Godchaux v. Conveying Techniques, Inc.
| Decision Date | 01 May 1987 |
| Docket Number | Civ. A. No. 85-0400. |
| Citation | 660 F. Supp. 220 |
| Parties | Walter GODCHAUX, Jr. v. CONVEYING TECHNIQUES, INC. |
| Court | U.S. District Court — Eastern District of Louisiana |
Marian M. Berkett, Deutsch, Kerrigan & Stiles, New Orleans, La., for plaintiff.
Robert B. Bieck, Richard Tyler, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, La., for defendant.
FINDINGS AND CONCLUSIONS
This case arises out of the December 30, 1982 sale of all of the capital stock of Nadustco, Inc. (Nadustco) to Conveying Techniques, Inc. (CTI) and the latter's refusal to pay the balance due on a promissory note representing a portion of the purchase price. The plaintiff is Walter Godchaux, Jr. (Godchaux). In this litigation, Godchaux acts for himself, individually, as majority owner of Nadustco's stock on and before December 30, 1982 as well as in his representative capacity for the following persons who also owned Nadustco's stock on and before December 30, 1982 and, on that date, sold that stock to CTI: Barbara Godchaux Bailey, Thomas P. Chambers, Mrs. Warren A. Durham, Leon Godchaux, II, Leon Godchaux, III, W.P. Hamburger, Nellie S. Hillyer, Erwin R. Johnson, David A. Los Calzo, Richard McCarthy, A.M.G. Pollack, Joseph A. Pollack, Susan Pollack, Robert Zachery, and Bess G. Roos. All of these listed individuals have their domicile in States other than Texas. Pretrial Order of February 18, 1986, as amended by the Fourth and Amending Pretrial Order, (collectively "P.T.O."), Uncontested Facts ("U.F.") 5,7.
The defendant and counter-claimant is CTI, a Texas corporation with its principal place of business located in Texas. CTI designs, manufactures, and installs conveying equipment such as unit handling systems, bulk handling systems, pipe handling, and processing systems. P.T.O., U.F. 3,4. This Court has subject matter jurisdiction over this action by virtue of diversity of citizenship and an amount in controversy, exclusive of interest and costs, in excess of $10,000.00. 28 U.S.C. § 1332.
Because this Court has diversity jurisdiction it must apply the substantive law of the state in which it sits, Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), including the choice-of-law rules of the jurisdiction, Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1920, 85 L.Ed. 1477 (1941). Louisiana choice-of-law rules provide that the law of the place of contracting determines the nature, validity, and construction of that contract. Porter v. American Optical Corp., 641 F.2d 1128, 1144 (5th Cir.1981) (citing United States Leasing Corporation v. Keiler, 290 So.2d 427 (La.App. 4th Cir.1974); Bologna Bros. v. Morrissey, 154 So.2d 455 (La.App. 2nd Cir.1963)). The Agreement and Promissory Note underlying this dispute were executed in Louisiana, and accordingly, Louisiana law governs their construction and enforcement.
Considering the record as a whole, the pleadings, pretrial order, motions, objections, evidence, affidavits, uncontested material facts in the pretrial order, stipulations, exhibits, memoranda and arguments submitted, the Court makes the following findings and draws the following conclusions.
Roy Lee, Jr., who, with his wife, daughter, and two sons, owned all the outstanding stock of CTI, served as CTI'S President and as its representative in the purchase of Nadustco's stock from Godchaux. A businessman with over twenty years' executive experience, including, at the time of the Nadustco deal, over ten years of running his own company, Lee negotiated first with business broker William Blaney, and then with Godchaux himself, Godchaux's attorney, Haywood H. Hillyer, Jr. and Godchaux's accountant, Joel Rappaport of Fried, Rappaport & Company (Fried) between early June and late December, 1982. During this period, Lee chose not to consult or to utilize either an attorney or an accountant, but relied on his own expertise. He testified that he had access to Nadustco's financial statements, asset records, job contracts, and union contract.
(Joint Exhibit 1 at ¶ 6f). The agreement also contained a provision that the then-shareholders of Nadustco would indemnify CTI for damages resulting from breach of warranty (Joint Exhibit 1, ¶ 13). In the agreement, the parties jointly selected Fried as independent auditor to prepare the audited financial statements for the period January 1, 1982 to December 31, 1982. The parties agreed to pay their own expenses, except that the cost of the audit as of December 31, 1982 and legal expenses incurred by Nadustco prior to January 1, 1983, would be paid by Nadustco.
