KAREN HAYES, Magistrate Judge
DEPOSITION OF MITCH BENEFIELD
Taken at the instance of the Defendant, Ambling Construction at Holiday Inn Express, 1001 Dauphin Street, Picayune, Mississippi, on Saturday, August 7, 2010, beginning at 10:00 a.m.
REPORTED BY: Debbie G. Williams, CSR #1770 CVR, CSR Brooks Court Reporting, Inc. 12 Lakeland Circle, Suite A Jackson, Mississippi 39216
Q. Yeah. And so there should be a chain of bills of lading and invoices per delivery, correct?
A. Correct.
Q. And that is a progress representation of the delivery based on the two-page documents that we've labeled as Plaintiff's 1 — Plaintiff's 2. Sorry. Correct?
MR. NOEL: Objection to form.
A. I don't see label 2 no more. I don't —
THE COURT REPORTER: I'm getting it.
BY MR. CHICCARELLI:
Q. Did you find the document?
A. Yes, sir.
Q. So the answer to my question is yes?
A. Yes, sir.
Q. Okay. Have you, with your present company, sold Mr. Calhoun or his company any steel?
A. We are in the process, after all this come up, to sell them some steel.
Q. Okay. When did that occur?
A. That occurred probably two weeks ago.
Q. Okay. And so tell me about that.
MR. NOEL: We are definitely going to object to that.
MR. CHICCARELLI: Why? Let me hear your
objection.
MR. NOEL: Number one, it's irrelevant. Number two, that it goes towards any proprietary interest that either company has.
MR. CHICCARELLI: If this witness is doing business with your client right now, I think that reflects on his potential credibility, so I think it's very relevant.
MR. NOEL: Well, if you want to attack his credibility, that's up to you. He's your company man.
MR. CHICCARELLI: Well, he's not my company. He's now working for a company that is now selling potentially to your client.
(Whereupon, an interruption occurred.)
MR. NOEL: Let's go off the record for just a second.
(OFF THE RECORD)
MR. NOEL: I would object as to any of the details other than the fact that he may have a contract.
MR. CHICCARELLI: Why don't we take it question by question? How does that sound?
MR. NOEL: Go ahead.
MR. CHICCARELLI: Can you read back the last
question?
(Whereupon, the court reporter read back the question.)
BY MR. CHICCARELLI:
Q. Is there an outstanding bid — I mean an outstanding quote, and has the quote been accepted, and you have in fact —
A. The job was actually quoted to Lincoln Builders. Lincoln Builders came in and said that RK was going to be the sub on the project, and that they would do a joint check agreement. And it is a rest area in Tremont, Louisiana. And the rebar was shipped Wednesday.
Q. So you have sold to Ambling in the last two to three weeks, rebar?
A. Right.
MR. COSSEY: Objection. That's a misstatement. That's RK, not Ambling.
MR. NOEL: Well, Lincoln Builders was his answer. Lincoln Builders with RK as the sub.
BY MR. NOEL:
Q. So the sale was from the supplier to the sub, correct?
A. Correct.
Q. So the sale was from your current employer to Ambling, correct?
MR. COSSEY: Not Ambling.
A. Not Ambling, to RK Construction.
Q. To RK. I'm sorry. I did it again. And was the purchase price more than $100,000 or less than a $100,000?
MR. NOEL: I would object to any further details other than the fact they have contracted and a sale was made.
MR. CHICCARELLI: The impact of that is very critical or could be critical. I didn't ask for an exact amount. I just asked for a range.
BY MR. CHICCARELLI:
Q. You can answer, subject to the objection.
A. It was a lot lower.
Q. Okay. Above 50 or below 50?
A. Below.
MR. NOEL: Same objection.
BY MR. CHICCARELLI:
Q. Okay. Has it been complete?
A. The job has been shipped complete.
Q. Okay. And is that the only job that you or your company has done for Mr. Calhoun or his company?
A. Yes, sir.
Q. Do you know where Mr. Calhoun bought the account?
A. No. I did not — before all this happened, I did not even — don't even recall who Mr. Calhoun was.
MR. COSSEY: That's all the questions I have for you.
MR. NOEL: I've just got a couple.
FURTHER EXAMINATION
BY MR. NOEL:
Q. I just want to jump over to the latest dealings that was brought up by Mr. Chiccarelli. You do business with Lincoln Builders; is that correct?
A. Correct.
Q. Did you have any personal contact or any other contact with Mr. Calhoun on this last bid?
A. Prior — well, just to get an account set up is the only conversation we've had.
Q. And that's been how long ago?
A. A week-and-a-half.
Q. Okay.
A. Actually, I had to have — actually, Lincoln Builders, after we sold the job, Lincoln Builders come back and said that they were going to sub the job to RK Construction, and that they would do a joint check. And nobody in our office could get a hold of RK, so we called Lincoln Builders back and told them if we're going to sell this to them somebody needs to contact our office to set up an account.
Q. Okay. So your dealings were initially with Lincoln. You weren't soliciting business from Mr. Calhoun?
A. Right. No.
Q. Okay. Now, let me ask you just a couple of quick questions. Have you ever sent out a bid on a job basically conditioned on the subcontractor obtaining the contract to actually complete the job? In other words, they solicit the quotes from people to see what the cost would be to them before they actually contracted the job themselves?
A. I'm not following you.
Q. Okay. Did the subcontractor ever solicit bids from different places including the place where you may have worked —
A. Oh, yes. Oh, yes.
Q. — prior to their getting the contract?
A. We bid — we would bid to subs, you know, rather than to a GC. They would ask for quotes, too. Now, I don't know what their process is beyond that. I don't know if they already know they're going to have the job, you know. Let's say Blow Joe was
DEPOSITION OF: RONALD CALHOUN
taken commencing at 11:18 a.m. on the 11TH day of August, 2010, at the office of Robert S. Noel, II, 2901 Evangeline Street, Monroe, Louisiana, on behalf of the PLAINTIFF.
STIPULATION
This deposition is being taken pursuant to notice to all counsel for all purposes as authorized by the Federal Rules of Civil Procedure.
All objections are reserved until the time of trial except those to the form of the question and responsiveness of the answer. All formalities in connection with the taking of the deposition are waived with the exception of the swearing of the witness and the reduction of questions and answers to typewriting transcript of said deposition.
The witness waives the right to read and sign the transcript of the deposition.
RONALD CALHOUN
after having been first duly sworn, testified as follows:
EXAMINATION
BY MR. BRUSAVICH:
Q Mr. Calhoun, my name is Jude Bursavich and I represent the plaintiff in this matter. We've taken, I guess, your deposition as well as RK Construction's deposition previously. You testified for both, and the court allowed us to take this deposition as long as I don't ask you about any of the past stuff that I've already asked you and, believe, that's not my intention at all. Okay? Let's talk a little bit, if we can, about Mitch Benefield. Okay?
A Okay.
Q Are you familiar with that gentleman?
A I know him from talking to him on the phone. I really don't originally.
Q Okay. How did you first meet him?
A I've never met him in person. I talked to him on the telephone when we set up the account with CMC when I was setting up the job for the Grambling State University job.
Q Okay. For clarity purposes, the first time you ever spoke to Mr. Benefield was when your company was attempting to buy steel from CMC for the Grambling job; is that right?
A Correct.
Q Okay. What about David Heath, are you familiar with that individual?
A I have no idea who he is.
Q Okay. Have you ever heard of his name before?
A No, sir.
Q Okay. You don't know who he's employed by?
A No, sir.
Q Okay. When you first spoke to Mitch Benefield, he was an employee of CMC, to the best of your knowledge?
A Yes.
Q Okay. Do you have any information on when or if he left the employment of CMC?
A No, I do not.
Q Okay. Are you aware of whether he is with that company today?
A I'm not sure.
Q You don't know either way?
A No.
Q Okay. Other than the opportunity or the occasion — let me put it that way. Other than the occasion when wich CMC and RK Construction had a contract together regarding the Grambling job, has your company ever done any other business with any company that Mitch Benefield is associated with?
A Not that I know of.
Q Okay. So if Mitch Benefield would testify that in fact his new employer has done business with RK Construction, would you be in a position to deny that or you simply just don't know either way?
A Like I said, the — no, I haven't — I mean, I don't know who he works for or any of that — of my knowledge, so, now, whether or not — I do, do business with other companies. Now, whether or not he's gone and got employment at another company, I don't know that.
Q Okay. Other than speaking to Mitch Benefield regarding the CMC contract, have you ever spoken to him regarding any other business between he and RK Construction?
A No, sir.
