McCord v. Ally Fin., Inc. (In re USA United Fleet, Inc.)

559 B.R. 41

In re: USA United Fleet, Inc., a/k/a Shoreline Fleet, Inc., et al., Debtors.

Richard J. McCord, Esq., as Chapter 7 Trustee for the Estate of USA United Fleet, Inc., et al., Plaintiff,

v.Ally Financial, Inc., f/k/a GMAC Pittsburgh f/k/a GMAC, Defendant.

Case No.: 1-11-45867-ess (Jointly Administered)

Adv. Pro. No.: 1-13-01219-ess

United States Bankruptcy Court, E.D. New York.

Signed September 26, 2016

Entered September 27, 2016

Richard J. McCord, Esq., Certilman Balin Adler & Hyman, LLP, 90 Merrick Avenue, East Meadow, NY 11554, Attorneys for Richard J. McCord, as Trustee for the Estate of U.S.A. United Fleet, Inc.

Michael T. Conway, Esq., Shipman & Goodwin LLP, 400 Park Avenue, 5th Floor, New York, NY 10022, Attorneys for Ally Financial, Inc.

MEMORANDUM DECISION ON CHAPTER 7 TRUSTEE'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT

HONORABLE ELIZABETH S. STONG, UNITED STATES BANKRUPTCY JUDGE

Introduction

More than five years ago, on July 6, 2011, USA United Fleet, Inc. and several affiliated companies filed for protection under Chapter 11 of the Bankruptcy Code. These companies were in the business of providing bus transportation to children with special needs attending New York City public schools. Soon after the petition date, it became clear that the Debtors' business activities were tainted by many problems, including gross mismanagement, fiduciary failings, and the inability successfully to reorganize, and some three weeks later, on July 29, 2011, these cases were converted to cases under Chapter 7 of the Bankruptcy Code. The Court found that there was a compelling need for disinterested stewardship, and a Chapter 7 Trustee, Richard McCord, was appointed to administer the Debtors' estates.

This adversary proceeding was commenced by the Trustee some two years later, on June 17, 2013, against Ally Financial, Inc. (“Ally”). By this action, the Trustee seeks to recover several transfers allegedly made by or on behalf of USA United Fleet, Inc. or its affiliates (“USA United” or the “Debtors”) to Ally.

As the record makes clear, the transfers at issue may be viewed in two distinct categories, and raise two distinct sets of issues. The first set of transfers that the Trustee seeks to recover are twenty-two payments in the aggregate amount of $29,423.73, made between June 17, 2008 and August 26, 2010, from several debtor entities to Ally in connection with a vehicle purchase financed by Ally (the “Car Payment Transfers”). The second transfer that the Trustee seeks to recover is a single wire transfer in the amount of $1,311,000 made on May 31, 2011 from the debtor Shoreline Merge, Inc. (“Shoreline Merge”) to Ally (the “May 2011 Transfer” and together with the Car Payment Transfers, the “Transfers”).

The Trustee seeks to avoid and recover these Transfers for the benefit of the Chapter 7 estate under New York's Debtor and Creditor Law (“NY DCL”) Sections 273, 274, 275 and 276, and Bankruptcy Code Sections 544, 547, 548, 550 and 551. If the Trustee prevails under NY DCL Section 276, he also seeks attorneys' fees under NY DCL Section 276–a. The Trustee also seeks to recover the Transfers under common law principles of unjust enrichment. And the Trustee seeks to disallow any claim that Ally has filed or may file against the estate under Bankruptcy Code Section 502(d), to the extent that Ally has not paid the amount of the Transfers that are recoverable under Bankruptcy Code Section 550 or avoidable under Bankruptcy Code Sections 544, 547, and 548.

Before the Court are the Trustee's motion for summary judgment and Ally's cross-motion for partial summary judgment.

The Trustee seeks summary judgment against Ally on each of the ten claims asserted in the Complaint, on grounds that there is no genuine dispute as to a material fact as to each element of these claims and that as a result, he is entitled to the entry of judgment and recovery of the Transfers as a matter of law.

Ally opposes summary judgment, and seeks partial summary judgment against the Trustee with respect to each of the claims that seeks recovery of the May 2011 Transfer on grounds, among others, that the funds that were transferred were never USA United's property. Ally also argues that there are genuine disputes as to material facts with respect to the Trustee's claims to recover the Car Payment Transfers, and requests additional discovery and a trial on those claims. And finally, if the Court denies Ally's Cross-Motion for summary judgment with respect to the May 2011 Transfer or grants summary judgment to the Trustee with respect to the Car Payment Transfers, Ally requests permission to file a third-party complaint against the parties involved in, and who benefitted from, these transfers.

