Opinion
CASE NO. 4:07 MC 00019, BNK CASE. NO. 02-44356, ADV. PRO. NO. 05-04026.
September 25, 2007
Plaintiff , Trustee Marc P. Gertz, In Re: Infotopia, Inc and Bowne of New York City, L.L.C., represented by Michael A. Steel, Goldman Rosen, Akron, OH, LEAD ATTORNEY, ATTORNEY TO BE NOTICED.
Defendant , Twin City Fire Insurance Company, improperly denominated in the adversary complaint as "The Hartford", represented by David J. Fagnilli, Davis Young — Cleveland, Cleveland. OH, LEAD ATTORNEY, ATTORNEY TO BE NOTICED, Megan D. Novine, Davis Young — Cleveland, Cleveland. OH, LEAD, ATTORNEY, ATTORNEY TO BE NOTICED.
GOLDMAN ROSEN. LTD., MICHAEL A. STEEL (0072367), Akron, Ohio, Attorney for Plaintiff, Marc P. Gertz, Trustee, Infotopia. Inc.
DAVID J. FAGNILLI (0032930), Davis Young, A Legal Professional Association, Cleveland, OH, Attorney for Defendant Twin City Fire Insurance Co.
MEMORANDUM OPINION AND ORDER
This matter is before the Court upon Defendant Twin City Fire Insurance Company's Motion To Withdraw the Reference. (Dkt. #1).
I. PROCEDURAL BACKGROUND
This adversary proceeding arises out of a Chapter 11 bankruptcy filed in the United States Bankruptcy Court for the Northern District of Ohio. (Dkt. #2). On September 30, 2002, Infotopia filed a petition seeking relief under Chapter 11 of the Unites States Code. (Dkt. #2). The petition was subsequently converted to a Chapter 7 voluntary case pursuant to an Order of Relief granted on February 4, 2003. (Dkt. #2). Marc P. Gertz ("Gertz") was appointed as Chapter 7 Trustee on February 7, 2003. (Dkt. #2). The Defendant Twin City Fire Insurance Company ("Twin City") was not put on notice of the bankruptcy until Gertz filed the Complaint on February 4, 2005. (Dkt. #3-3, ¶ 10).
The Court notes that in the Complaint, Twin City was improperly denominated as "The Hartford." (Dkt. #1).
On February 4, 2005 Plaintiff Trustee Gertz filed a Complaint against Defendant Twin City, alleging that Twin City violated terms of the Directors and Officers Policy ("D/O Policy") it issued to Infotopia. On March 29, 2007, Twin City filed a Motion for Withdrawal of Bankruptcy Reference, specifically requesting the reference to adversary proceeding 05-4026 be withdrawn from the Bankruptcy Court and transferred to this Court pursuant to 28 U.S.C. § 157 and Rule 501 l(a) of the Federal Rules of Bankruptcy Procedure.
Twin City argues that cause for the immediate withdrawal of the reference to this adversary proceeding exists on two independent and sufficient grounds. Initially, Twin City says that it has a right to a jury trial and has made a jury demand. Twin City argues that its refusal to consent to a jury trial conducted before the Bankruptcy Court establishes cause for withdrawal of the adversary proceeding. Secondly, Twin City argues that this matter is a non-core proceeding. As such. Twin City says the Bankruptcy Court cannot render a final order on the claims asserted without all parties' consent. Twin City denies that the Bankruptcy Court has such consent.
II. LAW AND ANALYSIS
Section 157(d) of the Bankruptcy Code permits the district court to "withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown." 28 U.S.C. § 157(d). The Bankruptcy Code does not define "cause." Consequently, the courts have developed a non-exhaustive list of factors to consider in determining whether cause exists. These factors include promoting judicial economy, uniformity in bankruptcy administration, reducing forum shopping and confusion, conserving debtor and creditor resources, expediting the bankruptcy process, whether a party has requested a jury trial, and whether the proceeding is core or non-core. Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985): see also Orion Pictures Corp. v. Showtime Networks. Inc. (In re Orion Pictures Group), 4 F.3d 1095, 1101-02 (2d Cir. 1993). "If one or more of these factors is present, the court may find that cause exists to withdraw the reference." U.S. v. Kaplan, 146 B.R. 500, 504 (D.Mass. 1992). The moving party bears the burden of demonstrating that the reference should be withdrawn. See In re Vicars Ins. Agency, Inc., 96 F.3d 949, 953 (7th Cir. 1996).
With regard to Twin City's refusal to consent to a jury trial before the Bankruptcy Court, the Bankruptcy Code does not authorize a bankruptcy judge to conduct jury trials absent special designation pursuant to 28 U.S.C. § 157 and the consent of the parties. 28 U.S.C. § 157(e). See also In Re Midgard Corp., 204 B.R. 764, 778 n. 18 (B.A.P. 10th Cir. 1997). Specifically, 28 U.S.C. § 157(e) provides:
If the right to a jury trial applies in a proceeding that may be heard under this section by a bankruptcy judge, the bankruptcy judge may conduct the jury trial if specially designated to exercise such jurisdiction by the district court and with the express consent of all the parties.
