In re Four Seasons Nursing Centers of America, Inc., BK-70-1008.

Decision Date14 July 1971
Docket NumberNo. BK-70-1008.,BK-70-1008.
Citation329 F. Supp. 647
PartiesIn the Matter of FOUR SEASONS NURSING CENTERS OF AMERICA, INC., Debtor.
CourtU.S. District Court — Western District of Oklahoma

Harold C. Heiss, Gen. Counsel, State of Ohio, Charles S. Rawlings and Richard B. Igo, Asst. Attys. Gen., Columbus, Ohio, for petitioner, State of Ohio.

Grant Guthrie, and Donald Dreyfus, Chicago, Ill., Attys. for Securities and Exchange Comm.

James R. Tolbert, III, Trustee, Loyd Benefield and Robert E. Manchester, Oklahoma City, Okl., Attys. for Four Seasons Nursing Centers of America, Inc., debtor corporation in Bankruptcy Chapter X Reorganization.

Arthur Matthews and Michael R. Klein, Washington, D. C., Attys. for Jack L. Clark, former president of the debtor corporation.

MEMORANDUM OPINION

BOHANON, Chief Judge.

In this reorganization bankruptcy case under Chapter X, the State of Ohio has filed a claim or Petition for Reclamation for the sum of $4,000,000.

The petitioner hereinafter referred to as "Ohio" claims preference right to the sum of $4,000,000 which it alleges is due it because of certain loans made by petitioner to Four Seasons Nursing Centers of America, Inc., the debtor corporation, on March 9, 1970, and March 23, 1970, upon unsecured promissory notes executed by the debtor corporation to the State of Ohio.

Petitioner asserts:

A. That the debtor corporation intentionally and fraudulently made material misrepresentations in order to procure the money from petitioner in that the debtor corporation overstated its sales and assets for the period ending December 31, 1969, in order to procure from National Credit Office, New York, a division of Dun & Bradstreet, a "prime" rating on the debtor corporation's notes for commercial paper;
B. That the debtor corporation through its agents made false and misleading statements and furnished false and misleading information to National Credit Office concerning its financial condition;
C. That in reliance upon this false information, National Credit Office did issue the debtor corporation a prime rating for commercial paper and that the petitioner received this information from National Credit Office through Crofters, Inc;
D. That in reliance thereon the petitioner did lend to the debtor corporation the sum of $4,000,000 upon the debtor corporation's promissory notes; and
E. Petitioner also contends that the loan of $4,000,000 to the debtor corporation was in violation of a statute of the State of Ohio, was therefore void and that consequently the money should be returned to the Ohio State Treasurer.

On March 9, 1970, the debtor corporation made, executed and delivered to petitioner two promissory notes, the first in the sum of $2,000,000 and the second in the sum of $1,000,000, and on March 23, 1970, issued a similar note to petitioner for $1,000,000, making a total of $4,000,000, each bearing interest at 9½ percent.

Petitioner alleges that this money was loaned to the debtor corporation as a result of the fraudulent misrepresentations aforesaid and that but for said false misrepresentations petitioner would not have loaned the money, and the debtor corporation is a converter without title or right of possession and, therefore, the debtor corporation had no title to pass to the Trustee.

The Trustee has filed a general denial thus casting upon the petitioner the burden to prove the allegations of its Petition for Reclamation.

The Court has heard the testimony of witnesses sworn and examined in open court, has read carefully the voluminous testimony in deposition form by various witnesses and has carefully studied the pleadings and briefs filed by the parties, and from a careful study of the depositions, all papers, documents, briefs and arguments before the Court, the Court has come to the conclusion that petitioner has failed to prove the allegations in its Petition for Reclamation, and therefore, such Petition, claims and prayer for relief must be denied.

FINDINGS OF FACT

1. During the early part of the year 1970, particularly sometime in January, 1970, the president of the debtor corporation, Jack L. Clark, received information that a man by the name of Ronald R. Howard of Los Angeles, California, a "finder of money", was in a position to assist the debtor corporation in borrowing funds which it needed in the operation of its business and for the purpose of constructing certain nursing homes throughout the United States and particularly in the State of Ohio.

2. Mr. Howard, in the role of a "finder of money" and Mr. Clark had a conference in Oklahoma City, Oklahoma, for the purpose of consummating a deal, or a tentative deal, for borrowing funds, which turned out to be from the State of Ohio. It was originally anticipated that the debtor corporation would borrow $20,000,000 to $24,000,000 through this source.

