Montoya, Trustee v. Sasso et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	GARY EDWARD SASSO, 	No. 7-12-14564 JA
Debtor.
PHILIP J. MONTOYA, Chapter 7 Trustee,
Plaintiff,
v. 	Adversary No. 15-1043 J
GARY EDWARD SASSO, DEBRA K. SASSO,
ACE ENTERPRISES, INC., and ARON FINCH,
Defendants.
MEMORANDUM OPINION
THIS MATTER is before the Court on Plaintiff’s Motion for Partial Summary Judgment
on Counts 7, 8, 9, 10, 12, and 13 of the First Amended Complaint as Relating to the 2011 Dodge
(“Motion”). See Docket No. 54. 1 Defendants Ace Enterprises, LLC (“Ace”) and Aron Finch
oppose the Motion. See Response of Ace Enterprises, LLC and Aron Finch to Plaintiff’s Motion
for Partial Summary Judgement (“Response”) – Docket No. 60. 2 By the Motion, Plaintiff Philip
J. Montoya, Chapter 7 Trustee (“Trustee”) seeks to recover as an asset of the bankruptcy estate a
2011 Dodge Ram, VIN # 3D7UT2CL0BG586598 (the “2011 Dodge”). As part of their
1 The counts in the First Amended Complaint upon which the Trustee seeks summary judgment assert claims for
preferential transfer, actual fraudulent transfer, and constructive fraudulent transfer under bankruptcy law and New
Mexico state law:
Preferential Transfer under 11 U.S.C. § 547 (Count 7);
Fraudulent Transfer under 11 U.S.C. § 548(a)(1)(A) (actual intent to hinder, delay, or defraud) (Count 8);
Fraudulent Transfer under 11 U.S.C. § 548(a)(1)(B) (constructive fraud) (Count 9);
Fraudulent Transfer under N.M.S.A. 1978 § 56-10-18(A)(1) (actual intent to hinder, delay, or defraud)
(Count 10);
Fraudulent Transfer under N.M.S.A. 1978 § 56-10-19(A) (constructive fraud) (Count 12); and
Fraudulent Transfer under N.M.S.A. 1978 § 56-10-19(B) (insider fraudulent transfer) (Count 13).
See First Amended Complaint – Docket No. 12.
2 Plaintiff also filed a reply. See Plaintiff’s Reply in Support of Motion for Partial Summary Judgment on Counts 7,
8, 9, 10, 12 and 13 of the First Amended Complaint as relating to the 2011 Dodge (“Reply”) – Docket No. 65.
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Response, Defendants assert that the Trustee’s claims are time barred. See Response, p. 1. 3 The
Court concludes that there remain genuine issues of fact regarding whether equitable tolling
applies to make the complaint timely. The Court will, therefore, deny summary judgment
without reaching the merits of whether the facts not subject to genuine dispute entitle Plaintiff to
relief on any of his claims to recover the 2011 Dodge as an asset of the bankruptcy estate.
However, the Court will grant the Trustee’s request pursuant to Fed.R.Civ.P. 56(g) to treat
certain undisputed facts identified in the Motion as established in this adversary proceeding.
DISCUSSION
A. Treating facts as established in this adversary proceeding pursuant to Fed.R.Civ.P.
56(g)
The Motion includes a request for relief pursuant to Fed.R.Civ.P. 56(g) “to the full extent
possible.” Motion, p. 26. Rule 56(g), made applicable to adversary proceedings by
Fed.R.Bankr.P. 7056, provides:
If the court does not grant all the relief requested by the motion, it may enter an order
stating any material fact—including an item of damages or other relief—that is not
genuinely in dispute and treating the fact as established in the case.
Fed.R.Civ.P. 56(g).
The Trustee enumerated sixty-two facts that he asserts are not subject to genuine dispute.
Defendants did not specifically contest any of the numbered facts set forth in the Motion, other
than fact number 33 which states that “Debra Sasso is not authorized to sign documents on
behalf of Ace.” Motion, ¶ 33.4 Instead, Defendants “take issue” with certain of the Trustee’s
3 Defendants raise four arguments in defense of the Motion: 1) that Plaintiff has not stated any claims against Aron
Finch; 2) that Plaintiff’s complaint is untimely; 3) that Plaintiff has failed to show that Ace or Aron Finch are
insiders of the Debtor; and 4) that Plaintiff’s alternative argument that the target transfer was ineffective lacks merit.
See Response, p. 1.
4 To contest fact number 33, Defendants referenced Aron Finch’s deposition testimony that he did consider Debra
Sasso as authorized to sign for Ace in connection with the trade in and acquisition of the 2011 Dodge. See
Response, p.3. Mr. Finch’s contrary testimony is sufficient to raise an issue of fact with respect to whether Ms.