Similarly, the Northern District of Ohio authorizes its bankruptcy judges to conduct jury trials with the consent of all parties. Local Bankr.R. 9015-2(a).
The Seventh Amendment provides for the right to a trial by jury: "In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of common law." U.S. CONST, amend. VII. In Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989), the Supreme Court established the following test to determine if one is entitled to a jury trial under the Seventh Amendment:
First, we compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature. The second stage of this analysis is more important than the first. If, on balance, these two factors indicate that a party is entitled to a jury trial under the Seventh Amendment, we must decide whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as a fact finder.
"`Cause' to withdraw the reference automatically exists in cases where the party seeking the withdrawal is entitled to a jury trial under the Seventh Amendment." Peachtree Lane Assocs., Ltd. v. Granader, 175 B.R. 232, 235 (N.D.Ill. 1994) (quoting In re Americana Expressways. Inc. 161 B.R. 707, 709 (D.Utah 1993)).
With regard to Plaintiffs argument that the instant matter constitutes a non-core proceeding, 28 U.S.C. § 157(b)(3) requires that "The bankruptcy judge shall determine, on the judge's own motion or on timely motion of a party, whether a proceeding is a core proceeding." A court "considering whether to withdraw the reference should first evaluate whether the claim is core or non-core, since it is upon this issue that questions of efficiency and uniformity will turn." Orion, 4 F.3d at 1101. A non-core proceeding has four characteristics: (1) it is not specifically identified as a core proceeding under 28 U.S.C. §§ 157(b)(2)(B)-(N); (2) it existed prior to the filing of the bankruptcy case; (3) it would continue to exist independent of the provisions of Title 11; and (4) the parties' rights, obligations, or both are not significantly affected as a result of the filing of the bankruptcy case. In re Hughes-Bechtol, 141 B.R. 946, 948-49 (Bankr.S.D.Ohio 1992).
Plaintiff Trustee brings claims against Twin City, the issuer the D/O policy, for fraudulent transfer, conversion of assets, amounts due under promissory notes, and breaches of fiduciary duty. Plaintiff seeks money damages from Twin City, rendering this matter an action at law not equity. Generally, the Seventh Amendment provides a right to a jury trial for actions at law.See In re Rodgers Sons, Inc., 48 B.R. 683, 688 (Bankr.D.Okla. 1985) ("this Court follows the line of cases that determine entitlement to jury trial by whether the cause of action lies in equity or is brought at law"). Given that Plaintiff has established a right to a jury trial, filed a jury demand and refused consent to a jury trial before the Bankruptcy Court, the Court finds that "cause" exists to withdraw the reference.
In addition, the Court would find that the instant matter constitutes a non-core proceeding. However, as the bankruptcy judge has never rendered a decision on this matter, the issue is not properly before the Court at this time. 28 U.S.C. § 157(b)(3). See also In re Rivera, 2005 U.S. Dist. LEXIS 23304, at * 11 (N.D.Ohio Oct. 12, 2005) ("the question of whether an adversary proceeding is a core proceeding should initially be decided by the bankruptcy court"). Nevertheless, Plaintiff's right to a jury trial, jury demand and refusal to consent to a jury trial before the Bankruptcy Court demonstrate independent and sufficient "cause" to withdraw the reference of the adversary proceeding.
Gertz also argues that Twin's City' Motion for Withdrawal was not timely. Mandatory withdrawal requires a timely motion. The test for timeliness is ultimately one of reasonableness under the circumstances. See U.S. v. Kaplan ("Kaplan"), 146 B.R. 500, 503 (D.Mass. 1992) ("Timeliness is determined based on a review of the facts of the specific situation."). Both Gertz and Twin City filed Motions for Summary Judgment in the adversary proceeding on March 16, 2007 on the issue of liability under the D/O Policy. (Adv. Pro. No. 05-04026. Dkt. # 68, 169). Twin City filed the instant Motion for Withdrawal on March 29, 2007. before the Motions for Summary Judgment became ripe. Therefore, the Court find that Twin City's Motion for Withdrawal was timely under the circumstances.
III. CONCLUSION
For the foregoing reasons, the Court GRANTS Plaintiff's Motion for Withdrawal of Bankruptcy Reference and orders the reference to adversary proceeding 06-5211 be withdrawn from the Bankruptcy Court and immediately transferred to this Court pursuant to 28 U.S.C. § 157 and Rule 5011(a) ofthe Federal Rules ofBankruptcy Procedure.
IT IS SO ORDERED.
