MEMORANDUM OPINION DENYING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
In 1998, three-and-one-half years before it filed this reorganization case, the debtor, Transit Group, Incorporated (“Transit”), purchased 1 the trucking company, KJ Transportation (“KJ”), then owned by the defendants, Kent, Patricia, Kenneth, Kevin, and Kyle Johnson, and Kimberly J. Riccio, Jones W. Lake, Douglas C. Had-den, Dana L. Quackenbush, and James B. Stalker. The plaintiff, Michael Moecker, Creditor Agent for the Transit Group Creditors’ Trust, argues that the purchase was constructively fraudulent and is avoidable because Transit was insolvent at the time and did not receive a reasonably equivalent value in the exchange (Doc. No. 1).
The defendants have filed a Motion for Summary Judgment (the “Motion”) (Doc. No. 11), which the plaintiff opposes (Doc. No. 19). In the Motion, the defendants argue that they are entitled to the entry of a summary judgment in their favor because: (i) the plaintiff does not have standing to assert this avoidance action; (ii) Transit was solvent when it acquired KJ; (iii) the action is barred by judicial estop-pel; and (iv) the action is barred by res judicata. After reviewing the pleadings and affidavits and considering the parties’ arguments and applicable law, the defendants’ Motion is denied.
Some facts are undisputed. Transit was incorporated 2 as a parcel delivery business in 1985. In an attempt to increase efficiency, in 1997, Transit reorganized into a holding company with the goal of acquiring and consolidating short, medium, and long haul trucking companies into its operations. Between July, 1997, and December, 1999, Transit acquired and incorporated approximately twenty operating divisions into its infrastructure.
Approximately three-and-one-half years later, on December 28, 2001, Transit filed this Chapter 11 reorganization case. On September 23, 2002, the defendants filed an objection to confirmation of the debtors’ plan of reorganization asserting various grounds including that the plan improperly sought certain third-party releases for Transit’s officers and directors (Main Case, Doc. No. 659). The release was problematic for the defendants because they had filed a lawsuit 5 against Transit that also named two pre-petition directors of Transit, T. Wayne Davis and Philip A. Belyew, as defendants. If approved, the release would have precluded the defendants’ claims against these two directors.
Transit and the defendants resolved the objection relating to the release by executing an agreement titled “Stipulation Resolving Matters Involving Objection by Certain Prepetition Shareholder/Creditors” (the “Stipulation”). The Stipulation, signed on October 2, 2002, provided that, “[i]n full and final resolution of the Johnson Objection”: (a) the Objection would be withdrawn with prejudice; (b) the plan would be modified to limit the release and injunction provisions to permit the defendants to pursue their state court case against Transit and its officers and/or directors; 6 and (c) the defendants would consent to the confirmation of the debtor’s plan. The parties filed a Motion to Approve the Stipulation as a “full and final resolution of all issues between them” in Transit’s bankruptcy case, and, after notice to all parties in interest, including counsel for the creditors’ committee, the Court entered an order approving the Stipulation on December 12, 2002.
Transit confirmed its amended reorganization plan on November 27, 2002, with the support of the defendants (the “Amended Plan”) (Main Case, Doc. No. 843). The Amended Plan designated a Creditors’ Trust (the “Trust”) vested with, among other things, all avoidance actions owned by the debtor’s bankruptcy estate, including claims under Bankruptcy Code
7
Sections 544, 547, 548, 549, 550, 551, and 553. Michael Moecker, the plaintiff, was specifically appointed pursuant to Bankruptcy
After confirmation, the plaintiff filed a two-count Complaint against the defendants pursuant to his authority under the Amended Plan seeking to recover the monies Transit paid the defendants in exchange for KJ back in June, 1998, 8 plus costs and interest, and an order disallowing any claim of the defendants until they turned over the monies allegedly owed. The critical factual issue in this adversary proceeding concerns the debtor’s financial condition around the time it acquired KJ, specifically, whether the debtor was insolvent or was rendered insolvent as a result of the purchase.
Regarding the debtor’s financial condition, the plaintiff alleges that Transit greatly increased its revenue shortly after acquiring the various trucking companies, such as KJ, but that Transit later experienced substantial and increasing losses. Between 1997 and 2000, the debtor’s total revenues increased from $34 million to over $505 million. Between 1997 and 1999, the debtor’s operating profits increased from $1.3 million to $12.9 million. However, by 2000, Transit’s operating losses totaled $181.9 million. As a result of the losses, the debtor reevaluated certain “goodwill” 9 it acquired, or ostensibly acquired, in purchasing the various operating trucking companies between 1997 and 1999. Apparently doubting the likelihood of recovering on its goodwill, in September, 2000, the debtor wrote off $111.4 million in goodwill, including the goodwill allegedly acquired by the debtor in purchasing KJ.