Sasso had authority to sign documents on behalf of Ace.
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facts to the extent they characterize Debra Sasso’s deposition testimony as factually accurate.
See Response, p. 2 ¶ D (referencing undisputed facts numbered 23 through 45). Defendants also
take issue with the Trustee’s statement of undisputed fact number 10 that Aron “Finch is not
concerned that the Debtor will pay him back because ‘he has been a very good friend.’” Motion,
¶ 10 (quoting deposition transcript of Aron Finch). Defendants do not dispute that Mr. Finch
made this statement, but assert it is not relevant to the issues to be decided in this adversary
proceeding.
Having reviewed the Trustee’s enumerated facts and Defendants’ Response, the Court
finds that it is appropriate to treat all of the Trustee’s enumerated facts as established for
purposes of trial except for fact number 33 regarding Debra Sasso’s authority to sign documents
on behalf of Ace. 	Of the facts numbered 23 through 45, only fact number 32 and fact number
33 rely solely on the prior testimony of Debra Sasso for support. Fact number 32 states that
“Debra Sasso only signed her name on the title application for the 2011 Dodge and did not write
‘for Ace enterprises.’” Motion, ¶ 32. The Trustee attached a Certification of Official Records
issued by the Motor Vehicle Division of the State of New Mexico for the 2011 Dodge (“2011
Dodge MVD Certification”) as Exhibit J to the Motion. The 2011 Dodge MVD Certification
contains several documents that reflect a signature by Debra Sasso for Ace. The Purchase
Agreement shows a signature of “Debra K. Sasso for ACE enterprizes” with the initials “DS.”
There are two Applications for Vehicle Title and Registration which both bear the signature
“Debra K. Sasso for ACE Enterprises.”
Fact number 32 does not specify which of the two Applications for Vehicle Title and
Registration it relates to, and does not mention the signature on the Purchase Agreement for the
2011 Dodge. Consequently, even if fact number 32 is treated as established in this adversary
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proceeding, Defendants will have an opportunity at trial to question the significance or reliability
of that fact based on other evidence. Similarly, at trial Defendants can question the weight, if
any, the Court should give to Mr. Finch’s statement that he is unconcerned with whether the
Debtor repays him because the Debtor has been a good friend. The Court will, therefore, grant
the Trustee’s motion pursuant to Rule 56(g), and will treat Trustee’s undisputed facts numbered
1 through 32, and 34 through 62, as established for all purposes in this adversary proceeding.
B. The limitations period for asserting preferential and fraudulent transfer claims
Section 546 limits the Trustee’s avoidance powers and serves as a statute of limitations to
promote the policy of finality and to prevent the assertion of stale claims. See Jobin v. Boryla (In
re M & L Bus. Mach. Co., Inc.), 75 F.3d 586, 590 (10 th Cir. 1996) (finding that § 546 acts like a
statute of limitations, and observing that one of “the policies embodied in § 546” is “to insure
finality and to prevent the assertion of stale claims.”) (citations omitted); Brandt v. Gelardi (In re
Shape, Inc.), 138 B.R. 334, 337 (Bankr. D.Me. 1992) (Ҥ 546(a) is a true statute of limitations
which . . . is simply a procedural limitation upon certain rights of a trustee”). It provides:
An action or proceeding under section 544, 545, 547, 548, or 553 of this title may
not be commenced after the earlier of—
(1) the later of—
(A) 2 years after the entry of the order for relief; or
(B) 1 year after the appointment or election of the first trustee under
section 702, 1104, 1163, 1202, or 1302 of this title if such appointment or election
occurs before the expiration of the period specified in subparagraph (A); or
(2) the time the case is closed or dismissed.
11 U.S.C. § 546(a).
The Trustee asserted claims against Defendants under 11 U.S.C. § 547 and under 11 U.S.C. §
548, which incorporate applicable state fraudulent transfer law. Such claims are subject to 11
U.S.C. § 546. See 11 U.S.C. § 546(a).
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Debtor filed his voluntary Chapter 7 petition on December 18, 2012. See Undisputed Fact
No. 1. The order of relief in the Debtor’s bankruptcy case is December 18, 2012. See 11 U.S.C.
§ 301(b) (“The commencement of a voluntary case under a chapter of this title constitutes an
order for relief under such chapter.”). The Trustee was appointed on the same date. See Notice
of Chapter 7 Bankruptcy Case, Meeting of Creditors and Deadlines – Bankruptcy Case No. 12-
14564, Docket No. 2. Two years after the entry of the order for relief was December 18, 2014.
