Fleet Nat. Bank v. H & D ENTERTAINMENT, INC.

• Decision Date: 09 April 1996
• Docket Number: Civ. A. No. 94-12385-NG.
• Parties: FLEET NATIONAL BANK, Plaintiff and Counterclaim Defendant, v. H & D ENTERTAINMENT, INC. (f/k/a Dover Broadcasting, Inc.) and H & D Management, Inc., as general partner of each of H & D Broadcasting Limited Partnership, H & D Media Limited Partnership, H & D Radio Limited Partnership, and H & D Wireless Limited Partnership, Defendants and Counterclaim Plaintiffs, PNC Bank, Ohio, N.A., Charles E. Giddens, individually, as Receiver and as general partner of Media Venture Partners, Additional Counterclaim Defendants.
• Court: U.S. District Court — District of Massachusetts

926 F. Supp. 226

FLEET NATIONAL BANK, Plaintiff and Counterclaim Defendant, v. H & D ENTERTAINMENT, INC. (f/k/a Dover Broadcasting, Inc.) and H & D Management, Inc., as general partner of each of H & D Broadcasting Limited Partnership, H & D Media Limited Partnership, H & D Radio Limited Partnership, and H & D Wireless Limited Partnership, Defendants and Counterclaim Plaintiffs PNC Bank, Ohio, N.A., Charles E. Giddens, individually, as Receiver and as general partner of Media Venture Partners, Additional Counterclaim Defendants.

Civ. A. No. 94-12385-NG.

United States District Court, D. Massachusetts.

April 9, 1996.

COPYRIGHT MATERIAL OMITTED

Paul E. Morton, Law Offices of Paul E. Morton, Boston, MA, Martin F. Gaynor, Hanify & King, P.C., Boston, MA, for Charles E. Giddens.

Charles L. Glerum, Sara A. Walker, Choate, Hall & Stewart, Boston, MA, for Fleet National Bank.

Stephen F. Gordon, Gordon & Wise, Boston, MA, Stanley W. Wheatley, Gordon & Wise, Boston, MA, for H & D Management Inc.

Seth Grossman, Somers Point, NJ, pro se.

MEMORANDUM AND DECISION

GERTNER, District Judge:

I. INTRODUCTION

This court has been asked to approve the sale of the assets of a receivership.¹ The estate is comprised chiefly of four radio stations, which, prior to court appointment of a receiver, were owned and operated by the defendants and counter-claim plaintiffs.

The proposed sale has been repeatedly scrutinized by the market, by interested parties and by the court. It has been the subject of three competitive bidding processes and a magistrate judge's careful monitoring, during which the relevant parties were given an opportunity to object to sale procedures and substance, and through which, where appropriate, the procedures adopted came to reflect the concerns of the parties.² A clear choice among possible purchasers has emerged, a choice endorsed by those who have the most to lose: the debtors' chief creditors.

Nevertheless, defendants challenge the sale, focusing chiefly on three points: first, that the court-appointed receiver, with notice to all concerned and with court approval, engaged the brokerage firm in which he was a principal to assist in the sale; second, that one of the proposed purchaser's principals, at the time the initial bid was submitted, was a partner in an accounting firm which was providing basic services to the receivership estate; and third, that the terms of the sale, again with notice and with court approval, were amended at various stages in the sales process.

From these facts and others, defendants argue that the sale is so tainted that it should not be confirmed.

I disagree. For the reasons set forth below, I ALLOW the Receiver's sales motion, as detailed in his November 30, 1995 submission.³

II. STATEMENT OF FACTS

A. Background

Defendants are members of an affiliated group of corporations and limited partnerships that are licensees or have ownership interests in radio stations in various cities in the United States ("H & D" or "The Borrower Group").⁴

From September of 1983 to May of 1988, Fleet and PNC entered into a series of agreements with defendants to provide revolving credit and term loans, secured by the Borrower Group's interests in the Radio Stations and other assets.

The loans went into default. On February 2, 1994, Fleet notified the Borrower Group that it was accelerating its obligations and demanding payment in full. After defendants failed to pay the amounts due, on February 10, 1994, Fleet began actions against H & D, its members, and their personal guarantors, seeking to recover the outstanding balances.

Fleet, PNC and the Borrower Group entered into a settlement agreement. In exchange for the Banks' forbearance of the debt, the Settlement Agreement set forth a schedule for liquidation of certain assets and for repayment of amount owed.⁵ The Agreement also gave the Banks the right, if the Borrower Group defaulted on its obligations, to have a receiver appointed to oversee the liquidation of H & D's assets.

On November 30, 1994, the Borrower Group failed to meet its obligations under the Agreement.⁶

B. Court-Appointed Receivership

On December 2, 1994, Fleet filed a complaint seeking to recover the more than $12.9 million which defendants owed Fleet pursuant to certain promissory notes and guarantees. Fleet also sought ex parte appointment of a receiver to take possession, manage, operate and, subject to court approval, sell the Radio Stations.