Both counts in the plaintiffs Complaint, asserted pursuant to Bankruptcy Code Sections 544(b) and 550, rely on the same facts and contain the same allegations— that an actual creditor exists who could avoid the transfer pursuant to state law 10 and that the debtor did not receive a reasonably equivalent value or fair consideration in the exchange. Otherwise, Count One alleges that:
At the time of the payment of the Purchase Price, the Debtors (i) were engaged in or were about to engage in a business or transaction for which the remaining assets of the Debtors were unreasonably small in relation to the business or transaction, or (ii) intended to incur, or believed or reasonably should have believed, that it would incur debts beyond its ability to pay as they became due.
At the time of the payment of the Purchase Price, the Debtors were insolvent or became insolvent as a result thereof.
(Doc. No. 1, p. 7, ¶ 27). Count One requires a detailed examination of the debt- or’s assets in June, 1998, in relation to the KJ purchase in order to determine whether the assets it had remaining after the purchase were “unreasonably small” and an examination of the debtor’s intent and subjective belief regarding whether purchasing KJ would result in an inability to pay its debts when due. Additionally, Count One requires an objective examination of what the debtor reasonably should have believed in terms of its ability to pay its debts after the KJ purchase. Like Count One, Count Two also requires an examination of the debtor’s assets in June, 1998, to determine whether Transit was insolvent when it purchased KJ or whether the purchase rendered it insolvent.
In the Motion, the defendants argue that they are entitled to the entry of summary judgment in their favor on the plaintiffs Complaint on four grounds: first, they argue that the plaintiff lacks standing to prosecute his claims against them; second, even if the plaintiff does have standing, the defendants argue that, based on Transit’s consolidated balance sheet for 1998 listing Transit’s assets as exceeding its liabilities by $53,271,000, Transit was solvent when it acquired KJ and was not rendered insolvent as a result of the purchase; third, the defendants argue that the action is barred by the doctrine of judicial estoppel because it was not adequately disclosed in the debt- or’s schedules, Disclosure Statement, or in the Amended Plan; and fourth, they argue that the plaintiffs cause of action is res judicata because the Court entered an order fully and finally resolving all issues between the parties which was incorporated into the confirmation order. The plaintiff opposes each of these arguments.
Summary Judgment Standard.
Pursuant to Federal Rule of Civil Procedure 56, which is applicable under the Federal Rule of Bankruptcy Procedure 7056, a court may grant summary judgment where “there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” Fed. R.Civ.P. 56. The moving party has the burden of establishing the right to summary judgment.
Fitzpatrick v. Schiltz (In re Schütz),
Standing.
The defendants argue quite simply that only trustees, pursuant to Bankruptcy Code Section 544,
11
or debt
In
Nordberg v. Sanchez (In re Chase & Sanborn Corp.)
In rejecting the defendant’s arguments, the Eleventh Circuit Court concluded that:
[although the [bankruptcy] court did not formally and specifically appoint the creditor trustee to enforce the claims, the reorganization plan approved by the court recognized that the creditor trustee would have the responsibility of pursuing claims of the debtor. The court’s approval of a plan granting this authority to the creditor trustee was sufficient, under the Bankruptcy Code, to confer on the creditor trustee standing to assert this claim.
Nordberg,
The same is true here, albeit in the context of Bankruptcy Code Section 544, rather than Section 547. The plaintiff was duly appointed under Section 1123(b)(3)(B). The Amended Plan was confirmed with the overwhelming consent of the debtors’ creditors. Any concerns regarding the plaintiffs standing to bring avoidance actions should have been raised at or prior to confirmation.
In order to assert the avoidance claims against the defendant, the plaintiff need only establish that: (1) he has been appointed, and (2) he is a representative of the estate.
Pardo v. Pacificare of Tex., Inc. (In re APF Co.),
The plaintiff has established both elements in this case. He was appointed
In Chapter 7 cases, some courts indeed have ruled that bankruptcy courts lack the authority to bestow standing on creditors to prosecute avoidance claims on behalf of the estate.
15
However, a different analysis applies in Chapter 11 cases. Sections 1107 and 1123(b)(3)(B) of the Bankruptcy Code specifically allow creditors’ committees or other similarly situated entities to pursue avoidance actions such as those asserted here where they are appointed and approved under a confirmed plan or by Court order.
