Carrieri v. Jobs.Com, Inc., 4:03-CV-032-A.

• Decision Date: 31 October 2003
• Docket Number: No. 4:03-CV-032-A.,4:03-CV-032-A.
• Citation: 301 B.R. 187
• Parties: John CARRIERI, et al., Appellants, v. JOBS.COM, INC., et al., Appellees.
• Court: U.S. District Court — Northern District of Texas

301 B.R. 187

John CARRIERI, et al., Appellants, v. JOBS.COM, INC., et al., Appellees.

No. 4:03-CV-032-A.

United States District Court, N.D. Texas, Fort Worth Division.

October 31, 2003.

Gerald P. Urbach, Russell W. Mills, Laurie A. Spindler, Hiersche, Hayward, Drakeley & Urbach, P.C., Addison, TX, for Appellants.

Appellee jobs.com, Inc., Deirdre B. Ruckman, Stacy R. Obenhaus; Gardere Wynne Sewell, L.L.P., Arthur J. Kania and The Kania Trust: Keith Miles Aurzada, Charles Gibbs & Randell J. Gartin, Akin Gump Strauss Hauer & Feld, LLP, Dallas, TX, for Appellees.

MEMORANDUM OPINION and ORDER

McBRYDE, District Judge.

This case is an appeal from rulings made by the bankruptcy court disallowing claims of a group of creditors known as the Carrieri Group in the jobs.com, Inc., Chapter 11 proceeding by a memorandum opinion¹ signed by the bankruptcy judge, the Honorable Barbara J. Houser, on September 10, 2002, and in a separate order of that same date. The appellants, John Carrieri, Anthony Carrieri, Steven M. Elliot, Dave Sergeant, Michael Slentz, and Sean Slentz, are members of the Carrieri Group. The appellees are the debtor, jobs.com, Inc., and Arthur J. Kania and the Kania Trust, who are creditors whose claims would be adversely affected if the court were to reverse the rulings of the bankruptcy court.

The court has concluded that the bankruptcy court did not err in disallowing appellants' claims.

I. Factual Background

A. Overview.

As an overview of the pertinent facts, the court adopts the bankruptcy court's description of the factual background as follows:

As part of the Merger Agreement that resulted in the Debtor's creation, the Debtor issued shares of Series C-1 preferred stock (the "C-1 Stock") to each member of the Carrieri Group. The C-1 Stock was issued subject to the terms and conditions of the Statement of Designation, Preferences and Rights of Series C-1 Preferred Stock of Opportunity Network, Inc. (the "Statement"). The Statement contained, among other things, a redemption provision requiring the Debtor to redeem the C-1 Stock under certain circumstances. Specifically, the Statement provided that "[a]t any time and from time to time after March 22, 2001, upon receipt of written demand from any holder of shares of Series C-1 Preferred, the Corporation, to the extent it has legally available funds therefore, shall redeem the whole or any part of such holder's shares...."

In addition to the C-1 Stock and the Statement, each member of the Carrieri Group also received warrants for the purchase of additional preferred stock of the Debtor as part of the merger transaction. Specifically, each member of the Carrieri Group received a Series C-2 Preferred Stock Warrant (the "C-2 Warrants"), a Series C-3 Preferred Stock Warrant (the "C-3 Warrants"), and a Series C-4 Preferred Stock Warrant (the "C-4 Warrants") (collectively, the "Warrants"). The Debtor agreed to repurchase the Warrants at an agreed price if it had "legally available funds" at the time of demand by the holder of the Warrants. Demand could be made for the repurchase of the C-2 Warrants and the C-3 Warrants at any time after March 19, 2002. Demand could be made for the repurchase of the C-4 Warrants at any time after March 22, 2003. The Warrants expired on March 22, 2004.

Each member of the Carrieri Group made written demand for redemption of the C-1 Stock on or about February 20, 2001, specifying a redemption date of either March 22 or 23, 2001, and returned his stock certificate. The Debtor rejected these demands in writing (a series of letters sent by its counsel which stated that "[t]he Statement of Designation, Preferences and Rights of Series C-1 Preferred Stock sets forth the requirements that must be satisfied before a holder of Series C-1 Preferred Stock may exercise its redemption rights. It appears to jobs.com that you have failed to satisfy such requirements. As a consequence, we are returning your original ... letter to you, and the original stock certificate that you sent to us.").

The Statement required that the certificate representing the C-1 Stock be returned by each holder when demand was made "duly endorsed or assigned" to the Debtor. No member of the Carrieri Group complied with this requirement when the demand for redemption was first made.

