In re First Actuarial Corp. of Illinois
| Decision Date | 19 May 1995 |
| Docket Number | Bankruptcy No. HG 92-84750. |
| Parties | In re FIRST ACTUARIAL CORPORATION OF ILLINOIS, f/d/b/a A.A. Beaven and Company, Ltd., Debtor. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Michigan |
Larry A. Ver Merris, Grand Rapids, MI, for First Actuarial Corp. of Illinois (briefed and argued).
Stephen W. and Lana G. Pearson, Tempe, AZ, pro se claimants (briefed, but did not appear).
This matter comes before the court on the debtor in possession's objection to the claim of Stephen W. and Lana G. Pearson ("Pearsons" or "claimants"). The Pearsons filed their timely claim in the amount of $292,904.00 as unsecured creditors. The debtor, First Actuarial Corporation of Illinois, ("First Actuarial" or "debtor") subsequently filed a written objection to the Pearsons' claim for the reason that:
Debtor has scheduled Claimants\' claim as being in dispute since a liability to Claimants was shown on the Debtor\'s books, but the Debtor also showed that it owned the Capital stock of Pearson Gordon Jones Corporation as an asset as well. The Debtor has not had control of such company since January 1991 when the original sellers of such company, including these Claimants, regained control of such company through action commenced in the courts of the State of Arizona. Since Claimants have now taken back and received control of what they previously sold (the corporation), they should not have any further claims against the Debtor.
The debtor asks that this claim be disallowed in its entirety.
Thereafter, the Pearsons filed a brief entitled "Response to Debtor's Objection to Claim of Stephen W. and Lana Pearson." In that brief, the Pearsons indicated that they would not travel to Michigan for any hearings in this matter. The Pearsons live in Arizona and appear before this court pro se. A hearing on this objection to claim went forward but the Pearsons did not attend. First Actuarial did appear and offered the testimony of its president, John Edward Hansen. The matter was taken under advisement pending the submission of briefs on the issues presented.
The debtor submitted its "Brief in Support of Debtor's Objection to Claim of Stephen W. and Lana Pearson." To that brief, the Pearsons responded with their "Claimants' Response to Debtor's `Brief in Support of Debtor's Objection to Claim of Stephen W. and Lana Pearson'." All briefs filed contain a number of supporting documents attached as exhibits.
Based on those briefs, the court file, and the testimony taken in open court, the history of the dealings between the debtor and the Pearsons appears to be as follows.
The Pearsons' claim arises out of the sale of their stock in the Pearson Gordon Jones Corporation ("PGJ"). In 1988, the Pearsons were co-trustees of the Pearson Revocable Trust ("Pearson") dated January 23, 1986. Pearson was the owner of 35.72% of the stock in PGJ whose other shareholders were Maurice Gordon ("Gordon"), Donald Jones ("Jones") and Michael Gainer (collectively, "shareholders").
At some point, the shareholders of PGJ were contacted by Raymond Ankner ("Ankner") and G.C. Pettey, III ("Pettey") regarding the possible purchase of PGJ. Ankner is the chairman of First Actuarial's board of directors and its principal stockholder. Pettey was the President of another actuarial company, Custom Benefit Services ("CBS"). Together, Pettey and Ankner were attempting to develop a nationwide actuarial business.
On May 19, 1988, CBS acquired the stock of PGJ. CBS executed a Stock Purchase Agreement as well as Promissory Notes to the shareholders of PGJ. In addition, Ankner and Pettey executed a personal guaranty in the form of a Stock Repurchase Agreement. Besides selling their PGJ shares, Mr. Pearson and the other stockholders executed Covenants Not to Compete. Pearson was to receive $305,060.00 for the Covenant Not to Compete and $280,748.00 for its stock in PGJ.
The Stock Repurchase Agreement required Ankner and Pettey ("repurchasers") to cure any default by CBS by paying the outstanding amounts on the Promissory Notes. In the event of a default by the repurchasers, the stock would revert back to the sellers. Pearson claims that these agreements entitled it to recover the amount of the Promissory Notes reduced by the net book value of PGJ. The debtor disputes that claim.
After the purchase, CBS operated the company for approximately one year. Apparently, Ankner and Pettey decided to discontinue their association with one another. The two decided that CBS would transfer the stock of PGJ to the debtor pursuant to a Settlement Agreement between Ankner and Pettey. Under ¶ III(A) of that Settlement Agreement, First Actuarial assumed all of CBS's obligations under the Stock Purchase Agreement, the Covenants Not to Compete, and the Promissory Notes.
