Opinion
Case No. 19-05619-JJG-7A Adv. Pro. No. 20-50058
03-02-2021
IN RE: GONZALEZ INTERNATIONAL INC., Debtor. Paul D. Gresk, as the Chapter 7 Trustee, Plaintiff, v. Indiana Golf Car, Inc., Defendant.
Paul Gresk, Spenser K. Rohler, Gresk & Singleton, P.C., Gresk and Singleton, PC, Indianapolis, IN, for Plaintiff. Weston Erick Overturf, Overturf Fowler LLP, Indianapolis, IN, for Defendant.
Paul Gresk, Spenser K. Rohler, Gresk & Singleton, P.C., Gresk and Singleton, PC, Indianapolis, IN, for Plaintiff.
Weston Erick Overturf, Overturf Fowler LLP, Indianapolis, IN, for Defendant.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Jeffrey J. Graham, United States Bankruptcy Judge
This matter comes before the Court on Defendant Indiana Golf Car, Inc.'s (the "IGC") Motion for Summary Judgment (the "Motion") on the Complaint for Avoidance and Recovery of Fraudulent Transfers (the "Complaint") filed by Paul D. Gresk, as the Chapter 7 Trustee for the bankruptcy estate of Debtor Gonzalez International, Inc. (the "Trustee" and "Debtor," respectively). For the reasons stated below, the Court GRANTS the Motion in part and DENIES it in part.
FACTUAL BACKGROUND
On July 21, 2019 (the "Petition Date"), Debtor filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code (the "Code"). Per the Complaint, the Trustee seeks to avoid and recover five allegedly "fraudulent transfers" made by Debtor to IGC in 2016 and 2017 pursuant to Code §§ 544 and 550 and Indiana Code § 32-18-2-15, a provision within the Indiana Uniform Fraudulent Transfer Act (the "IUFTA"). IGC acknowledges four of the five Transfers, but as discussed in more detail below, IGC's receipt of the fifth transfer (the "Fifth Transfer") is in dispute.
In his summary judgment response, the Trustee also mentions additional transfers allegedly made by Debtor to IGC—one on May 15, 2017 and another on May 23, 2018—which were not detailed in the Complaint. While the Trustee indicates that he intends to seek leave to amend the Complaint to include these additional transfers, he has not done so to date. The Court expresses no opinion as to whether such leave would be granted if requested or whether the transfers are avoidable.
DISCUSSION AND DECISION
Jurisdiction
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H). The parties have consented to the Court's entry of final orders and judgment.
Summary Judgment Standard
Under Federal Rule of Civil Procedure 56(c), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett , 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
If the movant bears the burden of proof at trial, the movant can only prevail by proving each element of its claim (or defense) at summary judgment. See, id . at 322, 106 S.Ct. 2548. Where the non-movant bears the ultimate burden of persuasion on a particular issue, however, the requirements that Rule 56 imposes on the moving party are not onerous. The Rule does not require the moving party to "support its motion with affidavits or other similar materials negating the opponent's claim." Id . at 323, 106 S.Ct. 2548. Rather, the movant's initial burden "may be discharged by ‘showing’ ... that there is an absence of evidence to support the nonmoving party's case." Id . at 325, 106 S.Ct. 2548.
Upon such a showing, the non-movant must then "make a showing sufficient to establish the existence of an element essential to that party's case." Id . at 322, 106 S.Ct. 2548. Once the moving party's initial burden is met, the non-moving party must "go beyond the pleadings" and designate specific facts to support each element of the cause of action, showing a genuine issue for trial. Id . at 322–23, 106 S.Ct. 2548. Neither party may rest on mere allegations or denials in the pleadings, Anderson , 477 U.S. at 248, 106 S.Ct. 2505, or upon conclusory statements in affidavits. Palucki v. Sears, Roebuck & Co. , 879 F.2d 1568, 1572 (7th Cir. 1989). In considering a motion for summary judgment, the court may consider any materials that would be admissible or usable at trial, including properly authenticated and admissible documents. Woods v. City of Chicago , 234 F.3d 979, 988 (7th Cir. 2000). If the non-movant does not come forward with evidence that would reasonably permit the finder of fact to find in its favor on a material question, then the court must enter summary judgment against it. Waldridge v. Am. Hoechst Corp. , 24 F.3d 918, 920 (7th Cir. 1994) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp ., 475 U.S. 574, 585-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ).
