LandAmerica Financial Group, Inc. v. Southern California Edison Company, No. 3:2014cv00762 - Document 9 (E.D. Va. 2015)
Court Description: MEMORANDUM OPINION. Signed by District Judge James R. Spencer on 1/16/15. (tdai, )
Download PDF
<![CDATA[
LandAmerica Financial Group, Inc. v. Southern California Edison Company Doc. 9 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION LANDAMERICA FINANCIAL GROUP, INC., Appellant, Civil Action No. 3:14-CV-762 v. SOUTHERN CALIFORNIA EDISON CO., Appellee. MEMORAN D U M OPIN ION THIS MATTER is before the Court on appeal from the United States Bankruptcy Court for the Eastern District of Virginia, In re LandAm erica Financial Group, Inc., No. 0 8 -35994KRH, 20 14 WL 20 69651 (Bankr. E.D. Va. 20 14) (Huennekens, K.R.), pursuant to 28 U.S.C. § 158(a)(1). Appellant filed its notice of appeal on Septem ber 23, 20 14 and subsequently filed its brief in support of appeal on Novem ber 21, 20 14 (“App. Br.”) (ECF No. 5). Appellee filed its brief in opposition (“Opp’n Br.”) (ECF No. 7) on Decem ber 5, 20 14, and Appellant then filed its reply on Decem ber 19, 20 14 (“Reply Br.”) (ECF No. 8). The Court dispenses with oral argum ent because the facts and legal contentions are adequately presented in the m aterials before the Court, and oral argum ent would not aid the decisional process. E.D. Va. Loc. Civ. R. 7(J ); Fed. R. Bankr. P. 80 12. For the reasons set forth below, the Court AFFIRMS the Bankruptcy Court’s decision and DISMISSES this Appeal. // // // // 1 Dockets.Justia.com BACKGROU N D 1 I. This appeal arises from the Bankruptcy Court’s decision granting partial sum m ary judgm ent in favor of Southern California Edison, Com pany (“SCE”) and denying the m otion for sum m ary judgm ent filed by LandAm erica Financial Group, Inc. (“LFG”). LFG was a holding com pany that operated a title insurance business and other real estate transaction services. LFG conducted all of its operations through its operating subsidiaries, which included LandAm erica OneStop, Inc. (“OneStop”) and Southland Title Corporation (“Southland”). [LFG and all of its operating subsidiaries will hereinafter be referred to collectively as “LandAm erica”.] LFG’s ability to m eet its current and future obligations was dependent upon its ability to generate positive cash flow from its operating subsidiaries. Southland was an underwritten title com pany, which provided title, escrow and other real estate-related products and services to residential and com m ercial buyers and sellers, real estate agents and brokers, developers, attorneys, and m ortgage brokers and lenders prim arily located in Southern California. OneStop was part of LFG’s lender services business segm ent and provided a full range of integrated residential real estate services, such as the coordination and delivery of title insurance, settlem ent/ closing and escrow services, appraisal and valuation services, property inspections, real estate tax processing services, and default and foreclosure services. LFG operated and adm inistered a centralized cash m anagem ent system (the “CCMS”) on behalf of LandAm erica. The CCMS was designed to collect, transfer and disburse funds generated by LandAm erica and to allocate and record each such deposit, transfer, and disbursem ent by a cost center code that corresponded to a specific legal entity. Under the CCMS, subsidiaries would contribute their revenues to centralized cash accounts, and LFG, as the party m anaging the disbursem ent of funds from those accounts to the vendors and other creditors of 1 The parties filed a J oint Stipulation of Fact (“Stipulation of Facts”) on March 26, 20 14, which served as the basis for their respective m otions for sum m ary judgm ent in the Bankruptcy Court. The parties’ Stipulation is included at Docket Entry 1-1, or “USBC Designation 1,” beginning at page 35 of the PDF document. 