Eerie World Entertainment, L.L.C. v. Bergrin

Full title: EERIE WORLD ENTERTAINMENT, L.L.C., Debtor/Plaintiff, v. RONALD A. BERGRIN…

Court: United States District Court, S.D. New York

Date published: Nov 23, 2004

02 Civ. 6513 (SAS) (S.D.N.Y. Nov. 23, 2004)

Opinion

02 Civ. 6513 (SAS).

November 23, 2004

Eric Wainer, Esq., Gazes Associates, L.L.P., New York, New York, for Plaintiff.

Ronald A. Bergrin, New York, New York, Defendant (Pro Se).

OPINION AND ORDER

SHIRA SCHEINDLIN, District Judge

I. INTRODUCTION

This is an action brought by the debtor, Eerie World Entertainment, L.L.C. ("Eerie"), to avoid and recover an allegedly fraudulent transfer, which occurred ten months prior to the filing of the debtor's bankruptcy petition. The defendant, Ronald Bergrin, now moves for summary judgment dismissing Eerie's claim. For the following reasons, Bergrin's motion is granted.

II. BACKGROUND ¹

1 The following facts are taken from the Complaint and the parties' Rule 56.1 statements. Unless otherwise indicated, the facts are undisputed.

In November 1997, Bergrin received stock in Eerie, a theme restaurant company, in return for brokerage services rendered in connection with Eerie's creation.² Bergrin later sold his entire interest in Eerie back to the Company for $1,750,000, pursuant to a Retirement and Release Agreement entered into on October 13, 1999.³ Ten months after the transfer, on August 11, 2000, Eerie filed for Chapter 11 bankruptcy in the Bankruptcy Court for the Southern District of New York.⁴

2 Defendant's Statement of Material Facts Pursuant to Local Rule 56.1 ("Def. 56.1") ¶¶ 1-5.

3 See id. ¶¶ 13-15.

4 See id.

On September 22, 2000, Eerie sued Bergrin in the Bankruptcy Court, asserting claims for avoidance under section 544(b) of Bankruptcy Code⁵ and section 18-607 of the Delaware Limited Liability Company Act,⁶ and for fraudulent conveyance under section 548 of the Bankruptcy Code.⁷ Eerie contends that the company was insolvent when it made the redemption payment, or that the payment rendered it insolvent, thereby making the payment voidable as a constructively fraudulent transfer. Bergrin now moves for summary judgment on the ground, inter alia, that Eerie has failed to raise a genuine issue of fact as to insolvency.⁸

5 See 11 U.S.C. § 544(b).

6 See 6 Del. C. § 18-607.

7 See 11 U.S.C. § 548.

8 Bergrin also moves for summary judgment on the basis of an "earmarking" or "mere conduit" defense. Bergrin characterizes the disputed transaction as one in which Eerie's Chairman, James Burke, purchased Bergrin's shares with his personal funds, with Eerie acting as a mere conduit for the exchange. Eerie cross-moves for summary judgment dismissing this defense. Because Eerie cannot withstand summary judgment on the issue of insolvency, I do not reach this argument.

III. LEGAL STANDARD

Summary judgment is appropriate if the evidence of record "show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."⁹ "An issue of fact is genuine `if the evidence is such that a jury could return a verdict for the nonmoving party.'"<sup>10</sup> "A fact is material for these purposes if it `might affect the outcome of the suit under the governing law.'"¹¹

9 Fed.R.Civ.P. 56(c).

10 Overton v. New York State Div. of Military and Naval Affairs, 373 F.3d 83, 89 (2d Cir. 2004) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)).

11 Id. (quoting Anderson, 477 U.S. at 248).

The movant has the burden of demonstrating that no genuine issue of material fact exists.¹² In turn, to defeat a motion for summary judgment, the non-moving party must raise a genuine issue of material fact. To do so, it "must do more than simply show that there is some metaphysical doubt as to the material facts,"¹³ and it must "come forward with `specific facts showing that there is a genuine issue for trial.'"¹⁴ In determining whether a genuine issue of material fact exists, the court must construe the evidence in the light most favorable to the non-moving party and draw all inferences in that party's favor.¹⁵

12 See Powell v. National Bd. of Med. Exam'rs, 364 F.3d 79, 84 (2d Cir. 2004).

13 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).

