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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 UNITED STATES DISTRICT COURT.

         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 4; DE 16). For the reasons stated below, Clemmens' objections are overruled. Likewise, Caruso's motion for partial summary judgment is granted, (DE 3); Clemmens' first motion for summary judgment, (DE 1), is granted; and Clemmens' second motion for summary judgment, (DE 2), is denied.

         I. FACTUAL BACKGROUND

         The parties stipulate the following facts. (DE 4 at 3-6).

         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.

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

         In 2009, Revstone transferred $20, 000.00 to Clemmens via wire to pay for thoroughbred horses. The wire transfer indicates that the beneficiary of the transfer was the “Nelson Clemmens Toroughbred [sic] Account.” This is known as the “Horse Transfer.” (DE 3 at 69).

         In 2010, Revstone twice transferred $5, 000.00 to Clemmens via wire for trustee's fees (totaling $10, 000.00). Both transfers include the descriptor “DESC TRUSTEE.” These are known as the “Trustee Transfers.” Id.

         In 2011, Revstone made two wire transfers to Stone Spire, LLC, for $16, 000.00 and $15, 000.00 (totaling $31, 000.00). Stone Spire, LLC, is owned in equal parts by Clemmens, Hofmeister, [2] and Leo Govoni. These are known as the “Stone Spire Transfers.” Id.

         From 2010 through 2011, Clemmens allegedly obtained loans for Revstone and its affiliates totaling over $23 million. During this time, Revstone made eight wire transfers to Clemmens, totaling $675, 000.00. (DE 4 at 4-5). Three of these transfers contained descriptors indicating that they were likely finder's fees paid to Clemmens for his service in obtaining the loans. These are known as the “Finder's Fee Transfers.” (Id.; DE 3 at 69-70).

         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 payments to Clemmens as fraudulent transfers. In 2016, after resolving some procedural issues, this matter was transferred to the Eastern District of Kentucky. (DE 4 at 5-6).

         The parties filed cross motions for summary judgment. (DE 1; DE 2; DE 3). Caruso, the Bankruptcy Trustee for the Revstone/Spara Litigation Trust, seeks summary judgment against Clemmens for the recovery of the Horse and Trustee Transfers based on a theory of constructive fraud pursuant to 11 U.S.C. § 544 and 550, and Del. Cod. Ann. 6 §§ 1301-12. (DE 3 at 3 ⁋ 1). Caruso also seeks judgment on the matter of Revstone's insolvency. Id. Clemmens seeks summary judgment for the dismissal of Caruso's claims for the recovery of the Stone Spire Transfers. (DE 1 at 3-4). Clemmens also seeks summary judgment for Caruso's claims for the recovery of the Finder's Fee Transfers. (DE 2 at 2).

         The Bankruptcy Court held that Caruso's motion, (DE 3), should be granted, enabling the avoidance and recovery of the Horse and Trustee Transfers from Clemmens. (DE 4 at 4). In addition, the Bankruptcy Court held that Clemmens' motion, (DE 1), should granted, dismissing Caruso's claims against Clemmens for the recovery of the Stone Spire Transfers. (DE 4 at 4). Finally, the Bankruptcy Court held that Caruso is entitled to judgment as a matter of law on Revstone's insolvency, (DE 3), and that there are questions of material facts precluding judgment as a matter of law as to the Finder's Fee Transfers, (DE 2; DE 4 at 4). Clemmens presents nine (9) objections to the Bankruptcy Court's determinations. (DE 16).

         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 ...


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