124 F.3d 252 (1st Cir. 1997), 96-1642, Ed Peters Jewelry Co., Inc. v. C & J Jewelry Co., Inc.

Docket Nº:96-1642.
Citation:124 F.3d 252
Party Name:ED PETERS JEWELRY CO., INC., Plaintiff, Appellant, v. C & J JEWELRY CO., INC., ET AL., Defendants, Appellees.
Case Date:August 29, 1997
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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124 F.3d 252 (1st Cir. 1997)

ED PETERS JEWELRY CO., INC., Plaintiff, Appellant,

v.

C & J JEWELRY CO., INC., ET AL., Defendants, Appellees.

No. 96-1642.

United States Court of Appeals, First Circuit

August 29, 1997

Heard May 6, 1997.

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Robert Corrente, Providence, RI, with whom Corrente, Brill & Kusinitz, Ltd., Sanford J. Davis, Guttenberg, NJ, and McGovern & Associates were on brief, for appellant.

John A. Houlihan, with whom Edwards & Angell and Marc A. Crisafulli were on brief, for appellees Fleet National Bank and Fleet Credit Corp.

James J. McGair, Providence, RI, with whom McGair & McGair was on brief, for appellees C & J Jewelry Co., Inc. and William Considine, Sr.

Before TORRUELLA, Chief Judge, ALDRICH, Senior Circuit Judge, and CYR, Circuit Judge.

CYR, Circuit Judge.

Plaintiff Ed Peters Jewelry Co., Inc. ("Peters") challenges a district court judgment entered as a matter of law pursuant to Fed.R.Civ.P. 50(a) in favor of defendants-appellees on Peters' complaint to recover $859,068 in sales commissions from Anson, Inc. ("Anson"), a defunct jewelry manufacturer, its chief executive officer (CEO) William Considine, Sr. ("Considine"), its secured creditors Fleet National Bank and Fleet Credit Corporation (collectively: "Fleet"), and C & J Jewelry Company ("C & J"), a corporate entity formed to acquire Anson's operating assets.

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We affirm the district court judgment in part, and vacate and remand in part.

I

BACKGROUND 1

We restrict our opening factual recitation to an overview, reserving further detail for discussion in connection with discrete issues. Anson, a Rhode Island jewelry manufacturer, emerged from a chapter 11 reorganization proceeding in 1983. Thereafter, Fleet routinely extended it revolving credit, secured by blanket liens on Anson's real property and operating assets.

In January 1988, Anson executed a four-year contract designating Peters, a New York corporation, as one of its sales agents. Peters serviced Tiffany's, an account which represented roughly one third of all Anson sales. By the following year, however, Anson had fallen behind in its commission payments to Peters. During 1991, in response to Anson's dire financial straits and the adverse business conditions prevailing in the domestic jewelry industry at large, Fleet restructured Anson's loan repayment schedule and assessed Anson an $800,000 deferral fee. In 1992, after determining that Anson had not achieved the pre-tax, pre-expense earnings level specified in the 1991 loan restructuring agreement, Fleet waived the default and loaned Anson additional monies, while expressly reserving its right to rely on any future default. Anson never regained solvency. See Fleet Credit Memo (10/14/93), at 6 ("[Anson] is ... technically insolvent, with a negative worth of $6MM at 12/31/92.").

Fleet and Anson entered into further loan restructuring negotiations in April 1993, after Fleet determined that Anson had not achieved the prescribed earnings target for December 1992. Fleet gave Anson formal written notice of the default.

During May 1993, Considine, Anson's CEO, submitted a radical "restructuring" proposal to Fleet, prompted by the fact that Anson owed numerous creditors, including Peters, whose claims represented a serious drain on its limited resources. Considine recommended that Fleet foreclose on Anson's assets, that Anson be dissolved, and that a new company be formed to acquire the Anson assets and carry on its business. The Considine recommendation stated: "If Fleet can find a way to foreclose [Anson] and sell certain assets to our [new] company that would eliminate most of the liabilities discussed above [viz., including the Peters debt], then we would offer Fleet ... $3,250,000." The $3,250,000 offer to Fleet also contemplated, however, that the new company would assume all Anson liabilities to essential trade creditors. Otherwise, Fleet was to receive only $2,750,000 for the Anson assets following the Fleet foreclosure and Fleet would assume "all the liabilities and the problems attached to it and, hopefully, be able to work them out."

