Mr. Stanley Charmoy

In re CRAIG SYSTEMS CORPORATION, ETL HOLDINGS, INC., TECHWELD OF VIRGINIA, LTD., and EASTERN TECHNOLOGIES, LTD., Debtors; STEWART F. GROSSMAN, CHAPTER 7 TRUSTEE, Plaintiff v. STANLEY CHARMOY, as TRUSTEE OF GENERAL REALTY TRUST a/k/a GENERAL RENTAL TRUST, Defendant
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Disposition: Court entered judgment in favor of the Chapter 7 Trustee and against Stanley Charmoy, Trustee of the General Realty Trust a/k/a the General Rental Trust on Counts III of the Complaint in the total sum of $ 121,500.00.Count I waived; Count II moot.
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The matter before the Court is the Chapter 7 Trustee's Complaint against Stanley Charmoy ("Charmoy"), Trustee of the General Rental Trust a/k/a the General Realty Trust (the "General Trust").The Trustee's original Complaint contained four counts as follows: Count I-Fraudulent Conveyance under M.G.L. c. 109(a); Count II-Fraudulent Conveyance under 11 U.S.C. § § 548, 550; Count III-Insider Preference under 11 U.S.C. § 547(b); and Count IV-Preference under 11 U.S.C. § 547(b).On December 3, 1998, this Court granted the Trustee's Motion for Partial Summary Judgment in part with respect to Counts III and IV of his Complaint.The Court entered judgment in the amount of $ 47,000 in favor of the Trustee and against Charmoy with respect to Count IV and denied summary judgment with respect to Count III.Subsequently, in the Joint Pretrial Memorandum filed by the parties on March 5, 1999, the Chapter 7 Trustee waived Count I.

The Court conducted a trial with respect to Counts II and III on December 2, 1999 at which three witnesses testified and nine exhibits were admitted into evidence.The issues before the Court include whether Charmoy may be considered a non-statutory insider of the Debtors for purposes of Count III and whether certain Debtors fraudulently conveyed funds to the General Trust for less than reasonably equivalent value while they were insolvent.
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On May 5, 1992, Waite and Suzanne executed an Agreement, which was drafted by Charmoy.
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Charmoy was the trustee with broad powers to manage the assets of the General Trust.
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According to Charmoy, the General Trust "was set up in order for there to be a funding vehicle without having to have Suzanne go directly to Mr. Waite for any funds.
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Pursuant to the terms of the Agreement between Waite and Suzanne, Waite deeded the Okuma Equipment to the General Trust on July 15, 1992. n3 On November 7, 1992, Charmoy, as Trustee of the General Trust, and Waite, in his capacity as president of Eastern, entered into an Equipment Lease pursuant to which Eastern leased the Okuma Equipment from the General Trust in accordance with a Rental Schedule set forth on Exhibit A to the Equipment Lease for a term of ten years at a base rent of $ 120,000 per year payable in monthly installments of $ 10,000.
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Article VIII of the Plan provided that the Debtors, upon the Effective Date, would be discharged "from all claims and all debts that arose on or before the Commencement Date and from any liability of any kind specified in Bankruptcy Code Section 1141, whether or not a proof of claim has been filed or deemed filed, such claim is allowed or the holder of such claim has accepted the Plan...." Charmoy testified that he was aware of the pendency of the Debtors' 1993 bankruptcy cases.
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Following confirmation of the Debtors' Joint Plan and before the Amended Modification to Third Amended Joint Plan of Reorganization dated June 21, 1995, n5 the General Trust sold most of the Okuma Equipment to Northeast Machinery Exchange, Inc. for $ 332,500. n6 Charmoy testified that it was his decision to terminate the Equipment Lease.He did not recall precisely when he made that decision, although in an affidavit filed in this adversary proceeding, he indicated that he made the decision in late 1994 or early 1995.Charmoy, however, did not produce a copy of a letter declaring an event of default, terminating the lease or demanding outstanding lease payments or damages in accordance with the terms of the Equipment Lease.
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Stanley may -- Mr. Charmoy may have signed some checks and a gentleman named Mr. Sheehan.
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Q. Before you left the company, did Mr. Charmoy sign any checks?
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In their Joint Pre-Trial Memorandum, the Chapter 7 Trustee and Charmoy stipulated that the Debtors were insolvent: "At all times between June 20, 1995 and March 21, 1996, the Debtors were insolvent."n10
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The General Trust, in answers to interrogatories which were submitted into evidence as Exhibit 7, admitted that the "records as presently in the possession of the Trustee [Charmoy]do not reflect the dates of payment."In fact, according to Charmoy, the only "present records of any payments" that he had in his possession at the time he answered the Trustee's interrogatories on or around February 28, 1998 revealed the following:
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The Trustee asserts that payments to the General Trust within a year of the bankruptcy filing were voidable preferences as Charmoy was an insider of the Debtors.He maintains that 11 U.S.C. § 101(31) contains a non-exhaustive list of persons or entities that may be insiders of corporate debtors.He argues that insider status should be determined based upon two factors "(1) the closeness of the relationship between the transferee and the debtor, and (2) whether the transactions between the transferee and the debtor were conducted at arm's length."Schreiber v. Stephenson (In re Emerson), 235 B.R. 702, 707 (Bankr. D. N.H. 1999)(citing Browning Interests v. Allison (In re Holloway), 955 F.2d 1008, 1011 (5th Cir. 1992); Matson v. Strickland (In re Strickland), 230 B.R. 276, 285 (Bankr. E.D. Va. 1999)).
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Charmoy recognizes that the Trustee, in order to recover $ 121,500 on Count III as a preference, must establish that he was an insider of the Debtors.He maintains that there is not one scintilla of evidence to support this position.Because, in his view, he was not an insider of the corporate Debtors as that term is defined in 11 U.S.C. § 101(31)(B), he maintains that the Trustee must prove either (1) a close relationship between the parties, or (2) that the transactions between the parties were not conducted at arms length.Sticka v. Anderson (In re Anderson), 165 B.R. 482, 486 (Bankr. D. Oregon 1994); Miller v. Schuman (In re Schuman), 81 B.R. 583, 586 (B.A.P. 9th Cir. 1987).

