Appeals from the United States District Court for the Northern District of Indiana, Hammond Division at Lafayette. Nos. 4:01-CV-72, 4:04-CV-64 & 4:04-CV-65-Allen Sharp, Judge.
The opinion of the court was delivered by: Cudahy, Circuit Judge.
Before BAUER, CUDAHY and SYKES, Circuit Judges.
These appeals arise out of bankruptcy proceedings in which Daniel Freeland, Trustee for Consolidated Industries Corp. (Consolidated), sought to recover transfers made by Consolidated to Welbilt Corporation, a company now known as Enodis Corporation (Enodis). The bankruptcy court concluded that the Trustee could avoid over $30 million in transfers made by Consolidated between 1989 and 1998 and the district court affirmed. In addition, the district court, having withdrawn the reference on two of the Trustee's claims, found that the Trustee could avoid transfers made within one year of the filing of Consolidated's bankruptcy petition pursuant to 11 U.S.C. §§ 547 and 548. The defendants appeal these decisions. In his cross-appeal, the Trustee challenges the lower courts' rejection of his alter ego/veil piercing claims against the corporate defendants, the district court's refusal to enter judgment against Welbilt Holding Company and the grant of summary judgment for the individual defendants. We conclude that the Trustee can avoid transfers from Consolidated to Enodis between 1989 and 1995 as fraudulent transfers but remand for further findings on the issue of Consolidated's solvency after 1995. We reverse and remand the district court's grant of summary judgment for the Trustee on his § 547 and § 548 claims. With respect to the Trustee's cross-appeal, we remand for further findings on the Trustee's alter ego/veil piercing claims but affirm the remainder of the district court's judgment.
In the 1980s, Consolidated was a successful furnace manufacturer. It was a subsidiary of Welbilt Holding Company, which itself was a subsidiary of Enodis.*fn1 Enodis was a publicly-traded company and defendants David and Richard Hirsch and their friend Lawrence Gross were its primary shareholders. In 1988, the Wall Street leveraged buyout (LBO) firm Kohlberg & Co. acquired Enodis' stock through a company it formed, Churchill Acquisition Corporation (Churchill). After the leveraged buyout, Churchill owned 63.4% of Enodis' stock and the Hirsches and Gross owned 36.6%. The Hirsches and Gross became Consolidated's directors following the LBO. They were removed from the board in October 1990 and were succeeded by Marion Antonini and Daniel Yih.
Enodis directed Consolidated and its other subsidiaries to deposit its receivables in an account that Enodis controlled. Consolidated's deposits in the account were recorded as assets and Consolidated's assets were reduced by amounts that Enodis used to pay Consolidated's expenses. In February 1989, Enodis directed Consolidated to pay a cash dividend of $6.9 million. In addition, Enodis directed Consolidated to issue two dividend notes (the Notes) to Welbilt Holding. The first, a 10-year note with an interest rate of 13.75%, had a principal amount of $20 million. The second, a 10-year note with an interest rate of 13.75%, had a principal amount of $10 million.
Both dividend notes provided that:
The principal of this Note represents the payment of a dividend declared by the maker's board of directors and therefor is payable only out of funds legally available for the payment of a dividend. If this Note is not paid in full when due, the undersigned hereby agrees to pay all costs and expenses of collection, including reasonable attorneys' fees.
The Notes provided that if Consolidated failed to make an interest payment, they would "become immediately due and payable at the option of the payee." The Notes also stated that they were governed by Indiana law. Enodis collected the interest payments on the Notes by taking funds from Consolidated's deposits in Enodis' accounts and directing that Consolidated make the appropriate book entries. Between 1989 and the end of 1997, Enodis took $23,671,421.32 in interest payments from Consoli-dated.
Meanwhile, Consolidated began to design a new product line, a project dubbed "Project 92." In 1987, Congress set new standards affecting the furnace manufacturing industry that were to take effect in 1992, and Consolidated's management believed that the company would have to redesign its furnaces in order to comply with the new standards. To this end, Consolidated borrowed $7 million from Tippecanoe County in order to purchase new equipment that was required to manufacture the "Project 92" furnace. Enodis guaranteed the loan. As it worked to get its new furnace line off the ground, Consolidated began to confront problems with its horizontal furnaces. A defect in the furnaces was causing fires and warranty claims were not covered by Consolidated's insurance. In 1990, North Carolina's Attorney General investigated Consolidated's furnaces and concluded that they were defective. In 1993, the Consumer Product Safety Commission (CPSC) began investigating another defect in Consolidated's furnaces. About this same time a group of consumers in California threatened to file a class action law suit, further threatening Consolidated's prospective financial health.