Fleet agreed, in principle, to proceed with the proposed foreclosure sale, noting reservations respecting only the foreclosure price and the recommendation by Considine that the debt due Peters neither be satisfied by Anson nor assumed by the new company. In the latter regard, Fleet advised that its "counsel [was] not convinced that you will be able to do this without inviting litigation," and that "there may be a problem on this issue."

In October 1993, Fleet gave Anson formal notice that its operating assets were to be sold in a private foreclosure sale to a newly-formed corporation: C & J Jewelry. Ostensibly out of concern that Tiffany's might learn of Anson's financial difficulties, and find another jewelry manufacturer, Fleet did not invite competing bids for the Anson operating assets.

Meanwhile, Peters had commenced arbitration proceedings against Anson, demanding payment of its unpaid sales commissions. Peters subsequently secured two arbitration awards against Anson for $859,068 in sales commissions. The awards were duly confirmed by the Rhode Island courts.

On October 22, 1993, Anson ceased to function; C & J acquired its operating assets in a private foreclosure sale from Fleet and

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thereupon continued the business operations without interruption. After the fact, Anson notified Peters that all Anson operating assets had been sold to C & J at foreclosure, by Fleet.

C & J was owned equally by the Considine Family Trust and Gary Jacobsen. Considine, Gary Jacobsen and Wayne Elliot, all former Anson managers, became the joint C & J management team. Jacobsen and Considine acquired the Anson operating assets from Fleet for approximately $500,000 and Fleet immediately deposited $300,000 of that sum directly into various accounts which had been established at Fleet in the name of C & J. The $300,000 deposit was to be devoted to capital expenditures by C & J. Fleet itself financed the remainder of the purchase price (approximately $1.4 million), took a security interest in all C & J operating assets, and received $500,000 in C & J stock warrants scheduled to mature in 1998. C & J agreed to indemnify Fleet in the event it were held liable to any Anson creditor. See Credit Agreement p 8.10. Considine received a $200,000 consulting fee for negotiating the sale.

In December 1993, Fleet sold the Anson real estate for $1.75 million to Little Bay Realty, another new company incorporated by Considine and Jacobsen. Considine and Jacobsen settled upon the dual-company format in order to protect their real estate investment in the event C & J itself were to fail. The two principals provided an additional $500,000 in capital, half of which was used to enable Little Bay Realty to acquire the Anson real estate from Fleet. The remainder was deposited in a Little Bay Realty account with Fleet, to be used for debt service. Fleet in turn advanced the $1.5 million balance due on the purchase price. Little Bay leased the former Anson business premises to C & J.

In April 1994, Peters instituted the present action in federal district court, alleging that Anson, C & J (as Anson's "successor"), Considine, and Fleet had violated Rhode Island statutory law governing bulk transfers and fraudulent conveyances, and asserting common law claims for tortious interference with contractual relations, breach of fiduciary duty, wrongful foreclosure, and "successor liability." The complaint essentially alleged that all defendants had conspired to conduct a sham foreclosure and sale for the purpose of eliminating Anson's liabilities to certain unsecured creditors, including the $859,068 debt due Peters in sales commissions.

The defendants submitted a motion in limine to preclude the testimony of two witnesses--former banker Richard Clarke and certified public accountant John Mathias--who were to have provided expert testimony on the value of the Anson assets. Ultimately, their testimony was excluded by the district court on the grounds that their valuation methodologies did not meet minimum standards of reliability and, therefore, their testimony would not have aided the jury.

Finally, after Peters rested its case in chief, the district court granted judgment as a matter of law for all defendants on all claims. The court essentially concluded that neither Peters nor other Anson unsecured creditors had been wronged by the private foreclosure sale, since Fleet had a legal right to foreclose on the encumbered Anson assets which were worth far less than the amount owed Fleet.

II

DISCUSSION

  1. Exclusion of Expert Testimony

    Many of the substantive claims asserted by Peters depend largely upon whether Fleet was an oversecured creditor, i.e., whether the Anson assets were worth more than the total indebtedness Anson owed Fleet as of the October 1993 foreclosure. Otherwise, since Fleet had a legal right to foreclose on all the Anson assets, there could have been no surplus from which any Anson unsecured or judgment creditor, including Peters, could have recovered anything. Thus, evidence on the value of the Anson assets at the time of the Fleet foreclosure was critical.

    Peters proffered the testimony of CPA John Mathias on the value of the Anson assets. During voir dire, Mathias testified that the total Anson indebtedness to Fleet amounted to $9,828,000, but that the total

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    value of its assets was $12,738,500. 2 The district court granted the motion in limine in all respects.

    1. Standard of Review

    Peters tendered the...

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