.C. § 1334(b). The Bankruptcy Court derives its authority to hear and determine this matter pursuant to 28 U.S.C. §§ 157(a) and (b)(l) and the Order of Reference of the United States District Court for the District of Connecticut dated September 21, 1984. This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2).

III. Background

On May 19, 2016, the Trustee filed the Complaint against the Defendant. On August 16, 2016, the Defendant filed its Answer and Affirmative Defenses (the "Answer"). See Answer, ECF 14. On February 20, 2018, the Trustee filed the pending Motion for Partial Summary Judgment and Memorandum of Law in Support of Motion for Summary Judgment. In the Motion for Partial Summary Judgment, the Trustee primarily relies on an expert report prepared by Richard Finkel, CPA/CFF, CFE, and CIRA of the accounting firm Blum, Shapiro & Company, P.C. (the "Finkel Affidavit") as evidence that no genuine issue of material fact exists and summary judgment should be granted as a matter of law. During a March 12, 2019 status conference, the Trustee was given leave to file a Supplemental Memorandum of Law on the issue of whether the Court could rely on the affidavit of an expert to establish the "reasonable equivalent value" prong of a fraudulent transfer claim.

On April 10, 2019, the Trustee filed a Supplemental Memorandum in Support of his Motion for Partial Summary Judgment (the "Supplemental Memorandum"). On July 16, 2019, a status conference was held during which Mr. David Pearsall, the principal of the Defendant, appeared. Although the Defendant had not responded to the Motion for Partial Summary Judgment or to the Supplemental Memorandum, Mr. Pearsall was granted leave to file a response by August 2, 2019, and to prepare and submit a financial affidavit to the Trustee by August 2, 2019. To date, neither Mr. Pearsall nor the Defendant have filed a response to the Motion for Partial Summary Judgment.

IV. Undisputed Facts

Under Rule 56(a)(1) of the Local Rules of Civil Procedure of the United States District Court for the District of Connecticut, each material fact set forth in a movant's statement and supported by the evidence "will be deemed to be admitted (solely for the purposes of the motion) unless such fact is controverted by the Local Rule 56(a)(2) Statement required to be filed and served by the opposing party in accordance with this Local Rule..." D. Conn. L. R. 56(a)(1); See also Parris v. Delaney (In re Delaney) , 504 B.R. 738, 746-747 (Bankr. D. Conn. 2014). In this adversary proceeding, the Trustee has fully complied with the Local Rule and has filed a Local Rule 56(a)(1) Statement. Since the Defendant has not responded to the summary judgment motion, including not filing a Local Rule 56(a)(2) statement, any argument that the Defendant may have opposing the Motion for Partial Summary Judgment is waived, and all material facts set forth in the Local Rule 56(a)(1) Statement are deemed admitted. D. Conn. L. Civ. R 56(a)(1).

The Court finds the following undisputed facts² :

1. The Debtor's Chapter 7 petition was filed on April 18, 2014 (the "Petition Date").

2. The Debtor was a single member LLC of which Mr. David Pearsall was the sole member.

3. The Debtor was in the business of purchasing wholesale electricity and natural gas from various independent service operators ("ISOs") and reselling the electricity and natural gas to residential and commercial customers in the New York and New England markets.

4. To qualify to purchase from ISOs, the Debtor was obligated to meet certain requirements and to post collateral in the form of cash in the amount of approximately 2.5 percent of the 7-day wholesale cost of the purchased electricity.

5. The Debtor entered into a Master Factoring Agreement (the "Agreement") with Forest Capital, LLC in May 2012, and amended the Agreement in November 2013. Under the terms of the Agreement, Forrest Capital LLC provided the collateral to ISOs based on various percentages of unbilled and billed accounts receivable.

6. The Debtor was required to pay interest of 20.25% on the collateral posted by Forrest Capital LLC.

7. The Debtor was maintaining its books on a cash basis from its inception in March 2011 through April 2012. Under the cash method of accounting, liabilities such as accounts payable and accrued expenses are not recorded.

8. The Debtor changed its bookkeeping method to an accrual basis in May 2012. Under the accrual basis of accounting, liabilities such as accounts payable and accrued expenses are recorded.

9. The Debtor's assets consisted of cash, accounts receivable, leasehold improvements, computers, furniture and fixtures, and prepaid rent and security deposits from related companies including the Defendant. The Debtor's liabilities consisted of trade accounts payable, accrued expenses, accrued payroll, and the debt to Forest Capital LLC.

10. The value of the Debtor's liabilities was greater than the fair market value of its assets at all times alleged in the Complaint.

11. In the one year prior to the Petition Date (the "Preference Period"), the Defendant received a total of five transfers from the Debtor totaling $322,881.22.

12. In the four year period prior to, but less than one year prior to the Petition Date (the "Fraudulent Transfer Period"), the Debtor made thirteen transfers to the Defendant totaling $252,273.00.

13. The descriptions in the Debtor's ledger indicate the Debtor was paying the Defendant's bills.

14. The Debtor had no ownership interest in the Defendant.

15. The Debtor's ledger does not indicate that the Debtor was engaged in business with the Defendant.

16. The Debtor's ledger does not indicate any business purpose for the transactions.

V. Legal Standard

Under section 548 of the Bankruptcy Code, the power to avoid fraudulent transfers is vested in the trustee. 11. U.S.C. § 548(a)(1). A trustee may avoid transfers under section 548 to recover assets for the benefit of the estate. See id.; see also 8 COLLIER ON BANKRUPTCY , ¶ 548.02[1]. In addition to the powers in section 548, section 544 of the Bankruptcy Code permits the trustee to recover fraudulent transfers under applicable state law. 11 U.S.C. 544(b). The applicable state law is the Connecticut Uniform Fraudulent Transfer Act ("CUFTA"), which provides a four year statute of limitations for fraudulent transfers. See Conn. Gen. Stat. § 52-552j.

Federal Rule of Civil Procedure 56(a), made applicable to these proceedings by Fed. R. Bankr. P. 7056, directs the court to grant summary judgment if the movant shows no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. When determining a motion for summary judgment, the court is not permitted to resolve any issues of fact; it must only determine whether a genuine issue of material fact exists and, if not, whether the movant is entitled to judgment as a matter of law. See Vivenzio v. City of Syracuse , 611 F.3d 98, 106 (2d Cir. 2010). The moving party bears the burden of proving that no genuine material factual issues exist. Id. When determining whether the movant has met that burden, the court is to draw all reasonable inferences, and resolve all ambiguities, in favor of the non-moving party. See, e.g., Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Matsushita Electric Industrial Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; United Transp. Union v. Nat'l R.R. Passenger Corp. , 588 F.3d 805, 809 (2d Cir. 2009).

While all reasonable inferences must be drawn in favor of the nonmoving party, the nonmoving party "must come forward with specific evidence demonstrating the...