2 various subsidiaries, would pay out funds from the accounts to such parties. There was no readily apparent cycle or periodic nature of cash transfers m ade to LFG on behalf of its subsidiaries; rather, cash transfers were m ade to LFG when cash was available at the subsidiary level. Approxim ately ninety percent of LandAm erica revenue flowed through the CCMS. LFG m aintained approxim ately thirty-one active bank accounts which were linked to the CCMS. Three LFG concentration accounts served as the nerve center for the CCMS (the “Concentration Accounts”) and were funded daily with wire transfers and sweeps from approxim ately sixteen depository accounts held by LFG and its subsidiaries. For disbursem ents, LFG used funds in the Concentration Accounts to fund approxim ately nine separate disbursem ent accounts (the “Disbursem ent Accoun ts”), out of which LFG cut checks to pay for LFG’s obligations and to pay for obligations on behalf of its subsidiaries. The use of the CCMS was recorded and reflected in LFG’s accounting system through an account entitled “Accounts with Affiliates.” From February 1, 20 0 8 through Novem ber 26, 20 0 8 (the “Petition Date”), through operation of the CCMS, OneStop and Southland provided substantially all of their earned cash revenues to LFG, and thus neither subsidiary had sufficient funds to pay their own expenses. Instead, LFG in turn paid substantially all of those subsidiaries’ cash expenses. During that tim e period, LFG received over $ 30 m illion m ore in revenues generated by OneStop than LFG disbursed on behalf of OneStop.2 LFG also received over $ 11 m illion m ore in revenues generated by Southland than LFG disbursed on behalf of Southland.3 Thus, LFG received positive net cash flow from the operations of its OneStop and Southland subsidiaries during this tim e period in the aggregate am ount of roughly $ 40 m illion. 2 Specifically, from February 1, 20 0 8 through the Petition Date, LFG received total cash transfers of $ 289,488,20 3 and disbursed total cash transfers of $ 259,0 37,818 on behalf of OneStop through operation of the CCMS. 3 Specifically, LFG received total cash transfers of $ 47,269,366 and disbursed total cash transfers of $ 35,950 ,0 92 on behalf of Southland through the operation of the CCMS. 3 From February 20 0 8 through the Petition Date, both OneStop and Southland required electricity for lighting their office buildings, heating and air conditioning their office buildings, and powering com puters and other technology. From February 1, 20 0 8 through the Petition Date, SCE provided that electric utility service at various locations within California. Through the operation of the CCMS, LFG m ade paym ents to SCE for OneStop’s and Southland’s electrical utlity expenses, totaling $ 20 6,394.49 and $ 39,479.14, respectively. Beginning in 20 0 7 and continuing through 20 0 8, there were significant declines in m ortgage financing, property values, and the num ber of real estate transactions, which when com bined significantly and adversely affected LandAm erica’s prim ary business activities and liquidity. LandAm erica’s revenues were reduced by over forty percent from the fourth quarter of 20 0 6 to the third quarter of 20 0 8. On the Petition Date, LFG filed a voluntary petition for relief under chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Virginia, Richm ond Division (the “Bankruptcy Court”). After the Petition Date, LFG continued to m anage its properties and operations as debtors in possession pursuant to 11 U.S.C. §§ 110 7 and 110 8. Subsequently, several other LandAm erica entities, including Southland and OneStop, filed for bankruptcy protection, and each of those cases was jointly adm inistered for procedural purposes with LFG’s bankruptcy case. The debtors then filed a J oint Chapter 11 Plan (the “Plan”), which created separate liquidating trusts for LFG and for each of the other LFG affiliated Debtors. The Plaintiff in this adversary proceeding was created to oversee the liquidation and distribution of the LFG assets. On Novem ber 24, 20 10 , the Plaintiff filed its Com plaint against SCE seeking to avoid and recover transfers pursuant to 11 U.S.C. §§ 544, 547, 548 and 550 and to disallow claim (s) pursuant to 11 U.S.C. § 50 2(d). The Com plaint sought the avoidance and recovery of certain 4 transfers, in the aggregate am ount of $ 263,462.69 (the “Transfers”) 4 , m ade by LFG to SCE during the nine-m onth period from February 27, 20 0 8 through the Petition Date (the “Avoidance Period”). In Count I of the Com plaint, Plaintiff sought to avoid the Transfers pursuant to 11 U.S.C. § 548(a)(1)(B) as constructively fraudulent conveyances, alleging that LFG did not receive