By 1994, Enodis had begun trying to sell Consolidated. In 1995, perhaps to make Consolidated more attractive to prospective purchasers, Enodis cancelled the $30 million in dividend notes. Enodis found an interested buyer in William Hall. Hall could not secure financing to purchase Consolidated, however, and the sale to Hall did not close. Consolidated's problems continued to grow. The California class action was certified and in 1997, the CPSC asked Consolidated to recall all of its furnaces in California. In January 1998, Hall, Welbilt Holding and Enodis entered into a Stock Purchase Agreement pursuant to which Welbilt Holding agreed to sell Hall the common stock of Consolidated. In connection with the transaction, Consolidated borrowed $7.5 million from Finova Capital Corporation (Finova) and granted Finova a lien on all of its assets. On January 5, 1998, Enodis loaned Consolidated $108,500 to purchase insurance. On January 6, 1998, the Hall sale closed. Consolidated directed Finova to wire $7,108,500 of the money it borrowed from Finova to Enodis. Seven million dollars corresponded to the purchase price of Consolidated's stock pursuant to the Stock Purchase Agreement. The rest represented repayment of Enodis' January 5 loan to Consolidated. On May 28, 1998, almost five months after the Hall transaction, Consolidated filed for bankruptcy under chapter 11 of the United States Bankruptcy Code.
On May 10, 1999, Consolidated filed this lawsuit. A trustee was appointed and was substituted as the plaintiff. The bankruptcy case was subsequently converted to chapter 7. Section 544(b) of the Bankruptcy Code allows the Trustee to "avoid any transfer of an interest of the debtor in property . . . that is voidable under applicable law." 11 U.S.C. § 544(b). The Trustee sought to recover the $6.9 million cash dividend and the interest paid on the Notes, asserting a right to recover these sums under state and federal law governing fraudulent transfers, Indiana common and corporate law and the law of unjust enrichment. In addition, the Trustee brought breach of fiduciary duty claims against the Hirches, Gross, Antonini and Yih, asserted alter ego/veil piercing claims against Enodis and Welbilt Holding and argued that Enodis' claim should be disallowed or equitably subordinated. The Trustee also sought to recover the value of the transfers made in connection with the Hall transaction. The district court withdrew the reference as to Counts VIII and IX of the Trustee's Third Amended Complaint, which related to the Hall transaction.
Some of the Trustee's claims were disposed of on summary judgment. In October 2001, the bankruptcy court granted summary judgment for the Hirsches and Gross on the Trustee's breach of fiduciary duty claims, finding that the claims were barred by the applicable statute of limitations. On December 9, 2002, the district court granted summary judgment against Enodis and Welbilt Holding on the Trustee's claims arising from the Hall transaction. The court concluded that the Trustee could recover $7,369,559.35 as fraudulent transfers pursuant to 11 U.S.C. § 548. This amount represented $7 million that Consolidated directed Finova to transfer to Enodis on January 6, 1998 as well as $369,559.35 that Consolidated transferred to Enodis between May 28, 1997 and December 30, 1997. The district court also concluded that the Trustee could recover the $108,500 that Consolidated transferred to Enodis on January 6, 1998 as a preference under 11 U.S.C. § 547.
The bankruptcy court conducted a 22 day trial on the remaining counts. After hearing testimony from 19 witnesses and weighing the evidence, which included 457 exhibits, the court concluded that the Trustee was entitled to avoid $30,608,990.69 in transfers from Consoli-dated to Enodis between 1989 and 1998. This amount comprised the $6.9 million cash dividend as well as $23,671,421.32 in interest charged on the Notes between 1989 and 1998. The bankruptcy court found that the Trustee could recover the entire $30,608,990.69 under theories of actual fraud and unjust enrichment as well as under Indiana common law. The court also concluded that the Trustee could avoid $10,058,731 of those transfers as constructively fraudulent conveyances. In addition, the court disallowed Enodis' proof of claim. The court rejected the Trustee's alter ego/veil piercing claims against Enodis and Welbilt Holding on standing grounds. The court awarded the Trustee $12,780,302.10 in prejudgment interest for a total recovery of $43,389,292.79. Enodis appealed the bankruptcy court's decision and the Trustee filed a cross-appeal. The district court affirmed the bankruptcy court's proposed findings of fact and conclusions of law in their entirety. Both parties appeal that decision. We have jurisdiction pursuant to 28 U.S.C. § 158(d).
The parties raise many challenges to the conclusions of the courts below. We group the issues raised in these appeals as follows: (1) Enodis' appeal of the district court's avoidance of the 1989 $6.9 million cash dividend and the interest payments on the Notes; (2) Enodis' appeal of the district court's grant of summary judgment for the Trustee in connection with the Hall transaction; and (3) the Trustee's cross-appeal.
A. Avoidance of Interest Payments and the $6.9 Million Cash Dividend
We review the bankruptcy court's factual findings for clear error and its legal conclusions de novo. In re Rivinius, Inc., 977 F.2d 1171, 1175 (7th Cir. 1992). "If the bankruptcy court's 'account of the evidence is plausible in light of the record viewed in its entirety,' we will not reverse its factual findings even if we 'would have weighed the evidence differently.' " In re Lifschultz Fast Freight, 132 F.3d 339, 343 (7th Cir. 1997) (quoting Anderson v. City of Bessemer City, 470 U.S. 564, ...