In re S & D Foods, Inc., Bankruptcy No. 89 B 06041 J

• Decision Date: 07 August 1992
• Docket Number: Bankruptcy No. 89 B 06041 J,Adv. No. 89 C 0533.
• Citation: 144 BR 121
• Court: U.S. Bankruptcy Court — District of Colorado
• Parties: In re S & D FOODS, INC., formerly known as Consolidated Pet Foods, Inc., a/k/a Consolidated Pet Food, Inc., North American Trading Co., Debtor. Larry A. LARSEN, Plaintiff, v. CONSOLIDATED PET FOODS, INC., a/k/a Consolidated Pet Food, Inc., North American Trading Company, Donald A. Kunkel, Susan L. Kunkel, FBS Business Finance Corporation, United Protein, Inc., Marks and Clare, Escrow Agents, and City of Dodge City, Kansas, Defendants.

144 B.R. 121 (1992)

In re S & D FOODS, INC., formerly known as Consolidated Pet Foods, Inc., a/k/a Consolidated Pet Food, Inc., North American Trading Co., Debtor Larry A. LARSEN, Plaintiff, v. CONSOLIDATED PET FOODS, INC., a/k/a Consolidated Pet Food, Inc., North American Trading Company, Donald A. Kunkel, Susan L. Kunkel, FBS Business Finance Corporation, United Protein, Inc., Marks and Clare, Escrow Agents, and City of Dodge City, Kansas, Defendants.

Bankruptcy No. 89 B 06041 J, Adv. No. 89 C 0533.

United States Bankruptcy Court, D. Colorado.

August 7, 1992.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

G. Appel and M. Guyerson, of Rothgerber, Appel, Powers & Johnson, Denver, Colo., for United Protein, Inc. (Protein).

I. Kaiser and K. Kramer, of Berenbaum & Weinshienk, P.C., Denver, Colo., for Donald and Susan Kunkel (Kunkel).

L. Knowles and J. Powers, of McGrath, North, Mullin & Kratz, P.C., Omaha, Neb., for Larry A. Larsen (Larsen).

J. Logan, of Minor & Brown, P.C., Denver, Colo., for Consol. Pet Foods, Inc. (Debtor/Pet).

MEMORANDUM OF DECISION ON ADVERSARY PROCEEDING COMPLAINT AND COUNTERCLAIM¹,²

FRANCIS G. CONRAD, Bankruptcy Judge.^*

                TABLE OF CONTENTS
                                                                                       Page
                PROCEDURAL POSTURE ............................................................. 131
                FACTS .......................................................................... 131
                I.   The Parties ............................................................... 131
                     (a) Larry A. Larsen ....................................................... 131
                