11 U.S.C. § 544(b) and the IUFTA
Under Code § 544(b)(1), "the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 ...." This section is derivative and "enables a trustee to do in a bankruptcy proceeding what a creditor would have been able to do outside of bankruptcy—except the trustee will recover the property for the benefit of the estate." In re Equip. Acquisition Res., Inc. , 742 F.3d 743, 746 (7th Cir. 2014). It is the trustee's burden to prove by a preponderance of the evidence that there was a fraudulent transfer and that recovery is appropriate. Mottaz v. Oswald (In re Frierdich) , 294 F.3d 864, 867 (7th Cir. 2002).
Section 544(b) requires the actual existence of an unsecured creditor that could have brought the state-law action itself. "If there are no creditors against whom the transfer is voidable under the applicable law, the trustee is powerless to act under § 544(b)(1)." Equip. Acquisition Res. , 742 F.3d at 746 (citing 5 Collier on Bankruptcy ¶ 544.06[1] (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2013); In re Cybergenics Corp. , 226 F.3d 237, 243 (3d Cir. 2000) ("The avoidance power provided in section 544(b) is distinct from others because a trustee or debtor in possession can use this power only if there is an unsecured creditor of the debtor that actually has the requisite nonbankruptcy cause of action.")).
Here, the Trustee seeks to avoid the Transfers under the IUFTA. In relevant part, the IUFTA provides two avenues by which a fraudulent transfer may be avoided. As to both present and future creditors, Indiana Code § 32-18-2-14 provides that:
(a) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or
(2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
(A) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(B) intended to incur or believed or reasonably should have believed that the debtor would incur debts beyond the debtor's ability to pay as the debts became due.
As to present creditors only , Indiana Code § 32-18-2-15 provides in relevant part:
(a) A transfer made or an obligation incurred by a debtor is voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if:
(1) the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation; and
(2) the debtor:
(A) was insolvent at that time; or
(B) became insolvent as a result of the transfer or obligation.
IND. CODE § 32-18-2-15(a). A creditor making a claim for avoidance under the IUFTA bears the burden of proving the elements of the claim by a preponderance of the evidence. See IND. CODE §§ 32-18-2-14(c) and 32-18-2-15(b).
As a threshold matter, the Court must first address which of the above two sections of the IUFTA are at issue in this proceeding. While the Complaint cites generally to the IUFTA as a whole, the only specific citation included in the Trustee's allegations is to § 32-18-2-15. Consistent with that, IGC's summary judgment argument is limited to whether the Transfers are avoidable under this section of the IUFTA. In his response to the Motion, however, the Trustee asserts that summary judgment is inappropriate under both Indiana Code § 32-18-2-14 and § 32-18-2-15.
The Court declines the Trustee's invitation to read a claim for relief under Indiana Code § 32-18-2-14 into the Complaint. Given the Complaint's specific citation to Indiana Code § 32-18-2-15, the Court presumes that if the Trustee was asserting a claim under § 32-18-2-14, he would have included a citation to it as well.
Statutory citations aside, the Complaint also fails to allege facts consistent with a claim under Indiana Code § 32-18-2-14(a)(1) and/or (2). Specifically, there are no factual allegations of acts by Debtor intended to "hinder, delay or defraud" creditors or of the "badges of fraud" typically needed to prove fraudulent intent. See IND. CODE § 32-18-2-14(b). The Complaint also fails to allege that, as a result of the Transfers, Debtor "was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or intended to incur or believed or reasonably should have believed that the debtor would incur debts beyond the debtor's ability to pay as the debts became due," as required by Indiana Code § 32-18-2-14(a)(2). Rather, the Trustee merely alleges that Debtor was insolvent at the time of the Transfers and that the Transfers were for less than reasonably equivalent value—allegations consistent with a claim under Indiana Code § 32-18-2-15.
Based on the foregoing, the Court has limited its analysis to whether summary judgment in favor of IGC is appropriate as to the Trustee's claim under Indiana Code § 32-18-2-15 and has disregarded any argument or evidence advanced by the Trustee on summary judgment that speaks to a claim under Indiana Code § 32-18-2-14.