The Debtor filed its voluntary petition under Chapter 11 of the Bankruptcy Code on March 15, 2001 (the "Petition Date"), a few days before the specified redemption dates (March 22 or 23, 2001) for the C-1 Stock, thereby commencing this bankruptcy case (the "Case"). On July 21, 2001, each member of the Carrieri Group filed unsecured claims against the Debtor (the "Claims") in the Case in "unknown amounts" arising from the C-1 Stock, the Statement, and the Warrants. By letters dated March 19, 2002, each member of the Carrier Group made demand on the Debtor for (i) repurchase of the C-2 Warrants and the C-3 Warrants, and (ii) redemption of the C-1 Stock. In connection with this demand for redemption of the C-1 Stock, the certificates were again returned (this time duly endorsed to the Debtor as required by the Statement).

In re jobs.com, Inc., 283 B.R. 209, 211-12 (Bankr.N.D.Tex.2002) (record references omitted).²

B. The Proofs of Claim and Objections Thereto.

Except for differences in the names of the creditors, the proofs of claim filed by appellants on July 21, 2001, are identical. In each instance, the basis for the claim was stated to be as follows:

[Name of creditor], the holder of shares of Series C-1 — C-4 preferred stock, hereby asserts an unsecured, nonpriority claim in an unknown amount against the Debtor for all claims, rights and obligations arising under the Articles of Incorporation, Statement of Designation, Preferences and Rights, Preferred Stock Warrants, Merger Agreement, Voting Agreement and all related documents, including, without limitation, all rights of redemption.

Ex. "A" (R. Vol. 7 at 1418), Ex. "B" (R. Vol. 7 at 1420, Ex. "C" (R. Vol. 7 at 1422), Ex. "D" (R. Vol. 7 at 1424), Ex. "E" (R. Vol. 7 at 1426), and Ex. "H" (R. Vol. 7 at 1432).

Debtor objected to the claims on the grounds that "each Claimant was the holder of an interest in the Debtor, rather than a general unsecured claim against it," that "[u]nder the Bankruptcy Code, claims and interests are determined as of the date of filing of a debtor's petition," and that "although the Claimants' equity interests were subject to redemption rights, those rights had not accrued as of the Petition Date," with the consequence that "each Claimant possesses only an equity interest in the Debtor, and, to the extent the Claimants seek treatment as general unsecured creditors, each of the Claims should be disallowed in its entirety." Ex. "J" (R. Vol. 7 at 1466-67).

C. The Bankruptcy Court's Ultimate Ruling.

The bankruptcy court signed an order September 10, 2002, by which it, consistent with its memorandum opinion of that same date, disallowed the claims of the Carrieri Group.

II. Issues on Appeal

Appellants raise in their brief the following issues on appeal:

1. Did the Bankruptcy Court err in disallowing the claims of the Appellants ("Carrieri Claims") which matured after the filing of Appellee jobs.com's (the "Debtor["] or "jobs.com") bankruptcy case by determining that no "legally available funds" existed pursuant to the Texas Business Corporation Act (the "TBCA") rather than applying bankruptcy law or other Texas law?

2. Assuming arguendo that the TBCA was applicable, did the Bankruptcy Court err in disallowing the claims of the Appellants by determining that "legally available funds" were not available to redeem in whole or in part the preferred shares and warrants of the Appellants because Appellee jobs.com was insolvent or would have been rendered insolvent as defined under the TBCA at the time demand was made to pay the claims or at the time the claims matured?

3. Assuming arguendo that Texas law was applicable, did the Bankruptcy Court err in disallowing the claims of the Appellants by determining that "legally available funds" were not available to redeem in whole or in part the preferred shares and warrants of the Appellants because Appellee jobs.com did not have a "surplus" as defined by the TBCA at the time demand was made to pay the claims or at the time the claims matured?

4. Did the Bankruptcy Court err in disallowing the Appellants' claims with regard to the redemption of the C-1 preferred shares because of their failure to endorse the stock certificates when they first attempted to redeem such shares?

5. In the event that the Bankruptcy Court held that the right to redeem the C [-]2 and C-3 warrants was equity rather than a debt claim (which Appellants believe the court did not hold), did the Bankruptcy Court err in disallowing the Appellants' claims with regard to the C-2 and C-3 warrants because the right to redeem such warrants was an unmatured claim on the Petition Date, which matured on March 22, 2002, after the Petition Date and before the plan of reorganization was confirmed?

Br. of Appellants at 1-2.

III. Standard of Review

To the extent the appeal presents questions of law, the bankruptcy court's judgment is subject to de novo review. Pierson & Gaylen v. Creel & Atwood (In re Consolidated Bancshares, Inc.), 785 F.2d 1249, 1252 (5th Cir.1986). Findings of fact, however, will not be set aside unless clearly erroneous. Memphis-Shelby County Airport Authority v. Braniff Airways, Inc. (In re Braniff Airways, Inc.), 783 F.2d 1283, 1287 (5th Cir.1986). A finding is clearly erroneous, although there is evidence to support it, when the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed. Id. The mere fact that this court would have weighed the evidence differently if sitting as the trier of fact is not sufficient to set aside the bankruptcy court's order if that court's account of the evidence is plausible in...