Ed Peters Jewelry Co. v. C & J Jewelry Co.

• Decision Date: 09 March 2000
• Docket Number: No. 99-1800,99-1800
• Citation: 215 F.3d 182
• Parties: (1st Cir. 2000) ED PETERS JEWELRY CO., INC., PLAINTIFF, APPELLANT, v. C & J JEWELRY CO., INC., ET AL., DEFENDANTS, APPELLEES. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 182

215 F.3d 182 (1st Cir. 2000)

ED PETERS JEWELRY CO., INC., PLAINTIFF, APPELLANT, v. C & J JEWELRY CO., INC., ET AL., DEFENDANTS, APPELLEES.

No. 99-1800.

United States Court of Appeals, For the First Circuit.

Heard March 9, 2000.

Decided June 23, 2000.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND. Hon. Ronald R. Lagueux, U.S. District Judge.

Robert C. Corrente, with whom Hinckley, Allen & Snyder Llp, Sanford J. Davis, and McGovern & Associates were on brief for appellant.

Thomas C. Angelone, with whom Hodosh, Spinella & Angelone, James McGair, and McGair & McGair were on brief for appellees.

Before Boudin, Circuit Judge, Bownes, Senior Circuit Judge, and Stahl, Circuit Judge.

Bownes, Senior Circuit Judge.

Plaintiff-appellant, Ed Peters Jewelry Co., Inc., ("Peters") appeals from a judgment by the district court for all of the defendants-appellees: C & J Jewelry Co. Inc., Anson, Inc., William Considine, Sr., Little Bay Realty Co., L.L.C., and Gary J. Jacobsen. Peters, a jewelry sales agent, sued the defendants to recover sales commissions owed it by the defendant Anson. Peters claims, under various legal theories, that, in addition to Anson, the other defendants are also liable for the unpaid commissions. Jurisdiction is based on diversity of citizenship. 28 U.S.C. § 1332(a)(1) (1999).

This is the second time this case has been before us. See Ed Peters Jewelry Co. v. C & J Jewelry Co., 124 F.3d 252 (1st Cir. 1997) (hereinafter, "Ed Peters I"). There is a difference in the cast of defendants. In the prior case, Fleet National Bank and Fleet Credit Corporation were defendants. They were found not liable in our prior opinion and are no longer parties in this case. After remand in the prior case, Peters filed an amended complaint adding Little Bay Realty Co., L.L.C. and Jacobsen as defendants.

In the case at bar, there were four counts before the district court at the close of the evidence. The court ruled sua sponte, without prior notice to the parties, that neither party was entitled to a jury trial on Counts I and II (successor liability) and Count IV (fiduciary duty) because these counts sounded in equity. Count III, which alleged tortious interference with contractual relations by defendants C & J Jewelry, Considine and Jacobsen, was submitted to the jury for a determination of liability only. Count I was also submitted to the jury but as advisory only.

On the tortious interference claim, the jury found C & J and Considine liable; it found Jacobsen not liable. On the advisory Count I (successor liability), the jury found for Peters against C & J and Little Bay.

The two defendants found liable by the jury on the tortious interference count (Count III) brought motions for judgment as a matter of law, which were granted. The district court found for all defendants on the three equity counts. This appeal followed.

Peters has raised six issues on appeal: (1) The district court abused its discretion by ruling sua sponte at the end of the trial that neither party was entitled to a jury trial on Counts I, II, and IV. (2) The district court erred in ruling that there was no cause of action under Rhode Island law for successor liability based on fraud, and that Peters was not damaged because he was a junior creditor. (3) The district court was "clearly wrong" in holding that adequate consideration was paid for the transfer of assets to the successor entities. (4) The district court erred in holding that no fiduciary duty was owed to Peters because he was a junior unsecured creditor. (5) The district court "wrongly" granted defendants' Rule 50 motion on the tortious interference count. (6) The district court erred in its instructions to the jury on the tortious interference count.

We affirm, but on different grounds than the district court for Counts Two (successor liability) and Three (tortious interference with contract).

Although the facts are not seriously disputed, the implications and results flowing from them are hotly contested.

I.

Our rehearsal of the facts is taken from the record, our prior opinion, and the district court opinion. Anson, a Rhode Island manufacturer of jewelry and writing instruments, emerged from a Chapter 11 bankruptcy proceeding in 1983. From then on, Fleet Bank and Credit Company extended Anson revolving credit loans secured by first liens covering Anson's real estate and personal property assets.

