Opinion
Case No. 17-31030 Adv. No. 19-3054
2021-11-22
Nick V. Cavalieri, Bailey Cavalieri, Matthew T. Schaeffer, Columbus, OH, for Defendant.
Nick V. Cavalieri, Bailey Cavalieri, Matthew T. Schaeffer, Columbus, OH, for Defendant.
DECISION (1) GRANTING IN PART AND DENYING IN PART DEFENDANT EASTPORT HOLDINGS, LLC'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON COUNT I; (2) GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AS TO COUNT I; AND (3) DENYING PLAINTIFF'S MOTION AS TO COUNTS II AND III (DOCS. 40, 48)
Guy R. Humphrey, United States Bankruptcy Judge
I. Introduction
In this dispute, the Chapter 7 Trustee of GYPC, Inc. ("GYPC") seeks to enforce the automatic stay against Eastport Holdings, LLC ("Eastport"), obtain a declaration that its post-petition actions are in violation of the automatic stay and void, and to recover damages. GYPC filed a voluntary petition for relief under Chapter 11 in 2017. In 2019, upon motion of the United States Trustee, this court ordered the case converted to Chapter 7.
Pre-petition, GYPC sold substantially all of its assets to Eastport's wholly owned subsidiary, Mindstream Media, LLC ("Mindstream"). As part of the purchase price, Eastport granted GYPC a preferred membership interest ("PMI") in Eastport, contingent on several calculations and adjustments to be made after the sale closed. After the bankruptcy filing, Eastport sent two letters that contained reports of its calculations and the resulting adjustments to GYPC's membership interest.
The first letter, sent in August 2017, explained that Eastport discovered a significant shortfall in the estimated working capital below the contractually required minimum and demanded immediate payment. GYPC's counsel informed Eastport of the bankruptcy filing in a reply letter in early September. In the second letter, sent in October, Eastport reported that the acquired business had failed to meet the contractual performance targets during the measurement period, leaving GYPC with no remaining membership interest after the adjustments were applied. The Chapter 7 Trustee disputes these adjustments and maintains that GYPC owns the PMI.
In early 2018, Eastport filed a Tennessee state court lawsuit against GYPC's two principals, primarily to seek indemnification and damages for GYPC's failure to provide the required working capital (the "State Court" or "State Court Action"). After the Trustee filed this adversary proceeding, Eastport asked this Court to abstain from the State Court Action and dismiss this adversary proceeding, suggesting that GYPC could join the State Court Action to resolve its claims against Eastport. Eastport also suggested that the claims in the State Court Action are closely related to those raised in the Trustee's complaint in this adversary proceeding. This Court denied Eastport's motion because, among other reasons, the claims presented require a determination as to whether the PMI remains property of the bankruptcy estate.
Through this decision, the Court finds that Eastport violated the automatic stay when it sent the August 2017 letter reporting a shortfall in the contractually required working capital and demanding payment but cannot be held liable for damages. The Court further finds that Eastport did not violate the automatic stay when it sent the October 2017 letter reporting its calculations of contractually required adjustments to the PMI arising out of the pre-petition sale of GYPC's assets. Eastport did violate the automatic stay by prosecuting the State Court Action against GYPC's insiders, but cannot be held liable for damages. In addition, the decision explains why the validity of the PMI cannot be determined under the governing sale agreement without resolving certain disputed facts. Finally, the decision explains why the court cannot determine on this summary judgment record that Eastport committed a breach of contract in failing to make certain post-closing payments.
The Trustee's complaint (Doc. 1) has three counts: Count I concerns the stay violation, Count II seeks a determination of the value of the PMI, and Count III asserts a claim for breach of contract. Eastport filed a motion for partial summary judgment as to Count I. The Chapter 7 Trustee, Donald F. Harker, III (the "Trustee") has moved for summary judgment on all three counts in the complaint. For the reasons to be explained, the court grants in part and denies in part Eastport's motion for partial summary judgment, and grants in part and denies in part the Trustee's motion as to Count I, and denies the Trustee's motion for summary judgment as to Counts II and III.
II. Jurisdiction
This court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference (Amended General Order 05-02) of the District Court for the Southern District of Ohio. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I) and (O), and this court has constitutional authority to enter a final judgment.
III. Summary Judgment Standard
Federal Rule of Civil Procedure 56(a), made applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7056, sets forth the standard to address the parties’ filings. It states, in part, that a court must grant summary judgment to the moving party if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In order to prevail, the movant, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett , 477 U.S. 317, 331, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). All inferences drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 587–88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting United States v. Diebold, Inc. , 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962) ). IV. Effect of Taggart v. Lorenzen on the Evidentiary Standard for Damages for Automatic Stay Violations Involving Non-Individual Debtors
Damages for stay violations in cases involving individuals are determined under 11 U.S.C. § 362(k). See also 11 U.S.C. § 101(41) (defining the term "persons" as including "individuals, partnership, and corporation"). A willful violation of the stay under § 362(k) occurs when the creditor knew of the automatic stay and violated the stay through an intentional act, even if the creditor did not specifically intend to violate the stay. TranSouth Fin. Corp. v. Sharon (In re Sharon ), 234 B.R. 676, 687 (B.A.P. 6th Cir. 1999) ; Squire v. Stringer , 820 F. App'x. 429, 434 (6th Cir. 2020) ("Here, Creditors knew of the § 362 stay and pursued their state court collection action anyway, without prior approval from the bankruptcy court, in willful violation of the stay."). Because corporate entities such as GYPC do not have the benefit of a statutory private right of action for a stay violation, they must proceed under a § 105 civil contempt theory. Elder-Beerman Stores Corp. v. Thomasville Furniture Indus. Inc. (In re Elder-Beerman Stores Corp. ), 197 B.R. 629, 632 (Bankr. S.D. Ohio 1996).
Recently, the Supreme Court resolved the standard to be applied in determining whether a creditor may be held in civil contempt for violating a debtor's discharge injunction. Taggart v. Lorenzen , ––– U.S. ––––, 139 S. Ct. 1795, 204 L.Ed.2d 129 (2019). In a unanimous decision, the Court rejected both subjective and strict liability standards and, instead, applied an objective one. Id. at 1801-03. It determined that a bankruptcy court may only hold a creditor in civil contempt for violating the discharge injunction if there is no fair ground of doubt as to whether the discharge injunction barred the creditor's conduct. Id. at 1799. No fair ground of doubt was defined as "when there is no objectively reasonable basis for concluding that the creditor's conduct might be lawful under the discharge order." Id. at 1801. The standards under §§ 524 and 105(a) of the Bankruptcy Code "bring with them ‘old soil’ " on how injunctions are enforced. Id. This "old soil includes the ‘potent weapon of contempt.’ " Id. (quoting Longshoremen v. Philadelphia Marine Trade Assn. , 389 U.S. 64, 76, 88 S.Ct. 201, 19 L.Ed.2d 236 (1967)).
With Taggart having applied the objective standard to contempt proceedings in the context of discharge injunction litigation, the issue arises as to whether that standard applies to the similar stay violation civil contempt proceedings. The Court noted that "[t]his standard reflects that civil contempt is a severe remedy, and that the principles of basic fairness require[e] that those enjoined receive explicit notice of what conduct is outlawed before being held in civil contempt." Id. at 1801-02 (cleaned up).
At least in the Sixth Circuit, it is beyond debate that the § 362(k) willful standard for proving a debtor is entitled to damages for a stay violation is easier to prove than the Taggart discharge violation standard. Prior to Taggart , the courts within the Sixth Circuit (and in many other jurisdictions) applied what Taggart described as a standard "akin to strict liability." Id. at 1803. Courts sanctioned creditors for violations of the stay if the creditor knew about the stay (i.e. that the debtor filed the bankruptcy), yet intentionally engaged in the conduct that violated the stay, even if the creditor subjectively believed that his conduct would not violate the stay. Id. at 1803-04 ; Sharon , 234 B.R. at 687. Courts commonly refer to this principle as a "willful" violation of the stay. See id. In a decision shortly before Taggart was decided, the Sixth Circuit at least implicitly approved this standard in a case arising out of this district involving a corporate debtor. Lowe v. Bowers (In re Nicole Gas Prod. ), 916 F.3d 566, 578-79 (6th Cir. 2019) ("The Bankruptcy Court below did not simply conclude that the Fulson Parties had fumbled their way into violating the automatic stay – it deemed their actions willful ... [T]the Bankruptcy Court found that Fulson, Sanders, and Lowe were aware of the automatic stay, and had intentionally taken actions that violated it, regardless of their good faith or lack thereof.").
The Taggart Court declined to determine whether the language in § 362(k)(1) supports the use of a strict liability willfulness standard in the context of an automatic stay violation. In distinguishing automatic stay violation proceedings from discharge violation proceedings, the Court explained:
An automatic stay is entered at the outset of a bankruptcy proceeding. The statutory provision that addresses the remedies for violations of automatic stays says that "an individual injured by any willful violation" of an automatic stay "shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages." 11 U. S. C. § 362(k)(1). This language, however, differs from the more general language in section 105(a). The purposes of automatic stays and discharge orders also differ: A stay aims to prevent damaging disruptions to the administration of a bankruptcy case in the short run, whereas a discharge is entered at the end of the case and seeks to bind creditors over a much longer period. These differences in language and purpose sufficiently undermine Taggart's proposal to warrant its rejection. (We note that the automatic stay provision uses the word "willful," a word the law typically does not associate with strict liability but " ‘whose construction is often dependent on the context in which it appears.’ " We need not, and do not, decide whether the word "willful" supports a standard akin to strict liability.)
