FREIDCO OF WILMINGTON, ETC. v. Farmers Bank, Civ. A. No. 76-149.
| Decision Date | 01 October 1980 |
| Docket Number | Civ. A. No. 76-149. |
| Citation | 499 F. Supp. 995 |
| Parties | FREIDCO OF WILMINGTON, DELAWARE, LTD., a Texas limited partnership Debtor-In-Possession under Chapter XII of the Bankruptcy Act of the United States, and Unit, Inc., a Texas corporation, Debtor-In-Possession under Chapter XI of the Bankruptcy Act of the United States, Plaintiffs, v. The FARMERS BANK OF the STATE OF DELAWARE, Defendant. |
| Court | U.S. District Court — District of Delaware |
Sherman E. Unger and Michael G. Kohn, Cincinnati, Ohio, for plaintiff Unit.
Max S. Bell, Jr. and Robert J. Katzenstein of Richards, Layton & Finger, Wilmington, Del., for defendant Farmers.
Peter J. Walsh of Murdoch & Walsh, Wilmington, Del., Trustee and F. Alton Tybout of Tybout, Redfearn, Casarino & Pell, Wilmington, Del., for Trustee of Freidco.
Thomas G. Hughes of O'Donnell & Hughes, Wilmington, Del., for FDIC.
Plaintiffs Freidco of Wilmington, Delaware, Ltd. ("Freidco-Wilmington"), and Unit, Inc., ("Unit") bring this action under the anti-tying provision of the Bank Holding Company Act. 12 U.S.C. § 1972. They seek treble damages from the Farmers Bank of the State of Delaware ("Farmers"). 12 U.S.C. § 1975. This Opinion constitutes the Court's findings of fact and conclusions of law after a trial on plaintiffs' Bank Holding Company Act claims.1
In 1964, Farmers was entertaining the idea of constructing an office building to house the bank. To accomplish this, Farmers had acquired a tract of land at 10th and Market Streets in Wilmington. A determination had been made that the bank should not own the building itself, but should be a tenant in any building which would be constructed.
At that time, Robert E. Hickman ("Hickman"), President of Emmett S. Hickman Company, a Wilmington real estate firm, was a director of Farmers Bank. Hickman had assisted a consulting company which had been retained by Farmers to make recommendations regarding the proposed building, so Farmers' chairman asked him whether he could locate a developer to construct the building. Hickman ultimately discussed the bank's plan with B. W. Morris ("Morris"), Unit's President.
The transaction, as initially related to Morris by Hickman, required the prospective developer to purchase the tract of land from the bank, construct a building on that land, and lease a certain portion of the space to Farmers. As part of the transaction, Emmett S. Hickman Company was to receive a commission of $50,000.00. In addition, the developer was to appoint Emmett S. Hickman Company as leasing and managing agent for the building.
A partnership called Freidco, consisting of Unit, and G. P. Aenchbacher, was formed for the purpose of constructing and operating the office building. Freidco then entered into commission and leasing agreements with Emmett S. Hickman Company and entered into a management agreement with Building Management Corporation, another Hickman company.
On May 14, 1965, Farmers deeded the land to Freidco. Farmers also entered into the following agreements with Freidco:
Thus, Freidco, the lessor to Farmers, became a sublessee for certain floor space, and eventually, a sublessor for that space.
Farmers and Chase Manhattan provided part of the construction financing and the General Electric Pension Trust agreed to provide permanent financing. At the same time that Freidco closed with Farmers, Freidco executed various financing documents with the General Electric Pension Trust:
Freidco subsequently deeded the land to the General Electric Pension Trust and leased it back from the Trust on a long term ground lease.
On August 10, 1966, Freidco-Wilmington, a Texas limited partnership, was formed for the purpose of owning and operating the office building. The general partners of Freidco-Wilmington were Unit and Aenchbacher. Hickman and Harry B. Tingle ("Tingle"), a business associate of Hickman in Emmett S. Hickman Company, became limited partners in exchange for a contribution of $250.00 cash from each of them, cancellation of the management and leasing agreements, and an agreement on the part of Hickman and Tingle to assume, in perpetuity, the responsibility for managing and leasing the property. Hickman and Tingle agreed that their only compensation would be their respective shares of the cash flow from the building.
