In re Dreiling
| Decision Date | 07 April 1999 |
| Docket Number | Bankruptcy No. 89 B 14175 A,Adversary No. 97-1357 RJB. |
| Citation | 233 BR 848 |
| Parties | In re Lloyd J. DREILING, Debtor. Kearns Motor Company, Inc., dba Denver Jeep Eagle; Robert Liley; Michelle Liley; Michael Absher; Judy Absher; and Kathleen Dreiling, Plaintiffs, v. John A. Cimino, Trustee, Defendant and Third-Party Plaintiff, v. Lloyd J. Dreiling, Third-Party Defendant. |
| Court | U.S. Bankruptcy Court — District of Colorado |
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J. Matthew DePetro, Englewood, Colorado, for plaintiffs.
Darrell M. Daley, Robert S. Anderson, of Chrisman, Bynum & Johnson, P.C., Boulder, Colorado, and Daniel F. Lynch, Denver, Colorado, for the defendant/trustee.
Eldon E. Silverman, of Preeo, Silverman & Green, P.C., Denver, Colorado, for Third Party defendant/debtor.
THIS MATTER came on for trial on the Plaintiffs' Complaint and the Defendant Chapter 7 Trustee's Counterclaims and Third Party Complaint. The trial was held on November 2, 3, 4, 9, and 25, 1998.1
Although this Adversary was commenced June 2, 1997, much of the relevant events took place years ago. In order to have a complete understanding, one must go back to 1960.2 On or about December 19, 1960, Jack Kearns Motor Co. ("Kearns") was incorporated as a Jeep franchise and was later made a Jeep/Eagle/Chrysler dealership at 3247 South Broadway, Englewood, Colorado. (Plaintiff's Ex. B, C; Direct Testimony of Debtor in Adversary No. 92-2174 PAC, 4/1/94.) The Articles of Incorporation (Plaintiff's Ex. B) provide, inter alia, that "Shareholders of the company shall have full preemptive rights."
The By-Laws (Plaintiff's Ex. C) specify at Article IV, § 5, certain restrictions on the sale of stock by shareholders. That Article specifies that before a shareholder can sell his shares, he must first offer such stock to the other shareholders. In addition, Article IV, § 5, ¶ (i) provides as follows (hereinafter referred to as a "stock transfer restriction"):
All stock Certificates of the corporation issued and delivered to its shareholders shall have endorsed thereon the following statement: "The shares of stock represented by this Certificate are non-negotiable and non-assignable except in conformity with Article IV of the By-Laws which restricts sale and transfer and prohibits encumbrance of the shares."
In 1966 L.J. Dreiling Motor Co. ("LJDM") was incorporated by the Debtor as a Navistar franchise dealer. (Direct Testimony of Debtor in Adversary No. 92-2174 PAC, 4/1/94.)
On May 2, 1969, Lloyd J. Dreiling ("Debtor"3) purchased 29,998 of the outstanding 30,000 shares of Kearns (Plaintiff's Ex. D), and stock Certificate No. 4 was issued to the Debtor with the appropriate stock transfer restriction noted on the face. One share (Certificate No. 5) was issued to Debtor's wife, Dorothy E. Dreiling ("Dorothy") and one share (Certificate No. 6) was issued to Robert D. Billington, Jr. Both of these certificates bore the appropriate restriction. However, these two certificates were marked canceled and no explanation was given for these cancellations.
On the advice of John T. Kearns, an attorney and son of Jack Kearns, the Debtor on or about September 8, 1969, made a self-settled revocable trust, the Lloyd J. Dreiling Trust ("Trust"). (Plaintiff's Ex. RRR; direct Testimony of Debtor in Adversary No. 92-2174 PAC, 4/1/94.) The Debtor then transferred his 29,998 shares of Kearns to himself and his wife as trustees of the Trust, and Certificate No. 7 was issued December 1, 1969, reflecting the new owners. There was no copy of Certificate No. 7 presented so the Court does not know if there was any restriction placed on the face of this certificate. (Plaintiff's Ex. D.)
In addition to the Kearns stock, the Debtor placed the stock he owned in LJDM and certain life insurance policies into the Trust. LJDM stock was thus held 80% by the Trust and 20% by the Debtor's son, Steven Dreiling ("Steven"). (Direct Testimony of Debtor in Adversary No. 92-2174 PAC, 4/1/94.)
The Debtor spent most of his time in the operation of LJDM but did remain involved in the operations of Kearns. Robert Liley ("Rob"), son-in-law of the Debtor and Vice President of Kearns, was conducting most of the day-to-day business of Kearns. The Debtor was also spending a lot of time running the business of Bill Dreiling Buick for the family of his deceased brother.
On October 31, 1971, Kearns issued an additional 10,000 new shares (Certificate No. 8) to the Debtor and his wife as trustees for the Trust in exchange for $10,000 from the Debtor. Certificate No. 8 had the appropriate restriction noted on its face. (Plaintiff's Ex. D.)