reasonably equivalent value. In Count II of the Com plaint, Plaintiff sought to avoid the Transfers under 11 U.S.C. § 544(b)(1) and Virginia Code § 55-81, alleging that the transfers were not m ade in exchange for valuable consideration. On March 31, 20 14, Plaintiff and SCE each filed m otions for partial sum m ary judgm ent. The Bankruptcy Court conducted a hearing on the parties’ respective m otions on May 1, 20 14. At the conclusion of the hearing, the Bankruptcy Court announced its decision to grant SCE’s m otion for partial sum m ary judgm ent, and deny LFG’s m otion for partial sum m ary judgm ent. The Bankruptcy Court’s order was entered on May 19, 20 14. 5 LFG then filed a Motion to Alter or Am end Order on J une 2, 20 14, which the Court subsequently denied on Septem ber 9, 20 14. The notice of appeal was then filed on Septem ber 23, 20 14, within the tim e provided by Federal Rule of Bankruptcy 80 0 2(a) and (b).6 II. LEGAL STAN D ARD Appeals from bankruptcy courts are governed by 28 U.S.C. § 158, which states that the district courts have jurisdiction to hear appeals “from final judgm ents, orders, and decrees” and “with leave of the court, from other interlocutory orders and decrees.” 28 U.S.C. § 158(a)(1)– (2). A district court “m ay affirm , m odify or reverse a bankruptcy judge’s judgm ent, order, or decree or rem and with instructions for further proceedings.” Fed. R. Bankr. P. 80 13. In reviewing a 4 Since the filing of the Com plaint, Plaintiff determ ined that $ 26,170 .33 of the Transfers were m ade by LFG on behalf of subsidiaries that were solvent at the tim e the transfers were m ade, thus leaving a total of $ 237,292.36 in transfers that Plaintiff sought to avoid as constructively fraudulent transfers. 5 This was a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F) and (O). Bankruptcy Rule 80 0 2 provides that a “notice of appeal shall be filed with the clerk within 14 days of the date of the entry of the judgm ent, order, or decree appealed from .” Fed. R. Bankr. P. 80 0 2(a). However, if the party m akes a tim ely motion “to alter or am end the judgm ent under Rule 90 23,” then “the tim e for appeal for all parties runs from the entry of the order disposing of the last such m otion outstanding.” Fed. R. Bankr. P. 80 0 2(b)(2). 6 5 bankruptcy court’s judgm ent, the district court reviews legal conclusions de novo and findings of facts for clear error. Tidew ater Fin. Co. v. W illiam s, 498 F.3d 249, 254 (4th Cir. 20 0 7). A finding of fact is clearly erroneous if a court reviewing it, considering all of the evidence, “is left with the definite and firm conviction that a m istake has been com m itted.” Anderson v. Bessem er City , 470 U.S. 564, 573 (1985); accord Educ. Credit Mgm t. Corp. v. M osko (In re Mosko), 515 F.3d 319, 324 (4th Cir. 20 0 8). Specifically with regards to m otions for sum m ary judgm ent, a district court reviews the bankruptcy court’s decision de novo. Sm ith v. Ruby (In re Public Access Technology .com , Inc.), 30 7 B.R. 50 0 , 50 4 (E.D. Va. 20 0 4) (citing Hager v. Gibson, 10 9 F.3d 20 1, 20 7 (4th Cir. 1997)). III. D ISCU SSION Appellant presents four issues on appeal: (1) whether the Bankruptcy Court erred in determ ining that LFG received reasonably equivalent value in exchange for its transfers to SCE by LFG’s receipt through the operation of its centralized cash m anagem ent system of funds generated by its subsidiaries; (2) whether the Bankruptcy Court erred in determ ining that a contractual relationship existed between LFG and its subsidiaries which obligated LFG to pay the subsidiaries’ vendors through the operation of its centralized cash m anagem ent system ; (3) whether the Bankruptcy court erred in finding that, to the extent that a contractual obligation existed between LFG and its subsidiaries, the satisfaction of that contractual obligation constituted reasonably equivalent value provided to LFG in exchange for the transfers to SCE; and (4) whether the Bankruptcy Court erred in failing to identify the m easure of the value LFG received as a result of satisfying obligations the Court found it owed to its subsidiaries through the operation of its centralized cash m anagem ent system . ( 1) Claim 1: LFG D id N o t Re ce ive Re as o n ably Equ ivale n t Valu e in Exch an ge fo r th e Tran s fe rs Bankruptcy Code section 548 provides in part, The trustee m ay avoid any transfer . . . of an interest of the debtor in property, or any obligation . . . incurred by the debtor, that was m ade or incurred on or within 6 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily . . . received less than a reasonably equivalent value in exchange for such transfer or obligation. 