Graph I. one category only II. RELATED OR REFILED CASES III. Resident defendant COUNTY: Corporation Non-Resident defendant COUNTY: Other Cases COUNTY IV. EASTERN DIVISION WESTERN DIVISION Date Filed # Docket Text 1 1 2 2 1 1 3 1 2 4 Order 1 5 Order. 4.
Civil Categories: (Please check ). 1. General Civil 2. Administrative Review/Social Security 3. Habeas Corpus Death Penalty *If under Title 28, § 2255, name the SENTENCING JUDGE: ____________________ CASE NUMBER: ____________________ . See LR 3.1 which provides in pertinent part: "If an action is filed or removed to this Court and assigned to a District Judge after which it is discontinued, dismissed or remanded to a State court, and subsequently refiled, it shall be assigned to the same Judge who received the initial case assignment without regardfor the place of holding court in which the case was refiled. Counsel or a party without counsel shall be responsible for bringing such cases to the attention of the Court by responding to the questions included on the Civil Cover Sheet." This action is RELATED to another PENDING civil case. This action is REFILED pursuant to LR 3.1. If applicable, please indicate on page 1 In section VIII, the name of the Judge and case number. In accordance with Local Civil Rule 3.8, actions involving counties in the Eastern Division shall be filed at any of the divisional offices therein. Actions involving counties in the Western Division shall be filed at the Toledo office. For the purpose of determining the proper division, and for statistical reasons, the following information is requested. ANSWER ONE PARAGRAPH ONLY. ANSWER PARAGRAPHS 1 THRU 3 IN ORDER. UPON FINDING WHICH PARAGRAPH APPLIES TO YOUR CASE, ANSWER IT AND STOP. (1) If the defendant resides in a county within this district, please set forth the name of such county For the purpose of answering the above, a corporation is deemed to be a resident of that county in which It has its principal place of business In that district. (2) . If no defendant is a resident of a county in this district, please set forth the county wherein the cause of action arose or the event complained of occurred. (3) . If no defendant is a resident of this district, or if the defendant is a corporation not having a principle place of business within the district, and the cause of action arose or the event complained of occurred outside this district, please set forth the county of the plaintiff's residence. : The Counties in the Northern District of Ohio are divided into divisions as shown below. After the county is determined in Section III, please check the appropriate division. AKRON (Counties: Carroll, Holmes, Portage, Stark, Summit, Tuscarawas and Wayne) CLEVELAND (Counties: Ashland, Ashtabula, Crawford, Cuyahoga, Geauga, Lake, Lorain, Medina and Richland) YOUNGSTOWN (Counties: Columbiana, Mahoning and Trumbull) TOLEDO (Counties: Allen, Auglaize, Defiance, Erie, Fulton, Hancock, Hardin, Henry, Huron, Lucas, Marion, Mercer, Ottawa, Paulding, Putnam, Sandusky, Seneca VanWert, Williams, Wood and Wyandot) 03/29/2007 Motion for withdrawal of reference (Bankruptcy) filed by Twin City Fire Insurance Company. (Attachments: # Letter from Bankruptcy Court# USBC NDOH Docket) (H.LA) (Entered: 03/29/2007) 03/30/2007 Opposition to Motion for withdrawal of reference (Bankruptcy) filed by Marc P. Gertz. (Steel. Michael) (Entered: 03/30/2007) 04/04/2007 Remark: The docket sheet has been corrected. The following parties have been removed from the miscellaneous case: Earnest J. Zavoral, Sr., Daniel J. Hoyng, Marek Lozowicki, Clinton Smith, Jr., Darleen Gasbarro, A. Robert Tilton, Lisa Ulshafter, Ron Fricke, Amy Christianson, The Hartford, Talbot Insurance and Financial Services, Inc. Related document (s), (H.LA) (Entered: 04/04/2007) 04/05/2007 Reply to 1 Motion for withdrawal of reference (Bankruptcy) filed by Twin City Fire Insurance Company. (Attachments: # Exhibit A, Answer to Adversary Complaint# Exhibit B. Adversary Complaint) (Fagnilli, David) Modified text on 4/9/2007 (B, B). (Entered: 04/05/2007) 09/25/2007 granting Motion for withdrawal of Bankruptcy Reference and orders the reference to adversary proceeding 06-5211 be withdrawn from the Bankruptcy Court and immediately transferred to this Court. Signed by Judge Peter C. Economus on 9/25/2007. (Related Doc # ). (H.LA) (Entered: 09/26/2007) 09/26/2007 Civil Case No. 4:07CV2936. Judge Peter C. Economus. Related document(s) 4. (H.LA) (Entered: 09/26/2007) 09/26/2007 The Court corrects its previous