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Caruso v. Clemmens

United States District Court, E.D. Kentucky, Central Division, Lexington

November 5, 2018

FRED C. CARUSO, Plaintiff,
v.
NELSON E. CLEMMENS, Defendant.

          MEMORANDUM OPINION AND ORDER

          KAREN K. CALDWELL, CHIEF JUDGE

         This matter is before the Court on Clemmens' objections to the Bankruptcy Judge's proposed findings of fact and conclusions of law in this case.[1] (DE 3; DE 14). For the reasons stated below, Clemmens' objections are overruled. Likewise, Caruso's motion for summary judgment is granted, (DE 2), and Clemmens' motion for summary judgment, (DE 1), is denied.

         I. FACTUAL BACKGROUND

         The parties stipulate the following facts. (DE 3 at 2-5).

         Revstone Industries, LLC, an automobile business and Delaware LLC, was founded in 2008 by and among three Children's Trusts, which were established for the benefit of the children of Revstone's chairman and sole board member: George S. Hofmeister. In 2011, the Children's Trusts assigned their membership interests in Revstone to Ascalon Enterprises, LLC, for which Hofmeister was also the chairman and sole member the board. Id. at 3. Revstone-founded by Hofmeister's Childrens' Trusts, and owned by Hofmeister's Ascalon Enterprises-operated its business through the direct or indirect ownership and management of approximately thirty-two (32) subsidiary entities. Id. at 2.

         Clemmens met Hofmeister in 1986. In 2007, Hofmeister later selected Clemmens to serve as the trustee of Hofmeister's family trusts. Id. at 3.

         In 2009, Clemmens had a personal account with Keeneland, which allowed him to bid on and purchase horses at Keeneland's auctions. Clemmens authorized Hofmeister to use the account. In 2009, Hofmeister used the account to purchase $268, 765.00 in thoroughbreds. The thoroughbreds were shipped to Hofmeister's farm, but Clemmens was liable for the debt, for which Clemmens received the bills in November and December 2009. Clemmens sent the bills to Hofmeister requesting payment for the debt. Id. at 3-4.

         In January 2010, Revstone issued a check to Keeneland in the amount of $269, 026.21. Id. For purposes of this proceeding, this transaction is known as the “Keeneland Transfer.” In December 2012, Revstone filed for Chapter 11 relief in the United States Bankruptcy Court for the District of Delaware. In 2014, Revstone filed a complaint in that Delaware court seeking to avoid and recover its payment to Keeneland for the personal benefit of Clemmens as a fraudulent transfer. In 2015, after resolving some procedural issues, the matter was transferred to the Eastern District of Kentucky. In 2017, Keeneland agreed to pay Caruso $160, 000.00, in exchange for being dismissed as a defendant, reducing Clemmens' potential aggregate liability to $109, 026.21. Id. at 4-5.

         Clemmens and Caruso then filed cross motions for summary judgment. (DE 1; DE 2). Caruso, the Bankruptcy Trustee for the Revstone/Spara Litigation Trust, seeks summary judgment against Clemmens to recover $109, 026.21 in funds plus interest based on a theory of constructively fraudulent transfer pursuant to 11 U.S.C. § 544 and 550, and Del. Cod. Ann. 6 §§ 1301-12. (DE 2). Clemmens seeks summary judgment asserting Caruso cannot show Clemmens is the initial transferee or received a benefit from the transfer pursuant to 11 U.S.C. § 550(a)(1). The Bankruptcy Court held that Caruso's motion should be granted and Clemmens' motion should be denied. (DE 3). Clemmens presents nine (9) objections to the Bankruptcy Court's determinations. (DE 14).

         II. STANDARDS OF REVIEW

         The Court reviews de novo the portions of the Bankruptcy Court's decision to which Clemmens objects. Fed.R.Bankr.P. 9033(d). The Court may accept, reject, or modify the Bankruptcy Court's proposed findings of fact and conclusions of law as required. In re Sahuaro Petroleum & Asphalt Co., 170 B.R. 689 (C.D. Cal. 1994), aff'd 89 F.3d 846 (9th Cir. 1996), cert. denied 519 U.S. 992 (1996). The Bankruptcy Court opinion is to be reviewed with no deference, presumption of validity or correctness. Waldman v. Stone, 599 Fed.Appx. 569, 572 (6th Cir. 2015) (citing Perry v. Simplicity Eng'g, 900 F.2d 963, 966 (6th Cir.1990)). Nonetheless, the Court is under no obligation to expand the Record beyond that presented. Fed.R.Bankr.P. 9033(d); Waldman, 599 Fed.Appx. at 572 (citing Deutsche Bank Nat'l Trust Co. v. Tucker, 621 F.3d 460, 464 (6th Cir.2010)).

         On a motion for summary judgment, the movant has the burden of showing that there are no genuine issues of material fact in dispute. The evidence, together with all permissible inferences, is construed in the light most favorable to the opposing party. Fed. R. Bank. P. 7056 (incorporating Fed.R.Civ.P. 56); see Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986). Once the moving party has made this initial showing, the opposing party must come forward with affirmative evidence sufficient “to permit a reasonable jury to find in that party's favor.” Van Gorder v. Grand Trunk W. R.R., Inc., 509 F.3d 265, 268 (6th Cir. 2007) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)). Summary judgment must be entered if, “after adequate opportunity for discovery, ” a party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Tolton v. American Biodyne, Inc., 48 F.3d 937, 940 (6th Cir. 1995) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (internal quotation marks omitted)).

         III. ANALYSIS

         Caruso seeks to recover pursuant to 11 U.S.C. § 544 and Del. Code. Ann. 6 § 1305, which is substantially the same as 11 U.S.C. § 548. To prevail, Caruso must show by a preponderance of the evidence that (1) Revstone made a transfer for less than reasonably equivalent value; and (2) Revstone was insolvent or became insolvent due to the transfer, engaged or about to engage in a business or transaction for which the remaining assets were unreasonably small in relation to the business or transaction, or intended to incur, or believed or reasonably should have believed that it would incur, debts beyond its ability to pay. See Miller v. Greenwich Capital Fin. Prods., Inc. (In re Am. Bus. Fin. Servs., Inc.), 471 B.R. 354, 378 n.17 (Bankr. D. Del. 2012); In re ...


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