Clarkson Co. Ltd. v. Shaheen

• Decision Date: 28 January 1982
• Docket Number: No. 76 Civ. 1373.,76 Civ. 1373.
• Citation: 533 F. Supp. 905
• Parties: The CLARKSON COMPANY LIMITED, as Trustee in Bankruptcy, appointed by the Supreme Court of the Province of Newfoundland, of the Property of Newfoundland Refining Company Limited and Provincial Refining Company Limited, Plaintiff, v. John M. SHAHEEN, Roy M. Furmark, Albin W. Smith, Peter L. Caras, Paul W. Rishell, Shaheen Natural Resources Company, Inc., Newfoundland Refining Company Ltd., U. S. A., and Founders Corporation, Defendants. The CLARKSON COMPANY LIMITED, etc., Petitioner, v. FOUNDERS CORPORATION, Macmillan Ring-Free Oil Co., Inc., Shaheen Natural Resources Company, Inc., and John M. Shaheen, Respondents. The CLARKSON COMPANY LIMITED, etc., Petitioner, v. SHAHEEN NATURAL RESOURCES COMPANY, INC., John M. Shaheen, Macmillan Ring-Free Oil Co., Inc., and Ian W. Outerbridge, Respondents. The CLARKSON COMPANY LIMITED, etc., Petitioner, v. Martin RUBIN and John M. Shaheen, Respondents. The CLARKSON COMPANY LIMITED, etc., Petitioner, v. John M. SHAHEEN, Brown Harris Stevens, Inc., and 642 Park Avenue Corp., Respondents, and Barbara T. Shaheen, Michael Shaheen, and Bradford Shaheen, Intervening Respondents.
• Court: U.S. District Court — Southern District of New York

533 F. Supp. 905

The CLARKSON COMPANY LIMITED, as Trustee in Bankruptcy, appointed by the Supreme Court of the Province of Newfoundland, of the Property of Newfoundland Refining Company Limited and Provincial Refining Company Limited, Plaintiff, v. John M. SHAHEEN, Roy M. Furmark, Albin W. Smith, Peter L. Caras, Paul W. Rishell, Shaheen Natural Resources Company, Inc., Newfoundland Refining Company Ltd., U. S. A., and Founders Corporation, Defendants.

The CLARKSON COMPANY LIMITED, etc., Petitioner, v. FOUNDERS CORPORATION, Macmillan Ring-Free Oil Co., Inc., Shaheen Natural Resources Company, Inc., and John M. Shaheen, Respondents.

The CLARKSON COMPANY LIMITED, etc., Petitioner, v. SHAHEEN NATURAL RESOURCES COMPANY, INC., John M. Shaheen, Macmillan Ring-Free Oil Co., Inc., and Ian W. Outerbridge, Respondents.

The CLARKSON COMPANY LIMITED, etc., Petitioner, v. Martin RUBIN and John M. Shaheen, Respondents.

The CLARKSON COMPANY LIMITED, etc., Petitioner, v. John M. SHAHEEN, Brown Harris Stevens, Inc., and 642 Park Avenue Corp., Respondents, and Barbara T. Shaheen, Michael Shaheen, and Bradford Shaheen, Intervening Respondents.

No. 76 Civ. 1373.

United States District Court, S. D. New York.

January 28, 1982.

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White & Case, New York City, for plaintiff/petitioner The Clarkson Co. Ltd.; Jeffrey Barist, Allan L. Gropper, Edna R. Sussman, Kevin Ashley, New York City, of counsel.

Saxe, Bacon & Bolan, P. C., New York City, for defendants/respondents John M. Shaheen, Shaheen Natural Resources Co., Inc. and Founders Corp.; Thomas A. Andrews, Filip L. Tiffenberg, New York City, of counsel.

Trubin, Sillcocks, Edelman & Knapp, New York City, for respondent Macmillan Ring-Free Oil Co., Inc.; John Trubin, Roger R. Crane, Deirdre Kessler, New York City, of counsel.

Kornstein, Meister & Veisz, New York City, for respondent Martin Rubin; Ronald W. Meister, New York City, of counsel.

Patrick J. Rohan, Bronxville, N. Y., for intervenors Barbara Shaheen, Michael Shaheen and Bradford Shaheen.

Spengler, Carlson, Gubar, Brodsky & Rosenthal, New York City, for respondent Ian Outerbridge; Thomas H. Sear, J. Edward Meyer, III, Cynthia M. Brill, New York City, of counsel.

Netter, Dowd & Alfieri, New York City, for respondents Brown Harris Stevens, Inc. and 642 Park Avenue Corp.; Howard J. Adler, New York City, of counsel.

OPINION AND ORDER

OWEN, District Judge.

This opinion addresses itself to various recent attempts by the Clarkson Company Limited ("Clarkson") to realize on a $50 million judgment awarded by a jury in this Court in July of 1980 against John M. Shaheen and certain of his various corporations, including Shaheen Natural Resources Co., Inc., ("SNR"), and Founders Corporation ("Founders"). That judgment essentially was founded on frauds of Shaheen and his corporate associates and has been affirmed on appeal. The Clarkson Company Limited, etc. v. Shaheen, et al., 660 F.2d 506 (2d Cir. 1981). The assets sought in the instant proceedings are the following: 1) various stock owned by John M. Shaheen, which allegedly was pledged in 1977 to guarantee the debts of several Shaheen corporations to another corporation which Shaheen controls and of which he is president and chief executive officer; 2) debts owed by one Shaheen corporation to Shaheen individually and to another of his corporations; 3) certain allegedly fraudulent conveyances among three Shaheen corporations; 4) Shaheen's half ownership of his Park Avenue cooperative apartment and 5) Shaheen's half ownership of his summer estate in Southampton, Long Island.¹

