Spero v. Cmty. Chevrolet, Inc. (In re Grooms)

572 B.R. 559

IN RE: Douglas A. GROOMS, Debtor

Joseph B. Spero, Trustee, Plaintiff

v.Community Chevrolet, Inc., and the United States of America, Defendants

Case No. 16–10030–TPA

Adv. No. 16–1041–TPA

United States Bankruptcy Court, W.D. Pennsylvania.

Signed August 22, 2017

John C. Melaragno, Esq. for the Trustee/Plaintiff

John Nagurney, Esq. for Defendant Community Chevrolet, Inc.

Jill Locnikar, Esq. for Defendant United States of America

MEMORANDUM OPINION

Thomas P. Agresti, Judge, United States Bankruptcy Court

This is a preference action filed by the Chapter 7 Trustee, Joseph B. Spero ("Trustee"), seeking to recover a $100,000 "criminal restitution" payment made pre-petition by the Debtor, Douglas Grooms ("Grooms"), to an automobile dealership operating under the name of Community Chevrolet ("CC"). The United States of America ("U.S.") was not originally a party to the action but upon motion was permitted to intervene as a defendant based on its interest in the subject matter of the action since the "restitution" payment at issue was made in the context of a federal criminal charge against Grooms.

Following the completion of discovery, both the Trustee and the U.S., respectively, filed Motions for Summary Judgment (individually, "Trustee Motion" and "U.S. Motion," and collectively "Motions"). See , Doc. Nos. 29, 46. The Motions have been briefed by all Parties and argument on them was heard in March, 2017. Following the argument, the Court expressed doubt as to whether it could grant either of the Motions based on the record presented, suggesting that it would be helpful to have before it some additional evidence related to the circumstances by which the restitution payment came to be made. The Parties disagreed, indicating that even if the case were to proceed to trial they would not anticipate presenting any further evidence beyond what was already before the Court. All Parties urged that the case be decided on summary judgment.

The Court, acknowledging that it would be a waste of time to schedule a trial if no further evidence would be presented, agreed to make every effort to decide the case on summary judgment. In order to assure that the Parties had a full opportunity to consider the situation, the Court issued an Order on March 14, 2017, at Doc. No. 73, advising them that if they wished to present any further evidence they should timely notify the Court of their intent or it would proceed to decide the Motions based solely on the existing record. The U.S. and CC both affirmatively filed responses stating that neither planned to present any further evidence. The Trustee did not file any response, which, according to the March 14^th Order, was tantamount to indicating an intent to proceed solely on the current record. Thus, the Motions are now ripe for decision.¹ For the reasons which follow, the Court will grant the Trustee Motion and deny the U.S. Motion.

FACTS

Grooms was employed as the general manager at CC in Meadville, PA, from 2008 through 2013. During that time he engaged in a scheme to embezzle money from CC by creating phony invoices from an entity he called "Bullseye Marketing," purportedly created for providing non-existent marketing services to the dealership and then having its invoices paid by CC. Grooms operated with the help of a co-conspirator in another state who received the payments, took a cut for his services, and then forwarded the remainder to Grooms. Over the course of the scheme Grooms stole approximately $485,000 from CC in this manner. The owner of CC, Robert Kongelka ("Kongelka"), was not actively involved in the day-to-day running of the business, relying on Grooms to do so. This likely explains why Grooms was able to get away with his scheme for so long a time.

Grooms was fired from CC in early 2014 for some unrelated misconduct. Following his departure, CC personnel and the company's attorney reviewed the Bullseye Marketing account and it came under suspicion. CC contacted the Postal Inspection Service with its suspicions, and the matter was eventually referred to the U.S. Attorney's office for the Western District of Pennsylvania for further investigation and possible prosecution. On June 16, 2015, Kongelka was informed by the U.S. Attorney that Grooms had admitted to embezzling funds from CC and that he intended to make full restitution.

The details following Grooms' admission of wrongdoing are not as clear as they could be. Apparently Grooms and his criminal attorney, William Weichler ("Weichler"), engaged in discussions with WDPA Asst. U.S. Attorney Christian Trabold ("Trabold") about a possible plea agreement even before any criminal charges were filed. Kongelka was not involved in these discussions. At some point Kongelka was informed by the U.S. Attorney that an agreement had been reached for Grooms to make "full restitution" to CC prior to any guilty plea. However, after the plea agreement was struck, apparently Grooms could not come up with the full amount of restitution in advance and convinced the U.S. Attorney to change the agreement to allow Grooms to make at least a $100,000 "payment in restitution" to CC prior to pleading guilty, with the balance to be subsequently paid.