Jurisdiction

This Court has jurisdiction over this proceeding pursuant to Judiciary Code Sections 157(b)(1) and 1334(b), and the Standing Order of Reference dated August 28, 1986, as amended by the Order dated December 5, 2012, of the United States District Court for the Eastern District of New York. In addition, this Court may adjudicate these claims to final judgment to the extent that they are core proceedings pursuant to Judiciary Code Section 157(b), and to the extent that they are not core proceedings, pursuant to Judiciary Code Section 157(c), because the parties have stated their consent to this Court entering a final judgment. See Wellness Int'l Network, Ltd. v. Sharif , –––U.S. ––––, 135 S.Ct. 1932, 1940, 191 L.Ed.2d 911 (2015) (holding that in a non-core proceeding, a bankruptcy court may enter final orders “with the consent of all the parties to the proceeding.”).

Background

The USA United bankruptcy cases have an extensive history in this Court, and some background information is helpful to understanding the context of this adversary proceeding and these summary judgment motions. The following procedural history is drawn from the extensive summary judgment record and the Court's docket.

A. The USA United Bankruptcy Cases

On July 6, 2011, USA United Fleet, Inc., USA United Holdings Inc., United Fleet, Inc., United Tom Tom Transportation Inc., USA United Bus Express Inc., USA United Transit Inc., Tom Tom Escorts Only, Inc., and Shoreline Transit Inc. filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. On July 29, 2011, the Court converted each of the USA United Debtors' Chapter 11 cases to cases under Chapter 7, and Mr. McCord was appointed as interim Chapter 7 Trustee.

On August 11, 2011, just over a month after the USA United bankruptcy cases were filed and two weeks after they were converted to cases under Chapter 11, several additional entities—Northeast Transit, Inc., Northeast Buses, Inc., and Northern Transit, Inc. (the “Northeast Debtors”)—filed voluntary Chapter 7 bankruptcy cases. On October 28, 2011, the Court ordered the USA United Debtors' and Northeast Debtors' cases to be jointly administered. And finally, on June 6, 2013, Trinity Account Management, Inc. (“Trinity”) was substantively consolidated with the Chapter 7 case of Shoreline Transit Inc., one of the USA United Debtors, effective as of July 6, 2011.

B. This Adversary Proceeding

On June 17, 2013, the Trustee commenced this adversary proceeding against Ally by filing a complaint.

The Trustee alleges that before these bankruptcy cases were filed, the USA United Debtors were experiencing liquidity shortfalls and owed significant amounts in unpaid federal and state income and other taxes to the Internal Revenue Service and the New York State Department of Taxation and Finance. The Trustee also alleges that during this same period, and during the time when each of the transfers at issue was made, the Debtors could not pay their debts as they came due, and were either insolvent at the time of these transfers or rendered insolvent as a result of the transfers.

The Transfers at Issue

The Trustee alleges that on or about May 31, 2011, within 90 days of the USA United petition date of July 6, 2011, the Debtors caused the transfer by check or wire transfer, to or for the benefit of Ally, of funds in the aggregate amount of $1,311,000—the May 2011 Transfer.

In addition, the Trustee alleges that between August 17, 2009 and May 31, 2011, within two years of the USA United petition date, the Debtors caused the transfer by check, wire transfer or electronic web payment, to or for the benefit of Ally, of funds in the aggregate amount of $1,323,383.03 (the “Two-Year Transfers”). The Complaint states that these Two-Year Transfers were made on account of debts or obligations owed by insiders of the Debtors, including certain principals and employees of the Debtors and their family members, and identified in the Complaint as Dana Pristavec, Dennis Scialpi, Thomas Scialpi, William Moran, and Laraine Lia, also known as Laraine Castellano (the “Insiders”), and not on account of obligations of the Debtors.

The Trustee also alleges that between June 17, 2008 and May 31, 2011, the Debtors or the Insiders caused the transfer by check or electronic web payment, to or for the benefit of Ally, of funds in the aggregate amount of $1,340,423.73. Here again, the Complaint states that these transfers were made on account of insider debts or obligations, and not on account of obligations of the Debtors.

The total amount that the Trustee seeks to recover, comprised of the May 2011 Transfer and the Car Payment Transfers, is $1,340,423.73.

And finally, the Trustee alleges that the each of the transfers to or for the benefit of Ally that he seeks to recover was made without fair consideration, diminished the bankruptcy estates which were created upon the filing of the Debtors' bankruptcy petitions, and conferred no benefit upon the Debtors.

The Claims for Relief

In his First Claim for Relief, asserted under Bankruptcy Code Sections 547 and 550, the Trustee alleges that to the extent that the May 2011 Transfer was made on account of an antecedent debt owed by the Debtors to...