See In re Spaulding Composites Co., Inc.,
Solvency. As stated earlier, a critical factual issue in this adversary proceeding concerns Transit’s financial condition at the time it acquired KJ. If Transit was solvent when it acquired KJ and remained solvent for some time thereafter, Count II of the Complaint fails. Count I also, to an extent, depends upon Transit’s financial condition in June, 1998. The Court must evaluate Transit’s assets at the time of the purchase to determine whether after the purchase its remaining assets were “unreasonably small.” The Court must evaluate Transit’s intent and ability to pay its debts after acquiring KJ.
The defendants argue that two facts conclusively demonstrate Transit was solvent when it purchased KJ. First, they argue that the plaintiffs conclusion that Transit was insolvent is based entirely on an alleged impairment of goodwill and point out that Transit did not schedule its goodwill as impaired on its Securities and Exchange Commission Form 10-K for the fiscal year ending on December 31, 1999. Second, the defendants note that Transit’s 1998 consolidated balance sheet shows that Transit’s assets exceeded its liabilities by $53,271,000. Certainly, Transit’s balance sheet for the year ending 1998 showing that its assets exceeded its liabilities by $53,271,000 is indicia of solvency during the relevant time period. In addition, the defendants note that, because Transit’s operating profits increased by $11.6 million between 1997 and 1999 and revenues rose to over $505 million in 2000, Transit was
The plaintiff raises essentially three arguments in response. First, Moecker argues that solvency is an intensely factual issue and that discovery is still ongoing, making defendants’ solvency argument premature. Second, the plaintiff observes that Transit’s 10-K Form referenced by the defendants was completed on a “book value” basis and that asset valuation for an insolvency analysis is properly based not on book value but on a “fair value” analysis. Transit’s 1998 consolidated balance sheet simply does not demonstrate solvency on a “fair value” basis. Third, the plaintiff points out that some courts have concluded that goodwill is not a proper factor in determining solvency because goodwill is an intangible asset that cannot be separately sold to satisfy the claims of creditors. Therefore, to the extent that goodwill constitutes a large portion of Transit’s “book” value, the 1998 consolidated balance sheet grossly overstates the “fair” value of Transit’s assets. The Court agrees that issues relating to solvency generally are not susceptible to summary judgment because factual disputes usually exist, as they do here. More evidence is required in order to determine Transit’s financial condition during the relevant time period.
Transit’s insolvency is an essential element to the plaintiffs case for which the plaintiff bears the burden of proof.
Celotex,
If Transit’s 10-K Form was indeed completed based on a “book value” of assets, the valuation would have to be modified for an insolvency analysis.
Havee v. Belk,
Judicial Estoppel. The defendants next argue that the circumstances in this case warrant the use of judicial estoppel to bar plaintiffs avoidance action. They maintain that the debtor was fully aware
The defendants also cite
In re Huntsville Small Engines, Inc.,
Notwithstanding confirmation of the Plan, the Debtor shall have all rights after confirmation to pursue all causes of action as it may have had before confirmation under any state or federal law.
Nowhere did the plan or the disclosure statement contemplate avoidance actions. The Court ruled, among other things, that
res judicata
precluded the plaintiff from pursuing a preference action because the disclosure statement and plan only contained a general retention clause reserving the debtor’s right to pursue pre-petition causes of action without specifically identifying or disclosing any particular type of action.
This Court agrees that some specificity of retained causes of actions is needed in a plan of reorganization or disclosure statement to preserve preference actions post-confirmation. However, the Court disagrees that a plan proponent must specifically identify every particular chain or each party subject to a preference action. As the Bankruptcy Court in Delaware recently discussed in
In re Bridgeport Holdings, Inc.,
The
Bridgeport Holdings
Court distinguished the
Huntsville Small Engines
case on the basis that the language in the disclosure statement and plan in
Huntsville Small Engines
was merely “a general retention provision that did not even mention preference actions” and also disagreed with the
Huntsville Small Engines
holding to the extent it held “that a debtor’s plan and disclosure statement must always specifically name each party that will be subject to a preference action.”
Here, Transit’s plan sufficiently described this type of avoidance action. The preserved claims were described as all avoidance actions owned by the debtor’s estate, including claims under Bankruptcy Code Sections 544, 547, 548, 549, 550, 551, and 553. There is no requirement that the plaintiff specifically identify each and every avoidance action and affirmatively reserve each specific future cause of action against every single potential defendant in order to retain the ability to preserve those claims after confirmation.
The standard of disclosure contained in Transit’s plan is sufficient. Potential defendants simply are not entitled to receive such advance notice of potential causes of action. The standard for preserving causes of action for the benefit of creditors was expressed in
In re Pen Holdings, Inc.,
The purpose of Section 1123 is not, however, “to protect defendants from unexpected lawsuits.”
