In re Athos Steel and Aluminum, Inc.
| Decision Date | 16 March 1987 |
| Docket Number | Adv. No. 86-1145F,Bankruptcy No. 86-01486F,86-1210F. |
| Parties | In re ATHOS STEEL AND ALUMINUM, INC., Debtor. Barbara STANGER, et al, Plaintiffs, v. ATHOS STEEL ALUMINUM, INC., et al, Defendants. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Eduardo C. Robreno, Marjorie L. McMahon, Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., for plaintiffs.
Franklin Poul, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, for David Wechsler and William J. Morehouse.
Myron A. Bloom, Adelman Lavine Krasny Gold & Levin, Philadelphia, for debtors, Athos Steel and Aluminum, Inc. and Athos Realty.
This is an action challenging the validity of a stock transfer involving two closely held corporations, one of which is presently a bankruptcy debtor. In order to more clearly describe the various issues raised by this case, it is helpful to first briefly set out the underlying transaction and the procedural history of the case. After doing so, I will address the threshold questions relating to this court's jurisdiction over the various claims and then set forth specific factual findings and legal conclusions pursuant to Bankr.Rule 7052.
This action was brought by minority shareholders of Athos Steel and Aluminum, Inc. ("Athos Steel") and minority shareholders of Athos Realty Co. ("Athos Realty"). Athos Steel is in the metals service center industry and engaged in the processing of steel and aluminum. Athos Realty owns and leases to Athos Steel the buildings, grounds, cranes, racks and one piece of machinery used by Athos Steel to conduct its business.
The plaintiffs seek to set aside a stock transaction entered into by Athos Steel on November 29, 1984. On that date, Augustus M. Ash ("Ash") and Lawrence Wechsler ("L. Wechsler"), the majority shareholders of both Athos Steel and Athos Realty, sold all their stock in both corporations to Athos Steel. One of the purposes of the transaction was to transfer control of the two corporations to David Wechsler ("D. Wechsler"), who was then chairman of the board of directors and treasurer of Athos Steel as well as president and member of the board of directors of Athos Realty1.
The table below concisely summarizes the effect of the November 29, 1984 transaction:
It is noteworthy that in the earlier stages of the negotiations which culminated in the November 29, 1984 agreement, the parties to the agreement had contemplated that each corporation would redeem its own shares from Ash and L. Wechsler. At some point, however, they realized that structuring the transaction in that fashion would have deprived D. Wechsler of majority control of Athos Realty since he would have held one share less than the combined holdings of the other Athos Realty shareholders. The proposed stock purchase was then restructured to provide for the sale of the Athos Realty stock to Athos Steel and the redemption by Athos Steel of its stock held by Ash and L. Wechsler.
This lawsuit was initiated by the filing of a complaint in equity in the Court of Common Pleas, Philadelphia County, Pennsylvania, in May 1985. The plaintiffs who are minority shareholders of Athos Steel are Barbara Stanger and Robert Dunn. Ms. Stanger is the daughter of L. Wechsler and the sister of D. Wechsler. Mr. Dunn is a former employee of Athos Steel. The plaintiffs who are minority shareholders of Athos Realty are Leo Stanger, Barbara Stanger, Susan Stanger, Tobie Stanger, Deborah Stanger and Robert Wechsler. Leo is the husband of Barbara Stanger; Susan, Tobie and Deborah are the children of Leo and Barbara. Robert Wechsler is Barbara's cousin.
Named as defendants were Athos Steel, Athos Realty and D. Wechsler. Also named as a defendant was William J. Morehouse, Esquire ("Morehouse"), who was described in the complaint as a director, secretary and legal counsel to Athos Steel and Realty.
The complaint contained six counts. The first four counts recited claims by the Athos Steel minority shareholders against Athos Steel, D. Wechsler and Morehouse. In count I, the shareholders asserted that the purchase of the Athos Realty shares by Athos Steel was an "unlawful acquisition" in violation of 15 P.S. § 1701. Count II complained of a failure to hold annual meetings, provide financial reports and inform shareholders of corporate actions; plaintiffs set forth a blanket allegation that the defendants had engaged in "unauthorized activities" which did not benefit the corporation over the previous ten years. Count III alleged a misappropriation of corporate funds or assets by D. Wechsler and Morehouse. Count IV alleged that the acquisition of the Athos Realty stock by Athos Steel was "wrongful" in that it was, inter alia, an imprudent expenditure of corporate funds, without any proper business purpose, done in violation of the fiduciary obligation owed to the corporation by D. Wechsler and Morehouse.
Counts V and VI recited claims by the Athos Realty minority shareholders against Athos Realty, D. Wechsler and Morehouse. In count V, the plaintiffs alleged that the sale of the Athos Realty shares to Athos Steel was unlawful because: (a) the shares were not first offered to plaintiffs in violation of their contract rights; (b) the sale resulted from a conspiracy among the defendants to maintain D. Wechsler's control over Athos Realty; and (c) the sale violated the duties owed by D. Wechsler and Morehouse to the Athos Realty minority shareholders.
Count VI alleged that if Athos Realty had, in fact, redeemed its stock from L. Wechsler and Ash and then resold that stock to Athos Steel, such a transaction was improper in that it was concealed from plaintiffs pursuant to a conspiracy to maintain D. Wechsler's control over Athos Realty.
On March 31, 1986, Athos Steel filed a voluntary bankruptcy petition in this court under chapter 11 of the Bankruptcy Code. On June 27, 1986, the plaintiffs and defendants each filed an application to remove the Common Pleas action pursuant to 28 U.S.C. § 1452. Subsequently, the case was docketed in this court.2
This matter was called to trial on February 4, 1987. Prior to the commencement of testimony, the parties advised the court that they had resolved two preliminary matters by agreement: (1) one of the plaintiffs withdrew as a party3 and (2) the remaining plaintiffs withdrew counts I, II, III and VI of their complaint.4 The parties and the court then discussed certain issues regarding the nature of this court's jurisdiction. There was no dispute that the court has jurisdiction in this case with respect to claims asserted by the plaintiffs against the debtor, Athos Steel. See 28 U.S.C. §§ 1334(b), 157(b)(2). Less clear, however, was the basis of the exercise of jurisdiction over the non-debtor defendants. All the parties urged that, at a minimum, I find the claims against those defendants to be related proceedings, see 28 U.S.C. §§ 1334(b), 157(c)(1), and I took the jurisdictional issue under advisement. The plaintiffs then decided that they preferred to go forward with the trial and have the court decide the case with respect to the non-debtor defendants insofar as subject matter jurisdiction may exist; the defendants concurred in this arrangement. Finally, the plaintiffs took the position that to the extent this matter is a related proceeding, they would not consent to the entry of binding findings and judgment pursuant to 28 U.S.C. § 157(c)(2).
Trial of this case began on February 4, 1987 and was completed on February 5, 1987.
The threshold questions in this case are whether this court has jurisdiction over the claims asserted by the plaintiffs and, if so, whether this proceeding is a core or related proceeding, see 28 U.S.C. § 1334(b), 157(b), (c), or some combination thereof. These determinations are complicated somewhat by the rambling nature of the plaintiffs' pleading as well as the revisions and refinements which have occurred in plaintiffs' theory of their case since the outset of this litigation. Besides dropping all but counts IV and V of the complaint on the day of trial, plaintiffs appear to have withdrawn, during the trial, their request for compensatory and punitive damages against D. Wechsler and Morehouse and limited their requested relief to (1) the imposition of a constructive trust on the Athos Realty stock or specific...
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