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.
Familiarity with the prior decisions relating to this case is assumed.
Accept as indicated, the parties have stipulated to or do not contest the
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.
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
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.
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
4. Hunt Health's Notice of Termination of the HCP Agreement
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
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.
IV. THE RENEWED MOTION FOR SUMMARY JUDGMENT