Taggart , at 1803-04 (citations omitted). The court is not faced with an individual debtor and therefore need not comment on continued applicability of the familiar standard under § 362(k). The Supreme Court raised that issue in dicta but did not decide it, and cases such as Sharon provide support to apply that standard for such cases. But as a corporate debtor, GYPC cannot use § 362(k), and like a discharge violation action, must pursue a contempt theory. Nicole Gas Prod. , 916 F.3d at 578 (stating, in a stay violation case involving a corporate debtor, that "[v]violating the automatic stay constitutes civil contempt."). See also Forson v. Nationstar Mortgage, LLC , 549 B.R. 866, 869 n.6 (Bankr. S.D. Ohio 2016) (noting that there is not a private right of action for violations of the discharge injunction, and that § 362(k) applies to individual debtors).
To be sure, Taggart does not discuss non-individual debtor stay violations and acknowledges that different policy imperatives exist in addressing a violation of the automatic stay rather than a discharge violation. Taggart , at 1803-04. See also Windstream Holdings, Inc. v. Charter Comm's (In re Windstream Holdings, Inc.) , 627 B.R. 32, 40 (Bankr. S.D.N.Y. 2021) ("[I]t should be clear from the nature of [Taggart's] reservation regarding breaches of the automatic stay that applying a standard that is more lenient to potential violators of the automatic stay than the objective ‘fair ground of doubt’ approach is highly unlikely."). But Taggart fundamentally is contrasting § 362(k), a congressionally approved private right of action for individuals, and the separate and more general language under § 105 supporting contempt proceedings. As Congress has chosen to limit any private right of action for stay violations to those against individuals, the court believes it must apply Taggart to § 105 contempt actions not covered by § 362(k) (or another private right of action). See e.g. In re Caldwell , Case No. 18-32346-jda, 2019 WL 5616908, at *2-3, 2019 Bankr LEXIS 3397 (Bankr. E.D. Mich. Oct. 30, 2019) (applying the settled willful stay violation standard for a § 362(k) action, but the Taggart contempt standard for a violation of a turnover order).
As explained in In re Windstream Holdings, Inc. , applying this more lenient standard to parties violating the stay would be based on specific law in the Second Circuit perhaps suggesting subjective malice or a lack of good faith may be required for a contempt finding for actions in violation of the stay. Windstream Holdings , 627 B.R. 32, 41 n.5 (Bankr. S.D.N.Y. 2021) (discussing preTaggart case law). The issue in this case is essentially the opposite, whether preTaggart law in the Sixth Circuit that is less favorable to creditors than the Taggart standard can still stand under a civil contempt remedy. See Lowe v. Bowers (In re Nicole Gas Prod. ), 916 F.3d 566, 578-79 (6th Cir. 2019) (applying the willful stay violation standard in a case involving a corporate debtor). Taggart recognizes that bad faith may be relevant in certain contempt proceedings when a party acts in bad faith, but it need not be proven under the objective standard the Court applies to violations of the discharge injunction. Taggart v. Lorenzen , ––– U.S. ––––, 139 S. Ct. 1795, 1802-04, 204 L.Ed.2d 129 (2019)
Stated differently, corporate debtors cannot pursue stay violations under the willful "akin to strict liability" stay violation standard because it is inconsistent with the conclusion in Taggart that damages for contempt under § 105, and the private right of action supporting damages under § 362(k) have different standards. Id. at 1804-05. But compare In re Spiech Farms, LLC , 603 B.R. 395, 408 n.22 (Bankr. W.D. Mich. 2019) ("This court does not read Taggart to change the Sixth Circuit's standard for determining whether a creditor can be held in contempt for violating the automatic stay.") and Suh v. Anderson (In re Jeong ), BAP No. CC-19-1244-STaF, 2020 WL 1277575, at *4 n.3, 2020 Bankr. LEXIS 714, at *10-11 n. 3 (B.A.P. 9th Cir. Mar. 16, 2020) (applying Taggart's "no fair ground of doubt" standard to a violation of a stay involving a non-individual debtor, and further noting this conclusion was consistent with Ninth Circuit law applying the contempt standard for stay and discharge violations). See also In re Freeland , No. 19-32309-pcm7, 2020 WL 4726580, at *2 n.3, 2020 Bankr. LEXIS 2174, at *7 n.3 (Bankr. D. Ore. Aug. 12, 2020) (the court discussed the applicability of Taggart but found damages were appropriate under either standard, and also noted In re Jeong involved an application of § 362(k) ).
For these reasons, the court will apply the Taggart standard in determining whether any stay violations committed by Eastport entitle GYPC to damages under a civil contempt theory.
V. Procedural History
GYPC's Chapter 11 case was converted to a Chapter 7 case on August 16, 2019 and the Trustee was appointed. Estate Doc. 219; Docket entry dated August 20, 2019. This adversary proceeding is now being prosecuted by the Trustee.
The Debtor filed the complaint in this adversary proceeding on April 30, 2019. On June 20, 2019 Eastport filed a motion asking the court to abstain from the matter and dismiss the proceeding. Doc. 13. In its motion, Eastport stated that the contractual rights at issue in this adversary proceeding are identical to those in the State Court Action. Eastport's reply brief states: "The Debtor's principals are already engaged in litigation in Tennessee arising out of the contract and they are alleging that [the] value of the PMI must be determined before determining their liability. Therefore, the Debtor had the perfect opportunity to join that litigation, but it chose not to – even though it agreed in the APA to Tennessee courts as having exclusive jurisdiction. The Trustee is welcome to join the suit in Tennessee." Doc. 23 at 4. This Court denied Eastport's motion on February 19, 2020. Doc. 27. In so doing, this court noted that "[t]he Tennessee Action is a related case in a Tennessee state trial court, with the primary objective being the determination of the parties’ rights and obligations under the APA. Those determinations could likely have an effect on the value of the PMI." Doc. 27 at 7. Subsequently, Eastport filed the present motion for partial summary judgment. In response, the Trustee filed a cross-motion for summary judgment.
The Trustee asserts that the letters sent in 2017 violate the automatic stay because: a) Eastport did not obtain relief from the stay to send those letters; b) the PMI is property of the estate; and c) Eastport intended the letters to "extinguish the PMI" and deprive the bankruptcy estate of its value. Doc. 48. The Trustee further contends that the pursuit of the State Court Action is an additional stay violation and was also intended to extinguish the PMI. Id. at 16-17. The Trustee asserts that the letters and the State Court Action should be determined void. Id. at 20. The Trustee's further position is that since Eastport's actions – the sending of the August and October 2017 letters – are void, Eastport has failed to make timely adjustments to the PMI, rendering the entire value of the PMI "immediately due and payable to [GYPC]." Finally, the Trustee argues that Eastport has failed to pay certain payments due to GYPC under the PMI. Id. at 21.
By contrast, Eastport contends that the sending of the letters and the State Court Action did not violate the stay because these actions were taken in execution of the APA's terms. Doc. 40 Alternatively, Eastport states that its actions were permissible exercises of its right of recoupment. Id. As to the State Court Action, Eastport alleges that it "is within its rights to pursue the non-Debtor parties to the APA because the automatic stay does not protect them." Id. at 4.
VI. Factual Background
This factual background is based upon the Joint Stipulation of Facts (the "Stipulations") (Doc. 64), and the evidentiary materials submitted by the parties in support of their summary judgment motions. The court also takes judicial notice of the docket in this adversary proceeding and the related estate case. Finally, the court reviewed certain documents filed under seal, including the unredacted Asset Purchase and Sale Agreement (the "APA"), the Tennessee State Court Amended Complaint (the "Amended Complaint"), the Tennessee State Court Dismissal Order and letters dated August 3, 2017 (the "August 3, 2017 letter") and October 18, 2017 (the "October 18, 2017 letter") (collectively, "the 2017 letters") sent by Eastport to GYPC, Cummings, and Webb.
Christopher F. Cummings and Eric Webb are the two principals of GYPC.
A. The January 2016 Asset Sale
In January 2016, GYPC sold most of its assets to Mindstream for cash consideration (the "Purchase Price") pursuant to an Asset Purchase and Sale Agreement (the "APA"). The parties to the APA included GYPC (the "Seller"), Christopher Cummings and Eric Webb (the "Principals"), Mindstream (the "Buyer"), and Eastport (the "Parent"). APA at 1. The parties agreed to treat a portion of the Purchase Price as a preferred capital contribution that would provide GYPC with the PMI in Eastport, with the remainder of the Purchase Price to be paid by wire transfer at the closing. APA ¶¶ 1.5(b)(vi)(B), 1.2, 1.5(b)(vi)(A). They also agreed that the value of the PMI would be subject to express post-closing adjustments to account for the assumptions about future performance and working capital that were used to calculate the Purchase Price. APA ¶¶ 1.3 & 1.5(b)(vi). Specifically, the APA states that the "[p]urchase Price was calculated on the assumptions that (i) the Adjusted EBITDA earned by the Buyer during the Measurement Period will equal or exceed the Target EBITDA and (ii) the Seller would deliver to the Buyer Working Capital ... equal to the Net Working Capital Amount." APA ¶ 1.3.