Q Okay. When is the last time you talked to Mitch Benefield?
A I guess it was back when I set up the account for the Grambling job.
Q Okay. Have you spoken to him about this litigation?
A No, sir.
Q Okay. So if I understand you correctly, the last time you spoke to him would have been at least several years ago?
A Correct.
Q Okay. Is there anyone else on behalf of RK Construction that negotiates contracts for RK Construction other than yourself?
A No, sir.
Q So it would be you alone? A Correct.
Q So if RK Construction had negotiated any contracts for business with Mitch Benefield beyond the CMC contract, if that had happened — now, I'm not saying it did. I'm simply saying, if it had happened, you would have been the individual to negotiate that on behalf of RK Construction?
A Correct.
Q Okay. And you don't ever remember that happening?
A No, sir.
Q While you were talking to Mitch Benefield while he was employed by CMC and you were talking RK/CMC business and the contract that you entered into, did Mitch ever talk to you about the possibility of him leaving that company to go somewhere else?
MR. COSSEY: I'm just going to enter a running objection, referring to it as a contract, since we've got the existence of a contract in dispute. I think Mr. Calhoun has called it a job or an account. Just your referral to a contract, enter that and let it be a running objection.
Q That's fine. I read your deposition before — the deposition we took before. You don't deny that there was an agreement between RK Construction and CMC, do you?
A No.
Q Okay. So let's get back to — I don't think the question was answered. Other than speaking Mitch Benefield — no, strike that. When you were discussing business with Mitch Benefield while he was at CMC regarding the agreement between CMC and RK, did he ever discuss with you the possibility of leaving to go to another employer?
A No, sir.
Q You don't remember any type of conversation like that?
A There wasn't any — like I said, the only thing I call — I mean, when I called them, he sent me the paperwork to sign for the — for the job to get set up. Other than that, that's the only conversation that I had with him and dealings.
Q Okay. Maybe we can pin it down like that. The last time we took your deposition, I don't want to go into it again, but we showed you a contract — or showed you an agreement that Mitch Benefield had signed and that you had signed on behalf of RK Construction.
A Correct.
Q Okay. Once that was executed, do you remember any other further conversations with Mitch Benefield about anything?
A None at all.
Q How many conversations do you think you had with Mitch Benefield in your whole life?
A One or two.
Q And that would be only regarding the business between CMC and RK?
A Correct.
Q Okay. Did Mitch Benefield ever discuss David Heath with you?
A No, sir.
Q Have you ever heard of that gentleman before I asked you that question?
A No, sir.
Q Okay. In your last deposition we discussed an area about how the Grambling job and the steel that you needed for that job — where you got that steel from after you didn't get it from CMC and I'm going to go into that again, because we've covered that, but if David Heath or anyone else was to testify that RK Construction got that steel from Mitch Benefield's new employer after he left CMC, that would be in correct?
A Once again, I don't know where David Heath or —
Q Mitch Benefield?
A Where they're at, but the companies that — the company that I got the steel from, Mitch Benefield did not work there.
Q Okay. Do you know if and when Mitch Benefield left CMC?
A No idea.
Q Okay. So all you had knowledge of was he was a CMC employee and you don't even know, he might still be?
A Correct.
Q Okay. I guess my question is, then, how do you know he was not employed by the company that ultimately filled your steel needs for the Grambling job?
A Because they're local right here in Monroe and, like I said, I would actually go into the office there and deal with those individuals personally, face to face.
Q Okay. Is United Rentals?
A Correct.
Q Okay. To the best of your knowledge, Mitch Benefield didn't work for United Rentals at that time?
A No.
Q And you didn't deal with him at that time at United Rentals?
A No.
Q Since United Rentals satisfied your steel needs for the Grambling job, have you had any conversations with anyone at United Rentals about this litigation?
A No, I haven't.
MR. COSSEY: I would object. It's beyond the scope of the notice.
MR. BURSAVICH: And I appreciate that. I was simply trying to — I'm trying to pin down the Mitch Benefield issue —
MR. COSSEY: All right, all right. I know where you're going.
Q Did you attend the Mitch Benefield deposition?
A No, sir.
Q Okay. Are you going to attend the David Heath deposition?
A No, sir.
MR. BURSAVICH: Mr. Calhoun, that's all the questions that I have.
MR. COSSEY: No questions.
MR. NOEL: None here.
COURT REPORTER: What about reading and signing?
MR. NOEL: We'll waive it.
(DEPOSITION CONCLUDED AT 11:30 A.M.) CERTIFICATION
I, Lorrie McLen, Certified Court Reporter, do hereby certify that the above and foregoing pages of typewritten matter, taken by means of stenograph and electronic tape recording, prepared by me or under my direction or supervision, constitute a true and correct transcription of the proceedings held at the time and place as set forth in page one hereof, to the best of my ability.
In witness whereof, I hereunto affix my signature at Monroe, Louisiana, this the 27TH day of AUGUST, 2010. August 30, 2010 The Honorable Magistrate Judge Karen Hayes 105 United States Post Office and Courthouse 515 Murray Street, Alexandria, Louisiana 71301 RE: CMC Steel Fabricators, Inc. d/b/a CMC Construction v. RK Construction, Inc. and Ronald Calhoun, Civ. No. 08-00212 Our File Number 7695-40853
Dear Magistrate Hayes:
Pursuant to Your Honor's Minute Entry of August 12, 2010 regarding the above referenced matter, set forth with this letter is the deposition testimony associated with the issues addressed at the status conference.
The deposition testimony includes the following:
1. Deposition testimony of Mr. Ronald Calhoun of December 3, 2008, pps. 8, 11-14, and 19-37;
2. Deposition testimony of Mr. Ronald Calhoun of August 11, 2010, pps. 4-7;
3. Deposition testimony of Mr. Mitch Benefield dated August 7, 2010, pps. 6-13, 54-57 and 94-101;
4. Deposition testimony of Mr. David Heith dated August 12, 2010, pps. 34-36.
I would also like Your Honor to note the following. As a result of scheduling issues, despite the intimation by Mr. Noel, I was not present at Mr. Calhoun's second deposition of August 11, 2010. I certainly made no representation regarding my attendance at that deposition. Rather, the deposition that I attended was Mr. Benefield's deposition which I conducted by phone and as set forth in the pages set forth above. Mr. Benefield's testimony, even over the objection as to relevancy, commences at page 95 and confirms that his present employer sold steel to Mr. Calhoun or his company as part of a public job for a rest area in Tremont, Louisiana where the rebar was sold directly by Mr. Benefield's current employer to R.K., who was the subcontractor on the project, with Lincoln Builders as the general contractor. Indeed, the testimony further amplifies that, as set forth at the bottom of page 97, lines 24-25, and page 98, Mr. Benefield again confirmed that the sale of the rebar in question was from his current employer to R.K. Construction (see Benefield deposition transcript, pg. 97, lines 22-25, pg. 98, lines 1-6) and that I asked these questions, even over objection as set forth on page 98, lines 5-8, concerning the potential that a relationship on an ongoing basis between Mr. Benefield and Mr. Calhoun could reflect on the potential credibility of the witness being questioned.
The purposes of the other pages referenced above associated with these issues concerns the similarity between the job that was testified to by Mr. Benefield concerning the fact that although the "sale" had occurred "two weeks ago", the job in question was a construction job similar to the factual issues presented in the case before this Court, that being a public job wherein R.K. was the sub on the project, and, wherein in the case before Your Honor, instead of Ambling Construction, Lincoln Builders was the general contractor. Indeed, the contract associated with the Tremont, Louisiana job was likewise subject to a joint check agreement as alluded to (deposition page 97, line 11).
The purpose of attaching Mr. Calhoun's prior deposition from December 3, 2008, at the pages referenced above, is to show Mr. Calhoun's prior testimony concerning two things: (1) the process he employs as the principal of R.K. Construction in bidding on jobs, contracting with suppliers, the number of employees of R.K. Construction (Mr. Calhoun, his wife (see deposition page 8, lines 17-18), one other employee (see deposition page 19, lines 6-25, deposition page 20, lines 1-12)).
The remaining pages of Mr. Calhoun's December 3, 2008 deposition describe the lengthy multi-faceted process that Mr. Calhoun employs (prior to the "sale" of rebar for a public job) to make a bid on a job, obtain architectural drawings, providing a quote for labor and materials, review the necessary blue prints and information to the rebar supplier, completing necessary paperwork, including a credit application, joint check agreement and related documentation, and thereafter start ordering, paying for and receiving delivery of steel for such a public job.