CBS attempted to obtain from the shareholders a formal acknowledgement of the assignment of the stock to First Actuarial. Gordon and Jones signed such an acknowledgment. However, because Mr. Pearson was apparently concerned about losing any remedies against CBS, neither he nor his wife, on behalf of the Pearson Trust, formally acknowledged the assignment. But this did not prevent the assignment from CBS to the debtor. First Actuarial assumed the obligation and made a number of payments to Pearson under the Promissory Notes. Pearson accepted those payments.
After selling his stock in 1988, Mr. Pearson was not involved in the operation of PGJ. CBS did keep Gordon and Jones on as employees of PGJ. During the term of their employment, CBS and/or the debtor made only small interest payments on the obligations to Gordon and Jones.
In February of 1991, after a period of dispute, Gordon and Jones gave the debtor formal notice of default under the Stock Purchase Agreement and Promissory Notes. The debtor failed to cure the default. Therefore, pursuant to the terms of the Stock Purchase Agreement, Gordon and Jones retook control of PGJ.
On February 21, 1991, the debtor filed a complaint for Declaratory Judgment and Application for Preliminary Injunction against Gordon and Jones in Arizona state court ("the First Action"). In that case, the debtor sought an injunction against Gordon and Jones to prevent them from retaking their stock after the debtor and the individual repurchasers of the stock had defaulted. In response, Gordon and Jones filed a counterclaim against the debtor for amounts allegedly owed under the contracts.
On August 12, 1991, Gordon and Jones filed a Motion for Summary Judgment in the First Action. In that motion, Gordon and Jones contended that since the "Net Book Value" of PGJ was a negative number, under the terms of the Stock Repurchase Agreement, they were entitled to recover the full amounts outstanding on the Promissory Notes. Gordon and Jones relied upon a balance sheet for PGJ which the debtor had prepared on December 31, 1990. That balance sheet indicated that PGJ had total assets of $346,730.87 and total liabilities of $1,130,155.57. Therefore, PGJ's Net Book Value was less than zero (i.e. - $783,424.70). The Arizona state court granted summary judgment in favor of Gordon and Jones.
Having lost on summary judgment, the debtor filed a Motion for Reconsideration and an Objection to Defendants' Proposed Form of Judgment. First Actuarial argued that allowing Gordon and Jones to regain their stock in PGJ while requiring the debtor to pay the liquidated damages amounted to a windfall to Gordon and Jones. The trial court denied the debtor's Motion for Reconsideration. The court signed a Judgment dated July 8, 1992 which awarded over $1,000,000.00 to Gordon and Jones. The debtor has appealed the judgment; from the record before me, it appears that the matter remains on appeal. Pearson was never a party to the First Action.
According to Pearson, it never joined the counterclaim in the First Action because the debtor was current in its obligations at the time. Further, Mr. Pearson claims that he had no desire to sue the debtor or reclaim his stock. Unlike Gordon and Jones, Mr. Pearson was no longer an officer or an employee of PGJ. He had not been associated with PGJ for approximately three years. Pearson claims that for these reasons, its interest was different than that of Gordon and Jones. Pearson wanted the debtor to continue running PGJ and to continue making payments under the Promissory Notes. Pearson claims that it would have gained nothing by reclaiming a minority interest in PGJ, a closely held corporation.
The default by the debtor with respect to Pearson occurred later in 1991. On September 6, 1991, Pearson noticed a default under the Stock Purchase Agreement. On October 7, 1991, Pearson noticed a default on the Stock Repurchase Agreement. Pursuant to the terms of the Stock Repurchase Agreement, the repurchasers were given ninety days after notice of default to obtain a bona fide offer to purchase Pearson's stock. That ninety day period expired on January 7, 1992.
Pearson argues that the first date it could have joined in the First Action was the next day, January 8, 1992. That is the same date as the entry of the state court's Order granting Gordon and Jones' Motion for Summary Judgment in the First Action.
Also in 1991, Gordon and Jones, having previously counterclaimed against the debtor in the First Action, filed a separate complaint against CBS as well as Ankner and Pettey, for amounts allegedly due them under the various contracts. In July, 1992, Pearson filed an action against First Actuarial, CBS, Ankner, and Pettey for damages under those contracts. The two suits were consolidated by the state court in Arizona ("the Second Action").
Apparently, during the pendency of the Second Action, three of the four defendants (i.e. CBS, First Actuarial, and Pettey) filed bankruptcies. Each debtor would have been afforded the protection of an automatic...
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