11 U.S.C. § 548(a)(1)(B)(i). Value is defined as “property, or satisfaction or securing of a present or antecedent debt of the debtor.” 11 U.S.C. § 548(d)(2)(A). As an initial m atter, Appellant contends that the Bankruptcy Court erred by looking beyond the plain language of section 548 and resorting to case-m ade law regarding the “indirect benefit rule.” Appellant argues that the plain language of section 548 confirm s that LFG’s transfers to SCE were constructively fraudulent because they were m ade without any consideration in return. However, the statute does not address who m ust provide the reasonably equivalent value to the debtor. In other words, the statute does not indicate whether or not the value m ust be provided directly by the transferee or indirectly from a third party. Therefore, the Bankruptcy Court properly resorted to case-m ade law to resolve the issues presented. Accordingly, relying on case law, the Court m ust next analyze the so-called “indirect benefit rule” applicable in this case. The Second Circuit recognized that “[t]hree-sided transactions . . . present special difficulties” in determ ining whether the debtor received “fair consideration” for the transfer. Rubin v. Mfrs. Hanover Trust Co., 661 F.2d 979, 991 (2d Cir. 1981). However, “[i]t is well settled that reasonably equivalent value can com e from one other than the recipient of the paym ents, a rule which has becom e known as the indirect benefit rule.” Harm an v. First. Am . Bank of Md. (In re Jeffrey Bigelow Design Group, Inc.), 956 F.2d 479, 485 (4th Cir. 1992); see also Rubin, 661 F.2d at 991 (quoting Klein v. Tabatchnick, 610 F.2d 10 43, 10 47 (2d Cir. 1979)) (“[T]he transaction’s benefit to the debtor ‘need not be direct; it m ay com e indirectly through benefit to a third person.”); Gold v. U.S. (In re Kenrob Info. Tech. Solutions), 474 B.R. 799, 80 2 (Bankr. E.D. Va. 20 12) (“Consideration need not com e directly from the party to whom the paym ent is m ade” but instead “[c]onsideration m ay be derived from a third party.”). Thus, rather than focusing on the allegedly com plicated “tri-partite relationship” and “transfer path” as Appellant urges us to do (App. Br. at 13– 14), the Court 7 instead focuses “on the consideration received by the debtor, not on the value given by the transferee.” In re Jeffrey Bigelow Design Group, Inc., 956 F.2d at 484 (citation om itted). The purpose of section 548 is “to preserve the debtor’s estate for the benefit of its unsecured creditors.” Ruby v. Ry an (In re Ry an), 472 B.R. 714, 724– 25 (Bankr. E.D. Va. 20 12) (citations om itted). Thus, so long as “the value of the benefit received by the debtor approxim ates the value of the property or obligation he has given up,” the transfer was not fraudulent. Rubin, 661 F.2d at 991– 92. In other words, the proper “focus is whether the net effect of the transaction has depleted the bankruptcy estate.” In re Jeffrey Bigelow Design Group, Inc., 956 F.2d at 485; see also Rubin, 661 F.2d at 992 (“[A]lthough these ‘indirect benefit’ cases frequently speak as though an ‘identity of (econom ic) interest’ between the debtor and the third person sufficed to establish fair consideration . . ., the decisions in fact turn on the statutory purpose of conserving the debtor’s estate for the benefit of creditors.”). In this case, although LFG com m ingled the funds it received from various subsidiaries, there is no dispute that LFG received over $ 30 m illion m ore in funds from OneStop and over $ 11 m ore in funds from Southland than it disbursed on their behalf during the relevant tim e period. (Stipulation of Facts ¶¶ 75– 76; 80 – 81.) Therefore, “the unsecured creditors are no worse off because [LFG], and consequently the estate, has received an am ount reasonably equivalent to [or even m ore than] what it paid” to SCE. In re Jeffrey Bigelow Design Group, Inc., 956 F.2d at 