HomeMy WebLinkAbout02-5660 EquityTAM SYSTEMS, INC.,
PLAINTIFF
IN THE COURT OF COMMON PLEAS OF
CUMBERLAND COUNTY, PENNSYLVANIA
FIGLIO MIO VISAGGIO, INC.,
A PENNSYLVANIA CORPORATION,
WILLIAM J. LUMADUE, SR., AND
ROSEMARY V. LUMADUE, HUSBAND :
AND WIFE, WILLIAM J. LUMADUE, JR.:
AND JOHN E. LUMADUE,
DEFENDANTS
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IN RE: PETITION OF PLAINTIFF FOR PRELIMINARY INJUNCTION
OPINION AND ORDER OF COURT
Bayley, J., May 2, 2003:--
On November 25, 2002, plaintiff, TAM Systems, Inc., filed a complaint in equity against
defendants, Figlio Mio Visaggio, Inc., A Pennsylvania Corporation, William J. Lumadue, Sr.,
Rosemary V. Lumadue, William J. Lumadue, Jr. and John E. Lumadue. Plaintiff avers that a
September 30, 1999 transfer of a property owned by defendant Figlio Mio Visaggio, Inc., at
6481 Carlisle Pike, Silver Spring Township, Cumberland County, to the four individual named
defendants was fraudulent. On January 23, 2003, plaintiff filed a petition for a preliminary
injunction seeking the following relief:
(A) An attachment or other provisional remedy against the real estate
transferred or any other property of any and all of the Defendants in accordance
with the procedures proscribed by application of law;
(B) An attachment or other provisional remedy against all lease payments
received from the real estate transferred;
(C) Appointment of a receiver to take charge of the asset transferred, and
all lease payments received therefrom, or of other property of the Defendants;
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(D) An injunction against further disposition by the transferee-Defendants
of the asset transferred or of other property; and/or
(E) Any and all other relief deemed just by this Honorable Court as the
circumstances may require.
A hearing on the petition was conducted on March 26, 2003. The issues were briefed
and argued on April 16, 2003. A preliminary injunction seeks to maintain the status quo until
the rights of the parties can be finally adjudicated. New Castle Orthopedic Assoc. v. Burns,
481 Pa. 460 (1978). In T.W. Phillips Gas and Oil Co. v. Peoples Natural Gas Co., 89 Pa.
Commw. 377 (1985), the Commonwealth Court set forth the well-established standards
necessary for the issuance of a preliminary injunction:
A court may grant a preliminary injunction only where the moving party
establishes the following familiar elements: (1) the relief is necessary to prevent
immediate and irreparable harm which cannot be compensated by damages; (2)
greater injury will occur from refusing the injunction than from granting it; (3) the
injunction will restore the parties to the status quo as it existed immediately
before the alleged wrongful conduct; (4) the alleged wrong is manifest, and the
injunction is reasonably suited to abate it; and (5) the plaintiff's right to relief is
clear. (Citation omitted.)
SUMMARY OF EVIDENCE PRESENTED BY PLAINTIFF
Defendant, Figlio Mio Visaggio, Inc., was incorporated in 1991 for the purpose of
operating a restaurant. The defendants, William J. Lumadue, Sr., Rosemary V. Lumadue,
William J. Lumadue, Jr., and John E. Lumadue, each own twenty-five percent of the stock.
They are all of the officers and directors of the corporation. In September, 1991, the
corporation entered into a lease with an option to purchase a building at 6481 Carlisle Pike,
Silver Spring Township, Cumberland County. The corporation opened a restaurant in the
building in the early part of 1992. On August 2, 1993, the corporation exercised its option
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and purchased the property for $525,000, and a mortgage was recorded in that amount to the
Financial Trust Company securing the property.