On June 8, 1973, the Debtor incorporated Dekmas Leasing Company ("Dekmas"). Later that same month the corporate name was changed to Import Jobbers Warehouse, Inc. At that time the stock was owned as follows:
The Trust 1,000 shares
Dorothy 1,000 shares
Steven 1,000 shares
Dorothy as custodian for
Kathleen Dreiling ("Kathy") (Debtor's daughter) 1,000 shares
Dorothy as custodian for
Michelle M. Dreiling ("Michelle") (Debtor's daughter) 1,000 shares
(Debtor's Direct Testimony in adversary No. 92-2174 PAC, 4/1/94.)
On November 1, 1973, Kearns changed its name to Kearns Motor Company.
In June 1977, the name of Import Jobbers Warehouse, Inc., was changed back to Dekmas Leasing Company, an additional 5,001 new shares were issued to the Trust, and new certificates were issued to all of the above named individuals. At that same time an additional 10,000 new shares were issued to F. Craig Iverson who was to run a wholesale parts operation. In February 1979, Iverson surrendered his stock, and a new certificate for those 10,000 shares was issued to the Trust. (Direct Testimony of Debtor in Adversary No. 92-2174 PAC, 4/1/94.)
On August 25, 1978, Kearns issued an additional 8,399 new shares (Certificate No. 9) to Rob and Michelle, as joint tenants with right of survivorship, pursuant to a Stock Purchase Agreement dated August 25, 1978, (Plaintiff's Ex. D & K; Defendant's Ex. 100) in exchange for $35,000. That Stock Purchase Agreement contained a requirement that all certificates of the stock issued to the Lileys would have the following endorsement:
The stock represented by this Certificate is subject to an Agreement dated August 25, 1978, between the Stockholders the Lileys and the Corporation Kearns, and the stock is not assignable except as provided in said agreement.
This stock transfer restriction was at considerable variance from the restriction contained in the By-Laws. Certificate No. 9 does bear the restriction on its face as provided for in the Stock Purchase Agreement and has no other restrictions noted thereon. Specifically, it does not provide any rights for the other shareholders as is specified in the By-Laws, but rather provides for the re-purchase of the stock by Kearns under certain conditions. The Stock Purchase Agreement provides in ¶ 7h that:
The Corporation agrees and acknowledges that this Agreement takes precedence over Article IV, Section 5, of the Bylaws of the Corporation as to a transfer of the stock subject to this Agreement.
The Stock Purchase Agreement is signed by Rob & Michelle, individually, and by the Debtor as President of Kearns and Steven as Secretary of Kearns, but not by the Debtor and his wife as trustees of the Trust.
On March 1, 1986, Kearns, in exchange for the cancellation of loans in the amount of $100,000 from the Debtor to Kearns, issued an additional 21,692 new shares (Certificate No. 10) to the Debtor and his wife as trustees of the Trust. (Plaintiff's Ex. D, L.) This stock certificate did not bear any restriction on its face.4 Thus, as of March 1, 1986, the Debtor and his wife, as trustees of the Trust, owned 61,690 shares and the Lileys owned 8,399 shares, for a total number of shares issued of 70,089. That same date Kearns increased its authorized shares to 100,000. (Plaintiff's Ex. L.)
In 1986 LJDM was not doing well and on December 12, 1986, it filed a Chapter 11 bankruptcy, Case No. 86 B 12075 J. (Direct Testimony of Debtor in Adversary No. 92-2174 PAC, 4/1/94.)
On June 1, 1987, the Debtor and his wife as trustees of the Trust transferred 9,124 shares of Kearns to the Lileys (Certificate No. 11). No restriction appears on the face of this certificate. The stock transfer book shows that these shares were from Certificate No. 7 which was for 29,998 shares. No consideration is recited. On that same date a new Certificate No. 12 for the balance of 20,874 shares was issued to the Debtor and his wife as trustees for the Trust. No restrictions appear on this Certificate. So as of June 1, 1987, the Trust owned 52,566 shares, or 75% of the outstanding shares, which bore no indication of any stock transfer restrictions. On that same date the Lileys owned 17,523 shares, or 25% of the outstanding shares — of which 9,124 bore no indication of any stock transfer restrictions and 8,399 bore a note only of the stock transfer restrictions contained in the Stock Purchase Agreement. (Plaintiff's Ex. D.)
In 1987 LJDM filed an antitrust suit against Navistar. (Direct Testimony of Debtor in Adversary No. 92-2174 PAC, 4/1/94.)
During the pendency of the LJDM bankruptcy and the lawsuit with Navistar, the Debtor discussed a contingency plan with his attorneys and the Colorado National Bank whereby the Bank would "move its loan and collateral to a `new' company (Denver Truck Center, Inc.) in the event Navistar prevailed in the antitrust case and the bankruptcy reorganization could not be accomplished ... so as to continue operations in an effort to pay off Colorado National Bank's loans." (Direct Testimony of Debtor...
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