Unless otherwise provided, any capitalized terms used in this decision shall have the meaning ascribed to them in the APA.
Consistent with the APA, General Yellow Page Consultants, Inc. changed its name to GYPC, Inc. post-sale. APA § 1.5(b)(xiv).
The APA provides a process for determining the adjustments and final value of the PMI, including a mechanism for resolving disagreements as to the calculation of the Adjusted EBITDA. Eastport was required to prepare calculations of both the Working Capital and the adjusted EBITDA. The APA states, "As promptly as practicable following the Closing Date (but in any event within sixty (60) days after such date), [Eastport] shall prepare and deliver to [GYPC] its calculation of the Working Capital delivered as part of the Acquired Assets as of the Closing Date (the "Working Capital Statement"). APA ¶ 1.3(c). The APA also states, "[A]s promptly as practical following the expiration of the Measurement Period (but in any event within ninety (90) days of such date), the Parent shall prepare and deliver to [GYPC] its calculation of the Adjusted EBITDA for such period (the "EBITDA Statement") ...." APA ¶¶ 1.3(a), (d). GYPC was then required to review each received statement within thirty days and, if it had any objections, to notify Eastport in writing. APA ¶¶ 1.3(a), (d). The APA sale closed on January 12, 2016. Stipulations ¶¶ 7, 11.
"Measurement Period" is defined as "the twelve (12) calendar month period commencing on the first day of the first calendar month immediately following the six (6) month anniversary of the Closing Date." APA Article XI Definitions. The Measurement Period expired on July 31, 2017. Stipulations ¶ 16.
B. GYPC's Bankruptcy and Subsequent Communications
On March 30, 2017 GYPC filed a voluntary Chapter 11 bankruptcy petition. The parties dispute when Eastport received notice of GYPC's bankruptcy filing. The parties do agree that GYPC initially did not schedule Eastport and Mindstream and they did not receive formal notice of GYPC's bankruptcy.
On August 3, 2017, approximately four months after the petition date, Eastport sent a letter to GYPC, Cummings, and Webb asserting that its audit established a shortfall in the working capital that GYPC was to provide to Mindstream and demanding immediate payment of the deficient amount. On September 1, 2017 GYPC's bankruptcy counsel sent a letter to Eastport advising of GYPC's bankruptcy filing and the imposition of the automatic stay. Doc. 48 (Ex. A). On October 18, 2017 Eastport sent another letter to GYPC's bankruptcy counsel, Cummings, and Webb setting forth Eastport's calculation of the adjusted EBITDA for the Measurement Period. The October 18, 2017 letter advised that the Target EBITDA exceeded the Adjusted EBITDA and, as a result, the APA required that the Preferred Capital Contribution and the PMI be reduced in full and deemed to have never been issued to GYPC. GYPC's bankruptcy counsel responded with a November 16, 2017 letter to representatives of Eastport advising them that GYPC viewed the October 18, 2017 letter as a stay violation and asserting that Eastport's "attempt to eliminate, reduce, or setoff GYPC, Inc.’s Preferred Membership Interest" was "void and of no consequence." Doc. 48 (Ex. B).
C. The Tennessee State Court Action
On February 16, 2018 Eastport and Mindstream filed a complaint initiating an action in the Circuit Court of Shelby County, Tennessee, for the Thirtieth Judicial District at Memphis against Cummings and Webb. Stipulations, ¶¶ 27, 29; Ex. 1. GYPC was not a named party.
The APA provides that it shall be governed by the laws of Tennessee and contains a forum selection clause providing for the litigation of disputes under the APA in the courts of Shelby County, Tennessee. APA ¶¶ 12.10, 12.11.
The State Court Action seeks to collect damages and attorney fees from Cummings and Webb on account of cash payments allegedly advanced to and received by GYPC. Id . Under the APA, invoices from third party advertising services incurred before the asset sale closing date were "Excluded Liabilities" to be paid or reimbursed by GYPC. Id. ; APA ¶ 1.1(c). Eastport and Mindstream allege that GYPC or Cummings and Webb received advance cash payments from GYPC customers for third-party advertising services but failed to pay the invoices, leaving Mindstream and Eastport to do so. They allege that GYPC further failed to reimburse Mindstream and Eastport for these costs. Id .
The State Court dismissed the complaint on February 21, 2019, with leave to file an amended complaint. Stipulations, ¶ 28, Ex. 2. Eastport and Mindstream filed an amended complaint on March 22, 2019. Stipulations, ¶ 29; Ex. C. The amended compliant includes a count against Webb for violations of fiduciary duty, and against both defendants for unjust enrichment and fraud. Stipulations, Ex. C. Further, Mindstream and Eastport allege in the amended complaint that:
Plaintiffs have complied with section 6.6(a) of the Agreement. On October 18, 2017, prior to filing the initial Complaint, pursuant to the Agreement, Plaintiffs informed GYPC that due to the fact that the Target EBITDA exceeded the Adjusted EBITDA earned by the Buyer during the Measurement Period, the Preferred Membership Interests were automatically deemed to have never been issued to GYPC .... Therefore, there was no Preferred Membership Interest from which any damages could be offset.
Stipulations, Ex. C. This inclusion appears to be an attempt to address the concerns of the State Court in its decision dismissing the original complaint. Stipulations, Ex. 2. In any event, as a result of this allegation, the Trustee asserts that Eastport is seeking "to exercise control of and make determinations related to property of the estate" and is thereby violating the automatic stay. Id . at ¶ 66. And so, by requesting the State Court to determine that Eastport and Mindstream have complied with the requirements of the APA related to the adjustments to be made to the Purchase Price and Working Capital Amount, the Trustee asserts that Eastport is attempting to exercise control over the PMI.
VII. Legal Analysis
The automatic stay exists to "preserve what remains of the debtor's insolvent estate and ... provide a systematic equitable liquidation procedure for all creditors ... thereby preventing a chaotic and uncontrolled scramble for the debtor's assets in a variety of uncoordinated proceedings in different courts." Chao v. Hosp. Staffing Servs., Inc. , 270 F.3d 374, 382-83 (6th Cir. 2001) (cleaned up).
Subject to certain exceptions provided by subsection (b), it stays, among other actions:
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
* * *
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
* * *
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title [.]
A. The PMI Constitutes Property of the Bankruptcy Estate but Remains Subject to the Requirements of the APA.
The PMI, and all related rights and interests, became property of the estate upon the filing of GYPC's bankruptcy petition. 11 U.S.C. § 541(a)(1). Section 541 wields a broad scope and includes "every conceivable interest of the debtor" as property of the estate. Church Joint Venture, L.P. v. Blasingame (In re Blasingame ), 986 F.3d 633, 638 (6th Cir. 2021) (quoting Tyler v. DH Capital Mgmt., Inc ., 736 F.3d 455, 461 (6th Cir. 2013) ). This expansive definition includes membership interests in limited liability companies as estate property. In re Denman, 513 B.R. 720, 726 (Bankr. W.D. Tenn. 2014) ; Hagemeyer v. Peachy Adventures, LLC (In re Neal ), Adv. No. 12-00654, 2013 Bankr. LEXIS 5738, at *10-11, 2013 WL 12108275, at *3 (Bankr. W.D. Tenn. Feb. 4, 2013) ; AllCare Med. Servs., LLC v. Buzulencia (In re LaGroux ), Adv. No. 17-4045, 2019 Bankr. LEXIS 2585, at *23, 2019 WL 3933797, at *8-9 (Bankr. N.D. Ohio Aug. 19, 2019). Yet this breadth is not without boundaries. It is black letter law that a trustee's interest in any property is limited to that held by the debtor on the petition date. Lawrence v. Ky. Transp. Cabinet (In re Shelbyville Rd. Shoppes, LLC ), 775 F.3d 789, 794 (6th Cir. 2015). Hence, the bankruptcy estate's interest in the PMI is burdened with the same limitations and restrictions under which GYPC held the PMI pre-petition. See In re Ruetz, 317 B.R. 549, 553 (Bankr. D. Colo. 2004) ("A bankruptcy trustee takes the rights of a debtor subject to any contingencies that may burden those rights. That only means that a bankruptcy trustee must wait for the unfolding of future events to know what, if anything, those rights are worth."). See also LaGroux , 2019 Bankr. LEXIS 2585 at *19, 2019 WL 3933797, at *6 ("The estate cannot possess anything more than the debtor itself did outside bankruptcy.... A debtor's property does not shrink by happenstance of bankruptcy, but it does not expand, either.") (cleaned up). Since the automatic stay maintains the property interests of the debtor under § 541 as they existed at the commencement of the case, the Trustee takes the PMI subject to the contractual adjustments required by the APA. 11 U.S.C. § 541(a)(1) ; United States v. Whiting Pools, Inc ., 462 U.S. 198, 203, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983) ; Intermet Realty P'Ship v. First Pa. Bank. N.A. (In re Intermet Realty P'ship ), 26 B.R. 383, 388 (Bankr. E.D. Pa. 1983) (filing of petition for reorganization does not expand rights of a debtor under option agreement that expired post-petition); In re Clearpoint Bus. Res., Inc. , 442 B.R. 292, 296 (Bankr. D. Del. 2010) ("A Chapter 11 filing does not expand a debtor's rights.").
