In re Macmillan, Inc.

• Decision Date: 17 January 1997
• Docket Number: 93 B 44970 (TLB),Ad. No. 94-9495A (TLB),94-8496A (TLB).,Bankruptcy No. 93 B 45625 (TLB),and 93 B 44971 (TLB)
• Citation: 204 BR 378
• Parties: In re MACMILLAN, INC. et al., Debtors. In re MCC GAO, INC. f/k/a Official Airlines Guides, Inc. et al., Debtors. The MAXWELL MACMILLAN REALIZATION LIQUIDATING TRUST and MCC GAO, Inc., Counterclaim-Plaintiffs, v. Sheldon J. ABOFF, Counterclaim-Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

204 B.R. 378 (1997)

In re MACMILLAN, INC. et al., Debtors In re MCC GAO, INC. f/k/a Official Airlines Guides, Inc. et al., Debtors The MAXWELL MACMILLAN REALIZATION LIQUIDATING TRUST and MCC GAO, Inc., Counterclaim-Plaintiffs, v. Sheldon J. ABOFF, Counterclaim-Defendant.

Bankruptcy No. 93 B 45625 (TLB), 93 B 44970 (TLB), and 93 B 44971 (TLB), Ad. Nos. 94-9495A (TLB), 94-8496A (TLB).

United States Bankruptcy Court, S.D. New York.

January 17, 1997.

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Milbank, Tweed, Hadley, & McCloy, New York City by George Brandon, Andrew J. Fields, and John M. Conlon, for Debtors.

Solovay Marshall & Edlin, P.C., New York City, by Richard A. Edlin and John F. Wirenius, for Sheldon J. Aboff.

DECISION ON ALLEGED EMPLOYMENT CONTRACT AND DEBTORS' COUNTERCLAIMS

TINA L. BROZMAN, Chief Judge.

Sometime in 1991, the year in which the empire of the late Robert Maxwell ("Maxwell") subsequently faltered, his son Kevin signed a brief but unusual letter agreement with Sheldon Aboff, the Maxwells' U.S. man on the spot, which guaranteed Aboff, who was in his early forties, lifetime employment and, when he was terminated, entitled him to some $23 million—money which Aboff is now seeking. Despite its extraordinary nature, this letter never stated which of the Maxwells' hundreds of companies was to be responsible for the hefty sums promised. Aboff claims that the $23 million is an obligation of Macmillan, Inc. ("Macmillan"), a solvent chapter 11 debtor which, after paying off its creditors, has upstreamed the proceeds from the sale of its assets to Maxwell Communication Corporation, plc, its corporate parent, for distribution in accordance with that company's plan of reorganization.

The letter agreement not only fails to identify the obligor, but makes no mention whatsoever of Macmillan. So how is it that Aboff links Macmillan to the obligation? First, he points to the fact that the letter is printed on Macmillan letterhead. That, however, is pure happenstance; Aboff's secretary testified that she chose the letterhead when she printed the letter from her computer screen. Second, as an aid to interpretation of the ambiguous letter, Aboff proffers notes which purport to show that after his move out of Macmillan's offices he was nevertheless to continue to perform all of his services at the behest of Macmillan, albeit for other Maxwell companies. Initially, these notes posed something of a problem for Macmillan, that is, until it was discovered that Aboff had doctored them to diametrically change their import before they were produced in discovery. As originally recorded, the notes actually confirm the testimony of Macmillan's president that Aboff had been transferred out of Macmillan and into a different chain of Maxwell companies prior to the execution of the letter agreement. Aboff's response to the charge of evidence-tampering is that he characteristically amended notes with successive meetings. I might have been more inclined to believe him had he revealed, rather than hidden, the amendments and had the changes been more wide-ranging. However, the singular effect of the amendments was to change Aboff's removal from to his retention by Macmillan. And Aboff's lack of veracity was not confined to the flap over the notes, more about which will be said later.

Aboff attempted to prove that he was still technically an employee of Macmillan at the time of his resignation. That, however, is really not the issue. The issue is whether his employment agreement, executed in the year following Aboff's move into a different chain of companies, was intended to bind Macmillan.

Aboff also suggests that if Macmillan is not liable, MCC GAO, Inc. ("OAG") is. However, Aboff concedes that he never performed services for OAG, which functioned as a paying agent for other Maxwell companies.

I.

A. How Aboff Came to Join Maxwell

Sheldon J. Aboff, a certified public accountant, worked from 1967 to 1975 at the New York office of the international accounting firm of Price Waterhouse, where he participated in the audits of the American businesses of Robert Maxwell. The two men developed a good working relationship, culminating in 1975 when Maxwell invited Aboff to join Maxwell's wholly-owned company, Pergamon Press, Inc. ("Pergamon Press") as treasurer and chief financial officer. Aboff's performance was obviously to Maxwell's liking, because prior to Maxwell's acquisitions of substantial publicly-held U.S. companies Aboff became chief financial officer of all Maxwell companies in North America. By 1981, Aboff rose to vice chairman of the board of directors of Pergamon Press and was responsible for administration, finance, and operations (with the exception of publishing and marketing).