484. Next, Appellant contends that the Bankruptcy Court erred by failing to recognize the “in exchange for” elem ent of section 548. As Appellant notes, a transfer is “in exchange for” value if one is the quid pro quo of the other. Kaler v. Able Debt Settlem ent (In re Kendall), 440 B.R. 526, 532 (B.A.P. 8 th Cir. 20 10 ). Appellant argues that LFG would have enjoyed the positive cash flows from its subsidiaries regardless of the tran sfers to SCE, and thus no bargained-for quid pro quo exists. See In re TOUSA, Inc., 422 B.R. at 868 (“Any ‘property’ that a [debtor] would have enjoyed regardless of [the transfer in question] cannot be regarded as property received ‘in 8 exchange for’ the transfer or obligation.”). However, the Court finds Appellant’s argum ent unavailing. As SCE notes, Appellant’s argum ent is purely hypothetical as no evidence exists to support the theory that OneStop and Southland would have continued to upstream their revenues had LFG ceased paying their vendors’ invoices. Instead, the parties’ stipulation states that LFG had in fact “paid substantially all of OneStop’s and Southland’s operating expenses ever since those subsidiaries had begun participating in the CCMS, including the period from February 1, 20 0 8 to the Petition Date.” (Stipulation of Facts ¶ 42.) As this Court has noted, the m ere prospect of hypothetical alternatives, without any supporting docum entation, fails to create a genuine issue as to a m aterial fact. In re Kenrob Info. Tech. Solutions, Inc. 474 B.R. at 80 3. Next, Appellant alleges that the Bankruptcy Court erred by relying on the net cash flow at the conclusion of the Avoidance Period, as such analysis ignores the “contem poraneity” elem ent described by the United States Bankruptcy Court of the Eastern District of California in Greenspan v. Orrick, Herrington & Sutcliffe LLP (In re Brobeck, Phleger & Harrison LLP), 40 8 B.R. 318 (Bankr. N.D. Cal. 20 0 9) (“Item s of value com ing to the debtor after the transfer m ust be excluded as any part of consideration, at least when it was not bargained for at the date of the original transaction.”). Appellant m oreover argues that the Bankruptcy Court’s analysis ignored the possibility that “cash flowing through the CCMS m ay have been far less positive, or in fact negative, at various points at the tim e LFG m ade the individual Transfers throughout the Avoidance Period.” (App. Br. at 21.) However, this Court has previously stated that “[t]here is no requirem ent that the consideration be contem poraneous.” In re Kenrob Info. Tech. Solutions, Inc. 474 B.R. at 80 3. The debtor in Kenrob was a chapter S corporation that by its nature did not pay taxes itself but passed through the tax liability to its shareholders. Id. at 80 1. Defendants were the shareholders who paid the taxes as part of their personal incom e tax return. Id. By agreem ent, the debtor was 9 obligated to reim burse the shareholders for the additional incom es taxes attributable to the pass-through liability from the corporation. Id. The debtor paid the personal incom e taxes attributable to the pass-through liability directly to the Internal Revenue Service (“IRS”). Id. The tax paym ents were applied to the shareholder’s personal tax returns. Id. The Plaintiff trustee of the bankrupt debtor alleged that these transactions were fraudulent because they were m ade without consideration by the corporation. The Court ultim ately granted the defendant’s sum m ary judgm ent m otion, and in doing so rejected the trustee’s argum ent that the shareholders’ agreem ent m ade years before the transaction was not sufficient consideration. The Court stated, The consideration was the election by the shareholders of the corporation to be taxed as a chapter S corporation as long as the corporation paid their additional personal taxes. There was a continuing benefit to the corporation over the years and a continuing obligation on the part of the corporation to reim burse the shareholders. Id. at 8 0 3. Sim ilarly, in this case, LFG had a continuing obligation to pay OneStop’s and Southland’s vendors’ invoices through the CCMS in exchange for the continuing benefit of those subsidiaries upstream ing their revenues to LFG. With regard to Appellant’s latter argum ent that the Bankruptcy Court erred by only