In re Monroe
| Decision Date | 02 February 2004 |
| Docket Number | Bankruptcy No. 00 B 25718.,Adversary No. 01 A 00583. |
| Parties | In re James E. MONROE and, Taylor M. Monroe, Debtors. CFC Wireforms, Inc., Plaintiff v. James E. Monroe and Taylor M. Monroe, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Samuel G. Levin, Hinshaw & Culbertson, Lisle, IL, for Plaintiff.
Harold M. Saalfeld, Chicago, IL, for Defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This Adversary proceeding relates to the filing by Mr. James Monroe ("Debtor" or Monroe") and Ms. Taylor Monroe under Chapter 7 of the Bankruptcy Code. Prior to that filing, Monroe was president of an Illinois corporation known as Technology Resources, Inc. ("TRI"), a commercial lessor and financier of heavy duty manufacturing machinery. A former customer of TRI, Plaintiff CFC Wireforms, Inc., filed this action to bar dischargeability of debt under 11 U.S.C. § 523(a)(2) and § 523(a)(4) for funds advanced for the purpose of leasing and financing certain machinery. Following trial, the Court now makes and enters the following Findings of Fact and Conclusions of Law, pursuant to which judgment is separately entered in favor of Defendant James Monroe.
CFC Wireforms, Inc. filed this Adversary against Mr. Monroe and Ms. Taylor Monroe alleging fraud, false pretenses and false representations under 11 U.S.C. § 523(a)(2) (Count I), fraud or defalcation in a fiduciary capacity, embezzlement or larceny under § 523(a)(4) (Count II), and fraudulent conveyance under § 548 (Count III). After CFC rested its case-in-chief, Debtors made a motion for judgment on partial findings under Rule 52(c) Fed.R.Civ.P. [Rule 7052 Fed.R.Bankr.P.]. Findings of Fact and Conclusions of Law were recited in open court from the bench and a separate judgment order was entered in favor of both Mr. and Ms. Monroe as to Count III, and Ms. Monroe was then dismissed from this Adversary proceeding. See Judgment Order — Count III, May 28, 2003. The parties proceeded to the conclusion of trial against Mr. Monroe under Counts I and II. Findings of Fact are based on evidence admitted and stipulation of the parties as to uncontested facts, and pertain only to Counts I and II.
1. CFC Wireforms, Inc ("CFC") is an Illinois corporation located in Batavia, Illinois and manufactures various metal products and machinery components.
2. In late 1993 or early 1994 CFC entered into discussions with an equipment supplier, North America OMCG ("OMCG"), for OMCG to custom manufacture a commercial stamping machine called the CNC-20. Stipulation of Uncontested Facts at 2 ¶ 8. As the parties negotiated the pricing and specifications of the CNC-20, OMCG referred TRI to CFC as an entity that could provide assistance to CFC with needed financing.
3. From 1980 to 1995, TRI was an Illinois corporation in the business of leasing and financing heavy duty manufacturing machinery. Def.'s Am. Prop. Findings of Fact and Concl. of Law at 3 ¶ 2. At all times mentioned here, TRI had three employees, Debtors James Monroe and his wife Taylor Monroe, and a secretary. Monroe Tr. 5/13/03 at 1451.
4. TRI's business involved two transactions. First, TRI would obtain financing for equipment selected by one of its customers from an equipment supplier, then TRI and the equipment supplier would enter into a contract providing for purchase and delivery of the machinery. Second, TRI would enter into an agreement to lease the equipment to its customer. The lease agreement would include the total principal required to finance the equipment, and TRI would assign its payment right under the lease to a financial institution. TRI realized profit from the difference between the favorable interest rate charged to it and the higher interest rate charged to the customer by the financial institution. Monroe Tr. 5/27/03 at 66-68.
5. At times mentioned herein, Monroe served as TRI's president and had exclusive decision-making authority for the transaction with CFC, as admitted in Def.'s Prop. Findings of Fact and Concl. of Law at 2 ¶ 1. TRI agreed to assist CFC in securing financing, and on December 23, 1994 Monroe met with a representative from CFC, Mr. Frank Czekajlo ("Czekajlo"). At that meeting, Monroe explained the mechanics of TRI's business and the provisions of TRI's standard contract agreement, termed a "Quotation and Agreement." Monroe Tr. 5/22/03 at 138. Mr. Czekajlo signed the Quotation and Agreement on CFC's behalf on December 23, 1994. Pl.'s Trial Exh. 12.2
6. The Quotation and Agreement stated that the total cost of the CNC-20 would be $435,000, paid in installments each in the amount of $7,961.18 over a period of sixty months, but further provided that if the cost of machinery changed a corresponding adjustment in payments would be made. The parties agreed upon a funding date prior to January 30, 1995. The agreement also required a $68,000 payment described by the parties as a prepaid "purchase option." Pl.'s Trial Exh. 12.
