Summary
comparing balance sheets of the obligor's assets and liabilities before and after the transfer at issue
Summary of this case from Radcliffe 10, L.L.C. v. BurgerOpinion
No. 2010-CA-0798.
January 13, 2011.
Appeal from the Civil District Court, Orleans Parish, No. 2008-7831, Division "E-7", Madeleine Landrieu, J.
Gladstone N. Jones III, Lynn E. Swanson, Catherine E. Lasky, Jones Swanson Huddell Garrison, L.L.C., New Orleans, LA, for Plaintiff/Appellant, Forterra Capital, L.L.C.
Robert H. Matthews, Pauline M. Warriner, New Orleans, LA, for Defendant/Appellee, Innovative Marine Services, L.L.C., Michael Thibodaux, Jr., Jason Lyons, Jay Capouch and Allison Randolph.
(Court composed of Chief Judge JOAN BERNARD ARMSTRONG, Judge PATRICIA RIVET MURRAY and Judge MAX N. TOBIAS, JR.).
The plaintiff-appellant, Forterra Capital, L.L.C. ("Forterra"), appeals the March 11, 2010 summary judgment dismissal of it's claims against the defendants-appellees, Innovative Marine Services, L.L.C. ("IMS"), Michael Thibodaux, Jr. ("Mr.Thibodaux, Jr."), Jason Lyons ("Mr.Lyons"), Jay Capouch ("Mr. Capouch") and Allison Randolph ("Mr.Randolph"). The same judgment denied Forterra's own motion for summary judgment, but Forterra does not raise that as an issue in this appeal. For the reasons that follow, we affirm the judgment of the trial court.
On or about January 12, 2007, Information Technology Systems, L.L.C. ("ITS"), with Mr. Michael J. Thibodaux, Sr. (Mr. Thibodaux, Sr.) as guarantor, executed a promissory note and allonge thereto (collectively, the "Loan Documents") in the amount of $966,195.00 in favor of Forterra in connection with a certain Commercial Loan Agreement and Commercial Security Agreement.
ITS and Mr. Thibodaux, Sr. failed to make the required payments to Forterra. Consequently, Forterra entered into a Settlement Agreement with ITS and Mr. Thibodaux, Sr. on June 22, 2007, which provided that ITS and Mr. Thibodaux, Sr. would continue to make payments to Forterra pursuant to the original loan documents, and that Forterra would be granted an interest in certain contracts to be obtained by ITS, Mr. Thibodaux, Sr. and their affiliates, which included defendant Mamal, Inc. ("Mamal"). However, ITS, Mr. Thibodaux, Sr. and their affiliates failed to fulfill the terms of the Settlement Agreement.
On August 23, 2007, Forterra filed a breach of contract suit against ITS and Thibodaux, Sr. in the Civil District Court for the Parish of Orleans, seeking damages for breach of the Settlement Agreement. On November 15, 2007, Forterra and Mr. Thibodaux, Sr., in his individual capacity and as President/Manager of ITS, executed a Consent Judgment to end that litigation.
The Consent Judgment provided that ITS and Mr. Thibodaux, Sr. would continue to make payments as required under the loan documents; that the total indebtedness to Forterra as of November 2007 was $1,141,341.32; and that ITS and certain of its affiliates, including specifically Mamal, which is wholly owned by Mr. Thibodaux, Sr., would also make payments to Forterra on an ongoing basis based upon work obtained by Mamal and other affiliates. According to Forterra, pursuant to the Loan Documents, Settlement Agreement and Consent Judgment, Mamal, along with ITS and Mr. Thibodaux, Sr. became indebted to and obligors to Forterra. Again, ITS, Mr. Thibodaux, Sr. and Mamal failed to make the payments as required.
On July 29, 2008, Forterra filed a "Petition to Annul Transfers and for Damages," naming as defendants Innovative Marine Services, L.L.C. ("IMS"), Mamal, Inc., Michael J. Thibodaux, Sr., Michael Thibodaux, Jr., Jay Capouch, Jason Lyons and Allison Randolph, alleging that:
1. Mamal and IMS share the same address as Information Technology Systems, L.L.C. ("ITS"). However, we note that ITS is not named as a defendant.
