Charles W. Ries v. Michael Calandrillo ( 2013 )

United States Bankruptcy Appellate Panel
For the Eighth Circuit
___________________________
No. 13-6003
___________________________
In re: Genmar Holdings, Inc.
lllllllllllllllllllllDebtor
------------------------------
Charles W. Ries
lllllllllllllllllllll Plaintiff - Appellee
v.
Scarlett & Gucciardo, PA
lllllllllllllllllllll Defendant
Michael Calandrillo
lllllllllllllllllllll Defendant - Appellant
____________
Appeal from United States Bankruptcy Court
for the District of Minnesota - Minneapolis
____________
Submitted: June 26, 2013
Filed: August 1, 2013
____________
Before FEDERMAN, Chief Judge, SALADINO and NAIL, Bankruptcy Judges.
____________
NAIL, Bankruptcy Judge.
Michael Calandrillo appeals the final judgment of the bankruptcy court1
entitling Trustee Charles W. Ries to recover $65,000 from Calandrillo pursuant to 11
U.S.C. §§ 547(b) and, by implication, 550(a). We affirm.
BACKGROUND
In April 2007, Calandrillo purchased a boat from Plantation Boat Mart &
Marina, Inc. The boat proved to be defective, and in October 2008, Calandrillo filed
a statement of claim with the American Arbitration Association, naming Genmar
Industries, Inc., Hydra-Sports Boats, and Plantation Boat Mart & Marina, Inc. as
respondents. Calandrillo says he filed this statement of claim in compliance with the
terms of what he describes as the "pre-printed form sales contract" he signed when
he purchased the boat.2
In February, 2009, Calandrillo entered into a settlement agreement with
"Genmar Tennessee, Inc. d/b/a Hydra-Sports Boats . . . together with its officers,
directors, employees, parents, subsidiaries, affiliates, dealers, agents, representatives,
suppliers, insurers, successors[,] and assigns." Calandrillo agreed to convey title to
the boat to Genmar Tennessee, Inc., free and clear of all liens, claims, and
encumbrances. In return, Hydra-Sports Boats agreed to pay Calandrillo $205,000,
with $140,000 going to GEMB Lending, Inc., which held a lien against the boat, and
$65,000 going to Scarlett & Gucciardo, P.A., Calandrillo's attorneys, to be held in
trust for Calandrillo.
1
The Honorable Dennis D. O'Brien, United States Bankruptcy Judge for the
District of Minnesota.
2
The record on appeal includes only the first page of the sales contract, and that
page does not include an arbitration clause.
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In March 2009, Genmar Holdings, Inc. issued a check for $65,000 to Scarlett
& Gucciardo.3 The law firm kept $13,000 for its fee. It disbursed the balance of
$52,000 to Calandrillo.
On June 1, 2009, Genmar Holdings, Inc. ("Debtor") and 21 of its subsidiaries,
including Genmar Industries, Inc. and Genmar Tennessee, Inc., filed petitions for
relief under chapter 11 of the bankruptcy code.4 On November 22, 2010, the case was
converted to chapter 7. Charles W. Ries ("Trustee") was appointed as trustee the
following day.
On November 18, 2011, Trustee filed an adversary complaint against Scarlett
& Gucciardo to avoid as a preferential transfer under 11 U.S.C. § 547, and recover
under 11 U.S.C. § 550, the $65,000 payment Scarlett & Gucciardo had received from
Debtor. On November 23, 2011–the day after the deadline imposed by 11 U.S.C.
§ 546(a) to file such a complaint against any other entity–Scarlett & Gucciardo
informed Trustee it was merely a conduit and had received the $65,000 payment on
behalf of a client in connection with the settlement of a lawsuit. That same day,
Scarlett & Gucciardo provided a copy of the settlement agreement between
Calandrillo and Genmar Tennessee, Inc. to Trustee.
On January 17, 2012, Trustee filed a motion to amend his adversary complaint
to join Calandrillo as a defendant and to have the amended complaint "relate back"
to the date of the original complaint. Two days later, Scarlett & Gucciardo filed a
motion to dismiss the adversary proceeding. On March 22, 2012, the bankruptcy
3
Why Genmar Holdings, Inc., rather than Hydra-Sports Boats, issued the check
is not apparent from the record on appeal.
