In re Lee Way Holding Co.

• Decision Date: 21 June 1989
• Docket Number: Bankruptcy No. 2-85-00661,Adv. No. 2-86-0343.
• Citation: 105 BR 404
• Parties: In re LEE WAY HOLDING COMPANY, Debtor. Frederick M. LUPER, Chapter 11 Trustee, et al., Plaintiffs, v. BANNER INDUSTRIES, INC., et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

105 B.R. 404 (1989)

In re LEE WAY HOLDING COMPANY, Debtor Frederick M. LUPER, Chapter 11 Trustee, et al., Plaintiffs, v. BANNER INDUSTRIES, INC., et al., Defendants.

Bankruptcy No. 2-85-00661, Adv. No. 2-86-0343.

United States Bankruptcy Court, S.D. Ohio, E.D.

June 21, 1989.

Frederick M. Luper, Luper, Wolinetz, Sheriff & Neidenthal, Columbus, Ohio, Chapter 11 Trustee, for the Estate and plaintiff.

Donald R. Harris, Jenner and Block, Chicago, Ill., for plaintiff, Chapter 11 Trustee.

Robert J. Sidman, Vorys, Sater, Seymour & Pease, Columbus, Ohio, for plaintiff, Official Committee of Unsecured Creditors.

Leon Friedberg, Benesch, Friedlander, Coplan & Aronoff, Columbus, Ohio, for defendants.

Thomas D. Yannucci, Kirkland and Ellis, Washington, D.C., for defendants.

Roger Pascal, Schiff, Hardin & Waite, Chicago, Ill., Russell A. Kelm, Schwartz, Kelm, Warren & Rubenstein, Columbus, Ohio, for PepsiCo, Inc.

OPINION AND ORDER ON DEFENDANTS' MOTION TO DISMISS; LIFTING STAY OF DISCOVERY

DONALD E. CALHOUN, Jr., Bankruptcy Judge.

I. BACKGROUND

This matter is before the Court on the motion of Banner Industries, Inc. and Plymouth Leasing Company ("Banner") to dismiss the first, second, third, fourth, sixth, seventh and eleventh claims for relief alleged in the first amended complaint filed by the Chapter 11 Trustee and the Official Committee of Unsecured Creditors ("plaintiffs"), and the plaintiffs' opposition to that motion. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. The following opinion and order constitutes findings of fact and conclusions of law.

II. STATEMENT OF FACTS

The claims in this proceeding arise from the relationship between Banner, a holding company, and Commercial Lovelace Motor Freight ("CL"). CL was a wholly owned subsidiary of Banner from 1969 to 1983. Banner acquired 100% of CL's stock in 1969 and was CL's sole stockholder until March of 1983. At that time, a little over 50% of CL's stock was transferred to its employees through an Employee Stock Ownership Plan ("ESOP") established by Banner. Banner further reduced its ownership interest in CL by 10% in 1983. In 1984, CL acquired Lee Way Motor Freight, Inc. ("Motor Freight") from PepsiCo, Inc. ("PepsiCo"). In early 1985, CL merged with Motor Freight to form Lee Way Holding Company, the debtor herein. The debtor filed its petition for relief under Chapter 11, Title 11 of the United States Code on March 7, 1985.

On December 7, 1986, the Official Committee of Unsecured Creditors ("Committee") and the debtor filed this action against Banner. On January 22, 1987, the Court appointed a trustee in this proceeding. On November 18, 1987, the Committee and the trustee filed their First Amended Complaint and Objection to Claims of Banner Industries, Inc. and Plymouth Leasing Company, which complaint is the subject of this motion to dismiss.

During the time this motion has been pending, Banner filed a motion for a temporary stay of discovery, which motion, after oral hearing, was granted. Subsequent to granting that motion, PepsiCo, an interested party herein, filed a motion requesting that the Court reconsider its decision staying discovery in this action. Pursuant to that motion, and after oral hearing on June 14, 1988, the Court amended its order entered May 19, 1988 staying discovery so as to require Banner to provide any and all discovery that it has produced from litigation in the cases of Courtney v. PepsiCo, Inc. v. Banner Industries, Inc., Civ. No. 85-449R (W.D.Okla.) and St. Paul Fire and Marine Insurance Co. v. PepsiCo, Inc. v. Banner Industries, Inc., No. 85-Civ.-2276 (S.D.N.Y.), as well as from litigation in this district in the case of PepsiCo, Inc. v. Banner Industries, Inc., No. C286-1571 (S.D.Ohio). The remaining issues raised by PepsiCo's motion for reconsideration were taken under advisement by the Court.

Recently, the plaintiffs moved the Court for an order lifting the stay of discovery in this case. The defendants opposed this motion and following an oral hearing held April 18, 1989, this matter was also taken under advisement.