14 Powell, 364 F.3d at 84 (quoting Aslanidis v. United States Lines, Inc., 7 F.3d 1067, 1072 (2d Cir. 1993)).

15 See Williams v. R.H. Donnelley, Corp., 368 F.3d 123, 126 (2d Cir. 2004).

IV. DISCUSSION

Section 548 of the Bankruptcy Code provides, in pertinent part, that:

(a)(1) The trustee may avoid any transfer of an interest in the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily . . .

(B) (i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation.¹⁶

16 11 U.S.C. § 548.

In order for plaintiff to prevail on its claim under section 548, it must demonstrate that it was insolvent at the time of the redemption payment, or that it was rendered insolvent by the payment.¹⁷ Insolvency is defined in the Bankruptcy Code as a "financial condition such that the sum of [the insolvent] entity's debts is greater than all such entity's property, at a fair valuation."¹⁸

17 The same showing of insolvency is required under Eerie's alternative theory of recovery, which relies on section 18-607 of the Delaware Limited Liability Company Act, as incorporated into 11 U.S.C. § 544(b). See 6 Del. C. § 18-607.

18 11 U.S.C. § 101(32).

Bergrin contends that Eerie was solvent at the time of the transfer, and immediately thereafter. Bergrin submits a considerable volume of evidence for this contention. Bergrin's evidence includes the testimony of Burke, and Eerie's former Chief Financial Officer, Warren Fite, that they believed Eerie to be solvent at the time of the transfer.¹⁹ Bergrin also submits an Arthur Andersen "Client Profile" for Eerie, prepared February 10, 2000.²⁰ The Client Profile rates Eerie's "Financial Health" as "Good" and its "Industry/Operations Risk" and "Accounting and Financial Reporting Risk" as "Minimal".²¹ Principally, however, Bergrin relies on Eerie's consolidated financial statements for the year ending January 2, 2000.²² These financial statements, audited by Arthur Andersen, show that as of January 2, 2000, Eerie had $33,974,714 in assets and only $7,065,781 in liabilities.²³

19 See Deposition of James Burke, Ex. J to Def. 56.1, at 69-70; Deposition of Warren Fite, Ex. F to Def. 56.1, at 103, 186.

20 See Eerie Client Profile as of February 10, 2000, Ex. L to Def. 56.1.

21 Id.

22 See Consolidated Financial Statements as of January 2, 2000, Ex. O to Def. 56.1.

23 See id. at 3.

In response to Bergrin's motion, Eerie relies on the affidavit of an accountant, Alan Barbee. Barbee's affidavit argues that Eerie's audited financial statements "are not dispositive as to whether the Debtor was solvent or insolvent at the time of the Payment."²⁴ Barbee notes that the financial statements do not "reflect any value for Commitments and Contingencies," which may be relevant to determining insolvency.²⁵ Barbee claims that "[a] valuation of Debtor's assets and liabilities, including the value of the Debtor's interest in the subsidiaries as well as contingent liabilities . . . is necessary in order to determine whether or not the Debtor was insolvent."²⁶

24 Affidavit of Alan Barbee ("Barbee Aff."), Ex. A to Plaintiff's Opposition to Summary Judgment ("Pl. Opp."), at 6.

25 Id. at 5. As an example of a potential liability not reflected on the financial statements, Barbee points to the Notes to the financial statements, which record that Eerie's total commitments under the leases for its Chicago, Grapevine and New York City offices, as of January 2, 2000, totaled $24,191,004. See id. at 11. Such future rent obligations, however, should not be included in an insolvency analysis. See Official Comm. of Former Partners v. Brennan (In re LaBrum Doak, L.L.P.), 227 B.R. 383, 389 (Bankr. E.D. Pa. 1998) ("[W]e find it far more logical not to count the Debtor's entire contingent future rent liability in an insolvency analysis then to count it at all . . . if accounting to render all future rents immediately payable could be done as to rent, it could be so done with respect to any projectable future expense. [T]his would render any business with substantial projectable future expenses artificially deemed insolvent.").

26 Barbee Aff. at 6.

Relying on Barbee's affidavit, Eerie argues that "the financial statements cannot be used to determine whether the Debtor was `insolvent' on the date of the transfer . . . and a full valuation of the Debtor's assets must be completed as of the transfer date."²⁷ Eerie thus argues that because Bergrin has not demonstrated that the Company was solvent at the time of transfer, the Court must deny Bergrin's motion for summary judgment and resolve the issue of solvency at trial. Essentially, Eerie is attempting to rest on its pleadings. This is not a sufficient response to a motion for summary judgment on an issue as to which Eerie bears (as it concedes) the ultimate burden of proof.