Peters' relationship with Anson started in 1981 as a salaried salesman for a distributor that sold Anson's products to Tiffany. Tiffany was at that time, and probably still is, one of the most well-known retail jewelry stores in the country. Tiffany was Anson's largest customer, buying several millions of dollars worth of jewelry annually. The distributor for whom Peters worked had the exclusive right to sell Anson products to Tiffany. In 1987, Peters purchased the Anson-Tiffany account and formed a new corporation, Ed Peters Jewelry Co. Inc.¹ Sales of Anson products to Tiffany accounted for more than 90% of Peters' business. Anson and Peters entered into a sales contract on January 1, 1988, which was extended to December 31, 1990, and then further extended to December 31, 1994. By the end of 1990 Anson owed Peters $120,000 for unpaid commissions.

In 1991 Fleet restructured Anson's loan repayment schedule because of its precarious financial condition, and assessed Anson an $800,000 referral fee. In 1992 Fleet waived Anson's default under the restructured loan agreement and loaned Anson more money, expressly reserving its right to rely on a future default. Anson never gained solvency. By August of 1992, Fleet had charged off $3.7 million of Anson's debt. There were further restructuring negotiations in 1993, and Fleet gave Anson formal written notice of default on March 25, 1993. Anson had a negative net income for the years 1988 through July 1993, the last date for such information.

Although Anson's debt to Peters continued to grow, Peters kept selling for Anson into 1993. In 1993, Peters commenced an arbitration proceeding against Anson under the provisions of the sales contract between them. He was awarded $451,426.03 for commission arrearage and received a judgment for that amount against Anson from the Rhode Island Superior Court on April 21, 1994. Peters obtained a second state judgment for commission arrearage against Anson for $407,652.84 on November 20, 1995.

After the default notice to Anson by Fleet on March 25, 1993, defendants Considine and Jacobsen worked out a plan to save the operating assets and real estate of Anson. Considine was the sole director of Anson and controlled all of Anson's voting stock. Jacobsen had been hired by Considine as Anson's C.E.O. in the summer of 1992. The other principal player in the plan was, of course, Fleet. Negotiations between Anson's two officers and Fleet were carried on from May, 1993 to October of 1993. The plan finally accepted by Fleet was essentially as follows. Two new companies would be formed: C & J Jewelry Co., Inc. (C & J) and Little Bay Realty Co., L.L.C. (Little Bay). Fleet would foreclose on all of the assets of Anson and conduct a secured party private sale of the operating assets to C & J; the real estate formerly belonging to Anson would be sold to Little Bay.

The record shows that Considine and Jacobsen never intended that the new company, C & J, would assume Anson's debt to Peters. They planned that only the debts of those creditors essential to the new business would be assumed. Fleet, of course, would be the primary secured creditor of the new business.

The plan was carried out. On October 22, 1993, Fleet held a secured party's sale of Anson's operating assets to C & J, the new jewelry company. Fleet sought no competing bids because the parties did not want Tiffany to learn that Anson was defunct. Fleet, Considine and Jacobsen were very dependent on Tiffany, their golden goose. C & J notified Tiffany of the transfer of the business assets and assured it that the quality of the jewelry would be the same as under Anson and that C & J would be financially stable. Fleet also informed Tiffany that the new company had its approval. The manufacture of jewelry formerly done by Anson continued without pause by C & J.

In December of 1993, Fleet foreclosed on Anson's real estate and sold it to Little Bay, another defendant. Anson was now an empty shell. C & J carried on Anson's business with the same persons at the controls.

The financing details reveal that none of the participants in the plan were the least bit deterred by the fact that Anson had steadily and increasingly lost money since 1989. Fleet financed the purchase of Anson's assets in the amount of $2.7 million. Considine and Jacobsen obtained one-half ownership of C & J and Little Bay because of their contribution of $500,000 each to the assets purchased. Fleet obtained new first-lien security interests on the same operating assets and real estate that it had from Anson. C & J and Little Bay paid Considine a consulting fee of $200,000 for negotiating the sale and obtaining Fleet's financing. Jacobsen was not paid anything for his role in the deal. After the liquidation of all of Anson's assets, its debt to Fleet totaled nearly $8 million.

II.

A. Equity or Jury

The first issue, whether the district court abused its discretion by ruling sua sponte at the close of the trial that neither party was entitled to a jury trial on Counts I, II, and IV, has two parts: One, whether the court was correct legally in its ruling, and two, whether the procedure it followed constituted an abuse of discretion.

We start with the equitable ruling. We have read our prior opinion carefully. Although it does mention "jury" several times, see Ed Peters I, 124 F.3d at 262, 268, 269, 270, 275, it is obvious that we were not deciding whether the counts alleged were equitable or came within the ambit of the Seventh Amendment right to...