Id.
at 504. Rather, “[t]he disclosure and notice afforded by a section 1123(b)(3) retention provision ... is directed towards the estate’s creditors, not the potential defendants on the reserved claims.”
Id.
at 500
(citing Kmart Corp. v. Intercraft Co. (In re Kmart Corp.),
The test of whether avoidance actions were reserved by language in a reorganization plan is whether the reservation is worded sufficiently to “allow creditors to identify and evaluate the assets potentially available for distribution.”
Pen Holdings,
While not an exact science, courts in the Eleventh Circuit generally consider two factors in determining whether to apply judicial estoppel to a particular case.
Parker,
In
Parker,
the Eleventh Circuit Court of Appeals declined to invoke the doctrine to preclude a Chapter 7 trustee from pursuing an employment discrimination claim that the debtor initially failed to disclose as an asset on her bankruptcy schedules.
The debtor did not list this claim as an asset in its schedules because it did not have any such asset until this case was filed. From that time forward, neither the debtor nor the plaintiff denied the existence of this or any other avoidance claim, and the debtor specifically reserved the right to pursue such claims post-confirmation in its Amended Plan. No inconsistent positions were taken under oath nor were any possible inconsistencies calculated to make a mockery of the judicial system. Therefore, judicial estoppel is unwarranted.
Finally, the cases cited by the defendants are factually distinct from the case here in the same critical respect — while they all involve a debtor’s failure to adequately disclose a lawsuit, in each case the lawsuit was, or could have been, asserted by the debtor regardless of the bankruptcy case. In Oneida Motor Freight, seven months after confirmation, the Chapter 11 debtor sought to assert a contract and tort action seeking an approximate $7.7 million setoff against a bank. Because the debtor failed to disclose this claim in its schedules, disclosure statement, or confirmation order, judicial estoppel precluded the claim. Likewise, in Krystal Cadillac-Oldsmobile, the court upheld the use of judicial estoppel to bar the debtor from asserting a breach of contract and tort action where the debtor failed to list the claims as potential assets of the estate in its schedules or initial disclosure statement. Finally, in Barger, the debtor filed an employment discrimination suit and then filed a Chapter 7 case approximately five weeks later. The debtor did not list the lawsuit on her schedules and failed to disclose to the trustee that the lawsuit sought monetary relief, representing to the trustee only that the suit sought injunctive relief having no monetary benefit to the estate. When the case reached the Eleventh Circuit Court of Appeals, the Court determined that judicial estoppel was appropriate, precluding the debtor from obtaining any monetary relief on the undisclosed claims.
In each of these cases, the debtors could have asserted their various claims outside of the bankruptcy context, which is simply not the case here. In this case, the debtor only became entitled to assert its claims under Florida Statute Sections 726.101,
et. seq., after
it filed its Chapter 11 case, triggering its entitlement to pursue creditor claims under Bankruptcy Code Section 544. Without Section 544 or some other statutory vehicle entitling it to pursue the rights of its creditors, the debtor, or in this case the plaintiff as the debtor’s designee, could not pursue the fraudulent transfer claims asserted here. The debtor’s avoidance claims were not listed on the debtor’s schedules for an obvious reason — the debt- or had no such asset until after the bankruptcy case was filed, at which point the claims were adequately disclosed in the debtor’s Disclosure Statement and Amended Plan. The Court simply cannot infer
Res Judicata.
Lastly, the defendants argue that the Court order approving the Stipulation and resolving the defendants’ objection to Transit’s plan of reorganization somehow triggers a
res ju-dicata
effect and precludes this adversary proceeding because the claims were previously settled. In the Eleventh Circuit, “a party seeking to invoke
res judicata
must show that the prior decision: (1) was rendered by a court of competent jurisdiction; (2) was final; (3) involved the same parties or their privies; and (4) involved the same causes of action.”
Trustmark Ins. Co. v. ESLU, Inc.,
The elements of res judicata are not met. The relevant prior decision of this Court — the Order approving the parties’ Stipulation regarding the defendants’ objection to the releases the debtor sought to grant in its reorganization plan — simply did not involve the causes of action at issue here. The Order approving the Stipulation simply did not resolve each and every issue that could arise between the parties in connection with the debtor’s bankruptcy case. Rather, only the issues raised in the defendant’s objection were resolved. The settlement addressed the primary issue of whether confirmation would release claims the defendants held against Transit and its officers. The settlement reached was that no releases would issue. The resolution in no way released any claim the debtor had against the defendants, such as those asserted in the adversary proceeding. Therefore, the essential prong of res judi-cata, that the prior litigation raised the same issue, is not met.