The restaurant closed in June, 1996. Figlio Mio Visaggio, Inc., then hired plaintiff
herein, TAM Systems, Inc., a general contractor, to add an addition to the building and
convert it into a facility that Figlio Mio Vissagio, Inc. then leased to the Hetrick Center, a
chiropractic clinic, on September 18, 1996. The lease was for five years for a total of
$360,000 with sixty monthly payments of $6,000. The property at 6481 Carlisle Pike was
appraised by a certified appraiser, William J. Daylor, as of November 15, 1996, at $695,000.
Figlio Mio Visaggio, Inc. then refinanced the property in January, 1997, with the Financial
Trust Company for which a new mortgage was entered in the amount of $575 000.4
William Lumadue and Rosemary Lumadue have operated a restaurant Visaggio's, at
6990 Wertzville Road in Silver Spring Township that their corporation, Visagglo, Inc.,
purchased in 1982. They individually owned another property at 76 Miller's Gap Road in
Silver Spring Township that they purchased in 1986. They live on a property they own at 146
Miller's Cap Road in Silver Spring Township. On July 29, 1997, the $575,000 mortgage of
Figlio Mio Visaggio, Inc. to the Financial Trust Company on 6481 Carlisle Pike, Silver Spring
Township, was satisfied. The following three mortgages to Mid Penn Bank, were recorded
pursuant to a loan agreement dated May 20, 1997:
(1) A $1,315,000 mortgage with Figlio Mio Visaggio, Inc., securing its property at 6481
The prior mortgage to Financial Trust Company was satisfied.
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Carlisle Pike, Silver Spring Township?
(2) A $1,315,000 mortgage with Visaggio's, Inc., securing its 6990 Wertzville Road
property.3
(3) A $1,315,000 mortgage with William J. Lumadue, Sr., and Rosemary V. Lumadue
securing a property they owned at 76 Miller's Gap Road in Silver Spring Township.4
On September 26, 1997, plaintiff herein, TAM Systems, Inc., instituted suit against
Figlio Mio Visaggio, Inc. for breach of contract for failing to pay it $124,535.55 for work it had
performed on the conversion of 6481 Carlisle Pike so that it could be leased to the Hetrick
Center? Figlio Mio Visaggio, Inc. filed a counterclaim for $109,560.48. On January 13, 1999,
in interrogatories propounded by TAM Systems, Inc. to Figlio Mio Visaggio, Inc., defendant
answered that the only real property owned by the corporation was at 6481 Carlisle Pike,
Silver Spring Township. On September 30, 1999, Figlio Mio Visaggio, Inc. transferred by
deed the property at 6481 Carlisle Pike to William J. Lumadue, Sr., Rosemary V. Lumadue his
wife, William J. Lumadue, Jr. and John E. Lumadue for the stated consideration of $830,000.
The settlement sheet reflects that $830,000 was applied against "Principal amount of new
2 Recorded at Mortgage Book 1396, Page 178 in the Office of the Recorder of Deeds of
Cumberland County.
3 Recorded at Mortgage Book 1396, Page 152 in the Office of the Recorder of Deeds of
Cumberland County.
4 Recorded at Mortgage Book 1396, Page 165 in the Office of the Recorder of Deeds of
Cumberland County.
No. 5294 Civil 1997.
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loan(s)." Other costs and fees to complete the transaction totaling $9,017.19 are listed as
paid by the seller. On the same date, the three mortgages to Mid Penn Bank were satisfied.
The following four mortgages to Mid Penn Bank were recorded pursuant to a loan agreement
dated September 7, 1999:
(1) An $830,000 mortgage with William J. Lumadue, Sr., Rosemary V. Lumadue,
William J. Lumadue, Jr. and John E. Lumadue, securing the property at 6481 Carlisle Pike,
Silver Spring Township, that Figlio Mio Visaggio, Inc. just transferred to them?
