U.S. Bankruptcy Court
Where the Chapter 7 trustee has filed a complaint alleging fraudulent transfers, the defendant’s motion for summary judgment should be denied with respect to three transfers in the total amount of $25,000, as genuine issues of material fact exist with respect to the proceeds of tax refund involved in those transfers.
“In an amended complaint [Dkt. No. 33] (the ‘Amended Complaint’), Johnathan R. Goldsmith, as chapter 7 trustee (the ‘Trustee’) of the bankruptcy estate of MPAC Home Improvement and Construction, LLC (the ‘Debtor’), has asserted claims against several defendants, including Mary E. O’Beirne (‘O’Beirne’). There are ten (10) counts in the Amended Complaint, nine (9) of which are asserted against O’Beirne: (a) the avoidance of allegedly fraudulent transfers, based on both actual and constructive fraud (Counts I-V), (b) the recovery of those transfers under 11 U.S.C. §550 (Count VI), (c) unjust enrichment (Count VII), (d) alter ego (Count IX), and (e) breach of fiduciary duty/corporate waste (Count X). …
“Counts I and II of the Amended Complaint seek to avoid transfers under §548 of the Bankruptcy Code, and Counts III, IV, and V seek to avoid transfers under Massachusetts General Laws chapter 109A (‘Chapter 109A’). Count VI seeks to recover the avoided transfers. The Trustee asserts that O’Beirne received transfers that were both actually and constructively fraudulent and that evidence in the record, and reasonable inferences therefrom, demonstrate a genuine issue of material fact as to whether O’Beirne received: 1) as a fifty-percent member of co-defendant Sudbury Property Management, LLC (‘SPM’), the benefit of all direct transfers made from Debtor to SPM as well as Debtor’s payments of SPM’s mortgage, taxes, utilities, insurance, and attorneys’ fees (collectively, the ‘SPM Transfers’); 2) $50,000 from the Debtor’s Bank of America account ending in -0706 (the ‘-0706 Account’) deposited to the O’Beirnes’ joint savings account on March 29, 2018, Declaration of Richard B. Reiling [Dkt. No. 80] (‘Reiling Decl.’), Ex. Z; 3) $8,000 (the ‘$8,000 Transfer’) from the -0706 Account deposited to the O’Beirnes’ joint checking account on May 16, 2018, Reiling Decl., Ex. AA; 4) $5,000 (the ‘$5,000 Transfer’) from the Debtor deposited in the O’Beirnes’ joint bank account at Bank of America on May 13, 2019, Affidavit of Padraig O’Beirne [Dkt. No. 72] (‘P. O’Beirne Aff.’) ¶ 32; 5) two $10,000 transfers (the ‘$10,000 Transfers’ and, collectively with the $5,000 Transfer, the ‘$25,000 Transfers’) on May 17, 2019, deposited in the O’Beirnes’ joint bank accounts at Bank of America, P. O’Beirne Aff. ¶ 33; 6) $75,000.00 at an unspecified time as repayment for funds that she claims to have advanced to the Debtor for the Debtor’s project for Deborah Race and James LaPlante, Reiling Decl., Ex. C, Mary O’Beirne Dep. Tr., October 21, 2022 (‘O’Beirne Dep.’), at 107:18-24, 108:1-7; and (7) certain transfers alleged to have paid the personal expenses of the O’Beirnes set forth in paragraphs 39 and 43 of the Amended Complaint for calendar years 2018 and 2019, respectively (the ‘Personal Expense Transfers’). …
“First, O’Beirne argues that there is no evidence cited by the Trustee that can refute her statements that she was not involved in causing the Debtor to make the transfers to the joint accounts she maintained with her husband. She concedes that certain badges of fraud are present as related to the Debtor, but states that none of those could apply to her.
“Even so, as the transferee, O’Beirne’s intent is irrelevant for purposes of §548(a)(1)(A) because it is only the Debtor’s intent to ‘hinder, delay, or defraud’ creditors that is material. …
“Each of the Transfers must be considered separately. O’Beirne asserts that the payment of her portion of the tax refunds to the Debtor resulting from jointly filed returns with her husband was the result of a mistake and the $25,000 Transfers corrected that mistake. She contends that the Debtor’s estate never had an interest in those funds, and she never intended to give her share of the tax refunds to the Debtor. … The record shows that O’Beirne signed tax returns that directed tax refunds to be deposited in the Debtor’s account. … The O’Beirnes’ 2018 Internal Revenue Service tax return resulted in a tax refund of $40,486 and the 2018 Massachusetts Department of Revenue tax return resulted in a in a tax refund of $10,374. … It is undisputed that these refunds were electronically deposited into a bank account of the Debtor on May 15, 2019, and May 9, 2019, respectively. … It is also undisputed that the $5,000 Transfer occurred on May 13, 2019, and the two $10,000 Transfers occurred on May 17, 2019. … While O’Beirne’s assertions regarding her intention as to the tax refunds may be found to be true, the undisputed facts that O’Beirne signed a return directing payment of refunds to the Debtor, … and the $25,000 Transfers were made in three round number deposits over several days, with reasonable inferences taken in favor of the Trustee, demonstrate that genuine issues of material fact exist with respect to the $25,000 Transfers as to whether the proceeds of the tax refunds became property of the Debtor when delivered or when co-mingled in the Debtor’s account. …
“With respect to the payment of Padraig O’Beirne’s credit cards and the Personal Expense Transfers, the record does not demonstrate that O’Beirne ever used any of the Debtor’s or Padraig O’Beirne’s credit cards, including his corporate American Express credit card, or had any specific direct benefit from the use of those cards. … Accordingly any transfers associated with these credit cards cannot be the basis for claims as to O’Beirne.