Finally, we are attaching pages 4-8 of Mr. Calhoun's second deposition, in particular page 5, lines 19-25, page 6, lines 1-15, Mr. Calhoun's testimony regarding whether he or his company has done business with Mr. Benefield through Mr. Benefield's current employer and his response to both were "no" and contrast that to Mr. Benefield's testimony, page 95, lines 16-22, wherein Mr. Benefield specifically states as follows:
Q. Okay. Have you, with your present company, sold Mr. Calhoun or his company any steel?
A. We are in the process, after all this come up, to sell them some steel.
Q. Okay. When did that occur?
A. That occurred probably two weeks ago.
Q. Okay. And so tell me about that.
Thus, there is a direct contradiction in the testimony of Mr. Calhoun and Mr. Benefield regarding this issue. Further, some of my questions associated with their relationship was objected to, I believe inappropriately by Mr. Noel, as I attempted to illicit questions regarding credibility issues associated with Mr. Benefield and his current employer doing business with Mr. Calhoun.
Thus, I continue to believe that because of the similar contracts involving a similar process, and, apparently, similar tri-party relationships with the need for a joint check agreement, and, given Mr. Calhoun's prior testimony regarding his duties and responsibilities, the small size of his business and its operations, and his prior testimony regarding the multi-faceted process to obtain subcontract work on a public job, that if the rebar "sale" between Mr. Calhoun and Mr. Benefield's employer occurred "two weeks ago", that their potential interaction had to occur many months before.
RULE 30(b)(6) INDIVIDUAL AND CORPORATE DEPOSITION OF RK CONSTRUCTION, INC., THROUGH ITS REPRESENTATIVE, RONALD KEITH CALHOUN December 3, 2008 Reported By: MARGARET A. COPELAND CERTIFIED COURT REPORTER CERTIFICATE NO. 92160 PARISH OF OUACHITA STATE OF LOUISIANA
A No. I got the license, the state license, in `97, commercial as well as residential.
Q All right. So even after you got your license — I'm sorry — you were still working in the finance business?
A Correct. I had the — doing mortgages as well as building houses at the same time.
Q So you were doing residential work with your construction company?
A Correct.
Q That's RK Construction?
A Correct.
Q All right. After the mortgage company closed, you just continued with construction?
A Correct.
Q Now, let's talk a little bit about RK Construction. Can you tell me who owns it?
A Myself, Ron Calhoun, and my wife, Ronita Calhoun, is on in it, as well.
Q All right. So together you own 100 percent of the stock?
A Correct.
Q Do you and your wife have any type of separate property agreements?
A No.
Q Okay. And how long have you been married? Construction, Inc., today, as RK. And if I do so, you'll understand what I'm referring to.
A I'll understand.
Q How long has RK been incorporated?
A Since 1994.
Q And has it always been owned by you and your wife?
A Yes.
Q Does RK operate in any particular area in Louisiana, or does it operate statewide?
A Statewide.
Q What about outside Louisiana?
A No, sir.
Q Has it ever done any business outside of Louisiana?
A Yes, it has.
Q When was that?
A `06. I think 2006.
Q So explain to me the occasion when you did work outside of Louisiana, if you normally don't?
A We did a — A local contractor from Shreveport that builds hotels, —
Q Uh-huh (yes).
A — we built a Hampton Inn in Natchez, Mississippi.
Q That was a one time deal?
A Yes.
Q And in order to do that, did you have to submit a bid as a subcontractor to work for the contractor?
A Yes, sir, we did.
Q In the business of RK Construction when it does work as a subcontractor — the majority of time, I would assume?
A Uh-huh (yes).
Q Is that Correct?
A Correct.
Q Does it require — Do the contractors require bids from subcontractors so they can choose which subcontractors they are going to do business with on a particular job?
A Yes, they do.
Q Is that the norm?
A That's pretty much the norm.
Q And does that bid process require submitting written documents?
A Yes, it does.
Q And I'm speaking generally now. I know every job may differ, but if you're going to be providing concrete services, do bids normally require an explanation of how much concrete and how much steel you are going to be providing or just a price?
A Normally, just a price.
Q Just a price. Okay. When you submit a bid like that, how can the contractor determine whether or not your bid is accurate based upon how much cement and steel that may be needed?
A Normally, they can't unless they go into detail themselves and do a takeoff themselves. But normally, they just ask for it. They want to see the bottom line —
Q I got you.
A — the bottom line price.
Q Okay. I assume to give them a bottom line price, you have to look at drawings, the specs, and you make the determination of how much steel and how much concrete is going to be needed. Would that be fair?
A Correct.
Q And then you submit a lump sum price?
A Correct.
Q Now, have you ever been in a situation where you submitted that lump sum price and found out after doing the job that you needed more cement or more steel than you originally believed?
A Yes, we have.
Q What happens in that situation if you have agreed with the contractor to be paid a lump sum price when more cement and steel is needed than originally thought?
A It all depends on the contractor. Some will incur the cost, as well. You know what I'm saying? They pay the difference of it.
Q Which means will pay you more?
A Correct. Or the others — Other contractors will basically say, "Well, you're just stuck with it. You pay the cost."
Q I guess you love the first one, huh?
A Exactly.
Q Do contractors ever require in the bid that you submit the amount of cement or concrete that's going to be needed and the steel that's going to be needed?
A Some — some contractors do ask for a detail takeoff.
Q How often does that occur, generally?
A Probably 30 percent.
Q Okay. They do require it?
A Yeah.
Q All right. This is for my own benefit, but it may be important, but it's going to be interesting. What's the difference between cement and concrete?
A The cement is the actual powder that goes inside the concrete.
Q Uh-huh (yes).
A The concrete is actually the water, cement, rock and sand together.
Q Okay.
A So cement is just the base.
Q I got you. So concrete is what you pour?
A Exactly.
Q Good. I'll refer to it that way. I'm going to show you a copy of the Notice of your deposition today and ask you to take a look at that and tell me whether or not this does accurately reflect the notice of deposition that was sent to you for today's deposition.
(Witness peruses document.)
Q Does this appear to be the Notice of deposition I sent?
A Yes.
MR. BURSAVICH: Okay. I'm going to offer and introduce this Notice of Deposition and Rule 45 Subpoena for Document Production Purposes for the deposition of Ronald Calhoun as "Exhibit #1."
Q Mr. Calhoun, attached to your Notice of deposition is "Exhibit A," which is a list of documents that we asked you to produce if you had any such documents in your possession. Did you see those?
A Yes, sir.
Q We received notice from your counsel that you've had no documents responsive to these seven requests. Are you aware of that?
A Yes.
Q Let me ask you a few questions. The document
Q I'm going to show you a copy of RK Construction and Ronald Calhoun's initial disclosures pursuant to Rule 26(A)(1) and ask you to take your time and read that, if you would. It's not very long.
(Witness peruses document.)
Q Mr. Calhoun, this document is required by the court for both sides to fill out, and basically, it attempts to help the litigation to move forward by identifying who might have relevant information in this case and what documents might be relevant. Your lawyer listed two witnesses that might have some relevant information. First is Joe Parra or Parra. Are you familiar with that gentleman?
A Yes, I am.
Q What might he know about this dispute?
A Joe is an employee of mine.
Q Okay.
A He knows that the — From the time frame of when we place an order for steel and the time frame for us to actually get it in on a job to have it to be able to perform the job, —
Q Right.
A — he would know what we needed in regards to the steel and the time frame for us to get it pretty quickly to the job to actually get the job done.
Q What's his position with RK?
A I guess he would be like a superintendent or a foreman.
Q How long has he been with the company?
A Since `06.
Q `06. Okay. Do you know what month in `06 he came in?
A October or November.
Q Late in the year?
A Correct.
Q What about Joe Parra? Anything else that he might know about this dispute?
A That's basically it.
Q Jerry Erwin. Who is that gentleman?
A He was the project manager for Ambling — Ambling Development Construction.
Q So he's not with RK Construction?
A No, sir.
Q Okay. So when it lists here, project manager for RK Construction, is that just a mistake?
A A mistake.
Q Jerry Erwin. Is he still with Ambling? Do you know?
A The last I heard he was.
Q Was he the guy with Ambling that you had the most contact with while you were doing the Grambling job?
A Yes, he was.
Q What was his position again?
A Project manager.
Q Project manager. Was he on site?
A Yes, he was.
Q You told me that on the Grambling job Ambling had — I don't know what you call it. — the shack or something there.
A Job trailer.
Q Job trailer. Was Jerry Erwin the guy that you go in and see and talk to?
A Exactly.
Q He was your main contact?
