In re Jartran, Inc.
| Decision Date | 29 September 1984 |
| Docket Number | Bankruptcy No. 81 B 16118. |
| Citation | 44 BR 331 |
| Parties | In re JARTRAN, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
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Gerald F. Munitz, Nachman, Munitz & Sweig, Ltd., and Kurt L. Schultz, Winston & Strawn, Chicago, Ill., for debtor.
John J. Dawson, Streich, Lang, Weeks & Cardon, P.A., Phoenix, Ariz., Donald R. Cassling, Jenner & Block, and David N. Missner, Schwartz, Cooper, Kolb & Gaynor, Chtd., Chicago, Ill., for U-Haul International, Inc.
Charles S. Stahl, Jr., Arvey, Hodes, Costello & Burman, Chicago, Ill., for Unsecured Creditors' Committee.
James R. Looman, Isham, Lincoln, & Beale, Chicago, Ill., for Equity Security Holders' Committee.
Karen Pohl Beiber, Levy & Erens, Chicago, Ill., for Debentureholders.
Dennis M. O'Dea, Keck, Mahin & Cate, Chicago, Ill., for Examiner.
This matter coming before the Court at the hearing on confirmation of Debtor's Fifth Amended Plan of Reorganization, thrice modified, and upon certain other matters arising in connection therewith, including, inter alia, the Joint Application for Approval of Settlement filed by Debtor and others, the Application of Debentureholders for Leave to Amend their Ballots to Vote in Favor of Confirmation of Debtor's Plan of Reorganization, and the Motion for Summary Denial of Confirmation filed by U-HAUL INTERNATIONAL, INC. ("U-Haul"), and
The Court having examined the pleadings filed in this matter, and having received and examined the evidence adduced, and having heard the testimony of witnesses and arguments of counsel, and having received and examined memoranda of the parties in support of their respective positions, and the Court being fully advised in the premises;
The Court Finds:
1. Debtor, JARTRAN, INC. ("Jartran"), is engaged in the one-way and local rental of trucks and utility trailers, operating through a nationwide network of approximately 2,000 independent dealer agents. Its customers are primarily consumers, although Debtor provides contract carriage and other services for industrial and commercial firms through its wholly-owned subsidiary, Engineered Transport Services, Inc. ("ETS"). ETS is not a debtor in this or any other case under title 11.
Debtor's executive offices are located in Florida, and it maintains division and regional operations management facilities in nineteen states. In the intercity one-way rental of trucks to consumers, Debtor competes principally with three other national firms, U-Haul, Ryder Systems, Inc. (RSI), and Hertz Corporation. U-Haul's share of this market at least 60%, RSI's is almost 20%, Jartran's is close to 10%, and Hertz Corporation's is approximately 5%. Jartran's only competitor in the nationwide, one-way rental of trailers is U-Haul, which controls approximately 90% of this market. In addition, Debtor competes in local markets, not only with U-Haul, RSI, and Hertz, but also with local companies.
The truck rental industry and corresponding market share depend upon a nationwide distributorship system having available and well-maintained equipment. Consequently, it is an industry with high entry barriers, requiring thousands of units of high-priced equipment and the establishment of a well-organized distribution system providing adequate equipment servicing and pick-up and drop-off facilities.
Jartran was organized as a Florida corporation by James A. Ryder ("Ryder") in August, 19781 but had no significant operations until the latter part of 1979. As of January, 1984, Debtor's fleet consisted of approximately 10,800 trucks and 18,700 trailers. All of Debtor's vehicles are either leased from Fruehauf Corporation ("Fruehauf") or purchased and financed on a secured basis with Fruehauf, Chrysler Credit Corporation ("Chrysler"), or Ford Motor Credit Company ("Ford").
Debtor is currently involved in a number of important and complex litigations which affect its operations and potential for reorganization in this case. These suits include one filed by Jartran in September, 1980 against U-Haul and others in the United States District Court for the Southern District of Florida, entitled Jartran, Inc. v. L. Samuel Shoen, et al., No. 80-2460 CIV WMH (the "Miami suit"). In the Miami suit, Debtor alleges that the defendants participated in predatory, monopolistic, and conspiratorial acts to impede Debtor's entry into the household truck and trailer rental markets, to damage Debtor's operations, and to drive Debtor out of business; that U-Haul abused its monopoly position in the truck and trailer rental markets by engaging in pricing practices injurious to Debtor and by interfering with Debtor's dealer agents; and that U-Haul engaged in systematic disparagement and libel of Debtor. The Miami suit seeks injunctive relief and $10,000,000 in compensatory damages. The action is not yet ready for trial.
