In re Lands End Leasing, Inc.

• Decision Date: 27 March 1996
• Docket Number: Bankruptcy No. 93-36360. Adv. No. 95-3031TS.
• Citation: 193 BR 426
• Parties: In re LANDS END LEASING, INC., Debtor. Peggy E. STALFORD, Trustee of Lands End Leasing, Inc., Plaintiff, v. BLUE MACK TRANSPORT, INC., a Pennsylvania corporation, Continental American Transport, Inc., a corporation, North American Motor Freight Investment Group, a corporation, Meyers Men Acquisition Corp., a corporation, Corestates Bank, N.A. (formerly Philadelphia National Bank), a corporation, AmSouth Bank (f/k/a Fortune Savings Bank), a Florida corporation, Herbert Bailey, individually and as an officer of Lands End Leasing, Inc., and John Doe Truckdriver 1 through 150, Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

193 B.R. 426 (1996)

In re LANDS END LEASING, INC., Debtor Peggy E. STALFORD, Trustee of Lands End Leasing, Inc., Plaintiff, v. BLUE MACK TRANSPORT, INC., a Pennsylvania corporation, Continental American Transport, Inc., a corporation, North American Motor Freight Investment Group, a corporation, Meyers Men Acquisition Corp., a corporation, Corestates Bank, N.A. (formerly Philadelphia National Bank), a corporation, AmSouth Bank (f/k/a Fortune Savings Bank), a Florida corporation, Herbert Bailey, individually and as an officer of Lands End Leasing, Inc., and John Doe Truckdriver 1 through 150, Defendants.

Bankruptcy No. 93-36360. Adv. No. 95-3031TS.

United States Bankruptcy Court, D. New Jersey.

March 27, 1996.

COPYRIGHT MATERIAL OMITTED

Jeffrey A. Donner, Shain, Schaffer & Rafanello, P.C., Bernardsville, New Jersey, for Peggy E. Stalford, Trustee.

D. Ethan Jeffery, Ciardi, Maschmeyer & Karalis, P.C., Atlantic City, New Jersey, for defendants.

MEMORANDUM OPINION

STEPHEN A. STRIPP, Bankruptcy Judge.

This is the court's decision on the defendants' right to a jury trial on the trustee's verified complaint. This court has subject matter jurisdiction under 28 U.S.C. § 1334(b), § 151, and § 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E) and (O). The court's findings of fact and conclusions of law are as follows.

FACTS

Lands End Leasing, Inc. (hereinafter the "debtor") filed a voluntary petition for relief under chapter 11 of title 11, United States Code (hereinafter the "Bankruptcy Code" or "Code") on October 20, 1993 (hereinafter the "petition date"). The Debtor's case was subsequently converted to a chapter 7 case and a chapter 7 trustee (hereinafter the "trustee") was appointed. On and following the petition date, the debtor was a lessor under certain equipment lease agreements (hereinafter "lease agreements") with at least 35 truckers (hereinafter the "truckers") as lessees. Pursuant to the lease agreements, the truckers leased 19 Kenworth tractors, 15 Freightliners, and one Peterbilt and were to pay the debtor monthly lease payments totaling approximately $2,000. per individual trucker. Certain of the lease agreements were amended to provide for the respective trucker's purchase of his leased tractor (hereinafter the "lease/purchase agreements").

In addition to their lease arrangement with the debtor, the truckers were also lessors under a separate agreement with Mural Transport, Inc. (hereinafter "Mural"), the parent company of the debtor and itself a debtor whose case has been administratively consolidated with the Lands End case. Under a service lease arrangement (hereinafter the "service leases") with Mural, the truckers leased their services and use of their trucks to Mural. The debtor had an arrangement with Mural whereby Mural collected from the truckers all monies due the debtor under the lease/purchase agreements. On and following the petition date, Mural collected these payments by deducting the amount paid under the lease/purchase agreements from the amount Mural owed the truckers under the service leases. Mural continued collection in this manner through October or November 1994 at which time Mural ceased operations.

The trustee alleges that in October or November 1994, the principals of the debtor directed the truckers to cease delivery for Mural and to commence delivery for defendant Blue Mack Transport, Inc. (hereinafter "Blue Mack"). The trustee further alleges that in November or December of that same year, the principals of the debtor instructed Blue Mack employees to collect from the truckers the lease/purchase payments due the debtor.

At the time the debtor's principals allegedly ordered Blue Mack to collect the lease/purchase payments, Blue Mack was operated by and continues to be operated by Eric Bailey, the son of defendant Herbert Bailey. During that same time, defendant Continental American Transport, Inc. (hereinafter "CATCO") was seeking to acquire Blue Mack, which has since become a subsidiary of CATCO. Defendant Herbert Bailey (hereinafter "Bailey") is the chief financial officer, vice president, and secretary of the debtor as well as an officer and majority shareholder of CATCO and the chief financial officer of defendant North American Motor Freight Investment Group (hereinafter "NAMFIG").