2. Mr. Thibodaux, Sr. is the President/Manager of ITS and the sole shareholder and director of Mamal.
3. Mr. Thibodaux, Jr. is the son of Mr. Thibodaux, Sr. and is a member, manager, and/or control person of IMS.
4. Capouch served as a consultant for ITS, Mr. Thibodaux, Sr. and Mamal and is a member and manager of IMS.
5. Mr. Randolph was an employee of ITS and a member, manager, and/or control person of IMS.
Forterra contends that Mr. Thibodaux, Sr. and ITS transferred valuable assets known as Mudd X machines (used to clean tanks on offshore supply vessels) from their wholly owned affiliate, Mamal, at a time when Mamal was insolvent to another entity controlled by them, IMS, in order to frustrate Forterra's attempts to collect the debt owed to it. Forterra relies primarily on La.C.C. art. 2036, the revocatory action, and La.C.C. art. 3182 and 3183. La.C.C. art. 3182 provides that:
Whoever has bound himself personally, is obliged to fulfill his engagements out of all his property, movable and immovable, present and future.
La.C.C. art. 3183 provides that:
The property of the debtor is the common pledge of his creditors, and the proceeds of its sale must be distributed among them ratably, unless there exist among the creditors some lawful causes of preference.
However, this is almost entirely a fact based case. Forterra cites the following cases in support of the merits of its claim: Gulf Refining Co. of Louisiana v. Glassell, 186 La. 190, 171 So. 846 (1936), and In re Goldberg, 277 B.R. 251, 283 (Bkrtcy. M.D.La.5/1/02). Glassell stands for the proposition that La.C.C. arts. 3182 and 3183 do not afford a creditor "specific relief such as the maintenance of a petitory action by a lessee against a third person in possession of the property." As was explained in Glassell:
It logically follows that articles 3182 and 3183 of the Louisiana Civil Code, being literal translations of articles 2092 and 2093 of the Code Napoleon, as the above-quoted law writers pointed out, are designed to secure to creditors the payment of their `money debts.' It is only money creditors, even under the liberal provisions of the French article 1166, who have a common pledge on the property of the debtors, who can exercise the rights and actions of the debtors.
Articles 1990, 3182, and 3183, R.C.C., therefore, do not authorize the granting of specific relief such as the maintenance of a petitory action by a lessee against a third person in possession of the property.
Id., 186 La. at 209-210, 171 So. at 852-853.
Moreover, the facts in Glassell bear no direct relation to those of the instant case. Therefore, Glassell provides no guidance to this Court.
In re Goldberg, supra, is more relevant. It stands for the proposition that the revocatory action under La.C.C. art. 2036 allows a creditor to set aside a transaction of the debtor when it increases the insolvency of the debtor on a dollar for dollar basis without the necessity of having to show receipt of less than reasonably equivalent value by the debtor as a threshold condition. La.C.C. art. 2036 provides that:
An obligee has a right to annul an act of the obligor, or the result of a failure to act of the obligor, made or effected after the right of the obligee arose, that causes or increases the obligor's insolvency.
We agree with the interpretation of La.C.C. art. 2036 as set forth in Parish Nat. Bank v. Wilks, 04-1439 (La.App. 1 Cir. 8/3/05), 923 So.2d 8:
In accordance with the clear language of La.C.C. art. 2036, in order for an obligee to annul an act of the obligor, he must show (1) an act (or failure to act) of the obligor that causes or increases the obligor's insolvency; and (2) the act must occur after the obligee's rights arose. See Lewis v. Hood, 97-2118 (La. App. 1st Cir. 11/6/98), 721 So.2d 1078, 1080.
Id., 04-1439, p. 10, 923 So.2d at 15.
More specifically, Forterra complains that Mr. Thibodaux, Sr., on behalf of Mamal, transferred certain Mudd X machines (used to clean tanks on offshore supply vessels) and all present and future rights thereto to IMS for three hundred thousand dollars ($300,000.00). Forterra contends that this increased Mamal's insolvency. In Forterra's Memorandum in Support of its Motion for Summary Judgment and in its original brief to this Court, Forterra notes that:
As of November 5, 2007, the date of the transfer, the liabilities of Mamal were $3,917,836.31 while its assets were merely $3,241,386.34.