                                                                                             Page
                     (b) Consolidated Pet Foods, Inc. ................................................ 131
                     (c) Donald Kunkel ............................................................... 132
                     (d) Susan Kunkel ................................................................ 132
                     (e) United Protein, Inc. ........................................................ 132
                II.  The Witnesses ................................................................... 132
                     (a) L. Mulherin ................................................................. 132
                     (b) N. Minor .................................................................... 132
                     (c) C. Miller ................................................................... 132
                     (d) J. Sixta .................................................................... 132
                     (e) D. Cribari .................................................................. 132
                     (f) T. Dolfay ................................................................... 132
                III. The Background .................................................................. 132
                     (a) The Pet Food Industry ....................................................... 132
                     (b) Larsen and Pet within the Industry .......................................... 133
                IV.  Current Events .................................................................. 133
                     (a) Preliminary Discussions and Negotiations .................................... 133
                     (b) The Confidentiality Agreement ............................................... 134
                     (c) The Merger Agreement ........................................................ 135
                     (d) Documenting ................................................................. 136
                     (e) The Merger Announcement ..................................................... 137
                     (f) The Merger of Operations .................................................... 139
                     (g) Sharing ..................................................................... 141
                     (h) The Grant Application ....................................................... 144
                     (i) Financing the Deal .......................................................... 145
                     (j) Inventory Buildup ........................................................... 150
                     (k) Termination of the Venture .................................................. 151
                CLAIMS OF THE PARTIES ................................................................ 154
                DISCUSSION ........................................................................... 155
                I.   Standing to Bring Certain Causes of Action ...................................... 155
                     (a) Pet and Protein ............................................................. 155
                     (b) Donald Kunkel ............................................................... 155
                II.  The Major Issues of Contract .................................................... 156
                     (a) Was there a Contract? ....................................................... 156
                     (b) Did the agreement to merge result in a Partnership/Joint Venture
                           Agreement or merely a loan? ............................................... 158
                     (c) Was there a fiduciary or confidential relationship under Colorado law? ...... 160
                     (d) Was there a Confidentiality Agreement? ...................................... 161
                     (e) Was there a breach of the Joint Venture Contract, and of the Confidentiality
                          Agreement? ................................................................. 161
                     (f) Was there a breach of fiduciary duty? ....................................... 162
                     (g) Was there a breach of the Partnership or Joint Venture relationship? ........ 162
                     (h) Is Pet entitled to contribution from Larsen for debts paid before and
                            during the pendency of Pet's bankruptcy? ................................. 163
                III. Issues Pertaining to Interference with Contract and Prospective Economic
                       Advantage ..................................................................... 163
                IV.  Fraud, Misrepresentation, Nondisclosure and other Torts ......................... 165
                     (a) Fraud, Misrepresentation, and Nondisclosure ................................. 165
                     (b) Civil Conspiracy ............................................................ 167
                     (c) Breach of Uniform Trade Secrets Act ......................................... 168
                V.   Damages â   Pet ............................................................. 168
                VI.  Kunkel's Claims ................................................................. 169
                     (a) Fraud in the Inducement and Execution ....................................... 169
                     (b) Civil Conspiracy to Acquire Kunkel's Interest in Pet ........................ 169
                     (c) Outrageous Conduct .......................................................... 169
                     (d) Interference with Dodge City Lease .......................................... 170
                     (e) Interference with York Lease ................................................ 170
                     (f) Affirmative Defenses ........................................................ 170
                CONCLUSION ........................................................................... 170
                

The present dispute³ centers upon a monetary contribution in calendar year 1988, claimed by Larsen to be a loan, but by the various defendants to be a capital contribution. Larsen claims the loans are collateralized. The defendants counter with fraud and other causes of action. We hold that Larsen loses his suit for the numerous and various reasons stated in this Memorandum of Decision.

PROCEDURAL POSTURE

Pet filed for bankruptcy protection under 11 U.S.C. §§ 101, et seq. on May 5, 1989. This adversary proceeding was commenced by Larsen through the filing of an original complaint on May 18, 1989 seeking declaratory judgment and other relief. The original complaint has been amended on two separate occasions and a "Second Amended Verified Complaint" naming Protein (formerly Consolidated Acquisitions, Inc.), the acquirer of Pet, and other defendants was filed and served on or about July 10, 1989. The amended complaint served the purpose of having all parties to this action, and two previously initiated State Court actions, in one forum. On August 14, 1989, Protein filed its "Answer and Counterclaims" and shortly thereafter, under Court Order entered on September 25, 1989, Protein and others filed their amended answers and amended counterclaims. Kunkel, on the eve of the trial, added an amended affirmative defense under 15 U.S.C. §§ 1691, et seq.

The present dispute centers around a merger between Pet and Larsen, and upon an alleged capital contribution or loan made by Larsen to Pet during late calendar year 1988. The capital contribution or loans are allegedly collateralized by certain assets of Pet that have been acquired by Protein in the bankruptcy or are encumbered by the liens of FBS Business Finance Corporation (FBS), whose claims have also been acquired by Protein.

FACTS

The facts in this adversary proceeding are uncomplicated but voluminous.

I. The Parties.

(a) Larry A. Larsen.

Plaintiff Larsen is a businessperson who resides in Omaha, Nebraska. He is engaged primarily in freezer storage and warehouse related services (T.17)⁴ through corporations and entities Larsen owns. His principal business, Millard Refrigerated Services (Millard), formerly L & B Corporation, d/b/a Millard Warehouse, is also located in Omaha, Nebraska (T.21). Millard is the corporate parent of several separate corporations and partnerships, and provides management, accounting, planning, and legal services for Larsen, as well as other entities owned and controlled by Larsen. One of the services provided by Larsen, via his entities, is the processing of pet foods. Larsen has done this for approximately 15-20 years (T.20).

(b) Consolidated Pet Foods, Inc.

Pet was also involved in the pet food business (T.22), producing and purchasing products from the slaughter industry. Pet upgraded the product it purchased for sale to pet food canners (T.595). It has been in the pet food business for at least four...