Memorandum Opinion and orders the reference to adversary proceeding 05-4026 be withdrawn from the Bankruptcy Court and immediately transferred to this Court. Signed by Judge Peter C. Economus on 9/26/2007. Related Document reference (Bankruptcy) (H.LA) (Entered: 09/26/2007) IN THE UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION, YOUNGSTOWN IN RE: CASE NO. 02-44356 INFOTOPIA. INC. CHAPTER 7, Debtor ************************** ADV. PRO. NO. MARC P. GERTZ, Trustee in Bankruptcy for Infotopia. Inc. HON. KAY WOODS Plaintiff BANKRUPTCY JUDGE vs OMPLAINT TO AVOID AND RECOVER FRAUDULENT INFOTOPIA. INC. TRANSFERS: CONVERSION: BREACH OF FIDUCIARY DUTIES And EARNEST J. ZAVORAL. SR. 5375 Mission Hills Dr. Canfield. Ohio 44406 And DANIEL J. HOYNG 3516 Amethyst Pass, #2 Beaver Creek. OH 45431 And MAREK LOZOWICKI 91 Pinecone Drive Canfield, Ohio 44406 And CLINTON SMITH. JR. 5167 St. Roch Avenue New Orleans, LA 70122 And DARLEEN GASBARRO 10 Village Circle Taunton. MA 02780 And A. ROBERT TILTON 500 West Park Avenue Hamilton. NJ 08610 And LISA ULSHAFER 4400 Sherwood Rd. Ortonville. MI 48462 And RON FRICKE 5255 Revere Run Canfield, Ohio 44406 And AMY CHRISTIANSON n.k.a AMY RUMRILL 555 King Phillips Street, #170 Raynham. MA 02148 And JOHN DOES 1-10 And THE HARTFORD TeleClaim Service Center P.O. Box 2041 Aurora, IL 60507 And TALBOT INSURANCE AND FINANCIAL SERVICES. INC. 4371 Latham Street, Suite 101 Riverside. CA 92501 And ABC INSURANCE COMPANY Defendant(s) ***************************************************************************Now comes Marc P. Gertz, the duly appointed and acting Trustee for the bankruptcy estate of Infotopia, Inc., by and through the undersigned counsel, and for his complaint states as follows:
JURISDICTION AND VENUE
1. This is an action to avoid and recover fraudulent transfers under 11 U.S.C. §§ 548, 544 and 550 as well as claims for conversion of assets. amounts due under promissory notes, breaches of fiduciary duties. This action is commenced as an adversary proceeding pursuant to the provisions of Rule 7001 of the Federal Rules of Bankruptcy Procedure.
2. Jurisdiction of this Court over the instant adversary proceeding is based upon 28 U.S.C. Section 1334(b). 157(a), and 157(b). In this District, jurisdiction is also based upon General Order Number 84 in that this action arises in the bankruptcy case of Infotopia, Inc. filed as an involuntary Chapter 11 petition on September 30, 2002 and subsequently converted to Chapter 7 case on February 4, 2003 and denominated as case 02-44356 and is presently pending before this Court as a case under Chapter 7 of the Bankruptcy Code.
3. This civil proceeding is grounded upon Section 547(a) of the Bankruptcy Code and is a core proceeding as that term is defined in 28 U.S.C. Section 157(b).
4. This District is the proper venue for this adversary proceeding pursuant to 28 U.S.C. § 1409(a).
PARTIES
5. Plaintiff, MARC P. GERTZ. is the duly appointed Chapter 7 Bankruptcy Trustee of Infotopia, Inc. (the "Infotopia Trustee").
6. Upon information and belief. Defendant INFOTOPIA. INC., (the "Debtor" and/or "Infotopia") is a Nevada Corporation, having a principal place of business in Canfield, Ohio.
7. Defendants EARNEST J. ZAVORAL. SR., DANIEL J. HOYNG, MAREK LOZOWICKI, and CLINTON SMITH, JR. were Directors and Officers of Infotopia, Inc. (collectively the "Infotopia Officers").
8. Defendants DARLEEN GASBARRO, A. ROBERT TILTON. LISA ULSHAFER, RON FRICKE, AMY CHRISTIANSON n.k.a AMY RUMRILL were employees of Infotopia while it was in business all of which having direct control of the business affairs and records of the Infotopia.
9. Defendants John Doe 1-10 were individuals associated with Infotopia, Inc. who received money from Infotopia for less than adequate consideration but whose identity is not readily available.
10. Defendants THE HARTFORD, TALBOT INSURANCE AND FINANCIAL SERVICES. INC., and ABC INSURANCE COMPANY provided insurance coverage to Infotopia, Inc. for acts of negligence. errors and omissions of Infotopia's Directors and Officers. The identity of ABC Insurance Company is not readily available.
COUNT 1 (Fraudulent Transfer — 11 U.S.C. § 548(a)(1)(A))
11. Plaintiff restates his allegations contained in paragraphs 1 through 10 of this Complaint as if fully rewritten here.12. On September 30, 2002, an involuntary bankruptcy petition was filed under Chapter 11 of Title 11 of the United States Code. An Order of Relief was granted and the case was subsequently converted to a Chapter 7 case on February 4, 2003.
