Wolman v. Tose

Citation467 F.2d 29
Decision Date07 September 1972
Docket NumberNo. 72-1215.,72-1215.
PartiesIn the Matter of Jerry Wolman and Anne Wolman, Debtors. Jerry WOLMAN and Anne Wolman, Appellants, v. Leonard H. TOSE, Appellee.
CourtU.S. Court of Appeals — Fourth Circuit

Gary A. Goldstein and Charles M. Tatelbaum, Baltimore, Md. (Hyman P. Tatelbaum, and Schimmel & Tatelbaum, P. A., Baltimore, Md., and Robert B. Hirsch, and Arent, Fox, Kintner, Plotkin & Kahn, Washington, D. C., on brief), for appellants.

Howard H. Conaway, Baltimore, Md. (George W. Liebmann, and Frank, Bernstein, Conaway & Goldman, Baltimore, Md., and Raymond Pearlstine, and Wisler, Pearlstine, Talone, Craig & Garrity, Norristown, Pa., on brief), for appellee.

Before SOBELOFF, Senior Circuit Judge, and WINTER and CRAVEN, Circuit Judges.

SOBELOFF, Senior Circuit Judge:

This case involves a Chapter XI bankruptcy proceeding. Specifically, we are called upon to review the District Court's affirmance, 334 F.Supp. 1246, of the bankruptcy Referee's order dismissing an application by Jerry Wolman and Anne Wolman, the Debtors, seeking specific performance of an agreement between the Wolmans and Appellee Leonard Tose. Because we think the Wolmans' application presented factual issues not susceptible of resolution without an inquiry into the facts, we reverse and remand for further proceedings.

I

The facts of this case are a rat's nest typical of many Chapter XI proceedings. Nevertheless, a summary is indispensable to an understanding of the legal issues. From the record and the opinions of the Referee and the District Court, the following history emerges:

This proceeding originated on December 13, 1967, with the filing of a petition under Chapter XI. At that time, the Wolmans owned 52% of the stock of the Philadelphia Eagles Football Club, Inc. Eagles, which stock was subject to the claims of the Wolmans' secured creditors.

On April 22, 1968, the Wolmans proposed their first Plan of Arrangement. Briefly, this Plan contemplated the formation of a new company—Jerry Wolman Enterprises, Inc. Enterprises1 and, after approval by the S.E.C., public sale of Enterprises stock. Part of the proceeds of this public offering were to be loaned to the Wolmans, with their 52% interest in the Eagles pledged as security. The sums loaned were, in turn, to be used by the Wolmans to pay off their secured creditors. Pursuant to 11 U.S.C. § 762, this first Plan of Arrangement, with minor modifications, was approved by a majority of the unsecured creditors.

Before long, the Plan ran into trouble. Due in part to difficulties encountered in the S.E.C., the sale of Enterprises stock was delayed, thus prompting the secured creditors to apply for permission to sell the Eagles to satisfy the Wolmans' debts. To forestall this eventuality, the Wolmans entered into an agreement with Leonard Tose, whereby he would buy the Eagles from them. Payment for the club was to be accomplished by Tose satisfying the claims of the secured creditors—a sum of approximately $16 million.

After the Referee passed an order approving the sale by the Wolmans of the Eagles' assets to Tose, but before the actual sale, the Wolmans, on March 11, 1969, entered into another, related agreement with Tose, hereinafter referred to as the "March 11 Agreement." The latter agreement became the seed of this litigation. In pertinent part, the March 11 agreement provided:

If * * * the Wolmans are able to fund the Debtors Plan of Arrangement, they shall have until 4:00 P.M., August 1, 1969 to make Tose whole, and upon their doing so, the assets of the Philadelphia Eagles Football Club, Inc. shall revest in it.

S.E.C. approval of the public sale of Enterprises stock was eventually granted but, because the stock would not sell, the hoped for funds for the proposed loan by Enterprises to the Wolmans did not become available. This forced the Wolmans to abandon entirely the first Plan of Arrangement and substitute, on May 28, 1969, their second Plan of Arrangement.

The second Plan, approved by a majority of the unsecured creditors on June 18, 1969, eliminated all reference to Enterprises. Instead, the Plan provided for an immediate cash deposit of $500,000,2 required under 11 U.S.C. § 737(2), to cover the costs of administration and priority debts allowed by the court. The Wolmans were then to execute a $3 million promissory note in favor of the unsecured creditors. The note was to be paid off in ten yearly installments of $300,000 each.3

Prior to the initial $500,000 payment under the second Plan, the attorney for the Wolmans sent the following letter to Tose's attorney:

The Wolmans are ready to proceed with their plan of arrangement and in this connection to recover the assets of the Eagles. Will you please obtain a statement from Leonard Tose showing the amount necessary to make him whole, as contemplated by the writing of March 11, 1969. Will you ask Mr. Tose to make the statement detailed. We assume it will take only a few days to obtain this data, and that we will have it before a scheduled meeting on the 18th.