focusing on the net result, case law clearly rejects Appellant’s argum ent and instead supports the Bankruptcy Court’s analysis. The Fourth Circuit has stated that the proper focus in determ ining reasonably equivalent value “is whether the net effect of the transaction has depleted the bankruptcy estate. In re Jeffrey Bigelow Design Group, Inc., 956 F.2d at 485 (em phasis added). In determ ining “reasonably equivalent value,” it is therefore unnecessary to “dem and a precise dollar-for-dollar exchange” as Appellant urges this Court to do. Bakst v. U.S. (In re Kane & Kane), 479 B.R. 617, 628 (Bankr. S.D. Fla. 20 12); (App. Br. at 20 ) (“There is no way to say that as LFG m ade each of the distinct transfers to SCE to pay one of SCE’s invoices issued to OneStop or Southland, LFG received reasonably equivalent value in exchange for any such paym ent.”). The stipulated facts plainly state that LFG received positive net cash flow from the operations of 10 its OneStop and Southland subsidiaries from February 1, 20 0 8 through the Petition Date in the aggregate am ount of roughly $ 40 m illion. More specifically, the evidence shows on a m onthly basis, LFG received m ore cash than it disbursed on OneStop’s behalf in April, May, August, Septem ber and October 20 0 8.7 (Stipulation of Facts ¶ 77.) Additionally, on a m onthly basis, LFG received m ore cash than it disbursed on Southland’s behalf in each m onth between February 20 0 8 and the Petition Date, except March and May. 8 (Id. at ¶ 81.) Thus, in sum the Court finds Appellant’s Claim 1 without m erit. ( 2 ) Claim 2 : Th e re W as N o Co n tractu al Re latio n s h ip th at Obligate d LFG to Pay th e In vo ice s Pro vid e d to Its Su bs id iarie s By Th e ir Ve n d o rs Th ro u gh th e CCMS The Bankruptcy Court concluded that “LFG not only had a contractual duty, but also a fiduciary obligation to m ake disbursem ents on behalf of its subsidiaries.” In re LandAm erica Financial Group, Inc., 20 14 WL 20 69651, at *9– 10 . Appellant, however, argues that this “attractive conclusion” is not supported by the record. But, again, the Court finds Appellant’s argum ent unpersuasive. “Agency is a fiduciary relationship between two parties in which one party agrees to act on behalf of and subject to the control of the other party.” Banks v. Mario Indus. of Va., Inc. 650 S.E.2d 687, 695 (Va. 20 0 7). “[A]gency m ay be inferred from the conduct of the parties and from the surrounding facts and circum stances.” Accordia of Va. Ins. Agency , Inc. v. Genito Glenn, L.P., 560 S.E.2d 246, 250 (Va. 20 0 2) (quoting Drake v. Livesay , 341 S.E.2d 186, 189 (1986)). In the Stipulation of Facts, the parties jointly adm it that LFG acted as a “disbursem ent agent” for its subsidiaries in accordance with the CCMS. (Stipulation of Facts ¶¶ 56, 57.) But besides this express stipulation, the agency relationship between LFG and OneStop and Southland is also supported by the fact that before LFG m ade the Transfers to SCE, the subsidiaries had to 7 As to the rem aining m onths during the Avoidance Period, LFG received cash on OneStop’s behalf equal to the following percentages of the cash it disbursed on OneStop’s behalf: February– 75%; March– 73%; J une– 73%; J uly– 94%; and November– 97%. (Stipulation of Facts ¶ 77.) 8 In March and May, LFG received cash on Southland’s behalf equal to 24% (in March) and 95% (in May) of the cash it disbursed on Southland’s behalf during those m onths. (Stipulation of Facts ¶ 81.) 11 approve the corresponding invoices for paym ent through the CCMS. (Stipulation of Facts ¶¶ 69, 70 .) If, as Appellant hypothesizes, LFG had decided to protect its own creditors, and retain all of the cash flow that was provided to it through CCMS to pay its own bills, (App. Br. at 24– 25), the subsidiaries would definitely have had an action for breach of fiduciary duties by virtue of this agency relationship. Moreover, besides the obvious agency relationship, the Bankruptcy Court also concluded that an im plied contractual relationship existed between LFG and OneStop and Southland. While the parties agree that there was no direct contract, written or oral, which obligated LFG to pay for charges incurred on the OneStop or Southlan d accounts, (Stipulation of Facts ¶¶ 45, 71), the Bankruptcy Court properly