Taunt v. Digital Image, LLC (In re Glieberman)

In the matter of: Bernard Sloane Glieberman, Debtor.

Charles J. Taunt, Trustee, Plaintiff/Counter-Defendant, v. Digital Image, LLC, a Michigan limited liability company; Lontray Enterprises, LLC,

a Michigan limited liability company, Defendants/Counter-Plaintiffs.

Case No. 15-55996-MBM

Adv. Proc. No. 15-05382

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION - DETROIT

February 14, 2018

Chapter 11

Hon. Marci B. McIvor

OPINION DENYING DEFENDANTS' MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS

The matter before the Court is Defendants' Motion for Partial Judgment on the Pleadings. For the following reasons, this Court DENIES Defendants' Motion, GRANTS judgment to Plaintiff on Counts I, II, and V of the Trustee's First Amended Complaint, DISMISSES Counts III, IV, VI, VII, and VIII of the Trustee's First Amended Complaint, and DISMISSES Defendants' counterclaim.

I.FACTUAL BACKGROUND

In 1999, Bernard Glieberman (hereinafter "Glieberman" or "Debtor") formed a limited liability corporation named Lontray Enterprises, LLC ("Lontray"). At that time, Glieberman and his wife each owned a 1% membership interest in Lontray. Their son, Lonie Glieberman, and their daughter, Tracey Katzen, each owned a 49% membership interest in Lontray. At all times relevant to this Opinion, Glieberman remained the "Manager" of Lontray and retained complete financial control over Lontray. (Opinion and Order #1 ("O&O #1"), Dist. Ct. Dkt. No. 395, at 5).¹

At some point prior to June 8, 2001, Glieberman started a company called Digital Image, Inc. Glieberman was the 100% owner of Digital Image, Inc. (Federal District Court Case No. 13-mc-50297: Report & Recommendation ("R&R"), Dist. Ct. Dkt. No. 340, at 2; "Joint Statement", Dist. Ct. Dkt. No. 162, at ¶4; O&O #1, Dist. Ct. Dkt. No. 395). Digital Image, Inc. operated as "a post-production company working with advertising agencies to create advertisements, among other things." (Joint Statement, Dist. Ct. Dkt. No. 162, ¶3). The company formerly known as Digital Image, Inc. is still operating today, although the name under which the company operates is not in the record. The company allegedly generates profits in excess of $300,000 per year and was appraised four or five years ago at a value of $500,000. (Bankruptcy Case No. 15-55996, Docket No. 319, Transcript of 2/14/17 hg, at 16-18).

On June 8, 2001, Glieberman established the Bernard Glieberman Revocable Trust. (Joint Statement, Dist. Ct. Dkt. No. 162, ¶ 1).

At some point in 2008, Glieberman directed Frank Elias (presumably Glieberman's attorney) to draft a "Stock Pledge Agreement". The Stock Pledge Agreement was an agreementbetween Bernard Glieberman (as shareholder of Digital Image, Inc.), Tay Land, LLC (as borrower), Lontray Enterprises, LLC (as lender) and Frank Elias (as pledge holder). The Stock Pledge Agreement contained a provision which stated:

b. Borrower has requested that Lender subordinate its interest in certain collateral provided to secure the Note and in exchange, Lender is requiring that Borrower provide additional security for the loan at this time in the form of a pledge of the stock ("Stock") of Shareholder in Digital Image, Inc.

The Stock Pledge Agreement is undated and is signed by Bernard Glieberman as "Manager" of the lender Lontray, "Manager" of the borrower Tay Land, LLC, and "Shareholder" of Digital Image, Inc. (Lontray's Proof of Claim in Bankruptcy Case #15-55996 (Claim #15), attachment 5; Opinion & Order #2 (O&O #2), Dist. Ct. Dkt. No. 396, at 13).

Attached to the Stock Pledge Agreement is a document titled "Assignment Separate from Security." (Lontray's Proof of Claim (Claim #15), attachment 5). The Assignment purports to assign all of Glieberman's shares of Digital Image, Inc. stock to an unnamed assignee. The document was signed by Bernard Glieberman but was undated. (Id.).

On June 17, 2008, a UCC Financing Statement was filed stating that Lontray Enterprises, LLC was a creditor of Bernard Glieberman. The collateral was listed as "[a] pledge of Bernard Glieberman's stock in Digital Image, Inc." (Lontray's Proof of Claim (Claim #15), attachment 5).

On October 29, 2008, Glieberman signed a document called "consent of shareholder" that approved changing the name of Digital Image, Inc. to Digim, Inc. (R&R, Dist. Ct. Dkt. No. 340, at 4). That document stated that Glieberman was 100% shareholder of Digital Image, Inc. (Id.).

On December 31, 2008, Glieberman executed a document called "Assignment Separate from Certificate" which purported to assign and transfer all of the shares of the Digim, Inc. stock (hereinafter, the "Digim stock") to a newly created entity called Digital Image, LLC. (Id.; Joint Statement, Dist. Ct. Dkt. No. 162, ¶ 39).

On December 31, 2008, Glieberman, as "Manager" of Digital Image, LLC and as "Manager" of Lontray executed an operating agreement which provided that Lontray was now the sole member of Digital Image, LLC. (Joint Statement, Dist. Ct. Dkt. No. 162, ¶ 43, O&O#1, Dist. Ct. Dkt. No. 395, at 7). The operating agreement appointed Glieberman as vice president, treasurer and secretary of Digital Image, LLC. (O&O#1, Dist. Ct. Dkt. No. 395, at 7).

