Ed Peters Jewelry, Co. v. C & J Jewelry, Co., Civ.A. 94-210L.

• Decision Date: 02 June 1999
• Docket Number: No. Civ.A. 94-210L.,Civ.A. 94-210L.
• Citation: 51 F.Supp.2d 81
• Parties: ED PETERS JEWELRY CO., INC., Plaintiff, v. C & J JEWELRY CO., INC., Anson, Inc., William Considine, Sr., Little Bay Realty Co., L.L.C., and Gary J. Jacobsen, Defendants.
• Court: U.S. District Court — District of Rhode Island

51 F.Supp.2d 81

ED PETERS JEWELRY CO., INC., Plaintiff, v. C & J JEWELRY CO., INC., Anson, Inc., William Considine, Sr., Little Bay Realty Co., L.L.C., and Gary J. Jacobsen, Defendants.

No. Civ.A. 94-210L.

United States District Court, D. Rhode Island.

June 2, 1999.

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Robert C. Corrente, Hinckley, Allen & Snyder, Providence, RI, Sanford J. Davis, McGovern & Associates, Greenwich, CT, for plaintiffs.

Thomas C. Angelone, Hodosh, Spinella & Angelone, Providence, RI, James J. McGair, Providence, RI, for defendants.

DECISION AND ORDER

LAGUEUX, Chief Judge.

Plaintiff Ed Peters Jewelry Co., Inc. ("EPJC") seeks to collect unpaid sales commissions owed by defendant Anson, Inc. ("Anson"), an insolvent and inoperative jewelry company. EPJC sold Anson products under a sales contract with that manufacturer. Expecting little satisfaction from its claims against the defunct Anson, plaintiff now targets those it believes are responsible for Anson's failure to pay. These other defendants include two companies and two individuals: 1) C & J Jewelry Co., Inc. ("C & J"), the buyer of Anson's operating assets; 2) Little Bay Realty Co., L.L.C. ("Little Bay"), the buyer of Anson's real estate; 3) William Considine, Sr. ("Considine"), the sole director of Anson and a one-half owner of both C & J and Little Bay; and 4) Gary J. Jacobsen ("Jacobsen"), a former management employee of Anson and Considine's partner in the two entities that purchased Anson's assets. Four counts of plaintiff's Complaint remain, of which three are equitable claims and one legal. Following a trial, the Court submitted to the jury one legal count solely for the determination of liability and one equitable count on an advisory basis only. The Motions for Judgment as a Matter of Law proposed by two defendants on the legal count are now before the Court. The Court must also resolve the two equitable claims not submitted to the jury and the one equitable claim submitted to the jury on an advisory basis. For the reasons stated below, defendants' Motions for Judgment as a Matter of Law on the count submitted to the jury are granted. On the three equitable claims reserved for this Court's consideration, the Court finds in favor of all defendants.

BACKGROUND

This Court functions as the finder of fact for the three equitable claims advanced by plaintiff at trial. Pursuant to the mandate of the Federal Rules of Civil Procedure, this Court makes the following fact findings based on the evidence produced by the parties during the five-day trial. See Fed.R.Civ.P. 52(a) (stating that following a bench trial the Court "shall find the facts specially and state separately its conclusions of law thereon"). Other specific findings of fact related to individual counts will be detailed within the discussions of those counts.

I. The Anson-EPJC Relationship

Anson was a manufacturer of men's jewelry and writing instruments. While some Anson products were sold under the Anson name to retailers, other products were sold under the retailer's name. Ed Peters ("Peters") sold Anson products to retail stores for many years beginning in the early 1980s, though he was never an Anson employee. At first, Peters worked as a salaried sales agent for an independent distributor that sold Anson products to Tiffany Company ("Tiffany"), a prestigious retailer of luxury items. Tiffany was Anson's lifeline. As the manufacturer's largest customer, Tiffany produced sales of several millions of dollars annually. Peters' employer had an exclusive right to sell Anson products to Tiffany and received a fifteen percent sales commission on that account. Beginning in 1981, Peters was the primary sales representative for that relationship. In 1987, Peters purchased the Anson-Tiffany relationship from his former employer and formed his own business, plaintiff EPJC, to service the account. Sales of Anson products to Tiffany would soon account for more than ninety percent of EPJC's business.

Anson and EPJC entered into a formal sales agency agreement ("Sales Contract") on January 1, 1988. Under the terms of the Sales Contract, EPJC was granted the exclusive right to sell Anson products to Tiffany and would be paid a commission of ten percent of the gross sales to that retailer. The Sales Contract also allowed EPJC to act as a non-exclusive agent for sales of Anson products to other retailers and provided for a fifteen percent commission on most of such sales. The Sales Contract was due to expire on December 31, 1990, but the parties agreed to alter the terms of the arrangement in September 1989. At that time, they agreed to extend the deal through December 31, 1994 in exchange for a reduction of the commission rate on Tiffany sales from ten to seven and one-half percent.