A Correct.
Q Now, this document also requires that you list any documents which may support any claims that you brought in this case, any defenses you have, to the other side, CMC's claims. And your response is, "No documents currently in our possession." So, I assume what that means is, other than the documents that we provided. Documents we provided as part of our initial disclosures, you have nothing beyond that. Is that fair?
A That's fair. In my initial understanding was that those are the documents you guys wanted, you know what I'm saying, the ones we — the credit app and all that kind of stuff that we did with CMC.
Q Right. And we provided those to you, so you are familiar with those documents?
A Correct.
Q But are there any other documents that you are aware of that we did not provide to you that you believe provides in any manner whatsoever a defense to the claims by my client in this case?
A Not to my knowledge.
MR. BURSAVICH: I'm going to offer and introduce RK Construction and Ronald Calhoun's Initial Disclosures as "Exhibit #2."
Q Now, at some point in time, I assume RK-became interested in possibly assisting Ambling at the job at Grambling University that's at issue in this case. Is that fair?
A Yes.
Q How did that come to be? What happened?
A We bidded on the project and was awarded the contract.
Q How did you find out that the job was even going to be done?
A I guess mail outs and also a friend of mine told me about it, also.
Q What was the job, Mr. Calhoun? Can you explain it to me?
A It was — The job was new dorms that was being built at Grambling State University, new housing, student housing.
Q Yes. How big a project was it?
A About a hundred forty seven thousand — forty-three thousand square foot.
Q Do they measure? When common people talk about it, do they talk about it by square foot or by number of dorms?
A Number of, more like probably, I'm thinking, dorm rooms.
Q Dorm rooms?
A Units.
Q Units. And how many units was this?
A I'm not sure.
Q Just approximately. Was it a hundred units? Was it a thousand units?
A Probably twelve hundred units.
Q Twelve hundred units. Is that a big job?
A A very big job.
Q Was the contractor, Ambling, looking for subcontractors to perform all the work and they were simply going to oversee it, or was the contractor going to be doing some of the work itself, also?
A No. What my portion was labor and materials.
Q Were there a whole bunch of subcontractors out there doing the work on this?
A Yes. It was a lot of other subcontractors on the job, as well.
Q Do you know if Ambling was actually doing the work themselves or was it just supervising the subs?
A I think they were just supervising the subs.
Q Is that common?
A Yes. Very common.
Q Now, what did RK bid on? What work for this job?
A The foundations. Foundation work.
Q So the cement and the materials, the steel, for the foundation?
A Correct.
Q Was any parking lots involved?
A No parking. Just curb. Curb and gutter —
Q Okay.
A — and sidewalks.
Q All of that is going to be concrete and steel and water?
A Yes. Concrete — concrete and form material which is wood material —
Q Right.
A — as well as steel.
Q What did they require that you submit?
A Just a total price bid.
Q Total price bid.
A Yes, sir.
Q They didn't ask you to break it down?
A No, sir.
Q And what did you submit? Did you submit just a total price?
A A total price on it.
Q How did RK go about determining how much concrete was going to be needed and how much steel was going to be needed and how much of any other material was going to be needed?
A Each part I — On the steel, I contacted CMC, got them to do a takeoff on the steel.
Q What does that mean?
A They estimated out how much steel would be required for each slab or the total job.
Q And what did CMC need from you? What information did they need in order to make those calculations?
A Blueprints.
Q Blueprints?
A Uh-huh (yes).
Q Okay. Did you submit blueprints to CMC?
A Yes, sir. We did.
Q Is this before or after you bid the job?
A I think it was before. I can't — I can't really remember now.
Q Would it have to be before so you would know how to give a price so you would build the steel in the price?
A Correct.
Q Do you think that's right?
A Correct.
Q Where did the drawings come from?
A Ambling Development.
Q So if subcontractors were interested in bidding on the job, they would give copies of the plans to subcontractors for purposes of submitting the bids?
A Correct.
Q How did you get copies of those plans and drawings?
A I got them from Ambling Development.
Q Okay. Did they mail them to you or you picked them up?
A They mailed them to us.
Q How does that work? You tell them you're interested in bidding on the job and we need copies of the plans and specs?
A Correct. And they ship them out to you.
Q When you sent a copy of the drawings or plans or specs or whatever you sent to CMC, were you seeking just — what were you seeking from CMC at that time?
A A total price.
Q Or their predecered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration." N.Y. Debt. Cred. Law § 273. The determination of whether fair consideration is received in exchange for a transfer is a question of fact. See Eclaire Advisor Ltd. as Trustee to Daewoo Int'l (Am.) Corp. Creditor, 375 F. Supp. 2d 257, 269 n. 5 (S.D.N.Y. 2005) (citing Am. Tissue v. Donaldson, 351 F. Supp. 2d 79, 105-06 (S.D.N.Y. 2004)).
As an initial matter, the transfer of 7 Howard Avenue occurred by a deed dated October 13, 2004, and thus was within both two years and six years of the date of the April 1, 2005 bankruptcy petition filed by Debtor, as required by federal and New York state law, respectively. As the Bankruptcy Court correctly noted, although under New York law, the burden is typically on the party challenging the transfer to demonstrate a lack of fair consideration, in the case of intrafamily transfers, the burden of proof shifts to the transferee to demonstrate fair consideration. See Nisselson v. Empyrean Investment Fund, L.P (In re MarketXT Holdings Corp.), 426 B.R. 467, 470 n. 5 (Bankr. S.D.N.Y. 2010) ("Defendants have the burden of proof on this issue under the Bankruptcy Code, but New York State law generally places the burden on the plaintiff to demonstrate lack of `fair consideration,' at least where the transferee is not a family member."). As discussed supra, Appellant was correctly determined to be an "insider" of Debtor, and this thus constituted an intrafamily transfer. Thus, the burden was on Appellant to demonstrate that there was fair consideration for Debtor's transfer of her interest in 7 Howard Avenue to him.
In any event, even if the burden were on the Appellee, the result here would be the same.
a. Reasonably Equivalent Value or Fair Consideration
The Bankruptcy Court rejected Appellant's argument that Debtor's ability to live at the property since 2004 without paying any utility bills, maintenance, or repair costs, was not fair consideration or reasonably equivalent value. This Court agrees. After a thorough examination of the record, the Court determines that the Bankruptcy Court correctly concluded that there was not fair consideration or reasonably equivalent value given by Debtor in exchange for the deeding of her tenancy by the entirety interest in 7 Howard Avenue to Appellant.
"[C]ourts have used the Code's `reasonably equivalent value' interchangeably with the [Debtor and Creditor Law's] `fair consideration' for purposes of analyzing constructive fraud claims under the Bankruptcy Code and the [Debtor and Creditor Law]." Kramer v. Sooklall (In re Singh), Bankr. No. 06-44392-CEC, Adv. No. 08-1036-CEC, 2010 WL 2853749, at *6 (Bankr. E.D.N.Y. July 20, 2010). In order to satisfy the statutory requirement for "reasonably equivalent value" under § 548 or "fair consideration" under New York's Debtor and Creditor Law, a conveyance must satisfy an antecedent debt or constitute a present exchange. Pergament v. Reisner (In re Reisner), 357 B.R. 206, 214 (Bankr. E.D.N.Y. 2006) (citing 5 Collier on Bankruptcy, ¶ 548.05[1][b]); see also HBE Leasing Corp. v. Frank, 61 F.3d 1054, 1061 (2d Cir. 1995)). While dollar-for-dollar equivalence is not required, the value of the consideration may not be "`disproportionately small' as compared to the value of the transferred property." Lippe v. Bairnco Corp., 249 F. Supp. 2d 357, 377 (S.D.N.Y. 2003).
Unlike the Bankruptcy Code's "reasonably equivalent value" inquiry, fair consideration under the Debtor and Creditor Law also requires good faith on the part of the transferee. See In re Singh, 2010 WL 2853749, at *6. Because the Court concludes that Appellant has not demonstrated that the value requirement is met, this Court need not reach the good faith determination.
Although transfers made pursuant to a valid separation agreement incorporated into a divorce decree are presumed to have been made for fair consideration, where the separation agreement is not incorporated into a divorce decree, the transfer is not presumed to have been made for fair consideration. Moreover, even if a valid separation agreement does contain the transfer, the Court may still scrutinize that separation agreement to ensure that it includes exchanges representing fair consideration. See In re Gamaldi, 2009 WL 961417, at *11; see also Fed. Deposit Inc. v. Mallin, 802 F.2d 12, 19-20 (2d Cir. 1986). The Bankruptcy Court correctly concluded that there was no evidence that the transfer of 7 Howard Avenue was incorporated into the separation agreement. Specifically, Appellant testified at trial:
The Court: Now, the separation agreement doesn't describe at all how the marital assets are going to be divided. Is there an agreement that demonstrates how you divided these assets?