B. The August 3, 2017 Letter
1. Eastport Violated the stay in Sending the August 3, 2017 Letter
Eastport argues that, in sending the August 3, 2017 letter, it was complying with the terms of the APA in establishing the Working Capital Amount. The APA defined the Net Working Capital Amount, but required the reconciliation following the closing to determine what working capital was provided to Mindstream and Eastport under the APA. Specifically, the APA provided:
As promptly as practicable following the Closing Date (but in any event within sixty (60) days after such date), [Eastport] shall prepare and deliver to [GYPC] its calculation of the Working Capital delivered as part of the Acquired Assets as of the Closing Date (the "Working Capital Statement"). As promptly as practical following the delivery of each of the foregoing statements [the Working Capital Statement and the EBITDA Statement] (but in each event no later [than] thirty (30) days thereafter), [GYPC] shall review the applicable statements.
APA, ¶ 1.3(a). But the August 3, 2017 letter was not sent until approximately eighteen (18) months after the Closing Date, rather than the sixty (60) days required by the APA, and GYPC's bankruptcy case intervened. Had this letter been sent in the sixty (60) day period called for by the APA, Eastport's argument would be more credible. Having waited eighteen (18) months after the Closing Date and then sending it post-petition, its efforts appear more focused on collecting a debt than concern over contractual compliance.
The August 3, 2017 letter was addressed to "GYPC, INC., ATTN: Eric Webb [and] Chris Cummings’ and sent "Via UPS overnight and e-mail" delivery at the address of "222 NE Monroe, 8th Floor, Peoria, IL 61602" and provided, in pertinent part:
As you are aware, we have found a shortfall in the working capital that was to be delivered on the purchase of Marquette Group. It became clear that there was a series of cutoff issues properly recording the liabilities of the company at the time of closing. Anecdotally you could see the impact as it continued to manifest itself in the delinquent AP. We have subsequently completed our audit which affirmed the belief and quantified the cash required to correct the working capital short fall. I have shared the results of the audit with Eric Webb and Traverse has confirmed the results with Cynthia Keller. It is my understanding that the results have been relayed to Mr. Cummings.
The results of the audit were a total shortfall of $[amount omitted]. The results were primarily due to advance payments and the manner of recognition of deferred revenue. Additionally, there were no matching or corresponding cost of goods sold. As such, the cash at closing
was overstated and left the working capital delivered at closing deficient ....
As time is of the essence, Eastport is willing to accept the net impact of the shortfall which would reduce the payment to [amount omitted]. The working capital shortfall must be paid to the Company. The payment and closing of the matter needs to be completed by the First of September. Payment will be made directly to Mindstream Media to be credited to the Marquette financials. We will have Ms. Keller use those funds to pay off the corresponding AP which is currently causing peril to maintaining those accounts.
August 3, 2017 letter (emphasis added). In addition to being sent significantly outside the time parameters of the APA, the August 3, 2017 letter also included a demand for payment of the alleged deficiency in the Working Capital Amount, which, by itself, violated the stay.
Because the August 3, 2017 letter was sent far outside the time parameters provided for by the APA regarding the working capital reconciliation and after GYPC's bankruptcy was filed and demanded payment of the alleged deficient working capital balance, the court finds that the August 3, 2017 letter violated the automatic stay.
2. The Doctrine Of Recoupment Does Not Apply to the August 3, 2017 Letter
But Eastport also argues that all of its actions are covered by the doctrine of recoupment. As this court has stated:
[R]ecoupment addresses "the extinguishment of mutual claims arising from the same transaction." As explained in Reeves v. Columbia Gas of Ohio (In re Reeves ), 265 B.R. 766, 770 (Bankr. N.D. Ohio 2001), "recoupment allows a defendant to reduce the amount of a plaintiff's claim to the extent that the defendant has a valid defense against the plaintiff which arose out of the same transaction as the plaintiff's claim." Recoupment is equitable in nature and is based on the premise that "a defendant should be entitled to show that, because of matters arising out of the transaction sued on, he or she is not liable in full for the Plaintiff's claim." Id .
Wentz v. Saxon Mortgage (In re Wentz ), 393 B.R. 545, 554-55 (Bankr. S.D. Ohio 2008) (citations omitted). The key difference between a setoff and recoupment is that recoupment arises out of a single transaction. Brunswick Corp. v. Clements , 424 F.2d 673, 676 (6th Cir. 1970) ; PNC Bank v. Gator Piqua Partners, LLLP , Case No. 3:12-cv-369, 2013 U.S. Dist. LEXIS 109776, at *8, 2013 WL 4008807, at *2 (S.D. Ohio Aug. 5, 2013) ("The common law Doctrine of recoupment ... is used as a defense to a debtor's claim against a creditor .... [T]he Doctrine of recoupment applies only when both parties’ claims arise from the same transaction.").
A bankruptcy trustee takes property of the estate subject to rights of recoupment. Megafoods Stores v. Flagstaff Realty Assocs. (In re Flagstaff Realty Assocs. ), 60 F.3d 1031, 1035 (3d Cir. 1995) ; Holford v. Powers (In re Holford ), 896 F.2d 176, 179 (5th Cir. 1990). Further, although recoupment is typically used defensively after a plaintiff or debtor has raised claims against the defendant or a creditor, a creditor may take "the offensive" to adjudicate its recoupment rights. Flagstaff Realty Assocs. at 1035, ; Ashland Petroleum Co. v. Appel (In re B & L Oil ), 782 F.2d 155, 156 (10th Cir. 1986) ; In re Public Serv. Co. of N.H. , 107 B.R. 441, 445-46 (Bankr. D.N.H. 1989) (argument that recoupment can only be used as a defense is "misplaced"). The key is that the action of the creditor must be to reduce or eliminate a debt which the creditor may otherwise owe to the debtor. Therefore, it is "defensive" from the perspective that it is sought to reduce the debt which the creditor may otherwise owe to the debtor and is limited to reducing that debt or zeroing out that debt, but not recovering affirmatively against the plaintiff or debtor. See Flagstaff Realty Assocs . at 1035 ; Public Serv. Co . at 445-46.
To the extent that Eastport is merely attempting to exercise a right of recoupment against GYPC arising out of the APA, stay relief is not required. Reiter v. Cooper, 507 U.S. 258, 265 n.2, 113 S.Ct. 1213, 122 L.Ed.2d 604 (1993) ; Holyoke Nursing Home, Inc. v. Health Care Fin. Admin. (In re Holyoke Nursing Home, Inc. ), 372 F.3d 1, 3 (1st Cir. 2004) ; Holford , at 179. See also United Structures of America, Inc. ex rel. United Structures of Am., Inc. v. G.R.G. Eng'g. , 9 F.3d 996, 999 (1st Cir. 1993) (Breyer, J.) ("This explains why recoupment is not expressly regulated by the Bankruptcy Code; some courts even find recoupment unaffected by the automatic stay."); Gómez-Cruz v. Fernández, 3:13-cv-01711-JAW, 2018 U.S. Dist. LEXIS 172840 at *15, 2018 WL 4849650, at *5 (D.P.R Oct. 4, 2018) ("It is well-settled that recoupment is outside the scope of the automatic stay in a bankruptcy proceeding pursuant to 11 U.S.C. § 362(a).").
In this instance, the letter does not seek to reduce or eliminate a debt. It is a simple demand for payment of the working capital shortfall. Recoupment, therefore, does not apply to the August 3, 2017 letter.
3. Due to Lack of Notice to Eastport, the August 3, 2017 Letter Cannot Form a Basis to Find GYPC in Contempt.
Given this finding, the court must determine if that stay violation constituted contempt. Contempt is a "severe remedy." Taggart , 139 S. Ct. at 1802. In this instance, the parties agree that when the August 3, 2017 letter was sent by Eastport to GYPC, Cummings, and Webb setting forth the alleged working capital deficiency and demanding payment of the deficient amount, Eastport had not been given notice of GYPC's bankruptcy filing by GYPC through its bankruptcy filings. Stipulations ¶ 19. Eastport was not scheduled as a creditor nor listed as a party in interest on GYPC's bankruptcy filings. Nothing in the record shows Eastport learned of the bankruptcy by August 3, 2017. Therefore, without any evidence that Eastport was aware of the bankruptcy when the letter was sent, Eastport cannot be found in contempt and no damages may be awarded as to the August 3, 2017 letter. This result would be the same if the Sharon standard applied. 234 B.R. at 687.
C. The October 18, 2017 Letter
1. Eastport Did Not Violate the Stay by Sending the October 18, 2017 Letter.
As described, the "Purchase Price" under the APA was determined on certain assumptions, those being that (i) the Adjusted EBITDA earned by Mindstream during the Measurement Period would equal or exceed the Target EBITDA; and (ii) GYPC would deliver to Mindstream Working Capital equal to the Net Working Capital Amount. APA ¶ 1.3. The APA provided that: "As promptly as practical following the expiration of the Measurement Period (but in any event within ninety (90) days of such date), [Eastport] shall prepare and deliver to [GYPC] its calculation of the Adjusted EBITDA for such period ...." APA ¶ 1.3(a). The parties stipulated that the Measurement Period expired on July 31, 2017. Joint Stipulations, ¶ 16. The APA further provided a mechanism for resolving disagreements as to the calculation of the Adjusted EBITDA. APA ¶ 1.3(d).
