Buckeye Retirement Co LLC Ltd v. Buffa

Filing 73

RULING: granting in part 67 Motion for Supplemental Post-Judgment Discovery Orders and Supplemental Relief. Signed by Judge Joan G. Margolis on 8/5/2011. (Rodko, B.)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
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:
BUCKEYE RETIREMENT CO., LLC, LTD
:
:
v.
:
:
:
ANTHONY BUFFA
:
:
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3:05 CV 769 (JGM)

DATE: AUGUST 5, 2011

RULING ON PLAINTIFF’S MOTION FOR SUPPLEMENTAL POST-JUDGMENT DISCOVERY
ORDERS AND SUPPLEMENTAL RELIEF IN ORDER OF AID OF EXECUTION
Although familiarity with the factual and procedural background of this litigation is
presumed, the following is relevant to plaintiff’s pending motion. On December 15, 2005,
the parties consented to trial before this Magistrate Judge. (Dkt. #20). On May 5, 2006, this
Magistrate Judge filed her Ruling on Plaintiff’s Motion for Summary Judgment, granting in
part plaintiff’s motion to the extent that defendant is liable to plaintiff for a promissory note
[“Note”] made by defendant to the Fifth Third Bank, which Note was assigned to plaintiff on
April 14, 2005; a hearing was to be held as to the issue of damages. (Dkt. #28, at 2, 5-7;
see Dkt. #32). Eight days before the scheduled hearing date, the parties filed a Joint
Stipulation of Judgment in the amount of $180,000, so ordered by this Magistrate Judge on
July 20, 2006. (Dkts. ##33-35).1
On August 2, 2006, plaintiff filed an application for a writ of execution for the total
unpaid judgment, which was issued two days later. (Dkt. #36). On November 15, 2006,
plaintiff filed its first Motion for Judgment Debtor Examination and Post-Judgment Discovery
(Dkt. #37), which this Magistrate Judge granted, by agreement of counsel (Dkts. ##38-39).

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The Judgment was not entered by the Clerk’s Office until May 18, 2007. (Dkt. #45).

On March 14, 2007, plaintiff filed a Motion for Charging Order against defendant’s limited
liability company, Endeavor Capital Management, LLC [“Endeavor, LLC”] for the collection
of the unpaid judgment, plus interest (Dkt. #40); on April 11, 2007, this Magistrate Judge
granted plaintiff’s motion, absent objection. (Dkt. #41). Two weeks later, on April 25, 2007,
plaintiff filed its Motion for Supplemental Post-Judgment Discovery Order. (Dkt. #42). On
June 14, 2007, this Magistrate Judge filed a Ruling on Plaintiff’s Motion for Supplemental
Post-Judgment Discovery Order (Dkt. #48)[“June 2007 Ruling”] which denied plaintiff’s
motion without prejudice to renewal:
The evidence presented to the Court does not support a “reasonabl[e]
belie[f]” that Nancy Haar has assets of her husband, the judgment debtor,
thus preventing plaintiff from collecting on the unpaid judgment.
Nonetheless, the Court is of the opinion that plaintiff is entitled to continue
to pursue limited discovery of the assets of the judgment debtor, if any, and
to engage in further discovery from defendant that would support its
allegation that defendant engaged in a “probable fraudulent transfer.”
(At 4).
More than one year later, on September 10, 2008, plaintiff filed its Motion to Compel
Compliance with Charging Order and Motion for Post Judgment Discovery Order (Dkts.
##49-50), regarding Endeavor, LLC and Emigrant Mortgage Co, Inc.; both motions were
granted, absent objection, on October 7, 2008. (Dkts. ##51-52). Shortly thereafter, on
November 17, 2008, plaintiff filed its Application for Wage Execution (Dkt. #53), which was
granted in an amount not to exceed $8.07/week prior to December 31, 2008 and not to
exceed $4.57/week starting on January 1, 2009. (Dkt. #58; see also Dkts. ##54-57).
On January 6, 2009, plaintiff next filed its Motion for Order Re Post-Judgment
Discovery, filed January 6, 2009 (Dkt. #59), which sought post-judgment discovery under
CONN . GEN . STAT . § 52-351b, namely production of defendant’s tax returns, both state and

