In re Highway Equipment Co.
| Decision Date | 14 April 1993 |
| Docket Number | Bankruptcy No. 1-85-01667,Adv. No. 1-90-0037. |
| Citation | 153 BR 186 |
| Parties | In re The HIGHWAY EQUIPMENT COMPANY, Highlift Equipment Co., U.S. Equipment Co., Debtors. The HIGHWAY EQUIPMENT COMPANY, et al., Plaintiffs, v. ALEXANDER HOWDEN LIMITED, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Joseph A. Brunetto, Columbus, OH, for defendants Howden.
John B. Pinney, Charles G. Heyd, Cincinnati, OH, for plaintiffs.
Thomas Noland, Dayton, OH, Liquidating Trustee/co-plaintiff.
John J. Finnigan, Jr., Cincinnati, OH, for co-defendants.
DECISION ON DEFENDANTS' MOTIONS FOR JUDGMENT
This adversary proceeding arises in a Chapter 11 case pending in this court. In it, the complaining parties make claim against various insurance brokers involved in the procurement of financial guarantee insurance for plaintiff in connection with an equipment sale. (While there are actually plural plaintiffs in the proceeding, we will hereafter refer to "plaintiff" in the singular because the debtor, Highway Equipment Company, is the only effective party.) The instrument executed in the sale was known as the Master Equipment Sales Agreement, hereafter referred to simply as the "MESA Agreement".
The several defendants named in the complaint divide into two groups. One group consists of Alexander and Alexander Services, Inc., Alexander and Alexander, Inc., Alexander Howden, Ltd., Alexander Howden Group Limited, and Colin G. Bird. These defendants will hereafter be referred to collectively as "Howden" or the "Howden defendants". The remaining defendants, Loveless Insurance-Florida, Inc. and Crump, E & S of Atlanta, Inc., comprise a second group and will hereafter be referred to as "Loveless" or the "Loveless defendants."
This case and proceeding have been referred to this court by the general order of reference of the District Court. This is a non-core proceeding. The parties have, pursuant to 28 U.S.C. § 157(c)(2), consented that the bankruptcy judge hear and determine and enter appropriate orders and judgments, subject to review by appeal.
The proceeding came on for trial. Plaintiff has presented its case, at the conclusion of which defendants have moved for judgment in their favor. Our consideration of these motions is pursuant to F.R.Civ.P. 52(a) and (c), incorporated into bankruptcy practice by Federal Rule of Bankruptcy Procedure 7052. We must consider on these motions whether plaintiff has sustained its burden of proof as to the issues raised by the complaint. F.R.Civ.P. 52(c) advisory committee notes.
The following facts which we find from the evidence presented in plaintiff's case depict the transactions comprising the background for the issues raised by the complaint. Further facts will appear hereafter as we consider the separate claims raised by the complaint.
David Ward was a syndicator with experience in equipment lease tax shelters, residing in Boca Raton, Florida. The Financial Reserve Corporation ("FRC") in which the Morgenstern brothers, Fred, James, and David were principals, and which was engaged in the coal mining business, contacted Ward in the summer of 1981. FRC needed additional mining equipment. Ward was agreeable to putting together a syndicate which would buy mining equipment and lease it to FRC. Ward investigated FRC. He confirmed that, as represented, FRC had received an advantageous contract to supply coal to General Motors Corporation.
Ward formed a limited partnership named Knox Equipment Leasing ("Knox"), including a group of investors as limited partners. Knox was a tax shelter. It was an objective of Knox to have a lease in place by the end of 1981 in order to secure current tax advantage. By summer of 1981, Ward had formed the limited partnership, and had an understanding with FRC, the prospective user of the equipment, but had been unable to find an equipment supplier who would provide mining equipment at a satisfactory price. At this point, he met Bruno Trimpoli who had connections with sellers of heavy equipment. Trimpoli contacted Guy Disotelle of Syracuse Supply, a regional Caterpiller equipment dealer located in Syracuse, New York. Disotelle handled national accounts for Syracuse Supply. Everett C. Brazie was at the time here pertinent, vice president for sales at Syracuse, reporting to the president, Stewart Davis. Syracuse was involved with the deal which Ward was trying to put together during the summer and fall of 1981. The transaction was to involve the purchase of some six million dollars worth of Caterpiller heavy mining equipment.
