# O'Neil v. New Eng. Rd., Inc. (In re Neri Bros. Constr. Corp.)

> United States Bankruptcy Court, D. Connecticut · September 27, 2018 · 593 B.R. 100

URL: https://www.frixlaw.com/law-library/cases/8685477

## Case

- **Full name:** IN RE: NERI BROS. CONSTRUCTION CORP., Debtor John J. O'Neil, Chapter 7 Trustee v. New England Road, Inc., John Neri, Helen Neri, Helen Neri, in Her Capacity as of the Estate of Alan Neri, Sr., Alan Neri, Jr., New England Road, Inc., Counterclaim v. John J. O'Neil, Chapter 7 Trustee, Counterclaim
- **Court:** United States Bankruptcy Court, D. Connecticut
- **Decided:** September 27, 2018
- **Citations:** 593 B.R. 100
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Nevins
- **Judges:** Nevins
- **Cited by:** 9 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8685477

## How later opinions describe it (automated extraction)

- describing identical definition of transfer in federal Bankruptcy Code being "as broad as possible" [internal quotation marks omitted]
- noting that “substantial consideration pursuant to § 52- 552e(a)(2) and reasonably equivalent value are virtually identical.”
- finding the Chapter 7 trustee had established unjust enrichment, meriting a $686,241.61 award
- describing identical definition of transfer in federal Bankruptcy Code being ‘‘as broad as possible’’ [internal quotation marks omitted]

## Opinion text

Ann M. Nevins, United States Bankruptcy Judge
TABLE OF CONTENTS
INTRODUCTION AND BACKGROUND ...110
JURISDICTION ...112
TRUSTEE'S CLAIMS AGAINST...112
THE DEFENDANTS AND DEFENDANT'S COUNTERCLAIMS ...112
FINDINGS OF FACT ...115 *110 Neri Bros. Construction Corp: A Family Company ...115
Rival Companies Formed ...115
1992 State Court Lawsuit: Alan Sr. v. Carl ...117
Condition of the Debtor from 1991 to Petition Date ...119
Inability to Obtain Bonding ...119
The Debtor's Financial Condition ...122
Johnson's Summary of the Debtor's ...124
Financial Condition Versus Increasing Caciopoli Debt ...124
Rental Agreements Between NE Road and the Debtor ...124
Authorization for Agreements ...125
Who Knew NE Road Existed and Would be Renting from the Debtor? ...125
Negotiating Rental Rates between the Debtor and NE Road ...126
Existence of Any Writing Memorializing Agreement ...126
Equipment Use ...127
Calculating Reasonably Equivalent Value ...129
Comparative Rental Agreements ...132
Neri Corp.'s Rentals From The Debtor ...133
Other Evidence of Rental Rates ...134
Use of the Debtor's Supplies at No Charge ...135
The Debtor/C & A Development Default on Premises Rental from Shoreline ...137
The Debtor Files for Bankruptcy ...138
The Auction ...138
EVIDENTIARY RULINGS ...139
The DeMaria Deposition ...139
DISCUSSION ...141
Counts I and II: Overview of Constructive and Intentional Fraudulent Transfers ...141
Count I. Constructive Fraudulent Transfer ...143
Count II: Intentional Fraudulent Transfer ...148
Count III: Unauthorized Post-Petition Transfers ...151
Count IV: Unjust Enrichment ...153
Count V: Improper Diversion of Corporate Opportunities ...155
Count VI: Breach of Fiduciary Duty ...158
Count VII: Disregard of the Corporate Veil ...159
Count VIII: Participation in Breach of Fiduciary Duty ...160
Counterclaim for Administrative Expense ...162
Compensatory Damages ...164
Punitive Damages ...164
CONCLUSION ...164
INTRODUCTION AND BACKGROUND
After a trial held during the Summer of 2010, this Memorandum of Decision will enter more than twenty-one (21) years after this adversary proceeding commenced in 1997. The bankruptcy trustee's claims resolved through this decision have their roots in a bitter, decades-old dispute between members of the Neri family regarding the ownership and control of the bankruptcy debtor, Neri Bros. Construction Corp. ("Debtor"), its business opportunities, and its equipment assets.
By the late 1980s, the Debtor was run primarily by three brothers - Alan Neri, *111 Sr., Carl Neri ("Carl") and John ("John") Neri. This litigation continues to ensnare the Neri family both through this adversary proceeding and through ongoing battles over the proofs of claim of various Neri family members in the underlying Chapter 7 case that form the vast majority of the debt in the Debtor's twenty-three year old bankruptcy case.
The underlying bankruptcy case was filed on January 17, 1995 (the "Petition Date"), and started as a Chapter 11 reorganization case, case number 95-20169 (the "Main Case"). Chapter 11 debtors are meant to use the breathing spell provided by the automatic stay to formulate and propose a plan of reorganization to resolve their prepetition debt. Here, the voluntary bankruptcy petition was signed by Alan Neri, Sr. Within two months after the Petition Date, Carl and his side of the Neri family challenged Alan Neri, Sr.'s control of the Chapter 11 process by filing a motion to appoint a Chapter 11 Trustee. On October 31, 1995, after several days of testimony spread over several months, the Bankruptcy Court Judge (Krechevsky, J.) appointed Alan Sibarium ("Trustee Sibarium") to be a Chapter 11 trustee - thus replacing the management authority of Alan Neri, Sr. - to run the Debtor's business.
Almost nine months later, on July 13, 1996, Trustee Sibarium conducted a court-authorized auction pursuant to 11 U.S.C. § 363 (the "Auction") that liquidated the Debtor's construction equipment and other personal property, generating $341,915.00 in proceeds. ECF No. 136; Exh. W. Several months after that, in January 1997, Trustee Sibarium commenced this adversary proceeding against four defendants: New England Road, Inc. ("NE Road"), Alan Neri, Sr., Alan Neri, Jr. ("Alan Jr."), and Helen Neri ("Helen"). John was added as a defendant later on, and Helen Neri was substituted for defendant Alan Neri, Sr. in her role as Executrix of his estate after his death ("Alan Sr."). The complaint sought damages for NE Road's use of the Debtor's equipment prior to and during the early stages of the Main Case and for damages due to NE Road's usurpation of the Debtor's corporate opportunities. On September 12, 1997, Trustee Sibarium filed a motion to convert the Main Case from one under Chapter 11 to a Chapter 7 case, which the Court granted on October 14, 1997. ECF Nos. 203, 211.
Upon conversion of the case to Chapter 7, John J. O'Neil was appointed as the Chapter 7 Trustee (the "Trustee") in the Main Case and he then became the plaintiff in this adversary proceeding. This adversary proceeding was initiated before Bankruptcy Judge Robert L. Krechevsky, tried before Bankruptcy Judge Albert S. Dabrowski, and is now decided by a third bankruptcy judge.
While there were sporadic efforts to resolve this case -- including requests that the Court defer its decision from time to time while settlement discussions were proceeding -- delays also occurred because of the change of judicial officers over time and efforts starting in late 2017 by new counsel for the defendants to the reopen the evidentiary record. 1 One of the company's founding brothers and a defendant here -- Alan Neri, Sr. -- passed away in 2008, before trial, as did the original Bankruptcy Judge, the Honorable Robert L. Krechevsky.
For the Trustee John J. O'Neil and the remaining Neri family members - particularly *112 the families of Alan Sr. and Carl - there is little doubt this decision will be unsatisfactory to some or all of the parties, in no small part because of the extraordinary amount of time that has passed.
JURISDICTION
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334 (b) and 157(b), and the District Court's Order of referral of bankruptcy matters, dated September 21, 1984. This adversary proceeding is a core proceeding pursuant to 28 U.S.C. §§ 157 (b)(2)(A) (matters concerning the administration of the estate) and (H)(proceedings to determine or recover fraudulent conveyances) regarding Counts I, II and III, seeking recovery of fraudulent conveyances and unauthorized post-petition transfers, and is a non-core proceeding related to a case under Title 11, United States Code, pursuant to 28 U.S.C. § 157 (c) regarding Counts IV, V, VI, VII, and VIII. The parties are aware they may seek a final judgment from a United States District Judge regarding Counts IV, V, VI, VII, and VIII. However, the parties have consented to the entry of final orders or judgment by a United States Bankruptcy Judge, subject to traditional appeal rights. 2 See Fed.R.Bankr.P. 7008 and 7012(b) ; 28 U.S.C. § 157 ; Wellness Intern. Network, Ltd. v. Sharif, --- U.S. ----, 135 S.Ct. 1932 , 1947-48, 191 L.Ed.2d 911 (2015) ; AP-ECF No. 317; AP-ECF 3 No. 339, June 1, 2016 Tr., pp. 4-5.
This adversary proceeding arose under the Main Case pending in this District; therefore, venue is proper in this District pursuant to 28 U.S.C. § 1409 . The plaintiff has standing to seek the relief sought in the complaint because, as the duly appointed Chapter 7 Trustee, pursuant to 11 U.S.C. § 323 , he may "prosecute any action or proceeding in behalf of the estate before any tribunal." Fed.R.Bankr.P. 6009.
Pursuant to Fed.R.Civ.P. 63, made applicable here through Fed.R.Bankr.P. 9028, the undersigned United States Bankruptcy Judge has certified 4 that she fully reviewed the record of the trial, of the adversary proceeding and the underlying bankruptcy case, and has determined that the case may be completed without prejudice to the parties. 5 Pursuant to Fed.R.Civ.P. 63, the parties were provided with an opportunity to request that any witness be recalled, and no such request was made.
TRUSTEE'S CLAIMS AGAINST THE DEFENDANTS AND DEFENDANT'S COUNTERCLAIMS
The Trustee sought to recover damages from NE Road based on two basic theories:
*113 (1) NE Road used or rented the Debtor's construction equipment and paid an unfairly low rental rate, resulting in damages owed to the Debtor's bankruptcy estate.
(2) NE Road unfairly took advantage of business opportunities in the construction industry that, in truth, belonged to the Debtor, thereby diverting income away from the Debtor resulting in damages owed to the Debtor's bankruptcy estate.
The Trustee's Third Amended Complaint, AP-ECF No. 164, included nine counts, of which eight remain pending, that are generally summarized in the following table. 6
Count Defendant Cause of Action I NE Road Constructive fraudulent transfer pursuant to 11 U.S.C. § 544 (b), Conn. Gen. Stat. §§ 52 -552e(2) and 52-552f(a) II NE Road Intentional fraudulent transfer pursuant to 11 U.S.C. § 544 (b) and Conn. Gen. Stat. § 52 -552e(a)(1) III NE Road Unauthorized post-petition transfers pursuant to 11 U.S.C. § 549 (a) IV NE Road Unjust enrichment V NE Road, Improper diversion of corporate opportunities Alan Sr., Alan Jr., and John VI Alan Sr., Breach of fiduciary duty Alan Jr., and John VII Alan Sr., Disregard of the corporate veil Alan Jr., John and NE Road VIII Alan Jr., Participation in breach of fiduciary duty John, and Helen
The defendants, NE Road, Alan Sr., Alan Jr., John, and Helen (the "Defendants") filed answers with affirmative defenses that are summarized in the following table. AP-ECF Nos. 258, 259, 260, 261, 263.
Affirmative Defense Defendants Raising Counts Asserted Applicable 7 Lack of standing based on Alan Sr., Alan Jr., John, I, II, IV-VIII the in pari delicto doctrine and Helen Failure to state a claim Alan Sr., Alan Jr., I-VIII upon which relief can be John, and Helen granted (Fed.R.Bankr.P. 7012 and Fed.R.Civ.P. 12(b)(6))
[ Editor's Note: The preceding image contains the reference for footnote 7 ].
*114 NE Road's answer also included five counterclaims but its post-trial briefing only addressed Counterclaim V, a claim for administrative expenses pursuant to 11 U.S.C. §§ 503 (a) and 503(b)(1) based on the Debtor's rental of NE Road's real and personal property post-petition, and use of NE Road's real property, labor, and materials for the Auction. AP-ECF No. 261. Counterclaims I through IV are deemed abandoned by NE Road because they were not addressed in post-trial briefing. 8
The Defendants filed a motion to dismiss the complaint 9 on December 3, 2004, pursuant to their Wagoner rule defense. AP-ECF No. 112. Judge Krechevsky denied the motion on March 11, 2005. AP-ECF No. 127. 10
Bankruptcy Judge Albert S. Dabrowski (now retired) heard testimony over eight days during the period from May 11, 2010 through September 28, 2010, from the following witnesses:
• Alan Neri, Sr., through the reading of prior deposition testimony. See, AP-ECF No. 278.
• Kimberly Neri Simoncini ("Kim"), Carl Neri's daughter.
• David Doyle, an Attorney for Dominic Caciopoli at the time of the trial and a former attorney for Carl Neri.
• Alan Neri, Jr., Alan Sr.'s son.
• Dominic Caciopoli, Carl Neri's former attorney.
• Helen Neri, Alan Neri, Sr.'s widow, a former employee of the Debtor, a stockholder of the defendant NE Road.
• Judith Wood, a researcher hired by the Trustee to track equipment usage.
• Carl Neri, Alan Sr.'s brother, co-founder of the Debtor.
• Richard Finkel, an accountant hired by the Trustee.
• Vincent A. Neri (Vincent), Carl's son.
• Mark Sheptoff, the Debtor's accountant during 1990 and 1991.
• Edwin L. Doernberger, an attorney for Carl.
• Kevin D. Smith, a researcher hired by the Trustee to evaluate the rental rates for equipment.
*115 • Donna Leigt, office manager for Neri Corp. (a separate corporation established by Carl).
• Robert Mirto, a former attorney for the Debtor.
• David Johnson, an accountant for the Debtor from 1992 to 1994 and NE Road from 1993 to the time of trial.
• Tom Farace, owner of a trucking company.
• Lawrence Casler, owner of a heavy construction equipment company.
• Gerald Bugg, president of Shoreline Concrete.