7. The Quotation and Agreement included several contingencies that had to be fulfilled before the agreement became binding including TRI's approval of CFC's credit, disclosure of certain documentation, a guaranty of the parties, and acceptance of an eventual purchase order by the equipment supplier. The agreement also required a deposit of the first and last regular monthly payments, plus a $100 credit documentation and filing fee, a total of $31,944.72 ("deposit funds"). Pl.'s Trial Exh. 12.
8. Pursuant to the agreement, CFC tendered the "deposit funds" and the "purchase option" payment to TRI. Monroe deposited the "deposit funds" in TRI's operating account at First American Bank. Pl.'s Trial Exh. 64. Monroe deposited the "purchase option" funds in a second TRI account at Park National Bank ("Park Bank"). Pl.'s Trial Exh. 21.
9. While CFC and OMCG continued negotiations as to the final specifications and pricing of the CNC-20, Monroe submitted a purchase order on CFC's behalf to OMCG for the machinery. OMCG received the purchase order and the purchase option funds on January 4th and January 10th, 1995. Stip. Uncontested Facts at 2 ¶¶ 14-17.
10. Upon completion and delivery of the CNC-20, it was originally intended by the parties that TRI and CFC enter into a lease agreement whereby TRI would hold title to the CNC-20 in exchange for periodic payments specified in the Quotation and Agreement. TRI was to assign its rights in the lease payments to Park Bank. However, CFC and TRI never entered into a lease agreement.
11. TRI further intended that Park Bank would provide long term financing for the CNC-20 through a loan. TRI submitted a financing proposal to Park Bank, and on December 22, 1994, the Bank's Executive and Loan Committee approved the proposal subject to review of additional financial statements and the acceptance of a specified interest rate. Pl.'s Trial Exh. 60; Gorski Tr. at 91. However, Park Bank did not ultimately provide financing for CFC's purchase of the CNC-20. No final loan agreement, note, or related documents were approved or executed.
12. After receiving the initial installment payments, OMCG started production of the CNC-20 according to CFC's specifications.
13. However, production of the CNC-20 did not proceed as planned. On October 19, 1995 CFC sent a letter to OMCG expressing frustration with delays in the progress of the machinery, cancelling the purchase order and requesting a return of all funds paid with the purchase order. Pl.'s Trial Exh. 25. CFC subsequently requested the return of the deposit funds from TRI. TRI refused to make any repayment. Czekajlo Tr. 5/22/03 at 23-26.
14. CFC's cancellation notice prompted OMCG to file a breach of contract cause of action against CFC and TRI in an Illinois court. Pl.'s Trial Exh. 28. CFC filed in that case an amended third party complaint against TRI seeking return of the deposit funds. Pl.'s Trial Exh. 31.
15. On January 19, 2000 OMCG and CFC reached a settlement and dismissed OMCG's state court complaint with prejudice. Pl.'s Trial Exh. 34. The settlement agreement provided for a final purchase price for the CNC-20. CFC requested that TRI resume efforts to obtain financing, but by this time, TRI had undergone severe financial difficulties and had been dissolved by the Secretary of State in 1999. Pl.'s Trial Exh. 49.
16. CFC took possession of the CNC-20 sometime in January 2000. Czekajlo Tr. 5/22/03 at 23-26 17. CFC's settlement with OMCG did not release TRI from the state court litigation. On February 20, 2000 CFC amended its complaint seeking to hold Monroe personally liable for the return of the deposit funds. Pl.'s Trial Exh. 36.
18. James Monroe and Taylor Monroe filed their joint bankruptcy petition under Chapter 7 of the Bankruptcy Code on September 9, 2000. Their filing stayed the state court proceedings.
19. Fact statements set forth in the discussion below as to Matters in Dispute, and in the Conclusions of Law, will stand as additional Findings of Fact.
CFC contends that the main basis of its agreement with TRI was that the deposit funds would be refundable in the event of unsatisfactory performance by OMCG. Pl.'s Proposed Findings at 5 ¶ 23. CFC did not want to commit itself to a binding contractual agreement until OMCG produced a workable CNC-20. Pl.'s Post-Trial Prop. Findings of Fact and Concl. of Law at 5 ¶ 23. Accordingly, CFC claims that it formed the agreement in reliance on express, oral representations made by Monroe that if the CNC-20 was never completed, or if TRI were unable to obtain financing or the parties did not enter into the lease agreement, the deposit funds, would be refunded. Pl.'s Post-Trial Prop. Findings of Fact and Concl. of Law at 3 ¶ 11. As a result of Monroe's said representations, CFC asserts that the deposit was...
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