Digim, Inc. filed annual reports with the State of Michigan from 2009 through 2014. Bernard Glieberman signed all the annual reports as either "owner" or "president". (R&R, Dist. Ct. Dkt. No. 340, at 4)

On March 26, 2012, BR North 223, LLC ("BR North") obtained a default judgment against Bernard Glieberman and his personal trust, the Bernard Glieberman Revocable Living Trust, in the United States District Court for the Eastern District of California (the "California Judgment"). (O&O#2, Dist. Ct. Dkt. No. 396, at 2). The Judgment was in the amount of $81,170,331.74 plus attorneys' fees and post-judgment interest. (Id.).

On February 26, 2013, BR North registered the California Judgment in the United States District Court for the Eastern District of Michigan, under the caption of BR North 223, LCC v. Glieberman et. al., Case No. 13-mc-50297 (hereinafter referred to as the "Glieberman Collection Action"). (R&R, Dist. Ct. Dkt. No. 340, at 1). The purpose of the Glieberman Collection Action was to collect on BR North's Judgment against Glieberman.

On March 3, 2014, BR North filed a "Joint Creditor's Emergency Motion to Seize and Transfer all Shares of Certain Stock Held By Debtor [Bernard Glieberman] in Aid of Collection of Judgment" (the "Turnover Motion"). (O&O#2, Dist. Ct. Dkt. No. 396, at 2-3). The Motion requested that Bernard Glieberman turn over all shares of the Digim stock to BR North in partial satisfaction of its Judgment against Glieberman. (Id. at 3-4). On March 10, 2014, Federal District Court Judge Paul Borman referred this Motion to Magistrate Judge R. Steven Whalen for hearing and determination under 28 U.S.C. § 636(b)(1)(A). (O&O#1, Dist. Ct. Dkt. No. 395, at 4; Order of Referral, Dist. Ct. Dkt. No. 153).

On June 11, 2014, Glieberman filed a Certificate of Dissolution of Digim, Inc. with the State of Michigan Department of Licensing and Regulatory Affairs. (O&O#1, Dist. Ct. Dkt. No. 395, at 8; Joint Statement, ¶ 50).

On August 5, 2014, the Magistrate Judge conducted an evidentiary hearing on BR North's Turnover Motion. At the August 5, 2014 evidentiary hearing, Magistrate Judge Whalen recognized that "[t]he issue in this case is narrow and it has to do with the ownership, I guess, status of Digim, Inc."(O&O#2, Dist. Ct. Dkt. No. 396 at 3, citing Dist. Ct. Dkt. No. 168, Transcript of Hg, at 9).

During the evidentiary hearing, Glieberman's counsel raised an argument that BR North's motion to seize the Digim stock sought relief that the Court could not grant because BR North's requested relief would impair Lontray's claimed interest in the Digim stock. Glieberman's counsel argued that, "Lontray is not a party to this lawsuit, Your Honor. And pursuant to M.C.L. §600.6128 until Lontray is a party and given the right to a jury trial, it cannot be deprived of its claimed ownership in the Digim stock." (O&O#2, Dist. Ct. Dkt. No. 396, at 4;Dist. Ct. Dkt. No. 168, Transcript of Hg, at 17.) After the conclusion of the evidentiary hearing, the parties filed supplemental briefs. (Dist. Ct. Dkt. Nos. 171, 172, 175.) In its supplemental response brief, the Judgment Debtors (Glieberman and his Trust) argued that Lontray must be joined as a party pursuant to Mich. Comp. Laws § 600.6128 because Lontray claimed ownership of "all the assets of Digim, including the Stock by virtue of its ownership of Digital Image, LLC" and that Lontray "would have the right to a trial by jury." (O&O#2, Dist. Ct. Dkt. No. 396, at 4; Dist. Ct. Dkt. No. 172, at 29-30.) BR North responded in its supplemental reply brief that Lontray did not own the Digim stock and, therefore, nothing was being taken from Lontray. BR North also argued that Lontray had actual notice of the Glieberman Collection Action and that the fact "that it has failed to intervene illustrates just how disingenuous this argument is." (O&O#2, Dist. Ct. Dkt. No. 396, at 4; Dist. Ct. Dkt. No. 175, at 9-10.)

On November 24, 2014, BR North filed a six count complaint against Bernard Glieberman, Sandra Glieberman, Lonie Glieberman, Lindsey Bobay Glieberman, Jeffrey Katzen, Tracey Katzen, Black Bear, Inc., Lontray Enterprises, LLC, Digim Inc. f/k/a Digital Image, Inc. and Digital Image, LLC in Federal District Court for the Eastern District of Michigan (Case No. 14-cv-14488, the "Fraudulent Transfer Action"). The first three counts of the complaint (hereinafter referred to as the "Fraudulent Transfer Action") alleged that Glieberman had fraudulently transferred the assets of Black Bear, Inc., a ski resort operating as Mt. Bohemia located in Michigan's Upper Peninsula, to his son Lonie Glieberman. In Counts IV-VI of the Complaint, BR North alleged that Glieberman's transfer of his shares in Digital Image, Inc. to Digim, Inc. and then to Digital Image, LLC, and the transfer of Glieberman's membership...