(2) A $575,000 mortgage with William J. Lumadue, Sr., Rosemary V. Lumadue,
William J. Lumadue, Jr. and John E. Lumadue, securing the same property at 6481 Carlisle
Pike, Silver Spring Township.7
(3) A $575,000 mortgage with Visaggio's, Inc., securing the Visaggio's restaurant
property at 6990 Wertzville Road in Silver Spring Township.8
(4) A $830,000 mortgage with Visaggio's, Inc., securing their restaurant property at
6990 Wertzville Road in Silver Spring Township.9
6 Recorded at Mortgage Book 1574, Page 149 in the Office of the Recorder of Deeds of
Cumberland County.
7 Recorded at Mortgage Book 1574, Page 165 in the Office of the Recorder of Deeds of
Cumberland County.
8 Recorded at Mortgage Book 1574, Page 181 in the Office of the Recorder of Deeds of
Cumberland County.
9 Recorded at Mortgage Book 1574, Page 196 in the Office of the Recorder of Deeds of
Cumberland County. The judgment of the jury is final.
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The interrogatories that were answered by Figlio Mio Visaggio, Inc., in January, 1999 in
the TAM Systems' lawsuit were continuing and required, pursuant to Pa. Rule of Civil
Procedure 4007.4, further answer and supplementation without further notice to augment or
otherwise modify the initial answers. When Figlio Mio Visaggio, Inc., transferred 6481 Carlisle
Pike to its four stockholders on September 30, 1999, they did not supplement the answer to its
interrogatory that it owned that property. In September, 2001, Figlio Mio Visaggio, Inc.,
renewed the lease to the Hetrick Center for 6481 Carlisle Pike, Silver Spring Township, for
another five year term for a total of $378,000 with a monthly payment of $6,300. On
November 9, 2001, a jury returned a verdict in favor of plaintiff herein, TAM Systems, Inc., in
its suit against Figlio Mio Visaggio, Inc., for breach of contract, in the amount of $124,523.55,
which was the exact amount plaintiff sued for.1° A week later on November 16, 2001, the
corporation filed a voluntary Chapter 7 bankruptcy petition in the United States Bankruptcy
Court for the Middle District of Pennsylvania. The only creditor listed was TAM Systems, Inc.,
as unsecured, for $124,000. The corporation listed no assets.
On March 1, 2002, the following three mortgages were recorded to the Orrstown
Bank:11
(1) An "open-end construction mortgage" to Visaggio, Inc. securing its restaurant
property at 6990 Wertzville Road, Silver Spring Township, providing:
10 The jury found that TAM Systems, Inc. did not breach its contract with Figlio Mio
Visaggio, Inc., so no award was made on the corporation's counterclaim.
11 On March 8, 2002, the four prior mortgages to Mid Penn Bank were satisfied.
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This mortgage, including the assignment of rents and the security interest in the
rents and personal property, is given to secure (A) payment of the indebtedness
and (B) performance of any and all obligations under the note in the original
principal amount of $2,500,000.00, the related documents, and this
mortgage .... 12
(2) An "open-end construction mortgage" to William J. Lumadue, Sr. and Rosemary V.
Lumadue on their 6.15 acre residential property at 146 Miller's Gap Road, Silver Spring
Township.13 The mortgage provides:
This mortgage, including the assignment of rents and the security interest in the
rents and personal property, is given to secure (A) payment of the indebtedness
and (B) performance of any and all obligations under this mortgage.
(3) An "open-end construction mortgage" to William J. Lumadue, Sr., Rosemary V.
Lumadue, William J. Lumadue, Jr., and John E. Lumadue on 6481 Carlisle Pike, Silver Spring
Township, which is the property deeded to them on September 30, 1999 by Figlio Mio
Visaggio's, Inc.14 The mortgage provides:
This mortgage, including the assignment of rents and the security interest in the
rents and personal property, is given to secure (A) payment of the indebtedness
and (B) performance of any and all obligations under this mortgage.
The money raised in these transactions was used by Visaggio's, Inc., to put an addition
12 Recorded at Mortgage Book 1750, Page 4217 in the Office of the Recorder of Deeds
of Cumberland County.