The court, in an order dated November 21, 1994, approved the sale of certain Kenworth trucks (hereinafter the "Kenworth Sale") to defendant Meyers Men Acquisition Corp. (hereinafter "MMAC"), a corporation in which Bailey holds a fifty percent ownership interest. The trustee alleges that some or all of the trucks approved for sale to MMAC are the same trucks the debtor contracted to sell to the truckers under the lease/purchase agreements. The trustee further asserts that the debtor did not notify the truckers of the Kenworth Sale.

In a subsequent order dated December 22, 1994, the court approved the sale of certain Freightliner trucks (hereinafter the "Freightliner Sale") to MMAC. The trustee alleges that some or all of the trucks approved for sale to MMAC are the same trucks the debtor contracted to sell to the truckers under the lease/purchase agreements. The trustee further asserts that the debtor did not notify the truckers of the Freightliner Sale.

The trustee alleges that from November or December 1994 to date, Blue Mack has collected and continues to collect the truckers' payments due under the lease/purchase agreements. The trustee further alleges that Blue Mack has paid and continues to pay these monies to NAMFIG, either directly or through CATCO. The trustee made a demand upon Blue Mack that Blue Mack cease collection of the lease/purchase payments, turn over the collected payments, and provide an accounting of the monies collected. The trustee asserts that Blue Mack has not complied with the trustee's demand.

The Complaint

On January 12, 1995 the trustee filed an eight-count verified complaint in this adversary proceeding seeking the turnover of property, an accounting of estate assets, compensatory and punitive damages for alleged fraudulent conduct, avoidance of post-petition sales, and injunctive relief. The trustee named as defendants Blue Mack, CATCO, NAMFIG, MMAC, Bailey, individually and as an officer of the debtor, and Corestates and AmSouth Banks, respective recipients of the proceeds of the Kenworth and Freightliner sales (hereinafter collectively the "defendants").

On April 13, 1995, the court entered an order for temporary relief (hereinafter the "April Order") directing Blue Mack, CATCO, and NAMFIG to provide the trustee with the requested accounting of the lease/purchase payments collected on the debtor's behalf and to turn over any and all collected payments to the defendants' attorneys. The order also resolved and dismissed Counts V through VIII. The trustee asserts that the defendants have not complied with the April Order.

Counts I through IV remain. The following is a summary of the remaining counts and the relief sought. The parties disagree as to the status of the resolution of these counts following the April Order.

Count I: The trustee alleges that the payments due and owing the debtor under the lease/purchase agreements are property of the estate under Code § 541, and that since November 1994 Blue Mack has collected and continues to collect these payments and has failed to turn them over to either the debtor or the trustee despite the trustee\'s demand. The trustee seeks an order compelling Blue Mack to cease collection of the lease/purchase payments, to turn over all collected lease/purchase payments and to provide an accounting of all payments collected and delivered to the debtor, its principals, officers, agents or third parties. The trustee also seeks an order compelling the truckers to cease making the payments to Blue Mack and to commence paying them to the trustee. The trustee further seeks an award of costs of suit from Blue Mack plus all further relief the court deems appropriate.

Count II: The trustee alleges that Blue Mack has paid and continues to pay the collected payments due the debtor under the lease/purchase agreements to NAMFIG, directly or indirectly through CATCO. The trustee seeks an order compelling Blue Mack to deliver and provide a full accounting to the trustee of all payments collected. The trustee further seeks an order directing NAMFIG to deliver and provide an accounting to the trustee of all monies received from Blue Mack and/or CATCO and directing CATCO to deliver and provide an accounting to the trustee of all monies received from Blue Mack and/or NAMFIG. Again the trustee seeks an award of the costs of suit and other appropriate relief.

Count III: The trustee alleges that Blue Mack is in control or possession of certain trucks and tractors to which the debtor retains title and which are property of the estate under Code § 541. The trustee seeks an order directing Blue Mack to turn over and provide an accounting of such vehicles currently or formerly in Blue Mack\'s possession or control and for which the title is or was in the debtor\'s name. The trustee further seeks compensatory damages for any damage or loss to the vehicles, costs of suit, and other appropriate relief.

Count IV: The trustee alleges that Bailey acted as chief financial officer, vice president, and secretary of the debtor, chief financial officer of NAMFIG and officer and shareholder of CATCO at all times relevant to the complaint. The trustee also alleges that Bailey directed Blue Mack to collect the lease/purchase payments due the debtor at a time when Bailey knew or should have known the payments were property of the estate. Further, the trustee asserts that Bailey as an officer of the debtor owed a fiduciary duty to the debtor and its creditors which he breached by participating in the simultaneous sale of the same assets to both the truckers and MMAC and by diverting the lease/purchase payments to entities in

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