13. During the one-year period immediately preceding the commencement of the Debtor's case, the Debtor, outside the course of ordinary business, to and for the benefit of Defendants. Earnest J. Zavoral. Sr., Daniel J. Hoyng. Marek Lozowicki. Clinton Smith. Darleen Gasbarro. A. Robert Tilton. Lisa Ulshafer, Ron Fricke. Amy Christianson n.k.a. Amy Rumrill. and John Does 1-10. jointly and severally and acting in concert with one another (collectively, the "Infotopia Defendants"), transferred money or property having a value in excess of One Million Dollars ($1,000,000.00) (herein, the "Transfers").
14. Upon information and belief, the Debtor made the Transfers with the actual intent to hinder, delay or defraud any entity to which the Debtor was or became indebted, on or after the date the Transfers were made.
15. The Transfers are fraudulent transfers avoidable by Plaintiff pursuant to Section 548(a)(1)(A) of the Bankruptcy Code ( 11 U.S.C. § 548(a)(1)(A)) and are recoverable from Defendants, jointly and severally, pursuant to Section 550(a) of the Bankruptcy Code ( 11 U.S.C. § 550(a)).
COUNT 2 (Fraudulent Transfer — 11 U.S.C. § 548(a)(1)(B))
16. Plaintiff restates his allegations contained in paragraphs 1 through 16 of this Complaint as if fully rewritten here.
17. During the one-year period immediately preceding the commencement of the Debtor's case, the Debtor made the Transfers to the Infotopia Defendants.
18. Upon information and belief, the Debtor received less than a reasonably equivalent value in exchange for the Transfers.
19. The Debtor (i) was insolvent on the date of the Transfers or became insolvent as a result of the Transfers; and/or (ii) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the Debtor was an unreasonably small amount of capital; and/or (iii) intended to incur, or believed that it would incur, debts that would be beyond its ability to pay as such debts matured.
20. The Transfers were not made in the ordinary course of business.
21. The Transfers are fraudulent transfers avoidable by Plaintiff pursuant to Section 548(a)(1)(B) of the Bankruptcy Code ( 11 U.S.C. § 548(a)(1)(B)) and are recoverable from The Infotopia Defendants pursuant to Section 550(a) of the Bankruptcy Code ( 11 U.S.C. § 550(a)).
COUNT 3 (Fraudulent Transfer — Ohio R.C. 1336, et seq.)
22. Plaintiff restates his allegations contained in paragraphs 1 through 21 of this Complaint as if fully rewritten here.
23. During the four-year period immediately preceding the commencement of the Debtor's case, the Debtor made the Transfers to the Infotopia Defendants.
24. All of the Infotopia Defendants are considered to be "insiders" within the meaning of Ohio Revised Code 1336.05 in that they asserted direct control over Infotopia as Officers, Directors and Employees of Infotopia.
25. Upon information and belief, Infotopia, made transfers to the Infotopia Defendants, outside the ordinary course of business, for items such as personal loans, individual stock purchases, down payments on the mortgage on personal residences, cash advances, personal travel expenses, and improvements upon personal residences. Infotopia. in return, received no value for such Transfers of money and property.
26. Infotopia made such Transfers with actual intent to hinder, delay, or defraud creditors of the company and did not receive a reasonably equivalent value in exchange for the Transfers or obligation.
27. At the time of the Transfers. Infotopia was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction and/or Infotopia intended to incur, or believed or reasonably should have believed that it would incur, debts beyond its ability to pay as they became due.
28. The Transfers to the Infotopia Defendants consisted of substantially all of the assets of Infotopia at the time such that the Transfers depleted the resources of Infotopia;
29. At the time of such Transfers, the Infotopia Defendants knew or had reason to believe that Infotopia was insolvent.
30. Many of the Transfers were neither approved by Infotopia's Board of Directors, nor appropriately disclosed pursuant to federal securities regulations and commonly accepted practices corporate management.
31. The Transfers are fraudulent transfers avoidable by Plaintiff pursuant to Ohio Revised Code 1336. et seq. and are recoverable from Defendants pursuant to Section 544 of the Bankruptcy Code ( 11 U.S.C. § 544).
COUNT 4: Conversion; Personal Loans from Infotopia
32. Plaintiff restates his allegations contained in paragraphs I through 31 of this Complaint as if fully rewritten here.
33. On or about April 11, 2001. Infotopia. Inc. made personal loans to the Officers of Infotopia; to wit: Ernest J. Zavoral, Sr. ($694,174.00); Daniel J. Hoyng ($852,148.00): Marek Lozowicki ($525,554.00): and Clinton Smith ($79,005.00). Such personal loans were memorialized in written loan agreements and were used for the purpose of allowing said Infotopia Officers to purchase personal shares of stock in Infotopia. Said loans have never been repaid, yet such stock was sold at substantial profits to the individuals.