4
On June 4, 2009, the bankruptcy court entered an order granting Debtor's
motion for joint administration of the cases. The cases were not substantively
consolidated.
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court entered an order granting Trustee's motion to amend and denying Scarlett &
Gucciardo's motion to dismiss.
Calandrillo and Scarlett & Gucciardo filed an answer to the amended complaint
and a counterclaim against Trustee, alleging fraud by Debtor. Six months later,
Trustee, Scarlett & Gucciardo, and Calandrillo all filed motions for summary
judgment. On January 14, 2013, the bankruptcy court entered an order directing the
entry of separate judgments in favor of Trustee on his preferential transfer claim
against Calandrillo, in favor of Scarlett & Gucciardo on Trustee's preferential transfer
claim against Scarlett & Gucciardo, and in favor of Trustee on Calandrillo and
Scarlett & Gucciardo's fraud-based counterclaim against Trustee. In compliance with
the bankruptcy court's order, the bankruptcy clerk entered three separate judgments
the same day. Calandrillo timely filed a notice of appeal, seeking our review of both
the bankruptcy court's summary judgment in favor of Trustee on his preferential
transfer claim against Calandrillo and the bankruptcy court's earlier order granting
Trustee's motion to amend his adversary complaint.
STANDARD OF REVIEW
We review for an abuse of discretion the bankruptcy court's decision to grant
Trustee's motion to amend. American Family Mut. Ins. Co. v. Hollander, 705 F.3d
339, 347 (8th Cir. 2013).
A court abuses its discretion when a relevant factor that
should have been given significant weight is not
considered; when an irrelevant or improper factor is
considered and given significant weight; or when all proper
factors and no improper ones are considered, but the court
commits a clear error of judgment in weighing those
factors.
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City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 702 F.3d 1147, 1152
(8th Cir. 2013).
We review de novo the bankruptcy court's grant of summary judgment.
Mwesigwa v. DAP, Inc., 637 F.3d 884, 887 (8th Cir. 2011) (citing Anderson v.
Durham D & M, L.L.C., 606 F.3d 513, 518 (8th Cir. 2010)). "We will affirm the
grant of summary judgment if 'there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.'" Id. (quoting Fed.R.Civ.P.
56(a)).5
DISCUSSION
Calandrillo raises three issues on appeal: (1) whether the bankruptcy court
abused its discretion in allowing Trustee to amend his complaint to add Calandrillo
as a defendant after the statute of limitations had expired; (2) whether the bankruptcy
court erred in concluding the $65,000 payment was not a "contemporaneous
exchange" within the meaning of 11 U.S.C. § 547(c)(1)(A) and (B); and (3) whether
the bankruptcy court erred in concluding the $65,000 payment was not made in the
"ordinary course of business" within the meaning of 11 U.S.C. § 547(c)(2)(A).6
Relation Back of Amended Complaint
With respect to the first issue, Calandrillo does not argue the bankruptcy court
erred in allowing Trustee to amend his complaint. He instead argues the bankruptcy
5
Federal Rule of Civil Procedure 56(a) applies in adversary proceedings.
Fed.R.Bankr.P. 7056.
6
Calandrillo does not challenge the bankruptcy court's conclusion that the
$65,000 payment satisfied all the elements of a preferential transfer under 11 U.S.C.
§ 547(b).
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court erred in allowing Trustee's amended complaint to "relate back" to the date of
Trustee's original complaint. This implicates Federal Rule of Civil Procedure 15(c).7
An amendment to a pleading relates back to the date of the
original pleading when:
(A) the law that provides the applicable statute of
limitations allows relation back;
(B) the amendment asserts a claim or defense that
arose out of the conduct, transaction, or occurrence
set out—or attempted to be set out—in the original
pleading; or
(C) the amendment changes the party or the naming
of the party against whom a claim is asserted, if Rule
15(c)(1)(B) is satisfied and if, within the period
provided by Rule 4(m) for serving the summons and
complaint, the party to be brought in by amendment:
(i) received such notice of the action that it
will not be prejudiced in defending on the
merits; and
(ii) knew or should have known that the
action would have been brought against it, but
for a mistake concerning the proper party's
identity.
