In re Devos, Inc.
| Decision Date | 27 May 2004 |
| Docket Number | Bankruptcy No. 00-20698.,Adversary No. 00-2664.,Adversary No. 00-2593. |
| Citation | 310 B.R. 520 |
| Parties | In re DEVOS, INC. d/b/a Diamond Meat and Food Service Company, Debtor. Parkway Provision Company, Plaintiff, v. The Bankruptcy Estate of Devos, Inc. t/d/b/a Diamond Meat and Food Service Company, Defendant, Devos, Inc. d/b/a Diamond Meat and Food Service Company, Plaintiff, v. Parkway Provision Company d/b/a Diamond Meat and Food Service Company, Inc. and David L. Reese, an Individual, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
John R. Orie, Jr., Robert O. Lampl, Pittsburgh, PA, for Devos, Inc. t/d/b/a Diamond Meat and Food Service Company.
John C. Hansberry, Pittsburgh, PA, for Parkway Provision Company, Diamond Meat and Food Service Company, Inc. and David L. Reese.
RECOMMENDATION TO DISTRICT COURT1
Devos, Inc. d/b/a Diamond Meat and Food Service Company ("Devos" or "Debtor") filed a voluntary Petition under Chapter 11 of the Bankruptcy Code on February 2, 2000. The disagreement between the parties involves the interpretation of the language of an AGREEMENT OF PURCHASE AND SALE OF ASSETS ("APA") dated August 19, 1997 between Devos as seller and Diamond Meat and Food Service Company, Inc. ("New Diamond" or "Buyer") as Purchaser and for amounts claimed due under a related Lease Agreement ("Lease") between Devos as Lessor and New Diamond as Lessee. New Diamond is a wholly-owned subsidiary of Parkway Provision Company ("Parkway"). The within Adversary Proceedings are substantially identical.
In Adversary Proceeding No. 00-2593, Parkway, as Plaintiff, asserts that it was damaged by the unlawful taking of its property by Devos. Parkway claims that it purchased from Devos and therefore owned certain refrigeration equipment, sinks and air curtains which it rightfully removed from the former Devos business location at 650 Mansfield Avenue, Greentree, PA (the "Building" or the "Premises"). Parkway asserts that before Parkway was able to remove its remaining purchased equipment from the Building, Devos sold the Building and equipment to a third party and was therefore unjustly enriched.
In Adversary Proceeding No. 00-2664, Devos, as Plaintiff, alleges that the refrigeration equipment, sinks and air curtains were not included in the sale to Parkway, and therefore the removal of these items by Parkway and David L. Reese ("Reese") was wrongful. Devos asserts that it owned any equipment that remained in the Building when it was sold. Devos further asserts a right to breach of contract damages from Parkway for its failure to pay rents and other charges due under the Lease.2
We conducted a three-day trial/evidentiary hearing on May 28, 29 and 30, 2003 on the Complaints and Counterclaims. Post-trial briefs have been filed and the matter is ripe for decision.
The parties appropriately agree that we have jurisdiction over Parkway's claims against Devos and Devos's claims against Parkway and New Diamond as non-core matters. See Beard v. Braunstein, 914 F.2d 434 (3rd Cir.1990). Under 28 U.S.C. § 157(c)(1), we are to submit proposed findings of fact and conclusions of law to the District Court. Reese disputes that the Court has jurisdiction over the claim against him.
"[T]he test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir.1984). Id.
The claims asserted by the Debtor against Reese, if valid, would have an effect on the estate and are related to the Debtor's bankruptcy case.
The Devos family founded the Diamond Meat and Food Service Company in 1933. The operation was incorporated as Devos, Inc. d/b/a Diamond Meat Company in 1977. The business flourished. In 1992, Devos was selected to receive the coveted Certified Angus Beef designation as the distributor for the Pittsburgh market. By 1995 and 1996, Devos's revenues were approximately $24 million and a larger facility was needed. Devos purchased the Building, a former Borden Dairy facility, in 1995 for $1,275,000.
Borden had removed all equipment and piping from the Building. Before occupying the Building, Devos infused $2,000,000 to make it a state of the art food distribution facility which met United States Department of Agriculture ("USDA") specifications. Part of the expense was the installation of 15 new compressor/condenser units and 28 blower/evaporator units. The equipment cost $300,000 plus $120,000 for installation.