The defendants have failed to demonstrate, as a matter of law, that the plaintiff lacks standing, that no factual disputes surround the solvency issues, or that the plaintiffs claims are barred by res judica-ta or judicial estoppel. Accordingly, the defendants’ Motion for Summary Judgment is denied. A separate order consistent with this ruling shall be entered.
Notes
. The plaintiff refers to Transit’s acquisition of KJ as a forward triangular merger (Doc. No. 1, p. 4). However, for simplification purposes in this opinion, the Court refers to the transaction as a purchase or an acquisition because the exact transaction details are not relevant on summary judgment. The parties can provide all relevant details concerning the merger at the trial on the claims in this adversary proceeding.
. On the petition date, Transit was a Florida corporation with its headquarters and principal place of business in Atlanta, Georgia.
. The Complaint alleges that the transaction occurred in July, 1999; however, it appears that the parties agree that the transaction actually occurred in June, 1998 (Doc. No. 11, p. 2, n. 1, and p. 3, ¶ 8).
. The Complaint alleges that the Purchase Price was $10,700,000, consisting of $3,000,000 in cash and $6,700,000 in stock ' (Doc. No. 1, p. 4, ¶ 14); however, $6,700,000 plus $3,000,000 equals only $9,700,000. Therefore, the Court is uncertain as to the exact amount of the Purchase Price. The defendants stated that they had no knowledge of the purchase price in their Answer (Doc. No. 4, p. 3, ¶ 14).
. The case was filed in the Superior Court of Cobb County, State of Georgia, Civil Action File No. 00-1-9879-35, alleging, inter alia, fraud and breach of fiduciary duty with damages exceeding $6,000,000 plus punitive damages.
. James Salmon was an exception. He did receive a release under Transit’s Amended Plan.
. Unless otherwise stated, all references to the Bankruptcy Code herein refer to Title 11 of the United States Code.
. See footnote 3, supra.
. Goodwill has been defined as follows:
A business's reputation, patronage, and other intangible assets that are considered when appraising the business, esp. for purchase; the ability to earn income in excess of the income that would be expected from the business viewed as a mere collection of assets.
'Good will is to be distinguished from that element of value referred to variously as going-concern value, going value, or going business. Although some courts have stated that the difference is merely technical and that it is unimportant to attempt to separate these intangibles, it is generally held that going-concern value is that which inheres in a plant of an established business.'
Black’s Law Dictionary, 7th Ed. p. 703 (citing 38 Am.Jur.2d Good Will § 2, at 913 (1968)).
.The Complaint does not reference any particular statute, but the Court presumes the state law to which the plaintiff refers is Florida's Uniform Fraudulent Transfer Act, embodied in Florida Statute Sections 726.101, et. seq.
. Bankruptcy Code Section 544(b) provides in relevant part as follows:
(1) [T]he trastee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor thatis voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.
. Bankruptcy Code Section 1107(a) provides as follows:
(2) Subject to any limitations on a trustee serving in a case under this chapter, and to such limitations or conditions as the court prescribes, a debtor in possession shall have all the rights, other than the right to compensation under section 330 of is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.
Bankruptcy Code Section 1107(a) provides as follows:
(a) Subject to any limitations on a trustee serving in a case under this chapter, and to such limitations or conditions as the court prescribes, a debtor in possession shall have all the rights, other than the right to compensation under section 330 of this title, and powers, and shall perform all the functions and duties, except the duties specified in sections 1106(a)(2), (3), and (4) of this title, of a trustee serving in a case under this chapter.
. Bankruptcy Code Section 1123(b)(3) provides as follows:
(b) Subject to subsection (a) of this section, a plan may—
(3) provide for—
(A) the settlement or adjustment of any claim or interest belonging to the debtor or to the estate; or
(B) the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any such claim or interest;
. Bankruptcy Code Section 1141(a) provides as follows:
(a) Except as provided in subsections (d)(2) and (d)(3) of this section, the provisions of a confirmed plan bind the debtor, any entity issuing securities under the plan, any entity acquiring property under the plan, and any creditor, equity security holder, or general partner in the debtor, whether or not the claim or interest of such creditor, equity security holder, or general partner is impaired under the plan and whether or not such creditor, equity security holder, or general partner has accepted the plan.
.
See In re Harrold,
. Both the Disclosure Statement and the Amended Plan make multiple references to the plaintiff's powers of avoidance (Doc. No. 605, pp. 47-48, 67, 80-81, 85; Exh. B, p. 2; Exh. F, pp. 7-8) (Doc. No. 606, pp. 52-53; Exh. A, pp. 7-8).
. For example, Florida Statute Sections 726.101, et. seq.