As an additional threshold matter, the Court must also address the parties' dispute as to the Fifth Transfer. As indicated previously, the Trustee has identified five pre-petition transfers allegedly made by Debtor to IGC in 2016 and 2017 in the total amount of $14,260.72. IGC acknowledges receipt of four of the Transfers, dated April 2, 2016, April 23, 2016, July 5, 2016 and February 7, 2017, but maintains that it has no record of the Fifth Transfer, which the Trustee alleges was made on or about July 1, 2017, in the amount of $2,006.25.
In his summary judgment response, the Trustee provided what purports to be a copy of a cancelled check and a bank statement showing that IGC negotiated a check from Debtor in the amount of $2,006.25 on or about July 17, 2017. IGC insists in its reply, however, that these documents should not be considered by the Court on summary judgment as they were not authenticated, an argument to which the Trustee did not explicitly respond.
Admittedly, Federal Rule of Bankruptcy Procedure 56(e) once required that evidence presented on summary judgment be authenticated as required under Federal Rule of Evidence 901 and 902. But Rule 56 was amended in 2010 to eliminate this requirement. See Abbott v. Elwood Staffing Serv's , Inc. , 44 F.Supp.3d 1125 (N.D. Ala. 2014). Now, Rule 56(c)(1)(A) expressly states that a party may cite to "materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations ... admissions, interrogatories answers, or other materials" and that an opposing party may object "that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence." Fed. R. Civ. P. 56(c)(2). Thus, "under current rule 56, an objection cannot be based solely on evidence not being authenticated—the objection must be that evidence cannot be presented in admissible form, not that the evidence has not been presented in admissible form." Abbott , 44 F.Supp.3d at 1135 (citations omitted) (italics original).
Here, IGC's objection was not framed pursuant to the current text of Rule 56 and for that reason alone, the Court is inclined to overrule it. But the Court also notes that the documents at issue can presumably be presented in an admissible form at trial through the testimony of a witness with knowledge pursuant to Federal Rule of Evidence 901(b)(1), e.g. , through Adam Gonzalez. An argument could also be made at trial that the documents may be authenticated pursuant to Federal Rule of Evidence 901(a)(4).
As such, the Court is inclined to conclude that, in the very least, a genuine issue of material fact exists as to the Fifth Transfer that must be resolved at trial.
Indiana Code § 32-18-2-15
Those threshold issues resolved, the Court moves onto the substance of the Motion. In it, IGC attempts to establish that there is no genuine issue of material fact as to whether IGC received reasonably equivalent value for the Transfers. To that end, IGC has provided the Court with an Affidavit from Donna Steger, IGC's owner. In it, Steger indicates that Debtor made the Transfers as consideration for the sale of two golf cars bearing Debtor's logo. Steger further states that Debtor used the golf cars at the Indianapolis Motor Speedway ("IMS") for events occurring between the months of May (for the Indianapolis 500) through September to transport Debtor's guests within the IMS complex, including to and from Debtor's guest suites.
The Court finds IGC's evidence on this point less than conclusive in that Steger's affidavit does not squarely address all of the Transfers. Attached to the Steger affidavit is a July 5, 2016 email from her to Debtor in which she seeks prompt payment of $1,039.80—the amount the email contends to be outstanding from IGC's invoice to Debtor (which neither party has produced). A transfer in that amount was made that same day.
But if that was the outstanding balance for IGC's purchase of the golf cars as suggested by the email, why then did Debtor make additional payments to IGC in 2017? In the absence of a purchase agreement or invoice, it is not at all clear to the Court that all the Transfers, including the Fifth Transfer, relate to Debtor's purchase of the golf cars. Given that uncertainty, a genuine issue of material fact exists as to whether Debtor received reasonably equivalent value for at least some of the Transfers. While IGC bore a fairly limited burden on summary judgment, the Court cannot conclude that it has met even that limited burden. As such, IGC is not entitled to summary judgment on this issue.
