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April 18, 2002


The opinion of the court was delivered by: Leisure, United States District Judge.


Plaintiff Raymond H. Wechsler, the administrative trustee overseeing the assets of Towers Financial Corporation ("Towers")*fn1, brings the underlying action against Hunt Health Systems, Ltd. ("Hunt Health") and affiliated entities for alleged breach of contract and fraudulent conveyance in connection with the parties' factoring agreements. Plaintiff now moves (1) to renew his motion for summary judgment; and (2) to strike the affidavit of Gary Davidson, C.P.A. Defendants move to strike the affidavit of Andrew P. Prague, C.P.A. For the following reasons, plaintiff's renewed summary judgment motion is granted in part and denied in part; and both plaintiff's motion to strike and defendants' motion to strike are each granted in part and denied in part.


A. Factual Background

Familiarity with the prior decisions relating to this case is assumed. Accept as indicated, the parties have stipulated to or do not contest the following facts.*fn2

I. The Accounts Receivable Purchase Contract

On July 10, 1991, Towers executed an accounts receivable purchase contract (the "HCP Agreement"), with Hunt Health, a Texas limited partnership formed in 1991 to operate a drug and alcohol dependency rehabilitation center located in Hunt, Texas doing business as "La Hacienda Treatment Center," or "La Hacienda". Plaintiffs Statement Pursuant to Local Rule 56.1 in Connection with his Renewed Motion for Partial Summary Judgment, dated January 28, 2000, ("Pl. Ren. 56.1 Statement"), ¶¶ 7, 16.*fn3 The HCP Agreement provides that Hunt Health will offer to sell to Towers the "Reimbursable Accounts" receivable of Hunt Health, defined by the agreement as "clean claim obligation[s] payable in whole or in part by a governmental entity. or by an insurance company or other entity approved by [Towers]". See exhibits attached to the affidavit of Daniel J. Kelly, Esq., dated January 27, 2000 (hereinafter "Pl. Ex."), Ex. 8, ¶ 2.

The contractual purchase price for a Reimbursable Account is 95% of the amount Towers actually recovers on the account, plus 95% of any remaining "Reimbursable Value", defined as "the amount that is represented by [Hunt Health] to be due and payable by a Third Party Obligor with respect to such Account." See Pl. Ex. 8, ¶ 3. The parties have referred to the difference between the discounted value paid by Towers and its full face value as a "factoring fee".

Towers' payment for purchased accounts is to occur in two installments. The first installment, consisting of 50% of the Reimbursable Value of the account, is due upon purchase. See id. The remaining balance is due upon the earlier of"(i) receipt by [Towers] of good funds in payment of the Account, (ii) thirty (30) days after [Towers] receive[s] notice that the Third Party Obligor will not pay the amount owed for reasons that would not constitute a breach of the representations and warranties set forth in paragraph 8 below or (iii) three hundred and sixty-five (365) days after the date [Towers] purchase[s] the Account." Id. Upon Towers's payment of the initial installment, Hunt Health's rights, title and interest in the accounts, including Hunt Health's right to payment on the accounts, transfers to Towers. See id. ¶ 4.

Simultaneous with the execution of the HCP Agreement, Towers and Hunt Health executed a rider whereby Towers acquired a lien on, among other things, all of the accounts receivable of Hunt Health and proceeds thereof as collateral for any liabilities of Hunt Health to Towers resulting from operation of the HCP Agreement. See Pl. Ex. 9.

The final relevant contemporaneous agreements are letter agreements (the "Guaranties") entered into with Towers by P&G Enterprises, Inc. ("P&G"), and MHTJ Investments, Inc. ("MHTJ"), Texas corporations that each have a 50% ownership interest in Hunt Health.*fn4 The letter agreements set forth absolute and unconditional guaranties by P&G and MHTJ of Hunt Health's obligations and liabilities to Towers, if any. See Pl. Exs. 11, 12.

Prior to its execution, the form HCP Agreement offered by Towers was reviewed by an attorney retained by Hunt Health, and the form was signed by Hunt Health with few changes. See Pl. Ex. 13, ¶ 12.

2. The September 1992 Agreements

In September 1992, Towers and Hunt Health effected several changes in their contractual relationship. On September 25, 1992, the parties executed an amendment (the "Amendment") to the HCP Agreement allowing Hunt Health to elect early termination. See Pl. Ex. 14. In the event of such election, the Amendment provides that Hunt Health must pay Towers liquidated damages equal to $10,000 for each month or part thereof remaining prior to the HCP Agreement's original termination date. See id.

In addition, that same day, Towers and Hunt Health executed a more elaborate security agreement regarding Towers' lien on Hunt Health's assets (the "Security Agreement") and a separate letter agreement altering the method for determining the factoring fee charged by Towers. See Pl. Exs. 15, 16. With regard to the change in the factoring fee determination, the amendment provided that "[n]otwithstanding anything to the contrary contained in Paragraph 3 of the [HCP Agreement], the cost to [Hunt Health] for all factoring and servicing fees of Towers will be as follows: two percent (2%) per month, or twenty-four percent (24%) per annum, of the Average Outstanding Daily Balance from Towers to [Hunt Health]." Pl. Ex. 16.