The October 18, 2017 letter was addressed to "General Yellow Pages Consultants, Inc. c/o Law Offices of Ira H. Thomsen, 140 North Main Street, Suite A, Springboro, OH 45066, Telecopy: (937) 748 5003, Attention: Denis E. Blasius" and "Christopher F. Cummings and Eric D. Webb, General Yellow Pages Consultants, Inc., 222 NE Monroe, 8th Floor, Peoria, IL 61602, Telecopy: (309) 677-0407" and provided, in pertinent part:
RE: EBITDA Statement pursuant to the Asset Purchase and Sale Agreement (the "Agreement"), dated January 12, 2016, by and among (i) General Yellow Pages Consultants, Inc. (currently known as GYPC, Inc., the "Seller"), (ii) Chris Cummings and Eric Webber (the "Principals"), and (iii) Mindstream Media, LLC (the "Buyer"), and Eastport Holdings, LLC (the "Parent")
Gentlemen:
Pursuant to Section 1.3(a) of the Agreement, the Parent hereby delivers the calculation of the Adjusted EBITDA (as defined in the Agreement) in the form of the EBITDA Statement attached hereto. Based on the EBITDA Statement, the Target EBITDA (as defined in the Agreement) of [amount omitted] exceeded the Adjusted EBITDA earned by the Buyer during the Measurement Period (as defined in the Agreement) of [amount omitted]. Pursuant to Section 1.3(b) of the Agreement, as a result of such deficit: [excerpt from Section 1.3(b) of APA omitted]
* * *
According to the Parent's calculations, and the express terms of the Agreement, the Purchase Price must be reduced by ....
Pursuant to Section 1.3(d) of the Agreement, if [GYPC] wishes to object to the foregoing, then [GYPC] shall ... Failure to make such objection in such format will be deemed to be an approval of the Parent's EBITDA Statement and calculation.
[Eastport] has become aware that the Seller is the subject of a bankruptcy case pending .... Unlike certain other issues that the parties’ counsel have discussed previously, this automatic re-vesting of the Preferred Membership Interests, by operation of law and contract, is not subject to the automatic stay of 11 U.S.C. § 362.... Furthermore, as a Purchase Price adjustment pursuant to the terms of the Agreement between the parties, any affirmative acts taken by [Eastport] to exercise its contractual right to the reduction of the Preferred Membership Interest are part and parcel of the [Eastport's] right of equitable recoupment regarding the Purchase Price.
Although, pursuant to section 1.3 of the Agreement, [GYPC] is also required to repay promptly any and all Preferred Return paid with respect to the Preferred Capital Contribution, which amount currently equals [amount omitted], the Parent is not making demand for such payment by way of this letter, in light of [GYPC's] bankruptcy case ....
Pursuant to Section 6.1 of the Agreement, the Principals have jointly and severally indemnified the Parent for any breach by [GYPC] of its covenants under the Agreement, including, without limitation, the obligation of [GYPC] to repay promptly any and all Preferred Return paid with respect to the Preferred Capital Contribution. This letter shall also serve to provide notice to the Principals that [GYPC] is in breach of
its covenants and that [Eastport] intends to exercise all rights and remedies available to it against the Principals under the Agreement.
October 18, 2017 letter. This letter notices GYPC, Cummings, and Webb of Eastport's EBITDA Statement calculations.
The October 18, 2017 letter did not violate the stay as it fits within the contractual framework of the APA. The letter was Eastport's attempt to comply with the terms of the APA concerning the Purchase Price and adjustments to be made. The APA provided for such steps in order to reach a determination as to the Purchase Price. And, unlike the August 3, 2017 letter, the October 18, 2017 letter was sent within the time-frame in the APA. The parties stipulated that the Measurement Period expired on July 31, 2017, with the ninety (90) day period for the EBITDA Statement expiring on or about October 29, 2017.
The APA's terms remained in place after GYPC filed its bankruptcy petition. GYPC (and subsequently the Trustee) took those rights subject to the APA, including the terms requiring the adjustment during the Measurement Period. The bankruptcy did not toll the time-frame Eastport had to provide the EBITDA Statement. Beverages Int'l, Ltd. v. Schenley Affiliated Brands Corp. (In re Beverages Int'l, Ltd. ), 61 B.R. 966, 971 (Bankr. D. Mass. 1986) ; In re Clearpoint Bus. Res., Inc. , 442 B.R. at 296 ; In re B & K Hydraulic Co. , 935 F.2d 269. 1991 U.S. App. LEXIS 12127 at *4-5, 1991 WL 93191, at *1-2 (6th Cir. June 4, 1991) (table decision). Nor was the bankruptcy a free ticket to GYPC to avoid the post-closing reconciliation of the Purchase Price pursuant to the terms of the APA. See Rogan v. Bank One (In re Cook ), 457 F.3d 561, 566 (6th Cir. 2006) (property interests of the bankruptcy estate cannot be greater than the debtor had pre-petition); Lawrence v. Ky. Transp. Cabinet (Shelbyville Rd. Shoppes, LLC ), 775 F.3d 789, 794 (6th Cir. 2015) (finding the debtor's turnover rights fixed as of the date of the bankruptcy filing). If a reconciliation of the EBITDA was required by the APA, then the reconciliation needed to be completed and any actions taken in accomplishing the reconciliation were barred by neither § 362(a) nor § 541. As this court and other courts have recognized, "not all communications from a creditor to a debtor are prohibited by § 362(a)." In re McCormick , Nos. 17-8039/8040/18-8015, 2018 Bankr. LEXIS 4041, at *14, 2018 WL 6787558, at *6 (B.A.P. 6th Cir. Dec. 26, 2018) (citing Pertuso v. Ford Motor Credit Co. , 233 F.3d 417, 423 (6th Cir. 2000) ); Cousins v. CitiFinancial Mortgage Co. (In re Cousins ), 404 B.R. 281, 287 (Bankr. S.D. Ohio 2009) (similar).
Alternatively, Eastport's actions as to the October 17, 2017 letter is classic recoupment because it seeks an offset arising out of mutual debts arising out of the same transaction. However, the Trustee argues that the PMI was an asset and not a debt, and therefore recoupment is inapplicable. The PMI remains an asset of GYPC's bankruptcy estate. But the value of that asset is to be determined according to the terms of the APA and pursuant to the reconciliation of EBITDA and the Working Capital. Those adjustments to the Working Capital Amount and to the Purchase Price gave rise to potential claims by Eastport against GYPC, Cummings and Webb. See APA ¶¶ 1.2, 1.3, 1.5(b)(vi), 6.1, 6.6, and 10.1. Thus, under ¶ 1.3 of the APA, the Purchase Price was to be adjusted based upon both the Working Capital Statement (See ¶ 1.3(c)) and the EBITDA Statement (See ¶¶ 1.3(a) & (b)). Those adjustments were to be set off against the original Preferred Capital Contribution, reducing the original Preferred Capital Contribution and the PMI. The claims of the Trustee relating to the PMI, including the claims relating to the alleged Preferred Return and Priority Payments, and any claim for payment of the asserted value of the PMI all arise out of the APA. In addition, Eastport's claims against GYPC, Cummings, and Webb all arise from the APA. Only after resolution of those claims can the amount of the PMI be determined and, in addition, whether the Trustee is entitled to any Preferred Return payments. As all of those claims arise out of the APA transaction and must be determined in order to arrive at the value of the PMI, recoupment is an appropriate remedy. The PMI's value and the Trustee's entitlement to any benefits arising out of the PMI can only be determined upon reconciliation of Eastport's APA claims against GYPC. That process meets the definition of recoupment, which is not enjoined by the automatic stay. Reiter , 507 U.S. at 265 n.2, 113 S.Ct. 1213 (1993).
2. The Trustee's Alternative Arguments are Unconvincing.
The Trustee argues that Eastport was not entitled to follow the procedures provided by the APA for reconciling the working capital and the EBITDA because such procedures would have required GYPC "to participate in and complete a very detailed and complex procedure during the pendency of its bankruptcy case, requiring timely and extensive review by accounting professionals, the result of which could have resulted in a significant reduction in the value of its assets, all without notice to, or oversight of, any kind by the Bankruptcy Court." Doc. 60 at 4. The Trustee explains that Eastport's ability to provide adjustments to the Purchase Price was a "contingent right," as opposed to an "absolute right" because the parties were "contractually bound to follow specific procedures outlined in the [APA] in order for any adjustment to occur." Id . Because of this asserted complexity, the Trustee argues that relief from the stay was required. However, the Trustee cites no legal authority for this proposition and the court is not aware of any. There is no "complexity" exception to the premise that the automatic stay does not stay performance of contractual terms.
Further, the Trustee's assertion that he could not follow the contractual process because it would require "timely and extensive review by accounting professionals" is without merit. Doc. 60 at 4. Trustees frequently employ accounting and other professionals to engage in such tasks. In fact, GYPC employed both Clifton Larson Allen LLP and Brady Ware & Schoenfeld as accountants. Estate Docs. 72, 135. The Trustee later employed Trustee Resource Group as an accountant. Estate Doc. 255. The court has approved multiple applications for compensation of these accountants. Estate Doc. 456. In addition, GYPC hired Valuation Research Corporation early in this case "to appraise the value of Debtor's Preferred Membership Interest in Eastport Holdings, LLC." Estate Doc. 119 at 1. See also Estate Doc. 126 (order approving retention). However, the court is not aware if that professional ever rendered an opinion on the value of the PMI.