Fed.R.Civ.P. 15(c). Thus, an amendment that adds a party relates back to the original
pleading if three requirements are satisfied:
7
Federal Rule of Civil Procedure 15 applies in adversary proceedings.
Fed.R.Bankr.P. 7015.
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First, the claims asserted against the new party must arise
out of the conduct, transaction, or occurrence set forth or
attempted to be set forth in the original pleading.
Second, the new party must have received such notice of
the institution of the action within the period for service of
the summons and complaint pursuant to Rule 4(m), so that
the party will not be prejudiced in maintaining a defense on
the merits.
Third, the new party knew or should have known that, but
for a mistake concerning the identity of the proper party,
the action would have been brought against it.
Enron Corp. v. J.P. Morgan Securities Inc. (In re Enron Corp.), 357 B.R. 257, 263
(Bankr. S.D.N.Y. 2006) (citations and internal quotation marks omitted).
Calandrillo does not argue any of these three requirements were not met in this
case, and indeed he cannot. Both the original complaint and the amended complaint
are premised on the $65,000 payment. Trustee filed his original complaint on
November 18, 2011, and Calandrillo was aware of the adversary proceeding
sometime before February 17, 2012, when he filed an objection to Trustee's motion
to amend his complaint. This was well within the 120-day period provided in Rule
4(m), and Calandrillo was thereafter able to file a timely answer to the amended
complaint and maintain a defense on the merits. Finally, even if Calandrillo was
previously completely unaware of the adversary proceeding, Trustee's motion to
amend and supporting papers explained the mistake concerning the identity of the
proper party, so Calandrillo knew or should have known the preferential transfer
action would have been brought against him, but for that mistake.
Calandrillo instead argues–at great length and with great passion–Trustee was
to blame for the mistake in identifying the proper party, i.e., Trustee should have
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identified Calandrillo as the proper party in time to name Calandrillo as a defendant
before the deadline imposed by § 546(a) to file a complaint under § 547. This
argument, however, misses the mark.
The question under Rule 15(c)(1)(C)(ii) is not whether [the
plaintiff] knew or should have known the identity of [the
prospective defendant] as the proper defendant, but
whether [the prospective defendant] knew or should have
known that it would have been named as a defendant but
for an error. Rule 15(c)(1)(C)(ii) asks what the prospective
defendant knew or should have known during the Rule
4(m) period, not what the plaintiff knew or should have
known at the time of filing her original complaint.
Krupski v. Costa Crociere S. p. A., ___ U.S. ___, 130 S. Ct. 2485, 2493 (2010)
(emphasis in original). Thus, even if we agreed with Calandrillo's assessment of
Trustee's performance of his duties–and we most emphatically do not–it would not
change the outcome in this case.
Calandrillo having given us no reason to conclude otherwise, we find no abuse
of discretion in the bankruptcy court's decision to allow Trustee to amend his
complaint and to allow Trustee's amended complaint to relate back to the date of
Trustee's original complaint.
Contemporaneous Exchange
With respect to the second issue, a trustee may not avoid what would otherwise
be a preferential transfer under § 547(b),
to the extent that such transfer was–
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(A) intended by the debtor and the creditor to or for
whose benefit such transfer was made to be a
contemporaneous exchange for new value given to
the debtor; and
(B) in fact a substantially contemporaneous
exchange[.]
11 U.S.C. § 547(c)(1) (emphasis added). The burden of proving, by a preponderance
of the evidence, a transfer may not be avoided by reason of § 547(c)(1) is on the
transferee. 11 U.S.C. § 547(g); Silverman Consulting, Inc. v. Canfor Wood Products
Marketing (In re Payless Cashways, Inc.), 306 B.R. 243, 249 (B.A.P. 8th Cir. 2004).
"The critical inquiry in determining whether there has been a contemporaneous
exchange for new value is whether the parties intended such an exchange." Official
Plan Comm. v. Expeditors Int'l of Washington, Inc. (In re Gateway Pacific Corp.),
153 F.3d 915, 918 (8th Cir. 1998) (citation and internal quotation marks omitted).
Calandrillo, however, focuses on the requirement that "new value" be given to the
debtor and the requirement that the exchange be "substantially contemporaneous."