• Anthony DeMaria, the Debtor's primary bonding agent who at the time of trial was suffering from severe Parkinson's Disease and testified via trial deposition with evidentiary objections reserved for the Court's decision here. AP-ECF No. 282, p. 5; AP-ECF No. 293; Exh. 150.
In addition to testimony, the evidence before the Court included voluminous exhibits, consisting of court records from other litigation involving the parties, records of the Debtor and NE Road, reports created by Judith Wood ("Wood") and Kevin D. Smith ("Smith"), information regarding standards for rental rates, discovery responses, and sundry other evidence. Following the conclusion of the evidence, the parties filed post-trial briefs and reply briefs. AP-ECF Nos. 296, 297, 298, 299, 300 322, 327, 354, 328, 352, 362.
FINDINGS OF FACT
Neri Bros. Construction Corp: A Family Company
In approximately 1967, three Neri brothers, Alan Sr., Carl, and John, founded the Debtor, Neri Bros. Construction Corp., as a family construction business that worked on private construction jobs. AP-ECF No. 277, p. 76; AP-ECF No. 281, p. 89. The Debtor transitioned to a bonded construction company performing public construction projects for the State of Connecticut (the "State") by the mid- to late 1980s. AP-ECF No. 277, p. 76. Alan Sr. was the president of the corporation. According to Carl, Alan Sr. ran "some of the field" and worked repairing equipment while Carl ran the operation as the chief operations officer. AP-ECF No. 164, p. 3; AP-ECF No. 281, p. 90. Alan Sr.'s wife Helen worked as the Debtor's bookkeeper and by the early 1990's Carl's daughter, Kim, worked in the office as the accounting manager; Alan Jr. and Vincent (Carl's son) worked as laborers and equipment operators. AP-ECF No. 277, p. 72; AP-ECF No. 281, pp. 91, 216; AP-ECF No. 282, p. 230.
The Debtor operated from premises located at 35 Lumberyard Road, Clinton, Connecticut (the "35 Lumberyard Property"). C & A Development -- a company owned fifty (50%) percent by Carl and fifty (50%) percent by Alan Sr. -- leased the 35 Lumberyard Property from Shoreline Concrete Co., Inc. ("Shoreline"). The Debtor, in turn, subleased a portion of the 35 Lumberyard Property from C & A Development. AP-ECF No. 281, p.109. The 35 Lumberyard Property consisted of a front office building (the "Front Building") in which the Debtor's offices were located, and a rear building (the "Rear Building") in which the Debtor's equipment was stored and maintained. AP-ECF No. 277, pp. 79-81. The two buildings were separated by a large open area in which equipment could be stored, assembled, and moved. AP-ECF No. 277, pp. 79-81.
Rival Companies Formed
In 1990 and 1991, Alan Sr. and Carl each decided to form a separate company. Alan Sr. formed New England Road, Inc. (defendant NE Road) and Carl formed Neri *116 Corp. 11 Both NE Road and Neri Corp., at various times, submitted Contractor's Prequalification Statements, or "CON-16" forms, required by the State Department of Transportation in support of their respective bids on public construction projects.
Like much else here, the different family factions had different views and memories of the reasons for the establishment of NE Road and Neri Corp., and different perspectives on what those companies' formation meant for the Debtor. According to Kim and Carl, Carl's company Neri Corp. was formed because, at the time, the Debtor's bonding program had reached its limit and Carl wanted to submit a bid on a local bridge project (Liberty Street Bridge, Clinton, Connecticut) located less than a mile from the Debtor's office. AP-ECF No. 277, p. 220; AP-ECF No. 281, p. 105. Carl testified that he formed Neri Corp. with Alan Sr.'s knowledge and that Alan Sr. never voiced any concerns regarding the formation of Neri Corp. AP-ECF No. 281, p. 107. The Debtor's former attorney, Dominic Caciopoli, testified that Alan Sr. was aware of Neri Corp.'s founding and was intended to be a 50% shareholder in Neri Corp. AP-ECF No. 279, p. 137.
According to Carl, before Neri Corp. could bid on the Liberty Street bridge project "we had to put in a CON-16 ...." AP-ECF No. 281, p. 106. When Carl told Alan Sr. they would have to put money into the company (Neri Corp.) to submit the bridge bid; Alan Sr. did not want to do that. AP-ECF No. 281, p. 106. Carl testified that he listed Alan Sr., Alan Jr., Vincent and himself as the key employees on a CON-16 and it was accepted because "we did Neri Brothers." AP-ECF No. 281, pp. 106-107. Carl also testified that Alan Jr. assisted with the preparation of the bid information. AP-ECF No. 281, p. 106.
Consistent with Carl's testimony, Alan Jr. testified that he worked with Carl to prepare a portion of a bid for a construction job in 1990. But when he saw the completed bid he realized it was for Neri Corp. - Carl's company -- rather than for the Debtor. According to Alan Jr., when he told his father Alan Sr. about the bid, "[h]e was mad." AP-ECF No. 279, pp. 64-70. According to Alan Jr., that event was the beginning of a deterioration in the relationship between Carl and Alan Sr. AP-ECF No. 279, pp. 69-70.
In October of 1991, a confrontation occurred between Carl and Alan Sr., Dominic Caciopoli, then the Debtor's corporate lawyer, and Attorney Zangari, a lawyer for Alan Sr. AP-ECF No. 281, p. 98. According to Carl, he sat down with Alan Sr. and Attorney Zangari, discussed Alan Sr.'s concerns, and "basically, Al and I agreed that we would go forward as we always had, 50/50, and that, you know, we embraced each other, and as far as I was concerned, he went to the back building to do what he was going to do, and I was going to continue on." AP-ECF No. 281, p.100. Attorney Caciopoli testified that he negotiated a truce between Alan Sr. and Carl that "resulted in their hugging each other at the end." AP-ECF No. 279, p. 139. In addition, Attorney Caciopoli testified that as far as he understood the relationship he observed between Alan Sr. and Carl deteriorated over time for reasons unrelated to stock ownership. AP-ECF No. 279, p. 142. Helen, on the other hand, testified that the same meeting started with Carl kicking the door open, and that Alan Sr. was very upset after the meeting. AP-ECF No. 282, p. 234.
One month after the meeting between Carl, Alan Sr. and the lawyers, in November *117 of 1991, Alan Sr., Alan Jr., Helen, and John formed NE Road. AP-ECF No. 279, p. 70; AP-ECF No. 282, p. 238. Helen testified that their reasons for doing so were: (1) they needed income and were not being paid by the Debtor; (2) the Debtor was unable to get bonding and therefore unable to get public work that required bonding; and (3) they could not access the Debtor's records and accounts. AP-ECF No. 366, pp. 106-108. Alan Jr. claimed that he told Vincent, Carl's son, about the formation of NE Road in March of 1992, whereas Carl maintained he was unaware NE Road existed in May of 1992. AP-ECF No. 281, p. 96; AP-ECF No. 366, pp. 142-143.
On January 15, 1992, Alan Sr. filed a CON-16 on NE Road's behalf to prequalify the new corporation with the State so that it could bid on State construction work. Exh. SSS, p. 3; AP-ECF No. 278, p. 215. The CON-16 listed Helen, Alan Jr. and John as officers of the company and Wayne Neri as a Supervisor and Owner of the company. Exh. SSS. Attached to the CON-16 were three letters from Jonathan M. Stechholz, P.E., Chief Inspector of Storch Associates detailing his work experience with Alan Sr., Alan Jr. and Wayne Neri; a letter from Noreen T. Braza, an Assistant Vice President with Conn. Traffic Signal Co, Inc. regarding its work experience with the Debtor over twelve years; a letter from William D. Warren, President of Wabaquasset, Inc., regarding his work experience with Alan Jr., Alan Sr. and the Debtor; and financial information regarding the newly formed NE Road. The financial information section on the CON-16 stated NE Road had $75,140.86 cash on hand and equipment valued at $38,685.00, including a bucket truck, pickup truck, and fuel truck, but no other heavy equipment. Exh. SSS, p. 28. The CON-16 also included a notation that additional equipment would be rented from H.O. Penn Machinery Co. or the Debtor. Exh. SSS, p. 28. Like Neri Corp., NE Road utilized the work experience of various individuals who had worked for the Debtor when submitting its own bids for public construction jobs. See, AP-ECF No. 281, pp. 106-107.
NE Road used the Debtor's equipment on every job it performed from 1992 through 1995, and never rented from H.O. Penn Machinery Co. AP-ECF No. 278, pp. 221, 224-227. Alan Jr. testified that NE Road could have rented machinery from an "endless" list of equipment rental companies. AP-ECF No. 278, p. 228. NE Road submitted CON-16 forms for 1993, 1994 and 1995, and its Maximum Capacity Rate increased each time. Exhs. TTT, UUU, VVV. The approvals by the State Department of Transportation for 1992 and 1993 each noted, "Previous personal experience considered." Exhs. SSS, p. 2, TTT, p. 2.
1992 State Court Lawsuit: Alan Sr. v. Carl
A few months after NE Road submitted the CON-16 to the State, on April 1, 1992, Alan Sr. brought an action against Carl in the Connecticut Superior Court, Alan A. Neri v. Carl A. Neri, Superior Court, Judicial District of New Haven, Docket No. CV-92-330627, and sought, among other things, a temporary restraining order against Carl. The complaint alleged that: (1) Carl was removed from his position as Vice President and Secretary of the Debtor and terminated as an employee of the Debtor by a vote of the Board of Directors of the Debtor; (2) Carl had refused to turn over the books and records of the Debtor to Alan Sr.; and (3) Alan Sr. disputed the number of directors of the Debtor, the identity of the directors, officers, and shareholders of the Debtor, the number of outstanding shares of the Debtor, and how *118 many shares were held by each shareholder of the Debtor. Exh. 18.
During a hearing held on May 4, 1992, the parties reported an agreement as to some matters and then Connecticut Superior Court Judge Anthony V. DeMayo issued a temporary restraining order ("TRO") that evidenced the deep divide between Alan Sr. and Carl. Exh. 19. The 1992 TRO directed some of the basic details regarding the Debtor's daily activities, including that Alan Sr. would take over the control and operation of the Debtor, the Debtor would operate from the Rear Building and pay rent of $500, the money then held in the Debtor's bank account would be held by Attorneys Mirto and Doyle as co-trustees, and the Debtor (run by Alan Sr.) would provide copies of bid documents and contracts to Carl's attorney. As to books, records, and office supplies, they would be moved to the Rear Building, out of which the Debtor would be run. Construction equipment would be stored and parked at the 35 Lumberyard Property when not in use and Alan Sr. or his agents would keep a daily sign in and sign out log of equipment use. Finally, "[i]f available, corporation construction equipment shall be leased to Carl A. Neri or [Neri Corp. 12 ] at prevailing fair market rental rates provided said equipment is to be operated by a competent operator. If the corporation [Debtor] claims the equipment is unavailable, it shall provide proof that the equipment is actually being used elsewhere on a job site." Exh. 19.
In reporting the agreement that became the 1992 TRO, Attorney Doyle, Carl's attorney, stated, "[t]he other agreement is that Neri Brothers Construction Corporation will agree to enter into on a [sic] as-available, as-needed basis, rental agreements with Mr. Neri, Mr. Carl Neri or any of his entities for equipment at the prevailing rates and under the usual stipulations and terms that are entered into in those types of rental agreements." Exh. 20, p. 9. The Defendants have asserted that "Mr. Neri" referred to Alan Sr., and that this statement by Attorney Doyle demonstrates that the parties contemplated rental by NE Road from Debtor at the time that they made this agreement. The Trustee argues that both "Mr. Neri" and "Mr. Carl Neri" refer to Carl, and that not only was rental to NE Road not discussed, but also that only Alan Sr. and the other members of NE Road knew of its existence at the time.
On January 11, 1993, Judge DeMayo issued a memorandum of decision determining share ownership and directors of the Debtor (the "Control Decision"), summarized in the following table.
NAME DIRECTOR (Yes or No?) SHAREHOLDER PERCENTAGE Alan Sr. Yes 71.96% Carl Yes 18.7% John Yes 4.67% Estate of Anna Neri No 4.67%
Exh. 21.
After the Control Decision entered, Alan *119 Sr. transferred his 20% share in NE Road to Helen, making her the 40% shareholder in NE Road. Helen then began serving as president of NE Road, Alan Jr. served as vice president of NE Road, while Alan Sr. continued as president of the Debtor. AP-ECF No. 279, pp. 185-186. During the period from early 1992 through the appointment of the Chapter 11 Trustee, Alan Jr. served as vice present of the Debtor and was an officer and director of NE Road. AP-ECF No. 296, p. 4.
Condition of the Debtor from 1991 to Petition Date Inability to Obtain Bonding
The parties acknowledge that following entry of the 1992 TRO in May of 1992, the Debtor did not obtain any new State construction contracts. 13 Instead, it completed prior contracts, completed a few private construction contracts, and rented out its equipment until eventually filing for bankruptcy on January 17, 1995. The parties proffered different explanations for the Debtor's slide into bankruptcy, both relating to its inability to obtain bonds. The Trustee claimed the Debtor's fall was due to the actions of the Defendants including their failure to obtain bonding, their failure to pay the Debtor's debts, and NE Road's use or rental of the Debtor's equipment for below market rental rates. The Defendants claimed that the Debtor had already lost its ability to obtain new bonding prior to the entry of the 1992 TRO, and that renting out the Debtor's equipment was the only way to bring any funds into the Debtor corporation.
Taking into account the evidentiary record as a whole, it is clear the Debtors' failure to obtain new State construction contracts or other construction work was the result of multiple factors, including a combination of the following: the underlying tension and turmoil among the Carl family and Alan Sr. family factions; the Debtor's lack of financial records and disrupted banking relationships; the dysfunction of the owners; both Alan Sr.'s and Carl's new economic focus on their respective, new corporations; and, at least some litigation regarding unpaid corporate debts such as the obligation to Dominic Caciopoli ( see for example, Proof of Claim 49 in the Main Case).
