Landamerica Fin. Grp., Inc. v. Edison (In re Landamerica Fin. Grp., Inc.)

In re: LandAmerica Financial Group, Inc., et al., Debtors.LandAmerica Financial Group, Inc., Plaintiff, v. Southern California Edison, Defendant.

Case No. 08-35994-KRH

APN 10-03819-KRH

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION

ENTERED: May 19, 2014

Chapter 11

MEMORANDUM OPINION

Before the Court are cross motions for summary judgment (the "Motions") filed by Plaintiff LandAmerica Financial Group, Inc. ("LFG" or "Plaintiff") and by Defendant Southern California Edison seeking summary judgment pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, as incorporated by Rule 7056 of the Federal Rules of Bankruptcy Procedure. The Motions concern the avoidance and recovery of certain allegedly fraudulent transfers pursuant to 11 U.S.C. § 548 (a)(1)(B) and Virginia Code § 55-81.

The Court conducted a hearing on the Motions on May 1, 2014 (the "Hearing"). Finding that LFG received reasonably equivalent value in exchange for the transfers it made to Southern California Edison through the operation of LFG's centralized cash management system, the Court will deny the motion for summary judgment filed by LFG and grant summary judgment infavor of the Defendant. This Memorandum Opinion sets forth the Court's findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.¹

Procedural Background

On November 26, 2008 (the "Petition Date"), LFG filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code").² After the Petition Date, LFG continued to manage its properties and operate its businesses as debtor in possession pursuant to 11 U.S.C. §§ 1107 and 1108. Thereafter, several other affiliated LandAmerica entities, including LandAmerica OneStop Inc. ("OneStop") and Southland Title Corporation ("Southland"), also commenced voluntary cases under Chapter 11 of the Bankruptcy Code (the affiliated entities, together with the Initial Debtors, the "Debtors").³ The bankruptcy cases of the affiliated LandAmerica Debtors, including the cases filed by OneStop and Southland, have been jointly administered for procedural purposes with LFG's bankruptcy case.⁴

On September 9, 2009 the Debtors filed a Joint Chapter 11 Plan of LandAmerica Financial Group, Inc. and its Affiliated Debtors (as finally revised, the "Plan").⁵ The Court confirmed the Plan, which became effective as to all the Debtors, with the exception of OneStop,on December 7, 2009. The Plan became effective as to OneStop on March 1, 2010.⁶ The Plan created separate liquidating trusts for LFG and for each of the other LFG affiliated Debtors. The Plaintiff in this adversary proceeding was created to oversee the liquidation and distribution of the LFG assets.⁷

On November 24, 2010, Plaintiff filed this Complaint against Defendant Southern California Edison seeking to avoid and recover certain transfers in the aggregate amount of $263,462.69 (the "Transfers")⁸ made by LFG to Southern California Edison during the nine-month period immediately preceding the Petition Date. In Count I of the Complaint, Plaintiff seeks to avoid the Transfers pursuant to 11 U.S.C. § 548(a)(1)(B) as constructively fraudulent conveyances, alleging that LFG did not receive reasonably equivalent value. In Count II of the Complaint, Plaintiff seeks to avoid the Transfers under 11 U.S.C. § 544(b)(1) and Virginia Code § 55-81, alleging that the transfers were not made in exchange for valuable consideration.⁹

The Court has subject-matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F) and (O). Venue is appropriate in this Court pursuant to 28 U.S.C. § 1409.

Facts

LandAmerica Financial Group, Inc. was a holding company that operated title insurance businesses and other real estate transaction service businesses through various affiliated subsidiary entities. LFG did not sell services or products of its own and did not generate revenues of its own from customers. Rather, LFG conducted all of its operations through its operating subsidiaries. OneStop and Southland were two such wholly-owned subsidiaries of LFG.¹⁰ The valuable assets of LFG consisted almost entirely of its equity interests in, and its intercompany receivables from, LFG's subsidiaries and affiliates.

