120 B.R. 881 (Bkrtcy.S.D.Ohio 1990), 2-85-00661, In re Lee Way Holding Co.

Docket NºBankruptcy No. 2-85-00661.
Citation120 B.R. 881
Party NameIn re LEE WAY HOLDING COMPANY, Debtor.
Case DateOctober 16, 1990
CourtUnited States Bankruptcy Courts, Sixth Circuit

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120 B.R. 881 (Bkrtcy.S.D.Ohio 1990)

In re LEE WAY HOLDING COMPANY, Debtor.

Bankruptcy No. 2-85-00661.

United States Bankruptcy Court, S.D. Ohio, Eastern Division.

October 16, 1990

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[Copyrighted Material Omitted]

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Dennis R. Wilcox, Climaco, Climaco, Seminatore, Lefkowitz & Garofolo, Cleveland, Ohio, for Creditors Comm.

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Roy E. Crowe, Sr., Smyrna, Ga.

Ronald L. Castle, Arent, Fox, Kintnr, Plotkin & Kahn, Washington, D.C., for Central States.

ORDER ON MOTION FOR APPROVAL OF SETTLEMENT OF BANNER ADVERSARY

DONALD E. CALHOUN, Jr., Bankruptcy Judge.

This cause came on for hearing commencing April 25, 1990, to consider the Trustee's Motion for Approval of Settlement of Banner Adversary, and objections thereto by PepsiCo, Inc. ("PepsiCo"), the Central States, Southeast and Southwest Areas Health and Welfare and Pension Funds ("Central States"), and Roy E. Crowe, Sr. Documents No. 2036, 2037 and 2038, respectively. 1 Present at the hearing were counsel for the Trustee and each of the objecting parties except Mr. Crowe. Also, present at the hearing were counsel for the Official Committee of Unsecured Creditors ("Creditors' Committee"), and Banner Industries, Inc. and Plymouth Leasing Company (collectively "Banner"). After five extended days of testimony and other evidence, and one day of oral argument on various legal and procedural issues, the Court requested briefs and proposed findings of fact, which have been filed. 2 The Court also allowed supplementation of the record which the parties took advantage of. All exhibits were deemed admitted, except that at Tab E of Banner's Reply Brief, which was previously stricken. See Document No. 2328.

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the General Order of Reference in this District. This is a core proceeding under 28 U.S.C. § 157(b)(2).

I. INTRODUCTION

Pursuant to Bankruptcy Rule 9019, the Trustee seeks approval of a global settlement resolving all existing and potential disputes between the bankruptcy estate and Banner. The majority of these disputes are reflected in the adversary proceeding of Luper v. Banner Industries, Inc., Adv.Pro. No. 2-86-0343, pending before this Court ("Banner adversary"). The settlement also encompasses a potential cause of action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., which PepsiCo asserts is held by the estate. On March 29, 1990, the Trustee filed his Motion with the Settlement Agreement attached, and served it upon all parties on the Master Notice Matrix, in accordance with the Court's Case Management Order entered in this case. 3 Also, on March 29, 1990, the Trustee filed and served on all creditors a Notice of Hearing of Motion for Approval of Settlement of Banner Adversary Proceeding, describing the compromise and giving notice of the hearing to be held by the Court. 4 The evidentiary hearing

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began on April 25, 1990, and continued on April 26, 1990, May 15 and 16, 1990, and May 21 and 22, 1990. 5 Central States withdrew its objection to the settlement on July 10, 1990. Document No. 2148.

II. BACKGROUND AND FINDINGS OF FACT

From the record and the evidence presented, the Court finds and concludes as follows:

The Debtor, Lee Way Holding Company, (the "Debtor" or "Lee Way") emerged from the merger of Lee Way Motor Freight, Inc. ("LWMF") and Commercial Lovelace Motor Freight, Inc. ("CLMF") on February 27, 1985. CLMF had been a wholly-owned subsidiary of Banner Industries, Inc. until approximately March 1, 1983, when Banner transferred approximately 51% of its stock to an Employee Stock Ownership Plan (the "ESOP"). LWMF had been a wholly-owned subsidiary of PepsiCo until approximately June 5, 1984. On June 5, 1984, CLMF acquired the stock of LWMF. After the merger, the Debtor filed a Petition for Relief under Chapter 11 of the Bankruptcy Code on March 7, 1985. Frederick M. Luper, an experienced trustee in this district, Transcript pp. 850-854, was appointed the Chapter 11 Trustee in January, 1987.