Before the scheduled December 30, 1982 closing, a dispute arose concerning the purchase price of Nadustco's stock as a result of Fried's treatment of tax loss carry-forward in the financial statements. Lee renegotiated the deal, again choosing to rely on his own abilities and experience rather than consulting an attorney or an accountant. Ultimately, the parties resolved this dispute when Lee submitted a December 30, 1982 Amendment Letter to Agreement for Sale of Stock to which Godchaux agreed (the Amendment). Joint Exhibit 2, P.T.O., U.F. 11.
The amendment decreased the purchase price from $600,000.00 to $527,000.00 and decreased the face amount of the promissory note from $300,000.00 to $227,000.00. It included a provision that the audited financial statement of December 31, 1982 would "be prepared in accordance with generally accepted accounting principles applied on a consistent basis with the previous year's practices...." (Joint Exhibit 2). It further provided for adjustment of the note on the basis of the December 31, 1982 financial statements.
At the December 30, 1982 closing, CTI paid $300,000.00 cash and gave Godchaux its promissory note in the initial face amount of $227,000.00 (the note). The note provided, inter alia:
This promissory note is the promissory note referred to in the agreement dated the 2nd day of December, 1982, between CTI and the shareholders of Nadustco, Inc., concerning CTI's purchase of all or substantially all of the issued and outstanding shares of Nadustco, Inc., as amended by letter dated December 28, 1982 sic: December 30, 1982. This note is subject to the provisions of said Agreement, as amended, all of the terms, provisions, restrictions and benefits stated therein.
Joint Exhibit 3 (Emphasis added); P.T.O., U.F. 15.
The December 31, 1982 financial statement which Fried prepared resulted in upwards adjustment of the Note to $262,937.50 on August 30, 1983.
Subsequently, Godchaux and CTI agreed to CTI's entitlement to a 50% credit on the following items:
(a) Louisiana Sales Tax Liability $ 7,022.00
(b) attorney's fees incurred in
sales tax matters $ 7,422.67
(c) accountant's fees incurred in
sales tax matters $ 3,575.05
(d) Doussan, Inc. $ 3,464.83
(e) over-estimated profit from
Mississippi Ammunition
Depo kpb $ 1,126.00
____________
TOTAL: $22,610.55
CREDIT OF 50%: $11,305.27
The time at which the credit should be applied is an issue before the Court.
Before release of the December 31, 1982 Nadustco financial statement on August 10, 1983, Lee signed a written statement dated August 4, 1983, as representative for Nadustco and CTI, sent to Fried, in which he stated that the corporation had no plans or intentions that may materially affect the carrying value or classification of assets and liabilities; that there were no material liabilities required to be disclosed; that no unasserted claims or assessments which were probable of assertion required disclosure; and that no events had occurred subsequent to the balance sheet date requiring adjustment or disclosure. P.T.O., U.F. 43 and 44.
Pursuant to its agreement with Godchaux, CTI made the following payments:
Date Principal Interest
04/17/83 $18,916.67 $6,810.00
07/04/83 $18,916.66 $6,242.49
10/03/83 $28,151.03 $8,909.32
01/09/83 $21,883.68 $5,878.59
04/06/83 $21,883.68 $5,281.55
CTI elected to have Nadustco cease active operations as of December 31, 1983, retaining only its New Orleans sales staff and a skeletal clerical and managerial staff in the New Orleans office. The business operations in which Nadustco engaged— the design, manufacture, selling and installation of pneumatic conveying systems and dust collection systems — were moved to Texas, where an "open" rather than "union" shop was employed.
Pursuant to this decision, Nadustco served notice on the Union Pension Plan of its withdrawal from the Plan by reason of its cessation of active business. The Union Pension Plan, through its attorneys, G. Phillip Shuler (Shuler) and Kevin L. O'Dea (O'Dea), served written notice, dated May 15, 1984, on Godchaux and Nadustco that Nadustco's cessation...
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Godchaux v. Conveying Techniques, Inc.
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