Also in 1980, U-Haul filed an action in the United States District Court for the District of Arizona, entitled U-Haul International, Inc. v. Jartran, Inc., et al., No. CIV 80-454-PHX-EHC (the "Phoenix suit"). In the Phoenix suit, U-Haul alleges that Debtor, in connection with an advertising campaign conducted in 1979 and 1980, engaged in false advertising, disparagement of U-Haul, wrongful interference with U-Haul's prospective business advantage, and unfair competition. U-Haul seeks up to $375,000,000 in damages and preliminary and permanent injunctive relief. In February, 1981, U-Haul's motion for a preliminary injunction relating to Jartran's advertising practices was granted, which ruling was upheld on appeal by the United States Court of Appeals for the Ninth Circuit in July, 1982. The trial has been concluded, and the district court has the matter under advisement.
2. Soon after Jartran commenced operations, its massive debt service requirements depleted working capital, and Debtor's principals initiated efforts to obtain additional funds. As part of these efforts, an offering document was prepared and utilized in the solicitation of prospective investors. Over fifty individuals and entities were contacted in 1980 and 1981, in connection not only with capital infusion proposals but also potential stock acquisitions. Except for the deal ultimately consummated with Frank B. Hall & Co., Inc. ("Hall"), discussed below, these efforts to obtain financing were unsuccessful. The only capital obtained was in the amount of $250,000 from Roy Carver, Chief Executive Officer of Band Aid Corporation.2
One of the companies contacted during this period was Ameribond Securities Associates ("Ameribond"). Ameribond's managing partner, Stanley Cheslock, Jr., learned of Debtor's marketing efforts in March of 1981. He met with Jartran representatives, reviewed their offering document, and discussed plans for restructuring the company's debt. According to Mr. Cheslock's testimony, offered by U-Haul at the confirmation hearings held herein, Debtor was seeking additional capital of about $5,000,000.
On or about April 21, 1981, Debtor and Ameribond executed a letter of intent pursuant to which Ameribond was engaged by Jartran for the purpose of securing additional capital and working out a debt restructuring arrangement. The letter of intent proposed a capital infusion of $20,000,000 in exchange for a 55% ownership interest in Jartran, after giving effect to conversion of all outstanding convertible debt, exercise of options, and other similar rights. The 55% interest was equivalent to an interest of 80% or more on an undiluted basis.
In accordance with this arrangement, Ameribond initiated efforts to find investors for Jartran. Mr. Cheslock testified that Touche, Ross & Company was engaged to make an evaluation of Debtor's viability, which evaluation was prepared in report form by Touche, Ross and paid for by Debtor.3 This report was circulated, along with a document prepared by Ameribond and describing, inter alia, Jartran's business plan and financial history, to various potential investors, including Hall.
Subsequently, Ameribond arranged a meeting with Jartran's major secured creditors for September 1, 1981. In anticipation of that meeting, Ameribond contacted and invited all the individuals and entities considered to be prime prospects for investment in Jartran. Only two of those potential investors attended the meeting, Hall and one other firm.
According to Mr. Cheslock's testimony, he made a commitment at the September 1st meeting on behalf of Ameribond and its primary partner, The Securities Groups, to supply $20,000,000 in capital considered by Ameribond as necessary to a restructuring arrangement. Hall did not participate in the commitment. Thereafter, Mr. Cheslock delivered to the creditors what he referred to as a "firm commitment" in writing, dated September 11, 1981, wherein he stated that Ameribond and its partners were committing to provide Jartran with $20,000,000 in capital "subject to satisfactory resolution of the debt restructuring."
The proposed resolution of Jartran's debt restructuring upon which this commitment was conditioned was the subject of a mid-September, 1981 meeting between Cheslock and representatives of Jartran and the major secured creditors. At that meeting, they reviewed a proposed restructuring plan prepared by Cheslock in concert with Jartran representatives, which plan had been sent to the creditors along with the September 11, 1981 commitment letter. Mr. Cheslock testified that an agreement in principle was reached at that meeting with regard to the proposed debt restructuring plan. According to Mr. Cheslock, the agreement was a verbal understanding, later documented. No such documents were produced, however, or offered into evidence. Counsel for U-Haul, when asked by the Court about the documents, stated for the record that he thought he had them but did...
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