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federal, along with documents supporting those returns and the tax returns of Endeavor,
LLC. Defendant opposed this motion, on the grounds that neither Endeavor, LLC nor
defendant’s wife, Nancy Haar, were a judgment debtor, so that their tax returns and other
financial information were not object to discovery by plaintiff under CONN . GEN . STAT . § 52351b, and that circumstances had not changed since the June 2007 Ruling. (Dkt. #60, at
1-3). Based upon “the simple language” of CONN . GEN . STAT . § 52-351b(a)

that “[a]

judgment creditor may obtain discovery from the judgment debtor, or from any third person
the judgment creditor reasonably believes, in good faith, may have assets of the judgment
debtor . . . .” (emphasis added), and given that “[n]ot a dime of [the] judgment has been
paid by [defendant],” despite the multiple post-judgment motions filed by plaintiff, this
Magistrate Judge held in her Ruling on Plaintiff’s Motion for Order Re: Post Judgment
Discovery, filed January 27, 2009 (Dkt. #62)[“January 2009 Ruling”] that it was “appropriate
for defendant, his wife, and Endeavor, LLC to submit the requested documents to this
Magistrate Judge for her in camera review, to determine if indeed Ms. Haar and/or Endeavor,
LLC are third persons who may have assets of the judgment debtor.”
In accordance with the January 2009 Ruling, on February 29, 2009, defendant
submitted the multiple financial records for the years 2006 and 20072 to this Magistrate

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The documents included: (1) the 2006 U.S. Individual Income Tax Return, Form 1040,
filed jointly by defendant and Haar, together with all supporting schedules; (2) the 2007 U.S.
Individual Income Tax Return, Form 1040, filed jointly by defendant and Haar, together with all
supporting schedules; (3) the 2006 U.S. Return of Partnership Income, Form 1065, for Endeavor,
LLC, together with all supporting schedules; (4) the 2007 U.S. Return of Partnership Income, Form
1065, for Endeavor, LLC, together with all supporting schedules; (5) the 2006 Joint Connecticut
Resident Income Tax Return, Form CT-1040, filed by defendant and Haar; (6) the 2007 Joint
Connecticut Resident Income Tax Return, Form CT-1040, filed by defendant and Haar; (7) the
2006 Connecticut Composite Income Tax Return, Form CT-1065/CT-1120SI, for Endeavor, LLC; and
(8) the 2007 Connecticut Composite Income Tax Return, Form CT-1065/CT-1120SI, for Endeavor,
LLC .

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Judge for her in camera review, after which this Magistrate Judge held in her Ruling
Following In Camera Review, filed March 3, 2009 (Dkt. #64)[“First March 2009 Ruling”] that
“none of the items contain any information that would ‘support [plaintiff’s] allegation that
defendant engaged in a probable fraudulent transfer.’” (At 4)(quotations & alterations
omitted).3 The First March 2009 Ruling continued:
However, in Endeavor, LLC’s 2006 Form 1065 and 2007 Form 1065,
there are significant travel expenses, especially in comparison to the total
expenses and gross receipts. In light of the deduction for “Haar Buffa
Vacation Expense,” there is enough of a red flag to require supplemental
documentation justifying such large sums as genuine business travel, as
opposed to personal travel.
(Id.).4 The First March 2009 Ruling required the submission of documentation for all travel
in excess of $500 to this Magistrate Judge’s Chambers for additional in camera review. (Id.).
Twenty days later, this Magistrate Judge filed the Ruling Following Second In Camera Review
(Dkt. #65)([“Second March 2009 Ruling”], which agreed that Endeavor, LLC had “amply
justified [the travel expenses] as legitimate business travel, as opposed to personal travel
[so that] no further disclosure to plaintiff [was] necessary.” (At 3).
There was no further activity on the docket sheet for more than two years until June
6, 2011, when plaintiff filed the pending Motion for Supplemental Post-Judgment Discovery
Orders and Supplemental Relief in Order of Aid of Execution (Dkt. #67).5 On July 15, 2011,

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The First March 2009 Ruling found that “[t]here [was] one suspicious item, an entry on
Endeavor, LLC’s 2007 Form 1065, showing a deduction for ‘Haar Buffa Vacation Expense,’ but the
amount [was] de minimis relative to the amount of the judgment here[,]” so that no disclosure of
these documents was required. (Id.).
4

See note 3 supra.

5

The following items were attached: excerpt from the deposition of Anthony Buffa, taken
on May 12, 2011 (Exh. A)[“Buffa Depo.”]; and copy of case law (Exhs. B-E).