In order to collect, transfer, and disburse funds generated by LFG and its subsidiaries, LFG operated and administered a centralized cash management system (the "Cash Management System").¹¹ Under LFG's operation of the Cash Management System, subsidiaries would contribute their revenues to centralized cash accounts and LFG, as the disbursement agent, would pay out funds from the accounts.¹² Approximately ninety percent (90%) of LandAmerica revenue flowed through the Cash Management System. LFG maintained approximately thirty-one active bank accounts which were linked to the Cash Management System. For disbursements, LFG used funds from the Cash Management System accounts to pay LFG'sobligations and to pay the obligations of its subsidiaries. There were no cash amounts that LFG received from, or on behalf of, OneStop or Southland other than through the operation of the Cash Management System.¹³ LFG could not have paid its subsidiaries' expenses without receiving its subsidiaries' earned revenue through the Cash Management System.

From February 2008 through the Petition Date,¹⁴ both OneStop and Southland required electricity to power their office buildings. During this period, Southern California Edison provided electric utility service to various LandAmerica entities including OneStop and Southland. As LFG had received all of the cash revenues generated by OneStop and Southland through the operation of the Cash Management System, neither OneStop nor Southland had sufficient funds to pay their own expenses during the Avoidance Period. Rather, pursuant to the Cash Management System, LFG, in its capacity as the disbursement agent for OneStop and Southland, paid the cash expenses of OneStop and Southland, including the expenses due to Southern California Edison. During the Avoidance Period, LFG paid roughly $237,292.36 to Southern California Edison for electricity provided to OneStop and Southland.

During the Avoidance Period, LFG received over $30 million more in revenues generated by OneStop than LFG disbursed on behalf of OneStop through the operation of the Cash Management System.¹⁵ During this same time period, LFG received over $11 million more inrevenues generated by Southland than LFG disbursed on behalf of Southland.¹⁶ Thus, LFG received positive net cash flow from the operations of its OneStop and Southland subsidiaries during the Avoidance Period in the aggregate amount of roughly $40 million.

Standard of Review

Summary judgment "is favored as a mechanism to secure the 'just, speedy, and inexpensive determination' of a case" when the requirements of Rule 56 of the Federal Rules of Civil Procedure are met. Thompson Everett, Inc. v. Nat'l Cable Adver., L.P., 57 F.3d 1317, 1322-23 (4th Cir. 1995) (quoting Fed. R. Civ. P. 1). Summary judgment should be granted "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Summary judgment is appropriate when there are no "disputes over facts that might affect the outcome of the suit." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The relevant inquiry on summary judgment is:

whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law. An otherwise "properly supported motion for summary judgment" will not be defeated by the existence of merely any factual dispute, no matter how minor; rather, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." To withstand a summary judgment motion, the non-moving party must produce competent evidence sufficient to reveal the existence of a genuine issue of material fact for trial. Neither conclusory allegations, speculative scaffolding of one inference upon another, nor the production of a "mere scintilla of evidence" in support of a nonmovant's case suffices to forestall summary judgment.

Moody v. Arc of Howard Cnty., Inc., 474 F. App'x 947, 949 (4th Cir. 2012) (citations omitted). "[O]nce the moving party has identified the absence of a genuine issue of material fact, thenonmoving party bears the burden of identifying specific facts that demonstrate the existence of a genuine issue for trial." Hopkins v. Horizon Mgmt. Servs., Inc., 302 F. App'x 137, 139 (4th Cir. 2008).

Discussion

Plaintiff maintains that LFG did not receive reasonably equivalent value in exchange for the Transfers it made to Southern California Edison. Plaintiff bases this argument on the assertion that LFG was not itself contractually obligated to Southern California Edison for the obligations of its subsidiaries that the Transfers paid, that LFG did not use the services provided by the Defendant, and that the only thing of value LFG received in exchange for the Transfers was an intercompany receivable from OneStop or Southland. 11 U.S.C. § 548 (a)(1)(B) allows a trustee to avoid a transaction where the Debtor made a transfer within two years prior to the date of filing the bankruptcy petition, if the Debtor received less than reasonably equivalent value in exchange for the transfer. "Value" is defined under 11 U.S.C. § 548(d)(2)(A) to mean "property, or...