Shortly after moving into the Building, Devos began to experience financial problems when it lost two major customers and discovered an inventory shortage of over $1 million.
Reese formed Parkway in 1966. Parkway was a broad-line food distributor, selling a wide variety of items to the restaurant industry. Parkway had sales of approximately $100 million, four times those of Devos. Devos, by contrast, was a "center of the plate" food distributor, which concentrated its sales on the main entree served at restaurants. While Parkway and Devos had some mutual customers, Devos, partially due to having the Certified Angus Beef designation, enjoyed the business of certain upscale clientele that Parkway was unable to penetrate.
Reese had casual discussions with the majority shareholder of Devos, Vince Devos ("Vince") in the early 1990s about a purchase or merger. No deal was struck. In the fall of 1996, Reese heard that Devos was having financial problems. Reese initiated a meeting with Vince to determine whether Devos had any interest in a merger or sale. Parkway wanted to gain market share which it could do by penetrating the "upscale" market that Devos enjoyed and by obtaining the Certified Angus Beef designation.
An initial meeting was held. The shareholders of Devos, Vince who owned 65% of the stock, and his two sons Steve ("Steve") and Louis ("Louis") who each held 15%, and William Jersey ("Jersey") the remaining 5% shareholder, attended the meeting with Reese, and Pete Perfetti ("Perfetti") who was the Chief Financial Officer of Parkway. Vince expressed an interest in exploring the possibilities.
Shortly thereafter, Vince, Steve, Louis, Jersey and Reese met at the Building to tour the Devos facility and those same individuals met shortly thereafter to tour Parkway's facility in Greensburg, Pennsylvania. Following the walk-through visits, negotiations for the sale and/or merger began. Vince and Jersey conducted the negotiations on behalf of Devos. Vince died on June 22, 1997 in the middle of the process. After his death, Jersey and Devos's attorney, Thomas Lutz ("Lutz"), conducted the negotiations. Steve and Louis were not involved and took no part in the negotiations for the sale. Their involvement was limited to the negotiation of their own employment agreements with the Buyer.
Louis first learned of the proposed purchase by Parkway upon receipt of Parkway's letter of intent addressed to him dated July 1, 1997 ("Letter of Intent"). The Letter of Intent outlined the terms under which Parkway, or its assignee, agreed to purchase Devos, lease the Building for two years, and provide employment to Louis, Steve and Jersey. The Letter of Intent was subject to the negotiation of the formal agreement. Louis, Steve and Jersey executed the Letter of Intent as officers of Devos on July 8, 1997.
The APA bears a date of August 19, 1997. It is an agreement between Devos and New Diamond for the sale of Devos's assets to New Diamond. New Diamond was formed as a new corporation on August 18, 1997 as a wholly-owned subsidiary of Parkway for the acquisition of Devos. Parkway loaned New Diamond $1,751,294.25 to complete the purchase and took back a Promissory Note and Security Agreement in essentially all of New Diamond's assets. The purchase price was $150,000 for all assets other than inventory, plus a fixed formula for the inventory.
Negotiations leading up to the closing date of August 27, 1997 were conducted by Jersey and Lutz for Devos and Reese and Attorney John Barson ("Barson") for Parkway/New Diamond. Louis and Steve first reviewed the APA at the closing.
Section 1.01(a) of the APA provides that New Diamond is purchasing:
all right, title and interest in and to all of those assets, properties, rights and businesses of any kind, character and description, tangible, intangible, real, personal or mixed, known or unknown, choate or inchoate, accrued, absolute, contingent or otherwise, which are used in, associated with or located at the Business, except for the "Excluded Assets" as defined in Section 1.01(b) hereof, (collectively, the "Assets")...
Section 1.01(a) further identifies certain of the Assets that New Diamond is purchasing:
...
the Assets shall include, but shall not be limited to, all right, title and interest in and to the following:
...
(ii) all machinery, equipment, vehicles, fixtures, furniture, tools, molds, leasehold improvements and other tangible property (the "Equipment") including the items set forth on Schedule 1.01(a)(ii) hereto;
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(vii) all...computer software programs...
The Excluded Assets are identified in Section 1.01(b) and include "the land, building and improvements" and "those certain storage racks for which a financing statement has been filed of record granting Allegheny Bank of Pittsburgh a security interest therein."
Section 1.02 provides that the...
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