This results in an insolvency of $676,449.97. The record also contains an affidavit of Wilbur J. "BUI" Babin, Jr., as the Chapter 7 Bankruptcy trustee of Michael J. Thibodaux, Sr. and Andrea Thibodaux. Mr. Babin avers without contradiction that:
According to the bankruptcy schedules of the Debtors, the Debtors were the 100% owners of Mamal, Inc. as of the date the Debtors filed Bankruptcy.
Mr. Babin's affidavit goes on to explain that his "office ran a Balance Sheet of Mamal, Inc. as of November 4, 2007. . . ." "The balance sheet shows, without contradiction, on that date Mamal had liabilities of $3,930,866.11 and total liabilities and equity, i.e., assets of $3,190,776.44, resulting in an insolvency of $740,089.67, or an insolvency of approximately $65,000.00 greater than the insolvency on the next day, November 5, 2007, which is the date of the transfer by Mamal that is the crux of this litigation. Thus, it cannot be said that the transfer resulted in a La.C.C. art. 2036 increase in Mamal's insolvency, the second of the alternative requirements of a revocatory action. Moreover, we find Forterra's revocatory action does not satisfy the first alternative requirement of La.C.C. art. 2036, that the transaction complained of caused Mamal's insolvency as it is uncontested that Mamal's insolvency antedated the transfer of the Mudd X machine(s). In other words, because Forterra relies on the November 5, 2007 Mamal balance sheet in support of its claim, and does not contest the accuracy of the November 4, 2007 balance sheet, we find that no genuine issue of material fact exists based on Forterra's revocatory claims to reverse the judgment of the trial court.
We also find merit in the trial court's observation that while Mamal was mentioned in some of the documents that form the basis of Forterra's claim, Mamal was neither a signatory nor a party to those documents. The Commercial Loan Agreement, the seminal document creating the debt upon which Forterra's claim is based, was executed by Forterra and ITS. Mr. Thibodaux, Sr. signed as President/Manager of ITS. Mamal was not a party.
The Settlement Agreement was between ITS (represented by Mr. Thibodaux, Sr.), Mr. Thibodaux, Sr., in his personal capacity, and Forterra. In this Settlement Agreement, ITS and Mr. Thibodaux, Sr. agree to bind any of their affiliates, but those affiliates are not named and no one besides ITS, Mr. Thibodaux, Sr. and Forterra were signatory to the document.
On November 15, 2007, Forterra and Thibodaux, Sr. individually and on behalf of ITS, signed a "Stipulated Consent Judgment." This Consent Judgment stated that it was intended to bind ITS and any of its affiliates, "including but not limited to Michael J. Thibodaux, Sr., Thibodaux Equipment, Inc., Mamal, Inc. and Sky Data, Inc. . . ." However, the record reflects that of those "affiliates" of ITS just listed, the only one that was a party to the Consent Judgment was Mr. Thibodaux, Sr. More particularly, Mamal was not a signatory to the judgment, although following Forterra's arguments concerning Mr. Thibodaux Sr.'s control over Mamal, Mr. Thibodaux could just as easily have signed on behalf of Mamal as he did for ITS, had it been his intention to do so. Therefore, the lack of an appearance by Mamal undermines Forterra's argument.
The language of the Consent Judgment gave Forterra a security interest in the rights of the ITS "affiliates," including Mamal, to "certain contracts for transportation by barge work . . . ." But the appellees point out without contradiction that Mamal engaged in no barge work and, therefore, even if we were to assume for purposes of argument that the Consent Judgment to which Mamal was not a signatory bound it nonetheless, the only thing for which the Consent Judgment purported to bind Mamal was in connection with barge work, and it performed none.
Forterra contends that Mr. Thibodaux, Sr., the president and sole owner of Mamal, in response to a request for admission, effectively admitted that Mamal was an obligor of Forterra by failing to respond to Forterra's request for admission directed to this issue. La.C.C.P. art. 1467. The appellees complain that they cannot be bound by admissions to which they were not a party. Regardless, the only obligation imposed by the Consent Judgment on Mamal, assuming that Mamal could be bound by a Consent Judgment to which it was not a signatory, was in connection with barge work performed by Mamal, but Mamal admittedly performed no such barge work. Therefore, any obligation arguably owed by Mamal to Forterra was meaningless.
For the foregoing reasons, the judgment of the trial court is affirmed.