On December 5, 1994, after an ex parte hearing, this Court allowed plaintiff's Motion⁷ and appointed Charles E. Giddens as Receiver.⁸ Giddens was ordered to take possession, to operate and then, subject to court approval, to enter into a Purchase and Sale Agreement, to sell and to transfer the assets of the Borrower Group.

As was fully disclosed to this Court, Giddens was a principal in Media Venture Partners ("MVP"), a brokerage firm specializing in the radio industry. H & D had previously engaged MVP to broker the sale of the Radio Stations.⁹ Specifically, Randall Jeffery, a principal in MVP, had served as H & D's exclusive broker from February 1, 1994 to December 1, 1994, on which date he resigned.¹⁰ Jeffery resigned primarily because he believed that the H & D Borrower Group was demanding prices that were incompatible with conditions in the marketplace. See Affidavit of Randy Jeffery (Feb. 27, 1995), at ¶ 1.¹¹

On December 16, 1994, defendants moved to vacate the order appointing a receiver. On January 3, 1995, after the Federal Communications Commission (FCC) approved the transfer of licenses to the Receiver,¹² defendants moved to withdraw their motion to vacate the appointment order, without prejudice to their claims against Fleet. I allowed defendants' motion to withdraw on January 17, 1995.¹³

1. The Zitelman Group's Duties

On January 20, 1995, Giddens retained the Zitelman Group, Inc. (TZG) to provide certain accounting services for the receivership estate.¹⁴ Although TZG offered a wide range of services, the Receiver only engaged TZG in a limited capacity, hiring the firm to perform certain ministerial accounting functions.¹⁵ TZG was engaged to prepare consolidated monthly financial statements and provide some routine services with respect to payroll taxes, such as reconciling the tax filings with payroll registers and weekly pay checks.

The work was performed by Stewart Bassin. TZG did not have access to the raw financial data of the Radio Stations. For instance, in preparing the consolidated financial reports, TZG was given statements from each station which it then reformatted for the general report. Overall, TZG received monthly balance sheets, income statements, and general ledgers, as well as weekly cash reports and, in some instances, information on accounts receivable and payable.

In reviewing the testimony, I find that TZG did not advise the receivership, provide financial audits, or direct investment of assets, with respect to the Radio stations; nor did it participate in management decisions with respect to the operation of the Radio Stations or get involved in the MVP's sales efforts.

2. MVP as Broker

On February 3, 1995, the Receiver, with notice and full disclosure to this court of his interest in MVP, requested court approval to employ MVP as broker for the sale of the Radio Stations. Giddens reasonably recommended a broker familiar with the operation, programming and performance of the Radio Stations. In addition, because MVP offered the receivership estate a special commission arrangement, its brokerage services were provided at no actual additional cost to the estate.¹⁶

On March 9, 1995, after a conducting a hearing with respect to this and other issues, the Magistrate Judge approved the employment.¹⁷

C. Bidding Processes

1. First Round Bidding

a. General Process

On March 16, 1995, MVP, acting as broker on behalf of the Receiver, distributed about 200 offering presentations to potential bidders containing descriptions of: the stations' operations, their programming, their market and financial performance. All the information was current through January 20, 1995. After the initial presentation, MVP mailed a supplement to each potential bidder, including each Station's current financial statements from the most recent reporting period.¹⁸

In addition, MVP mailed over 600 letters of inquiry to prospective bidders identified through MVP's data base. The letters included information about the first round bidding process and a sample bid form. Finally, MVP announced the sale in a press release published in industry trade publications.

The bidding materials notified potential bidders that all bids would be subject to due diligence, the negotiation of a purchase and sales agreement, and, ultimately, court approval.¹⁹

b. Spring Group's Bid

During the period between the announcement and the bid deadline, Jeffery sent bid packages to, and discussed the sale with, any interested potential bidders, among them the Spring Group, L.L.C. ("Spring"), an entity in which Zitelman is a principal.

Defendants have made, essentially, three allegations with respect to the preparation of the Spring bid: first, that Zitelman tried to conceal his interest in the bid Spring submitted; second, that the Spring bid was based on inside information; and third, that Giddens, Jeffery and Zitelman were somehow colluding to their personal advantage and to the detriment of the receivership estate.

After weighing the testimony before me, and particularly reviewing the able cross-examination of witnesses Zitelman, Jeffery and Giddens, I find defendants' allegations without merit.

First, Zitelman plainly did not try to conceal either his interest in bidding or his role in Spring. For instance, when he became interested in submitting a bid, he first asked the Receiver and Jeffery whether it would be appropriate for him to do so.²⁰ Once Giddens gave him the go-ahead, Zitelman made inquiries, formally requested...