The opinion of the court was delivered by: DuBOIS, J.
MEMORANDUM I. INTRODUCTION
Plaintiff Michael H. Kaliner ("Kaliner" or "the trustee"), as Chapter 7 trustee for debtor MDC Systems, Inc. ("INC"), brings this action to recover for the benefit of the estate's creditors assets he alleges were fraudulently transferred by INC to defendants Robert McCue ("McCue"), MDC Systems Corp., LLC ("LLC"), MDC Systems Enterprises, LLC ("Enterprises"), and MDC Systems Enterprises LLC Series A ("Series A") (collectively, "the defendants"). The Fourth Amended Complaint alleges successor liability claims against LLC (Count I) and Enterprises and Series A (Count IV), and fraudulent transfer claims against LLC (Count II) and McCue (Count III).*fn1
Presently before the Court are motions for summary judgment filed separately by LLC and McCue and a motion for summary judgment filed jointly by Enterprises and Series A. For the reasons set forth below, defendants McCue, Enterprises, and Series A's motions for summary judgment are granted and defendant LLC's motion for summary judgment is granted in part and denied in part.
This case, which involves a series of asset transfers between INC, McCue, and the corporate
defendants, evolved out of an effort to enforce a state-court judgment against INC in a landlord-tenant action. The Court begins by describing the asset transfers and relationships between the various parties, the lease dispute giving rise to the present action, and the procedural history of this case.
A. The Relationship Between INC, LLC, and McCue
Robert McCue formed INC in December 1996 to provide project and construction management consulting services. (Resp. of Michael H. Kaliner to the LLC Statement of Undisputed Material Facts ¶ 53; Def. MDC Systems Corp., LLC's Answer to Pl.'s Add'l Material Facts ¶ 53.) (hereinafter, "Pl.'s Stmt." and "Def. LLC's Resp. to Pl.'s Stmt."). INC in turn formed LLC in 2000 as a Pennsylvania limited liability company. (Def. MDC Systems Corp., LLC's Separate Statement of Undisputed Material Facts in Support of Mot. for Summ. J. ¶¶ 1, 11 (hereinafter "Def. LLC's Stmt."); Pl.'s Stmt. ¶¶ 1, 11.) Since June 13, 2001, INC's board of directors has consisted of McCue, James McKay, and Stephen Cheney. (Def. LLC's Stmt. ¶ 9; Pl.'s Stmt. ¶ 9.) And since February 1997, INC's outstanding shares have been held by three shareholders: McCue, with 39.4% of INC's shares, and McKay and William Wheatley, each with 30.3% of INC's shares. (Def. LLC's Stmt. ¶ 8; Pl.'s Stmt. ¶ 8.) McCue was in charge of INC's day-to-day operations and had the authority to sign checks on behalf of both INC and LLC. (Pl.'s Stmt. ¶¶ 92-93; Def. LLC's Resp. to Pl.'s Stmt. ¶¶ 92-93.)
On June 11, 2004, INC's board of directors recommended to its shareholders that INC wind up its affairs and dissolve. (Def. LLC's Stmt. ¶ 15; Pl.'s Stmt. ¶ 15.) That recommendation was approved by INC's shareholders on July 5, 2004. (Def. LLC's Stmt. ¶ 16; Pl.'s Stmt. ¶ 16.) The next day, the board tentatively approved a proposed plan of liquidation and dissolution submitted by McCue, and McCue acquired a 100% ownership interest in LLC from INC for $400. (Pl.'s Stmt.
¶¶ 21, 59-60; Def. LLC's Stmt. ¶ 60; Def. LLC's Resp. to Pl.'s Stmt. ¶ 59; Def. LLC's Mot. for Summ. J., Ex. G.) The board subsequently gave its final approval of the McCue proposal. (Pl.'s Stmt. ¶ 60; Def. LLC's Stmt. ¶ 60; Def. LLC's Mot. for Summ. J., Ex. G.) At the time of final approval, INC's obligations included equipment leases, an office lease with Brandywine Operating Partnership, L.P. ("Brandywine") in Berwyn, Pennsylvania, two bank loans, and professional fees and consulting invoices. (Def. LLC's Stmt. ¶ 22; Pl.'s Stmt. ¶ 22.)
On November 18, 2004, INC, McCue, and LLC entered into an agreement, effective July 6, 2004, in which LLC, as "buyer," contracted to assume certain obligations and liabilities of INC, the "seller." (Def. LLC's Mot. for Summ. J., Ex. O.) In the agreement, INC and LLC agreed, inter alia, that INC would sublease to LLC the office space it leased from Brandywine; LLC would accept assignments of INC's equipment leases unless the lessors preferred to terminate the leases; and LLC would assume one of INC's bank loans in consideration for certain fixtures, furniture, and equipment. (Id. ¶¶ 1.1-1.5, 1.7.) INC also agreed to subcontract its existing consulting contracts to LLC and to deliver to LLC amounts that had been pre-paid by clients as retainers to the extent that INC had not already performed on those assignments. (Id. ¶ 1.6.) In return, LLC agreed to assume management and administrative services of INC's existing consulting contracts and pay INC three percent of gross revenues collected on invoices of those cases "from the effective date of th[e] Agreement until the earlier of the date of termination of the contract or the date that [INC's] business [became] wound up." (Id. ¶ 2.1(g).)
LLC began performing INC's existing consulting contracts on July 6, 2004, operating out of the same premises as INC. (Pl.'s Stmt. ¶ 56, 62, 63, 96; Def. LLC's Resp. to Pl.'s Stmt. ¶ 56, 62, 63, 96.) After INC terminated all its employees at the end of June 2004, some of INC's employees became LLC employees, while INC's other employees were hired by LLC as consultants. (Pl.'s Stmt. ¶¶ 94-95; Def. LLC's Resp. to Pl.'s Stmt. ¶¶ 94-95.) When INC ceased day-to-day operations in June 2004, LLC continued to operate under the name "MDC Systems," using the same website, telephone number, and letterhead used by INC. (Pl.'s Stmt. ¶¶ 94, 97; Def. LLC's Resp. to Pl.'s Stmt. ¶¶ 94, 97.)
B. The Relationship Between LLC, Enterprises, Series A, and McCue
According to Kaliner, Enterprises is a Delaware "series" entity that is part of LLC, and Series A is the first "series" entity that was created under Enterprises. (Pl.'s Resp. to Defs. Enterprises and Series A's Mot. for Summ. J., at 2.) Enterprises was formed in September 2007, with LHE Partners, LLC----an entity in which McCue held a partial interest----holding a partial ownership interest in Enterprises. (McCue Dep., Dec. 1, 2009, at 415-21, Doc. No. 47-6, filed Mar. 2, 2010.) (hereinafter "McCue Dep. III.") Series A is the current operating entity for the MDC Systems business enterprise. (Pl.'s Statement of Add'l Material Facts in Response to the Second Mot. for Summ. J. of MDC Systems Enterprises LLC and MDC Systems Enterprises LLC Series A ¶ 3; Defs. MDC Systems Enterprises LLC's and MDC Systems Enterprises LLC Series A's Answer to Pl.'s Statement of Add'l Material Facts ¶ 3.) According to Mitchell Swann, part owner of LLC,*fn3 Series A was formed some time in July 2008, with Swann and McCue holding, through their respective LLCs, partial ownership interests in the entity. (Swann Dep. at 41-49, Doc. No. 76-2, filed July 22, 2010.)