Allegedly, some of the largest assets of this bankruptcy estate consist of various claims against Banner, which gave rise to one of the major adversary proceedings filed during this Chapter 11 case. Luper v. Banner Industries, Inc., Adv.Pro. No. 2-86-0343 ("the Banner adversary"). 6 The First Amended Complaint and Objections to Claims of Banner (the "Complaint"), Plaintiff's Exhibit 1, 7 filed by the Trustee on or about November 17, 1987, is a 33-page Complaint consisting of 13 claims for relief. The Trustee classifies most of the claims in four general categories:

(a) Alter-ego and/or turnover--through which the Trustee seeks to incorporate Banner assets into the bankruptcy estate and/or hold Banner liable for all debts of the estate;

(b) Fraudulent conveyances--through which the Trustee seeks to avoid transfer of property by the Debtor to Plymouth Leasing Co. prior to commencement of the Chapter 11 case;

(c) Preferential transfers--through which the Trustee seeks to recover preferential payments made to or for the benefit of Banner; and

(d) Tax-Sharing Agreement--through which the Trustee seeks to recover amounts due under certain agreements by and between CLMF and Banner.

Additionally, the Trustee objects to Banner's claims against the estate or in the alternative, requests subordination of Banner's claims. Banner responded to the Complaint, raising several affirmative defenses, and asserting numerous counterclaims. Among the counterclaims, Banner asserts a security interest in assets of the estate, including accounts receivable, and seeks a determination of the extent and validity of its interest in those assets. Banner further asserts claims against the estate for amounts paid on claims against the Debtor pursuant to personal guaranties, letters of credit and the like.

The acquisition of LWMF by CLMF and the subsequent merger has engendered a truly phenomenal amount of litigation in various forums. Some of this litigation is germane to the issues now before the

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Court, and the major cases can be summarized as follows:

(a) The St. Paul litigation (St. Paul Fire & Marine Insurance Co. v. PepsiCo, Inc., Case No. 35 Civ. 2276 (KTD)). This case was initiated by St. Paul Fire & Marine Insurance Company against PepsiCo in the United States District Court for the Southern District of New York, based upon an indemnity agreement executed by PepsiCo in favor of St. Paul in 1978. In reliance upon that agreement, St. Paul had executed various surety bonds on behalf of LWMF to cover various liabilities. Upon default of those claims by LWMF, claims were made against the bonds issued by St. Paul. PepsiCo's Third-Party Complaint sought to pierce the corporate veil under an "alter-ego" theory, and compel Banner to indemnify PepsiCo for any amount found due to St. Paul. After discovery, Banner moved for summary judgment on the ground that Banner was not CLMF's alter-ego and that PepsiCo could not raise any genuine issue of material fact to the contrary. On November 2, 1988, the District Court granted Banner's Motion for Summary Judgment on the merits, and dismissed PepsiCo's Third-Party Complaint. See Plaintiff's Exhibit 9. On appeal, the United States Court of Appeals for the Second Circuit affirmed the dismissal, on the grounds that PepsiCo lacked standing to assert an alter-ego claim against Banner. The Second Circuit further noted that, in light of the pending Chapter 11 reorganization case, the causes of action asserted by PepsiCo belong to the bankruptcy trustee. See Plaintiff's Exhibit 10 [St. Paul Marine Insurance v. PepsiCo, Inc., 884 F.2d 688, 707 (2d Cir.1989) ].

(b) The Courtney litigation (Banner Industries, Inc. v. PepsiCo, Inc., Case No. CIV 85-449-R). This case was initially commenced against CLMF by an individual named Courtney. The procedural history of this case, which is pending in the United States District Court for the Western District of Oklahoma, is extremely complex. At present, the remaining issues involve claims by Banner against PepsiCo in which Banner asserts that it is CLMF's subrogee and alleges that PepsiCo committed fraud in selling LWMF to CLMF. PepsiCo's affirmative defenses include claims that are essentially the same as the Trustee's alter-ego claim here, i.e. that Banner dominated and controlled CLMF in a fashion which caused CLMF's financial failure. Since the disputes between Banner and PepsiCo are the only issues remaining, the case was renamed. The case was set for trial in April 1990, but was continued upon the filing of a motion for summary judgment by PepsiCo.

(c) The RICO litigation (PepsiCo, Inc. v. Banner Industries, Inc., Civil Action C-2-86-1571). This case is a civil RICO action brought by PepsiCo against Banner and various other defendants in the United States District for the Southern District of Ohio. On September 15, 1989 and January 8, 1990, Magistrate Abel recommended that the case be dismissed for lack of standing. See Plaintiff's Exhibits 13 and 14. However, Magistrate Abel did find that PepsiCo's Second-Amended Complaint stated a cause of action upon which relief could be granted. 8 Plaintiff's Exhibit 13, pp. 12-16. He further surmised that the Trustee has standing to assert the RICO claims. Plaintiff's Exhibit 13, p. 30; Plaintiff's Exhibit 14, p. 16.

