In re B.C. Rogers Poultry Inc.
Decision Date | 19 August 2011 |
Docket Number | Bankruptcy No. 01–06516–EE.,Adversary No. 03–00122–EE. |
Citation | 455 B.R. 524 |
Parties | In re B.C. ROGERS POULTRY, INC., B.C. Rogers Processors, Inc., Jointly Administered.John M. Rogers, Sr., and J. Kelley Williams, as Trustee of the J. Kelley Williams Revocable Trust, Plaintiffsv.The CIT Group/Equipment Financing, Inc., and H. Kenneth Lefoldt, as Liquidating Trustee of the B.C. Rogers Liquidating Trust, Defendants. |
Court | U.S. Bankruptcy Court — Southern District of Mississippi |
OPINION TEXT STARTS HEREWest CodenotesRecognized as Unconstitutional28 U.S.C.A. § 157(b)(2)(C) James W. O'Mara, Debra M. Brown, Phelps Dunbar LLP, Jackson, MS, for Plaintiffs.William H. Leech, Danny E. Ruhl, Copeland, Cook, Taylor & Bush, P.A., Ridgeland, MS, for Defendant The CIT Group/Equipment Financing, Inc.J. Walter Newman, IV, Jackson, MS, for Defendant H. Kenneth Lefoldt, Jr., as Liquidating Trustee of the B.C. Rogers Liquidating Trust.
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON THE SECOND AMENDED COMPLAINT
This adversary proceeding came on for trial on April 15–16 and 19–20, 2010 (the “Trial”) on the Second Amended Complaint (Adv. Dkt. No. 63) 1 filed by John M. Rogers, Sr. (“Rogers”) and J. Kelley Williams (“Williams”), as Trustee of the J. Kelley Williams Revocable Trust, and the Answer and Defenses of The CIT Group/Equipment Financing, Inc. to Second Amended Complaint (“CIT Answer”) (Adv. Dkt. No. 71) filed by The CIT Group/Equipment Financing, Inc. (“CIT”).
This proceeding is the latest in a continuing saga that began after B.C. Rogers Poultry, Inc. and B.C. Rogers Processors, Inc. (“BCR”) defaulted on lease payments on certain industrial equipment used in its plants. CIT turned to the financial institutions that issued standby letters of credit supporting the lease and demanded payment of $3,000,000.00. The issuers paid CIT and turned to the applicants of the letters of credit, Rogers and Williams, for reimbursement. Rogers and Williams reimbursed the issuers and turned to BCR, but were unsuccessful. Rogers and Williams now turn to CIT, the beneficiary of the letters of credit, for the return of $3,000,000.00, damages, interest, and attorney's fees.
After considering the evidence presented at Trial and the briefs filed by the parties, the Court concludes for the reasons that follow that the relief sought by Rogers and Williams against CIT in the Second Amended Complaint is not well taken and should be denied.
Only a decade before it met its financial demise in 2001, BCR was one of the largest producers, processors, and wholesalers of chicken products in the nation. It was founded in central Mississippi in the early 1930s by B.C. Rogers. When he died in 1972, ownership of BCR passed to his three children. Of them, Rogers became chief executive officer (“CEO”) of BCR and a member of its board of directors. BCR remained a family-owned company until 1981, when Rogers and Williams purchased all of BCR's stock from the heirs of B.C. Rogers (including from Rogers himself) and each acquired a 50% interest. As was the case with Rogers, Williams was an experienced businessman. Sometime in the early 1970s, he became CEO of First Mississippi Corporation (which later changed its name to Chemfirst). Williams also has an impressive educational background, including a degree in chemical engineering from Georgia Institute of Technology and a master's degree in business administration from Harvard Business School. When they purchased BCR, Rogers continued in his dual roles as both CEO and director, and Williams became one of BCR's board members. In 1997, Rogers resigned as CEO, but Rogers and Williams remained as directors.
On December 29, 1999, the year before the poultry industry experienced an economic downturn, Rogers and Williams, and their respective family trusts, 2 sold BCR for approximately $50,000,000.00 to two Employee Stock Ownership Trusts (the “ESOTs”) in a leveraged buyout transaction. (CIT–4). 3 The sale involved a series of complex, related transactions that all became effective on December 29, 1999, at which time, the newly-formed ESOTs became the owners of BCR.
Concurrent with the stock sale, BCR entered into an Amended and Restated Revolving Credit and Term Loan Agreement (“Revolving Credit and Term Loan Agreement”) with Suntrust Bank, certain John Hancock entities, and other lenders (collectively referred to as the “Senior Lenders”). (CIT–2). Pursuant to the Revolving Credit and Term Loan Agreement, BCR borrowed an aggregate principal amount of $95,000,000.00 from the Senior Lenders who obtained a primary lien on all of BCR's assets, including after-acquired assets. This new financing arrangement modified BCR's original credit facility and was necessary in order to restructure BCR's existing debt, increase its working capital, and raise enough funds for the ESOTs to pay Rogers and Williams $25,000,000.00, the cash portion of the total ESOT purchase price. (CIT–2, CIT–4). In addition to the cash payment, BCR provided Rogers and Williams promissory notes in the amount of approximately $25,000,000.00, under which both of them were entitled to receive quarterly cash payments, representing accrued interest (“Quarterly Interest Payments”). Rogers and Williams expressly agreed to subordinate BCR's promissory notes to them to the debt BCR owed the Senior Lenders. (CIT–7, CIT–8). These promissory notes are hereinafter referred to as “Subordinated Debt.” In order to secure payment of the Subordinated Debt, the ESOTs pledged certain shares of BCR stock to Rogers and Williams.
In his Trial testimony, Williams aptly described the poultry business as cyclical in nature. Unfortunately, the poultry industry spun downward in 2000, the same time that BCR used its line of credit to purchase equipment for a new poultry manufacturing process. The purchase was intended to improve BCR's profit margins, but the cost of the new line of equipment, including a “batter bread line,” caused it to encounter financial troubles from which it never recovered.
In the summer of 2000, the Senior Lenders approached BCR, Rogers, and Williams to raise their concerns about BCR's liquidity position and its total capital expenditures as of the end of BCR's fiscal year. (CIT–10). The Senior Lenders claimed that BCR was in breach of certain covenants in the Revolving Credit and Term Loan Agreement and had improperly paid Rogers and Williams Quarterly Interest Payments on May 1, 2000. BCR, Rogers, and Williams disagreed with the Senior Lenders in all respects except one. They agreed that BCR was in urgent need of additional cash. Consequently, the Senior Lenders began re-negotiating the terms of the Revolving Credit and Term Loan Agreement with BCR, Rogers, and Williams. Although Rogers and...
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