AFFIRMED.
TOBIAS, J., Dissents and Assigns Reasons.
The function of this intermediate court is to correct errors made by the trial court. In the case at bar, as a matter of technical law, the majority opinion on its face might appear to be correct. I do not agree. I am disturbed by the result in this case based upon the procedural posture in which this case comes to us and what actually happened as gleaned from the record on appeal.
This case comes before us to review the trial court's judgment granting a motion for summary judgment. Summary judgment is governed by La.C.C.P. arts. 966, et seq. The jurisprudence applying these articles to a case has consistently held more or less as follows:
A motion for summary judgment is a procedural device used when there is no genuine issue of material fact for all or part of the relief prayed for by a litigant. See La.C.C.P. art. 966. A summary judgment is reviewed on appeal de novo, with the appellate court using the same criteria that govern the trial court's determination of whether summary judgment is appropriate; i.e. whether there is any genuine issue of material fact, and whether the movant is entitled to judgment as a matter of law.
The parameters of a motion for summary judgment have been described by this court as follows:
A motion for summary judgment will be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to material fact, and that mover is entitled to judgment as a matter of law." La.C.C.P. art. 966(B). This article was amended in 1996 to provide that "summary judgment procedure is designed to secure the just, speedy, and inexpensive determination of every action . . . The procedure is favored and shall be construed to accomplish these ends." La.C.C.P. art. 966(A)(2). In 1997, the legislature enacted La.C.C.P. art. 966 C(2), which further clarified the burden of proof in summary judgment proceedings, providing:
The burden of proof remains with the movant. However, if the movant will not bear the burden of proof at trial on the matter that is before the court on the motion for summary judgment, the movant's burden on the motion does not require him to negate all essential elements of the adverse party's claim, action, or defense, but rather to point out to the court that there is an absence of factual support for one or more elements essential to the adverse party's claim, action, or defense. Thereafter, if the adverse party fails to produce factual support sufficient to establish that he will be able to satisfy his evidentiary burden of proof at trial, there is no genuine issue of material fact.
This amendment, which closely parallels the language of Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), first places the burden of producing evidence at the hearing on the motion for summary judgment on the mover (normally the defendant), who can ordinarily meet that burden by submitting affidavits or by pointing out the lack of factual support for an essential element in the opponent's case. At that point, the party who bears the burden of persuasion at trial (usually the plaintiff) must come forth with evidence (affidavits or discovery responses) which demonstrates he or she will be able to meet the burden at trial. . . . Once the motion for summary judgment has been properly supported by the moving party, the failure of the non-moving party to produce evidence of a material factual dispute mandates the granting of the motion. [Internal cases, case citations, and footnotes omitted.]
Quotation is from Samaha v. Rau, 07-1726, pp. 3-5 (La.2/26/08), 977 So.2d 880, 882.
In my view, this case turns upon the application of La.C.C. art. 2036 which states: "An obligee has a right to annul an act of the obligor, or the result of a failure to act of the obligor, made or effected after the right of the obligee arose, that causes or increases the obligor's insolvency." In my view, the jurisprudence has applied article 2036 simplistically and literally without adequate analysis of its intent and history. See La.C.C. art. 9.
The 1984 official comments to the article state:
(a) This Article is new. It changes the law insofar as it abandons the notion of fraud contained in the source articles. Otherwise, it reproduces the substance of C.C. Arts. 1969, 1970, 1971, 1972, 1975, 1977, 1985, 1986, 1988, and 1994 (1870).
(b) This Article substitutes an act of the obligor that causes or increases his insolvency for the notion of an act in fraud of creditors contained in the source articles. As used in those articles, the word "fraud" has a meaning which is difficult to determine but which appears different from its meaning in other contexts. In this revision, the criterion for the revocatory action is an objective one. It may be satisfied by an act done negligently as well as intentionally.
(c) The revocatory or Paulian action, an institution derived from Roman law, is the civil law analogue to the common law suit to set aside a fraudulent conveyance.