In 1990 Anson began falling behind in its commission payments to EPJC. By the end of that year, Anson was $120,000 in arrears under the terms of the Sales Contract. Despite the growth of this debt over the next several years and the futility of several attempted compromises, EPJC continued to work on behalf of Anson into 1993. Weary of laboring without pay, in 1993 EPJC commenced an arbitration proceeding pursuant to the Sales Contract for the commissions due through October 22, 1993. An arbitrator awarded EPJC $451,426.03 for the commission arrearage. The Rhode Island Superior Court confirmed the award and entered a judgment for this amount against Anson on April 21, 1994. In February 1994 EPJC won a second arbitration award against Anson. This award, for lost profits from October 22, 1993 through the end of the Sales Contract, totaled $407,652.84. The Rhode Island Superior Court confirmed that award and entered a second judgment against Anson in favor of EPJC on November 20, 1995 for that amount.

II. The Anson-Fleet Relationship

EPJC has been unable to collect any portion of these judgments because of Anson's severe fiscal difficulties. At the center of this financial turmoil is the relationship between Anson and its primary creditors Fleet National Bank and Fleet Credit Corporation (collectively, "Fleet"). In 1983, Anson survived a Chapter 11 reorganization to resume its manufacturing business. Only with Fleet's financing was the jewelry concern able to survive this crisis. The revolving lines of credit and other loans supplied by the bank for funding Anson's operations were secured by comprehensive liens on the debtor's assets.

Fleet loaned Anson millions of dollars through the 1980s. Despite this backing, Anson continued to struggle. On several occasions, Anson technically defaulted on its obligations to Fleet by failing to meet specific performance criteria mandated by credit agreements, yet Fleet never exercised its power to foreclose because of these managerial missteps. By the early 1990s, Fleet finally began to feel the sting of Anson's problems. In 1990, Fleet began charging-off portions of the Anson debt because of the company's declining sales and because of organizational problems identified by Fleet, such as the company's poor inventory controls. Fleet continued to charge-off portions of the Anson debt for several years and by August 1992, the bank had charged-off a total of $3.7 million.

In an attempt to provide the overleveraged manufacturer with some breathing room, Fleet restructured Anson's debts in 1990 and 1991. Over $4 million of Anson's debt was placed on non-accrual status, so that Anson could defer making payments during this period of financial difficulty. Unfortunately, these efforts were not enough to solve Anson's problems, so the company continued to lose money. Anson's net income, which had been negative in 1988 and 1989, remained in the red for 1990, 1991, 1992, and through July of 1993, the last point at which such tallies were taken.

According to a financial analysis performed by Fleet in October 1993, Anson was insolvent and had been so for several years. Fleet estimated that the company had a negative net worth of more than $6 million. Anson owed substantial sums to a number of trade creditors, but by far the largest liability on Anson's books was its debt to Fleet. By the fall of 1993, Anson owed Fleet over $11 million: $2.61 million on a revolving credit line for financing operations, $3.27 million on a real estate loan, and $5.15 million on the debt for which payments were deferred in 1990, including a deferral fee of $800,000.

Given Anson's inability to turn a profit, Fleet officials doubted that the company would ever be capable of servicing its debts and, therefore, they began contemplating the liquidation of Anson in 1992. That year, Fleet received an environmental liability analysis of Anson's real estate and learned that cleanup costs for the property would amount to no more than $100,000, a sum low enough to make the sale of the land possible. When Fleet contacted Anson officials in early 1993, the bankers were prepared to end Anson's financial dilemmas once and for all by selling the company. In an October 1993 internal memorandum prepared by a loan official responsible for the Anson relationship, the official explained that Fleet had explained to Considine and Jacobsen that "we were prepared to liquidate."

Its well of optimism finally tapped, Fleet declared Anson in default of its credit agreement with the bank. In a March 25, 1993 letter to the company, Fleet explained that Anson's failure to meet certain performance objectives constituted "an Event of Default under the Loan Agreement, which entitles Fleet to cease making Revolving Loans, to accelerate all Loans and to exercise Fleet's rights and remedies" under the agreement. The letter further explained that Fleet was willing to liquidate the company in order to recoup its outlays if no other resolution to Anson's perpetual difficulties could be fashioned. But the Anson management team, not yet prepared to strike its colors, rallied to meet the challenge. They countered...