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defendant filed his brief in opposition. (Dkt. #716 ; see also Dkts. ##69-70). Ten days later,
plaintiff filed its reply brief. (Dkt. #72).7
For the reasons stated below, plaintiff’s Motion for Supplemental Post-Judgment
Discovery Orders and Supplemental Relief in Order of Aid of Execution (Dkt. #67) is granted
in part.
I. DISCUSSION
The parties agree that defendant Buffa is a private equity investor employed on a fulltime basis by Endeavor, LLC; defendant Buffa has a ninety-nine percent ownership in
Endeavor, LLC while his wife, Nancy Haar owns the remaining one percent interest; Haar
works on less than a full time basis for Endeavor, LLC, which is the only source of income
for the couple. (Dkt. #67, at 2; Dkt. #71, at 1). On May 12, 2011, plaintiff conducted a
second deposition of defendant Buffa, at which defendant Buffa testified that he works more
than fifty hours per week for Endeavor, LLC, including travel, consisting of ten to twelve
hours per day, five days a week, plus four to six hours during the weekend, which adds up
to fifty-four to sixty-six hours per week, for which he receives an annual salary of $20,000;
he further testified that he has not received any income from Endeavor, LLC for the last five
to six months. (Dkt. #67, at 4 & Exh. A; Dkt. #72, Exh. A).
Defendant Buffa also testified that Haar works for Endeavor, LLC six to eight hours
per day, only three to four days a week, which adds up to eighteen to thirty-two hours per
week, a reduced work load because her “focus” is on raising the couple’s children. (Dkt.

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Five exhibits were attached: copies of U.S. Return of Partnership Income, Form 1065, for
Endeavor Capital Management LLC, for the tax years 2008, 2009 and 2010 (Exhs. A-C); affidavit of
Thomas Buffa, sworn to July 15, 2011 (Exh. D)[“Thomas Buffa Aff’t”]; and affidavit of Nancy E.
Haar, also sworn to July 15, 2011 (Exh. E)[“Haar Aff’t”].
7

Attached as Exh. A were additional excerpts from the Buffa Deposition.

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#67, at 4). Defendant Buffa further testified that Haar had received an annual salary of
$120,000 from Endeavor, LCC but for the last several years, had been paid between $75,000
to $100,000 per year. (Dkt. #67, at 4 & Exh. A; Dkt. #72, at 1). When defendant Buffa was
asked the reason for this obvious disparity in workload and commensurate pay, defendant
Buffa responded that he did not know the rationale behind this, despite being the majority
owner by a ratio of ninety-nine to one, and despite being the company’s managing member;
he testified that it was Haar’s decision about how she would be paid. (Dkt. #67, at 4-5 &
Exh. A; Dkt. #72, at 1-2).
The following colloquy occurred regarding this allocation:
Q: Okay. Is the decision to pay . . . Haar $120,000 and you $19,000
arbitrary?
A: What do you mean by “arbitrary?”
Q: Is there a rationale for it?
A: I don’t know.
Q: Sir, somebody has to decide that . . . Haar is going to be paid
$120,000; right?
A. It is my wife’s decision because she controls all the financial books
and checking accounts and records of the firm. I want to remain married.
And I want to see my daughter get out of high school. And to remain
married, I’ve made compromises to do what I need to do to keep a stable
home life and have my daughter get through high school and not get evicted
from my house or evicted from my marriage. So, I’ve, you know, if that’s
what you deem to be arbitrary, then it is arbitrary. It is her decision.
Q. Okay. So, if I’m understanding you, sir, the decision to pay . . .
Haar $120,000 and you $19,000 is because you have a lot of creditors.
A. No, it’s the decision of my wife to pay herself when she’s paid and
pay me what I’m paid because she wants to make sure she can cover the
expenses of the family.
Q. But why wouldn’t she be able to cover the expenses of the family
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if she paid you $120,000?
A: Because I would not be able to keep up with that.
Q: Because you have creditors?
A: I have many creditors.
Q: Including Buckeye?
A: Correct.
(Dkt. #67, at 5-6).
Thus, plaintiff concludes that “it is evident that the decision to allocate income to
Haar . . . was out of a fear that Buffa’s income would be subject to execution by his
creditors[,]” and “it is unusual (to say the least)” that as a one percent owner of Endeavor,
LLC, Haas has “total and complete control over the accounts of Endeavor, LLC and over how
income is paid out to the employees and members.” (Id. at 6).

Plaintiff argues that the

allocation arrangement between defendant and Haar is referred to as a “diversion of the
fruits of one’s labor” arrangement, which has been “repeatedly rejected” by the federal
courts, bankruptcy courts, and state courts in Connecticut. (Id. at 7-8 & Exhs. B-D).

In

light of Haar’s background, including her representation that she has an MBA and is “familiar
with investment banking[,]” plaintiff concedes that it is “not in a position (yet) to dispute
Haar’s claim of qualification or expertise nor the validity” of the allocation arrangement, but
is nonetheless entitled to conduct discovery regarding Haar’s contribution to Endeavor, LLC
to determine if the allocation arrangement can be “substantiated[]” or if it constitutes a
fraudulent transfer. (Id. at 8-9). Therefore, plaintiff seeks supplemental discovery from both
Haar and Endeavor, LLC, namely to question Haar individually and to question Endeavor, LLC
through a designated representative regarding this allocation and Haar’s expenditures,