I observe at the outset that Macmillan Ring-Free Oil Company, Inc. ("Macmillan"), SNR, and Founders, the three principal corporate actors in these supplementary proceedings, are affiliated corporations operating out of the same offices in New York City and are all elements of Shaheen's empire. The boards of directors of Macmillan, Founders, and SNR interlock extensively. Messrs. Peter Caras, Robert Collier, Milton Hibdon, Paul Rishell, Jesse Taub, Homer White, and Shaheen, all directors of Macmillan, are also directors of SNR. Messrs. Collier, Hibdon, Shaheen, and Taub, are four of the six directors of Founders. At all relevant times, Shaheen owned all of the shares of SNR and fifty-five percent of the shares of Founders. He also owned 1,421 shares of Macmillan common stock, which, combined with the substantial ownership of Macmillan stock by SNR and Founders, gave Shaheen control of more than forty percent of the outstanding Macmillan common stock.

In opposition to certain of Clarkson's instant turnover demands, Shaheen and his corporations assert various old and recent, allegedly bona fide transfers and pledges of all of these assets to others, which they claim place the assets beyond Clarkson's reach. Those are as follows:²

1. In April 1977 Shaheen placed all of his personal stock holdings in an escrow account, allegedly as a pledge to Macmillan;

2. Shaheen's right to $173,873 from Founders was allegedly pledged to Macmillan;

3. In October 1979 Shaheen transferred his interest in the Southampton estate to his wife;

4. Although in an 1980 affidavit Shaheen acknowledged half ownership of his New York City cooperative apartment, he later asserted, in response to Clarkson's turnover petition, that in 1965 he and his wife had in fact transferred the coop shares to their then-infant sons; and

5. Shaheen's claim on Founders for $360,420 to reimburse him for his liability to a third person, Harry Dean, was purportedly extinguished and turned into an obligation by Founders to pay Dean $75,000.

In response to other collection efforts by Clarkson before me, Shaheen and others assert that the "facts" defeat such efforts. Those are:

1) as to SNR's right to 23,517 shares of Macmillan preferred stock, issued as a stock dividend, worth $1,060,875, Macmillan claims to have seized this stock dividend as a setoff against SNR's unpaid debt to Macmillan, which Macmillan claims to be about $4 million;

2) as to three obligations of Founders to SNR aggregating more than $2 million, SNR and Founders claim that certain letters indefinitely extended the due dates of the loans if Founders was unable to pay at the time the loans otherwise came due;

3) as to a demand obligation to Shaheen, Founders and Shaheen claim that the statute of limitations bars the claim.³

THE RUBIN ESCROW

Turning first to Shaheen's alleged pledge of stock to guarantee the debts of his various companies to Macmillan, I find as follows:

After entry of judgment, Clarkson served information subpoenas on Shaheen in an effort to locate his assets. In response thereto Shaheen stated that he owned stock in various companies, but that the stock certificates were in the custody of one Martin Rubin, a New York lawyer, who was holding the stock as an escrowee. On about September 18, 1980, the Sheriff served an execution with notice of levy on Rubin with respect to that stock. The execution was not satisfied. Accordingly, on October 21, 1980, Clarkson petitioned for a turnover order, pursuant to Fed.R.Civ.P. 69(a) and C.P.L.R. § 5225(b) and (c), against Shaheen and Rubin directing that Shaheen's stock be turned over to Clarkson.

Shaheen answered the Rubin turnover petition on October 24, 1980, alleging that the stock had been pledged to Macmillan. On October 30, 1980, Rubin filed an interpleader complaint bringing Macmillan in as a potential claimant.

Macmillan thereafter answered and cross-claimed against Clarkson, alleging that Rubin was holding the stock as an escrow agent under an instrument dated March 29, 1977, pursuant to which the subject stock had been pledged by Shaheen in his individual capacity as collateral for loans made by Macmillan to various Shaheen corporations whose debts were guaranteed by Shaheen. Macmillan therefore claimed that it had a security interest in the stock "prior in time and senior to any interest of Clarkson and the Sheriff ...." Clarkson's answer to Macmillan's counterclaim denied any interest of Macmillan in the stock and alleged that any pledge to Macmillan by Shaheen was a fraudulent conveyance.

I find that the guaranty arose in the following manner. Over the years, Macmillan and the other Shaheen companies engaged in a continuous practice of paying each other's expenses. Ordinarily, they contend, accounts were settled at the close of each year. In 1975 and 1976, Macmillan made advances to and/or paid certain operating expenses of six Shaheen companies. These expenditures, totalling nearly $4.1 million and extending over two years, however, were not repaid by the end of 1976 because the Newfoundland Refining Company, the Shaheen company which had been providing the other companies with cash, went bankrupt, leaving the others unable to cover their debts to Macmillan.

Macmillan, a public company, was thus faced with having to disclose publicly that several separate corporations owned or controlled by Shaheen, Macmillan's president and controlling shareholder, owed at least $4 million to Macmillan, which those companies could not pay. Because it did not want to make such a disclosure, Macmillan delayed filing with the Securities and Exchange Commission ("SEC") its annual report on Form 10-K and its quarterly reports on Form 10-Q for the fiscal quarters ending March 31, June 30, and September 30, 1976. Instead, in July of 1976, Phillip Gandert, a Macmillan director, wrote to the SEC that the delay was the result of problems with the intercompany receivables, stating that "the manner of liquidating that indebtedness to Macmillan has not yet been determined." By February, 1977, however, the SEC had become so impatient that it commenced an action against Macmillan to compel it to file its long-overdue financial statements.

Irving Galpeer, Esq., a former attorney on the staff of the SEC, was retained to deal with this problem. He advised the Macmillan directors that they...