3. Ronald R. Howard about this time or previous thereto made contact with an investment firm in the City of Columbus, Ohio, by the name of Crofters, Inc., and particularly with Harry A. Groban, Executive Vice President of the firm. This firm was a client of National Credit Office, New York, and subscribed to the services of that company. Mr. Groban requested a rating from National Credit Office on the debtor corporation and advised Mr. Merker of the National Credit Office that it could get such information as it needed from the debtor corporation through Mr. John Mee, a Vice President and attorney for the debtor corporation. Mr. Merker in turn telephoned Mr. Mee in Oklahoma City and requested of him the latest annual report and subsequent intraoperating statements and bank information relating to the debtor corporation. Mr. Merker did receive the information which he requested, particularly the annual report and subsequent unaudited financial data (Petitioner's Exhibits 24, 25). National Credit Office, through Mr. Merker, gave the debtor corporation a rating of "prime" for commercial paper and communicated this information by letter to Mr. Groban. Mr. Groban in turn furnished this information to Mr. Robert F. Gardner, Deputy Treasurer of the State of Ohio.

4. "Commercial paper" is defined by Mr. Merker as paper of not more than 270 days duration and for a "prime" rating required a net worth or capital funds of the corporation of at least $25,000,000.

5. It appears that according to the laws of the State of Ohio, the Treasurer of that State could lend money of the State up to $50,000,000 on commercial paper rated "prime" by National Credit Office.

6. After receipt from National Credit Office of its letter rating the debtor corporation as "prime" for commercial paper, Mr. Groban of Crofters, Inc., advised Mr. Mee that funds would be available from the state of Ohio to the debtor corporation. Thereafter, Mr. Alex Russell, an officer of the debtor corporation, went to Columbus, Ohio, and on March 9, 1970, consummated a loan of $3,000,000 for the debtor corporation from the State of Ohio evidenced by two promissory notes of the debtor corporation, one for $2,000,000 payable in 120 days and another for $1,000,000 due in two years. These loans were consummated by and through Robert F. Gardner, Deputy Treasurer of the State of Ohio in the Office of the Treasurer of the State of Ohio with Mr. Groban and Mr. Alex Russell present. This first loan ($2,000,000) was made on the basis of 120 days with the understanding that when due the note would be reviewed for a period of two years; that is, that there would be a "roll-over" as used by men in finance meaning an automatic extension of the loan for a period of two years. A similar note for $1,000,000 due and payable in two years was made to the State of Ohio on March 23, 1970. All of the funds represented by the notes on March 9 and the note of March 23 were transmitted to the debtor corporation.

7. Mr. Robert F. Gardner was the officer of the State of Ohio who handled the transactions for the State and he was at that time Deputy Treasurer of the State of Ohio.

Mr. Gardner requested of Mr. Groban of Crofters, Inc., certain information regarding financial data relating to the debtor corporation, and this was furnished and was in the possession of Mr. Gardner when the loans were made. Mr. Gardner received a year-end statement for 1968 and an unaudited balance sheet as of December 31, 1969....

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6 cases
  • Securities and Exchange Commission v. Crofters, Inc.
    • United States
    • U.S. District Court — Southern District of Ohio
    • August 10, 1972
    ... ... 2 ...         Defendant Four Seasons Nursing Centers of America, Inc., ... ...
  • In re Four Seasons Securities Laws Litigation
    • United States
    • U.S. District Court — Western District of Oklahoma
    • January 18, 1974
    ... ... State of Ohio v. Crofters, Inc., Clark, et al ... United States District Court, W. D ... proceedings in this court involving Four Seasons Nursing Centers of America, Inc. (Four Seasons) and related ... ...
  • Securities and Exchange Commission v. Coffey
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • March 28, 1974
    ... ...    The relevant events began when Crofters, Inc., an Ohio "money-finder" formed in 1969, offered ... $22,000,000 from the State of Ohio to four companies charged in the SEC complaint. 2 ... prime ratings for Consolidated, Four Seasons and King Resources who knew or should have known ... See In re Four Seasons Nursing Centers of America, Inc., 329 F. Supp. 647, 651 ... ...
  • Four Seasons Securities Laws Litigation, In re
    • United States
    • U.S. Court of Appeals — Tenth Circuit
    • November 25, 1974
    ... ... , of counsel on the brief for appellants Walston & Co., Inc., Montgomery Co., and Glenn R. Miller) for appellants ... securities issued or guaranteed by Four Seasons Nursing Centers of America, Inc. or Four Seasons Equity ... ...
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