Beginning July 2008, Series A essentially assumed the operations of LLC. (See Aug. 8, 2008 Letter from Robert C. McCue and E. Mitchell Swann, Doc. No. 78, filed under seal July 23, 2010.) On July 1, 2008, McCue and Swann, as partners of LLC, agreed that: LLC would "become a service organization to supply personnel, office space and office services to . . . Series A"; all new proposals for work would be placed under Series A's name; Series A would "assume responsibility for the billings" from August 1, 2008 forward; and Series A and LLC would "enter consulting agreements for such services as each may need in the future[,] . . . at cost without mark-up or fees." (Meeting Minutes - MDC Systems Corp. LLC, July 31, 2008, Doc. No. 77-2, filed July 22, 2010.) Under this arrangement, new client contracts generally were formed with Series A rather than LLC, and the revenue from new projects generally went to Series A. (Swann Dep. at 80-81.) Series A operated, and continues to operate, in the same space occupied by LLC in July 2008. (McCue Dep. III at 444; Swann Dep. at 95-96.) Although Series A initially used LLC's employees to perform work on new contracts, at the end of December 2008, LLC terminated all its employees, who were then hired by Series A. (McCue Dep. III at 304-06; Swann Dep. at 96-98.) Other than collecting old receivables, LLC no longer has a source of revenue. (Id. at 441-42.)
C. Lease Dispute Between Brandywine and INC
The present action traces back to a lease dispute between Brandywine,
as landlord, and INC, as tenant. INC and Brandywine entered into a
commercial lease for the rental of commercial and storage space in
Berwyn, Pennsylvania on July 31, 2002. (Third Amend. Compl., Ex. A.)
By letter dated June 29, 2005, Brandywine informed INC that it was in
default of $53,476.17, representing unpaid rent and related charges
through June 30, 2005. (Def. LLC's Stmt. ¶ 38; Pl.'s Stmt. ¶ 38.)
Brandywine filed suit against INC in the Court of Common Pleas of
Chester County on July 29, 2005, alleging breach of contract. (Def.
LLC's Stmt. ¶ 39; Pl.'s Stmt. ¶ 39.) In an opinion issued November 19,
2007, following a bench trial, the Court of Common Pleas found in
favor of Brandywine and against INC for non-payment of rent and
concluded that LLC unlawfully occupied the leased premises.*fn4
(Def. LLC's Mot. for Summ. J., Ex. Q.) On March 27, 2008, the
state court denied INC's Motion for Post-Trial Relief and entered
judgment against INC for $1,071,024.53, plus interest and costs. (Def.
McCue's Mot. for Summ. J., Ex. C (Doc. No. 46, filed Feb. 3, 2010).)
The total represented damages for accrued rent and additional rent through
the trial date, plus accelerated rent for the balance of the lease
term, attorney's fees, and costs. (Def. LLC's Stmt. ¶ 42; Pl.'s
Stmt. ¶¶ 44, 102, 113; Def. LLC's Resp. to Pl.'s Stmt. ¶¶ 102,
To collect on the state court judgment against INC, Brandywine filed an action ("the second state court action") in the Court of Common Pleas of Chester County against INC, LLC, and McCue on September 14, 2007, alleging breach of contract, fraudulent transfer, ejectment, and common law fraud. (Def. LLC's Stmt. ¶ 43; Pl.'s Stmt. ¶ 43.) On July 23, 2008, INC filed a voluntary petition under Chapter 11 of the Bankruptcy Code. (See In re MDC Systems Inc., No. 08-14669-ELF (Bankr. E.D. Pa), Doc. No. 1.) The bankruptcy proceeding was converted to a Chapter 7 proceeding on October 7, 2008, and Kaliner was appointed trustee the following day. (See id., Doc. Nos. 65, 67.) Brandywine then removed the second state court action to the bankruptcy court on November 21, 2008. (See id., Doc. No. 79.) On April 27, 2009, this Court: (1) upon motion of the defendants, withdrew reference of the removed state court action from the bankruptcy court, and (2) upon motion of the trustee, substituted Kaliner as plaintiff and dismissed INC as defendant. On April 23, 2010, Kaliner then filed a Fourth Amended Complaint, adding Enterprises and Series A as defendants. The Fourth ...