13 Recorded at Mortgage Book 1750, Page 4224 in the Office of the Recorder of Deeds
of Cumberland County.
14 Recorded at Mortgage Book 1750, Page 4231 in the Officer of the Recorder of Deeds
of Cumberland County.
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onto its restaurant, Visaggio's, on the Wertzville Road.
SUMMARY OF EVIDENCE PRESENTED BY DEFENDANTS
Defendants presented evidence, directly and through their accountant, that when they
started their restaurant at 6481 Carlisle Pike, some of them loaned Figlio Mio Visaggio, Inc.,
$245,000.~ By 1993, the original mortgage to Financial Trust Company in the amount of
$525,000, which carried a monthly payment of $4,942, had been reduced to about $518,000.
In 1995, because of losses there had been no reduction in the $245,000 loan. For accounting
purposes, the corporation reduced the loan and treated it as capital contributed to the
company. In 1996, some of the Lumadues loaned the corporation $86,000. Because there
was no way for the corporation to repay this loan, it was, for accounting purposes, later moved
into capital. In January, 1997, when the new mortgage from Financial Trust Company for
$575,000 was placed, $464,000 was used to payoff the existing mortgage, $30,000 was used
to pay bills and $80,000 went to the corporation. When the blanket mortgage of $1,315,000
was obtained from Mid Penn Bank in July, 1997, $795,000 was allocated to Figlio Mio
Visaggio, Inc. The sum of $575,000 was used to payoff the old mortgage, $30,000 was used
to pay bills, and the remaining $190,000, along with the prior $80,000 gave the corporation
$270,000 of which about $150,000 went into the renovations on the construction project and
the rest was utilized to pay old bills and pay the Lumadues toward their prior loans. There
was still a $63,000 balance on a line of credit to PNC Bank. The rent Figlio Mio Visaggio,
Inc., was
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15 The accountant testified generally as he did not have detailed records with him.
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receiving from the Hetrick Center was thereafter paid to Visaggio's, Inc., and that corporation
made the mortgage payment to Mid Penn Bank. In September, 1999, when 6481 Carlisle Pike
was transferred from Figlio Mio Visaggio, Inc., to the individual defendants, and the new
mortgages were placed with Mid Penn Bank, $825,000 was needed to satisfy the prior
mortgage to that bank. When the new mortgages were placed with the Orrstown Bank in
March, 2002, no money was allocated toward 6481 Carlisle Pike.
The company accountant testified that "1 would guess you could say [it] was my idea,"
for tax purposes, to transfer the 6481 Carlisle Pike from Figlio Mio Visaggio, Inc., to the four
Lumadues. However, he testified that he was not aware at that time of the pending litigation
between the corporation and TAM Systems, Inc., although he knew that there had been a
difficult construction project. He did not account for the corporate debt of $124,535.55 owing
to TAM Systems, Inc.
The property at 6481 Carlisle Pike was appraised by a certified appraiser, William
Rothman, as of September, 2001, at $650,000. Rothman also produced a retrospective
appraisal as of September 30, 1999, at $625,000.
THE FRAUDULENT TRANSFERS ACT
The Pennsylvania Uniform Fraudulent Transfers Act, 12 Pa.C.S. Section 5101 et seq.
provides at Section 5404:
Transfers fraudulent as to present and future creditors
(a) General rule.--A transfer made or obligation incurred by a debtor
is fraudulent as to a creditor, whether the creditor's claim arose before or after
the transfer was made or the obligation was incurred, if the debtor made the
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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:
(i) was engaged or was about to engage in a business
or a transaction for which the remaining assets of the debtor
were unreasonably small in relation to the business or
transaction; or
{ii) intended to incur, or believed or reasonably should
have believed that the debtor would incur, debts beyond the
debtor's ability to pay as they become due. (Emphasis added.)
