United States District Court, D. Delaware
IN RE REVSTONE INDUSTRIES, LLC, et al., Debtors.
SCOTT R. HOFMEISTER, et al., Defendants. FRED C. CARUSO, TRUSTEE., Plaintiff, Adv. Nos. 14-50977-BLS, 14-50984-BLS
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
CONNOLLY, UNITED STATES DISTRICT JUDGE
before the Court is the Bankruptcy Court's Order, Report,
and Recommendations, dated November 30, 2017 (D.I.
("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
Defendant objected to certain of the proposed FFCL (D.I. 3,
4) ("Objections"). 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,  overrules Defendant's
Objections, and adopts the proposed FFCL submitted by the
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,  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 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.
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.
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.
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
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.
JURISDICTION AND STANDARDS OF REVIEW
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, ...