3. Eastport Violated the Stay When It Pursued the Tennessee State Court Action Against Cummings and Webb.
The Trustee argues that Eastport violated the stay when it filed and prosecuted the State Court Action against Cummings and Webb as principals of GYPC and as parties to the APA even though it did not name GYPC as a party. The automatic stay covers nearly every type of action taken against the debtor, the debtor's property, or the estate property but generally provides no protection to third parties, such as the debtor's affiliates, officers, and shareholders. Patton v. Bearden , 8 F.3d 343, 349 (6th Cir. 1993) (citing 2 Collier on Bankruptcy , ¶ 362.04 (15th ed. 1993)). Despite this, courts have identified some circumstances in which the stay prohibits actions taken against non-debtor third parties.
Chapter 13 provides a co-debtor stay, 11 U.S.C. § 1301, but there is no comparable provision for Chapter 11 and Chapter 7 cases.
a. Inapplicability of § 362(a)(1) to the State Court Action
Courts have extended the § 362(a)(1) stay to non-debtors in cases involving "unusual circumstances." The Sixth Circuit Court of Appeals has identified three categories of such circumstances – "when the non-debtor defendant is entitled to absolute indemnity by the debtor, when the stay would contribute to the debtor's reorganization, or when there is such identity between the debtor and the [non-debtor] that a judgment against the [non-debtor] defendant will in effect be a judgment or finding against the debtor." Plastech Holding Corp. v. WM GreenTech Auto. Corp. , Case No. 17-2122, 2018 U.S. App. LEXIS 16915, at *1-2 (6th Cir. June 21, 2018) (cleaned up) (summarizing Sixth Circuit's jurisprudence and collecting cases). See Parry v. Mohawk Motors of Mich., Inc. , 236 F.3d 299, 314-15 (6th Cir. 2000) (finding extending the stay to nondebtor co-defendants based on a contractual relationship was not justified); Patton , 8 F.3d at 349 (similar); Amer. Imaging Svcs. v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus., Inc. ), 963 F.2d 855, 861 (6th Cir. 1992) (quoting A.H. Robins, Inc. v. Piccinin , 788 F.2d 994, 999 (4th Cir. 1986) (similar)).
Section 362(a)(1) only applies to acts "against the debtor." In the Sixth Circuit, extending the stay for "unusual circumstances" requires an injunction under 11 U.S.C. § 105 because it would apply the stay to parties not included by the plain language of § 362(a)(1). The Trustee has not sought any such extraordinary relief with this court despite having notice of the State Court Action. Patton , 8 F.3d at 349 (Stay against nondebtors requires the bankruptcy court "to extend the automatic stay under its equity jurisdiction pursuant to 11 U.S.C. § 105", and further noting that "the [Debtors] have not brought forth any evidence of unusual circumstances which would justify extending the automatic stay to their protection."); Parry , 236 F.3d at 314 (citing Patton and stating debtor failed to prove "unusual circumstances" to extend the stay to nondebtors); In re Johnson, 548 B.R. 770, 788 (Bankr. S.D. Ohio 2016) ("In Patton , the Sixth Circuit made it clear that the unusual circumstances test does not mean the stay applies automatically by its terms to actions against nondebtors."). Therefore, the court finds that Eastport has not violated § 362(a)(1) by prosecuting the State Court Action against Webb and Cummings because GYPC is not a party, and neither GYPC nor the Trustee sought to enjoin the State Court Action in this court.
Although the Trustee does not argue about the applicability of each subsection of § 362(a) in his summary judgment filings, the court, for the sake of completeness, will briefly comment on 11 U.S.C. § 362(a)(6). Section 362(a)(6) applies to "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of this case under this title[.]" In the context of formal litigation, § 362(a)(6), like § 362(a)(1) cannot be extended to an action taken against a non-debtor. To do so would avoid the consequences of Sixth Circuit precedent under § 362(a)(1) that places the burden on the debtor or trustee to seek an injunction under § 105 to protect non-debtors from being sued, and would create uncertainty about whether litigation filed against a non-debtor could violate § 362(a)(6). See In re Norman , Case No. 19-61286, 2020 WL 820315, at *2 (Bankr. N.D. Ohio Feb. 18, 2020) ("For the stay to exist beyond [the] debtor, Sixth Circuit case law suggests that a bankruptcy court must affirmatively act to issue an injunction."). The case law under § 362(a)(6) typically addresses acts of collection against a debtor or persons associated with the debtor that are not based upon a formal court proceeding. See generally In re Harchar , 694 F.3d 639, 648 (6th Cir. 2011) (quoting Pertuso v. Ford Motor Credit Co. , 233 F.3d 417, 423 (6th Cir. 2000) ) ("A course of conduct violates § 362(a)(6) if it (1) could reasonably be expected to have a significant impact on the debtor's determination of whether to repay, and (2) is contrary to what a reasonable person would consider to be fair under the circumstances.").
b. Eastport Violated § 362(a)(3).
The remaining question is whether the State Court Action violated § 362(a)(3). Section 362(a)(3) protects the debtor from "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate ." See City of Chicago, Illinois v. Fulton , ––– U.S. ––––, 141 S. Ct. 585, 589, 208 L.Ed.2d 384 (2021) (quoting 11 U.S.C. § 362(a)(3) ; emphasis added in decision). The automatic stay may be implicated in third-party actions under limited circumstances. The Sixth Circuit has interpreted § 362(a)(3) to automatically stay actions against non-debtors when the creditor seeks to obtain possession of or exercise control over the debtor's property through the action. Amedisys, Inc. v. Nat'l Century Fin. Enters. (In re Nat'l Century Fin. Enters .), 423 F.3d 567, 575-76, 578 (6th Cir. 2005) (stating that § 362(a)(3) bars actions against non-debtors when the action would inevitably have an adverse impact upon the bankruptcy estate property). Actions prohibited under § 362(a)(3) are not limited to exercising direct control over estate property but acts that have an "adverse impact" on estate property. Amedisys , 423 F.3d at 578 (cited in In re Johnson , 548 B.R. at 790 ); Acands, Inc. v. Travelers Cas. & Sur. Co. , 435 F.3d 252, 260 (3d Cir. 2006) (Alito, J.) (third-party lawsuit that would affect the debtor's rights under an insurance contract is stayed); 48th St. Street Steakhouse, Inc. v. Rockefeller Group, Inc. (In re 48th St. Steakhouse, Inc. ), 835 F.2d 427, 431 (2d Cir. 1987) (action to terminate lease of prime tenant that would have terminated the debtor's sublease is not permitted under § 362(a)(3) ); In re Elrod , 523 B.R. 790, 803 (Bankr. W.D. Tenn. 2015) ("[T]he statute's terms ‘obtain possession’ and ‘exercise control’ indicate that a wide spectrum of acts is stayed.").
The Sixth Circuit interpreted § 362(a)(3) to determine the effect of the stay on third-party litigation in the National Century Financial Enterprises ("NCFE") decision, a case from this district that concerned a dispute over control of accounts receivable. Applying § 362(a)(3), the court determined that the creditor impermissibly attempted to exercise control over the debtor's accounts receivable when it filed an action against a third-party bank that held the accounts. The court explained that, although the debtor, NCFE, was not a named party in the state court litigation, the creditor's litigation sought to recover disputed accounts receivable of the debtor held by a third party, and therefore was attempting to control estate property. Nat'l Century Fin. Enters ., 423 F.3d at 575-76 (citations omitted).
Just as in NCFE, GYPC was not named in the State Court Action and would not be subject to preclusion under Tennessee law. In order for claim preclusion to apply, the suit must be "between the same parties or their privies on the same cause of action with respect to all issues which were or could have been litigated in the former suit." Richardson v. Tennessee Bd. of Dentistry, 913 S.W.2d 446, 459 (Tenn. 1995) (quoting Goeke v. Woods , 777 S.W.2d 347, 349 (Tenn. 1989) ). For issue preclusion to apply, "(1) the precise issue must have been raised and actually litigated in the prior proceedings; (2) the determination of the issue must have been necessary to the outcome of the prior proceedings; (3) the prior proceedings must have resulted in a final judgment on the merits; and (4) the party against whom estoppel is sought must have had a full and fair opportunity to litigate the issue in the prior proceeding." Georgia-Pacific Consumer Products LP v. Four-U-Packaging, Inc. , 701 F.3d 1093, 1098 (6th Cir. 2012) (quoting Cobbins v. Tenn. Dep't of Transp. , 566 F.3d 582, 589–90 (6th Cir. 2009) ). See also MarketGraphics Rsch. Group v. Berge (In re Berge ), 953 F.3d 907, 917 (6th Cir. 2000) ("Whether we apply federal or Tennessee issue-preclusion law is thus of little practical concern in this case; the tests are nearly the same"). Without the Trustee as a party to the State Court Action, any determination made by the State Court with respect to the PMI would not have been binding on the bankruptcy estate. See e.g. Funk-Vaughn v. Rutherford Cty. Tenn. , No.: 3:18-cv-01311, 2019 WL 4727642, at *2, 2019 U.S. Dist. LEXIS 167032, at *6 (M.D. Tenn. Sept. 27, 2019) ("All requirements of claim preclusion are satisfied here, including the requirements that the current defendants are ‘privies’ of the defendant in Plaintiff's prior lawsuit and that the theories of recovery Plaintiff asserts now could have been presented in her prior lawsuit.").