The Witness: No. There's no agreement.
The Court: So there's no additional paper?
The Witness: No, there's not.
The Court: This is it?
The Witness: Yeah. There's no other paper.
The Court: This is the only thing that exists to support the proposition that the property was transferred pursuant to a marital agreement? There is no agree — there's no written agreement of that, is there?
The Witness: No, no. Nothing in writing.
(Tr. at 25-26; see also Tr. Ex. F, Separation Agreement; Tr. Ex. Q, Divorce Document.) "Where the transfer has not been incorporated into a divorce decree, more will be required about the financial circumstances of the parties, the value of the transferor's share in the property transferred, and the nature and amount of the potential claims waived by the transferee." In re Gamaldi, 2009 WL 961417, at *11 (citing Darling v. Darling, 869 N.Y.S.2d 307, 320 (Sup. Ct. 2008)). Thus, the Court proceeds to an examination of these factors.
Appellant conceded at trial that Debtor did not owe him any debt prior to the transfer. (Tr. at 37 ("There was no debt owed by your wife to you, there was [sic] no documents reflecting any debt owed by your wife to you. Is that correct? A: No. She owed me no money. Q: What did she owe you? A: Nothing.").) Instead, according to the deed, the transfer was made "in consideration of Ten Dollars." (Trial Ex. J, Deed dated 10-13-04.) However, Appellant testified at trial that he never gave that $10.00 to Debtor. ( See Tr. 17-18.) At trial, when asked whether he had given Debtor $10 for the transfer, Appellant merely reiterated the contention that Debtor's "payment" for the transfer was being allowed to stay in the house free from any obligations to pay utilities or the mortgage. ( See id.; see also 341 Hearing Tr. 5 ("Trustee: Did you get any money from your husband when he took your name off the deed? Debtor: No.").)
In the instant appeal, Appellant claims that he introduced a letter of satisfaction of a mortgage for $123,750.00 clearing the name of Debtor as part of the agreements for Debtor to remain at the house, as long as she wanted, free from any obligation to pay for anything, including mortgage payments. Thus, Appellant argues that Debtor received fair consideration for the transfer of the home, because she was cleared of the mortgage, which was associated with the property, under which she was liable.
However, as the Bankruptcy Court noted, the evidence at trial indicated that, although this new mortgage might have relieved Debtor of liability under the prior mortgage, Appellant offered no evidence at trial — other than his own testimony — to demonstrate that he was paying the refinanced mortgage, and not Debtor. Specifically, the Court noted:
The Court: Mr. Durand. . . . There's no income. There's no evidence that you've earned a nickel. There's no tax returns. There's no money from your company. There's no money from anything, and so I'm wondering that since your wife was earning 2,000 — 25,000 in 2003, 26,000 in 2004, was that used to pay the obligations of the house?
The Witness: I don't know exactly what she used her money for, but. . . .
* * *
The Court: There's not a single document in the record . . . either in the form of a tax return, a K-1, a note on the back of an envelope, anything that showed you ever earned a penny . . . between the time of the separation and now.
* * *
The Witness: Yes. Correct. I have no written agreement. I mean no written document.
The Court: So the record — so my record is you have no income.
The Witness: No. I didn't say I don't. . . . Yes. I did earn my living.
The Court: Where's the record of it?
The Witness: I don't have any.
Nor did Appellant offer evidence that it was he who applied for and received the new mortgage. ( See Tr. 60-62 (questioning Appellant, who had failed to present the application for the mortgage into evidence, "[s]o how do you remember if you included your wife or not [on the application]? The Witness: I know I did not include her").) Appellant did not present any documentary evidence regarding the new mortgage.
(Tr. 44-47; see also Tr. Ex. O, G. Durand's Compliance with Trustee's Document Requests ¶¶ 16-18 ("Defendant does not have W2 or K1, 1999 through 2005 tax return. Defendant does not have copies of bank statement, front and back of checks from 1999 through April 1, 2005. Defendant does not have proof of any income received from 1999 to April 1, 2005.").) Although he claims that the mortgage was paid from his income, Appellant admitted at trial that he was earning "a lot less than" $20,000 a year between 2000 and onward. (Tr. 36.)
Moreover, the Bankruptcy Court correctly found that there was also evidence that Debtor had income during this period and paid at least some household expenses. ( See Tr. 43-44.) Moreover, at the 341 Hearing, Debtor testified that she pays Appellant rent on the home. (341 Hearing Tr. 3 ("Trustee: What are the mortgages on the house? Debtor: He takes care of everything because he is very domineering. I just pay him for my rent.").) Accordingly, the evidence in the record — which was unrefuted other than by Appellant's own testimony (which the Bankruptcy Court did not credit) — indicated that Debtor did not receive the ability to live in the house at no expense after she transferred her interest in the property to G. Durand. The evidence also indicated that Debtor was, at least, contributing to the payments on the new mortgage. Moreover, the satisfaction of the initial mortgage was only accomplished by refinancing the property, which effectively wiped out Debtor's equity. (Bankruptcy Opinion at 8.) Thus, this Court concludes that the Bankruptcy Court's finding that Debtor did not receive fair consideration for the transfer of 7 Howard Avenue was not erroneous.
b. Insolvency
The Court next turns to the Bankruptcy Court's determination that at the time the alleged fraudulent conveyance was made, the Debtor was or was thereafter rendered insolvent. Insolvency is a question of fact, Klein v. Tabatchnick, 610 F.2d 1043, 1048 (2d Cir. 1979); Join-In Int'l (U.S.A.) Ltd. v. N.Y. Wholesale Distribs. Corp. (In re Join-In Int'l (U.S.A.) Ltd.), 56 B.R. 555, 560 (Bankr. S.D.N.Y. 1986), "and the findings of the Bankruptcy Court in this regard will not be disturbed unless they are clearly erroneous." Lawson v. Ford Motor Co. (In re Roblin Indus., Inc.), 78 F.3d 30, 35 (2d Cir. 1996).
The Bankruptcy Court found that each of the three prongs of New York Debtor and Creditor Law § 273 were satisfied, specifically: (i) Debtor was rendered insolvent by the transfer; (ii) Debtor intended or believed that she would incur debts that she would be unable to pay as they matured; and (iii) at the time of the transfer, Debtor was either a defendant in actions for money damages in which final judgment had been rendered that have not been fully satisfied and/or judgments had been entered against her as of the date of the transfer. (Bankruptcy Opinion at 13.) The Court determines that there was sufficient evidence to conclude that Debtor was rendered insolvent by the transfer and, accordingly, need not reach the Bankruptcy Court's determinations as to the other prongs.
The Bankruptcy Court's determination that Debtor was rendered insolvent by the transfer was not clearly erroneous. A presumption of insolvency arises where the debtor makes a conveyance without fair consideration. See Sullivan v. Messer (In re Corcoran), 246 B.R. 152, 163 (E.D.N.Y. 2000); United States v. Alfano, 34 F. Supp. 2d 827, 845 (E.D.N.Y. 1999). Once it is established that the transfer was in exchange for less than fair consideration, the transferee has the burden to overcome the presumption of insolvency by showing that the debtor was solvent after the transfer. In re Corcoran, 246 B.R. at 163. Appellant has failed to do so here. Indeed, Debtor filed for bankruptcy on April 1, 2005, roughly six months after the transfer was made. As of the date of filing, Debtor had only $1,757 in assets in a checking account and over $37,000 in unsecured nonpriority claims. ( See Petition.) Debtor acknowledged at the 341 Meeting that at the time of the transfer of her interest in 7 Howard Avenue, she was indebted to several creditors and being sued by some of them; those debts were not satisfied by the date on which Debtor filed her bankruptcy petition. ( See 341 Hearing Tr. 7; see also Petition.) Moreover, Debtor testified at the 341 Hearing that Appellant caused Debtor to transfer her interest in 7 Howard Avenue to him specifically because of her debt. ( See 341 Hearing Tr. 2-3.) Thus, this Court concludes that the Bankruptcy Court's finding that Debtor was rendered insolvent by the transfer was not clearly erroneous.
"Insolvent" is defined under the Bankruptcy Code as a "financial condition such that the sum of [the] entity's debts is greater than all of [the] entity's property, at a fair valuation. . . . ." 11 U.S.C. § 101(32). The Court concludes that the Bankruptcy Court's finding of insolvency was not erroneous under New York Debtor and Creditor Law or the Bankruptcy Code.