(d) The Banner/Central States arbitration. (In the Matter of Arbitration between Banner Industries, Inc. and Central States, Southeast and Southwest Areas Pension Fund, AAA Case No. 51 621 0014 87 V). In 1986, the Central States, Southeast and Southwest Areas Pension Fund sent a notice and demand for payment of approximately $20,000,000 to Banner pursuant to the Multi-Employer Pension Plan Amendments Act...

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  • 227 B.R. 455 (Bkrtcy.E.D.Pa. 1998), 98, In re Nationwide Sports Distributors, Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Third Circuit
    • October 8, 1998
    ...forth verbatim the full text of a proposed settlement; it may describe the settlement in general terms"); In re Lee Way Holding Co., 120 B.R. 881, 889 (Bankr.S.D.Ohio 1990). The fact that the petitioning creditors were seeking to withdraw the trustee litigation and to assign their clai......
  • 398 B.R. 223 (Bkrtcy.S.D.Ohio 2008), 06-12778, In re Cincom iOutsource, Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Sixth Circuit
    • October 31, 2008
    ...in bankruptcy." ); also see In re Lee Way Holding Co., 105 B.R. 404, 410-12 (Bankr.S.D.Ohio 1989)6 and In re Lee Way Holding Co., 120 B.R. 881 (Bankr.S.D.Ohio Page 231 Even when Lee Way and PepsiCo were decided nearly two decades ago, those courts expressed healthy scepticism about whe......
  • In re Lahood, 031909 ILCBC, 07-81727
    • United States
    • Federal Cases United States Bankruptcy Courts Seventh Circuit
    • March 19, 2009
    ..." Energy Co-op. , 886 F.2d at 928, and they cannot be evaluated in "balance sheet" fashion, id; In re Lee Way Holding Co. , 120 B.R. 881, 899 (Bankr.S.D.Ohio 1990). Some deference, then, must be given to the trustee's expertise. Healthco , 136 F.3d at 50 n. 5; In re Eastwind ......
  • 336 B.R. 187 (Bkrtcy.S.D.N.Y. 2006), 05-60006, In re Refco Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Second Circuit
    • January 20, 2006
    ...of information under section 704(7) if disclosure would result in waiver of the attorney-client privilege, In re Lee Way Holding Co., 120 B.R. 881, 908 (Bankr.S.D.Ohio 1990), or of information that is proprietary and confidential. In re Grabill Corp., 109 B.R. 329, 333 (N.D.Ill.1989); see a......
  • Request a trial to view additional results
15 cases
  • 227 B.R. 455 (Bkrtcy.E.D.Pa. 1998), 98, In re Nationwide Sports Distributors, Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Third Circuit
    • October 8, 1998
    ...forth verbatim the full text of a proposed settlement; it may describe the settlement in general terms"); In re Lee Way Holding Co., 120 B.R. 881, 889 (Bankr.S.D.Ohio 1990). The fact that the petitioning creditors were seeking to withdraw the trustee litigation and to assign their clai......
  • 398 B.R. 223 (Bkrtcy.S.D.Ohio 2008), 06-12778, In re Cincom iOutsource, Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Sixth Circuit
    • October 31, 2008
    ...in bankruptcy." ); also see In re Lee Way Holding Co., 105 B.R. 404, 410-12 (Bankr.S.D.Ohio 1989)6 and In re Lee Way Holding Co., 120 B.R. 881 (Bankr.S.D.Ohio Page 231 Even when Lee Way and PepsiCo were decided nearly two decades ago, those courts expressed healthy scepticism about whe......
  • In re Lahood, 031909 ILCBC, 07-81727
    • United States
    • Federal Cases United States Bankruptcy Courts Seventh Circuit
    • March 19, 2009
    ..." Energy Co-op. , 886 F.2d at 928, and they cannot be evaluated in "balance sheet" fashion, id; In re Lee Way Holding Co. , 120 B.R. 881, 899 (Bankr.S.D.Ohio 1990). Some deference, then, must be given to the trustee's expertise. Healthco , 136 F.3d at 50 n. 5; In re Eastwind ......
  • 336 B.R. 187 (Bkrtcy.S.D.N.Y. 2006), 05-60006, In re Refco Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Second Circuit
    • January 20, 2006
    ...of information under section 704(7) if disclosure would result in waiver of the attorney-client privilege, In re Lee Way Holding Co., 120 B.R. 881, 908 (Bankr.S.D.Ohio 1990), or of information that is proprietary and confidential. In re Grabill Corp., 109 B.R. 329, 333 (N.D.Ill.1989); see a......
  • Request a trial to view additional results