(b) Certain factors.--In determining actual intent under subsection
(a)(1), 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 obligation was disclosed or concealed;
(4) before the transfer was made or obligation was incurred, the
debtor had been sued or threatened with suit;
(5) the transfer was of substantially all the debtor's assets;
(6) the debtor absconded;
(7) the debtor removed or concealed assets;
(8) the value of the consideration received by the debtor was
reasonably equivalent to the value of the asset transferred or the amount
of the obligation incurred;
(9) the debtor was insolvent or became insolvent shortly after the
transfer was made or the obligation was incurred;
(10) the transfer occurred shortly before or shortly after a
substantial debt was incurred; and
(11) the debtor transferred the essential assets of the business to
a lienor who transferred the assets to an insider of the debtor.
Section 5101 of the Act defines a "transfer" and an "asset" as:
"Transfer." Every mode, direct or indirect, absolute or conditional, voluntary or
involuntary, of disposing of or parting with an asset or an interest in an asset.
The term includes payment of money, release, lease and creation of a lien or
other encumbrance. (Emphasis added.)
"Asset." Property of a debtor. The term does not include:
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(1) property to the extent it is encumbered by a valid lien...
(Emphasis added.)
DISCUSSION
There are some significant signs pointing to a fraudulent insider transfer that has
removed the only asset available to apply toward the debt to plaintiff that Figlio Mio Visaggio,
Inc., conveniently did not pay and then went bankrupt. Defendants in addition to maintaining
that the evidence shows that there is no basis for concluding that plaintiff can prove a
fraudulent transfer under Section 5404 of the Fraudulent Transfers Act, maintain that the lien
status on 6481 Carlisle Pike at the time it was deeded from the corporation to the individuals
shows that there was not a transfer of an asset as those terms are defined in Section 5101,
thus the conveyance is not subject to a determination that it was fraudulent. That is far from
clear given defendants' conduct, the movement, assignment and commingling of funds
between various entities controlled by the Lumadues, the web of transactions, and the
disposition of the corporate funds including the funds from the mortgages that defendants
have strung together.
To enter a preliminary injunction plaintiff's right to relief must be clear. The Supreme
Court of Pennsylvania stated in Shenango Valley Osteopathic Hospital v. Department of
Health, 499 Pa. 39 (1982), that the plaintiff must be likely to prevail on the merits. Put
another way, the Commonwealth Court set forth in Franklin Land Company et al. v.
Borough of Fox Chapel, 32 Pa. Commw. 478 (1977), that plaintiff must establish that the
prospect of securing a permanent injunction is good. In the case sub judice, the ability of
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plaintiff to prevail on the merits is not absolutely clear, but that is not the standard. Since
Figlio Mio Visaggio, Inc. is bankrupt, there are no assets of the corporation available to
compensate plaintiff for damages for a wrong that was manifest from the beginning when it
failed to pay plaintiff and it defended against the debt with a spurious counterclaim. No
greater injury will occur from refusing an injunction than for granting it as 6481 Carlisle Pike is
now collateral on the mortgage obligation to the Orrstown Bank, the proceeds of which were
utilized for the expansion of Visaggio's, Inc. Wertzville Road restaurant which is a continuing
business. At this point we will enter a preliminary injunction. Plaintiff should expeditiously
complete further discovery and bring the case to adjudication.
ORDER OF COURT
AND NOW, this day of May, 2003, IT IS ORDERED:
(1) Defendants, William J. Lumadue, Sr., Rosemary V. Lumadue, William J. Lumadue,
Jr. and John E. Lumadue are temporarily enjoined, pending further order of court, from
transferring or further encumbering 6481 Carlisle Pike, Silver Spring Township, Cumberland
County.
(2) This injunction is effective upon plaintiff depositing with the Prothonotary $1.00
pursuant to Pa. Rule of Civil Procedure 1531(b).
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By the Court,
Douglas G. Miller, Esquire
For Plaintiff
Keith O. Brenneman, Esquire
For Defendants
:sal
Edgar B. Bayley, J.
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