Arabi Gin Co. v. Plexus Cotton, Ltd. (In re Joseph Walker & Co.)

• Citation: 545 B.R. 132
• Decision Date: 21 July 2015
• Docket Number: Adv. Pro. No. 11–80023–JW,C/A No. 10–01948–JW
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
• Parties: In re, Joseph Walker & Company, Inc., Debtor(s). Arabi Gin Co., BCT Gin Co., Inc., Coley Gin & Fertilizer Co., Jones County Cotton Gin, Inc., Henry County Gin, LLC, Plaintiff(s), v. Plexus Cotton, Ltd., Nicholas Peter Francis Earlam, Laurence Kirby, Joseph Walker & Co., Inc., a nominal defendant, Defendant(s).

545 B.R. 132

In re, Joseph Walker & Company, Inc., Debtor(s).

Arabi Gin Co., BCT Gin Co., Inc., Coley Gin & Fertilizer Co., Jones County Cotton Gin, Inc., Henry County Gin, LLC, Plaintiff(s),

v.Plexus Cotton, Ltd., Nicholas Peter Francis Earlam, Laurence Kirby, Joseph Walker & Co., Inc., a nominal defendant, Defendant(s).

C/A No. 10–01948–JW

Adv. Pro. No. 11–80023–JW

United States Bankruptcy Court, D. South Carolina.

Signed July 21, 2015

G. William McCarthy, Jr., Columbia, SC, for Debtor(s).

Randall J. Fishman, Richard S. Townley, C. Barry Ward, Ballin, Ballin, & Fishman, P.C., Memphis, TN, Robert Geoffrey Levy, Levy Law Firm, LLC, Columbia, SC, for Plaintiff(s).

Louis A. Curcio, Jonathan D. Forstot, David A. Pisciotta, Troutman Sanders LLP, New York, NY, Clarence Davis, Griffin Davis, LLC, Columbia, SC, Joshua Benjamin Portnoy, Greenberg Traurig LLP, Atlanta, GA, for Defendant(s).

ORDER

JOHN E. WAITES, U.S. Bankruptcy Judge, District of South Carolina

This matter is before the Court following a trial on the complaint in the above-captioned adversary proceeding. The parties have expressly consented to this Court's entry of final orders and judgments. Therefore, the Court is permitted "to hear and determine and to enter appropriate orders and judgments."¹ 28 U.S.C. § 157(c)(2) (2012); see Wellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015)(holding that Article III of the Constitution "is not violated when the parties knowingly and voluntarily consent to adjudication by a bankruptcy judge"). The Court, having considered the pleadings, the evidence presented at trial, and the arguments of counsel, now finds that a judgment should be entered in favor of Defendants as to each of Plaintiffs' remaining causes of action for the reasons set forth in the following findings of fact and conclusions of law.²

FINDINGS OF FACT

Procedural History and Relevant Parties

1. On March 23, 2011, Plaintiffs commenced this adversary proceeding by filing a complaint asserting personal, state-law based claims against Defendants for piercing Debtor's corporate veil, alter ego, breach of fiduciary duty to creditors, breach of contract, fraud, negligent misrepresentation, civil conspiracy, tortious interference, promissory estoppel, and constructive trust.³ Plaintiffs initially sought compensatory damages of $10,687,356.72 and punitive damages of $100,000,000.00, but ultimately withdrew their claim for punitive damages voluntarily prior to trial.⁴ Each of Plaintiffs' claims relate to separate contracts entered into by Joseph Walker & Company, Inc. ("Debtor") in the fall of 2007 and spring of 2008 to purchase cotton to be harvested in the fall of 2008 from seven cotton gins, including the five Plaintiffs ("Ginner Contracts"). Plaintiffs' Complaint was subsequently amended on November 10, 2011.

2. On August 30, 2013, Defendants filed a Motion for Summary Judgment on all causes of action included in Plaintiffs' amended complaint. Plaintiffs thereafter filed a Motion for Partial Summary Judgment on their claims for breach of fiduciary duty to creditors and tortious interference on September 27, 2013.

3. As a result of certain amendments to the complaint, motions, and stipulations, the remaining Defendants at the time of the Court's consideration of the cross-motions included only Nicholas Peter Francis Earlam, Laurence Kirby, Plexus Cotton, Ltd. and Plexus Cotton USA, Inc. As further discussed in the Court's ruling upon the parties' cross-motions for summary judgment ("Summary Judgment Order"),⁵ Plexus Cotton USA, Inc. was released from liability on any of Plaintiffs' claims due to its status as a wholly-owned subsidiary of Debtor and the absence of any evidence suggesting the subsidiary's involvement with the circumstances germane to this adversary proceeding.

4. Plaintiffs are five cotton gins located in Alabama, Georgia, and North Carolina:

a. Plaintiff Henry County Gin, L.L.C. ("Henry County") is a domestic limited liability company organized under the laws of Alabama with its principal place of business located in Alabama.

b. Plaintiffs Arabi Gin Company ("Arabi"), BCT Gin Company, Inc. ("BCT"), and Coley Gin & Fertilizer Company ("Coley") are corporations organized under Georgia law with their principal places of business located in Georgia.

c. Plaintiff Jones County Cotton Gin, Inc. ("Jones County") is a corporation organized under North Carolina law with its principal place of business located in North Carolina.

