Glosband v. Watts Detective Agency, Inc.
| Decision Date | 28 August 1981 |
| Docket Number | Civ. A. No. 70-1336-N. |
| Citation | 21 BR 963 |
| Court | U.S. District Court — District of Massachusetts |
| Parties | Daniel GLOSBAND, Trustee in Bankruptcy of D.C. Sullivan & Co., Inc., Plaintiff, v. WATTS DETECTIVE AGENCY, INC., et al., Defendants. |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Daniel Featherston, Jr., and Benjamin Goldman, Boston, Mass., for plaintiff.
Timothy H. Gailey, Hale & Dorr, Boston, Mass., for defendant Watts Detective Agency.
James F. Freeley, Feeney & Freeley, Boston, Mass., for defendant Daniel Sullivan.
Benjamin Brown, Boston, Mass., for defendant William Otte.
The trustee in Bankruptcy of D.C. Sullivan & Co., Inc., ("Sullivan Company") brought this action to recover the value of certain of the bankrupt's assets that were allegedly misappropriated. Named as defendants were Watts Detective Agency ("Watts"), the alleged recipient of the bankrupt's assets; Consolidated Service Corporation ("Consolidated"), Watts' parent corporation; Christopher P. Recklitis ("Recklitis"), the President of both Watts and Consolidated; and David C. Sullivan ("Sullivan") and Billy R. Otte ("Otte"), the bankrupt's President and Vice-President. The trustee proceeded against these defendants under the following three theories of liability alleged in the complaint under separate counts. First, that not more than one year prior to Sullivan Company's bankruptcy, and while Sullivan Company was insolvent or so as to render it insolvent, they caused certain of its assets to be transferred to Watts for less than fair consideration, in violation of former 11 U.S.C. § 107(d)(2) (a).1 Second, that they caused such transfer to be made not more than one year prior to Sullivan Company's bankruptcy with the actual intent to hinder, delay, or defraud either existing or future creditors in violation of former 11 U.S.C. § 107(d)(2)(d). Third, that they unlawfully caused the bankrupt's assets to be diverted to Watts in violation of their fiduciary duty to Sullivan Company.
The evidence introduced in the case purported to show the following facts. Before the time of the alleged transfer of much of its property to the defendants, Sullivan Company had come upon financially hard times. Since 1968, it had owed the Internal Revenue Service unpaid payroll and withholding taxes amounting by April 1, 1970 to over $210,000. (Admitted fact 25; Exhibit 15). Further, it owed taxes to the Commonwealth of Massachusetts for the period 1961 to 1970 in the amount of $57,893. (Admitted fact 27). In 1969 and 1970, its disbursements continually exceeded sales by nearly 50%. (Admitted facts 19, 20, 22 and 23).
In May 1969, Recklitis and Otte engaged in preliminary discussions about a possible sale of Sullivan Company, but nothing resulted from the discussions. (Admitted fact 40).
In early 1970, Otte again discussed a possible sale of Sullivan Company with Recklitis. (Admitted fact 41). By that time Recklitis had become president of Watts as well as Consolidated. (Admitted fact 9).
In early April, Recklitis made an offer for the operating part of the Sullivan Company amounting to approximately $250,000. Sometime thereafter, Otte telephoned the customers of Sullivan Company to inform them that Sullivan Company was contemplating a sale of its business and to learn whether they would transfer their patronage to the purchaser. The customers apparently indicated that they would stay with the new company so long as service was uninterrupted.
Sullivan rejected Recklitis' offer of $250,000 as being too low. Subsequently, the IRS indicated that it would levy on Sullivan Company's accounts receivable. On April 20, 1970, Sullivan Company had accounts receivable of $37,997.52. (Admitted fact 32). This money was needed principally to pay employee salesmen. At that time, Sullivan Company had a weekly payroll of $15,772.21 (Admitted fact 30) and a negative balance in its check book of $44,735.98. (Admitted fact 34). On April 22, 1970, Sullivan was in dire need of obtaining cash to meet that week's payroll as well as to cover the payroll checks sent out for the previous week. Apparently aware of Sullivan's worsening financial condition, Recklitis made a second, lower offer which was contingent on IRS' approval.
Negotiations between Watts, Sullivan Company and the IRS followed. At a meeting at 5:00 PM on April 22, 1970, the IRS rejected the last of the proposals made and stated to those present — Otte, Sullivan and Recklitis — that it would levy on Sullivan Company's accounts receivable the next day. After the meeting, Sullivan indicated that he was walking away from the business and that Otte should do whatever he had to do. Recklitis then offered Otte employment with Watts, and Otte accepted.