Charmoy argues that the Trustee offered no evidence showing that he exerted control over the Debtors or that the Debtors exerted control over the General Trust, that the Trustee failed to establish a close relationship between the parties and that although "the Trust may have accommodated the business of which Harley Waite was a principal, the evidence ... [was] ... that the Trust did so to protect its legitimate interest as a creditor."In short, Charmoy maintains that the Debtors and the Trust always acted at arm's length, stating that "the fact that Charmoy used Waite (or Marsolais) for various ministerial functions (such as paying checks or negotiating the sale of some of the equipment) does not change defendant's status as a non-insider of the debtor.
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In the first place, Charmoy maintains that the Trustee failed to establish how much was paid on the promissory note for principal and interest.He states that, although there was evidence that $ 74,000 of the $ 121,500 paid between June 21, 1995 and March 21, 1996 was repayment of the promissory note, there was no evidence that the additional $ 47,500 paid during that time period was not repayment of the note so that the Court will be unable to find that there was a fraudulent transfer of any amount.

Alternatively, Charmoy maintains that it was proper for the Debtors to pay $ 47,500 toward the Equipment Lease because "the debtor owed the defendant well over a quarter of a million dollars on the lease in addition to the monies owed on the Promissory Note."He adds the following:
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The only element of the Chapter 7 Trustee's preference claim that is disputed is whether Charmoy was an insider of the Debtors.
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Based upon an evaluation of the closeness of the relationship between the Debtors and Charmoy and the nature of the transactions between the Debtors and Charmoy, as well as the factors identified by the court in Emerson, the Court finds that Charmoy was an insider of the Debtors.
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More importantly, Charmoy utilized Waite as his agent.
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Indeed, the Court finds that Charmoy ceded control over the General Trust to Waite who was not only an officer and director of the Debtors but a person in control over the Debtors.
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Thus, Charmoy, indirectly through his agent, Waite, had the ability to control and influence the Debtors, and the Debtors were able to and did treat the General Trust differently from all other creditors.
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Charmoy permitted Waite to negotiate the sale of the Okuma Equipment and to sign the bill of sale as trustee of the General Trust.
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Although Charmoy testified that he made the decision to