3. Actual Fraudulent Transfer
The Bankruptcy Court also determined that the Debtor's transfer of 7 Howard Avenue to Appellant should be avoided because it was a transfer made with the "intent to hinder, delay or defraud" creditors. See 11 U.S.C. §§ 548(a)(1), 544(b); N.Y. Debt. Cred. Law § 276. Under 11 U.S.C. § 548(a)(1) and its state-law counterpart, New York Debtor and Creditor Law § 276, a conveyance made with actual intent, "as distinguished from intent presumed in law, to hinder, delay or defraud present or future creditors, is fraudulent as to present and future creditors." European Am. Bank v. Sackman Mortg. Corp. (In re Sackman Mortg. Corp.), 158 B.R. 926, 938 (Bankr. S.D.N.Y. 1993 (citing In re Chadborne Indus., Ltd., 71 B.R. 86 (Bankr. S.D.N.Y. 1987)). Specifically, the Bankruptcy Code provides:
The trustee may avoid any transfer . . . of an interest of the debtor in property . . . that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily — (A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted.
11 U.S.C. § 548(a)(1)(A). Similarly, New York Debtor and Creditor Law provides that "[e]very conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors."
N.Y. Debt. Cred. Law § 276. It is only the debtor's intent that is relevant to the determination of actual intent to make a fraudulent conveyance.
See, e.g.,
Bayou Accredited Fund, LLC v. Redwood Growth Partners, L.P. (In re Bayou Group), 396 B.R. 810, 826 (Bankr. S.D.N.Y. 2008).
"Since the question of actual fraud involves the parties' state of mind, it is not ordinarily proven by direct evidence, but rather, by inference from other facts proven." McCarthy v. Nandalall (In re Nandalall), No. 06-12252, Adv. No. 08-90118, 2010 WL 1780048, at *5 (Bankr. N.D.N.Y. May 3, 2010) (citation omitted). "Due to the difficulty of proving actual intent to hinder, delay, or defraud creditors, the [party challenging the transfer] is allowed to rely on `badges of fraud' to support his case, i.e., circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent." Sharp Int'l Corp. v. State St. Bank Trust Co. (In re Sharp Int'l Corp.), 403 F.3d 43, 56 (2d Cir. 2005) (internal quotation marks and citations omitted). Circumstances recognized by the Second Circuit as "badges of fraud" include:
(1) the lack or inadequacy of consideration; (2) the family, friendship or close associate relationship between the parties; (3) the retention of possession, benefit or use of the property in question; (4) the financial condition of the party sought to be charged both before and after the transaction in question; (5) the existence or cumulative effect of a pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors; and (6) the general chronology of the events and transactions under inquiry.
In re Nandalall, 2010 WL 1780048, at *6 (citation omitted).
Here, several badges of fraud are present. As discussed extensively in the previous section, there was inadequate consideration given to Debtor for the transfer of her interest in 7 Howard Avenue. In addition, as discussed in the "insider" status analysis supra, Debtor and Appellant had a family, friendship, or other close relationship. Moreover, Debtor retained benefit and use of the property in question, 7 Howard Avenue. Notably, Debtor listed 7 Howard Avenue as her address on her bankruptcy petition dated April 1, 2005 and stated that it was her address at the 341 Hearing. ( See Petition; see also Tr. 13-14.) At trial, Appellant also testified that Debtor continued living in the house after she deeded him the property. (Tr. 13-18.) Furthermore, the general circumstances surrounding the transfer militate in favor of a finding of actual intent to defraud. At the time of the transfer, Debtor was indebted to several creditors and being sued by some of them; those debts were unsatisfied as of the date on which Debtor filed her bankruptcy petition. ( See 341 Hearing Tr. 7; see also Petition.) Although Appellant testified that he was not aware that Debtor had extensive debt at the time of the transaction, this is contrary to the Debtor's testimony at the 341 Hearing that Appellant caused Debtor to transfer her tenancy by the entirety interest in 7 Howard Avenue to him because of all her debt ( see 341 Hearing Tr. 2-3), and contrary to the Debtor's testimony at the 341 Hearing that Appellant knew she was in debt because he opened all the mail. ( Id. at 5.) To the extent that the Bankruptcy Court's findings were colored by its determinations regarding Appellant's (and Debtor's) credibility, the Court gives "due regard . . . to the opportunity of the bankruptcy court to judge the credibility of the witnesses." See Fed.R.Bankr.Proc. 8013.
Nonetheless, as stated supra, it is the transferor's intent — not the transferee's intent — that is relevant for this inquiry.
Thus, the Bankruptcy Court's determination that several classic badges of fraud surrounded the transaction, which were sufficient to conclude that there was actual intent to hinder, delay, or defraud in the transfer of 7 Howard Avenue, was not erroneous. See, e.g., Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1583 (2d Cir. 1983) (finding fraudulent intent to defraud when "[w]hile insolvent, [debtor] purchased two homes with his own money, but had title to both placed in the name of his wife who provided no consideration for these transfers. He continued to retain the possession, benefit and use of the properties and treated them as his own. He created dummy corporations in order to hide his assets. He concealed these assets in his petition for bankruptcy"); Mendehlson v. Jacobowitz (In re Jacobs), 394 B.R. 646, 667 (Bankr. E.D.N.Y. 2008) ("The record shows several badges of fraud that support the conclusion that the GFI Transfer was made with an intent to hinder, delay, or defraud Victor Jacobs' creditors. These include the lack of consideration, the family relationship between Victor Jacobs and Eva Jacobowitz, and the associated prospect of a retention of control over the property, and the timing of the GFI Transfer, which coincides with Victor Jacobs' increased risk of liability on the Limited Guarantee. Accordingly, the Court finds that the GFI Transfer was made with actual intent to hinder, delay, or defraud Victor Jacobs' creditors."); In re MarketXT Holdings Corp., 376 B.R. at 405-06, 426 (concluding that there was ample evidence "in the record of the `badges of fraud' that constitute evidence of an intent to `hinder, delay or defraud' creditors" when plaintiff in avoidance action demonstrated when the debtor was in "desperate financial condition," prior to the transfer, facts regarding the transfer were concealed from creditors, there was inadequacy of consideration, the parties to the transaction lacked an arm's-length relationship, and the transferor retained rights and control over the transferred funds). Indeed, "[t]he transfer of property by the debtor to [her] spouse while insolvent, while retaining the use and enjoyment of the property, is a classic badge of fraud." In re Kaiser, 722 F.2d at 1583. Accordingly, the Court affirms the Bankruptcy Court's determination that the transfer of 7 Howard Avenue should be avoided as a transfer with actual fraudulent intent under the Bankruptcy Code and New York Debtor and Creditor Law.
B. Sale of the Property
The Bankruptcy Court determined that the property should be sold free and clear of all liens under 11 U.S.C. § 363(h) and that the proceeds should be divided, according to their respective rights, among the bankruptcy estate and Appellant. Appellant claims that the Bankruptcy Court, by ordering that Appellant permit an appraiser to access his home in order to conduct an appraisal prior to the trial, "pre-judged the Appellant and set judgment against Appellant prior to the trial."
This Court concludes that the Bankruptcy Court's determination regarding the disposition of the property was correct. 11 U.S.C. § 363(h) of the Bankruptcy Code provides:
(h) Notwithstanding subsection (f) of this section, the trustee may sell both the estate's interest, under subsection (b) or (c) of this section, and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if —
(1) partition in kind of such property among the estate and such co-owners is impracticable;
(2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and
(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.
11 U.S.C. § 363(h). The Trustee bears the burden of proving each of the four elements of § 363(h). Under subsection (h)(3), after the trustee has made his prima facie case establishing that the estate would benefit from the sale of the residence, the burden shifts to the defendant to show that the there is a detriment to him.
See, e.g.,
Stern v. Molano (In re DeVanzo), Bankr. No. 8-08-75665-reg., Adv. No. 8-09-08128-reg,
2010 WL 1780038, at *4 (Bankr. E.D.N.Y. May 3, 2010);
O'Connell v. Prakope (In re Prakope), 317 B.R. 593, 602 (Bankr. E.D.N.Y. 2004).