The status of the Debtor's bonding program during 1991 and 1992 was a contested issue. Bonding is necessary for contractors to qualify to bid for State construction jobs. AP-ECF No. 275, pp. 95-96; AP-ECF No. 277, pp. 210-211. As a company progresses as a State contractor, its bonding limit increases. When a company has jobs to the extent of its bond capacity, it cannot bid on further State jobs. The parties drew distinctions between a bid bond, necessary to bid on a project, and a performance bond, necessary to enter into and perform a contract. Obtaining any bonding requires that the business build and maintain the confidence of a bonding agent. Regular provision of updated financial information is necessary in order to maintain a bonding agent's confidence. Exh. 150, p. 7. The Debtor's primary bonding agent, Anthony DeMaria, 14 described the process as "produc[ing] a credit file of financial and character information and information regarding the ability to do the work intended." Exh. 150, p. 7.
The Defendants asserted that the Debtor's inability to obtain new bonds was due to the actions of Carl and others prior to the entry of the 1992 TRO, and to Carl retaining the Debtor's financial statements *120 after the 1992 TRO entered. The Defendants pointed to statements by Kim and Carl that Neri Corp. was founded because the Debtor could not get bonding. The Trustee, however, explained these statements as meaning that the Debtor was at its bonding limit, therefore it could not submit bids for new State jobs, but it nonetheless still had a robust bonding program. In his 1998 testimony during an arbitration, Carl testified that the Debtor laid off some employees in 1990 due to the lack of bonding, but at trial he clarified that this was again because the Debtor was at its bonding program limit and the layoff was part of a winter shutdown. AP-ECF No. 281, pp. 138-39; 140-41. Carl claimed that the Debtor still had a bonding program in 1990. AP-ECF No. 281, pp. 138-39. Kim testified that the Debtor was able to get bid bonds from DeMaria in 1991, but she did not state specifics or have copies of any bonds from 1991. AP-ECF No. 277, pp. 199-200; AP-ECF No. 283, p. 242. Kim also testified that the problem was not that the Debtor failed to get bonding but rather that Alan Sr. was not interested in bidding on construction projects for the Debtor to perform.
Alan Jr. testified that after the 1992 TRO, the Defendants could not get bonding for the Debtor because they did not have any accountant prepared financial statements. AP-ECF No. 278, pp. 268-269. He testified that they ( i.e., the Alan Sr. family running the Debtor) did try to get bonding for the Debtor, but did not have anything in writing demonstrating their efforts after the 1992 TRO entered. AP-ECF No. 278, pp. 268-269. The Defendants reconstituted balance sheets and income statements for the Debtor from 1992 to 1994 in preparation for trial. During trial, Alan Jr. had no explanation for why the Debtor could not have hired an accountant to prepare the same documents in order to get bonding for the Debtor after the 1992 TRO. AP-ECF No. 278, pp. 270-271.
David Johnson, an accountant for NE Road, prepared the Debtor's tax returns in 1994. 15 AP-ECF No. 275, p. 96. He testified that he prepared the Debtor's 1992 and 1993 tax returns in 1994 because, "[w]e didn't receive certain information from the prior accountant until August of 1994." AP-ECF No. 275, p. 97. Alan Jr. also testified that he explained the ongoing conflict between Carl and Alan Sr. to a bonding agent, Tom Otto, in early 1992 and was told that a company in that situation would not be able to get a bond. AP-ECF No. 279, p. 79; AP-ECF No. 366, pp. 150-51.
Alan Jr. and Helen testified that Carl and Kim had the primary responsibility to obtain bonding. AP-ECF No. 279, p. 81 (in March of 1992, Carl had the records, so Alan Jr. couldn't apply for bonding); AP-ECF No. 282, p. 231 (Helen didn't know about bonding, Carl ran everything). Helen testified that Alan Sr. and Alan Jr. went to see a bonding agent in 1992, but were unable to secure bonding for the Debtor. AP-ECF No. 366, pp. 18-19. Helen confirmed that while she said there were meetings with bonding agents regarding the Debtor, the Defendants never submitted a bonding package on the Debtor's behalf. AP-ECF No. 366, pp. 126-127.
In contrast, the Trustee asserted that Helen rather than Carl was responsible for updating DeMaria regarding financial information to support bonding applications, and that after the 1992 TRO entered, Alan Sr., Alan Jr., and Helen made no attempt *121 to update DeMaria or try to obtain bonding through other agents. Carl and Kim testified that Helen was in charge of sending financial information to the accountant for the Debtor, who then prepared it for the bonding agent. AP-ECF No. 281, pp. 104, 184-85. Carl stated that no one was specifically in charge of getting bonds and he, Alan Jr., or Kim all might work on the bonding. AP-ECF No. 281, p. 182. Helen testified that she kept the books for both companies, the Debtor and NE Road, from May of 1992 to October of 1995. AP-ECF No. 366, p. 10.
Dominic Caciopoli, the Debtor's former attorney, testified that he frequently met with the bonding company for the Debtor and that the Debtor had bonding in place in January of 1991, November of 1991, and May of 1992. AP-ECF No. 279, p. 135. He also testified, however, that he did not know whether they received any new bonds in 1991 or 1992. AP-ECF No. 279, p. 144.
DeMaria testified that he did not recall ever being approached by Alan Jr., Alan Sr., or Helen regarding obtaining a bond for the Debtor. Exh. 150, p. 35. DeMaria also confirmed that a contractor could be denied a bond on a project-specific basis if the job exceeded the bonding limit, but still be able to maintain its overall bonding program. DeMaria further testified that he did not recall Carl asking for bonding on behalf of the Debtor after January of 1990. Exh. 150, p. 39. DeMaria stated that generally, he received financial information from Debtor via forms they sent him, and that he did not discuss financial information with anyone specific at the company. Exh. 150, p. 25.
Little, if any, documentation of bonding exists. 16 Helen testified that she did not have anything in writing regarding efforts to get bonds for the Debtor, and did not "think we ever actually made it to that step." AP-ECF No. 279, p. 192. Richard Finkel, an accountant hired by the Trustee to examine Debtor's records, stated that he had not found documents indicating that bonding had terminated. AP-ECF No. 281, p. 207. He also stated that he found a couple of documents indicating bonding was in place, such as a letter dated 1994 releasing a bond that was placed in 1992, and an invoice to renew a bond in 1995. 17 AP-ECF No. 282, p. 207.
Exhibit 79, 18 a record from DeMaria's company, Bogina & DeMaria Incorporated, also referred to as B & D, shows five performance bonds issued to the Debtor through DeMaria's company through January 5, 1990. Exh. 79, 150, pp. 13, 33. Exhibit 79, however, does not show bid bonds, which would have been recorded separately and regarding which DeMaria had no evidence. Exh. 150, p. 33. DeMaria did recall the Debtor being issued bid bonds, but did not recall how many. Exh. 150, p. 34. In addition, DeMaria was unable to recall whether there were any further requests for bonding for the Debtor after January 5, 1990, or whether he requested information from the Debtor after January 5, 1990. Exh. 150, pp. 14-15. He noted that requesting updated information was his standard operating procedure. Exh. 150, p. 15.
*122 Based on this record, the Court finds that after the entry of the 1992 TRO the Debtor did not have bonding in place that would allow it to qualify as a bidder for State construction contracts. Further, it is clear there was no effort made by Alan Sr. or the other Neri family members handling the day-to-day operations of the Debtor to obtain such bonding for the Debtor after the entry of the 1992 TRO.
The Debtor's Financial Condition
Like much else, the parties contested the financial condition of the Debtor in early 1992, and in the years after the entry of the 1992 TRO preceding its filing for bankruptcy in 1995. The Trustee asserted the Debtor was insolvent from the time the 1992 TRO entered, or from at least May 1992, while the Defendants claimed the Debtor was solvent until it filed for bankruptcy in January 1995.
Helen testified extensively regarding the Debtor's financial condition when the Defendants took over. She and Alan Sr. had to make personal loans to the Debtor after the 1992 TRO entered because the Debtor's insurance was about to be canceled, the financing companies were owed payments for the equipment, and a roller had been repossessed. AP-ECF No. 366, p. 2-4, 137. 19 On cross examination, the Trustee produced a "Call for and Notice of Special Meeting of the Board of Directors of the Neri Bros. Construction Corp.," signed by Alan Sr. on February 29, 1992. Exh. RRRR; AP-ECF No. 366, p. 114. Among other purposes for the meeting, such as removing Carl from his position as Vice President and Secretary, was: "[t]o close all bank accounts that are now open in the name of the Corporation and to notify Fleet Bank to not honor any checks written on these accounts." Exh. RRRR.
Helen testified that the account was not closed by the Board as contemplated by the Call for Notice, but rather was frozen by Fleet Bank when it received conflicting orders from Carl and Alan Sr. AP-ECF No. 366, p. 115. In prior testimony during an arbitration proceeding between Carl and Alan Sr. concerning the dissolution of a different company (CAN Development) Helen testified that Alan Sr. and John had frozen the checking account. AP-ECF No. 366, pp. 107-108, 117. A ledger written by Helen showed bills being paid from January 23, 1992, to March 6, 1992, but Helen stated the ledger written had been recreated later in 1992 and that she could not confirm whether those payments were for current or past due bills. AP-ECF No. 366, pp. 119-21. Helen acknowledged that the account was frozen for at least two months, during which bills could not be paid, but maintained that before the account was frozen in March of 1992, the Debtor's payments were already behind. AP-ECF No. 366, p. 118.
Between 1992 and 1996, the Debtor's income took two forms: construction projects and equipment rental. The Debtor finished State projects it had already begun or acquired private or subcontractor projects. According to the Cash Receipt Summary Report prepared by Kim, Exhibit EEE, the Debtor's receipts for construction projects and equipment rental included the amounts summarized in the following two tables.
*123 Construction Project Name Amount ALLED/DELLA $45,530.40 Falvey Construction $158,390.00 Phil Hayes Builder $55,002.55 SOC Construction $250,497.47 Redfield Repair $2,125.00 Driveways $4,746.77 Westbrook Elks $48,147.00 Misc. Repairs $8,173.45 TOTAL: $572,612.64 Equipment Rental Customer Amount Watertown $18,620.00 Bombaci $1,976.00 Camputaro $2,385.00 New England Road, Inc. $132,000.00 20 TOTAL: $154,981.00
[ Editor's Note: The preceding image contains the reference for footnote 20 ].
Adding retainage from prior projects of $65,182.90, the Debtor's total cash receipts for 1992 to 1996 were $792,062.49. Its cash disbursements, based on the Cash Disbursement Summary Report prepared by Kim, were $806,269.24. Exh. EEE.
Helen kept an accounting ledger with the amounts owed between the Debtor and NE Road, and two copies of the ledger were introduced into evidence at the trial. AP-ECF No. 279, p. 198. The Trustee's Exhibit R showed NE Road owed the Debtor $13,466.00 as of April 21, 1995. The Defendants' Exhibit 60 showed the same amount due the Debtor as of April 21, 1995, but included additional entries through February 28, 1996, with an ending balance of $9,019.00 owed by the Debtor to NE Road. 21 The ledger tracks rental by NE Road from the Debtor as "credits" that increase the balance due to the Debtor, payments by NE Road to the Debtor as "debits" that decrease the balance due to the Debtor, and credits by NE Road to the Debtor as "discounts." Discount items *124 include rental by the Debtor of NE Road equipment, rental payments for the 35 Lumberyard Property, fuel, and building materials. 22 Exh. No. 60. The total debits and discounts on Exhibits R and 60 are as follows:
Exhibit R: Debits: $124,112.29 Discounts: $37,245.26 ========================== Total: $161,357.55 Exhibit 60: Debits: $131,285.95 23 Discounts: $111,492.40 ========================== Total: $242,778.35
[ Editor's Note: The preceding image contains the reference for footnote 23 ].
David Johnson, an accountant and expert witness for the Defendants, created the Debtor's financial statements for December 31, 1992, December 31, 1993, June 30, 1994, and December 31, 1994. Mr. Johnson opined in his written report that the Debtor was solvent on those dates, by which he meant that it owned assets having an estimated value in excess of its liabilities. Exh. K. Johnson's findings are summarized in the following table, and compared to Proof of Claim 49, filed by one creditor (Dominic Caciopoli), that reflected escalating debt during the same period.
Johnson's Summary of the Debtor's Financial Condition Versus Increasing Caciopoli Debt
Time Period Assets Liabilities Difference Caciopoli (Assets - Liability Liabilities) (POC 49) December 31, 1992 $1,004,733 $444,364 $560,369 $245,494 December 31, 1993 $854,516 $449,877 $404,639 $265,088 June 30, 1994 $848,216 $439,740 $408,476 $275,580 December 31, 1994 $733,350 $499,489 $233,861 $286,126
Exh. K; Proof of Claim 49.
Alan Sr. acknowledged in his testimony at a deposition (read into the record during trial) that the combined salaries of himself and his family members who were employees of the Debtor were close to the gross receipts of the Debtor, but claimed that the company was progressing even in 1994 and had increased its assets from 1991 when he took over to 1995 when the chapter 11 case was filed. AP-ECF No. 278, pp. 116-117. Alan Sr.'s testimony regarding increased assets is essentially unsupported by Mr. Johnson's report and the balance of the record.
Rental Agreements Between NE Road and the Debtor
After the 1992 TRO entered, Alan Sr. was in charge of the Debtor while NE Road began renting equipment from the *125 Debtor. These rentals form the crux of the Trustee's claims against the Defendants. The parties hold diametrically opposed views regarding a number of issues:
(1) whether the 1992 TRO authorized rental from the Debtor to NE Road;
(2) whether Carl or anyone else other than Alan Sr., Alan Jr., John, and Helen knew about the existence of NE Road or knew that NE Road would be renting from the Debtor when the parties to the 1992 State Court Lawsuit agreed to the 1992 TRO;
(3) whether the rental agreements were reached as a result of arm's length bargaining;
(4) whether the rental agreements were recorded in writing;
(5) whether the billing from NE Road to the Debtor accurately reflected NE Road's use of the Debtor's equipment; and
(6) whether the billing from NE Road to the Debtor was for reasonably equivalent value.