III. STANDARD FOR MOTION TO DISMISS

Banner's motion to dismiss was filed near the time it filed its answer and counterclaim. Thus, at this early stage of the proceedings, the Court is merely evaluating the sufficiency of the plaintiffs' complaint. The plaintiffs' complaint may only be dismissed under Bankruptcy Rule 7012 if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. Hishon v. King and Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 45-56, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Davis H. Elliot Co. v. Caribbean Utilities Co., 513 F.2d 1176, 1182 (6th Cir.1975). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support its claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). "In determining the motion, the Court must presume all actual allegations of the complaint to be true and all reasonable inferences are made in favor of the nonmoving party." 2A J. Moore and J.D. Lucas, Moore's Federal Practice, ¶ 12.07 (2d ed. 1986). See also, Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir.1987); Scheuer 416 U.S. at 236, 94 S.Ct. at 1686. Yet, the Court is not to presume as true legal conclusions or deductions, or opinions masked as factual allegations. Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir.1976).

IV. FACTUAL ALLEGATIONS

The plaintiffs allege the following facts in their complaint in support of their claims against Banner:

1. At all times from 1969 through March 5, 1983, Banner was the owner of one hundred percent (100%) of the capital stock of CL, a general and special motor carrier of freight.

2. As CL's sole stockholder, Banner derived substantial benefits from CL's operations during the period from 1969 through approximately 1980, including corporate service fees and tax advantages obtained by including CL on its consolidated federal income tax returns.

3. In order to derive substantial benefits from the operation of CL's business, Banner caused and enabled CL to enter into numerous transactions, including leasing or financing the acquisition of properties in its own name, in aid of which Banner unconditionally obligated itself to pay indebtedness incurred in the name of CL.

4. During the period from 1969 through 1983, Banner unconditionally guaranteed or otherwise made itself liable on the following obligations, among others (the "Banner Guaranties");

(a) Lease dated January 31, 1971 between Harold C. Schott, Howard Vanden Eynden and Charles R. Ault, Trustees of the H.C. Schott Trust (collectively as Lessor), and Commercial Motor Freight, Inc. (as Lessee);

(b) Mortgage Note dated on or about March 19, 1971 from Commercial Motor Freight, Inc. and Banner Industries, Inc. (as Co-Makers) to Shaker Savings Association;

(c) Mortgage Note dated March 19, 1971 from Commercial Motor Freight, Inc. to The Buckeye Savings Association and The Cincinnati Savings Association;

(d) Mortgage Note dated March 19, 1971 from Commercial Motor Freight, Inc., Banner Industries, Inc., William P. Barker and Samuel J. Krasney (as Co-Makers) to First Federal Savings and Loan Association of Defiance;

(e) Lease dated as of December 1, 1975 between the County of Wood, Ohio and Commercial Motor Freight, Inc.

(f) Ten (10) substantially identical Lease Agreements dated on or about January 3, 1977 between M.F. Neimeyer Investment Company, Inc. and various affiliated entities (collectively as Lessors) and Commercial Lovelace Motor Freight, Inc. (as Lessee);

(g) Lease dated September 6, 1978 between the Connecticut Bank and Trust Company, Trustee (as Lessor), and Commercial Lovelace Motor Freight, Inc. (as Lessee);

(h) Lease dated as of June 1, 1979 between the Industrial Development Authority of the City of Kansas City, Missouri, and Commercial Lovelace Motor Freight, Inc.;

(i) Five (5) substantially similar Loan and Security Agreements dated as of August 31, 1979 between the State of Ohio and Commercial Lovelace Motor Freight, Inc.;

(j) Conditional Sales Agreement dated September 26, 1979 by and between DBT Financial Services Corporation and Commercial Lovelace Motor Freight, Inc.;

(k) Liabilities of Commercial Lovelace Motor Freight, Inc. to Transport Insurance Company for insurance premiums which have been guaranteed by letter from Banner Industries, Inc. to Transport Insurance Company dated December 18, 1980;

(l) Lease dated January 9, 1981 between The Huntington Leasing Company (as Lessor) and Commercial Lovelace Motor Freight, Inc. (as Lessee);

(m) Loan Agreement and Mortgage dated as of June 1, 1981 between the City of Kokomo, Indiana, and Commercial Lovelace Motor Freight, Inc.;

(n) Master Equipment Lease dated as of July 2, 1981 by and between Manufacturers Hanover Leasing Corporation (as Lessor) and Commercial Lovelace Motor Freight, Inc. (as Lessee);

(o) Equipment Lease dated as of July 31, 1981 by and between McCullagh Leasing, Inc., Capital Division (as Lessor) and Commercial Lovelace Motor Freight, Inc. (as Lessee);

(p) Equipment Lease Agreement dated as of December 28, 1981 by and between MDFC Equipment Leasing Corporation (as Lessor) and Commercial Lovelace Motor Freight, Inc. (as Lessee);

(q) Liabilities of Commercial Lovelace Motor Freight, Inc. to System Freight, Inc. which have been guaranteed by letter from Banner Industries, Inc. to System Freight, Inc. dated February 15, 1983.

5. Banner's contingent liabilities on obligations incurred in the name of CL allegedly aggregated approximately $22,000,000.

6. Within the year preceding the filing of the Debtor's Chapter 11 petition, Banner's contingent liabilities as set forth in Paragraph 4 of this complaint were...