Glentel, Inc. v. Wireless Ventures, LLC

• Decision Date: 17 March 2005
• Docket Number: No. 1:04-CV-190.,1:04-CV-190.
• Citation: 362 F.Supp.2d 992
• Parties: GLENTEL, INC., Plaintiff, v. WIRELESS VENTURES, LLC, doing business as Amerizon Wireless, Marty Cayton, Dean Cayton, Tony Cayton, Thomas H. Murphy and Kevin Stock, Defendants.
• Court: U.S. District Court — Northern District of Indiana

362 F.Supp.2d 992

GLENTEL, INC., Plaintiff, v. WIRELESS VENTURES, LLC, doing business as Amerizon Wireless, Marty Cayton, Dean Cayton, Tony Cayton, Thomas H. Murphy and Kevin Stock, Defendants.

No. 1:04-CV-190.

United States District Court, N.D. Indiana, Fort Wayne, Division.

March 17, 2005.

COPYRIGHT MATERIAL OMITTED

Leonard E. Eilbacher, Eilbacher Fletcher LLP, Fort Wayne, IN, for Plaintiff.

Thomas Andrew Herr, Barrett & McNagny LLP, Fort Wayne, IN, for Defendant.

MEMORANDUM OF DECISION AND ORDER

COSBEY, United States Magistrate Judge.

I. INTRODUCTION

In this diversity action,¹ Plaintiff Glentel, Inc., alleges that Defendant Wireless Ventures, LLC, is liable as a successor to CTA, LLC, for a $242,266.92 judgment which Glentel obtained against CTA on April 16, 2004. (Compl.¶¶ 12, 22.) Glentel further alleges that the sale of CTA's assets was fraudulent and for the purpose of avoiding its liabilities, including its debt to Glentel (id. ¶ 23),² and that individual Defendants Marty Cayton, Dean Cayton, Tony Cayton, Thomas Murphy and Kevin Stock, the owners of the parent companies of CTA, breached a fiduciary duty owed to Glentel as a creditor of CTA (First Am Compl. ¶¶ 30-36). Before the Court is Defendants' motion for partial summary judgment,³ which argues that (1) Wireless is not a continuation or successor to CTA and, as a purchaser of CTA's assets, is not liable for the debts of CTA; (2) Wireless was not formed for a fraudulent purpose or for avoiding debt; and (3) the individual Defendants did not owe, nor breach, a fiduciary duty to Glentel. After considering the motion and the relevant law, the Court finds that Defendants' motion for partial summary judgment should be GRANTED.

II. FACTS⁴

CTA was in the business of selling and licensing dispatch radios, satellite phones, pagers and other wireless communications devices in Fort Wayne, Indiana, as well as other locations. (Aff. of Marty Cayton ("Marty Aff.") ¶ 1; Decl. of Leonard E. Eilbacher Ex. 1.) CTA conducted business under several assumed names registered with the Indiana Secretary of State, two of which were "Amerizon Wireless Group" and "Amerizon Wireless." (Eilbacher Decl. Ex. 1.) Glentel filed a complaint in this Court on October 17, 2003, to collect an unsecured debt owed by CTA to Glentel, and a $242,266.92 judgment was entered against CTA on April 16, 2004. See Glentel, Inc. v. CTA, LLC, No. 1:03-CV-0394 (N.D.Ind. April 16, 2004).

Prior to December 12, 2003, CTA was equally owned by two "s" corporations, The Cross Development Group, Inc., and Tiger Tail Ventures, Inc. (Marty Aff. ¶ 2.) Prior to December 12, 2003, the sole shareholders of The Cross Development Group, Inc., were Marty, Dean, and Tony Cayton (id. ¶ 3), and the sole shareholders of Tiger Tail Ventures, Inc., were Kevin Stock and Thomas Murphy (id. ¶ 4). Marty Cayton was the President of CTA. (Dep. of Marty Cayton ("Marty Dep.") at 11.)

Guy Cayton, the father of Marty, Dean, and Tony Cayton (Eilbacher Decl. ¶ 6), was an employee of CTA from January 1, 2001, to December 12, 2003 (Aff. of Guy Cayton ("Guy Aff.") ¶ 5). Guy Cayton was never an owner of CTA, The Cross Development Group, Inc., or Tiger Tail Ventures, Inc., nor was he involved in the management of CTA. (Id.) He had previous experience in the wireless communications industry and had owned a telecommunications company in North Carolina (id. ¶ 6), but was semi-retired until his involvement with Wireless (Marty Dep. at 24).

On or about September 30, 2002, CTA and National City Bank of Indiana entered into a note whereby National City agreed to loan CTA $2,600,000. (Marty Aff. ¶ 5.) Pursuant to this transaction, National City obtained a security interest in all of CTA's assets.⁵ (Marty Dep. at 20.)

CTA later encountered financial difficulties, and National City instructed it to find a new bank. (Id. at 12.) However, CTA's attempts to secure a new lender failed. (Id.) CTA also initiated communications with various investors, most significantly, Arlington Capital, LLC. (Id. at 24.; Dep. of Bill A. Badie at 2-3.) Ultimately, Kevin Hamernik, a crisis consultant working with CTA at National City's request (Marty Dep. at 25-26), contemplated a Chapter 11 bankruptcy action for CTA if another solution to its financial difficulties failed to solidify (Decl. of David R. Smelko Ex. 1).