5. Roanoke Tar Cotton ("RTC") and Tri–County Gin, Inc. ("Tri–County") are the remaining two of the seven gins involved in the Ginner Contracts. RTC and Tri–County (collectively, "Assignor–Gins") are corporations, both organized under North Carolina law with their principal places of business located in North Carolina. Plaintiffs acquired by assignment the Assignor–Gins' interests in the claims at issue.⁶ Collectively, the Court will refer to Plaintiffs and the Assignor–Gins as the "Ginners."

6. Debtor is a nominal defendant in this adversary proceeding. Debtor, as a corporation organized under South Carolina law with its principal place of business located in Columbia, South Carolina, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on March 18, 2010. At the time of trial and as of the date of this Order, Debtor's bankruptcy case is still pending.

7. Defendant Plexus Cotton, Ltd. ("Plexus Limited") is a foreign corporation organized under the laws of the United Kingdom with its principal place of business located in the United Kingdom, wherefrom Plexus Limited, under Earlam's leadership, engaged in the international cotton trade. Plexus Limited was the majority shareholder of Debtor prior to its bankruptcy filing and Debtor functioned as its overseas subsidiary.

8. Debtor, Plexus Limited, and Debtor's wholly-owned subsidiary, Plexus Cotton USA, Inc., were members of a cooperative of businesses referred to by the parties as the Plexus Group. These entities also engaged in joint marketing efforts to advance the Group's business interests.

9. Nicholas Peter Francis Earlam ("Earlam") and Laurence Kirby are the two remaining individual Defendants and both are residents of Liverpool, United Kingdom. During the relevant time period, Earlam served Plexus Limited as the chairman of its board of directors and as a high-level executive manager. Earlam also served on Debtor's board of directors, becoming its chairman on or around October 6, 2008.⁷ During this same time, Laurence Kirby served as the chief financial officer, corporate secretary, and a member of the board of directors for Plexus Limited and also served on Debtor's board of directors. Laurence Kirby was not called as a witness in Plaintiffs' case-in-chief and, as discussed further below, Plaintiffs' only causes of action remaining against him for a breach of his fiduciary duty to Debtor's creditors were dismissed following the Court's ruling on Defendants' mid-trial motion for a judgment as a matter of law in his favor.

10. During the time relevant to these proceedings, Debtor's board of directors was comprised of five individuals. Three representatives of Plexus Limited—Mark English, Laurence Kirby, and Earlam—served on Debtor's five-person board of directors. Forester Adams ("Adams") and Edward Clarke ("Clarke")⁸ also served on Debtor's board. Adams began serving as Debtor's corporate president in 2006 after spending time in the company's management. Clarke, the grandson of one of Debtor's founders, first became employed by Debtor in 1998 and, at the time relevant to this proceeding, served as Debtor's senior vice president and head of purchasing.

Clarke formally became a member of Debtor's board at a special meeting held on October 6, 2008; the purpose of this meeting is discussed further below.⁹ Dave McCarthy, though not a member of Debtor's board of directors, served as Debtor's chief financial officer during the relevant time period and at trial testified as to his knowledge of Debtor's financial state and various board activities in 2008 and early 2009.

11. Albrecht Mueller–Pearse ("Albrecht") was a German corporation which shared an established business relationship with the Plexus Group and Earlam. Albrecht went into German insolvency proceedings and receivership in February of 2009 and its assets have since been liquidated. Two of Albrecht's subsidiaries, Friedrich W. Kaemena & Company ("Kaemena") and Hong Kong Cotton Company ("HKC"), remained viable enterprises after the liquidation. Fritz Grobien ("Grobien") served as a managing partner at Albrecht during the time leading up to Albrecht's entrance into insolvency proceedings and maintained a close professional and personal relationship with Earlam spanning over twenty years.

12. At all relevant times, the following parties held an ownership interest in the following entities: (1) Plexus Limited held a 57% share of Debtor, positioning it as Debtor's controlling majority shareholder; (2) Earlam held a 36.5% share of Plexus Limited; (3) Mrs. Earlam held a 23.8% share of Plexus Limited which, combined with her husband's interest, provided the couple with a 60.3% controlling majority share of the entity; (4) Albrecht held a 31.4% share in Plexus Limited; (5) Earlam held a 7% share of Albrecht; and (6) Kaemena and HKC (collectively, "Subsidiaries") were 100% wholly-owned subsidiaries of Albrecht. Additionally, as part of Albrecht's insolvency proceedings, its shares in the Subsidiaries and Plexus Limited were ultimately purchased by Grobien from the insolvency receiver.

13. On September 25, 2014, the Court entered the Summary Judgment Order which denied certain of Plaintiffs' and the Assignor–Gins' causes of action in favor of all or some Defendants. After entry of the Summary Judgment Order, the following causes of action remained to be heard at trial:

a. All Plaintiffs' claims for breach of fiduciary duty to creditors by Earlam and Laurence Kirby, as well as Plaintiffs'

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