United States v. Gleneagles Inv. Co., Inc.

• Decision Date: 16 May 1984
• Docket Number: Civ. No. 80-1424.
• Citation: 584 F. Supp. 671
• Parties: UNITED STATES of America, Plaintiff, v. GLENEAGLES INVESTMENT CO., INC., et al., Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

584 F. Supp. 671

UNITED STATES of America, Plaintiff, v. GLENEAGLES INVESTMENT CO., INC., et al., Defendants.

Civ. No. 80-1424.

United States District Court, M.D. Pennsylvania.

April 10, 1984.

As Corrected May 16, 1984.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Beth A. Kaswan, Tax Div., U.S. Dept. of Justice, Washington, D.C., for Dept. of Justice.

D. Alan Harris, Sp. Deputy Atty. Gen., Chicago, Ill., for Com. of Pa.

Robert C. Nowalis, Doran & Nowalis, Wilkes-Barre, Pa., for trustee.

Eugene J. Wien, Philadelphia, Pa., for I.R.S.

Joseph Solfanelli, Dolphin, Solfanelli & Butler, Scranton, Pa., for Gleneagles Inv.

Thomas G. Bailey, Jr., David Allen Koenigsberg, Whitman & Ransom, New York City, for Pagnotti Enterprises.

Robert J. Rosenberg, New York City, for Pagnotti defendants.

David E. Lehman, McNees, Wallace & Nurick, Harrisburg, Pa., for Gillens and Clevelands.

Gilbert B. Abramson, Abramson, Freedman & Blackman, P.C., Philadelphia, Pa., for Gillens.

OPINION

MUIR, District Judge.

I. Introduction.

The United States has sought in this litigation to set aside as fraudulent conveyances mortgages on the lands of Raymond Colliery (hereinafter the IIT mortgages) and to foreclose on tax liens against Raymond Colliery and its parent, Great American Coal Company, free and clear of the IIT mortgages. Those mortgages were delivered by Raymond Colliery on November 26, 1973 to Institutional Investors Trust (IIT) and assigned by IIT onto Defendant McClellan Realty. The United States has also sought in this lawsuit to set aside the 1976 and 1980 tax sales of the lands of Raymond Colliery by Defendant Lackawanna County.

Blue Coal and Glen Nan are bankrupt subsidiaries of Raymond Colliery and their assets are also encumbered by the IIT mortgages. (Raymond Colliery and its subsidiaries will be called hereinafter "the Raymond Group"). The Defendant Trustee in Bankruptcy for Blue Coal and Glen Nan filed a cross-claim in which he sought, inter alia, to set aside the IIT mortgages. The United States and the Trustee will be hereinafter called "the Creditors." The Defendant Commonwealth of Pennsylvania is not within the group classed as Creditors because it filed no cross-claim but it is a creditor of Raymond Colliery and has participated in this litigation as though it were a cross-claim plaintiff.

This lawsuit has been the subject of two earlier opinions by the Court. In the first opinion, the Court concluded that the IIT mortgages were fraudulent conveyances within the meaning of §§ 354, 355, 356, and 357 of the Pennsylvania Uniform Fraudulent Conveyance Act, 39 Pa.Stat. § 351, et seq (hereinafter sometimes referred to as "the Act"). United States v. Gleneagles Inv. Co., Inc., 565 F.Supp. 556, 585-86 (M.D.Pa.1983) (hereinafter Gleneagles I.) In the second opinion, the Court concluded that Pagnotti Enterprises which purchased the IIT mortgages and caused the assignment thereof to its subsidiary, McClellan Realty, was not a purchaser of the IIT mortgages for fair consideration without knowledge that they were fraudulent conveyances. United States v. Gleneagles Inv. Co., Inc., 571 F.Supp. 935, 958 (M.D. Pa.1983) (hereinafter Gleneagles II). We also concluded in Gleneagles II that the Lackawanna County tax sales of the lands of Raymond Colliery in 1976 and 1980 and the consequent tax deeds were void and ineffective to transfer title to the purchasers at those tax sales. Id.

The Creditors also asserted claims against the Gillen and Cleveland Defendants, former shareholders of Raymond Colliery who were found liable in Gleneagles I. After that finding, the United States, the Trustee and the Commonwealth of Pennsylvania entered into settlement agreements with the Gillen and Cleveland Defendants relating to this and other litigation. Under those settlements the Cleveland Defendants paid $5,500,000 and the Gillen Defendants paid $600,000 in satisfaction of all claims asserted against them in this litigation and the other litigation. The Court dismissed the Gillen and Cleveland Defendants as parties to this lawsuit pursuant to those settlement agreements.

Below are the Court's findings of fact, opinion and conclusions of law with respect to the priority and validity of liens on the lands of Raymond Colliery.

II. Findings of Fact.

1-167. The findings of fact in Gleneagles I are incorporated herein by reference.

168-410. The findings of fact in Gleneagles II are incorporated herein by reference.

411. On November 26, 1973, Thomas Gillen received $1,675,000 from Great American Coal and a note payable to his order by the Raymond Group for $125,000 in payment for his stock in Raymond Colliery.