The Trustee asserted that the sale of the property free and clear of Appellant's interest would have substantial economic benefit to the estate. See, e.g., Gazes v. Roswick (In re Roswick), 231 B.R. 843, 859 (S.D.N.Y. 1999) ("A `co-owner's undivided one-half ownership interest chills any prospective purchase of the estate's interest [when such co-owner] currently resides on the property and could prevent the sale of the property indefinitely." (citing Bakst v. Griffin (In re Griffin), 123 B.R. 933, 935-36 (Bankr. S.D. Fla. 1991))). Appellant did not set forth any evidence that sale of Debtor's tenancy-by-theentirety interest in 7 Howard Avenue would realize substantially less than a sale of the property as one single-family residence. Specifically, the Bankruptcy Court based its determination on the "only evidence in the record as to the property," an appraisal stating that it was valued at $361,500. (Tr. 56.) This resulted in the Debtor's interest in the property being valued at least $130,000. ( See Trustee's Motion for Sanctions Direct Compliance with Discovery and Grant Other Further Relief Regarding Defendant, Ackerman v. Durand, et al., Adv. Proc. No. 07-8115-736, ¶ 7, ECF No. 50.)
The Bankruptcy Court determined that the property was a single-family residence, and there was no evidence in the record suggesting that partition of the property, in which Debtor and Appellant shared tenancy by the entireties, was feasible, practical, or desired. See In re DeVanzo, 2010 WL 1780038, at *3 ("The parties agree that a partition of the Real Property is impracticable because it is comprised of a single family dwelling, and the sale of the estate's interest, alone, would yield significantly less than a sale free and clear of the Defendant's interest."); see also Sapir, 230 B.R. at 654 ("Numerous cases decided in this Circuit and elsewhere since Persky II . . . have continued to apply Section 363(h) to authorize the sale of property owned as tenants by the entireties." (collecting cases)).
Appellant did not contest this determination in the Bankruptcy Court or on this appeal.
Appellant did not present substantial evidence regarding why the sale should not proceed, nor did he present evidence that the sale would be detrimental to him. Appellant's only testimony at trial regarding detriment to him concerned his connections to Freeport — not to 7 Howard Avenue. Appellant testified that his main church is in Freeport, that he was part of the community in Freeport, and considered Freeport his "hometown." (Tr. 52-53.) Appellant testified that he has a brother who lives on Long Island, although he did not know exactly where he lived. (Tr. 51.) Appellant also testified that he has family in Queens and Brooklyn. (Tr. 51-52.) Appellant did not demonstrate or even state that he would not be able to find adequate substitute housing in the area or that moving would cause him a significant inconvenience. See In re DeVanzo, 2010 WL 1780038, at *9 ("Here, the Defendant has not alleged any economic harm, nor has she alleged that there are no alternative rentals in the neighborhood. This Court is `not blind to the fact that in practical terms financial compensation may not always be a completely adequate substitute for a roof over one's head.' In re Persky, 893 F.2d at 21 (citing United States v. Rodgers, 461 U.S. 677, 703-04 (1983)). However, based on the facts presented, the Defendant has not shown that she will be unable to find adequate substitute housing in the area."). Appellant did not demonstrate that any circumstance warranted the Bankruptcy Court concluding that the sale should not proceed. See In re Roswick, 231 B.R. at 861 ("[T]he nondebtor must demonstrate some extraordinary circumstance, other than inconvenience or emotional attachment, to frustrate the trustee's attempt to sell property."). Most importantly, on this appeal, Appellant does not challenge the Bankruptcy Court's determination that the house must be sold. In any event, even if he did challenge it, the Court agrees with the Bankruptcy Court's determination. Accordingly, the Bankruptcy Court's ruling regarding sale of the property is affirmed.
To the extent that Appellant raises claims regarding the Bankruptcy Court's order to Appellant to permit real estate expert Richard Klimkowski to access 7 Howard Avenue on May 19, 2009, these claims are without merit. The information that the real estate expert was to provide the Court with was important and necessary to the Bankruptcy Court's determination regarding the disposition of the property.
The Bankruptcy Court has the authority to order a party to permit entry onto property to inspect the property if it is relevant to the proceeding. Federal Rule of Civil Procedure 34, which applies in bankruptcy proceedings, provides:
(a) A party may serve on any other party a request within the scope of Rule 26(b):
(2) to permit entry onto designated land or other property possessed or controlled by the responding party, so that the requesting party may inspect, measure, survey, photograph, test, or sample the property or any designated object or operation on it.
Fed.R.Civ.P. 34(a)(2). On March 4, 2009, the Trustee sent Appellant a letter requesting his consent for Appelle's appraiser to gain access to 7 Howard Avenue to conduct an appraisal. (Appellee's Ex. CC.) After Appellant failed to respond to this request, Appellee moved for an order from the Bankruptcy Court directing Appellant to allow Appellee's appraiser, Richard Klimkowski, to access the property. ( See Trustee's Motion for Sanctions Direct Compliance with Discovery and Grant Other Further Relief Regarding Defendant, Ackerman v. Durand, Adv. Proc. No. 07-8115-736, ¶ 30, ECF No. 50.) On May 6, 2009, the Bankruptcy Court orally granted the Trustee's motion. ( See Ackerman v. Durand, Adv. Proc. No. 07-8115-736, ECF Docket Sheet, Oral Ruling dated May 6, 2009 ("TWO DATES TO BE GIVEN TO DEFENDANT BY TODAY (5/6/09) TO GET AN APPRAISAL BEFORE THE TRIAL").) Appellant did not appeal this ruling, nor request a motion for reconsideration of the ruling. ( See Ackerman v. Durand, Adv. Proc. No. 07-8115-736, ECF Docket Sheet.)
The Court notes that although Appellant contends that the Bankruptcy Court's order than an appraisal should occur prior to trial demonstrates that the Bankruptcy Court "prejudged" Appellant, the purpose behind the appraisal occurring prior to trial was so that G. Durand would have an opportunity to challenge the value of the property at trial, if he chose to do so. See, e.g., New Haven Radio, Inc. v. Meister (In re Martin-Trigona), 760 F.2d 1334, 1345 (2d. Cir. 1985) ("Preliminarily, the district court was entitled to view any objections by the debtor to the Holt appraisal in light of the fact that the debtor had informed the court that it would arrange for an independent appraisal to be done, but then without further explanation, failed to provide such an appraisal. Thus, even assuming, arguendo, that the Holt appraisal contained some deficiencies, as the matter was submitted to the trial court the appraisal was not controverted by any other expert witness nor were its underlying facts in substantial dispute. Moreover, the district court was entitled to view the debtor's failure to produce such an appraisal, after explicitly promising to do so, as evidentiary support for the Holt appraisal, and to regard the debtor's after-the-fact objections as suspect."); In re Brown, No. 09-22585, 2010 WL 1849407, at *1 (Bankr. W.D.N.Y. May 5, 2010) ("At the Trial . . . a New York State licensed real estate appraiser, testified on behalf of the Debtor as to his opinion of the fair market value of the Residence, which testimony was supported by a March 17, 2010 written appraisal that valued the Residence at $65,000.00. Also at Trial, Stephen L. Squirrell, a New York State licensed real estate appraiser, testified on behalf of ESL as to his opinion of the fair market value of the Residence, which testimony was supported by February 13, 2010 written appraisal that valued the Residence at $110,000.00, with a quick sale value of $95,000.00.").
In any event, the appraiser was unable to conduct the inspection prior to May 14, 2009. Accordingly, although Appellant objects to the performance of this appraisal as indication that the Bankruptcy Court "pre-judged" Appellant, the Court notes that the appraisal was not used at trial. In sum, for the reasons discussed above, the Bankruptcy Court's order of May 6, 2009, directing G. Durand to permit an appraiser to access his home at 7 Howard Avenue, was not inappropriate and did not evidence that the Bankruptcy Court had "pre-judged" Appellant. Thus, Appellant's claim is without merit.
C. Appellant's Claims Regarding the Bankruptcy Court's Procedures
Appellant argues that there were several procedural defects with his trial in Bankruptcy Court. Specifically, Appellant claims that: (1) the Bankruptcy Court exhibited biased and prosecutorial behavior during the May 14, 2009 trial; (2) the Bankruptcy Court "denied Appellant the presumption of innocence" at trial; and (3) Appellant was not given an opportunity to prove his case at trial.
It is the Trustee's duty to "collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest." 11 U.S.C. § 704(a)(1). In accordance with this duty, the Trustee initiated the instant action against Appellant in order to recover Debtor's tenancy-by-the-entireties interest in 7 Howard Avenue. The Trustee asserted that such property was property of the estate under 11 U.S.C. § 541, which could be used to pay creditors.