“The $8,000 Transfer was referenced in the Amended Complaint and is supported by evidence in the record. … I have ruled that there is sufficient evidence in the record that an inference could be drawn that the Debtor intended to hinder delay or defraud creditors by making this transfer. There is also evidence in the record supporting the elements of a constructively fraudulent conveyance under §548 or applicable state law. O’Beirne asserts that the record does not show that she received the transfer or the benefit of the transfer. While O’Beirne’s affidavit states that she had no knowledge of this transfer or benefit from this transfer, the evidence that the $8,000 was deposited in a joint account where O’Beirne was a signatory is sufficient to create a genuine issue of material fact. Perhaps O’Beirne did not ‘benefit’ from the transfer into her joint account, but she was a direct transferee and had the right to withdraw those funds. Taking inferences in favor of the Trustee, a genuine issue of material fact exists to be determined at trial such that summary judgment would not be appropriate as to the $8,000 Transfer. It is also notable that, when addressing the $25,000 Transfers, O’Beirne states that, when the tax refunds were deposited into the Debtor’s account, she ‘asked Mr. O’Beirne to transfer one-half (1/2) of [those deposits] to her.’ … It is undisputed that the amounts claimed by O’Beirne to have been transferred to her as the result of those requests were deposited in the same joint Bank of America account as the other transfers alleged by the Trustee.
“Finally, the Trustee asserts a claim against O’Beirne regarding transfers by the Debtor to or for the benefit of SPM. The Trustee contends that O’Beirne directly benefited from transfers to or for the benefit of SPM because she was a fifty percent member of SPM. …
“The mere fact that O’Beirne is a member of SPM does not mean that she benefited from the Debtors transfers to SPM as shareholder status alone does not equate to a benefit having been conferred. … The Trustee does not cite to evidence in the record or any authority to support his claims that O’Beirne could be liable on a fraudulent transfer theory for transfers made to SPM or that a genuine issue of material fact exists with respect to any such claim. …
“The SJ Motion is denied in part as to all fraudulent conveyance claims to recover the $8,000 Transfer and the $25,000 Transfers from O’Beirne and granted in part as to all fraudulent conveyance claims to recover from O’Beirne the amounts transferred by the Debtor to or for the benefit of SPM and to pay credit card bills that may have included personal expenses. Because the Amended Complaint does not assert claims to recover the $50,000 transfer or the $75,000 transfer, the Motion to Strike is granted in part to the extent the Trustee’s SOF purports to assert those claims, without prejudice to the Trustee filing a motion to further amend the Amended Complaint and the defendants filing an opposition thereto.”
Count IX
“The Trustee seeks to hold O’Beirne jointly and severally liable for the debts of the Debtor by asserting that the Debtor, SPM, and the O’Beirnes should be treated as a single entity. … O’Beirne asserts that the Trustee cannot present a single piece of evidence that she controlled, or even participated in, the management and operation of either the Debtor or SPM. …
“Courts applying Massachusetts law look to twelve factors to determine whether corporate entities should be disregarded: ‘(1) common ownership; (2) pervasive control; (3) confused intermingling of business activity, assets, or management; (4) thin capitalization; (5) nonobservance of corporate formalities; (6) absence of corporate records; (7) no payment of dividends; (8) insolvency at the time of the litigated transaction; (9) siphoning of corporate assets by the dominant shareholders; (10) nonfunctioning of officers and directors; (11) use of the corporation for transactions of the dominant shareholders; and (12) use of the corporation in promoting fraud.’ …
“I do not assess whether the evidence of whether O’Beirne was a member or manager of the Debtor and SPM will ultimately result in findings at trial. I must assess whether the evidence in the record cited by the Trustee rises above a mere scintilla such that, with reasonable inferences taken in favor of the Trustee, the evidence could support the claim asserted by the Trustee. … While a close call, the evidence on these My Bread Baking Co. [v. Cumberland Farms, Inc., 233 N.E.2d. 748 (Mass. 1968)] factors, with reasonable inferences made, could allow a finding for the Trustee at trial and demonstrate a genuine issue of material fact. SJ Motion is denied as it relates to Count IX.”
Count X
“In order to prove a claim against O’Beirne for breach of fiduciary duty, the Trustee must establish ‘(1) the existence of a duty of a fiduciary nature, based upon the relationship of the parties, (2) breach of that duty, and (3) a causal relationship between that breach and some resulting harm to the plaintiff.’ …
“The evidence cited by the Trustee, with reasonable inferences taken in his favor, must show that O’Beirne had a fiduciary duty to the Debtor at the time of the Transfers and acted in violation of that duty. While the evidence could support an inference that O’Beirne was a manager of the Debtor in and around 2014, the Trustee cites no other evidence that would support that inference for the relevant period starting in 2018. Moreover, the Trustee has not proffered any evidence of O’Beirne taking action as a ‘manager’ or in another fiduciary role, or otherwise contributing to the waste of corporate assets. Personal guaranties from 2014, funding cash needs of the Debtor, ‘investing’ in a building purchased by the Debtor, and receiving distributions from the Debtor may be evidence of involvement with the business of the Debtor, but do not give rise to any fiduciary duty. Even if the Trustee establishes that O’Beirne is a member of the Debtor, … the evidence cited by the Trustee does not refute O’Beirne’s affidavit that she had no active role in approving or making any of the Transfers made by the Debtor. Here, the evidence proffered by the Trustee does not rise above a scintilla as is required to survive a motion for summary judgment. … The SJ Motion is granted as to Count X.”
In Re: MPAC Home Improvement and Construction, LLC (Lawyers Weekly No. 04-004-24) (27 pages) (Panos, J.) (Chapter 7 Case No. 19-41940-CJP; Adv. Pro. No. 21-4033-CJP) (April 1, 2024).
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