John Nagle Co. v. McCarthy (In re The Cousins Fish Market, Inc.)

John Nagle Co. v. McCarthy (In re The Cousins Fish Market, Inc.)
Holdings: United States Court of Appeals for the Second Circuit held that: 1) that the Bankruptcy Court did not abuse its discretion in excluding evidence from the bench trial that had not been produced to the trustee during discovery, and 2) that the Bankruptcy Court did not err in ruling that Nagle failed to establish its affirmative defenses. The ruling of the United States District Court for the Northern District of New York is affirmed.
Procedural context:
Appellant John Nagle Co. (“Nagle”) appealed from a judgment and order of the Bankruptcy Court filed August 26, 2014 and October 23, 2014, respectively, which: (1) entered judgment in favor of appellee William M. McCarthy, trustee, in the amount of $109,325.01; and (2) denied Nagle's motion for reconsideration. The United States District Court for the Northern District of New York affirmed the Bankruptcy Court's judgment and order. Nagle then appealed the judgment of the United States Bankruptcy Court for the Northern District of New York. arguing that the Bankruptcy Court erred by (1) excluding certain documentary evidence and witness testimony from the bench trial; and (2) concluding that Nagle failed to prove its two affirmative defenses under 11 U.S.C. § 547(c)(1) and (c)(2).
In October 2011, William J. McCarthy (the “Trustee”), filed an adversary complaint to avoid certain transfers made by The Cousins Fish Market, the Chapter 7 debtor, to Nagle. On several separate occasions, Nagle's answering deadline was extended with the consent of the Trustee. After initially failing to timely comply with discovery demands, first filed by the Trustee in January 2013, Nagle eventually responded to the Trustee's demands and also sought an extension of the discovery deadline, which request was granted. Thereafter, the Trustee moved for partial summary judgment. A hand written response from Robert Nagle, vice president of operations and treasurer of Nagle, dated June 2013, was filed in opposition to the motion; in his letter, Robert informed the court that his attorney had “not been in communication with” him and that he found out about the “current court Filings through a local Boston Bankruptcy Attorney Joe Bodoff.” Although they dispute what transpired, the parties agree that a telephonic hearing was held soon thereafter with respect to Robert's letter at which Goldin, Robert, and corporate counsel for Nagle, Brian Olmstead, appeared by telephone. On June 20, 2013, Nagle substituted counsel, replacing Goldin with attorney Douglas Rose, who made no attempt to reopen discovery or seek a protective order. Five days later, the Bankruptcy Court granted the Trustee's motion for partial summary judgment, but preserved Nagle's right to present affirmative defenses, and referenced previously scheduled trial dates to resolve the outstanding issues, i.e., Nagle's affirmative defenses. On July 18, 2013, Nagle forwarded a “supplemental response to first request for production” to the Trustee in advance of trial, but well after the close of discovery. The trustee rejected the supplement, expressing his belief that “the supplemental information has been within the possession, custody and control of [Nagle], and thus should have been produced prior to the April 26, 2013 discovery deadline,” and that Nagle was required to obtain court authorization to make such “an untimely discovery response.” The Trustee thereafter filed a motion in limine seeking “to exclude evidence not produced in discovery,” which included the documents forwarded by Nagle on July 18 and any witnesses not previously disclosed. At a hearing on that motion, Bankruptcy Court, which referenced the quality of Goldin's prior representation, granted the motion and precluded Nagle's use of previously undisclosed evidence that related to its affirmative defenses. The Bankruptcy Court did, however, leave open Nagle's right to call a witness to testify, but specifically contemplated precluding such witnesses if, after the Trustee had an opportunity to depose that person, the prejudice to the trustee from late disclosure was too great to be tolerated. After Nagle identified Robert as a witness it intended to call at trial, and the trustee had an opportunity to depose him, the Trustee moved to preclude Robert from testifying because his testimony would be “predicated, in part, on ... documents requested but not disclosed, and ... discussion with parties who had personal knowledge but not disclosed.” Following its review of the deposition transcript, the Bankruptcy Court, agreeing with the Trustee, precluded Robert from testifying to any matters outside of his personal knowledge or premised upon his review of previously excluded evidence. The court specifically preserved Nagle's right to deduce Robert's testimony on matters for which he had personal knowledge. When the day of trial came soon thereafter, off-the-record discussions took place, and, ultimately, Nagle opted to forego calling Robert as a witness for reasons not altogether clear. Nagle, instead, agreed to proceed on the parties' stipulation of uncontested facts and further briefing. The uncontested facts consisted primarily of invoices and checks. After the parties submitted their stipulation of uncontested facts and Nagle filed proposed findings of fact and conclusions of law, to which the Trustee objected, the Bankruptcy Court orally ruled on Nagle's outstanding affirmative defenses. It was Nagle's burden to establish that the transfers at the heart of the adversary proceeding were nonavoidable as either “contemporaneous exchange for new value” or “made in the ordinary course of business.” After a thorough explanation on the record, the Bankruptcy Court ruled that "because of the prior [partial] summary judgment motion made by the trustee, all of the elements of the preferential transfers outlined in the complaint have been established. Nagle's counsel, who came in this case late—came into this case late, has done a valiant job under the circumstances. Nevertheless, because nearly all of the evidence—because nearly all the evidence necessary to establish its affirmative defenses was precluded, the defendant has not proven any of its defenses." Nagle moved for reconsideration following entry of judgment in favor of the Trustee. The Bankruptcy Court denied his request.

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