That evening and the next day, Otte began contacting the employees and customers of Sullivan in order to arrange for uninterrupted guard service. In this way, Watts, through Otte, sought to take over what were — according to the plaintiff trustee —the major assets of the Sullivan Company starting at 8:00 AM on the day the IRS was due to levy on Sullivan Company's accounts. On April 23, Watts began to service nine of Sullivan Company's former customers. (Admitted fact 55). Within a few days, Otte had secured for Watts thirteen of Sullivan Company's seventeen customers and enough of its employees to provide uninterrupted service for these clients. For at least one or two weeks following April 22, Watts supervised the servicing of Sullivan Company's former customers using the Sullivan Company offices. That year, ending April 22, 1971, some $680,562 of Watts' gross sales were attributable to Sullivan Company's former customers. (Admitted fact 57).
The jury found all five defendants liable under Count I, and found defendants Sullivan and Otte alone liable under Count III; it further found that the bankrupt had sustained damages in the amount of $750,000. The verdict on Count II was in favor of the defendants. Pursuant to the jury's verdict, judgment was entered.
Currently pending before this court are various post-verdict motions urged on behalf of the several defendants. Defendants Watts, Consolidated and Recklitis, found liable only under Count I, have moved pursuant to F.R.Civ.P. 50(b) for judgment notwithstanding the verdict and in the alternative have moved pursuant to Rule 59(a) for a new trial, or a new trial on the issue of damages alone, or a remittitur. Defendants Otte and Sullivan, found liable under both Counts I and III, have also each moved for judgment notwithstanding the verdict and in the alternative for a new trial.
The motions for judgment notwithstanding the verdict shall be treated first, followed by the motions for new trial. Within each section the arguments of the various defendants shall be addressed seriatim.
Defendants Watts, Consolidated and Recklitis advance three basic arguments in support of their motions for judgment notwithstanding the verdict. First, they argue that no "property" of the bankrupt, as that term is used in the Bankruptcy Act in connection with the definition of "transfer," old 11 U.S.C. § 1(30), passed from the bankrupt to any of the defendants. Second, they argue that there was no "transfer" within the meaning of the Bankruptcy Act because there was no proof that the bankrupt's estate was diminished. And, third, they argue that as a matter of law proof of the amount of damages was insufficient. Defendant Otte essentially adopts the arguments of Watts, Consolidated and Recklitis. Finally, defendant Sullivan adopts the arguments of the others but argues in addition that there was insufficient evidence to hold him liable under Count III, and that the verdict against him (and Otte) on Count III is inconsistent with the verdict for defendants Watts, Consolidated and Recklitis on that count.
As an initial matter we must set forth the proper standard for ruling on a motion for judgment notwithstanding the verdict. That standard holds that the motion shall be granted only when, without weighing the credibility of any of the evidence, the only conclusion that can reasonably be drawn from the evidence, including all reasonable inferences, is a verdict and judgment in favor of the moving party. Moore's Fed.Pract. ¶ 50.072; see Rios v. Empresas Lineas Maritimas Argentinas, 575 F.2d 986, 989-90 (1st Cir. 1978) (). Another attribute of the motion for judgment notwithstanding the verdict is that it has as a prerequisite a motion for a directed verdict. Martinez Moll v. Levitt & Sons of Puerto Rico, 583 F.2d 565, 568 (1st Cir. 1978); see F.R.Civ.P. 50(b) (). The purpose of this prerequisite "is to alert the opposing party to the movant's claim of insufficiency before the case goes to the jury, so that his opponent may have an opportunity to cure any deficiency in his case should the motion have merit." Martinez Moll, 583 F.2d at 569. As a corollary to the rule requiring a motion for a directed verdict as a prerequisite to a motion for judgment notwithstanding the verdict, any ground not raised in a motion for a directed verdict may not be raised in a later motion for judgment notwithstanding the verdict. Sulmeyer v. Coca Cola Company, 515 F.2d 835, 846 (5th Cir. 1975); See F.R.Civ.P. 50(a). Thus, the defendants' argument that the evidence was insufficient to prove the amount of damages fails, as it was not set forth at trial in any of the parties' motions for a directed verdict. The closest that the defendants came to raising that was the statement in support of their motion for a directed verdict by defendants...
To continue reading
Request your trial