B. The Birth of the Public Side

Aboff joined Pergamon Press at a time when the businesses were predominantly closely held by Maxwell and his family. A change occurred, however, in 1980 when Maxwell acquired majority control of British Printing, plc, a U.K. public company which he renamed Maxwell Communication Corporation, plc ("MCC")¹. Aboff provided services to Maxwell in connection with the latter's acquisition of majority control of MCC.

The Maxwell business empire thereafter came to comprise two types of companies, those which were completely owned and controlled by Robert Maxwell and his family, identified by insiders as the "private side," as well as MCC and its subsidiary companies, which had a minority public shareholding, and thus were known to insiders as the "public side."² Trial Transcript at 736³; see Maxwell Macmillan Realization Liquidating Trust v. Aboff (In re Macmillan), 186 B.R. 35, 38 (Bankr.S.D.N.Y.1995).

In the 1987 "Project Exodus," Maxwell sold Pergamon Press, a private side company, and many, but not all, of its publishing subsidiaries to MCC, N.A., a public side subsidiary of MCC. Notwithstanding the move of Pergamon Press from the private to the public side, Aboff continued to serve as one of its officers and directors. In 1987, Aboff was named treasurer of MCC, N.A. and later became its vice president. At the time, MCC, N.A.'s office was located at 777 West Putnam Avenue in Greenwich, Connecticut (the "West Putnam offices").

Aboff acquired an additional title in 1987, president of PH(US), Inc., known as "PH(US)I," a contraction of "Pergamon Holdings U.S., Inc." which was the U.S. private side holding company. PH(US)I operated out of the West Putnam offices. Among other assets, PH(US)I held title to the Pergamon Press businesses which had not been sold in Project Exodus.

PH(US)I operated as a conduit through which Maxwell made millions of dollars of intercompany transfers. Many of these transfers were effectuated by Aboff with the additional signature of one of the other two authorized signatories for PH(US)I. Aboff remained president and chairman of the board of PH(US)I throughout 1992, in contradistinction to what occurred with the public side, which will be discussed shortly.

C. The Acquisition of OAG, Thomas Cook, and Macmillan

In late 1988, MCC made two major U.S. acquisitions, purchasing Official Airlines Guide, Inc. (now known as MCC GAO, Inc. and defined earlier in this opinion as "OAG") from Dun & Bradstreet, and successfully tendering for the stock of Macmillan, the well-known publishing company, in a hostile takeover. These two companies and their subsidiaries constituted about eighty percent of the value of the public side at the time of MCC's bankruptcy filing. Maxwell Macmillan Realization Liquidating Trust v. Aboff (In re Macmillan), 186 B.R. 35, 38 (Bankr.S.D.N.Y. 1995).

When MCC acquired OAG from Dun & Bradstreet, David Shaffer, OAG's president, agreed to remain, undertaking the additional duty of managing MCC's U.S. companies. Following the Macmillan acquisition, Shaffer assumed a management role in that company as well. In April 1989, Shaffer was appointed group vice president of the so-called Electronic Publishing Group, which comprised all those publishing companies in the scientific, technical, and medical areas. The Electronic Publishing Group was a division of the Maxwell businesses; the name has no legal significance. By March 1990, Shaffer had been appointed president and chief operating officer of Macmillan, where he remained until the publishing business was sold by MCC in December 1993 as part of the latter's reorganization.

At the time of OAG's acquisition, MCC also obtained from Dunn & Bradstreet an option to purchase a separately incorporated travel agency, Thomas Cook Travel, another of the entities managed by David Shaffer. MCC did not exercise the option, but instead assigned it to the private side, which purchased Thomas Cook Travel in April 1989, renaming it TCTI, Inc. ("TCTI").⁴ Aboff worked on this acquisition on behalf of the private side. Because of his prior involvement with Thomas Cook Travel, Shaffer agreed to become a director of and was consulted regarding TCTI, although he was not charged with operating the business.

D. Aboff's Role Following the Acquisitions

From the end of 1988 through the early part of 1989, Aboff worked on the integration of Macmillan into MCC, which was structured so that MCC, N.A. was merged into Macmillan, with Macmillan becoming a subsidiary of MCC. On this assignment, Aboff reported directly to Robert and Kevin Maxwell. His salary came from sources other than Macmillan. Operations of the related public side companies were moved into Macmillan's headquarters at 866 Third Avenue in New York City ("the Third Avenue offices"). Aboff moved to the same address.

In the spring of 1989, Aboff was assigned by the Maxwells to assist with the Electronic Publishing Group, reporting to Shaffer, its head. The Electronic Publishing Group included OAG, TCTI, Pergamon Press and those companies' subsidiaries. Soon after, finding it difficult to describe the diverse companies reporting to him, Shaffer coined the name "Maxwell/Macmillan Group," a title which,...