Tose's attorney rejected the Wolmans' request, asserting that the March 11 agreement was no longer operative or binding:

The agreement of March 11, 1969 explicitly required the funding of the debtors\' plan of arrangement in existence as of that date. The plan of arrangement provided that the funding arise from the sale of an offering of securities by Jerry Wolman Enterprises, Inc.
The debtors\' plan of arrangement as filed on May 28, 1969 proposes a new method of funding that does not meet the conditions of the March 11, 1969 agreement. I have therefore advised Mr. Tose that he is under no obligation to comply with your letter request * * *.

Faced with Tose's refusal to perform his obligations under the March 11 Agreement, the Wolmans filed an application with the Referee, on July 9, 1969, seeking, in the alternative, (a) an order vacating the Referee's earlier order approving the sale of the Eagles to Tose or (b) an order directing Tose to specifically perform his obligations under the March 11 Agreement.

Tose responded with a motion to dismiss the Wolmans' application, alleging, inter alia, that the application failed to state facts upon which relief could be granted. Specifically, he contended that:

5. There is no allegation in the Application that the debtors are ready, willing or able to purchase the assets of the Philadelphia Eagles Football Club, Inc.
6. There is no allegation in the Application that the debtors have complied with all conditions precedent to their right to purchase the assets of the Philadelphia Eagles Football Club, Inc.

After hearing oral argument on Tose's motion to dismiss, the Referee entered an order dismissing the Wolmans' application,4 stating that it failed to state facts upon which either of the alternate forms of relief could be based.

The Wolmans appealed this order to the District Court, as provided in 11 U.S.C. § 67(c). After oral argument, the District Court affirmed the action of the Referee and this appeal followed.

II

We hold that the Referee's dismissal was error because it was premised on the final resolution of a disputed issue of fact—the correct interpretation of the March 11 Agreement—at a procedural stage where only the sufficiency of the pleading was in issue.

Before the Referee, Tose argued that the application was defective in that it failed to allege the Wolmans had fulfilled two conditions precedent to Tose's duty to reconvey: i. e., that the Wolmans had funded their plan of arrangement and that they were prepared to make him whole. Tose also argued that, as a matter of fact, it was impossible for the Wolmans to comply with the first of these conditions because the agreement to reconvey the Eagles referred solely to the Plan of Arrangement in existence when the March 11 Agreement was signed. As the plan then existing had since been abandoned and replaced by another plan, Tose argued that by the time the Wolmans called upon him to perform, it had become impossible for them ever to fund the plan contemplated by the March 11 Agreement. Therefore, Tose's argument continued, his obligation to reconvey the Eagles could never come into force.

The Wolmans, on the other hand, maintained that the pleading was not factually deficient5 and that even if it were, a simple amendment would have cured it. In respect to the March 11 Agreement, the Wolmans took the position that

the consideration acceptable to creditors and the method of payment thereof, i. e., the specific Plan of Arrangement did not and could not affect Tose and was not and could not be of any concern to him. Debtors\' application before the Bankruptcy Referee ¶ 21.

To put it more concretely, in the Wolmans' view, the March 11 Agreement referred to any plan of arrangement, not just the one existing on March 11. At the hearing in the District Court, the Wolmans claimed to have evidence showing that Tose was without concern as to which plan might eventually come to fruition and that he had himself so declared. His only concern, according to the Wolmans, was whether they could come up with the almost $16,000,000 necessary to buy back the Eagles.6 Previously, the Wolmans had sought to take depositions in support of this, but the Referee, at Tose's instance, blocked the move.

Apparently the Referee accepted Tose's argument, for his order dismissing the Wolmans' application recited as its basis a failure to state facts upon which relief could be granted. Strangely enough, the order gave the Wolmans no opportunity, as is customary, to amend their petition to correct this formal deficiency. The Referee's reasons for not following the usual course become obvious from his two summary findings of fact: (1) that the March 11 Agreement referred to "the Plan of Arrangement then before this Court" and (2) "that the Wolmans were not about to fund said Plan." (Emphasis added.) Under this view, the condition...

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