concluded that a contract im plied in fact existed. “A contract im plied in fact is ‘a true contract containing all necessary elem ents for a binding agreem ent except that it has not been com m itted to writing or stated orally in express term s, but rather is inferred from the conduct of the parties in the circum stances.’” In re Fas Mart Convenience Stores, Inc., 320 B.R. 58 7, 595 (Bankr. E.D. Va. 20 0 4) (citation om itted). In analyzing whether such a contract exists, the Court m ust analyze the parties’ intent to contract. Id. First, as an initial m atter, the parties stipulated that Based on the accounting records of LFG, OneStop, and Southland, it is eviden t that OneStop and Southland in fact participated in the CCMS from February 20 0 8 through the Petition Date, and before that tim e period, and that there m ust have been oral and/ or im plied agreem ents, at least on a basic level, between LFG and both OneStop and Southland relating to their participation in the CCMS. (Stipulation of Facts ¶ 46.) Moreover, through the parties’ conduct their intent to contract is clearly visible. OneStop and Southland upstream ed substantially all of their earned revenues to the CCMS with the clear expectation that LFG would pay their operating expenses through the CCMS, which the CCMS was designed to do. (Id. at ¶¶ 27, 38). And LFG did in fact pay substantially all of its subsidiaries’ cash expenses. (Id. at ¶ 38.) By providing LFG with all of their earned cash revenues, neither OneStop nor Southland had sufficient funds to pay their 12 own expenses from February 1, 20 0 8 to the Petition Date. (Id. at ¶ 39.) The Stipulation of Facts even adm its that the parties had an “understanding and expectation that LFG would, in turn, pay OneStop’s and Southland’s operating expenses through the CCMS accounts.” (Id. at ¶ 41.) With the foregoing in m ind, it is difficult to even logically perceive Appellant’s argum ent that no contractual relationship existed am ong the parties because such a clear im plied in fact contract was present. If LFG had breached that contract, the subsidiaries would have undoubtedly had a cause of action against LFG. ( 3 ) Claim 3 : Eve n If a Co n tractu al Re latio n s h ip Exis te d Be tw e e n LFG an d Its Su bs id iarie s Obligatin g LFG to Pay th e In vo ice s Pro vid e d to Its Su bs id iarie s by Th e ir Ve n d o rs , th e Satis factio n o f Th at Obliga tio n by LFG D id N o t Ge n e rate Re as o n ably Equ ivale n t Valu e Re ce ive d by LFG in Exch an ge fo r th e Tran s fe rs to SCE fo r Pu rpo s e s o f Ban kru p tcy Co d e § 54 8 Appellant agrees that the concept that “[s]atisfaction of a valid obligation constitutes reasonably equivalent value”9 is, by itself, sound. (App. Br. at 26.) However, Appellant argues that the two cases 10 relied on by the Bankruptcy Court fail to address the three-party relationship present in this case. Appellant contends that neither case supports the “Bankruptcy Court’s underlying conclusion that LFG’s satisfaction of som e obligation it owed to OneStop and Southland in paying their vendors’ invoices through the operation of the CCMS resulted in reasonably equivalent value received by LFG in exchange for transferring over $ 237,0 0 0 to SCE.” (App. Br. at 26.) As noted above, “value” for purposes of section 548 is defined as “property, or satisfaction or securing of a present or antecedent debt of the debtor.” 11 U.S.C. § 548(d)(2)(A) (em phasis). The plain language of the statute provides only that the debt satisfied by a transfer m ust be owed by the debtor. It is silent regarding to whom the debtor m ust owe that debt. Thus, Appellant’s argum ent revolving around the fact that LFG did not specifically have any obligation 9 Schoenm ann v. BCCI Constr. Co. (In re N orthPoint Com m c’ns Group, Inc.), 361 B.R. 149, 161 (Bankr. N.D. Cal. 20 0 7). 10 Crum pton v. Stephens (In re N orthlake Foods, Inc.), 715 F.3d 1251, 1256 (11th Cir. 20 13) and Schoenm ann, 361 B.R. 149. 