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pursuant to CONN . GEN . STAT . §§ 52-351b(c), 52-356b(a)(1)-(2). (Id. at 9-10).8
In his brief in opposition, defendant asserts that he “currently lacks the financial
capacity to pay anything towards the outstanding judgment balance[,]” and that he has
numerous other creditors, including the IRS, to whom he owes “substantial amounts of
money.” (Dkt. #71, at 2). He also represents that Haar also works in the private equity
investment industry and “has both a formal education and decades of experience in this line
of work.” (Id. & Haar Aff’t). Defendant further contends that he “misunderstood the
questions being asked, mis[-]spoke or was [misled] by the questions asked” at the second
deposition, at which he appeared without counsel, and that his testimony is in conflict with
his U.S. individual tax returns, Form 1040, for the years 2007 through 2010, which show
wages from Endeavor, LLC for $5,600 in 2007, $19,200 in 2008, $19,200 for 2009, and
$15,200 for 2010, with Haar receiving no wages “whatsoever” for the years 2007-09, while
the Schedule K-1 Forms for Endeavor, LLC properly allocate ninety-nine percent profits and
losses to defendant and one percent to Haar for the years 2007-09. (Id. at 3-5 & Exhs. AC).9 Therefore, defense counsel maintains that he is “at a loss as to why plaintiff’s counsel
would not have recognized that Buffa was mis[-]speaking, misunderstood the question or

8

Plaintiff also reserves the opportunity to seek an order holding defendant, Haar and/or
Endeavor, LLC in contempt of court, “depending upon the information and testimony provided. . .
.”
(Id. at 10).
9

These tax returns were prepared by defendant’s brother, Thomas Buffa, a tax attorney
with offices located in Chicago; he avers that “[t]o the best of [his] knowledge, all tax return filings
are true and correct based upon bookkeeping and bank records maintained by Endeavor.”
(Thomas Buffa Aff’t, ¶¶ 2-7). He also “cannot explain” his brother’s testimony. (Id. ¶ 8).
In its reply brief, plaintiff argues that this affidavit constitutes inadmissible hearsay, and
because Attorney Buffa is beyond the court’s subpoena power, so that he is not subject to crossexamination by plaintiff. (Dkt. #72, at 4).

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was simply confused or misinformed[,]” that based on the tax returns for 2007-10 “there is
absolutely no evidence to support . . . plaintiff’s claims that Buffa is diverting the fruit of his
labor to . . . Haar[,]” and that “[o]ther than Buffa’s obviously confused and flawed testimony,
nothing in . . . plaintiff’s discovery revealed probable or alleged fraudulent transfers as
between Buffa and his wife. . . .” (Id. at 5-6).
In its reply brief, plaintiff characterizes defendant as “trying to ‘walk away’ from his
clear testimony, under oath,” which testimony was “clear[] and unequivocal[,]” and that the
claim that defendant misunderstood the questions is “patently absurd” in light of defendant’s
thirty-one years of expertise as a financial adviser, which claim is “nothing more than a
fabrication to cover his tracks.” (Dkt. #72, at 1-3 & Exh. A). Plaintiff additionally argues that
because of the “discrepancy between the tax returns and the honest testimony of Buffa,”
further examination is necessary “to determine who is telling the truth and to explain these
discrepancies.” (Id. at 4).
Plaintiff’s counsel is correct that defendant’s testimony was indeed “clear[] and
unequivocal[,]” did not reflect any confusion or misunderstanding regarding six separate
questions posed to him (particularly given defendant’s line of work and experience), and is
clearly at variance with the IRS filings made by defendant, Haar and Endeavor, LLC. For that
reason alone, plaintiff is entitled to limited, supplemental post-judgment discovery, so that
it can uncover whether there was a “diversion of the fruit of one’s labor” arrangement, as
reflected by defendant’s testimony. Therefore, at the present time, and without prejudice
to plaintiff seeking additional post-judgment discovery and other remedies in the future, it
is hereby ORDERED that Endeavor, LLC shall (a) appear (at a mutually agreeable time on
or before October 31, 2011), through a properly designated representative (who may be

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Nancy Haar) to testify at a deposition in this matter concerning the allocation of salary and/or
distributions from Endeavor, LLC by and between Anthony Buffa and Nancy Haar; and (b)
shall produce, at least twenty-one days before the deposition, any and all documents
in its possession concerning the allocation of salary and/or distributions from Endeavor by
and between Anthony Buffa and Nancy Haar.10
Dated this 5th day of August, 2011, at New Haven, Connecticut.

/s/ Joan G. Margolis, USMJ
Joan Glazer Margolis
United States Magistrate Judge

10

In light of the significant ramifications of the testimony at this deposition, it goes without
saying that it would be highly prudent for defendant to be represented by counsel at this
deposition.

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