Allied Industries International, Inc. v. Agfa-Gevaert, Inc.

Citations: 688 F. Supp. 1516; 1988 U.S. Dist. LEXIS 6661; 1988 WL 65682Docket: 86-1804-Civ

Court: District Court, S.D. Florida; May 13, 1988; Federal District Court

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AGFA-GEVAERT, INC. obtained a judgment against Allied Industries International, Inc. for approximately $177,478.41, including costs and attorneys' fees, after the plaintiff failed to collect the outstanding judgment. In a motion for supplementary proceedings, AGFA sought to implead Michael Rubin, Diana Rubin, Cargill Boyd, and United Video International, Inc. as third-party defendants, arguing that they were transferees of the judgment debtor. The court granted the motion, allowing these parties to be impleaded and ordered them to show cause for why they should not be subject to AGFA's judgment. 

The court cited Federal Rule of Civil Procedure 69, stating that state law governs supplementary proceedings unless preempted by federal law, with Florida Statute 56.29 applying in this case. This statute aims for a swift resolution of creditor claims while maintaining equity in proceedings. The court acknowledged that equitable relief is permitted when legal remedies are insufficient, allowing creditors to reach additional property not subject to levy. 

AGFA met the jurisdictional requirements for supplementary proceedings, which include an unsatisfied writ of execution and an affidavit affirming its validity. The court emphasized a liberal interpretation of the statute to ensure creditors receive complete relief. It confirmed that impleading third parties does not imply their liability but allows them to defend their interests in accordance with due process.

AGFA claims that United is the alter ego of the defunct Allied and seeks to hold United liable for the judgment against Allied. If United is not deemed Allied’s alter ego, AGFA argues that United should be liable for assets it received from Allied without consideration. Cargill Boyd, as sole shareholder and president of United, is also alleged to be personally liable for the judgment, as he received the full value of Allied's assets and created United to circumvent AGFA’s claim. AGFA further contends that Michael and Diana Rubin should be personally liable for preferential transfers from Allied, particularly noting that Michael Rubin transferred approximately $140,000 worth of property to himself, breaching his fiduciary duty to Allied's creditors. AGFA seeks the value of the property from Diana Rubin, who claims ownership of the repossessed items.

In a prior legal context, Allied sued AGFA for breach of contract, which AGFA counterclaimed, resulting in a verdict in favor of AGFA for $128,684.12, plus interest and additional costs, none of which have been recovered. Michael Rubin acknowledged Allied's insolvency and his intention to impede AGFA’s collection efforts post-verdict, asserting that Allied ceased operations the day after the verdict. Following this, United commenced operations and retained key assets and employees from Allied, maintaining continuity in operations. Cargill Boyd, while holding stock in United, did not provide startup capital, and United was primarily financed through loans for which Michael Rubin was responsible, despite his claims regarding Allied’s financial challenges.

Eagle National Bank received information indicating that Allied's first quarter sales for 1987 amounted to $403,438.01, with a gross profit of $201,718.74 and a net profit of $126,983.64. Mr. Rubin claimed his stock in Allied was valued at $500,000.00 shortly after a judgment, despite previously asserting that Allied had no significant assets. United subleases its office space from DER Duplicating, a corporation incorporated by Michael Rubin after the judgment against Allied. DER and United share the same office space, receptionist, and telephone, visually indistinguishable from one another. Although DER occupies more floor space, it pays nominal rent, while United pays $1,500.00 of the total $1,820.00 monthly rent.

Testimony revealed that Michael Rubin has significant control over United, despite Cargill Boyd being the president and sole shareholder. Diana Rubin earns a weekly salary exceeding Boyd's by $300.00 and also receives a $2,500.00 weekly commission related to a purchase order with Video Loaders, Inc., United's largest customer and a former client of Allied. Michael Rubin assisted Video Loaders in establishing letters of credit for payments. Boyd lacked experience in the tape business and was unable to finance United independently, yet it achieved immediate success.

Under Florida Statutes § 56.29(5), a court can hold a new corporation liable for a predecessor's judgment if it is deemed the alter ego of the debtor. United was incorporated following Allied's decline, taking over its leases and assets without consideration. It employs the same personnel, services the same clients, and utilizes the same equipment as Allied. The transition between Allied and United appears to be a mere name change, with evidence suggesting that Diana and Michael Rubin retain control and benefit financially from United despite Cargill Boyd holding the stock.

Section 56.29(6)(a) allows a judgment creditor to reach property transferred within one year of service if the transferee is in a confidential relationship with the defendant. The burden of proof lies with the judgment debtor to demonstrate that the transfer was not intended to defraud creditors. Establishing fraud requires a preponderance of the evidence.

United was formed as a means to defraud AGFA of its judgment, relying on the name, credit, and efforts of Allied, Michael Rubin, and Diana Rubin. The third-party defendants failed to counter the prima facie case presented by AGFA, making United liable for Allied's judgment debt. AGFA also seeks to hold Cargill Boyd accountable as the recipient of all of United's outstanding stock. Under Florida law, shares of a successor corporation created to defraud a creditor can be executed for the creditor's benefit. Consequently, since United is deemed a continuation of Allied, its stock is subject to execution to satisfy AGFA’s judgment, and Cargill Boyd is liable to AGFA based on his interest in United's stock.

Michael Rubin is also implicated, as he may be held individually liable for assets he repossessed from Allied, violating creditors' rights and breaching his fiduciary duty as president, director, and sole shareholder. He repossessed property worth $140,000 from Allied shortly after a judgment against it, then sold it back to Allied for a total of $140,000 through two notes. Rubin’s actions, which included a self-demand notice and refusal of payment, demonstrate a disregard for Allied's creditors, justifying the subordination of his claims. As a fiduciary, Rubin must prove the fairness of his actions, but he has not contested evidence indicating his self-serving conduct. The court retains the authority to grant equitable relief to ensure complete satisfaction for AGFA.

Michael Rubin repossessed nearly all assets of Allied, acting in his own interest and harming the ongoing judgment creditor, AGFA, which could not recover its judgment due to the depletion of Allied's assets. Rubin is deemed personally liable to AGFA for $140,000, the value of the assets he transferred to himself, contradicting his claim that he did not own the repossessed assets. Testimony revealed that Rubin owned Allied Blinds, a company linked to the dispute, and he had previously declared in a memorandum that he wholly controlled multiple related corporations. His recent defense attempts are viewed as obfuscation.

Diana Rubin is also found liable to AGFA for $30,000 in "sales commissions" from United, which AGFA argues were transferred to hinder creditors. This liability arises under section 56.29(6)(a), which requires a transferee in confidential terms to prove that such transfers were not made to defraud creditors. Diana did not contest the allegations regarding the transfer's nature. 

Consequently, it is ordered that United and Cargill Boyd are liable to AGFA for the amounts owed, including attorney's fees. The Rubins are also ordered to pay the specified amounts to AGFA, with AGFA required to submit detailed documentation of its attorney's fees within ten days, allowing the third-party defendants to object within the same timeframe.