13 to SCE is irrelevant. Instead, the focus should be on the fact that LFG owed an obligation to OneStop and Southland and by paying their vendors’ invoices through the CCMS, LFG satisfied that obligation. This argum ent also relates back to the prior discussion regarding the purpose of section 548, which is “to preserve the debtor’s estate for the benefit of its unsecured creditors.” In re Ry an, 472 B.R. at 724– 25. “Where an econom ic benefit is present, ‘the debtor’s net worth has been preserved, and the interest of the creditors will not have been injured by the transfer.’” In re Northlake Foods, Inc., 715 F.3d at 1256 (citation om itted). As previously explained, LFG received an econom ic benefit through the upstream ing of substantially all of OneStop’s and Southland’s cash revenues. LFG then owed a fiduciary and contractual obligation to pay OneStop’s and Southland’s vendors’ invoices. LFG’s net worth was preserved through these transactions as it received total funds from both OneStop and Southland in am ounts greater than total funds disbursed by LFG on behalf of those subsidiaries. (Stipulation of Facts ¶¶ 75– 76; 80 – 81.) In sum , as succinctly stated by SCE, “So long as a debt owing by the debtor is rem oved from the debtor’s books as a result of the transfer, the creditors are no worse off and would have no basis for com plaint.” (Opp’n Br. at 18.) ( 4 ) Claim 4 : Th e Ban kru p tcy Co u rt’s D e cis io n Erre d in Failin g to D e s cribe An y Qu an tifiable Valu e At All Fro m LFG’s Satis factio n o f Obligatio n s Ow e d to On e Sto p a n d So u th la n d “Whether reasonably equivalent value was received by the debtor on the date of transfer is a two-step analysis: (1) did the debtor receive value, and (2) was the paym ent reasonably equivalent to the value extended?” Cohen v. Un-Ltd. Holdings, Inc. (In re N elco, Ltd.), 264 B.R. 790 , 813 (Bankr. E.D. Va. 1999); see also W hitney v. N ew m an (In re W hitney ), No. 0 6-14435TJ C, 20 0 7 WL 2230 0 63, at *5 (Bankr. D. Md. J uly 30 , 20 0 7) (citing BFP v. Resolution Trust Corp., 511 U.S. 531, 546 (1994)) (“In order to determ ine whether the debtor received reasonably equivalent value for the transfer, the Court m ust com pare the value of the consideration received by the debtor with the value of the property transferred by the debtor.”). The m easure 14 of “reasonably equivalent value” is a factual issue dependent on the circum stances of the transfer that m ust be determ ined on a case-by-case basis. Official Com m . of Unsecured Creditors v. W achovia (In re Heilig-Mey ers Co.), 279 B.R. 46, 52 (Bankr. E.D. Va. 20 0 3). Appellant argues that the Bankruptcy Court “failed to identify the m easure of such value [received by LFG] in any way.” (App. Br. at 27.) In other words, Appellant contends that there were no facts in the record to “identify whether the value to LFG by satisfying the obligations am ounted to $ 1, $ 10 0 ,0 0 0 or $ 237,292.36.” (Id.) Thus, Appellant argues that the Bankruptcy Court erred in concluding that the value received was “reasonably equivalent” to the am ount that LFG transferred to SCE. Contrary to Appellant’s argum ent, the Bankruptcy Court had adequate facts to determ ine that the value received by LFG was reasonably equivalent to the transfers it m ade to SCE on behalf of OneStop and Southland. As stated above, there is no dispute that LFG received over $ 30 m illion m ore in funds from OneStop and over $ 11 m ore in funds from Southland than it disbursed on their behalf during the relevant tim e period. (Stipulation of Facts ¶¶ 75– 76; 80 – 81.) Specifically, from February 1, 20 0 8 through the Petition Date, LFG received total cash transfers of $ 289,488 ,20 3 and disbursed total cash transfers of $ 259,0 37,818 on behalf of OneStop, and received total cash transfers of $ 47,269,366 and disbursed total cash transfers of $ 35,950 ,0 92 on behalf of Southland. (Id. at ¶¶ 75, 80 ). Therefore because the net effect of these transfers to SCE did not deplete LFG’s estate, the Bankruptcy Court properly concluded that LFG received reasonably equivalent value. See In re Jeffrey Bigelow Design Group, Inc., 956 F.2d at 485. IV. CON CLU SION For the foregoing reasons, the Court AFFIRMS the Bankruptcy Court’s opinion in all respects and DISMISSES this Appeal. // // 15 Let the Clerk send a copy of this Mem orandum Opinion to all counsel of record. An appropriate Order shall issue. ENTERED this 16th ______________________/s/_________________ James R. Spencer Senior U. S. District Judge day of J anuary 20 15. 16
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