Authorization for Agreements
Alan Jr. claimed the equipment rental by NE Road was authorized by the following paragraph of the 1992 TRO: "For any contract into which [the Debtor] enters with any entity owned in whole or in part by [Alan Sr.], the contract will include the fair market rental value for any equipment leased from or used by the [the Debtor] if [it] is a subcontractor." Exh. A, AP-ECF No. 278, pp. 265-66. Alan Jr. maintained that this sentence authorized the Debtor to rent equipment to NE Road, even though Alan Sr. later transferred his ownership interest in NE Road to Helen (in January of 1993) and even though the Debtor was not a subcontractor on any of the NE Road jobs. AP-ECF No. 278, pp. 265-68.
Robert Mirto, the attorney for the Debtor at the 1992 TRO hearing, testified regarding the 1992 TRO hearing. Specifically, he testified regarding his understanding of Attorney Doyle's (Carl's attorney) statement that the parties had agreed, "that Neri Brothers Construction Corporation will agree to enter into on a [sic] as-available, as-needed basis, rental agreements with Mr. Neri, Mr. Carl Neri or any of his entities for equipment at the prevailing rates ...." Exh. 20, p. 9. Attorney Mirto testified that he understood "Mr. Neri" referred to Alan Sr., and "Mr. Carl Neri" referred to Carl. AP-ECF No. 275, pp. 12-13. Kim testified that it was her understanding that "Mr. Neri" referred to Carl and "[n]o one talked about New England Road." AP-ECF No. 277, p. 228. She acknowledged that the 1992 TRO itself provided for rental to Alan Sr. or any of his companies, but claimed that Attorney Mirto had submitted an order that did not match the agreement, and her attorney had missed it. AP-ECF No. 277, p. 228. Kim testified that her understanding of the agreement reached at the 1992 TRO hearing was that Alan Sr. would take over the Debtor and rent the Debtor's equipment to her father Carl, her brother Vincent, or their entities.
Who Knew NE Road Existed and Would be Renting from the Debtor?
In addition to whether the 1992 TRO authorized rental, another issue was whether anyone other than the Defendants knew that NE Road existed at the time of the 1992 TRO hearing. Kim testified that "we" - presumably the Carl Neri family members including herself, Carl, and Vincent - did not know that NE Road "was doing anything or was interested in any of the use of this equipment ...." AP-ECF No. 277, p. 226. Carl testified that the 1992 TRO did not accurately reflect the agreement reached at the 1992 TRO hearing, *126 although he had testified at earlier depositions that it did. AP-ECF No. 281, pp. 157-160.
Alan Jr. claimed that he told Vincent, Carl's son, about the formation of NE Road in March of 1992, whereas Carl maintained he was unaware NE Road existed in May of 1992. AP-ECF No. 281, p. 96; AP-ECF No. 366, pp. 142-143. Attorney Mirto testified regarding his understanding of the 1992 TRO hearing that "Alan [Sr.] also had another corporation, [NE] Road, and they knew about that. And we were just assuring that because we were running [the Debtor] we could rent to [NE] Road without any agreement ...." AP-ECF No. 275, pp. 12-13.
Negotiating Rental Rates between the Debtor and NE Road
Alan Jr. testified that he represented NE Road and Alan Sr. represented the Debtor in reaching the agreement that NE Road would rent from the Debtor. AP-ECF No. 279, p. 87. Alan Jr. believed NE Road should buy equipment rather than rent from the Debtor because he believed buying would be cheaper. Eventually, Alan Jr. agreed NE Road would rent from the Debtor as a way to save the Debtor's business because that was Alan Sr.'s wish. AP-ECF No. 279, pp. 86-90. Alan Sr. had previously testified in a deposition prior to his death that Alan Jr. was primarily responsible for setting the rental rates, along with himself, Carl, and John. AP-ECF No. 278, pp. 159-60 (prior testimony read into record). Alan Sr. also testified that the three brothers and Alan Jr. had set the rates on behalf of both companies, and that the rates were determined using the blue book - the Rental Rate Blue Book for Construction Equipment (the "Blue Book") 24 - but that the rate ultimately had to fit the job. AP-ECF No. 278, pp. 161-63. Alan Jr. testified that another agreement, regarding use of the Debtor's mobile field office by NE Road without compensation, was made with Alan Jr. wearing a NE Road hat and Alan Sr. wearing a Debtor hat. AP-ECF No. 283, p. 152. While the 1992 TRO referred to "fair market rental value," Judge DeMayo did not specify what standard to use for fair market rental value. AP-ECF No. 281, p. 93.
Existence of Any Writing Memorializing Agreement
The parties also disagreed regarding whether the equipment rental agreements were ever reduced to writing. Alan Jr. testified that the sign out sheets used from May of 1992 to January of 1993 to record equipment use (the "Equipment Sign-Out Sheets") constituted the written agreement regarding rental between the Debtor and NE Road. AP-ECF No. 278, pp. 244, 263; Exh. 42. Alan Jr. conceded that the Equipment Sign-Out Sheets were not signed by either party, but he believed because the agreement was ordered by the state court, they were sufficient. AP-ECF No. 278, p. 244. The Equipment Sign-Out Sheets were headed with the Debtor's name and address. They also contained space for the name of the entity signing out the equipment, a description of the project, and three conditions under which the equipment could be signed out: Borrowed, Rental, or Leased. Exh. 42. They also had space for descriptions of each piece of equipment, when removed, and when returned. Below this were three notes Alan Jr. claimed comprised the agreement between the Debtor and NE Road: "1. Borrowed Equipment will not be *127 billed 2. Rental Equipment will be billed at the Blue Book Rate as Priced in the State of CT D.O.T. Form 814, and only for the time the equipment is actually in use. 3. Leased Equipment will be billed at a monthly rate as agreed to by Alan A. Neri." Exh. 42. Alan Jr. also subsequently asserted that the terms were more detailed than expressed by the Equipment Sign-Out Sheets during his testimony. 25 AP-ECF No. 278, pp. 252-53. Alan Jr. acknowledged that these more detailed terms were not contained in the Equipment Sign-Out Sheets. AP-ECF No. 278, p. 255. He also stated that the agreement was revised, with Alan Jr. representing NE Road and Alan Sr. representing the Debtor, so that the four-hour minimum did not apply to trucks, although he did not have an exact date for when this change went into effect. AP-ECF No. 278, pp. 256-57.
Equipment Use
Alan Sr. testified, via his prior deposition, that the time sheets were used until Judge DeMayo issued the Control Decision, on January 11, 1993. AP-ECF No. 278, p. 119. NE Road's record of its use of the Debtor's property was provided in the form of spreadsheets listing the Debtor's equipment for each job and the amount of time it was used. Exhibit HHHHH. Alan Jr. testified that at each job the NE Road foreman would manually record the use of equipment and hand in sheets at the end of the day. AP-ECF No. 278, pp. 241-42; Exh. MMMMM, HHHHH. These sheets were then used to create a handwritten spreadsheet that was then used to create the electronic spreadsheet that NE Road produced in response to the Trustee's request for all records regarding equipment use (the "Equipment Use Spreadsheets"). AP-ECF No. 278, pp. 241-42; Exh. MMMMM, HHHHH. He also testified that certain small equipment and materials, such as a curing box, crane mats, delineators, and forms, were not recorded. AP-ECF No. 278, p. 239. Upon questioning by the Bankruptcy Court, Alan Jr. stated that the foreman's logs had been lost in a flood, leaving only the Equipment Use Spreadsheets he had provided to the Trustee. 26 AP-ECF No. 279, pp. 172-73.
To contest the accuracy of the Equipment Sign-out Sheets (Exh. JJJJJ) and the Equipment Use Spreadsheets (Exh. HHHHH, OOOOO), the Trustee hired L & J Associates to track the use of the Debtor's equipment by NE Road. L & J Associates, consisting of Judith Wood and her late husband, Leonard Wood. 27 Wood used daily inspection reports by the Connecticut Department of Transportation inspectors (the "Inspector Reports"), the list of the Debtor's equipment from the Auction (the "Auction List"), and some actual billings from NE Road to the Debtor 28 to prepare *128 spreadsheets for projects on which NE Road used the Debtor's equipment, determining what equipment was on the site each day and whether it was active or idle (the "Equipment Use Analysis"). 29 Exh. PPPPP-WWWWW; Exhibit 83 (Summary). Wood prepared both a spreadsheet summarizing each project and separate spreadsheets for each project month.
Wood prepared the Equipment Use Analysis including the following projects:
• Project # 78-86, Marlborough and Colchester Culvert Ext. & Bridge Removal, Exhibit PPPPP (the "Marlborough Project")
• Project # 49-105, Improvement on Connecticut Route 153, Essex, Exhibit QQQQQ (the "Essex Project")
• Project # 14-141, Branford Replacement Bridge, Exhibit RRRRR (the "Branford Project")
• Waterside Lane Bridge, Clinton, Exhibit SSSSS (the "Clinton Project")
• Project # 58-224, Platforms Groton/New London Airport, Exhibit TTTTT (the "Groton Project")
• Project # 69-69, Killingworth and Replacement Green Hill Rd. Bridge, Exhibit UUUUU (the "Killingworth Project")
• Project # 173-239, Trumbull Rehab Bridge, Exhibit VVVVV (the "Trumbull Project")
• Project 15-217, Bridgeport Stratford Avenue Retaining Wall, Exhibit WWWWW (the "Bridgeport Project").
The Trustee also included as his Exhibit XXXXX the NE Road Equipment Use Spreadsheets for a project in Fishers Island, New York (the "Fishers Island Project"), for which Wood did not prepare an equipment use analysis.
The equipment use stated in the Equipment Use Analysis and in NE Road's Equipment Use Spreadsheets vary. First, they each use different counting methodologies. The Equipment Use Analysis tracks the number of days on which a given piece of equipment was active and the number on which it was idle, while NE Road's Equipment Use Spreadsheets track hours active and idle on each day. For example, on the Marlborough Project, the Equipment Use Analysis shows the 1988 JD 710B Backhoe Loader as active for 13 days and idle for 3 days in April of 1993, whereas NE Road's Equipment Use Spreadsheet for April of 1993 shows the JD 710B active for 42.50 hours and idle for 11.50 hours over 13 days, with no days on which the equipment was idle that it was not also active. 30 Exh. PPPPP, MMMMM. On the other hand, the NE Road Equipment Use Spreadsheet for March 1993 shows a JD 510 C as active for 4.5 hours on March 23, whereas the Equipment Use Analysis shows a 1988 JD 510C 4WD w/ Cab Backhoe Loader as first active on the Marlborough Project in September of 1993. Exh. PPPPP, MMMMM.
The Court questions the reliability of the Equipment Use Analysis given that the Inspector Reports relied upon often used generic - and not easily identifiable - descriptions of the equipment, that the Inspector Reports themselves contained discrepancies, and that that the Equipment *129 Use Analysis for the Branford job, marked equipment as in use during July of 1996 following the Auction. NE Road may have purchased the Debtor's equipment and continued to use it, but would not then be renting it. Neither the Auction report, Exhibit 27, nor any other evidence before the Court, provided the names of buyers, but only a number used to identify them.
The Inspector Reports were prepared by inspectors employed by the Connecticut Department of Transportation on a daily basis for State projects. AP-ECF No. 366, pp. 86-87. The inspector would mark, for each piece of equipment, whether it was idle (turned off) or active (turned on). For an Inspector Report on a contract project, where the State paid for the project as a whole, inspectors would generally just mark whether a given piece of equipment was active or idle for that day. AP-ECF No. 366, p. 94. In a cost-plus project, where the State paid for the hours that a contractor used its personnel and equipment, the Inspector Reports were more detailed, tracking the hours that a given piece of equipment was in use or idle. AP-ECF No. 366, pp. 92-94.
As an example of the discrepancies between the Equipment Use Analysis and the Inspector Reports and Daily Reports of Cost Plus, the Defendants prepared exhibits showcasing inconsistencies. For example, Exhibit 71A consists of a page from the Equipment Use Analysis for the Branford job in July 1996, Inspector Reports for the Branford job, and a Daily Report of Cost Plus for July 1, 1996. The Equipment Use Analysis has a 1973 International 6 cy Dump Truck marked as active for 4 days and inactive for 4 days. The Inspector Reports for those days list a dump truck, and the Daily Report of Cost Plus lists a 1987 Peterbuilt Dump. The Defendants' cross examination of Wood implied that the dump truck referred to in the Inspector Reports is the 1987 Peterbuilt Dump owned by NE Road rather than the 1973 International 6 cy Dump Truck owned by the Debtor. AP-ECF No. 279, pp. 240-245. The fact that the 1973 International 6 cy Dump Truck is marked as active following the Auction suggests that this might be true, but on the other hand there is nothing in the Daily Report of Cost Plus indicating that the Daily Report was prepared for the Branford job. Also, the date of the Auction is stated on the Equipment Use Analysis, demonstrating that Wood was aware of it when tracking the equipment. As another example, Wood marked a 1983 GMC 6000 as idle on days where the inspectors marked "3 pick up GMC," "2 pick up GMC," without in any way eliminating the possibility that NE Road itself may have owned a GMC pickup.
Calculating Reasonably Equivalent Value
In addition to when NE Road used the Debtor's equipment, the other key component of determining whether NE Road paid the Debtor fairly is how much the Debtor charged NE Road. The charge has several components, whether an active or idle rate was being charged, what the rate was, and the amount of time charged. The NE Road Equipment Use Spreadsheets demonstrate the Defendants' methodology for charging and the actual charges. Exh. HHHHH, MMMMM. The Trustee's claim as to what should have been charged was contained in Kevin Smith's rental rate report (the "Smith Report"). Exh. ZZZZZ.