One year after the appointment of the Trustee was December 18, 2013. The Debtor’s bankruptcy
case has not been closed or dismissed. Thus the statute of limitations for the Trustee’s avoidance
actions asserted against Defendants in this Adversary Proceeding ran on December 18, 2014, two
years after the order for relief (i.e., the later of the two periods under § 546(a)(1)(A) and (B), and
the earlier of the two periods set forth in subsections (1) and (2)). Plaintiff filed this adversary
proceeding on June 5, 2015, after the expiration of the two-year limitations period. Plaintiff’s
claims are, therefore, time-barred, unless there is a basis to extend or toll the limitations period.
C. The doctrine equitable tolling
In the Tenth Circuit, the doctrine of equitable tolling applies to the limitations period
found in 11 U.S.C. § 546(a). See M & L Bus., 75 F.3d at 591 (“Section 546(a) is subject to the
doctrine of equitable tolling.”) (citation omitted). The Trustee, as the proponent of equitable
tolling, has the burden of proving it should be applied. See In re Maytorena, 2011 WL 5509194,
*7 (Bankr. D.N.M. Nov. 4, 2011) (citing Pace v. DiGuglielmo, 544 U.S. 408, 418, 125 S.Ct.
1807, 161 L.Ed.2d 669 (2005)). Equitable tolling should be applied sparingly. See United States
v. Clymore, 245 F.3d 1195, 1199 (10th Cir.2001) (per curiam ) (stating that “‘[f]ederal courts
have typically extended equitable relief [in the form of equitable tolling] only sparingly.’”)
(quoting Irwin v. Dep't of Veterans Affairs, 498 U.S. 89, 96, 111 S.Ct. 453, 112 L.Ed.2d
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435(1990)). For equitable tolling to apply, the Trustee must show either: 1) he was prevented
from asserting his avoidance action claim because he was unaware of the claim due to fraud
despite the exercise of due diligence; or 2) extraordinary circumstances beyond the Trustee’s
control made it impossible to file the claim on time. M & L Bus., 75 F.3d at 591 (“Equitable
tolling will prevent § 546 from running when the trustee, despite the exercise of due diligence, is
prevented from asserting a cause of action because [he or] she remains unaware of that cause of
action due to fraud, or when extraordinary circumstances beyond plaintiff[’s] control made it
impossible to file claims on time.”) (internal quotation marks and citation omitted). See also In
re Int’l Admin. Services, Inc., 408 F.3d 689, 701 (11 th Cir. 2005) (“‘Fraudulent concealment must
consist of affirmative acts or representations which are calculated to, and in fact do, prevent the
discovery of the cause of action.’”) (quoting In re Lyons, 130 B.R. 272, 280 (Bankr. N.D.Ill.
1991)).
The fraud requirement
Generally, to satisfy the fraud requirement for equitable tolling there must be active
deception that lulls the plaintiff into inaction. See Biester v. Midwest Health Services, Inc., 77
F.3d 1264, 1267 (10 th Cir. 1996) (addressing equitable tolling of the limitations period applicable
to claims under Title VII, and observing that equitable tolling may be applied when there has
been “active deception,” or where a plaintiff has been “lulled into inaction” or has been “actively
misled”) (citations and additional internal quotation marks omitted). This standard is consistent
with Homberg v. Armbrecht, 327 U.S. 392, 66 S.Ct. 582, 90 L.Ed. 743 (1946). In that case, the
petitioners had a statutory claim against all shareholders of a bank arising under a federal statute.
The defendant concealed his ownership of shares in the bank. The United States Supreme Court
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held that equitable tolling would be applied until petitioners had discovered or should have
discovered the fraud by the exercise of reasonable diligence. Armbrecht, 327 U.S. at 396-97.
Defendants contend that the Defendants against whom the Trustee’s avoidance claims
have been asserted must have actively concealed the fraud or impeded the Trustee’s efforts
before equitable tolling may be invoked to toll the applicable statute of limitations. In the
bankruptcy context, the wrongful conduct that forms the basis for equitable tolling often
concerns the underlying cause of action. See In re Maxon Eng’g Services, Inc., 397 B.R. 228,
230 (Bankr. D.P.R. 2008) (observing that most bankruptcy “cases considering the application of
equitable tolling have involved allegations of concealment of a fraud, such as where a debtor
fraudulently transfers assets and conceals the transfers”). There is a split in the case law
regarding whether the defendant must have actively participated in the fraud or wrongful conduct
that forms the basis for application of equitable tolling, or whether it is enough that the debtor
fraudulently concealed the transfer. Id. (recognizing the split). The Maxon Court held that there
must be a sufficient nexus between the fraudulent conduct and the defendant to apply equitable
tolling to the limitations period set forth in Section 546(a). Id.
