In re Beitzell & Co., Inc.
| Decision Date | 09 November 1993 |
| Docket Number | Bankruptcy No. 90-00211. Adv. No. 90-0091. |
| Citation | 163 BR 637 |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
| Parties | In re BEITZELL & CO., INC., Debtor. BEITZELL & CO., INC., Plaintiff, v. The FEDERAL DEPOSIT INSURANCE CORPORATION, As Receiver for the National Bank of Washington, Defendant. |
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Alan S. Dubin, Bethesda, MD, for debtor/plaintiff.
Glenn M. Young, Washington, DC, for defendant.
DECISION GRANTING IN PART, DENYING IN PART THE FDIC'S MOTION TO DISMISS
The court considers a motion to dismiss for failure to state a claim upon which relief can be granted, filed by the Federal Deposit Insurance Corporation ("FDIC"), as Receiver for the National Bank of Washington ("NBW"), and the opposition thereto filed by the debtor, Beitzell & Co., Inc. ("Beitzell").
The FDIC's motion to dismiss should be denied unless it appears beyond doubt that Beitzell can prove no set of facts in support of its claims that would entitle it to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Tele-Communications v. United States, 757 F.2d 1330 (D.C.Cir.1985); McGowan v. Warnecke, 739 F.Supp. 662 (D.D.C.1990); Royal Bank of Canada v. FDIC, 733 F.Supp. 1091, 1094 (N.D.Tex.1990). For purposes of this motion, the court accepts as true the allegations of Beitzell's complaint and construes the allegations in light most favorable to the nonmovant. Bell & Murphy and Assoc. v. Inter-First Bank Gateway, N.A., 894 F.2d 750, 752 n. 1 (5th Cir.1990); High v. McLean Fin'l Corp., 659 F.Supp. 1561, 1565 (D.D.C.1987).
On March 20, 1990, Beitzell filed a petition for relief under Chapter 11 of the Bankruptcy Code. On August 2, 1990, Beitzell commenced this adversary proceeding against NBW, asserting claims for breach of good faith and fair dealing, breach of fiduciary duty, tortious interference with existing contract, tortious interference with prospective business, and negligent misrepresentation. Beitzell seeks compensatory damages in the amount of $5,000,000 and punitive damages in the amount of $25,000,000.
On August 6, 1990, NBW filed a proof of claim against Beitzell in the amount of $2,545,000. Thereafter, on August 9, 1990, Beitzell filed an Amended Complaint and Objection to Claim. In addition to asserting the five counts contained in the original complaint, Beitzell objects to the claim filed by NBW and seeks an order providing that NBW's claim is only $765,845.00. Under the doctrine of recoupment, Beitzell contends that its claim against NBW constitutes a complete defense to any payment on NBW's claim, and that NBW is not entitled to any payments by Beitzell.
On August 10, 1990, the Office of the Comptroller of the Currency declared NBW insolvent and appointed the FDIC as its Receiver. On April 8, 1991, the FDIC filed a motion to dismiss Beitzell's Amended Complaint and Objection to Claim on the grounds that 12 U.S.C. § 1823(e), the D'Oench Duhme doctrine, and the federal holder in due course doctrine preclude Beitzell from asserting its claims against the FDIC. This motion was taken under advisement after oral argument and full briefing by the parties.1
Beitzell is a corporation duly organized and existing under the laws of the District of Columbia and has its principal place of business in Washington, D.C. Beitzell is and has been in the business of distributing liquor and other spirits at wholesale for over 50 years.
Beitzell alleges that it entered into a banking relationship with NBW in the 1940s and deposited substantial sums of money and kept substantial balances in its accounts with NBW until the mid-1980s. On January 16, 1986, Beitzell and NBW executed a Revolving Note in the amount of up to $3,000,000 payable upon demand and a Term Note totalling $550,000 ("Notes"). Both Notes were secured pursuant to a Loan Security Agreement ("Agreement") which essentially required Beitzell to deposit its collection of accounts receivable and inventory proceeds into an account with NBW. Under the Agreement, Beitzell alleges that it was entitled to borrow and NBW was obligated to lend the value of 80% of the eligible accounts receivable plus 50% of eligible inventory (the "Borrowing Formula") up to a maximum of $3,000,000. Beitzell never exceeded the Borrowing Formula.
Beitzell further alleges that at all relevant times, Beitzell was current with its interest payments to NBW and was never otherwise in default under the terms of the Revolving Note, the Term Note and the Agreement.