Finally, on September 30, 1992, Towers and Hunt Health entered into a letter agreement (the "Letter Agreement") providing in part that "the amount of Accounts [Hunt Health] offer[s] to [Towers] under the Contract can result in maximum initial payments outstanding from Towers to Hunt [Health] of One Million ($1,000,000.00) Dollars". Pl. Ex. 17.*fn5

3. The Unraveling of Towers's Fraudulent Note and Bond Sale Schemes

On February 8, 1993, the United States Securities and Exchange Commission ("S.E.C.") brought suit against Towers and several of its executives, seeking, among other things, to enjoin disposal of Towers' assets outside the ordinary course of business. See exhibits attached to the affidavit of Brooks Banker, Jr., Esq., from 1998 cross motions for summary judgment ("Def. First Ex."), Ex. 41. The S.E.C. lawsuit was premised on allegations that Towers had sold over $400 million worth of promissory notes and unregistered bonds from 1989 to 1993 based on materially false and misleading statements regarding Towers's financial condition, the risks of investing in the securities, and the intended use by Towers of proceeds of the note and bond sales. See Def. First. Exs. 40, 41.

A preliminary injunction issued on February 17, 1993, prohibiting Towers from, inter alia, disposing of its assets except in the ordinary course of business. See exhibits attached to the affidavit of Jeffrey B. Finnell, Esq. from 1998 cross motions for summary judgment ("Pl. First Ex."),Ex. 117.

4. Hunt Health's Notice of Termination of the HCP Agreement

As of January 1993, Hunt Health had begun to make arrangements to switch to a different factoring service provider, MediMax, Inc., a competitor of Towers. See Pl. Ren. 56.1 Statement ¶ 110. By February 22, 1993, Hunt Health expected the transfer of Towers's servicing to MediMax to occur by that Friday, February 26, 1993. See id.¶ 111. On that Friday, Hunt Health gave Towers notice of Hunt Health's intention to terminate the HCP Agreement. See id. ¶ 112.*fn6

Of serious contention between the parties are the events, if any, occurring the previous day, February 25, 1993. Defendants assert that on that date Hunt Health requested from Towers a $60,000 payment pursuant to the Letter Agreement. Plaintiff disputes whether Hunt Health made the request. In all events, it is undisputed that Towers remitted no funds to Hunt Health on that day or, indeed, on any day after February 19, 1993. Towers' final purchases of Hunt Health's accounts receivable occurred at some point between February 19 and 26, 1993. See Pl. Ren. 56.1 Statement ¶ 130.

5. Subsequent Events

A month later, on March 26, 1993, Towers filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code, and a chapter 11 trustee was subsequently appointed. See Pl. Ren. 56.1 Statement ¶ 2.

On April 2, 1993, Esperanza, a Texas limited partnership, was formed by P&G and Friendship, a Texas corporation created that same day by Givens, Mehendale and Thomas. By written agreement executed as of that date, Hunt Health agreed to sell Esperanza certain of Hunt Health's assets in exchange for Esperanza's assumption of certain of Hunt Health's liabilities. See Pl. First Ex. 38. The decision of Esperanza and Hunt Health to execute the agreement was made by the same persons on both sides, and Gaines and Givens executed the agreement on behalf of both entities.*fn7 See Defs' First 56.1 Response ¶¶ 92, 95.

On November 11, 1994, pursuant to his authorization by the bankruptcy court, the chapter 11 trustee initiated this action. Upon confirmation of Towers's plan of reorganization on December 8, 1994, the remaining assets of Towers were transferred to an administrative trust (the "Trust"), with Raymond Wechsler designated as administrative trustee (the "Trustee"). See Pl. Ren. 56.1 Statement ¶ 4. Pursuant to the plan of reorganization, the Trustee was authorized and empowered to pursue litigation and resolve disputed claims on behalf of the Trust, including any litigation or claims previously brought by the chapter 11 trustee. See id. ¶ 6. However, as the Court indicated previously, by Order of United States Bankruptcy Judge Prudence Carter Beatty dated August 5, 1999, the Towers Financial Administrative Trust was terminated and the Trust's claim against Hunt Health was assigned to Raymond H. Wechsler in his personal capacity.


Plaintiff moves for partial summary judgment on his claims against defendants Hunt Health, P&G, and MHTJ as listed in his First Amended Complaint. See The Administrative Trustee's Memorandum of Law in Support of his Renewed Motion for Partial Summary Judgment ("Pl's Mem."), at 1. Specifically, plaintiff moves on Count I (Breach of Contract); Count II (Conversion); Count V (Early Termination Damages); Count VI (Breach ...

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