During the course of consideration of the transaction at Syracuse, a desire that Syracuse be placed in a more secure position than relying entirely upon the contract with Knox, was voiced. In early November, 1981, Trimpoli contributed the thought that a financial guarantee insurance policy might be considered as a vehicle for improving Syracuse's position. Trimpoli knew Laura Leidigh of the Loveless Agency in Atlanta, she at that time being located in a branch office in Tampa, Florida, which she operated as a Loveless vice president. Loveless was a wholesale broker dealing with excess and surplus lines, which in insurance parlance, translates into provision of insurance for unusual risks, not the usual home owners and automobile insurance policies.
Financial guarantee insurance in 1981 was an unfamiliar commodity. Leidigh had had no experience with it. Upon request of Trimpoli, however, she inquired in the U.S. market for coverage of this type, but was unsuccessful in finding an insurance market which would cover the risk. She therefore turned to the London market. The London market, which includes Lloyd's but is bigger than Lloyd's, is a place where risks which are out of the ordinary are routinely handled. Leidigh had not herself theretofore had any contact with London. Another person in the Loveless agency, Witt, had dealt with London, and put Leidigh in touch with the Howden agency.
Leidigh transmitted to Howden the information she had about the proposed transaction, a description of the equipment, and financial background of FRC and Knox to Howden. Her contacts were initially with broker Steven Rowe at Howden, but she also dealt with Colin Bird, about whom more will be heard later in this opinion. Brazie of Syracuse was also in touch with the people at Howden in the fall of 1981. Howden, after initially failing to find an insurer for the risk, did find one. At first, the insurer was to be Bercanus, a Bermuda company, but subsequently Beacon Insurance Company ("Beacon") was the named insurer. Both Bercanus and Beacon were insurance enterprises of Neill Portermain.
The sales people at Syracuse, Disotelle and Brazie, believed that they had a deal, and a closing was set for November 25, 1981, at the offices of the lawyers for Syracuse Supply in Syracuse, New York. The various parties indeed assembled for the closing in Syracuse, but before documents were executed, the president of Syracuse Supply, Stewart Davis, vetoed the transaction and the closing was aborted.
The sales people at Syracuse Supply were quite disappointed at the loss of this lucrative contract. In an effort to realize some personal benefit, evidently, Brazie contacted Highway Equipment in Cincinnati, saying that he thought that the deal was viable and asked if there was interest in it. Brazie then came to Cincinnati with Trimpoli and proffered the information which Syracuse had. Both Trimpoli and Brazie expected that if the deal were consummated between Highway Equipment and Knox and FRC, there would be remuneration for them.
The scene then shifted to Cincinnati. A remarkable fact in the picture is that while Highway Equipment had not been involved in the transaction prior to the date of the aborted closing at Syracuse on November 25, 1981, nine days later, on December 4, 1981, there was a closing on the MESA agreement, now with Highway Equipment as the seller of equipment. What made this remarkable was that Syracuse had found it necessary to spend months in reviewing the transaction. By the MESA agreement, Highway Equipment was committed to the purchase of six million dollars' worth of construction equipment from Caterpillar which was to be sold to Knox, and leased by Knox to FRC, part of the transaction including a financial guarantee insurance policy (the "MESA policy") with Highway Equipment, the insured, while Beacon was the insurer and Loveless the procuring broker.
Features of the transaction were that Knox was to pay Highway $608,000.00 at the closing, as well as handing two checks in the amount of $121,000.00 and $316,000.00 post-dated December 31, 1981 to Albert J. Norman, president of Highway Equipment. These transfers were made at the closing. The $608,000.00 check was deposited and that payment was received. Norman was informed that the post-dated checks would not be honored on the date appearing on them, and in fact never were honored. There is a dispute about whether Norman was told at the closing or only subsequently that the post-dated checks would not be honored on the date stated on them. A further feature of the transaction was that monthly payments over a 36-month period were to be made beginning in March, 1982. After payments were not received in March and April, 1982, Norman informed Leidigh by letter of these defaults. Leidigh did not transmit these notices to the insurer. There is a dispute about the reason why she did not do this, with Leidigh stating that she was instructed by Norman not to do so, while plaintiff contends that Leidigh did not forward them because to do so would be disadvantageous to Loveless.
In an effort to make the MESA transaction work, negotiations then ensued as a result of which there was a closing on April 22, 1982, at which time a loan was obtained from First National Bank in Cincinnati. A purpose to which the proceeds of that loan was devoted was the curing of the...
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