In 1988, Beitzell and NBW conducted discussions regarding Beitzell's acquisition of an Arlington, Virginia liquor wholesale entity, doing business as Virginia Imports, Ltd. ("Virginia Imports"). NBW consented to Beitzell's purchase and agreed to finance the acquisition. Pursuant to the Beitzell-NBW financing agreement, NBW disbursed in excess of $1,000,000 to Beitzell against its revolving line of credit. Furthermore, Beitzell received consent to disburse $1,600,000 to Virginia Imports, but only after Beitzell had obtained a security interest in Virginia Import's inventory, and assigned such interest to NBW as further collateral. In the beginning of 1989, NBW demanded that Beitzell and Virginia Imports be financed as separate borrowers, and thus refused to include the value of Virginia Import's inventory in the borrowing base used to determine Beitzell's ability to borrow against inventory.
In the Amended Complaint, Beitzell describes an unconsummated transaction between Forman Brothers, Inc. ("Forman Brothers") and Beitzell concerning the sale of certain of its liquor lines, including its four most successful lines. This sale was an effort to reverse business losses that occurred in the late 1980s. Beitzell alleges that NBW's actions deprived Beitzell of the benefits of this attempted sale. In January of 1990, Beitzel and Forman Brothers conditionally executed a purchase agreement. Under the relevant purchase terms, Forman Brothers would purchase certain of Beitzell's inventory at cost, and would acquire certain liquor lines for a premium of $800,000. As a condition of closing, Beitzell had to obtain NBW's consent to consummate the Forman Brothers deal. Beitzell alleges that prior to signing the purchase agreement, an NBW vice-president, Joseph McGrath, orally informed Beitzell that NBW would consent to the transaction. However, on January 31, 1990, NBW mailed a letter to Beitzell informing it that NBW would not give its consent to the proposed sale unless Beitzell agreed to pay NBW's legal fees. Beitzell alleges that due to the time pressure, it was forced to agree to this request.
Beitzell further alleges that despite a meeting held on February 5, 1990, where two NBW vice-presidents stated the transaction would be in Beitzell's best interest, NBW refused to give its consent, except under terms which Beitzell alleges were unreasonable and coercive. NBW demanded that all proceeds of the sale be paid over to NBW, including the $800,000 premium. Beitzell contends that this demand was improper since NBW had only advanced 50% of the value of the inventory to Beitzell. NBW also indicated that Beitzell would have no further right to borrow after the sale to Forman Brothers. Beitzell contends that these terms were unreasonable, demanded in bad faith, and were not reasonably necessary to protect NBW's position.
In response, the FDIC contends that NBW was merely exercising its discretion regarding the sale of the collateral proposed by Beitzell and that its insecurity regarding Beitzell's ability to honor its debts to the banks was the reason for such refusal. The FDIC also contends that NBW's concerns were heightened upon learning that Beitzell was a judgment debtor of the Teamster's Union.2
On February 22, 1990, Beitzell met with NBW to discuss obtaining NBW's consent. Beitzell alleges that an NBW vice president stated that NBW would not take a position that would be perceived by the Teamsters Union as helpful to Beitzell due to NBW's close ties with labor unions. Beitzell further alleges that NBW stated that because the deal would not close, it had decided to accelerate Beitzell's debt to NBW and to foreclose on Beitzell's inventory.
Beginning on February 22, 1990, NBW refused to honor checks drawn on Beitzell's account. Beitzell contends that funds should have been available under its revolving line of credit and that the dishonored checks had been issued before NBW decided to accelerate the debt. Certain of these checks were for payments of federal payroll tax obligations and obligations owed the D.C. government.
On February 23, 1990, NBW sent a demand letter to Beitzell declaring that Beitzell was in default under the loan documents and called for payment of both notes in three days. Beitzell alleges that they were not in default, and thus NBW wrongfully declared such a default. Beitzell contends that at the time NBW called the notes due, NBW was fully and adequately secured and the prospects of Beitzell's making repayment were certain. Beitzell had assets of approximately $7,750,000 and liabilities of approximately $6,640,000 and NBW was its only secured creditor.
On February 26, 1990, NBW sent a letter informing Beitzell of its failure to pay on demand and stated NBW's intention to enter upon Beitzell's premises and seize its inventory. Beitzell permitted NBW to enter the premises shortly thereafter in an effort to minimize damages to its business.
In early March 1990, Beitzell contends that NBW demanded it to employ an auctioneer at an exorbitant price to sell Beitzell's inventory within the next thirty to sixty days. When Beitzell refused, NBW threatened to notice the foreclosure sale of real estate securing the notes and to accelerate the Virginia Imports note. Beitzell contends that by its actions,...
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