Third Circuit Tees Off on Debtor's Former CFO, Affirms District Court Order Holding That Golf Club Membership Was Not Transferred to Exec and Belonged to Debtor
Pickett v. Integrated Health Servs., Inc. (In re Integrated Health Servs., Inc.), 233 Fed. Appx. 115 (3d Cir. 2007) (Circuit Judge Maryanne Trump Barry)
Prior to the petition date of debtor Integrated Health Services, Inc., the debtor issued a memo assigning some interest in a corporate golf club membership to its Executive Vice President and Chief Financial Officer, C. Taylor Pickett. This membership was later scheduled by the debtor as an asset of the debtor on schedules signed by Pickett. After Pickett left employment of the debtor almost two years after the petition date, the debtor removed Pickett as the corporate designee on the membership. Pickett then sought a declaratory judgment from the bankruptcy court that the membership was assigned to him, and that the debtor had no interest in it. The bankruptcy court granted summary judgment in favor of the debtor, finding the assignment memo to be ambiguous, and that the parties’ behavior evidenced that they believed that the debtor retained ownership of the membership. The district court affirmed, and the Third Circuit affirmed the district court order.
In 1993, Integrated Health Services, Inc. purchased for $75,000 a corporate membership at Caves Valley Golf Club. The clubs by-laws provided that the membership and stock certificates were non-assignableIn 1998, the debtor issued a memo that purported to transfer to its Executive Vice President and Chief Financial Officer, C. Taylor Pickett, “all its rights, title and interests in and to the Membership,” but also provided that Pickett would “remain the [debtor’s] designated member” unless he resigned the membership or was terminated for cause. Two years later, in February 2000, when the debtor filed its petition in the United States Bankruptcy Court for the District of Delaware, it listed the golf club membership as a long term asset of the debtor.
Pickett left the employment of the debtor on December 31, 2001, and signed an agreement releasing all claims arising out of his agreements with the debtor through that date. However, he continued to use the golf club membership until, in August 2002, the debtor asked the golf club to remove Pickett as its corporate designee.
Pickett sought a declaratory judgment from the bankruptcy court that he was the owner of the membership, and that it was not part of the bankruptcy estate. The bankruptcy court granted summary judgment for the debtor, and the district court affirmed.
Analyzing the question under Maryland law, the Third Circuit rejected Pickett’s contention that the memo was unambiguous, and intended to be an unqualified assignment of the debtor’s golf club membership. The court noted that, although the memo purported to evidence an assignment of “all [the debtor’s] rights, title and interest related to the membership,” it also characterized Pickett as its “corporate designee” and provides for two conditions under which the debtor could have stripped Pickett of his membership rights. On this basis, the Third Circuit found that the assignment was ambiguous.
Also, the Third Circuit agreed with the bankruptcy court’s finding that extrinsic evidence showed the parties intended the memo to provide something other than a complete assignment of the debtor’s interests in the golf club membership. For instance, the membership was not assignable without the club’s consent, and such consent was not sought. Also, the debtor’s schedules filed with the bankruptcy court – which were signed by Pickett himself – listed the membership as an asset of the debtor. Pickett neither took possession of the stock certificate nor listed the assignment as income or executive compensation in public filings. These factors showed that the parties understood the debtor to retain ownership of the membership.