IGC's argument is somewhat more persuasive as to whether the Trustee has established the presence of a "triggering creditor" under Code § 544(b). As already stated, the Trustee's powers under § 544(b) are conditioned on there being "an unsecured creditor of the debtor that actually has the requisite nonbankruptcy cause of action." Equip. Acquisition Res ., 742 F.3d at 746 (citations omitted). In order to establish standing under Code § 544(b) to avoid a fraudulent transfer, a trustee "must first identify a creditor as to whom the transfer could have been avoided" under relevant Indiana law at "the time of the fraudulent transfer." Silverman v. Sound Around, Inc. (In re Alou Distribs., Inc.) , 392 B.R. 24, 31 (Bankr. E.D.N.Y. 2008) (internal citations omitted). Next, the trustee " ‘must show that the triggering creditor is also a creditor holding an unsecured claim that is allowable under § 502 of this title.’ " Id .
The Court again emphasizes that a claim under Indiana Code § 32-18-2-15 (in contrast to a claim under § 32-18-2-14 ) is limited to "present" creditors, i.e. , "a creditor whose claim arose before the transfer was made or the obligation incurred." IND. CODE § 32-18-2-15(a) ; DFS Secured Healthcare Receivables Trust v. Caregivers Great Lakes, Inc. , 384 F.3d 338, 349 (7th Cir. 2004). Thus, to succeed on the Complaint, the Trustee must establish that a creditor existed at the time of the Transfers and that this same creditor held a claim under Code § 502 as of the Petition Date.
In an effort to establish a triggering creditor, the Trustee has directed the Court to an exhibit to the proof of claim filed by Midwest Business Funding ("MBF"). That exhibit, entitled "Business Loan/Line of Credit Security Agreement," provides in relevant part that Debtor "may receive a commercial loan or other credit arrangement" (the "Loan") from MBF. It further provides that "the Loan will be evidenced by a Commercial Promissory Note ... to be executed ...."
While the Trustee did endeavor to identify a specific triggering creditor, the Trustee also suggests –citing In re Leonard , 125 F.3d 543 (7th Cir. 1997) —that he can rely on "any unsecured creditor" to reach the Transfers and that he need not name a specific creditor. In Leonard , the trustee brought a § 544(b) claim under the Illinois Fraudulent Transfer Act, but the opinion itself does not provide a citation to which specific section of the Act had been invoked; the Leonard court merely observed that "thirteen unsecured claims [had] been filed" and that "the Trustee can assume the position of any of them." Id . a 544. The court further observed that "any unsecured creditor may pursue a fraudulent-conveyance action under Illinois law." Id .
From this limited information, the Court cannot conclude that the Illinois law at issue is similar to Indiana Code § 32-18-2-15 's requirement of a "present" creditor. Thus, the Court is not inclined to follow Leonard in the case at hand. Had the Trustee asserted a claim under Indiana Code § 32-18-2-14 —which allows both present and future creditors to seek avoidance of a fraudulent transfer—the Trustee's burden of proving a triggering creditor likely would be more easily met and more consistent with Leonard's holding. But as previously indicated, the Trustee's § 544(b) claim is not predicated on that section of the IUFTA.
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While this agreement was entered into on February 23, 2016—prior to the first of the Transfers—the second amended complaint attached to MBF's proof of claim makes clear that credit was not actually extended under the agreement until November of 2017, a date that falls after all of the Transfers. From this, the Court cannot conclude that MBF is a triggering creditor for purposes of Code § 544(b).
That is not to say, however, that IGC is fully entitled to summary judgment on this issue. In the Motion, IGC insists that there is no triggering creditor based on the proofs of claim on file as of the date of the Motion. But that argument does not address the disputed Fifth Transfer. The claims on file, as detailed by IGC, include two claims that reflect debts that arose prior to July 1, 2017, the date of the Fifth Transfer. Accordingly, while the Court is willing to conclude that no genuine issue of material fact exists as to the existence of a triggering creditor as to the first four of the Transfers, IGC has failed to sustain its summary judgment burden as to the Fifth Transfer.
CONCLUSION
While a genuine issue of material fact exists as to whether IGC received reasonably equivalent value for the Transfers, because the Trustee has failed to identify a triggering creditor for all but the Fifth Transfer, the avoidability and recoverability of the Fifth Transfer are the only issues that survive IGC's summary judgment motion. As such, the Court GRANTS the Motion in part and DENIES it part. The Court will issue an order scheduling these remaining issues for trial in the near future.