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In re Revstone Industries, LLC

United States District Court, D. Delaware

July 8, 2019

IN RE REVSTONE INDUSTRIES, LLC, et al., Debtors.
v.
SCOTT R. HOFMEISTER, et al., Defendants. FRED C. CARUSO, TRUSTEE., Plaintiff, Adv. Nos. 14-50977-BLS, 14-50984-BLS

         Chapter 11

          Laura Davis Jones, PACHULSKISTANG ZIEHL & JONES LLP, Wilmington, Delaware, Counsel for Plaintiff

          Sheldon S. Toll, LAW OFFICE OF SHELDON S. TOLL, PLLC, Southfield, Michigan; Evan O. Williford, THE WILLIFORD FIRM LLC, Wilmington, Delaware, Counsel for Defendant

          MEMORANDUM OPINION

          CONNOLLY, UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         Pending before the Court is the Bankruptcy Court's Order, Report, and Recommendations, dated November 30, 2017 (D.I. I)[1] ("Report and Recommendations"), in which the Bankruptcy Court recommends that this Court enter judgment against Scott. R. Hofmeister ("Defendant") and in favor of plaintiff ("Trustee") in the above-referenced adversary proceedings ("Adversary Proceedings"), in the total amount of $194, 999.94, plus post-judgment interest. In accordance with the Report and Recommendations, the Bankruptcy Court's Memorandum Order Granting Summary Judgment, dated November 15, 2017 ("Opinion"), constitutes the Bankruptcy Court's proposed findings of fact and conclusions of law ("FFCL") in support of final judgment, as required by Federal Rules of Bankruptcy Procedure 7052 and 903 3.[2] Defendant objected to certain of the proposed FFCL (D.I. 3, 4) ("Objections").[3] Defendant has also filed with this Court a copy of a Motion for Reconsideration, dated November 29, 2017, which Defendant filed with respect to the Opinion (D.I. 2) ("Motion for Reconsideration"). For the reasons set forth herein, the Court denies the Motion for Reconsideration as moot, [4] overrules Defendant's Objections, and adopts the proposed FFCL submitted by the Bankruptcy Court.

         II. BACKGROUND

         This dispute arises in the chapter 11 bankruptcy cases of debtors Revstone Industries, LLC ("Revstone") and Spara LLC ("Spara"), which were commenced in December 2012. Defendant's father, George Hofmeister, [5] was the chairman and sole manager of Revstone, Spara, and related entities. Following the confirmation of the debtors' Chapter 11 plan, various pending litigation matters (including the Adversary Proceedings) were transferred to the Revstone/Spara Litigation Trust, and the Trustee was authorized to litigate the Adversary Proceedings. Trustee's complaints[6] initiating the Adversary Proceedings asserted, inter alia, claims to recover (i) a fraudulent pre-petition transfer of $70, 000 from Spara to Defendant, which Defendant then used to pay his tuition at Harvard Business School and his wife's tuition at Babson College; and (ii) fraudulent pre-petition and unauthorized post-petition transfers totaling $124, 999.94 from Revstone to Defendant in 2012, while Defendant was a full-time student at Harvard Business School, and while, the complaint alleges, Defendant was not performing any services for Revstone.

         Pursuant to 11 U.S.C. §§ 544(b)(1), 548, 550, and 6 Del. C. § 1305, the Trustee must prove the following in order to avoid the pre-petition transfers:

i) The transfer was a transfer of the relevant debtor's interest in property;
ii) The relevant debtor made the transfer without receiving reasonably equivalent value;
iii) The relevant debtor was insolvent at the time of the transfer, or became insolvent as a result of the transfer; and iv) At least one creditor [i.e., a "predicate creditor"] of the relevant debtor held an unsecured, allowable claim against the debtor that arose before the transfer was made.

         Pursuant to 11 U.S.C. §§ 549 and 550, a chapter 11 trustee or debtor-in-possession "may avoid a transfer of property of the estate ... that occurs after the commencement of the case; and ... that is not authorized under this title or by the court." 11 U.S.C. §§549, 550.

         On April 14, 2017, Trustee moved for summary judgment against Defendant in both Adversary Proceedings, seeking judgment in the total principal amount of $194, 999.94 on the fraudulent and unauthorized post-petition transfer claims (Adv. No. 14-50977-BLS, D.I. 79 & Adv. No. 14-50984-BLS, D.I. 78) (the "Motions"). Following briefing and oral argument, the Bankruptcy Court issued the Opinion containing its FFCL. The Bankruptcy Court determined that Defendant did not meaningfully contest whether the transfers were each transfers of the relevant debtor's interest in property. (Opinion at ¶ 11, n.8). The Bankruptcy Court further determined that the Trustee had affirmatively established insolvency by presenting the Bankruptcy Court with the expert report of James Lukenda of Huron Consulting Services LLC ("Huron"). (Opinion, ¶ 12). The Bankruptcy Court determined that the lay declarations submitted by Defendant and the trustee of trusts established for Defendant and his siblings would be entitled to "little weight" in light of the complexity of the debtors' business. (Opinion, ¶ 13). The Bankruptcy Court further determined that the Trustee had established facts sufficient to carry his burden of proof regarding predicate creditors because the claims filed by the predicate creditors identified by the Trustee had all been "deemed allowed" in the Chapter 11 case. (Opinion at ¶ 14). The Bankruptcy Court further determined that the evidence presented by Defendant on the issue of value rested on "hedged and conclusory statements" contained in three short paragraphs of a declaration by the debtors' former in-house counsel. (Opinion, ¶ 15). The Bankruptcy Court determined that this evidence did not "present or create a genuine issue as to any material fact sufficient to defeat" the Trustee's motion for summary judgment and, therefore, the Trustee "established that neither Revstone nor Spara received value for the pre- and post-petition transfers" to Defendant. (Opinion at ¶ 15).

         On November 30, 2017, the Bankruptcy Court issued its Report and Recommendations to this Court, recommending that this Court adopt its FFCL and enter judgment in favor of the Trustee, and against Defendant, in the principal amount of $194, 999.94 plus post-judgment interest. On December 4, 2017, Defendant filed his Objections to the proposed FFCL (D.I. 3, 4). On December 18, 2017, Trustee filed his response (D.I. 5). The proposed FFCL are now properly before this Court to render final judgment. The Court did not hear oral argument because the facts and legal arguments are adequately presented in the briefs and record, and the decisional process would not be significantly aided by oral argument. For the reasons set forth below, I adopt the proposed FFCL.

         III. JURISDICTION AND STANDARDS OF REVIEW

         The Court has jurisdiction over this matter under 28 U.S.C. § 1334. Once a bankruptcy court determines that a pending matter is not a core proceeding under 28 U.S.C. § 157(b)(2) but is nonetheless related to a case under title 11, the court shall submit proposed findings of fact and conclusions of law to the district court. See 28 U.S.C. § 157(c)(1). Thereafter, "any final order or judgment shall be entered by the district court judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." Id. The Federal Rules of Bankruptcy Procedure provide that:

The district judge shall make a de novo review upon the record or, after additional evidence, of any portion of the bankruptcy judge's findings of fact or conclusions of law to which specific written objection has been made in accordance with this rule. The district judge may accept, reject or modify the proposed findings of fact or conclusions of law, ...

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