Much to CTA's relief, a letter of intent was entered into between CTA and Arlington Capital on December 10, 2003, which proposed that CTA's assets be purchased by two new entities owned by Arlington Capital: Scadata Ventures, LLC, and Wireless. (Marty Dep. Ex. 16.) Specifically, "the actual purchase [was] contemplated to be structured as a surrender of the [a]ssets by [CTA] to its secured lender, National City, followed by a private sale." (Id.) The letter of intent further contemplated cash contributions to Wireless by Guy Cayton and the subsequent sale of the ownership interests in Wireless to "the Cayton family." (Id.) Marty Cayton, as a part owner and President of CTA, actively involved himself in the negotiations of the terms of Arlington Capital's purchase of the CTA assets from National City.⁶ (Marty Dep. Ex. 14, 15; Smelko Decl. Ex. 1.)

Wireless was organized with the Indiana Secretary of State on December 8, 2003. (Eilbacher Decl. Ex. 1.) The Operating Agreement for Wireless shows the ownership of Wireless as of December 12, 2003, as 75% by Arlington Capital and 25% by Guy Cayton. (Guy Aff. Ex. E.) None of the Caytons were or are members of Arlington Capital. (Guy Aff. ¶ 11.)

On December 12, 2003, CTA, Marty Cayton, and National City entered into an Agreement Regarding Turnover of Collateral ("Turnover Agreement"), which noted that as of December 5, 2003, the outstanding principal balance of CTA's note to National City was $2,470,000 and that CTA was in default. (Marty Aff. Ex. A at 1-2.) The Turnover Agreement acknowledged that National City had accelerated the balance of the note and demanded immediate payment and the surrender of collateral from CTA and Marty Cayton, and that the value of the collateral did not exceed the outstanding sum of CTA's indebtedness to National City.⁷ (Id.) The Turnover Agreement further provided that, after CTA's surrender, National City would sell the collateral to Wireless and Scadata for a purchase price of $1,121,000. (Id.) In conjunction with the execution of the Turnover Agreement, Marty Cayton was released from his personal guaranty for $250,000 of the debt to National City (Marty Dep. at 21), and Marty, Dean, and Tony Cayton each obtained an employment contract with Wireless (Eilbacher Decl. Ex. 1).⁸

On the same day, National City and Wireless entered into a Purchase Agreement, wherein Wireless purchased the CTA assets for $1,000,000.⁹ (Guy Aff. Ex. A.) The business of CTA was never offered for sale to the public and there was never a formal appraisal of the business, although CTA's crisis consultant estimated the value to be between $1,200,000 and $1,800,000. (Marty Dep. at 25-26.) In order to finance the purchase of the CTA assets from National City, Guy Cayton advanced $575,000 to Wireless, and Wireless executed two promissory notes payable to Guy in the same aggregate amount, which are due and payable in 2008.¹⁰ (Guy Aff. Ex. C.) The remainder of the purchase price was paid in cash to National City by Arlington Capital. (Guy Aff. ¶ 11.)

As a condition of the December 12, 2003, transaction, Guy, Marty, Tony, and Dean Cayton entered into a Wireless Equity Transfer Agreement with Arlington Capital (the "Transfer Agreement"). (Guy Aff. Ex. F.) The purpose of the Transfer Agreement was to identify the conditions upon which the equity ownership interest of Wireless would transfer from Arlington Capital to Guy Cayton "and/or the Caytons."¹¹ (Id.) Guy, Marty, Tony, and Dean Cayton each "made individual representations and warranties in the Transfer Agreement in connection with the contemplated transfer of the equity ownership interest of Wireless."¹² (Id. at 8-9.)

Guy Cayton is the President and Chief Executive Officer of Wireless (Guy Aff. ¶ 16), and Marty Cayton is its Operations Manager (Marty Dep. at 23).¹³ Wireless like CTA, adopted the assumed name of "Amerizon Wireless," which was registered by Wireless with the Indiana Secretary of State on March 12, 2004. (Eilbacher Decl. Ex. 1.) Wireless operates at the same physical location where CTA conducted its business (Dep. of Guy Cayton ("Guy Dep.") at 9-11), and this business location never closed its doors for any period of time due to the transaction (Marty Dep. at 23). The sign on the front lawn of the business says "Amerizon," where prior to the December 12, 2003, transaction, it said "D & L Communications." (Id. at 17.) Wireless adopted CTA's telephone number (Guy Dep. at 14), and its website bears some similarity to CTA's website, including promotion of the name "Amerizon" (Eilbacher Decl. Ex. 1). Certain CTA personnel continue to be employed by Wireless,¹⁴ and any change to CTA's products occurred over a period of time, not immediately after the December 12, 2003, transaction.¹⁵ (Guy Dep. at 12.) Wireless's business plan included assuming approximately $1,200,000 of CTA's outstanding accounts payable to certain unsecured creditors; however, Glentel was not one of the assumed accounts. (Eilbacher Decl. Ex. 1.)

On or about December 15, 2003, CTA sent a memorandum to certain suppliers, including Glentel, informing them that "the company was recently forced to [sell] its assets and end its operations when the main secured lender, National City Bank, called its note due." (Marty Dep. Ex. 3.) On December 31, 2003, CTA filed Articles of Dissolution with the Indiana Secretary of State. (Eilbacher Decl. Ex. 1.)

Guy Cayton's role has remained the same since the execution of the Operating Agreement of Wireless: he continues to be responsible for the day-to-day operations of the business (Guy Aff. ¶ 16), and he is physically present on a...