He overlooks–or conveniently ignores–the requirement that the transfer be intended
by the debtor and the creditor to be a contemporaneous exchange.
Trustee argues–without rebuttal–the only evidence of Debtor and Calandrillo's
intent is found in the settlement agreement itself. That agreement was between
Calandrillo and Genmar Tennessee, Inc., not Debtor. Thus, while it is certainly
evidence of Genmar Tennessee, Inc. and Calandrillo's intent, we fail to see its value
as evidence of Debtor's intent. As for Genmar Tennessee, Inc. and Calandrillo's
intent, the settlement agreement provides:
The remainder of the Settlement Payment shall be paid to
the trust account of Scarlett and Gucciardo, P.A., in trust
for and on behalf of Claimant, no sooner [than] 15 days
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after Genmar Tennessee receives the lien waiver
confirming the Bank's discharge of the lien and all title
assignment documents, e.g., executed Certificate of Title
assignment for the Boat.
(Emphasis added.)
Neither § 547(c)(1) nor any other provision of the bankruptcy code defines
"contemporaneous." "In the absence of a statutory definition or clear contrary
legislative intent, statutory terms are given their plain, ordinary, and commonly
understood meaning[,]" and we "turn[ ] to a commonly used dictionary to ascertain
a word's ordinary meaning." Schumacher v. Cargill Meat Solutions Corp., 515 F.3d
867, 871 (8th Cir. 2008) (citation omitted) (referring to Merriam-Webster's Collegiate
Dictionary). Merriam-Webster's Collegiate Dictionary defines "contemporaneous"
as "existing, occurring, or originating during the same time." Merriam-Webster's
Collegiate Dictionary 269 (11th ed. 2003).
It is clear from the settlement agreement Genmar Tennessee, Inc. and
Calandrillo intended the exchange of "the lien waiver . . . and all title assignment
documents" and the $65,000 would occur at different times, at least 15 days apart.
Thus, they did not intend the exchange would be contemporaneous, within the plain,
ordinary, and commonly understood meaning of that word. To the extent the
settlement agreement is–contrary to our firm belief, based on the record before
us–somehow also evidence of Debtor's intent, we reach the same conclusion.
Consequently, we agree with the bankruptcy court the $65,000 payment was not a
contemporaneous exchange within the meaning of 11 U.S.C. § 547(c)(1).8
8
Because the elements of § 547(c)(1) are in the conjunctive, we need not–and
do not–reach either the issue of whether Debtor received new value from Calandrillo
or the issue of whether the exchange of the lien waiver and title assignment
documents and the $65,000 was in fact substantially contemporaneous.
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Ordinary Course of Business
Finally, with respect to the third issue, a trustee may also not avoid what would
otherwise be a preferential transfer under § 547(b),
to the extent that such transfer was in payment of a debt
incurred by the debtor in the ordinary course of business or
financial affairs of the debtor and the transferee, and such
transfer was–
(A) made in the ordinary course of business or
financial affairs of the debtor and the transferee[.]
11 U.S.C. § 547(c)(2). The burden of proving a transfer may not be avoided by
reason of § 547(c)(2) is again on the transferee. 11 U.S.C. § 547(g). Such a
transferee must demonstrate, by a preponderance of the evidence, both the transfer
was in payment of a debt incurred in the ordinary course of business and the transfer
was, subjectively, in the ordinary course of business between the debtor and the
transferee, i.e., there was some consistency between the transfer at issue and other
transfers between these parties. Shodeen v. Airline Software, Inc. (In re Accessair,
Inc.), 314 B.R. 386, 392 (B.A.P. 8th Cir. 2004); Harder v. Columbia Glass & Mirror,
Inc. (In re Graff), 454 B.R. 745, 751 (Bankr. W.D. Mo. 2011).