That plea agreement offer was memorialized in writing in a letter dated November 12, 2015, from the U.S. Attorney to Weichler and included lines for signatures by Grooms and Weichler. This letter appears to be only a first or discussion draft of an agreement because: (1) there are indications that it was based on an incomplete form letter (e.g., "Enter He/She" and "Enter Opposing Counsel's Name" appear in several places); (2) the letter refers to the criminal case only as "United States of America v. Douglas A. Grooms, Criminal No. 15–____ Erie" apparently because no criminal charges had actually yet been filed against Grooms; and, (3) the letter is unsigned by anyone from either side. Trabold also e-mailed a copy of the November 12^th letter to CC's attorney, John Nagurney ("Nagurney").

Grooms obtained the money that was used to make the initial $100,000 restitution payment from two loans totaling $50,000 that he got from Erie Bank² in late October 2015 and a bonus advance of $80,000 (before tax withholding) that he was able to obtain from Rick Weaver Buick where he was working at the time. As a result, a $100,000 payment was sent to Kongelka on November 18, 2015 by Weichler and was deposited into a CC bank account. Though the particulars are unclear from the record, it would appear that Grooms had previously either directly or indirectly deposited funds into Weichler's firm, which had been placed in the attorney's IOLTA account. This appears to be evident because the payment was by check dated November 18, 2015, payable to CC, and thereafter drawn on the firm's IOLTA account. The cover letter from Weichler notes that this was the "commencement" of restitution, and that Grooms intended to make further payments until restitution was made in full. Trabold was copied on the letter "to advise him that this payment was made."

A new version of the plea agreement letter was prepared on December 7, 2015. It is in all substantial respects identical to the November 12^th letter, except that it has been cleaned up to remove the "form letter" indications and it appears to have been signed by the U.S. Attorney on the date of the letter. The criminal case number was still left blank in the typeface version of the letter, but is handwritten in. That must have been done sometime later because the criminal charge against Grooms was not actually filed until December 15, 2015, by the issuance of an Information charging him with one count of conspiracy to commit wire fraud in violation of 18 U.S.C. § 1349. Weichler and Grooms must have seen the Information before it was filed because the plea agreement letter refers to a draft copy of an Information involving that same offense.³

Grooms filed his bankruptcy petition on January 15, 2016. The Trustee was appointed on January 20, 2016, and the § 341 Meeting of Creditors was conducted on February 17, 2016. A few days after the 341 Meeting, the Trustee made a demand on CC for a return of the $100,000 payment on the basis that it constituted an avoidable preference. A meeting occurred between Kongelka, Nagurney and the Trustee to discuss the matter but no resolution was reached.

On February 29, 2016, the Hon. David S. Cercone, District Court Judge for the Western District of PA, held a "waiver of indictment and guilty plea" hearing in the Grooms criminal case. The Parties reported to him that there was a plea agreement with a stipulated sentence and he explained to Grooms that he (the judge) was not bound to agree with the stipulated sentence, but that if he did not do so, Grooms could withdraw his guilty plea. The plea agreement was entered into the record as an exhibit and the basic terms of the plea agreement were described by Trabold, including the restitution component. The fact that Grooms had already made a $100,000 payment to CC was also disclosed. Grooms confirmed that he had reached the plea agreement freely and voluntarily. He then pleaded guilty to the charge in the Information. Judge Cercone "preliminarily" accepted the plea and set a sentencing date of July 11, 2016 so that a pre-sentence investigation could be done. The December 7, 2015, plea agreement letter discussed above indicates that it was signed by Grooms on February 29, 2016, and there is a statement in the transcript by Judge Cercone to Grooms signing a document in his presence at the hearing "reflecting his plea of guilty," which may have been a reference to this letter.

The Grooms sentencing hearing was held on July 11, 2016, as had been scheduled. Judge Cercone began by saying that he was accepting Grooms' guilty plea, an apparent reference to the fact that he had only preliminarily accepted it at the February 29^th hearing. He also sentenced Grooms to 24 months incarceration, two years supervised...