Hickman and Tingle reached an agreement between themselves that they would employ Emmett S. Hickman Company to perform the leasing and management services on their behalf. Hickman and Tingle paid for these services out of their own pockets. Later, they took the position that the obligation to make such payments was contingent upon their receiving cash flow from the building.
Prior to the completion of the building, Unit proposed to Farmers that an additional $750,000.00 be borrowed through an increase in the permanent financing from the General Electric Pension Trust. Of the total amount, $250,000.00 was specifically allocated for improvements to Farmers' space. The remainder was ostensibly for use by Freidco-Wilmington.2 To effectuate this plan a second closing was held on March 29, 1967. Under the provisions of the financing arrangement, Farmers' base rent for its space was equal to the debt service on the permanent financing. Farmers' base rent was paid directly to the Trust. Accordingly, when the permanent mortgage was increased by the sum of $750,000.00, Farmers' lease with Freidco was amended to provide for an increase in the base rent equivalent to the increase in the debt service on that amount. At the same time, Freidco's sublease with Farmers was amended to increase the rent paid by Freidco thereunder in an amount equal to the debt service on the remaining $500,000.00. Farmers then paid the entire increase in debt service but was to be reimbursed for Freidco's share through "additional rent".
Although Freidco-Wilmington had been formed by this time, record title was never transferred to it by Freidco. About that time, the City of Wilmington passed a real estate transfer tax. Because the partners were unwilling to pay the substantial sum required to effect this paper transaction, record title was left in Freidco. The bank account and all of the leases also remained in Freidco's name.
During these early years the relationship among the parties was warm and informal and the parties reposed confidence in one another. Unit, with the aid of Hickman, Tingle and Farmers, sought to develop other properties in Wilmington. In late 1966, it came to the attention of Unit that the old Wilmington High School property on Delaware Avenue was available. The transaction was to be structured in the form of a joint venture. However, Farmers insisted that Unit borrow the funds for the purchase of the land in its own name because of the usury statutes. Accordingly, Unit borrowed $700,000.00 from Farmers on December 16, 1976, executing a note and a corporation bond and warrant in favor of the bank. The property was purchased and held for the benefit of the venture to be formed. On September 21, 1967 a formal joint venture agreement was executed by Unit, Hickman and Marvin Lewis, with Unit holding a 77 and ½ percent undivided interest in the property, Hickman an undivided 20 percent interest and Lewis an undivided 2 and ½ percent interest. Emmett S. Hickman Company was commissioned to manage 800 Delaware Avenue, although no written agreement for the payment of fees was executed. Payments were made for these services in the 1968 to 1971 period. Aenchbacher withdrew from both Freidco and Freidco-Wilmington in 1967.
In extending the $700,000.00 loan to Unit for the benefit of 800 Delaware Avenue Associates, Farmers anticipated no reduction in principal for a period of at least one year. The interest payments were made on a monthly basis, but no amortization of principal was made. On or about February 27, 1969, a permanent mortgage was placed on the constructed building ("the IBM Building") and, the principal amount of the loan was reduced by a payment of $250,000.00 from funds made available at the closing.
On October 16, 1967, Unit commenced the development of a third office building in Wilmington when it entered into a partnership agreement for the development of 300 Delaware Avenue ("Bank of Delaware Building"). That partnership included as limited partners, inter alia, Hickman and Tingle. In late 1970, it became necessary to borrow an additional sum of money to complete the project and $150,000.00 was borrowed from Farmers. To secure this obligation, Unit, Freidco and Freidco-Wilmington assigned to Farmers the lease and rents derived from the Farmers Bank Building (except for Farmers' lease from Freidco). All of Freidco-Wilmington's partners consented to this assignment.
On or about October 20, 1971, 300 Delaware Avenue Associates, through Unit, paid back the $150,000.00 loan that...
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