34. The foregoing personal loans were not in the ordinary course of Infotopia's business as Infotopia was insolvent at the time of the Transfers and/or become insolvent as a result of the Transfers.
35. The Infotopia Officers are in possession of the proceeds for the personal loans and have wrongfully detained and still detain the same.
36. By reason of the foregoing, the aforementioned Infotopia Officers, and each of them, have converted property of Infotopia for their own use.
37. By reason of the foregoing, the Infotopia Trustee, on behalf of the Estate of Infotopia, Inc. has been damaged in the an amount of Two Million. One Hundred Fifty Thousand. Eight Hundred Eighty One Dollars ($2,150,881.00) plus statutory interest thereon from April 11, 2001.
38. The Infotopia Officers are liable to Plaintiff, jointly and severally, for costs, disbursements and reasonable attorney's fees incurred by Plaintiff in this action.
COUNT 5: Breach of Fiduciary Duties
39. Plaintiff restates his allegations contained in paragraphs 1 through 38 of this Complaint as if fully rewritten here.
40. As Officers of Infotopia, Defendants. Ernest J. Zavoral, Sr., Daniel J. Hoyng, Marek Lozowicki and Clinton Smith had a fiduciary obligation to the company, and to the extent that Infotopia was determined to be insolvent, to the creditors of Infotopia.
41. In dereliction of such duty, the Infotopia Officers engaged in a pattern of insider trading, issuing materially false and misleading representations and omissions in violation of federal securities laws, failing to disclose adverse financial circumstances, and made misrepresentations and omissions concerning the investments of individual Infotopia Officers.
42. During the period of time from 1997, through the date of the Bankruptcy Petition filed on September 30, 2002. the Infotopia Officers engaged in specific acts of negligence, breaches of fiduciary duties, malfeasance, misfeasance, errors and omissions in a reckless and malicious manner, that materially damaged Infotopia, and subsequently its creditors.
43. Upon information and belief. Defendants The Hartford and Talbot Insurance and Financial Services, Inc. provided insurance coverage to Infotopia. Inc. for acts of negligence, errors and omissions for Infotopia's Directors and Officers. Claims have been previously made to such insurance carriers for said acts by the Infotopia Officers.
WHEREFORE. Plaintiff. Marc P. Gertz, the duly appointed Chapter 7 Trustee, respectfully requests that this Court enter judgment in favor of Plaintiff and against said Infotopia Defendants. Earnest J. Zavoral, Sr., Daniel J. Hoyng, Marek Lozowicki, Clinton Smith, Darleen Gasbarro. A. Robert Tilton. Lisa Ulshafer, Ron Fricke, Amy Christianson n.k.a. Amy Rumrill. individually with respect to individual debts owed and jointly and severally for those acts in which the Defendants acted in concert on Counts 1, 2, 3, 4, and 5, as follows:
(i) Avoiding the Transfers to Defendant as fraudulent transfers under both applicable federal and state laws;
(ii) Granting judgment in favor of Marc P. Gertz. Trustee, and against each Infotopia Defendant in an amount to be proven before this Court, plus interest as of the commencement of this case, plus costs and reasonable attorneys fees:
(iii) Granting judgment in favor of Marc P. Gertz. Trustee, and against each Infotopia Officer in the following amounts: Ernest J. Zavoral. Sr. ($694,174.00): Daniel J. Hoyng ($852,148.00); Marek Lozowicki ($525,554.00); and Clinton Smith ($79,005.00), plus interest as of the commencement of this case, plus costs and reasonable attorneys fees;
(iv) Granting judgment in favor of Marc P. Gertz. Trustee, and against each Infotopia Officer, jointly and severally for specific acts of negligence, errors and omissions, and other breaches of fiduciary duties in an amount to be proven before this Court plus costs and reasonable attorneys fees, along with punitive damages: and
(v) Granting to Plaintiff such other relief as is just and equitable.IN THE UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION, YOUNGSTOWN IN RE: ) CASE NO.: 02-44356, ) INFOTOPIA, INC. ) ADVERSARY PROCEEDING NO: ) 05-04026. Debtor ) ) CHAPTER 7, **************************** ) ) JUDGE KAY WOODS MARC P. GERTZ, Trustee in ) Bankruptcy for Infotopia, Inc.) ) Plaintiff, ) SEPARATE ANSWER OF TWIN ) CITY FIRE INSURANCE v. ) COMPANY IMPROPERLY INFOTOPIA, INC., et al. ) DENOMINATED IN THE ) ADVERSARY COMPLAINT AS ) "THE HARTFORD" Defendants, ) ) (Jury Demand Endorsed Hereon) ) Defendant Twin City Fire Insurance Company, improperly denominated in the adversary complaint as "The Hartford" for its separate answer to the adversary complaint states:
JURISDICTION AND VENUE
1. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 1.
2. It is without sufficient knowledge or information to form a belief as to the truth of the averments comained in paragraph 2.
3. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 3.
4. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 4.
PARTIES
5. Paragraph 5 is admitted.
6. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 6.
7. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 7.
8. It is without sufficient knowledge orinformation to form a belief as to the truth of the averments contained in paragraph 8.
9. It is without sufficient knowledge or in formation to form a belief as to the truth of the averments contained in paragraph 9.
10. For its answer to paragraph 10. it admits that Twin City Fire Insurance Company issued a Claims Made Directors, Officers, and Company Liability policy to Infotopia, Inc., for the policy period June 1, 2001 through June 1, 2002, and that the agent was Talbot Insurance and Financial Services, Inc., and that the policy is governed by its terms, conditions, definitions, and exclusions contained therein, but denies the remaining allegations contained in paragraph 10 not herein specifically admitted to be true.
COUNT 1 (Fraudulent Transfer — 11 U.S.C. § 548(a)(1)(A))
11. For its answer to paragraph 11. it incorporates herein by reference its answer to paragraphs 1 through 10 as if fully rewritten herein.
12. Paragraph 12 is admitted.
13. It is without sufficient knowledge or information to form a beliefas to the truth of the averments contained in paragraph 13, and denies same for want of knowledge.
14. It is without sufficient knowledge or information to form a beliefas to the truth of the averments contained in paragraph 14. and denies same for want of knowledge.
15. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 15, and denies same for want of knowledge.
COUNT 2 (Fraudulent Transfer — 11 U.S.C. § 548(a)(1)(B))
16. For its answer to paragraph 16. it incorporates herein by reference its answer to paragraphs 1 through 15 as if fully rewritten herein.
17. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 17, and denies same for want of knowledge.
18. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 18, and denies same for want of knowledge.
19. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 19, and denies same for want of knowledge.
20. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 20. and denies same for want of knowledge.
21. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 21, and denies same for want of knowledge.
COUNT 3 (Fraudulent Transfer — Ohio R.C. 1336, et seq.
22. For its answer to paragraph 22, it incorporates herein by reference its answers to paragraphs 1 through 21 as if fully rewritten herein.
23. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 23, and denies same for want of knowledge.
24. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 24, and denies same for want of knowledge.
25. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 25. and denies same for want of knowledge.
26. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 26. and denies same for want of knowledge.
27. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 27, and denies same for want of knowledge.
28. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 28. and denies same for want of knowledge.
29. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 29. and denies same for want of knowledge.
30. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 30, and denies same for want of knowledge.
31. It is without sufficient knowledge or information to form a beliefas to the truth of the averments contained in paragraph 31, and denies same for want of knowledge.
COUNT 4 — Conversion: Personal Loans from Infotopia
32. For its answer to paragraph 32. it incorporates herein by reference its answer to paragraphs 1 through 31 as if fully rewritten herein.
33. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 33, and denies same for want of knowledge.
34. It is without sufficient knowledge orinformation to form a belief as to the truth of the averments contained in paragraph 34, and denies same for want of knowledge.
35. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 35. and denies same for want of knowledge.
36. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 36, and denies same for want of knowledge.
37. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 37. and denies same for want of knowledge.
38. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 38. and denies same for want of knowledge.
COUNT 5 — Breach of Fiduciary Duties
39. For its answer to paragraph 39, it incorporates herein by reference its answer to paragraphs 1 through 38 as if fully rewritten herein.
40. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 40. and denies same for want of knowledge.
41. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 41, and denies same for want of knowledge.
42. It is without sufficient knowledge or information to form a belief as to the truth of the averments contained in paragraph 42, and denies same for want of knowledge.
43. For its answer to paragraph 43, it admits that Twin City Fire Insurance Company issued a policy of Directors and Officers insurance coverage on a claims made basis to Infotopia, subject to the terms, conditions, and exclusions contained therein, but denies that the policy provides coverage for the allegations contained in the adversary complaint, and further answering denies the remaining allegations contained in paragraph 43 not herein specifically admitted to be true.
FIRST AFFIRMATIVE DEFENSE
44. This answering defendant affirmatively states that the adversary complaint fails in whole or in part to state a claim upon which relief can be granted.
SECOND AFFIRMATIVE DEFENSE
45. This answering defendant affirmatively states that the claim is barred by Exclusion (M) which states:
V. EXCLUSIONS
The Insurer shall not be liable to make any payment for Loss in connection with any Claim . . .
(M) for, based upon, arising from, or in any way related to any Wrongful Act or Interrelated Wrongful Acts taking place in whole or in part prior to 6/01/01.
THIRD AFFIRMATIVE DEFENSE
46. This answering defendant affirmatively states that the claim is barred because it was not made while the policy was in force, or within sixty (60) days after termination of the policy, as required by the terms and conditions of the policy.