As previously stated, the Equipment Sign-Out Sheets that Alan Jr. testified memorialized the agreement between NE Road and the Debtor stated, "Rental Equipment will be billed at the Blue Book Rate as priced in the State of CT D.O.T. Form 814, and only for the time the equipment is actually in use." Exh. 42, AP-ECF No. 278, p. 244. Alan Jr. expanded the *130 rental terms during his testimony: "The terms were to rent the equipment on a four-hour minimum when it was actually used. To get a fair market price we divided -- we took a Blue Book monthly rate, divided it by 176, which is as it's spelled out in the state of Connecticut (inaudible). We multiplied by an area cost and an age cost and added in an operating cost for when it was operating, and that was to be paid when it was actually used." AP-ECF No. 278, pp. 252-53. Alan Jr. further specified that the agreement was subsequently revised so there was no four-hour minimum for trucks, but could not specify when the change occurred; he acknowledged that this was not in writing anywhere. AP-ECF No. 278, pp. 256, 278. NE Road's answer to an interrogatory stated that the agreement was later modified to include the four-hour minimum; Alan Jr. stated that this answer was incorrect. Ex. H-5, AP-ECF No. 278, p. 265.
The Blue Book is a national publication providing a variety of information for use in the construction industry, including equipment rental rates. AP-ECF No. 282, p. 73. Smith testified that the Blue Book was a good guideline for equipment rental rates, but did not include profit and overheard. AP-ECF No. 282, p. 74. Smith further testified that while the Blue Book was not used for the rates themselves, there would be no other way to determine what equipment rental rates were in the past. AP-ECF No. 282, pp. 75-76. The Blue Book itself stated: "Rental rates in this guide are based on ownership and operating costs for contractor-owned equipment. The term 'rental' does not refer to third-party contracts for the use of equipment. Profit, project overhead, and general company overhead costs such as office facilities and supplies are not included in the rates shown in this guide." Exh. 33 (1990 Introduction); see also Exh. DDDDD (1995 Introduction).
The Blue Book contained tables of equipment. For example, the Caterpillar 235, a Crawler Mounted Hydraulic Excavator, is listed in 235B (1988) and 235C models for 1992. See Exh. 103. For each model there were entries for bucket capacity, operating weight, HP (Horsepower), Monthly, Weekly, Daily, and Hourly rates, and an Estimated Operating Cost/Hr. The monthly rate was lower than four weeks charged at the weekly rate, and the weekly rate was lower than five days at the daily rate. AP-ECF No. 282, p. 72. The Blue Book also contained separate adjustments for age, region, and other factors. AP-ECF No. 282, p. 83; Exh. 33. It discussed "standby rates", stating that "[s]tandby refers to the situation where equipment is on the job and available for work, but is not put into operation until needed.... No industry standard exists regarding the computation of standby rates." Exh. 33, § 1-9. The Blue Book suggested that a standby rate could be calculated by adding the adjustment rates for depreciation, annual cost of facilities capital, and indirect costs, yielding an adjustment factor of 64% of the Blue Book rate, but further stated that this was an example and "is not meant to establish a correct way of determining standby rates." Exh. 33 § 1-9.
Form 814, Standard Specifications for Roads, Bridges and Incidental Construction ("Form 814"), was a publication of the State of Connecticut Department of Transportation. Exh. 32. Alan Jr. testified that the section of Form 814 used by NE Road and the Debtor to set rates was § 1.09.04. AP-ECF No. 279, p. 99. This section provided the basis for the State to provide compensation on a cost-plus basis when no agreement as to price on a unit price or lump sum basis was made. Exh. 32, p. 62. The section included rates for equipment not owned by the contractor or a subsidiary of the contractor, and for contractor *131 owned equipment or equipment rented or obtained from a subsidiary of the contractor. "For rented equipment not owned by the Contractor or a subsidiary of the Contractor, the following rates shall apply: The daily rate per hour shall apply when the equipment is specifically assigned to the work by the Engineer for a period of 7 consecutive calendar days or less. The weekly rate per hour shall apply when the assigned time exceeds 21 consecutive calendar days." Exh. 32, p. 65. "For Contractor owned equipment or equipment rented or obtained from a subsidiary of the Contractor, the maximum hourly rate to be used shall be the monthly rate as set forth in the current edition of the 'Rental Rate Blue Book,' including all Rate Adjustment Tables and amendments as published by Dataquest, Inc., divided by 176 (176 working hours per month)." Exh. 32, p. 65.
In calculating the rental rates, Alan Jr. would calculate the applicable rate from the Blue Book using the monthly column, then pursuant to Form 814's methodology for contractor or subsidiary owned equipment, divide this number by 176. AP-ECF No. 279, p. 103. He testified that because these were the rates that the State paid, he believed they were fair. AP-ECF No. 279, p. 103. Charging a four-hour minimum for non-trucks meant if a piece of equipment was used for an hour, it would be billed as four hours of use, consisting of one hour of active time, three hours of idle time. AP-ECF No. 279, p. 105. Alan Jr. testified that he used the standby rates described in the Blue Book as the idle rate, presumably the 64% example recited above. AP-ECF No. 279, p. 146. If a piece of equipment was not used on a given day, there would be no charge. Alan Jr. stated that NE Road could not compete if they were charged for equipment sitting idle, and that it did not matter if the equipment was sitting idle in the Debtor's yard or on a NE Road job site. AP-ECF No. 279, pp. 86-87.
The methodology propounded by Smith differs in three significant respects. Rather than converting the monthly rate to an hourly rate as Alan Jr. did, Smith would use the daily rate unless the weekly rate was applicable because the equipment was used for four days in a seven day period, and the monthly rate if the equipment was used for three weeks in a one month. AP-ECF No. 282, p. 71. He also did not use an idle time rate, stating that in the equipment rental industry, there was no standard for an idle rate. AP-ECF No. 282, p. 104. In addition, he contended that the industry standard was to bill on a "time out" rather than a "time used" principle. AP-ECF No. 282, p. 76. If the equipment was out for a week but only used for two hours, billing two hours would not be practical. AP-ECF No. 282, p. 76. Smith also stated that he did not include operating costs of fifteen (15%) percent to twenty-five (25%) percent and profit of fifteen (15%) percent. Finally, he did not charge for small equipment and supplies. AP-ECF No. 282, p. 90. In contrast to Smith's assertion that time out was the standard in the rental industry, Lawrence Casler, owner of Mass-Conn Equipment, a heavy construction equipment, sales, rental and service company, testified regarding his firm's "rental suspension program." AP-ECF No. 283, pp. 131, 133. Casler testified that "we had a rental suspension program that allowed the contractors to take a unit off of rent for inclement weather or job shutdowns. Or if they were finished with one phase of the project and would utilize the same piece of equipment again in a future phase of the project, we would allow them to retain possession without being invoiced." AP-ECF No. 283, p. 133. He also testified that this program required "forms to fill out and process." AP-ECF No. 283, p. 133.
*132 The Defendants attempted to cast doubt on the accuracy of Smith's calculations. For example, the Defendants challenged whether the Debtor's ten or twenty year old equipment used rented by NE Road could actually command the rates Smith suggested. Smith's view was that the age of the equipment was not important as long as it was properly maintained and running properly. AP-ECF No. 282, p. 109. Alan Jr. testified to what he believed was an example of the unfairness of Smith's report. On the Bridgeport job for March 1994, NE Road's billing indicates that a number of pieces of equipment were active for only a few hours on two days of the month. NE Road billed the Debtor $379.19 for this use. Exh. 148. In contrast, Smith concluded that much of the equipment was on the job for the entire month, and therefore billed for that time. Smith's billing for the month was $24,941.17. Exh. 148. Smith's billing was based on the Equipment Use Analysis, which showed multiple pieces of equipment as idle for the entire month even though they were only active for one day. Exh. WWWWW. Alan Jr. testified that if he had known that the equipment would be billed in this manner, NE Road would have returned the equipment, but that the agreement between NE Road and the Debtor was that NE Road would not be billed for idle time. 31
The Trustee questioned Alan Jr. regarding his use of the Form 814, noting that most of the jobs had not been cost-plus jobs, and about his use of a section on the form for contractor or subsidiary-owned equipment, rather than a section for equipment not owned by a contractor or subsidiary of a contractor. AP-ECF No. 283, p. 93-109. Alan Jr. eventually agreed that the rate for contractor or subsidiary-owned equipment was more favorable to NE Road.
Comparative Rental Agreements
In addition to Smith's testimony regarding standards in the equipment rental industry, the Trustee introduced evidence regarding other rental agreements. The most discussed of these was a lease agreement from NE Road to the Debtor for a crane (the "Crane Lease"). There was also evidence regarding rentals by the Debtor to other companies, regarding Neri Corp.'s attempts to rent from the Debtor, and regarding Neri Corp.'s rentals from other rental companies.
The Crane Lease was entered into between the Debtor and NE Road on August 20, 1993. Exh. Q. Unlike the agreements for equipment rental from the Debtor to NE Road, the Crane Lease was a four-page contract detailing the lease terms that was signed by Alan Sr. as president of the Debtor and Helen Neri as president of NE Road. Exh. Q. It provided for rental of a Bucyrus Erie 30-B Super Crawler Crane S/N 129020 (the "Crane") from NE Road to the Debtor for a minimum of two years at a rate of $2,000.00 per month. Exh. Q. Kim testified that the Debtor used the Crane on a job for Della Construction from which it was terminated after two months. AP-ECF No. 277, p. 100. She testified that according to NE Road's ledger maintained by Helen, NE Road was credited $20,000 against its outstanding balance to the Debtor for the Crane Lease. AP-ECF No. 277, p. 101; Exh. R. Kim acknowledged that the Debtor did not have the funds to buy a crane like that, which could cost from $40,000 to $60,000, although she claimed that the Debtor would have had *133 the money if NE Road had paid it properly. Exh. 277, pp. 239-240. She also acknowledged that she believed the Debtor received $60,000 from the Alled/Della job. AP-ECF No. 277, p. 241. Vincent testified that he did not believe the Crane Lease was necessary, because the Debtor's crane was sufficient to perform all the projects that the Debtor took on. AP-ECF No. 283, p. 263.
Alan Jr. confirmed a number of the basic facts regarding the Crane Lease: the Crane Lease was nothing like the agreement between the Debtor and NE Road for rental of the Debtor's equipment, the Debtor was charged $20,000.00 to break the lease when the job terminated after two months, and NE Road then began using the Crane on the Bridgeport job. AP-ECF No. 278, p. 247. He also clarified, referencing NE Road's equipment list, that NE Road purchased the Crane on August 19, 1993 for $62,242.99 and then leased to the Debtor the following day, and the $20,000 credit was decided by Alan Jr. on behalf of NE Road and Alan Sr. on behalf of the Debtor. AP-ECF No. 278, p. 250; AP-ECF No. 279, p. 52; Exh. 13C. Alan Jr. further testified that NE Road had purchased the Crane specifically so that the Debtor could perform a job for which it had insufficient equipment. After the Debtor lost the Alled/Della job, it submitted a bond claim for which it was awarded $65,000 and netted $35,000.00 after the expenses of submitting the claim. AP-ECF No. 279, pp. 107-111. However, when discussing the Debtor's Cash Receipt Summary, Exh. EEE, which shows total receipts from Alled/Della for 1994 of $35,748.40, Alan Jr. asserted that the document was incorrect because the Debtor received an additional $30,000 that was paid to Attorney Mirto - the attorney who represented the Debtor in the bond claim - and was not accounted for in the Cash Receipt Summary Report. AP-ECF No. 366, p. 123.
The two perspectives on the Crane Lease, like much else in this case, take the same basic facts and arrive at very different conclusions. Kim and Vincent's testimony painted the Crane Lease as another way of extracting money from the Debtor, by shifting to the Debtor the expense incurred by NE Road of purchasing a new crane. Alan Jr., on the other hand, asserted the purchase of the Crane was another way NE Road worked to resuscitate the Debtor by enabling it to perform a job it would not otherwise have been able to perform.
Neri Corp.'s Rentals From The Debtor
The Trustee also presented evidence of Neri Corp.'s attempt to rent equipment from the Debtor. As previously stated, the 1992 TRO allowed for Carl's company, Neri Corp., to rent from the Debtor at fair market rental rates. 32 Carl testified that he called to the Rear Building (where the Debtor relocated after the 1992 TRO) and asked to speak to someone about renting equipment, but they never responded. AP-ECF No. 281, p. 94. He then asked his attorney, David Doyle, to contact "those people" and get an answer. He testified that a memo from "Alan" to Attorney Mirto titled Equipment Rental Rates (the "Equipment Rental Rates Memo") was sent in response to that request. Exh. B. The Equipment Rental Rates Memo includes rental rates for several pieces of equipment, requiring the renter to also pay the cost of an operator. Exh. B. The operator requirement has its genesis in the 1992 TRO, which held that *134 equipment rented to Carl "is to be operated by a competent operator." Exh. A. The Equipment Rental Rates Memo also requires the renter to deposit $2,500 in an escrow account from which rental installment payments would be withdrawn and paid to the Debtor daily. Exh. B. If exhausted, all work with the equipment was to cease, and the equipment would be removed with trucking costs billed to the renter. Exh. B. The Equipment Rental Rates Memo also stated that certain equipment was not available, without providing proof that the equipment was being used on a job site. 33 Exh. B, 19. Vincent testified that he 34 had tried to rent from the Debtor and was stonewalled. AP-ECF No. 281, pp. 228-29. Although he did not refer directly to the Equipment Rental Rates Memo, Vincent recalled a "ridiculous fax" requiring operators with any rented equipment. He believed this requirement was ridiculous because he wouldn't want a competitor's employee on a job site and Neri Corp. had personnel capable of performing the work. AP-ECF No. 281, pp. 228-29.