On the other hand, in Moratzka v. Pomaville (In re Pomaville), 190 B.R. 632, 637
(Bankr. D.Minn. 1995), the Court held that the debtor’s fraudulent concealment of the trustee’s
avoidance cause of action satisfies the equitable tolling fraud requirement, explaining:
A bankruptcy case presents a rather different slant on equitable tolling. In the typical
situation, it is the debtor’s conduct rather than the defendant’s conduct which invokes
equitable tolling. In some senses, this is unfair to the defendant. On the other hand, unlike
the usual civil case where a plaintiff at least has the advantage of being a party to the
underlying transaction, a bankruptcy trustee must rely almost entirely on a third party (the
debtor) to provide the information necessary to uncover avoidable transfers.
Pomaville, 190 B.R. at 637.
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Because the Court denies summary judgment for a different reason, the Court need not
decide whether fraudulent concealment by a debtor is sufficient where the defendant is an
innocent transferee. Further, it appears that the Trustee may very well be able to satisfy the fraud
requirement for application of equitable tolling regardless of which standard the Court applies.
The due diligence requirement
The extent to which plaintiff used due diligence to discover the cause of action is
measured by an objective standard. M & L Bus., 75 F.3d at 591. The court therefore “may
determine, as a matter of law, that trustee failed to exercise due diligence if uncontroverted
evidence irrefutably demonstrates that plaintiff discovered or should have discovered fraud but,
nonetheless failed to file [a] timely complaint.” Id. (citing In re United Ins. Mgmt., Inc., 14 F.3d
1380, 1385 (9th Cir. 1994)). 5
Although the Trustee has presented substantial evidence of fraudulent concealment of the
transfer of the 2011 Dodge Truck, he has not established, based on facts not subject to genuine
dispute, that he could not have discovered the transfer in time to file the complaint within the
limitations period without equitable tolling (i.e. on or before December 18, 2014). The Trustee
discovered he had a claim to avoid the transfer when his counsel took Debra Sasso’s deposition
on May 5, 2015. See Motion, Statement of Undisputed Material Facts – ¶ 62. He has also
established that the Debtor did not list any automobiles in his bankruptcy schedules, and failed to
make any disclosures in his Schedules or Statement of Financial Affairs regarding preferential or
fraudulent transfers, payments to insiders, gifts, or transfers of personal property outside the
ordinary course of business. See Motion, Statement of Undisputed Material Facts – ¶¶ 50
5 See also United Ins. Mgmt., 14 F.3d at 1385 (“when application of equitable tolling turns on the plaintiff’s
diligence in discovering a case of action, courts may hold, as a matter of law, that the doctrine does not apply.”);
Volk v. D.A. Davidson & Co, 816 F.2d 1406, 1417 (9th Cir. 1987) (“reasonable diligence is tested by an objective
standard”) (citation omitted).
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through 54. It is also undisputed that the Debtor testified under oath at his meeting of creditors
that his Schedules and Statements were true and correct, that he listed everything he owned, and
that he did not own any automobiles. See Motion, Statement of Undisputed Material Facts – ¶¶
56, 57, and 60.
The transcript of the May 5, 2015 deposition of Debra Sasso (Motion, Exhibit H) shows
the Trustee’s counsel had reason to suspect that there may be a claim relating to the 2011 Dodge
Truck before the deposition was taken. Exhibits to the deposition include Motor Vehicle
Department records relating to the 2011 Dodge Truck and other vehicles. The Trustee’s
statement of facts not in genuine dispute do not address the time frame or the circumstances that
prompted the Trustee’s counsel to obtain those records from the Motor Vehicle Department,
what prompted counsel for the Trustee to take the deposition of Debra Sasso or why the
deposition or a Rule 2004 examination could not have been taken in time to file this adversary
proceeding within the two-year period specified in Section 546(a). As a result, the Court cannot
conclude in the context of the Motion for Summary Judgment when the Trustee could have
discovered through the exercise of due diligence the facts he needed to file this adversary
proceeding.
Based on the foregoing, the Court will deny the Motion. The Trustee’s facts numbered 1
through 32 and 34 through 62 in the Motion are established as facts in this adversary proceeding.
The Court will enter a separate order consistent with this Memorandum Opinion.
___________________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Date entered on docket: May 2, 2016
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COPY TO:
Edward Alexander Mazel
Michelle Ostrye
Askew & Mazel, LLC
Attorneys for Plaintiff
320 Gold Ave S.W., Suite 300A
Albuquerque, NM 87102
George M Moore
Bonnie Bassan
Moore, Berkson & Bassan & Behles P.C.
Attorneys for Aron Finch and Ace Enterprises, LLC
3800 Osuna Rd NE, STE #2
Albuquerque, NM 87109
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