Perhaps pre-petition, as the only shareholders and officers of GYPC, Cummings and Webb were in privity with GYPC. But post-petition, the legal interests between GYPC, and Cummings and Webb diverged so as to preclude any privity. See Smith v. Lerner, Sampson & Rothfuss, L.P.A. , 658 F. App'x 268, 276 (6th Cir. 2016) (citation omitted) ("A party is in ‘privity’ with another if it succeeds to an estate or an interest formerly held by the other, or where a party is so identified in interest with another that the party represents the same legal right."); Mitchell v. Chapman , 343 F.3d 811, 823 (6th Cir. 2003) ("In the context of claim preclusion, privity ... means a successor in interest to the party, one who controlled the earlier action, or one whose interests were adequately represented." The decision elaborated that a party appearing in one capacity is not bound by a judgment when that party is sued in another action in a different capacity.) (cleaned up). See also Stooksbury v. Ross, No.: 3:09-CV-498, 2013 U.S. Dist. LEXIS 130248, at *26-27, 2013 WL 5133226, at *8-9 (E.D. Tenn. Sept. 12, 2013) (Determination by court did not bar a receiver because the receiver was not a party to that prior litigation.). With the filing of the bankruptcy, GYPC and later the Trustee were not identified in interest with Cummings and Webb such that claim or issue preclusion would be applicable. See Corzin v. Fordu (In re Fordu ), 201 F.3d 693, 705 (6th Cir. 1999) (noting that a bankruptcy trustee is "not simply the successor-in-interest to the Debtor" and, thus, the trustee was not barred from seeking an adjudication of entitlement to lottery winnings which were previously allocated in a state court divorce proceeding to which the debtor was a party).
However, the cases which apply § 362(a)(3) to third-party actions, such as the State Court Action, instruct that the mere potential for the application of non-party preclusion is sufficient to violate § 362(a)(3) if the non-party preclusion could impact property of the estate. In re Jefferson Cty. , Ala. , 491 B.R. 277, 294-95 (Bankr. N.D. Ala. 2013) (finding that § 362(a)(3) applied to preclude litigation in a state court when, due to collateral estoppel or when the debtor's legal position could be impacted by testimony, the debtor would be forced to monitor and potentially participate in that litigation); Johnson , 548 B.R. at 797 (finding "the threat of issue of issue preclusion is not nonexistent."). Klarchek Family Trust v. Costello (In re Klarchek ), 508 B.R. 386, 397 (Bankr. N.D. Ill. 2014) (applying § 362(a)(3) to bar litigation in which the debtor was not a party, but nevertheless could have had preclusive effects over estate property). Eastport has recognized the impact which the State Court Action could have on the PMI and the Trustee's interests: "[T]he Debtor had the perfect opportunity to join that litigation [State Court Action], but it chose not to—even though it agreed in the APA to Tennessee courts having exclusive jurisdiction. The Trustee is welcome to join the suit in Tennessee." Doc. 26 at 4. It is significant that the State Court Action was filed post-petition after notice of the bankruptcy because Eastport filed it with knowledge of its potential impact on GYPC's interests, and the need for GYPC to monitor and potentially participate in that litigation. Those facts evince a violation of § 362(a)(3).
Further, and more to the point, the State Court Action addresses the ultimate resolution of whether the potentially most significant estate asset, the PMI, is of any value. At first blush, the complaint does not appear to address estate property issues, as it seeks, under theories of breach of contract, unjust enrichment, and fraud to recover certain advance payments that were due to Eastport under the APA from Cummings and Webb. But the complaint and the amended complaint required the state court to potentially decide four separate issues that could adversely affect property of the GYPC estate: 1) whether GYPC is in breach of the APA; 2) whether GYPC is liable for damages, and in what amount; (3) whether the EBITDA calculations are correct in setting the preferred contribution at zero, thus eliminating the PMI, and (4) whether Webb and Cummings must pay damages, which in turn may result in Webb and Cummings having a claim against GYPC for contribution, as they are jointly and severally liable under the APA.
The structure of the APA makes this clear. Before pursuing damages, Eastport must offset such damages against GYPC's PMI interest. APA ¶ 6.6(a). Therefore, the value of the PMI, and any post-closing adjustments be calculated. Additionally, APA ¶ 6.1 makes GYPC, and Cummings and Webb "jointly and severally" liable under indemnification provisions, which include "Excluded Liabilities." It therefore appears possible that Cummings and Webb, if liable, could have a contribution claim back against the GYPC estate. Cases do not limit § 362(a)(3) violations "to acts for which the violator would be liable under applicable non-bankruptcy law and instead apply the stay by its plain terms to conduct that simply interferes with the debtor's contract rights." Windstream Holdings , 627 B.R. at 43. See In re Johnson , 548 B.R. at 791 (prosecution of an arbitration and state court proceeding against nondebtor codefendants affected the debtor's rights in his employment contract, and the debtor's rights in that contract constituted property of the estate). See also In re Cincom iOutsource, Inc. , 398 B.R. 223, 229 (Bankr. S.D. Ohio 2008) (litigation involving third parties would not impair the rights of the trustee, and the stay should not be used shield solvent nondebtor co-defendant). The complaint and amended complaint interfere with GYPC's contractual rights, particularly paragraph 26 of the amended complaint requesting the court to find the PMI to not have been issued. Amended Complaint at 6, ¶ 26.
As noted, Eastport had reason to know these issues that affected GYPC bankruptcy estate could not be separated from the State Court Action. Upon the initial complaint being dismissed without prejudice, the state court decision made plain what the legal impediment was with Eastport's allegations. Eastport was not entitled to any funds on these advance payments unless and until it could be determined whether such advance payments were offset against GYPC's interest in the PMI, if any. If GYPC's interest in the PMI has no value at all, this condition would not be a stumbling block to the success of the State Court Action. Nevertheless, Eastport, knowing that GYPC would need to intervene in the litigation to defend its interests, alleged that the PMI was "automatically deemed never to have been issued to GYPC" because certain EBIDTA adjustments during the Measurement Period showed that PMI had no value, and indeed, at least as Eastport alleged, was contractually deemed not to exist. Id . This allegation is incorporated into each count of the amended complaint. Id. at 5, 7-9, ¶¶ 19, 31, 36, 43. Unlike the October 17, 2017 letter, Eastport is not complying with the contractual terms of the APA, or using recoupment based upon a debt owed to Eastport by GYPC, but instead is seeking a determination that the PMI lacks any value as a condition precedent to success in the State Court Action. Eastport could have filed a relief from stay motion to determine whether its actions were appropriate prior to the State Court Action. Instead, after the amended complaint was filed and the GYPC bankruptcy case was ongoing, it requested this court to abstain to allow the State Court action to resolve these estate property questions. And as noted, the abstention motion discusses that GYPC would appear to be a necessary party to any such determination, and the pursuit of it could lead to inconsistent findings between this court and the State Court Action. Doc. 13 at 6, 7. But Eastport never raised these issues before the State Court Action commenced, or even before filing the amended complaint.
Eastport's expressed motivation, prior to the conversion of this case to Chapter 7, was its concerns that Cummings and Webb were acting in their own interests, rather than that of GYPC. Estate Doc. 13 at 1, 3-4. But Eastport could have attempted to resolve these issues by seeking relief from stay, filing its own motion to convert this case to Chapter 7, or seeking the appointment of a Chapter 11 trustee. Johnson , 548 B.R. at 799 (quoting In re Durango Ga. Paper Co. , 297 B.R. 316, 321 (Bankr. S.D. Ga. 2003) ) ("when asked whether an act contemplated by a creditor might violate the automatic stay, are likely to advise their clients—out of an abundance of caution—that it is safer to ask permission than forgiveness."). Eastport was aware that to accord full relief in the State Court Action, GYPC might become a necessary party. By taking this action, it interfered with GYPC's contractual rights under the APA and particularly the determination of the issue pertaining to the PMI and therefore violated § 362(a)(3).
c. Eastport's Actions in the State Court Action Are Not Contemptuous Under the Taggart Standard of No Fair Ground for Doubt
Violations of § 362(a)(3) based on litigation or other action against non-debtor parties are necessarily fact-specific analyses. Had Eastport filed an action to directly obtain possession or control over the PMI, prosecute a cause of action belonging to the Trustee or sought to interfere with GYPC's contractual rights unlawfully, this case would more fairly be on four squares with National Century, Johnson and other § 362(a)(3) cases that the court independently reviewed. Instead, as explained, Eastport's actions sought, under contractual and tort theories, damages against insiders of GYPC, and conditions precedent for those determinations would require an adjustment and ultimate valuation of the PMI, and potentially could lead to liability for GYPC under a contribution theory. Although this court denied Eastport's motion for abstention, other precedent in this complicated area of bankruptcy law present more transparent violations of the stay in attempting to directly control or affect estate property. For example, In National Century , the creditor attempted to directly control accounts receivable belonging to the debtor. In Johnson , the creditor took deliberate actions in an arbitration and state court proceeding to determine the debtor-player's contract was subject to the creditor's perfected security interest, and the court found that such actions could have directly impacted the plan of reorganization. 548 B.R. at 791. Other cases the court considered represent direct violations of contracts or clear interference with contractual rights. See e.g. In re Extraction Oil & Gas Co. , Case No. 20-11548, 2020 WL 7074142 (Bankr. D. De. Dec. 3, 2020) (litigation interfered with debtor's business relationships with third parties) 48th St. Street Steakhouse , 835 F.2d 427 at 431 (action directly affecting debtor's rights as a sub-lessor). In this case, the effect on the PMI is based on findings that the state court would be required to make, but the causes of action themselves are based on potential liabilities of Cummings and Webb. And while liability could ultimately flow to GYPC, unlike other § 362(a)(3) cases the court reviewed, the pursuit of those contractual rights was not unlawful per se. See e.g., Windstream Holdings , 627 B.R. at 44 (defendants had a "literally false and intentionally misleading advertising campaign" that violated federal and state statutes).
