In re Transcolor Corporation, Case Nos. 98-65483-JS (Bankr.Md. 10/5/2007), Case Nos. 98-65483-JS.

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In re: TRANSCOLOR CORPORATION, (Chapter 7), Debtor MARSHALL & ILSLEY TRUST COMPANY, N.A. Plaintiff, v. MORTON M. LAPIDES, SR., Et al Defendants

Case Nos. 98-65483-JS.

Adv. Pro. No. 05-9103-JS.

United States Bankruptcy Court, D. Maryland.

October 5, 2007.

MEMORANDUM OPINION DISMISSING COMPLAINT FOR LACK OF SUBJECT MATTER JURISDICTION

JAMES SCHNEIDER, Bankruptcy Judge.

The matters before the Court are the defendants' motions to dismiss this adversary proceeding and the plaintiff's motion for summary judgment. The issue presented by the motion to dismiss is whether, after the award of a money judgment by the bankruptcy court against the alter ego of a debtor corporation in an earlier adversary proceeding, this Court has subject matter jurisdiction over a second suit brought by the successor in interest of the judgment creditor to enforce the judgment by avoiding alleged fraudulent transfers of real and personal property by the alter ego to other non-debtor defendants. Because this Court has determined that it lacks "related to" subject matter jurisdiction over the instant suit, the motion to dismiss will be granted.

FINDINGS OF FACT

1. The plaintiff, the Marshall & Ilsley Trust Company, N.A. ("M&I Trust"), is a national banking organization, chartered under the laws of the United States, and located at 111 East Kilbourn Avenue, Milwaukee, Wisconsin. It is the successor in interest to National City Bank of Minneapolis ("NCB"), and the successor trustee to an indenture over which NCB was trustee. Complaint, ¶ 1.

2. The defendant, Morton M. Lapides, Sr. ("Morton"), is the sole owner or majority stockholder of the following corporations: Valley Rivet Co., V. R. Holdings, MML, Inc. Alleco, Inc., Transcolor Corporation, Transcolor, Inc., Transcolor West, Transcolor South and Apparel Funding Group, now known as American Basics Company. Morton was president of MML, Inc., a Maryland corporation that bore his initials and subsequently merged into a successor corporation, V. R. Holdings, Inc. ("V.R."), a Delaware corporation. He was the sole director and shareholder of Alleco, Inc. ("Alleco"), which directly or indirectly owned and controlled Alleco Financial Corp, Transcolor Corporation, Transcolor, Inc., and other companies. Through Alleco, Morton owned 98.5% of the stock of Transcolor Corporation, which in turn owned 100% of the stock of Transcolor, Inc. Morton controlled Transcolor West, Transcolor South, and American Basics Company, which were subsidiaries of Transcolor, Inc.

3. The defendant, Pamela W. Lapides ("Pamela"), is the wife of Morton.

4. The defendants, Craig Dranbauer ("Craig") and Matthew A. Lapides ("Matthew"), are the trustees of the Pamela W. Lapides Irrevocable Q-Tip Trust.¹

5. Morton, Pamela and Craig are residents of the State of Maryland.

6. Matthew is a resident of the State of Pennsylvania.

7. On October 19, 1978, Morton executed two deeds in favor of himself and Pamela, his then-future wife. The first of these was a deed of real property located in Anne Arundel County (the "Annapolis Property") to Morton and Pamela purportedly as tenants by the entireties (the "1978 Annapolis Property Deed"). The second deed was executed by Morton in favor of himself and Pamela and conveyed personal property (the "1978 Personal Property Deed") to them as joint tenants with rights of survivorship. The deeds were acknowledged on October 19, 1978.

8. On the following day, October 20, 1978, Morton and Pamela were married.

9. On November 24, 1978, the 1978 Annapolis Property Deed was recorded among the Land Records of Anne Arundel County.

10. On June 1, 1992, Alleco filed a voluntary Chapter 11 bankruptcy petition in this Court (Case No. 92-13268-SD). The petition indicated that Alleco was a holding company and that 100% of its stock was owned by MML, Inc. On June 1, 1992, Alleco filed a Chapter 11 Plan of reorganization, which it amended on August 19, 1992, and again on November 23, 1992. On September 17, 1993, the plan was confirmed.

11. The confirmed plan approved an indenture executed on October 1, 1993, between Alleco and National City Bank of Minneapolis ("NCB"), the indenture trustee. The indenture obligated Alleco to issue secured notes to certain creditors.

12. Under a supplemental indenture dated July 31, 1995, in which NCB continued to serve as trustee, Transcolor Corporation was added as an additional obligor on the Secured Notes. Morton signed the supplemental indenture on behalf of both Alleco and Transcolor. The supplemental indenture prohibited Transcolor and Alleco from transferring assets unless the transferee assumed their obligations.