27 Plaintiff's Amended Statement of Material Facts Pursuant to Local Rule 56.1 ("Pl. 56.1") ¶ 40.

Bergrin's motion successfully demonstrates the absence of any evidence of insolvency. In order to defeat Bergrin's motion, Eerie was required to "make a showing sufficient to establish the existence of . . . elements essential to [its] case, and on which [it would] bear the burden of proof at trial."²⁸ The debtor's "financial condition at the time of the sale [is] an issue capable of proof by direct evidence."²⁹ Eerie is required to "submit . . . documentary evidence to demonstrate [Eerie's] insolvency in opposition to the summary judgment motion."³⁰ Eerie has not submitted any evidence from which insolvency might be inferred. At the very least, Eerie should have produced an expert's affidavit stating that the debtor was insolvent. Barbee's affidavit states only that the financial statements relied upon by Bergrin are "not dispositive" proof of solvency;³¹ Barbee makes no determination of insolvency. ³²

28 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). See also Delaware Hudson Railway Co. v. Consolidated Rail Corp., 902 F.2d 174, 177-78 (2d Cir. 1990) ("[T]he non-movant . . . who must sustain the ultimate burden of proof, must demonstrate in opposing a summary judgment motion that there is some evidence which would create a genuine issue of material fact").

29 Citizens Bank of Clearwater v. Hunt, 927 F.2d 707, 713 (2d Cir. 1991).

30 Id.

31 Barbee Aff. at 6.

32 Eerie argues that the issue of insolvency is "so factually steeped as to be inappropriate for summary adjudication." Pl. Opp. at 21. As a general proposition, there is some truth to this. The Second Circuit has held that "the issue of insolvency often depends upon the factual inferences and conclusions of expert witnesses which, when controverted, do not lend themselves readily to summary judgment resolution. . . . Where . . . intelligent adjudication requires more than the use of lay knowledge and the resolution of a disputed issue hinges in large measure upon conflicting opinions and judgments of expert witnesses, summary judgment is not appropriate." Klein v. Tabatchnick, 610 F.2d 1043, 1048 (2d Cir. 1979). This does not, however, relieve plaintiff of the burden of raising some issue of material fact in order to withstand summary judgment. Here, there is no conflict between experts; Eerie has simply failed to put the issue of solvency in dispute at all.

Eerie argues that a "full valuation" of the company's assets and liabilities will be necessary to resolve this action, but does not offer any such valuation.³³ Apparently, Eerie hopes to produce its evidence — if it has any — at trial. However, "`[a] party opposing a motion for summary judgment simply cannot make a secret of [its] evidence until the trial, for in doing so [it] risks the possibility that there will be no trial.'"³⁴

33 Pl. 56.1 ¶ 40.

34 Citizens Bank of Clearwater, 927 F.2d at 713 (quoting Donnelly v. Guion, 467 F.2d 290, 293 (2d Cir. 1972)).

In an appropriate case, I might defer summary judgment, giving Eerie the opportunity to conduct further discovery and attempt to make the requisite showing. Here, however, Eerie has had ample opportunity to discover and produce evidence of insolvency, if any such evidence exists. Eerie brought this action more than four years ago. The proceeding has been marked by numerous delays, many of Eerie's making. During this time, Bergrin, proceeding pro se, has managed to conduct extensive discovery; Eerie has essentially nothing to show for four years of litigation. It is not at all clear that Eerie would be able to produce evidence of insolvency if given more time. If Eerie has been unable to find any documentary evidence of insolvency in the past four years, it is unlikely to have any more success in the future.

Even if Eerie were able to discover such evidence, it would be inequitable to drag this much-delayed action out further, forcing Bergrin to rebrief his motion and perhaps to defend against further discovery — not to mention the drain on the Court's resources that would be caused by another round of briefing. If Eerie has evidence of insolvency, it should have presented it at the proper time, so that this action could finally be resolved expeditiously. Accordingly, Bergrin's motion for summary judgment on the issue of insolvency is granted.

IV. CONCLUSION

For the foregoing reasons, Bergrin's motion for summary judgment is granted. The Clerk of the Court is directed to close this motion and this case.

SO ORDERED: