United States District Court, E.D. Virginia, Richmond Division
JAMES R. SPENCER, Senior District Judge.
THIS MATTER is before the Court on appeal from the United States Bankruptcy Court for the Eastern District of Virginia, In re LandAmerica Financial Group, Inc., No. 08-35994-KRH, 2014 WL 2069651 (Bankr. E.D. Va. 2014) (Huennekens, K.R.), pursuant to 28 U.S.C. § 158(a)(1). Appellant filed its notice of appeal on September 23, 2014 and subsequently filed its brief in support of appeal on November 21, 2014 ("App. Br.") (ECF No. 5). Appellee filed its brief in opposition ("Opp'n Br.") (ECF No. 7) on December 5, 2014, and Appellant then filed its reply on December 19, 2014 ("Reply Br.") (ECF No. 8). The Court dispenses with oral argument because the facts and legal contentions are adequately presented in the materials before the Court, and oral argument would not aid the decisional process. E.D. Va. Loc. Civ. R. 7(J); Fed.R.Bankr.P. 8012. For the reasons set forth below, the Court AFFIRMS the Bankruptcy Court's decision and DISMISSES this Appeal.
This appeal arises from the Bankruptcy Court's decision granting partial summary judgment in favor of Southern California Edison, Company ("SCE") and denying the motion for summary judgment filed by LandAmerica Financial Group, Inc. ("LFG").
LFG was a holding company that operated a title insurance business and other real estate transaction services. LFG conducted all of its operations through its operating subsidiaries, which included LandAmerica OneStop, Inc. ("OneStop") and Southland Title Corporation ("Southland"). [LFG and all of its operating subsidiaries will hereinafter be referred to collectively as "LandAmerica".] LFG's ability to meet its current and future obligations was dependent upon its ability to generate positive cash flow from its operating subsidiaries.
Southland was an underwritten title company, which provided title, escrow and other real estate-related products and services to residential and commercial buyers and sellers, real estate agents and brokers, developers, attorneys, and mortgage brokers and lenders primarily located in Southern California. OneStop was part of LFG's lender services business segment and provided a full range of integrated residential real estate services, such as the coordination and delivery of title insurance, settlement/closing and escrow services, appraisal and valuation services, property inspections, real estate tax processing services, and default and foreclosure services.
LFG operated and administered a centralized cash management system (the "CCMS") on behalf of LandAmerica. The CCMS was designed to collect, transfer and disburse funds generated by LandAmerica and to allocate and record each such deposit, transfer, and disbursement by a cost center code that corresponded to a specific legal entity. Under the CCMS, subsidiaries would contribute their revenues to centralized cash accounts, and LFG, as the party managing the disbursement of funds from those accounts to the vendors and other creditors of various subsidiaries, would pay out funds from the accounts to such parties. There was no readily apparent cycle or periodic nature of cash transfers made to LFG on behalf of its subsidiaries; rather, cash transfers were made to LFG when cash was available at the subsidiary level. Approximately ninety percent of LandAmerica revenue flowed through the CCMS.
LFG maintained approximately thirty-one active bank accounts which were linked to the CCMS. Three LFG concentration accounts served as the nerve center for the CCMS (the "Concentration Accounts") and were funded daily with wire transfers and sweeps from approximately sixteen depository accounts held by LFG and its subsidiaries. For disbursements, LFG used funds in the Concentration Accounts to fund approximately nine separate disbursement accounts (the "Disbursement Accounts"), out of which LFG cut checks to pay for LFG's obligations and to pay for obligations on behalf of its subsidiaries. The use of the CCMS was recorded and reflected in LFG's accounting system through an account entitled "Accounts with Affiliates."
From February 1, 2008 through November 26, 2008 (the "Petition Date"), through operation of the CCMS, OneStop and Southland provided substantially all of their earned cash revenues to LFG, and thus neither subsidiary had sufficient funds to pay their own expenses. Instead, LFG in turn paid substantially all of those subsidiaries' cash expenses. During that time period, LFG received over $30 million more in revenues generated by OneStop than LFG disbursed on behalf of OneStop. LFG also received over $11 million more in revenues generated by Southland than LFG disbursed on behalf of Southland. Thus, LFG received positive net cash flow from the operations of its OneStop and Southland subsidiaries during this time period in the aggregate amount of roughly $40 million.
From February 2008 through the Petition Date, both OneStop and Southland required electricity for lighting their office buildings, heating and air conditioning their office buildings, and powering computers and other technology. From February 1, 2008 through the Petition Date, SCE provided that electric utility service at various locations within California. Through the operation of the CCMS, LFG made payments to SCE for OneStop's and Southland's electrical utlity expenses, totaling $206, 394.49 and $39, 479.14, respectively.
Beginning in 2007 and continuing through 2008, there were significant declines in mortgage financing, property values, and the number of real estate transactions, which when combined significantly and adversely affected LandAmerica's primary business activities and liquidity. LandAmerica's revenues were reduced by over forty percent from the fourth quarter of 2006 to the third quarter of 2008.
On the Petition Date, LFG filed a voluntary petition for relief under chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Eastern District of Virginia, Richmond Division (the "Bankruptcy Court"). After the Petition Date, LFG continued to manage its properties and operations as debtors in possession pursuant to 11 U.S.C. §§ 1107 and 1108. Subsequently, several other LandAmerica entities, including Southland and OneStop, filed for bankruptcy protection, and each of those cases was jointly administered for procedural purposes with LFG's bankruptcy case. The debtors then filed a Joint Chapter 11 Plan (the "Plan"), which created separate liquidating trusts for LFG and for each of the other LFG affiliated Debtors. The Plaintiff in this adversary proceeding was created to oversee the liquidation and distribution of the LFG assets.
On November 24, 2010, the Plaintiff filed its Complaint against SCE seeking to avoid and recover transfers pursuant to 11 U.S.C. §§ 544, 547, 548 and 550 and to disallow claim(s) pursuant to 11 U.S.C. § 502(d). The Complaint sought the avoidance and recovery of certain transfers, in the aggregate amount of $263, 462.69 (the "Transfers"), made by LFG to SCE during the nine-month period from February 27, 2008 through the Petition Date (the "Avoidance Period"). In Count I of the Complaint, Plaintiff sought to avoid the Transfers pursuant to 11 U.S.C. § 548(a)(1)(B) as constructively fraudulent conveyances, alleging that LFG did not receive reasonably equivalent value. In Count II of the Complaint, Plaintiff sought to avoid the Transfers under 11 U.S.C. § 544(b)(1) and Virginia Code § 55-81, alleging that the transfers were not made in exchange for valuable consideration.
On March 31, 2014, Plaintiff and SCE each filed motions for partial summary judgment. The Bankruptcy Court conducted a hearing on the parties' respective motions on May 1, 2014. At the conclusion of the hearing, the Bankruptcy Court announced its decision to grant SCE's motion for partial summary judgment, and deny LFG's motion for partial summary judgment. The Bankruptcy Court's order was entered on May 19, 2014. LFG then filed a Motion to Alter or Amend Order on June 2, 2014, which the Court subsequently denied on September 9, ...