Calandrillo argues–without distinguishing between the requirement that the
debt must be incurred in the ordinary course of business or financial affairs of the
debtor and the transferee and the separate and distinct requirement that the transfer
must be made in the ordinary course of business or financial affairs of the debtor and
the transferee–"Debtor's pre-printed form sales contract required arbitration to resolve
any dispute," concluding "[c]learly, using arbitration proceedings to effect the return
of defective boats was Debtor's customary or ordinary course of business." This
argument is without merit, for myriad reasons, not the least of which is Calandrillo
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has not provided any authority that suggests arbitration is in the ordinary course of
a party's business or financial affairs or that suggests merely including an arbitration
clause in a contract necessarily means arbitration is then in the ordinary course of a
party's business or financial affairs.9
First, as noted above, the record on appeal includes only the first page of the
sales contract, and that page does not include an arbitration clause. Consequently, we
cannot even confirm whether the sales contract actually included an arbitration
clause, much less conclude such an arbitration clause evidences the ordinary course
of Debtor's business or financial affairs.
Second, the first page shows the sales contract was between Calandrillo and
Plantation Boat Mart & Marina, Inc., not Debtor. Whatever it may say about the
ordinary course of Plantation Boat Mart & Marina, Inc.'s business or financial affairs,
Calandrillo has not demonstrated any arbitration clause in the sales contract, standing
alone, says anything about the ordinary course of Debtor's business or financial
affairs.
Third, the record on appeal does not demonstrate Debtor was a party to the
arbitration proceeding. Calandrillo named Genmar Industries, Inc., Hydra-Sports
Boats, and Plantation Boat Mart & Marina, Inc., not Debtor, as respondents, and he
entered into a settlement agreement with Genmar Tennessee, Inc., not Debtor.
Whatever it may say about the ordinary course of Genmar Industries, Inc., Hydra-
Sports Boats, Plantation Boat Mart & Marina, Inc., and Genmar Tennessee, Inc.'s
9
Calandrillo also fails to address or distinguish the persuasive authority cited
by the bankruptcy court and Trustee. See, e.g., In re Accessair, Inc., 314 B.R. 386
(B.A.P. 8th Cir. 2004) (cited by Trustee); In re Valley Steel Products Co., Inc., 214
B.R. 202 (E.D. Mo. 1997) (cited by Trustee); In re Sibilrud, 308 B.R. 388 (Bankr. D.
Minn. 2004) (cited by both); In re Mastercraft Graphics, Inc., 157 B.R. 914 (Bankr.
S.D. Fla. 1993) (cited by both).
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business or financial affairs, Calandrillo has likewise not demonstrated the arbitration
proceeding, standing alone, says anything about the ordinary course of Debtor's
business or financial affairs.
Fourth, even if Debtor were a party to the sales contract, we do not agree the
mere inclusion of an arbitration clause necessarily means using arbitration
proceedings was in the ordinary course of Debtor's business or financial affairs. We
cannot tell from the record on appeal, e.g., whether, or how often, Debtor produced
defective boats, whether, or how many, other customers had purchased defective
boats, whether, or how often, an arbitration clause was included in Debtor's other
sales contracts, whether, or how often, any such arbitration clause had been invoked,
or whether, or how often, it had been enforced. Without such evidence, we cannot
say arbitration proceedings were in the ordinary course of Debtor's business or
financial affairs.
Fifth, Calandrillo does not even discuss whether Debtor's obligation to make
the $65,000 payment was incurred in the ordinary course of Calandrillo's business
or financial affairs or whether the $65,000 payment was made in the ordinary course
of Calandrillo's business or financial affairs, much less point us to that part of the
record on appeal that demonstrates either to be the case. The absence of such
evidence is fatal to his defense.
For all these reasons, we agree with the bankruptcy court the $65,000 payment
was not made in the ordinary course of business within the meaning of 11 U.S.C.
§ 547(c)(2)(A).
CONCLUSION
We find no abuse of discretion in the bankruptcy court's decision to allow
Trustee to amend his complaint and to allow Trustee's amended complaint to relate
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back to the date of Trustee's original complaint. We likewise find no error in either
the bankruptcy court's conclusion that the $65,000 payment was not a
contemporaneous exchange within the meaning of 11 U.S.C. § 547(c)(1) or the
bankruptcy court's conclusion that the $65,000 payment was not made in the ordinary
course of business within the meaning of 11 U.S.C. § 547(c)(2)(A). Consequently,
we affirm the final judgment of the bankruptcy court entitling Trustee Charles W.
Ries to recover $65,000 from Michael Calandrillo pursuant to 11 U.S.C. §§ 547(b)
and, by implication, 550(a).
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