United States Bankruptcy Appellate Panel of the Eighth Circuit
In re: Top Hat 430, Inc., Formerly doing business as Top Hat, Inc., doing business as Be Iced Jewelers, doing business as Be Iced Diamond Exchange, doing business as Gold Stop, doing business as Bidx Debtor
Pennie Glasser Appellee/Cross-Appellant Randall L. Seaver, Trustee Appellant/Cross-Appellee
Submitted: April 26, 2017
from United States Bankruptcy Court for the District of
Minnesota - Minneapolis
SALADINO, Chief Judge, FEDERMAN and SHODEEN, Bankruptcy
FEDERMAN, Bankruptcy Judge.
L. Seaver, Chapter 7 Trustee in the bankruptcy case of Top
Hat 430, Inc., filed suit against Pennie Glasser, seeking to
recover from her, as a preference, a payment made by the
Debtor to her. Since the payment was made more than ninety
days, but less than one year, prior to its filing bankruptcy,
the Trustee can only prevail if Ms. Glasser is found to have
been an insider of the Debtor at the time of payment. Ms.
Glasser is the former wife of an insider of the Debtor, as
well as a minor investor and employee of the Debtor at the
time of payment. The Bankruptcy Court held that Ms. Glasser was not an insider
of the Debtor. Therefore, the payment was not an avoidable
preference pursuant to 11 U.S.C. § 547(b) and Minnesota
Statute § 513.45(b). The Trustee appeals, and Ms.
Glasser cross-appeals the finding that, even though she was
not an insider, the transaction between her and the Debtor
was not at arm's length. For the reasons that follow, we
Hat, Inc., was founded in 2004 by David Pomije, Sr. and Duane
Wermerskirchen, and operated under the name of "Be Iced
Jewelers." Pennie Glasser and her current husband, David
Glasser, were stockholders of Top Hat, Inc., owning
approximately 2.1% of the company's stock.
430, Inc. the Debtor in this case, operated retail jewelry
stores, buying and selling new and used jewelry, precious
metals, and gemstones. In 2012, Top Hat 430 merged with Top
Hat, Inc., with Top Hat 430 (the "Debtor") emerging
as the surviving entity. Mr. Pomije was the president of the
Debtor and had control over its operations.
Glasser and Mr. Pomije had been married from December 1985
through February 1997, prior to the formation of the Debtor.
They share three children, all of whom are grown. During the
marriage, Ms. Glasser worked at two companies founded by Mr.
Pomije, namely, Protectronics, Inc. and Funco, Inc. After the
marriage ended, Ms. Glasser continued to work for other
companies founded by Mr. Pomije, including 2nd Swing, Inc.
and the Debtor. The couple's son also worked for the
Debtor. Ms. Glasser testified that, due to Mr. Pomije's
past successes, she had confidence in him as a business
March of 2011, which was before Ms. Glasser went to work for
the Debtor, Mr. Pomije approached the Glassers (among other
potential lenders) regarding a bridge loan for the Debtor.
The bridge loans were intended to be short term loans which
would be repaid from a new capital infusion, for which Mr.
Pomije would seek investors. David Glasser negotiated the
terms of the Glassers' loan with Mr. Pomije. As a result
of those negotiations, on March 31, 2011, Mr. Pomije signed,
on behalf of the Debtor, a promissory note in favor of the
Glassers in the amount of $200, 000. The terms of the note
provided for repayment of the $200, 000 principal within 90
days without interest, a $10, 000 origination fee, and a 20%
interest rate if default occurred. Mr. Pomije personally
guaranteed the note. Shortly after this loan was made, Ms.
Glasser went to work sorting jewelry at the corporate office
for the Debtor. Ms. Glasser testified she went to work at the
Debtor because she wanted to "get out of the
other people also made bridge loans to the Debtor. There is
no evidence that the Debtor repaid the principal on any of
those loans within 90 days. However, it did make interest
payments, including $36, 555.55 to the Glassers, from the
middle of 2011 through early 2012. Meanwhile, Mr. Pomije was
working on raising capital to repay the bridge loans and
operate the company. As part of those efforts, in November
2011, the Debtor issued a Private Placement Memorandum
("PPM") intending to raise $8 million in capital.
The PPM described the lenders and terms of the bridge loans,
and provided that $1.3 million of the capital raised would be
used to pay bridge loans. As a result of the PPM, the Debtor
raised $4 million in capital on or about April 13,
2012. Using those funds, the Debtor
made a payment in the amount of $205, 444.45 to the Glassers
on April 19, 2012, paying the note in full. Some of the other
bridge loans were also paid, but not all of them. In
addition, a few, but not all, creditors with accounts over
ninety days were paid. The evidence at trial was that it was
Mr. Pomije who decided which creditors to repay with the $4
million capital infusion.
than a year later, on February 12, 2013, the Debtor filed a
Chapter 11 bankruptcy case. The case was converted to Chapter
7 on March 25, 2013, and the Chapter 7 Trustee filed an
adversary proceeding against Ms. Glasser for recovery of the
payment as a preference, asserting that she was a
non-statutory insider, and so the one-year lookback period in
§ 547(b)(4) applied. Mr. Glasser was not named as a
defendant in the preference action.
a trial, the Bankruptcy Court entered judgment in favor of
Ms. Glasser, finding that, although the transaction was not
at arm's length, she was not an insider. The Trustee
appeals. And, although Ms. Glasser prevailed as to the
outcome, she cross-appeals the conclusion that the
transaction was not at arm's length.
speaking, we review findings of fact for clear error and
conclusions of law de novo. However, as we commented in In re
Rosen Auto Leasing, Inc., the appropriate standard of
review for a determination of non-statutory insider status is
in dispute. Indeed, the United States
Supreme Court recently granted certiorari on the question of
whether review is de novo, clearly erroneous, or a
combination of both. In In re
Rosen Auto, we said we believed the determination is a
mixed question of law and fact and, until the Supreme Court
says otherwise, we adhere to that opinion. Nevertheless, as
was the case in Rosen Auto, we would reach the same
result under either standard of review.
547(b) of the Bankruptcy Code provides that a trustee may
avoid the transfer of an interest of the debtor in property -
(1) to or for the benefit of a creditor;
(2)for or on account of an antecedent debt owed by the debtor
before such transfer was made;
(3)made while the debtor was insolvent;
(A)on or within 90 days before the date of the filing of the