Alan Jr. testified that he wrote the Equipment Rental Rates Memo after discussing it with Alan Sr. He could not say how he calculated the rates, but did say that the price of an operator was between $30 and $40 an hour. AP-ECF No. 366, AP-ECF No. 159-160. He also testified that he had included an operator because of Judge DeMayo's order, but it was not his intention to prevent Neri Corp. from using their own operator. AP-ECF No. 366, p. 162. The table below contains the rates from the Equipment Rental Rates Memo with a comparison to the rate charged to NE Road according to the NE Road tables of equipment charges, Exh. HHHH:
Equipment Term Equipment Rate Equipment Rate Rate charged by Memo Rate (per Memo Rate Less the Debtor to NE hour) $35 operator cost Road (Exh. (per hour) HHHH)(per hour) Daily 8 J.D. 510 hours $69.12 $34.12 $27.52 (JD 510B) Weekly 40 Hours $64.25 $29.25 Monthly 176 Hours $60.86 $25.86 J.D. Daily 8 $31.05 (JD 710B) 710/RAM hours $95.13 $60.13 $14.63 (HI-RAM) Weekly 40 Hours $85.88 $50.88 Monthly 176 Hours Not Avail. Daily 8 J.D. 550 G hours $68.23 $33.23 $21.82 (JD 550) Weekly 40 Hours $63.60 $28.60
Other Evidence of Rental Rates
Both sides also presented evidence of *135 the rental rates charged by other companies. The Defendants called Tom Farace, the owner of a trucking company known as L & T Enterprises, who testified that he rented trucks to both Neri Corp. and NE Road and charged $50 an hour including an operator in 1996 for a triaxle dump truck, and testified that the rates would have been less in prior years. AP-ECF No. 275, pp. 102-103, 105-108; Exh. 67. With regard to the operator issue, Mr. Farace testified regarding a triaxle dump truck, "[w]e wouldn't give up [sic] $140,000 truck with no operator." AP-ECF No. 275, pp. 102-103, 105-108; Exh. 67.
Kim testified regarding the Blue Book rate for two pieces of equipment and what Neri Corp. was charged for each piece when renting from other rental companies. AP-ECF No. 283, pp. 230-42. For a 40S ICE diesel hammer, the 1995 Blue Book lists a monthly rate of $4,920.00, and Neri Corp. paid $5,500.00 for one. AP-ECF No. 283, pp. 232-33, Exh. OOOOOO, PPPPPP. She also testified that the 1995 Blue Book rate for a D8R Caterpillar was $11,345 per month while when Neri Corp. rented the same piece of equipment in 1996, it paid $13,038 for its first month of rental, followed by $12,614 for the three following months. Exh. No. 283, pp. 241-42; Exh. RRRRRR, pp. 9-44; Exh QQQQQQ.
Alan Jr. testified regarding a job where the Debtor served as a subcontractor 35 for Falvey Construction (the "Falvey job") in early 1995, after the bankruptcy was filed. AP-ECF No. 283, pp. 12-14. The Debtor did not have a crane long enough for this job, so it rented a crane from NE Road and NE Road billed the Debtor, according to Alan Jr. and the NE Road Ledger. AP-ECF No. 283, pp. 14-15; Exh. 60. The Defendants submitted an Equipment Use Spreadsheet showing the usage of NE Road Equipment by the Debtor on the Falvey job. Exh. 138. It is broken down in the same manner as the Equipment Use Spreadsheets for NE Road rental of the Debtor's equipment: active and idle time, with an hourly rate for each piece of equipment. Exh. 138. Alan Jr. testified he used the same methodology to calculate the rental rate for the Debtor from NE Road as for the rentals from the Debtor to NE Road. AP-ECF No. 283, pp. 17-18.
Use of the Debtor's Supplies at No Charge
The Trustee also presented testimony and evidence 36 in support of the proposition that NE Road used various supplies, such as crane mats, sheet piling, and barriers (collectively referred to as supplies, in contrast to the equipment discussed previously), for which it did not pay the Debtor at all. AP-ECF No. 277, pp. 104-106. Kim testified that she had taken photographs of the Debtor's crane mats - pieces of wood placed on uneven areas on top of which the crane parks - being used at various NE
*136 Road job sites, including the Bridgeport, Killingworth, and Branford jobs. AP-ECF No. 277, pp. 107-109, 120. Kim testified that she photographed the mats, showed them to Alan Sr., and he said they were the Debtor's and NE Road had not paid for them. 37 AP-ECF No. 277, pp. 108-110. Attorney Edwin Doernberger, an attorney who had represented Carl and Kim in the past, also testified that Alan Sr. had testified that NE Road used crane mats and sheeting belonging to the Debtor without paying for it. 38 AP-ECF No. 282, p. 37. Kim then testified that eleven crane mats in "horrible condition" were sold at the Auction for $600, but the Debtor had had 30 or 36 in "perfect condition," worth $1,000 each, when she last saw them. AP-ECF No. 277, pp. 120-121, Exh. W, no. 129. Kim conceded that she did not know how much the condition of the crane mats would have deteriorated over time if they were not used, and conceded that she could not definitively tell one crane mat from another. AP-ECF No. 278, pp. 14-18. She also clarified, however, that she saw the Debtor's crane mats loaded on trucks, then saw them offloaded at NE Road sites.
Kim also testified regarding steel sheeting used to build a cotterdam - a temporary dam to hold out water while work is done - at job sites. AP-ECF No. 277, p. 126. She testified that the Debtor had 120 pieces of sheeting, and that one hundred were used by NE Road at the Bridgeport job, referencing Inspector Reports describing their use. AP-ECF No. 277, pp. 129, 138; Exh. Z, p. 7; Exh. AA. At the Auction, about sixteen pieces of sheeting that had been "cut up and damaged" were sold for $550.00. AP-ECF No. 277, pp. 130-31, 135-36; Exh. W, No. 69. Kim testified that NE Road charged the State thirty-two cents per pound for the sheeting, and she calculated that one hundred sheets would be worth $52,788.00, and the remaining twenty, which were of an inferior type, would be worth $6,598.50. AP-ECF No. 277, pp. 143-147, Exh. CC, DD, EE. She further testified that NE Road charged the Debtor for rental of sheeting in 1995, after using the Debtor's sheeting at no charge. 39 Exh. FF; AP-ECF No. 277, pp. 150-51. The Debtor was billed $13,593.98 for the sheeting, and Kim maintained that NE Road used the $13,593.98 as a setoff and the Debtor paid an actual check for $13,390.55 as well. AP-ECF No. 277, pp. 151-52; Exh. FF, GG. Kim acknowledged that NE Road had also bought its own sheeting and that there was no way to distinguish it from the Debtor's sheeting. AP-ECF No. 277, p. 245. She further acknowledged that the sheeting she used to determine the 32 cents per pound price was 50 pound sheeting, and the Debtor's sheeting was 41.5 pound sheeting. AP-ECF No. 278, pp. 19-20.
Alan Jr., on the other hand, claimed that NE Road bought its own sheeting for the Bridgeport job, and that the testimony to *137 the contrary was not accurate. AP-ECF No. 279, p. 116. In addition, Helen testified and submitted into evidence the ledger she kept of the materials purchased for the Bridgeport job, including what she stated were several purchases of sheeting, totaling $82,051.46. AP-ECF No. 366, pp. 59-60, Exh. 122. Helen conceded that she did not know if the sheeting listed in the ledger was the only sheeting used on the Bridgeport job. AP-ECF No. 366, p. 132.
The third significant group of supplies allegedly used by NE Road were barriers. Kim testified that the Debtor had 30 concrete barriers. AP-ECF No. 277, p. 159. Kim photographed what she asserted were some of the Debtor's barriers on the Killingworth job. AP-ECF No. 277, p. 158, Exh. NN. Of greater import, for the Marlborough Project, Kim testified regarding a "Material Certificate" filed with the State by Helen. AP-ECF No. 277, p. 160. It stated that concrete barriers were being used at the site, and listed the past projects where they had been used, which Kim testified were the Debtor's projects. AP-ECF No. 277, p. 160, Exh. OO. An inventory list faxed by Alan Jr. to the Trustee on December 28, 1995 (the "Neri Inventory List,") listed the concrete barriers, but only as "some pieces", with an uncertain location. AP-ECF No. 277, pp. 161-62, Exh. MM.
In addition, Kim testified regarding the State's project records for the Branford Job, which showed that Alan Jr. requested $1,139.50 in payment for NE Road's use of a concrete curing box. AP-ECF No. 277, pp. 155-56, Exh. LL. The Neri Inventory List included a concrete curing box at the Trumbull Job site. AP-ECF No. 277, pp. 156-57; Exh. MM. Kim also testified that NE Road used the Debtor's job trailers and storage trailers and never paid the Debtor. AP-ECF No. 105.
Alan Jr. confirmed that NE Road used the Debtor's delineators, job trailer, concrete curing box, and storage trailer, and stated that NE Road may have used the Debtor's construction barricades and concrete forms, but did not list any of the supplies in the Equipment Use Spreadsheets. AP-ECF No. 278, pp. 236-238. He maintained that NE Road did not use the Debtor's sheeting or sand inertial barriers. AP-ECF No. 278, p. 236. He also stated that the Debtor had barriers and signs in the yard, Alan Sr. didn't consider the barriers equipment, and Alan Jr. had used the barriers on some NE Road jobs without paying. AP-ECF No. 279, pp. 96-97.
The Debtor/C & A Development Default on Premises Rental from Shoreline
The Trustee also presented evidence that the Defendants used their control of the Debtor to default on the lease for the 35 Lumberyard Property, make NE Road the leaseholder, and evict C & A Development. As previously stated, C & A Development, owned equally by Carl and Alan Sr., had entered into a lease-purchase agreement on the 35 Lumberyard Property with Shoreline. AP-ECF No. 281, pp. 111-12 (Carl's testimony). C & A paid $1,000 in rent per month, and rented the 35 Lumberyard Property to the Debtor for $3,500. Id., Exh. G. Following the entry of the 1992 TRO, the Debtor was to pay the sum of $500 per month in rent for the Rear Building and Neri Corp. was to pay $500 per month in rent for the Front Building directly to Shoreline. Exh. 19. Carl testified that at a certain point Gerald Bugg, the president of Shoreline, told him that Alan Sr. had stopped paying the rent on behalf of the Debtor. AP-ECF No. 281, p. 123. This statement was not admitted for the fact that Alan Sr. had actually stopped. AP-ECF No. 281, pp. 122-23. Carl testified that he offered to pay the Debtor's share as well, but Bugg refused to accept it. AP-ECF No. 281, p. 123. Shoreline *138 terminated C & A's lease and purchase agreement on August 1, 1994, for non-payment of rent. AP-ECF No. 281, p. 124, Exh. H, Exh. I.
On July 30, 1994, Alan Jr. on behalf of NE Road entered into an "Agreement to Purchase" the 35 Lumberyard Property from Shoreline for $200,000.00. Exh. J. NE Road's ledger reflects a $1,000.00 per month credit in rent against obligations owed to the Debtor, commencing with a December 30, 1994 entry for September, October, November, and December of 1994. The credit entries continue February 28, 1996, with a final rent credit through July of 1996. Exh. 60. In contrast, NE Road paid $250.00 to the Debtor for rent for the months of February and March of 1993, and another $350.00 for April and May of 1993, according to checks and deposit tickets submitted into evidence by the Trustee. Exh. MMMMMM, LLLLLL.
Gerald Bugg testified that he did not recall Carl offering to pay Alan's half of the rent. AP-ECF No. 283, p. 125. The Schedule of Rent Payments maintained by Shoreline showed $500 in rent due from Carl for February through June 1994, and payments by Alan Sr. of $500 for February through July 1994. Exh. 118. The letter sent by Bugg to Carl and Alan Sr. terminating the lease stated that $1,000 of rent and $1,920.30 in taxes were due, which is inconsistent with the Schedule of Rent Payments showing $2,000 due. Exh. 118.
The evidence is not clear as to whether Carl failed to pay the rent or whether, as the Trustee argues, Bugg and Alan Sr. conspired to manufacture a default to sell to NE Road. It is, however, clear that after acquiring the property, NE Road charged the Debtor four times the rent that the Debtor had previously charged to NE Road.
The Debtor Files for Bankruptcy
As previously described, Alan Sr. signed the voluntary Chapter 11 bankruptcy petition that commenced this case on January 17, 1995. After the Chapter 11 case commenced, the Debtor continued to rent its equipment to NE Road. According to the Equipment Use Analysis, the Killingworth job began in June of 1994 and did not finish until July of 1996, spanning the Petition Date. Exh. UUUUU. The Branford, Essex, and Trumbull Projects were all entirely post-petition projects. The Branford Project ran from August 1995 through July 1996; the Essex Project ran from April to July 1995; and the Trumbull Project ran from April 1995 through June 1996. Exh. RRRRR, QQQQQ, VVVVV. The Debtor as debtor in possession did not move for authorization to enter into these post-petition rental agreements pursuant to 11 U.S.C. § 363 (b) ; the Defendants contend they were not required to because the rental agreements were ordinary course of business transactions. Carl filed a motion to appoint a chapter 11 trustee on March 14, 1995, and following an evidentiary hearing Trustee Sibarium was appointed Chapter 11 trustee on October 31, 1995. AP-ECF No. 29, 89.
The Auction
Trustee Sibarium conducted an Auction of the Debtor's equipment on July 13, 1996. Alan Jr. testified that he helped set the Auction up on behalf of the Debtor, and that NE Road had an agreement that it would be compensated for the use of the 35 Lumberyard Property for the Auction. He stated that the auctioneer, Sam Piotrkowski, and Trustee Sibarium, told him that NE Road would be compensated in the amount of $30,000. AP-ECF No. 283, pp. 88-89. He said he and other NE Road personnel moved "stuff" out of the way, cleaned up, got the equipment ready and made repairs. AP-ECF No. 283, pp. 89-90.