This court was concerned at the time the abstention motion was adjudicated that a significant estate asset would be addressed and GYPC would ultimately become a necessary party to the State Court Action. This court maintains exclusive jurisdiction over all estate property. 28 U.S.C § 1334(e). Nevertheless, the Supreme Court has emphasized that contempt is a "severe remedy" and that "principles of ‘basic fairness requir[e] that those enjoined receive explicit notice’ of ‘what conduct is outlawed.’ " Taggart , 139 S. Ct. at 1802 (quoting Schmidt v. Lessard , 414 U.S. 473, 476, 94 S.Ct. 713, 38 L.Ed.2d 661, (1974) ). Had the trustee sought a § 105 injunction to raise the § 362(a)(1) stay violation issue, the court likely would have addressed all of the § 362(a) issues at an earlier date. As it is, because the fact pattern and legal issues in this case are sua generis and less clear than available precedent and persuasive authority, the court finds it fits within the framework of the "no fair ground of doubt" analysis of Taggart. See Orlandi v. Leavitt Family Ltd. P'ship (In re Orlandi ), 612 B.R. 372, 382-83 (B.A.P. 6th Cir. 2020) (action against pre-petition guaranty post-discharge not contemptuous due to a case law split about whether it is a contingent claim without a post-petition right to payment); In re Distefano , 611 B.R. 100, 105-06 (Bankr. W.D. Mich. 2019) ("fair ground of doubt" existed whether deficiency notice sent by a secured creditor was in contempt of the debtor's Chapter 7 discharge). Eastport's action was ill-advised, but Eastport had an objectively reasonable basis to believe the State Court Action was not enjoined under § 362(a)(3) of the automatic stay. In other words, the court finds "a fair ground of doubt’ as to whether § 362(a)(3) barred the State Court Action.
Nevertheless, the court remains troubled that Eastport chose this "file first" course of action (particularly as to the amended complaint), knowing that full and fair relief likely would require GYPC's participation in the State Court Action as a real party in interest. Creditors need to be mindful that actions involving third parties can affect debtor's rights as to estate property in a variety of ways, that § 362(a)(3) has a broad reach, and the well-traveled and surest path is to resolve these issues up front by seeking relief from the stay in the bankruptcy court. Windstream , 627 B.R. at 44.
D. Legal Consequences of and Remedies Available for a Stay Violation
Because the Court finds that Eastport violated the stay by sending the August 3, 2017 Letter and pursuing the State Court Action, the Court turns to the applicable remedies. The Trustee seeks a determination that Eastport's actions in violation of the stay are invalid and void and attorney fees and punitive damages for Eastport's "willful" violation of the stay.
1. The Demand in the August 3, 2017 Letter and the State Court Action Are Invalid and Void.
Eastport sent the August 3, 2017 Letter and pursued the State Court Action in violation of the stay. The Sixth Circuit has clearly stated that actions taken in violation of the automatic stay are "invalid and voidable, since void actions are incapable of latter cure or validation." Easley v. Pettibone Mich. Corp. 990 F.2d 905, 910 (6th Cir. 1993) (discussing the legal effect of a stay violation). Thus, because Eastport violated the stay, its actions in violation of the stay are invalid and void.
Actions in violation of the stay are invalid and void except in "limited equitable circumstances" such as when the stay is annulled under § 362(d). Easley v. Pettibone Mich. Corp. , 990 F.2d 905, 911 (6th Cir. 1993). Those circumstances do not apply here.
2. Monetary Damages
The Trustee is not entitled to monetary damages under Count I because, as explained, there is no basis to find Eastport in contempt as to its stay violations concerning the August 3, 2017 letter. As also explained, the State Court Action is not contemptuous because it is covered by the objective "no fair ground for doubt" standard under Taggart and therefore no damages are appropriate.
In addition, this court could not award punitive damages as a remedy for civil contempt because this adversary proceeding does not involve a private right of action available to individuals under § 362(k) and although the court's civil contempt power includes the authority to compensate a party for damages, and the authority to issue a sanction to coerce compliance with the court's order, the court does not have the authority to issue punitive damages as a civil contempt remedy. See Dean v. Lane (In re Lane ), No. 20-5359, 2020 U.S. App. LEXIS 40147 at *5, 2020 WL 9257958, at *2 (6th Cir. Dec. 22, 2020) (quoting Int'l Union, United Mine Workers of Am. v. Bagwell , 512 U.S. 821, 827, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994) ) ("Where a fine is not compensatory, it is civil only if the contemnor is afforded an opportunity to purge."). See also In re John Richards Homes Building Co. , 552 F. App'x 401, 416 (6th Cir. 2013) (in an appeal involving an involuntary bankruptcy petition and a putative debtor seeking damages under §§ 303(i) and 105 of the Bankruptcy Code, finding bankruptcy courts lack both the statutory or inherent authority to impose "serious noncompensatory punitive damages.").
E. The Trustee's Motion for Summary Judgment Is Granted as to Count I With Respect to Determining that the August 3, 2017 Letter and the State Court Action are Void as a Violation of the Stay, and Otherwise Denied.
The Trustee has sought summary judgment on all three counts of his complaint. Count I seeks a determination that the 2017 letters and the State Court Action all violated the automatic stay and are void. Further, it requests a finding that the October 18, 2017 letter and the State Court Action were willful stay violations, entitling the Trustee to attorney fees and punitive damages. For the reasons discussed, the court only grants the Trustee's motion as to Count I in that the court finds that the August 3, 2017 letter and the State Court Action violated the stay and are void. All other relief sought through Count I is denied.
Count II seeks a determination of the value of the PMI. The Trustee's argument for seeking summary judgment as to Count II is that the APA provided an original value of the PMI, subject to certain adjustments. The Trustee argues that Eastport's ability to be granted such adjustments to the Purchase Price and PMI were contingent upon Eastport providing proper and timely reconciliations of the working capital and the EBITDA pursuant to the contractual terms of the APA. The Trustee argues that Eastport no longer has the ability to provide those reconciliations because: a) Eastport's attempts to provide those reconciliations through the 2017 letters were improper and are void in violation of the stay, and the time for Eastport's ability to provide those reconciliations under the APA has expired. While the court finds that Eastport's attempt to provide the working capital adjustment through the August 3, 2017 letter is void as a violation of the stay, the record is insufficient to determine whether (or to what degree) the contractual rights of the parties were affected by August 3, 2017 letter. Further, the court finds that the October 18, 2017 letter did not violate the stay. Accordingly, the court cannot determine as a matter of law that Eastport's reconciliation of the EBITDA, Purchase Price, and PMI through the October 18, 2017 letter is void. For all these reasons, the court denies the Trustee's motion as to Count II.
Count III seeks a determination that Eastport breached the APA and Eastport's Operating Agreement because Eastport has failed to pay GYPC the Priority Payments which the Trustee asserts are due to the estate under the APA and Eastport's Operating Agreement. The Trustee's motion as to Count III is premised upon the argument that because the 2017 letters are void, the Trustee is entitled to the full amount of the Preferred Capital Contribution and PMI and all payments which GYPC would be due to it under the APA and Operating Agreement as a Preferred Member. For the same reasons stated as to Count II, further adjudication as to Count III is required so as to determine whether any adjustments of the EBITDA, Purchase Price, and PMI under the APA are appropriate and, if so, what those adjustments should be and the impact those adjustments would have on any payments which the GYPC estate would be due under the APA and Eastport's Operating Agreement. For these reasons, the Trustee's motion for summary judgment is denied as to Count III.
The court is not opining on whether Eastport's calculations regarding the working capital amount, the EBITDA, or the PMI are correct or proper; whether either Eastport's, GYPC's, or the Trustee's actions concerning the calculations under the APA were timely (except as discussed as to the 2017 letters); or any other issues which may affect the ultimate determination of the value of those items. Those issues remain for resolution through adjudication of Counts II and III of the complaint.
VIII. Conclusion
For the reasons explained, Defendant Eastport Holdings, LLC's Motion for Partial Summary Judgment (Doc. 40) as to Count I of the Complaint is granted in part and denied in part. Plaintiff Trustee's Motion for Summary Judgment (Doc. 48) is granted in part and denied in part as to Count I and denied as to Counts II and III. The court is contemporaneously entering an order consistent with this decision.