(d) The term "act" in this Article encompasses contracts, acts of payment, and any "contrivance" employed by an obligor to defeat his obligee's rightful claim. See Newman v. Baer, 50 La. Ann. 323, 23 So. 279 (1897). According to the jurisprudence, any arrangement, whether made through judicial machinery or otherwise, whereby an obligor tries to give an obligee an advantage over others may be attacked by the injured obligees. See, e.g., Muse v. Yarborough, 11 La. 521 (1838), (obligor confessed judgment to one obligee in prejudice of the rights of others); Bank of Patterson v. Urban Co., 114 La. 788, 38 So. 561 (1905), (obligor filed answer and consented to quick trial of suit).
(e) The expression, ". . . the result of a failure to act of the obligor" contemplates situations in which an obligor becomes insolvent, or his insolvency increases, because of his failure to act, as when the obligor fails to defend himself in a law suit, and the resulting judgment creates or increases his insolvency.
(f) Under this Article, anteriority of the debt and insolvency of the debtor are pre-requisites to the revocatory action, in accordance with traditional doctrine received by the Louisiana jurisprudence. See Tate, "The Revocatory Action in Louisiana Law," Essays on the Civil Law of Obligations 133 (Dainow ed. 1969); Landry, "The Revocatory Action in the Quebec Civil Code: General Principles," Id. at 115. An obligee's claim does not have to be liquidated to judgment to be considered an anterior debt. Holland v. Gross, 195 So. 828 (La.App. 2nd Cir. 1940); Ventrilla v. Tortorice, 160 La. 516, 107 So. 390 (1926).
(g) The articles in this section do not address situations in which an already in-solvent obligor gives an unfair advantage to one of his creditors. Situations of that kind are regulated by federal bankruptcy law. See 11 U.S.C. § 547.
(h) An obligor's payment of a just and due debt may not be annulled under this Article. Although it reduces his assets, it also reduces his liabilities by the same amount. If the obligor gives a thing in payment of such a debt, C.C. Art. 2658 (1870) controls. See Morgan v. Gates, 396 So.2d 1386 (La.App. 2nd Cir. 1981).
In the case before us, two affidavits of Wilbur J. "Bill" Babin, Jr., the trustee in bankruptcy for appellee Michael J. Thibodaux, Sr., etux, are presented: one by the appellant and one by the appellees. One affidavit's attachment shows that Mamal, Inc.'s insolvency on 4 November 2007 to be $740,089.67 and the other affidavit's attachment shows Mamal, Inc.'s insolvency on 5 November 2007 to be $676,449.97. The appellant does not with precision address how this change in the amount of insolvency creates a genuine issue of material fact that would preclude the granting of summary judgment. But I find that the matter is addressed indirectly and implicitly by the appellant. What actually happened between 4 and 5 November 2007 is that Mamal, Inc.'s insolvency actually increased, not decreased, because it transferred property (Mudd-X machines, etc.) in a non-arms length transaction for what appears to be less than full value to another, namely, an entity in which Michael J. Thibodaux, Sr.'s son was effectively the owner.
Mamal, Inc. is wholly owned by Michael J. Thibodaux, Sr.
The following is an example of how the literal, simplistic application of article 2036 can be used to defeat a creditor:
Company X owns a thing (La.C.C. art. 448, et seq.) that it shows on its books as having a value of $300,000. In fact, the thing has a fair market value of $900,000. If Company X sells the thing to Company Y for $500,000, its books will show that it is $200,000 more solvent than when it owned the thing. In fact, Company X's sale of the thing increased its insolvency by $400,000, the difference between the fair market value and the sales price of the thing.
In essence, that is precisely what Mamal, Inc. did in the case at bar which has deprived the appellant of its right to prove a revocatory action at trial by virtue of the literal application of article 2036 to "annul an act of the obligor . . . that causes or increases the obligor's insolvency." That is to say, Mamal, Inc.'s actions reduced the value of the assets of Michael J. Thibodaux, Sr.'s estate thereby defeating his creditor, the appellant.
The asset sale that took place in the 5 November 2007 in fact creates a genuine issue of material fact on its face precluding the granting of a motion for summary judgment. See La.C.C.P. art. 2164 ("The appellate court shall render any judgment which is just, legal, and proper upon the record on appeal"). The two Babin affidavits create a genuine issue of material fact on their face. An explanation for the transfer establishing bona fide business reasons for the transfer is needed.
For the foregoing reasons, I respectfully dissent and would reverse the trial court's decision to grant the motion for summary judgment that is at issue in this appeal.