13. On November 16, 1995, Morton and Pamela (collectively referred to as "the Lapideses") transferred the Annapolis Property to Mark A. Pudinski ("Pudinski"), a "strawman," who immediately transferred the property back to Morton and Pamela in two parcels, for the nominal consideration of five dollars. The November 16, 1995 transactions involved three separate deeds.

14. Parcel A contained the Lapideses' residence located at 2077 Maidenstone Road. Parcel B was located at 2075 Maidenstone Road.

15. On January 22, 1998, NCB obtained a judgment in a Michigan state court against Alleco and Transcolor Corporation in the amount of $6,772,161.

16. On November 2, 1998, secured creditors, Dean H. Foltz, Henrietta M. Foltz, and Ronald S. Weidenbach Family Trust, filed an involuntary Chapter 7 bankruptcy petition against Transcolor Corporation in this Court (Case No. 98-65483J-S). On April 30, 1999, a Chapter 7 order for relief was entered, and Monique D. Almy, Esquire, was appointed trustee ("Transcolor Trustee").

17. On August 13, 1999, NCB filed Adversary Proceeding No. 99-05627-JS against Transcolor West, Inc.,² American Basics Company,³ Transcolor Corporation,⁴ MML, Inc,⁵ Alleco, Inc.,⁶ and Morton,⁷ in which it alleged misrepresentation, concealment by breach of duty to disclose and fraudulent conveyances.

18. On December 11, 2000, voluntary Chapter 11 petitions filed in the United States Bankruptcy Court for the District of Delaware by V. R. Holdings, Inc. and Valley Rivet Co. were transferred to this Court and assigned case nos. 01-52239-JS and 01-52379-JS, respectively.

19. On November 14, 2001, the trustee in V. R. Holdings filed an emergency motion to sell the assets of the debtor. On November 19, 2001, the case was converted to a proceeding under Chapter 7. In January 2001, the trustee moved for the approval of a settlement with the Environmental Protection Agency, which V. R. Holdings opposed. On March 19, 2002, this Court approved the settlement.

20. Eight days later, on March 27, 2002, the Lapideses transferred Parcel A to the Pamela W. Lapides Irrevocable Q-Tip Trust ("Q-Tip Deed").

21. In the meantime, on June 13, 2003, this Court issued its opinion in Adversary Proceeding No. 99-05627-JS, in which it granted the complaint against Morton and Alleco and entered a money judgment against Morton in the stipulated sum of $7 million in favor of NCB, concluding (1) that he was liable for the corporation's fraud and also independently liable for torts committed by him as an agent of the corporate debtor; (2) that NCB was damaged by the conduct of Transcolor and Morton; and (3) that based upon the evidence presented at trial, Alleco and Morton intended to deceive and defraud NCB. The order also provided that "the plaintiff's claim against Transcolor will be allowed in [the same] amount without the necessity of entering a judgment." Id.

22. The opinion was reported in National City Bank of Minneapolis v. Lapides, (In re Transcolor Corp.), 296 B.R. 343 (Bankr. D.Md. 2003). In holding Morton and Alleco jointly and severally liable for damages, this Court held that "the bankruptcy court in which the case is commenced is the proper forum for its administration and the disposition of motions and adversary proceedings brought by or against the debtor debtor-in-possession or bankruptcy trustee, and third parties regarding property of the debtor or the debtor's estate." 296 B.R. at 353-4.

23. In holding that it possessed subject matter jurisdiction over the suit, this Court held that the dispute was within the core jurisdiction of the bankruptcy court to hear and determine, because the plaintiff's proof of claim was the cause of action underlying the complaint to pierce the corporate veil and to hold liable the corporate debtor's insider, and also to recover fraudulent conveyances from him. 296 B.R. at 355-6. This Court also held that it possessed "related to" jurisdiction. Id. at 356.

24. Based upon a finding by this Court that it had core jurisdiction over the adversary proceeding to recover fraudulent conveyances received by Morton and to "[vindicate] its equitable powers in the punishment of misconduct committed under its aegis by debtors and nondebtors alike," id. at 357, a final money judgment was awarded against Morton in favor of the Transcolor Trustee and NCB, the predecessor to M&I Trust, which now seeks by the instant adversary proceeding to recover that judgment.

25. NCB recorded the judgment in Anne Arundel County, Maryland, where the Lapideses' real property was located.

26. On August 5, 2003, after the appeal period had expired, Morton filed a motion to extend time to appeal, which was denied. On August 27, 2003, Morton appealed the denial of the motion to the U.S. District Court for the District of Maryland.

27. On October 29, 2003, Pamela, Craig and Matthew created the Pamela W. Lapides Irrevocable Q-Tip Trust ("Q-Tip Trust").

28. On December 2, 2003, the District Court [Quarles, Jr., J.] dismissed Morton's appeal.

29. Morton filed a motion for relief from judgment [P. 175] and a motion for recusal of the undersigned judge [P. 177].

30. In attempting to locate assets of the defendants, NCB filed a motion to compel discovery [P. 174] and a motion to compel production of documents [P. 183].

31. Morton's failure to...