FOURTH AFFIRMATIVE DEFENSE
47. This answering defendant affirmatively states that the adversary complaint is barred by Exclusion (I), which states:
V. EXCLUSIONS
The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Directors and Officers or, with respect to Insuring Agreement (C). the Company: . . .
(I) for, based upon, arising from, or in any way related to their gaining in fact any personal profit, remuneration or advantage to which they wer not legally entitled.
FIFTH AFFIRMATIVE DEFENSE
48. This answering defendant affirmatively states that the adversary complaint is barred by Exclusion (J), which states:
V. EXCLUSIONS
The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Directors and Officers or, with respect to Insuring Agreement (C), the Company; . . .
(J) for. based upon, arising from, or in any way related to any deliberately dishonest, malicious or fraudulent act or omission or any willful violation of law by such Insured if a judgment or other final adjudication adverse to the Insured establishes such an act, omission or willful violation, provided this exclusion shall apply to Insuring Agreement (C). if granted, only if such judgment or final adjudication establishes that a Director or Executive Officer of the Company committed such an act, omission or willful violation:
SIXTH AFFIRMATIVE DEFENSE
49. This answering defendant affirmative states that the adversary complaint is barred by Exclusion (K) which states:
V. EXCLUSIONS
The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Directors and Officers or, with respect to Insuring Agreement (C), the Company: . . .
(K) for an accounting of profits made from the purchase or sale by such Insured of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state, local or common law; or
SEVENTH AFFIRMATIVE DEFENSE
50. This answering defendant affirmative states that the adversary complaint is barred by Exclusion (L) which states:
V. EXCLUSIONS
The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against the Directors and Officers or, with respect to Insuring Agreement (C), the Company; . . .
(L) for, based upon, arising from, or in any way related to the actual or proposed payment by the Company of allegedly inadequate or unfair consideration in connection with its purchase of securities issued by the Company; provided, however, that this exclusion shall not apply to Insuring Agreements (A) or (B) or to Claims Expenses under Insuring Agreement (C).
EIGHTH AFFIRMATIVE DEFENSE
51. This answering defendant affirmatively states that the plaintiff's claim is limited by the self-insured retention, and the policy limits contained in the policy.
NINTH AFFIRMATIVE DEFENSE
52. This answering defendant affirmatively raises the defense of insufficiency of process.
TENTH AFFIRMATIVE DEFENSE
53. This answering defendant affirmatively raises the defense of insufficiency of service of process.
ELEVENTH AFFIRMATIVE DEFENSE
54. This answering defendant affirmatively raises the defense of misnomer.
TWELFTH AFFIRMATIVE DEFENSE
55. This answering defendant affirmatively states that the adversary complaint is barred by the General Conditions, and/or the Trustee, and/or the Insureds under the policy have failed to comply with conditions precedent to coverage under the policy including but not limited to Condition (G) which states:
IX. GENERAL CONDITIONS
(G) ACTION AGAINST INSURER
No action shall be taken against the insurer unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this Policy, and the amount of the Insureds' obligation to pay shall have been finally determined either by judgment against the Insureds after actual trial, or by written agreement of the Insureds. the claimant and the Insurer.
No person or organization shall have the right under this Policy to join the Insurer as a party to any action against the Insureds to determine the Insureds' liability, nor shall the Insurer be impleaded by the Insureds or their legal representative. Bankruptcy or insolvency of an Insured or of an Insured's estate shall not relieve the Insurer of any of its obligations hereunder.
THIRTEENTH AFFIRMATIVE DEFENSE
56. This answering defendant affirmatively states that the adversary complaint is barred by Material Representation contained in the Proposal which forms the basis for the issuance of the policy, and by Condition I which states:
(I) REPRESENTATIONS AND SEVERABILITY
The Insureds represent that the particulars and statements contained in the Proposal are true and shall be deemed material to the acceptance of the risk or the hazard assumed by the Insurer under this Policy. This Policy is issued in reliance upon the truth of such representations.
The Insureds agree that in the event that the particulars and statements contained in the Proposal are untrue, this Policy shall not afford any coverage with respect to any of the following Insureds:
(1) any Director or Officer who knew as of the Inception Date of this Policy the facts that were not truthfully disclosed in the Proposal,
(2) the Company, under Insuring Agreement (B), to the extent it indemnifies any Director or Officer referenced in (1), above, and
(3) the Company, under Insuring Agreement (C). if a Director or any Executive Officer knew as of the Inception Date of this Policy the facts that were not truthfully disclosed in the Proposal,
whether or not such Director, Officer or Executive Officer knew of such untruthful disclosure in the Proposal.
WHEREFORE, having fully answered the adversary complaint, defendant Twin City Fire Insurance Company, improperly denominated in the adversary complaint as "The Hartford", prays that the adversary complaint be dismissed as to it, and that it be allowed to go hence without further day or cost.
JURY DEMAND
Defendant hereby demands a trial by a jury consisting of the maximum number of jurors allowed by law.