Although Appellant contends that he was not given an opportunity to prove his case at trial, the record reflects to the contrary. The docket of the case before the Bankruptcy Court indicates that Appellant was given multiple opportunities to produce documents, witnesses, or any other evidence in support of his case:
The Court: Okay. Mr. Durand, you have no witnesses here?
Mr. Durand: No, I don't.
The Court: Let me explain. You have a right, though I'm not quite sure, it's an oddity. You've produced no documents, so there are no documents to put in the record to refute any allegations the trustee has made. There are no witnesses to refute any of the allegations the trustee has made. So what is it that you intend to do now to put on your case? It's your — you have a certain burden now moving forward.
You understand or you're deemed to understand the obligations in the complaint. You've answered those allegations with denials. I've reserved on a summary judgment question. The trustee has put on a prima facie case, which means he has put on a case that's, without being refuted, may be sufficient to meet his claims that, one, the property subsequent to the filing of the bankruptcy an interest in property was transferred for what appears to be no consideration at a time when the debtor was insolvent. It was post-petition.
There is a record now that reflects nothing as far as whether the debtor was indebted to you in any fashion. The only response the Court has seen to the allegation is that the consideration that you're arguing the debtor gave in return for the transfer of the interest in the house was you permitted her, even though she was still your wife and your children, to live in the house.
Is that your case? Is that your argument?
* * *
Mr. Durand, this is your opportunity. The trustee has rested.
Mr. Durand: Yes.
The Court: This is now your opportunity. The purpose of what you're doing now is not making a closing statement nor an opening statement actually. What you're doing or what I'm seeking you to do is since you've produced no evidence, no documents, nothing that supports your position at this point, and the record is barren of that, what evidence are you prepared to put into this Court to refute the allegations that the trustee has made in his complaint? Just evidence.
Mr. Durand: The Court and the trustee has a letter of satisfaction of $123,000 that was paid on behalf of the debtor. That is a document on the record, and the debtor had stayed in the house without paying for anything, and that was the agreement.
The Court: Where is — Mr. Durand, where is there evidence in the form of records or testimony from a witness that what you're saying is accurate, that the debtor remained in the house for no consideration? Where on the record is that supported?
Mr. Durand: I have no written document.
The Court: So you have no method of proving that?
Mr. Durand: No written document, but as I said before, she remained in the house without any obligation to pay for anything at the time the house was —
The Court: What supports that assertion, sir? I'm only dealing now — I'm not arguing that you're saying it. I'm not arguing whether you believe it or not. That's not my point. We're attempting to establish at trial, which is what we're at now, a record. That
record contains evidence. You've produced no documents.
Mr. Durand: I produced $123,000 letter of satisfaction which will speak on her behalf.
The Court: Okay.
Mr. Durand: She has no obligation as far as the mortgage is concerned. That was part of the agreement.
The Court: No. I'm asking specifically where is the evidence that supports your proposition that in exchange for her interest in the house she was given free use of the house? Where's the evidence of that?
Mr. Durand: I don't have any written document.
* * *
Mr. Durand: Okay. There did come to the point she didn't want to pay for anything, and she did not participate in the payment of anything, and —
The Court: But we have no evidence of that.
Mr. Durand: Right.
(Tr. 69-73.)
Moreover, according to the Trustee's submissions before the Bankruptcy Court, the Trustee "served Durand with [the Trustee's] First Request for Production of Documents, which required Durand to produce the requested documents by January 13, 2009." ( See Trustee's Motion for Sanctions Direct Compliance with Discovery and Grant Other Further Relief Regarding Defendant, Ackerman v. Durand, et al., Adv. Proc. No. 07-8115-736, ¶ 22, ECF No. 50.) Appellant responded by producing a "few documents," "all of which were already in [the Trustee's] possession, except for the Letter of Mortgage Satisfaction dated February 2, 2005." ( Id. ¶ 24; see also id. ¶ 28 (stating that the Trustee "has been unable, notwithstanding all efforts, to get Durand to comply with discovery"); Trustee's Trial Ex. N, Defendant's Compliance with Document Requests.) Moreover, as indicated in the trial transcript, Appellant was given a full and fair opportunity to be heard at each hearing before the Bankruptcy Court and at trial. Appellant was informed in advance regarding and was present at each hearing held before the Bankruptcy Court and at trial. Appellant was given several opportunities to present evidence prior to and during the trial, but he did not take advantage of these opportunities.
Appellant was also informed by the Bankruptcy Court on multiple occasions that he should consider retaining counsel, but Appellant chose not to retain counsel to represent him in the adversary proceeding. ( See Tr. 88-89.)
To the extent that Appellant raises issues with the Bankruptcy Court's questioning of Appellant, this claim is also without merit. Federal Rule of Evidence 614 provides that "[t]he court may interrogate witnesses, whether called by itself or by a party." Fed.R.Evid. 614. Bankruptcy courts regularly engage in questioning of witnesses. See, e.g., Official Cmte. of Unsecured Creditors v. Michelson (In re Michelson), 141 B.R. 715, 722 (Bankr. E.D. Cal. 1992). Indeed, "the questioning of witnesses by the court is a practice permitted in both jury and nonjury trials under Rule 614 of the Federal Rules of Evidence and prior to the enactment of the Federal Rules." United States v. IBM Corp., 475 F. Supp. 1372, 1382 (S.D.N.Y. 1979).
Under the circumstances of this case, where Appellant was given notice of all hearings before the Bankruptcy Court, attended all hearings before the Bankruptcy Court, was afforded an opportunity to present evidence during discovery, produced very few documents during discovery, and chose not to put on evidence at trial, along with the complete absence of any improper behavior by the Appellee or the Bankruptcy Court, the Court concludes that Appellant has failed to demonstrate any bias, misconduct, or abuse of discretion by the Bankruptcy Court. See, e.g., Martin v. O'Connor, 181 F.3d 83, 83 (2d Cir. 1999) ("Plaintiff has failed to show any bias, misconduct, or abuse of discretion on the part of either the bankruptcy court or the district court, or any violations of procedural rules on the part of Appellee that would impact on the disposition of this appeal."); Croton River Club, Inc. v. Half Moon Bay Homeowners Assoc., Inc. (In re Croton River Club, Inc.), 52 F.3d 41, 45 n. 2 (2d Cir. 1995) ("Appellants suggest that the bankruptcy court exhibited bias and excluded crucial evidence regarding previous calculations. However, as the district court noted, the so-called bias was merely an open expression of entirely justified skepticism. Moreover, the exclusion of the evidence in question was hardly reversible error. The bankruptcy court, as a trial court, has broad discretion regarding the admissibility of evidence and will be reversed only for abuse of that discretion. Given that the bankruptcy court based its ruling on direct evidence concerning which facilities benefitted particular users of the complex, and how much they used them, we see no abuse of discretion."). As discussed above, the Bankruptcy Court's rulings were fully supported by the evidence before it at trial. This Court has searched the full record and finds absolutely no evidence of bias or prejudgment on the part of the Bankruptcy Court. Accordingly, the Court concludes that Appellant received a fair trial and proceeding in the Bankruptcy Court. Appellant's claims relating to the fairness of the bankruptcy proceeding are dismissed. See Damian Servs. Corp. v. Freedom Pers., Inc., 188 B.R. 107, 109 (N.D.N.Y. 1995) ("A review of the pretrial and trial transcripts, however, reveals no evidence of unfair or partial conduct on the part of Judge Waldron. As appellant willingly concedes, Judge Waldron indicated at the pretrial hearing that he would `hear all the persuasive arguments,' and he was `clearly not making a determination today.'"); In re D. H. Overmyer Co., Inc., 383 F. Supp. 21, 23 n. 3 (S.D.N.Y. 1974) ("The final argument urged by Overmyer is that the Bankruptcy Judge prejudged the rights of the landlords before the trials. After reading the transcripts of all the cases on appeal, it is apparent that this argument by Overmyer has absolutely no merit.").
To the extent that Appellant argues that he was "denied the presumption of innocence," the Court notes, as discussed supra, that the Bankruptcy Court correctly placed the initial burden on the Trustee to present a prima facie case of constructive and/or actual fraudulent conveyance. Only once the Trustee had met the burden did the Bankruptcy Court shift the burden to Appellant to come forward with evidence supporting his position. Accordingly, this Court concludes that the Bankruptcy Court appropriately placed the burden on the Trustee, and did not deny Appellant his constitutional rights at trial.
IV. CONCLUSION
For the foregoing reasons, after careful consideration of the record, the Court affirms the Bankruptcy Court's judgment against G. Durand in its entirety.
SO ORDERED.
Dated: September 27, 2010
Central Islip, New York