*139 Trustee Sibarium testified during a deposition admitted into evidence that initially Alan Jr. and he had discussed having the Auction at the 35 Lumberyard Property. Later, "they" did not want the Auction held "on-site." The matter was resolved in conjunction with ongoing settlement discussions that subsequently fell through and the Auction was held at the 35 Lumberyard Property. Exh. 61, p. 15. He acknowledged that having the Auction at the 35 Lumberyard Property saved the estate $20,000.00 to $30,000.00, and that Piotrkowski retained some "people from the Alan Neri group" to help. Trustee Sibarium testified Piotrkowski had included "them" - the people from the Alan Neri group - in his Affidavit of Expenses. Exh. 61, pp.14-15. Kim testified that they, NE Road's employees, left the equipment dirty so NE Road could try to purchase it at a better price. AP-ECF No. 283, p. 195. Piotrkowski testified that on a scale of poor, fair, good, very good, and excellent, the equipment he auctioned was in fair condition. AP-ECF No. 366, p. 82. He also testified that he and Trustee Sibarium discussed moving the equipment to Piotrkowski's yard, but he encouraged Trustee Sibarium not to move the equipment because of the moving cost. AP-ECF No. 366, p. 83. None of the parties asked Piotrkowski about any agreement to pay NE Road for use of the 35 Lumberyard Property during the auction process. AP-ECF No. 366, pp. 79-85. Piotrkowski did testify that the property on which the Auction took place overlapped "both tenants." AP-ECF No. 366, p. 83.
The gross proceeds from the Auction totaled $341,915.00. Exh. W. Piotrkowski filed an Auctioneer's Report of Sale and Affidavit of Expenses on behalf of Petrowsky Auctioneers in the main case on September 18, 1996, and subsequently amended it on October 1, 1996. AP-ECF Nos. 141, 153. The final report was entered into evidence as Exhibit W (the "Auctioneer's Report"). The Auctioneer's Report listed expenses of $26,193.85 and the auctioneer's commission of $11,713.30. Exh. W. The expenses included three categories of expenses: Transportation, Preparation & Miscellaneous, Labor Expenses, and Advertising Expenses. Exh. W. The Transportation, Preparation & Miscellaneous expense category included items for moving equipment, rental of the Connecticut Water Service parking lot, and toilet rental. Exh. W. Six individuals were listed in the Labor Expenses category, and their time sheets were provided. Exh. W. Alan Jr. was not listed, none of the individuals listed were identified as NE Road employees, and there was no rental charge for the 35 Lumberyard Road Property. Exh. W.
EVIDENTIARY RULINGS
The DeMaria Deposition
As noted earlier, the Court authorized a trial deposition of Anthony DeMaria, who was suffering from advanced Parkinson's disease and unable to be examined in the courtroom. The deposition was conducted on September 16, 2010, and the parties stipulated to the entry of the deposition transcript as a trial exhibit (the "DeMaria Deposition," Exh. 150), with evidentiary objections made during the deposition to be decided in the Court's final decision. During the deposition, the Trustee objected to the admission of portions of the 1999 deposition transcript of DeMaria (the "1999 Transcript Excerpts"), Exhibit 84 40 , *140 which the Defendants attempted to read into the record, and to the admission of two documents, Exhibits 62 and 80. The Trustee objected to admission of the 1999 Transcript Excerpts on hearsay grounds, and to Exhibits 62 and 80 on hearsay and authentication grounds. Exh. 150, pp. 15-24 (Exh. 80), 26-32 (Exh. 62, 84); see also AP-ECF No. 296, pp. 67-71, AP-ECF No. 299, pp. 13-15. The Defendants contend that the 1999 Transcript Excerpts are admissible as a prior inconsistent statement, and that Exhibits 62 and 80 were properly authenticated and admissible under the business records exception to the hearsay rule. AP-ECF Nos. 292, pp. 21-22; 298, pp. 24-28. 41
The Second Circuit Court of Appeals held in U.S. v. Insana, 423 F.2d 1165 , 1169-1170 (2d Cir. 1970) that when a recalcitrant witness falsifies a lack of memory, the court may in its discretion admit prior statements for their truth, but when a witness "in good faith asserts that he cannot remember the relevant events ... the trial court may, in its discretion, exclude the prior testimony." See also U.S. v. DeSimone, 488 F.3d 561 , 571-72 (2nd Cir. 2007). There is no evidence suggesting that DeMaria was recalcitrant or falsely attested to a lack of memory. Aside from special cases such as that dealt with in Insana , "[p]rior inconsistent statements are not offered for their truth, but rather to demonstrate the witness's lack of credibility." United States v. Mergen, 764 F.3d 199 , 207 (2d Cir. 2014). Therefore, the 1999 Transcript Excerpts could be used to impeach DeMaria's testimony, but were not admissible for their truth.
When shown Exhibit 62 in 2010, DeMaria testified that the writing on it belonged to Jackie Smith, his assistant who ran the administrative component of the bonding program, but that he had no definitive knowledge of whether it was in the Debtor's file at his company. Exh. 150, pp. 11, 26. DeMaria also testified that notes like it were kept in the regular course of his business, but did not know when the note was made, and after being shown Exhibit 80, stated that it did not refresh his recollection as to when Exhibit 62 was made. Exh. 150, pp. 29-31. The Defendants therefore failed to satisfy Fed.R.Evid. 803(6) and 901 as to Exhibit 62.
When shown Exhibit 80 in 2010, DeMaria testified that he recognized the handwriting as belonging to Jackie Smith. AP-ECF No. 150, p. 16. He also testified that the form was one used to request information in the regular course of business activities and that the business practice was to record dates contemporaneously with the event being recorded. AP-ECF No. 150, pp. 16-18. On voire dire by the Trustee, DeMaria stated that while it was not signed, it was not imperative that documents like it be signed. AP-ECF No. 150, p. 18. He also testified that documents of its type were kept and used to keep track of the information Bogina & DeMaria Incorporated asked bonding clients for and when. AP-ECF No. 150, pp. 23-24. DeMaria's testimony established that Exhibit 80 was of a type that his company used, that contained information recorded contemporaneously *141 with the event being recorded and that was used to record requests made to clients. While DeMaria was unable to recall the specific document, the Court concludes that DeMaria's recognition of his assistant, Jackie Smith's, handwriting together with his other testimony are sufficient to satisfy Fed.R.Evid. 803(6) and 901 as to Exhibit 80.
Based on this record, the Court sustains the Trustee's objections to the admission of the portions of the 1999 Deposition read during the DeMaria Deposition and to the admission of Exhibit 62. The Court overrules the Trustee's objection to the admission of Exhibit 80 and admits Exhibit 80 as a full exhibit.
DISCUSSION
Counts I and II: Overview of Constructive and Intentional Fraudulent Transfers
The first two counts of the complaint allege constructive and intentional fraudulent transfers by virtue of leases of construction equipment from the Debtor to NE Road. The Trustee relies on §§ 544(b) and 548 of the Bankruptcy Code, and the Connecticut Uniform Fraudulent Transfer Act (UFTA), Conn.Gen.Stat. §§ 52-552e, 52-552f, and 52-552h.
The Trustee bears the burden of proof as the party alleging a fraudulent transfer or conveyance and must prove the elements by clear and convincing evidence. Certain Underwriters at Lloyd's, London v. Cooperman, 289 Conn. 383 , 394-95, 957 A.2d 836 (2008) ; In re Richardson, 268 B.R. 331 , 334 (Bankr. D. Conn. 2001), aff'd, Docket No. 3:01-CV-2126-DJS, 2004 WL 2211726 (D. Conn. Sept. 28, 2004) ; Jacobowitz v. Jacobowitz, 102 Conn. App. 332 , 342, 925 A.2d 424 (2007). If the Trustee meets his burden then the transferee, NE Road, may avoid liability if it proves that it received the conveyance or transfer in "good faith" and received "reasonably equivalent value," by a preponderance of the evidence. Conn.Gen.Stat. § 52-552i(a).
The Court will enter judgment for the plaintiff Trustee and against NE Road on Counts I and II because: (1) the short term leases of the Debtor's equipment were transfers of the Debtor's right in personal property - its possessory interest in its equipment - without receipt of reasonably equivalent value; (2) the transfers were made while the Debtor was insolvent or resulted in the insolvency of the Debtor; and (3) the transfers were made with fraudulent intent on the part of certain insiders of NE Road.
The Bankruptcy Code's definition of "transfer" is extremely broad and includes "each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or an interest in property...." 11 U.S.C. § 101 (54).
The legislative history of this definition confirms its breadth: A transfer is a disposition of an interest in property. The definition of transfer is as broad as possible. Many of the potentially limiting words in current law are deleted, and the language is simplified. Under this definition, any transfer of an interest in property is a transfer, including a transfer of possession, custody, or control even if there is no transfer of title, because possession, custody, and control are interests in property.
Bernard v. Sheaffer (In re Bernard), 96 F.3d 1279 , 1282 (9th Cir. 1996) (quoting S. Rep. No. 989, 95th Cong., 2d Sess. 27 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5813).
The Trustee asserted in Counts I and II that but for the Debtor's transfer (the alleged below market rental of the equipment *142 to NE Road), the Debtor could have rented the equipment at market rates for reasonably equivalent value to others or even to NE Road. 42
Section 548 of the Bankruptcy Code allows the trustee to avoid prepetition transfers as follows:
"(a)(1) The trustee may avoid any transfer ... of an interest of the debtor in property, or any obligation ... incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily--
(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation ...."
Section 544(b) of the Bankruptcy Code allows the Trustee to step into the shoes of a creditor- here the Trustee based his claim on the Debtor's debt to Caciopoli at all relevant times - and avoid a transfer to the extent it is voidable under applicable law:
"(b)(1) Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is 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."
The applicable law forming the basis for the Trustee's claims pursuant to 11 U.S.C. § 544 (b) is contained in Conn.Gen.Stat. §§ 52-552e, 52-552f, and 52-552h :
"A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, if the creditor's claim arose before the transfer was made or the obligation was incurred and if the debtor made the transfer or incurred the obligation: (1) With actual intent to hinder, delay or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor ... (B) intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due." Conn.Gen.Stat. § 52-552e(a)(2)(a).
"A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation." Conn.Gen.Stat. § 52-552f(a).
"(a) In an action for relief against a transfer or obligation under sections 52-552a to 52-552l, inclusive, a creditor, subject to the limitations in *143 section 52-552i, may obtain: (1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim ...." Conn.Gen.Stat. § 52-552h.
Avoidance pursuant to the Bankruptcy Code and pursuant to the UFTA are based on the common law concepts of actual and constructive fraudulent transfers, requiring that the Trustee prove either, "(1) that the conveyance was made without substantial consideration and rendered the transferor unable to meet his obligations [a constructive fraudulent transfer] or (2) that the conveyance was made with a fraudulent intent in which the grantee participated [an actual fraudulent transfer]. ... The party seeking to set aside a fraudulent conveyance need not satisfy both of these tests...." Kosiorek v. Smigelski, 138 Conn. App. 695 , 724, 54 A.3d 564 , 582 (2012) (citing Certain Underwriters at Lloyd's, London v. Cooperman, 289 Conn. 383 , 394-95, 957 A.2d 836 (2008) (internal quotation marks omitted) ).
"[A]n allegedly fraudulent conveyance must be evaluated in context; [w]here a transfer is only a step in a general plan, the plan 'must be viewed as a whole with all its composite implications." Orr v. Kinderhill Corp., 991 F.2d 31 , 35 (2d Cir. 1993) (Internal quotation marks omitted).
For both Counts I and II, "[o]nce a transfer has been avoided under § 544(b), the extent of recovery remains to be determined. The governing provision, § 550(a), provides in part that if a transfer is avoided under one of the avoiding powers, "the trustee may recover, for the benefit of the estate," the property transferred or its value." 5 Collier on Bankruptcy ¶ 544.06 (16th 2018).
Count I. Constructive Fraudulent Transfer
To prevail on Count 1 the Trustee had to establish (1) that the Debtor received less than a reasonably equivalent value 43 in exchange for the transferred property, and (2) that the debtor was insolvent when the transfer was made.
The Trustee asserted the equipment rentals to NE Road were at below market rates from 1992 to 1996, and that the Debtor was insolvent during this period, resulting in constructively fraudulent transfers totaling $1,086,563.13. See, AP-ECF No. 164; AP-ECF No. 328, Exh. ZZZZZ. NE Road defended the constructive fraudulent transfer claim by arguing the Debtor was solvent between 1992 and 1995, that Wood made numerous errors in calculating NE Road's use of the Debtor's equipment, that Smith used unsound methods to compute the rent that should have been charged, and that at all times NE Road acted in good faith in all its dealings with the Debtor. AP-ECF No. 297, pp. 10-11, 24-27.
A. Reasonably Equivalent Value
Whether NE Road provided reasonably equivalent value for its use of the Debtor's equipment 44 lies at the heart of this dispute. To determine reasonably equivalent value, courts consider: "(i) the market value of what was transferred and received; (ii) whether the transaction took place at arm's length; and (iii) the good faith of the transferee"
*144 In re Turner & Cook, Inc., 507 B.R. 101 , 109 (Bankr. D. Vt. 2014). In deciding whether a debtor received 'reasonably equivalent value' for an alleged fraudulent transfer, the court should consider both the direct and indirect benefits flowing to the debtor as a result of the exchange." Id. (citing In re Akanmu, 502 B.R. 124 , 130 (Bankr.E.D.N.Y.2013) ).
The Court can readily conclude that Alan Sr., Alan Jr. and NE Road used the Debtor as a source of equipment and did not make efforts to resuscitate it as a construction company, or to turn it into a viable commercial equipment rental company. Further, it is clear that the various equipment rental agreements were not made at arm's length; the rates charged were arrived at by an informal process among insiders, family members and affiliated companies with little reference to what the equipment could be rented for on the open market; and that little effort was made to memorialize the terms of any rental agreement or to accurately record and bill for the equipment use. Actually calculating what the reasonably equivalent value of the equipment rental would have been in the early to mid-1990s is more difficult.
The Smith Report concluded that the Debtor should have charged $911,477.88, not accounting for operating costs of 15% to 25% and profit of 15%. See Exh ZZZZZ, AP-ECF No. 296 p. 26, compared with the $206,214.19 actually billed by the Debtor and the approximately $132,000.00 paid by NE Road. AP-ECF No. 296 p. 26, Exh. 3-E, Exh. 124, Exh. ZZZZZ. NE Road claimed the Debtor charged "roughly" $270,000.00, which it offset with $140,000.00 in charges, principally equipment rentals and lease payments to the Debtor, and ultimately paid the remaining $130,000.00. AP-ECF No. 298, p. 24. NE Road did not cite a source for these figures. According to Exhibit R, the ledger of the Debtor's and NE Road's transactions through April 21, 1995, the total of "debits" and discounts" was $161,357.55 paid or credited to the Debtor. But, according to Exhibit 60, the ledger through February 28, 1996 - the ledger the Trustee claimed Helen did not timely produce in discovery - the total was $242,778.35. AP-ECF No. 279, pp. 209-212.