412. On November 26, 1973, John Gillen received $1,675,000 from Great American and a note payable to his order by the Raymond Group for $125,000 in payment for his stock in Raymond Colliery.

413. On November 26, 1973, the Cleveland group of shareholders received $3,350,000 from Great American and notes payable to their order by the Raymond Group for $250,000 in payment for their stock in Raymond Colliery.

414. Judgments were confessed on the notes described in Paragraphs 411, 412, and 413 on June 16, 1975.

415. No. 1 Contracting Company and Old Forge Bank lent money to James J. Durkin to assist him in acquiring the stock of Raymond Colliery and these loans were the only loans from third parties for such purpose which were not disclosed by Durkin to IIT in connection with his loan application to IIT.

416. During the period from November 26, 1973 through April, 1976, the financial condition of the Raymond Group worsened.

417. During the period from November 26, 1973 through April, 1976, Raymond Colliery, Blue Coal, Olyphant Associates, and Glen Nan paid to IIT a total of $4,589,640 in principal and interest on the IIT mortgages.

418. On December 16, 1976, L. Robert Lieb on behalf of IIT paid to the Commonwealth of Pennsylvania $44,368.74 in delinquent taxes owed by Raymond Colliery.

419. On December 16, 1976, L. Robert Lieb on behalf of IIT paid to the City of Scranton $11,122.25 in delinquent real estate taxes owed by Raymond Colliery for years prior to 1974.

420. In April, 1977, McClellan Realty paid $23,179.36 to the City of Scranton for delinquent real estate taxes due from Raymond Colliery for the years 1974, 1975 and 1976.

421. The above payment by McClellan Realty was added to the lien of the IIT mortgages.

422. On December 12, 1977, Joseph Solfanelli hand-delivered to Hyman Green a notice that McClellan Realty intended to sell at one or more private sales held on or after February 12, 1978 the following collateral given by the debtors to secure the IIT loans:

a. the capital stock of Great American Coal Co.

b. the capital stock of Raymond Colliery

c. accounts

d. contract rights

e. general intangibles

f. goods

g. inventory

h. equipment

i. culm

j. silt

k. refuse banks

l. the contract rights described in the assignments of leases, operating and distribution agreements, and

m. the contract rights under a November 26, 1973 agreement with Susquehanna Coal Co.

423. McClellan Realty foreclosed on its security interest in Raymond Colliery's equipment, culm, silt, contract rights, accounts, and other personalty in a private sale conducted on or about February 28, 1978 and bought in the same.

424. On or about February 28, 1978, James Tedesco, on behalf of McClellan Realty, and Louis Pagnotti, on behalf of Loree Associates, executed a contract whereby McClellan Realty purported to sell all the assets described in Paragraph 422(c) through (k) to Loree Associates for $50,000.

425. No schedule of the specific assets purported to be sold to Loree Associates was prepared.

426. The assets purported to be foreclosed upon and sold by McClellan Realty to Loree Associates were not advertised for sale.

427. The assets purported to be foreclosed upon and sold by McClellan Realty to Loree Associates were not offered for sale to any person or entity not affiliated with Pagnotti Enterprises.

428. The purported sale and purchase of the equipment and other assets was not recorded on the books of Loree Associates or McClellan Realty until May, 1983 which was six months after the start of this trial.

429. To record the $50,000 payment from Loree Associates, McClellan Realty credited the IIT loan principal balance with $50,000 and Tabor Court increased its liabilities by $50,000, presumably to Loree Associates.

430. The stock of Raymond Colliery was foreclosed upon by McClellan Realty and sold for $1.00 at a private sale on October 6, 1978 to Joseph Solfanelli as Trustee for the Pagnotti Group.

431. In each of the aforesaid foreclosure sales McClellan Realty bid in the collateral in its own name or the name of its nominee, Joseph R. Solfanelli.

432. McClellan Realty did not give notice of the proposed private sale to the Trustee in Bankruptcy for Blue Coal, one of the debtors to McClellan Realty, or to any of the guarantors of Raymond Colliery's debt.

433. The only person or entity given notice of the private sales was Hyman Green.

434. McClellan Realty did not secure appraisals for any of the collateral which it sold at the private sales.

435. On December 16, 1980, a second tax sale of the lands of Raymond Colliery was held by the Lackawanna County Tax Claim Bureau.

436. At the December 16, 1980, tax sale Joseph Solfanelli, acting on behalf of Gleneagles Investment Co. (hereafter Gleneagles), a corporation yet to be formed, and others successfully bid on the lands of Raymond Colliery.

437. Solfanelli tendered to the Lackawanna County Tax Claim Bureau his personal check in the amount of $612,239.56 in payment of the bid price.

438. Solfanelli bid $5,394.09 more than the advertised upset bid price.

439. On January 8, 1981, Gleneagles was incorporated under Pennsylvania law with Joseph Solfanelli as the sole shareholder.

440. On January 23, 1981, the Lackawanna County Tax Claim Bureau returned to Solfanelli his personal...