There are at least three methodology issues. First, whether Wood's method of tracking equipment use or NE Road's was more reliable. Second, whether the charges should have been for "time out" or only "time used" - or, respectively, "active" plus "idle" time or only "active" time. Third, whether the rates used by Smith were more indicative of reasonably equivalent value than those set by the Defendants. The application issues include whether Wood accurately tracked NE Road's use of the Debtor's equipment, whether the Court can rely on NE Road's own tracking of its use, and whether Smith at times used the wrong Blue Book rates for calculating the Rental Rates.
In order to track equipment use, the Debtor relied on NE Road's foremen to manually record the use of equipment. These foreman's logs were supposedly lost in a flood, and the initial hand written Equipment Use Spreadsheets are likewise missing. Wood compared the State's Inspection Reports with the Auction List in order to create the Equipment Use Analyses. Each method has its own weaknesses. NE Road's foremen would have an incentive to record less equipment use than occurred. While the State inspectors did not prepare the Inspection Reports for billing purposes. The distinction between whether a machine was counted as active or idle depended on whether it was in use when the State inspector performed the inspection. This is not a significant weakness, *145 though, for two reasons. First, this would create a bias toward marking equipment idle. Second, Smith charged on a "time out" basis, therefore the distinction between active and idle was unimportant.
Smith claimed that "time out" was the standard used in the rental industry, for the simple reason that while a piece of equipment is on a job site, it cannot be rented to anyone else. AP-ECF No. 282, p. 76. For this reason, he made no distinction between whether a piece of equipment was active or idle, counting all time an equipment was on the job site as active, billable, time. Alan Jr., on the other hand, asserted that "time used" was appropriate in this situation, because the Debtor could use the equipment itself at any time and the Debtor was not in the rental business. AP-ECF No. 279, pp. 86-87. Therefore, NE Road did not track idle time, and tracked active time by the hour, rather than by the day, with some exceptions discussed below.
Based on the Court's calculations, 40% of the time included by Smith as billable is idle time. 45 Assuming idle time was spread evenly among the different pieces of equipment, this amounts to approximately $364,591.15. Smith testified that time out was the standard in the rental business, but Alan Jr. asserted that it would have made no sense to move equipment back to the Lumberyard when it would just sit idle there. In addition, had Alan Jr. known NE Road would be charged for equipment sitting idle at a job site, he might have taken it back to the Lumberyard, depending on the cost of doing so and the amount of anticipated idle time. In addition, he might have planned to use the equipment in a different manner, such as performing as much work with it as possible in a short time period, thereby reducing the amount of idle time.
This speculation as to what could have happened demonstrates a weakness in the Trustee's analysis. NE Road's use of the equipment was premised on the manner in which the Debtor would bill it. A post hoc analysis based on what should have been charged neglects the possibility that if NE Road was renting equipment on a time out, rather than time used basis, it would have acted differently. It may not have rented from the Debtor at all if the Debtor was charging on a time out basis.
The testimony by Casler regarding his business's practice of permitting contractors to take their equipment out of the rental agreement leads the Court to chart a middle ground on this issue. Applying the time out methodology appears draconian if other rental companies permit renters to keep property without paying rent due to specified circumstances. At the same time, the Debtor's practice of only billing for actual time used does not appear to be commercially reasonable. The Court concludes that if the rental agreements had been negotiated at arm's length, they would have been largely on a time-out basis, but exceptions could have been negotiated for extended periods during which work was not performed but the equipment stayed on site. Having reviewed the Equipment Use Analyses and noted that some pieces of equipment were idle for significant periods of time while others were used regularly, while not every day, the Court concludes that a 50%, or $182,295.58 reduction in the amount of idle time billed is appropriate.
Both parties argued that the rates they used were more indicative of reasonably *146 equivalent value for the equipment rentals. The Court can readily conclude that Alan Jr. misused the Form 814 because the section he used to calculate rental rates is intended for subsidiaries of the contractor and the Debtor was not a subsidiary of NE Road. In addition, Alan Jr.'s use of an hourly rate derived from the Blue Book monthly rate clearly benefitted NE Road to the Debtor's detriment. Finally, the difference between the rates charged to NE Road and those charged to the Debtor demonstrate that the rates negotiated between Alan Sr. and Alan Jr. 46 were set for NE Road's benefit.
On the other hand, the Court is skeptical of Smith's assertion that older equipment could be rented at the same rate as new equipment. AP-ECF No. 282, pp. 108-110. On this point, Alan Jr.'s testimony that older machines can't dig as much, are slow, and break down more frequently appears more credible than Smith's testimony that old equipment could be rented for the same price as new. AP-ECF No. 366, p. 150. This does not lead the Court to conclude that the rates themselves used by Smith were incorrect, but rather suggests that the Court should -- at most -- use the lower end of the additional 15% to 25% operating costs and 15% profit requested by the Trustee.
The errors in implementation were of several types. The Equipment Use Analyses classified some pieces of equipment as belonging to the Debtor when the evidence available to Wood was ambiguous or even contradictory to this conclusion. Wood did not have a list of NE Road's equipment, and the descriptions in the Inspector's Reports were occasionally generic. On the other hand, NE Road did not have underlying documents supporting its Equipment Use Spreadsheets. In addition, Smith was unable at some points during his testimony to state where the rates he used were contained in the Blue Book.
The discrepancies in the Equipment Use Analyses elicited by the Defendants demonstrate that Wood was predisposed to concluding that equipment belonged to the Debtor. The Trustee asserted that these inconsistencies are a natural byproduct of the methods of tracking equipment Wood was forced to use due to the Debtor's and NE Road's poor record keeping. AP-ECF No. 296, pp. 71-72. He further argued that the combined inconsistencies amount to $5,917.03. The Trustee claims that this amount is negligible, and that any under-billing between the Debtor and NE Road would have offset it. The Defendants, on the other hand, contend that the discrepancies they have shown demonstrate that the Court should not credit Wood's Equipment *147 Use Analyses. AP-ECF No. 300, p. 4. The Inspector Reports used by Wood were voluminous, and only the Inspector Reports used by the Defendants to demonstrate discrepancies or ambiguities are available to the Court. The Court therefore cannot confirm whether the Defendants have isolated all of the inconsistencies or ambiguities or whether similar inconsistencies or ambiguities run throughout the Equipment Use Analyses.
The burden of proof is on the Trustee to demonstrate by clear and convincing evidence that the Rental Agreements were not for reasonably equivalent value. The Court concludes that the Trustee has done so, in that there is clear and convincing evidence that the amount billed by NE Road was significantly less than reasonably equivalent value. The discrepancies illustrated by the Defendant are not sufficient for the Court to overlook the significant under-billing revealed by the Plaintiff's evidence. While the Court cannot precisely quantify the amount that the discrepancies would have reduced the amount billed, it concludes that the Defendants likely highlighted the most egregious examples and demonstrated $5,917.03 in discrepancies. Out of consideration for the possibility that there are further discrepancies, the Court will reduce the amount by a further $10,000.00, for a total of $15,917.03. After that, it will add the lower amount suggested by Smith for operating costs, (fifteen (15%) percent) and the amount suggested for profit (fifteen (15%) percent). AP-ECF No. 282, pp. 79-80, pp. 87-88. Finally, the Court must determine whether to reduce it by the cash NE Road paid ($132,000.00) or by one of the amounts taking both payments and credits into account, $161,357.66 pursuant to Exhibit R; $242,778.35 pursuant to Exhibit 60; or $270,000.00 pursuant to the Defendants' assertion. The $242,778.35 figure was contained in a document that was not timely disclosed, but was extensively discussed at trial. Moreover, some of the discounts, such as the $1,000.00 rent appear to have not been charged in good faith. Without the $1,000.00 rent, Exhibit R shows $226,778.35 in payments or credits. The Court believes that the $242,778.35 figure is most accurate.
The Court therefore calculates the reasonably equivalent value transferred to NE Road as a result of the rental agreements between it and the Debtor as follows:
Smith Adjusted Billing: $911,477.88 Reduction of ½ Idle time: ($182,295.58) Reduction due to Inconsistencies: ($15,917.03) ======================================================= Subtotal: $713,265.27 Plus 30% (operating costs and profit) $215,754.69 Minus NE Road credited: ($242,778.35) ======================================================== Total $686,241.61
B. Insolvency
The second element is insolvency, which the Bankruptcy Code defines as: "[F]inancial condition such that the sum of such entity's debts is greater than all of such entity's property, at a fair valuation ...." 11 U.S.C. § 101 (32). The UFTA utilizes the Bankruptcy Code's definition, and a second definition: "A debtor who is generally not paying his debts as they become due is presumed to be insolvent." Conn. Gen. Stat. § 52 -552c. Certain Underwriters at Lloyd's, London, 289 Conn. at 394 -95 , 957 A.2d 836 . Additionally, *148 "[c]ontingent claims of an entity, including pending lawsuits, should be included in the insolvency calculation." In re Turner & Cook, Inc., 507 B.R. at 109 (citing e.g., In re Sierra Steel, Inc., 96 B.R. 275 , 279 (9th Cir. BAP 1989) ; In re Tronox Incorporated, 503 B.R. 239 , 313 (Bankr.S.D.N.Y.2013) ; Collier on Bankruptcy, Sixteenth Ed. ¶ 101.32[5] ).
Having determined that $686,241.61 was transferred out of the Debtor during the period from 1992 to 1996, the Court must now consider whether the Debtor was insolvent from 1992 onwards. The debt to Caciopoli - which accounted for a substantial portion of the Debtor's total indebtedness and was not owed to a Neri family member - steadily rose over the period 47 . AP-ECF No. 296, pp. 38-39; Exh. K. The Neri family members' salaries were admittedly roughly equal to the Debtor's gross revenues in 1993 and 1994. AP-ECF No. 278, pp. 115-116. Taking these factors into account and considering that the Debtor's revenue was dependent in large measure on equipment rental to NE Road rather than new construction activity for its own benefit, the Court concludes that the Debtor was insolvent during the period from 1992 through the filing of the voluntary Chapter 11 bankruptcy petition in 1995, and until the cessation of business activity in 1996. AP-ECF No. 296, pp. 38-39.
The Trustee having met the presumption of insolvency by clear and convincing evidence, NE Road's reference to the Debtor's books and records alone are insufficient to rebut the presumption. AP-ECF No. 10-11. NE Road's claim that the Debtor was solvent contradicted the Defendants' repeated theme that the Debtor was on life support and dependent on rental income provided by NE Road for its survival. See AP-ECF No. 279, p. 90; AP-ECF No. 297, p. 20.
C. Good Faith Defense
Finally, none of the evidence suggests that NE Road was a good-faith transferee. The principals of NE Road were either also the principals of the Debtor directing the transfers or, in Helen's case, were closely related to the Debtor's principals. There was no evidence of arm's length bargaining or careful documentation that would suggest NE Road's good faith. The 1992 TRO authorized rental from the Debtor to other entities owned in whole or in part by Alan Sr., but stated that these rentals were to be at fair market value. The Court concludes that NE Road did not rent equipment from the Debtor at a reasonably equivalent value, nor at a fair market value. The state court's authorization in the 1992 TRO does not (nor could) demonstrate the state court's approval for the transactions as they actually occurred.
Based on the preceding analysis, the Court concludes that transfers from the Debtor to NE Road in the form of equipment rentals at rates that were not commercially reasonable and did not provide the Debtor with reasonably equivalent value were constructively fraudulent. During the period from May 4, 1992, when the 1992 TRO issued, to July 13, 1996, when the Auction was held, the underpayment by NE Road to the Debtor totaled $686,241.61, and judgment on Count I will enter in that amount against NE Road.
Count II: Intentional Fraudulent Transfer
The legal standards for an intentional fraudulent transfer under the Bankruptcy Code or the UFTA require proof of *149 fraudulent intent with "actual intent to hinder, delay, or defraud" a creditor on the part of the transferor, here the Debtor. See 11 U.S.C. § 548 , Conn.Gen.Stat. § 52-552e(a)(2)(a), Nat'l Council on Comp. Ins., Inc. v. Caro & Graifman, P.C., No. CIV 3:00-CV-1925 AHN, 2008 WL 450413 , at *1 (D. Conn. Feb. 15, 2008) (holding that intent pursuant to the UFTA "is based solely on the transferor's intent"); In re Actrade Fin. Techs. Ltd., 337 B.R. 791 , 808 (Bankr. S.D.N.Y. 2005) (same pursuant to § 548(a)(1)(A) ).
"[T]he determination of the question of fraudulent intent is clearly an issue of fact which must often be inferred from surrounding circumstances.... Such a fact is, then, not ordinarily proven by direct evidence, but rather, by inference from other facts proven-the indicia or badges of fraud." Wieselman v. Hoeniger, 103 Conn. App. 591 , 600, 930 A.2d 768 , 773 (2007) (Citations omitted, internal quotation marks omitted.). Courts often look to the non-exclusive list of factors set forth in Conn. Gen. Stat. Stat. § 52-552e, as have both parties to this case. 48 See Wieselman, 103 Conn. App. at 600 , 930 A.2d 768 ; AP-ECF No. 296, p. 32, AP-ECF No. 297, p. 13. Pursuant to Conn.Gen.Stat. § 52-552e, "(b) [i]n determining actual intent under subdivision (1) of subsection (a) of this section, consideration may be given, among other factors, to whether:
"(1) The transfer or obligation was to an insider,
(2) the debtor retained possession or control of the property transferred after the transfer,
(3) the transfer or obligatio

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8685477. Public record. Not legal advice.