In re Morris Plan Co. of Iowa, Bankruptcy No. 85-01852C.
| Decision Date | 06 June 1986 |
| Docket Number | Bankruptcy No. 85-01852C. |
| Parties | In re The MORRIS PLAN COMPANY OF IOWA, Debtor. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Northern District of Iowa |
Harry D. Dixon, Jr., of Dixon, Dixon & Minahan, Omaha, Neb. and Carl W. Schuettpelz, Cedar Rapids, Iowa, for debtor-defendant.
James W. Hall and Joe H. Harris, of Hall & Irvine, Cedar Rapids, Iowa, for plaintiffs.
Michael G. Helms, of Schmid, Ford, Mooney & Frederick, Omaha, Neb. and Minor Barnes, of Pickens, Barnes & Abernathy, Cedar Rapids, Iowa, for Peter Bezanson.
John W. Costello, of Arvey, Hodes, Costello & Burman, Chicago, Ill., Thomas J. Wilkinson, Jr., of Wilkinson & Van Horne, Cedar Rapids, Iowa, for Unsecured Creditors' Committee.
MEMORANDUM re: ORDER Overruling Motion to Dismiss
The Motion to Dismiss filed by Michael W. Unertl, Deborah J. Unertl, Marvin G. Sutton, Sr., and Norma J. Sutton, came on for hearing before the Court on the 18th day of April, 1986. The Court heard evidence presented at the hearing on the Motion to Dismiss, and requested that the parties submit briefs. Those briefs have now been filed and the Court herewith makes its Order on the Motion to Dismiss. The following shall constitute the Findings of Fact, Conclusions of Law and Order pursuant to F.R.B.P. 7052. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
The Motion to Dismiss filed by these creditors sets forth two grounds for dismissal. First, the Movants argue that the Debtor, The Morris Plan Company of Iowa ("Morris Plan of Iowa"), is not eligible to file for reorganization pursuant to 11 U.S.C. § 109(b)(2). Alternatively, the Movants allege that the filing by Morris Plan of Iowa was in "bad faith" and that therefore the case should be dismissed.
The evidence shows that Morris Plan of Iowa is a wholly owned subsidiary of The Morris Plan Company. The Morris Plan Company is a wholly owned subsidiary of MorAmerica Financial Corporation. MorAmerica Financial Corporation was formed in 1958 as a financial holding company which has as subsidiary corporations a number of different financial entities. These entities include The Morris Plan Company, which has as its subsidiaries The Morris Plan Company of Iowa (the Debtor herein), as well as The Illinois Morris Plan Company, The Morris Plan Company of Wisconsin, and MorAmerica Life Insurance Company. Other subsidiaries of MorAmerica Financial Corporation include a mortgage company, an insurance agency, a venture capital and investment company, and a subsidiary owning industrial thrifts in Nebraska and Iowa. As of the date of filing, MorAmerica had total liabilities of over $75,000,000, and several thousand creditors.
MorAmerica Financial Corporation is owned by the Peter Bezanson family. Mr. Bezanson, who founded the company in 1958, personally owns 98 percent of the stock, with the other two percent owned by his immediate family members. Mr. Bezanson is Chairman of the Board of both MorAmerica Financial Corporation and Morris Plan of Iowa.
Morris Plan of Iowa is an industrial loan corporation organized under Chapter 496A, Code of Iowa. The company was formed in 1916 and has operated as an Iowa industrial thrift continuously since that date. Mr. Bezanson became general manager of the company in 1951. Thereafter, he acquired all the stock. The company became a subsidiary of The Morris Plan Company as a result of the corporate reorganization when MorAmerica was formed. At the date of filing, Morris Plan of Iowa had nearly $90,000,000 in liabilities and over 15,000 creditors.
Industrial thrift companies, such as Morris Plan of Iowa, issue securities and thrift certificates to individuals and corporations who loan money to the thrift institution. These certificates include demand thrift certificates.
Demand thrift certificates allow the customer to redeem all or part of the certificate upon demand. The President of Morris Plan of Iowa, John Wolfe, testified that the certificates gave the company the right to withhold payment for up to 60 days from the date redemption was demanded. However, Morris Plan of Iowa had never exercised that right prior to filing its Chapter 11 Petition.
Industrial thrifts are prohibited by statute and regulation from accepting deposits. This prohibition precludes Morris Plan of Iowa from issuing demand accounts, similar to checking accounts. In fact, Morris Plan of Iowa had attempted to establish NOW accounts (Negotiable Order of Withdrawal accounts), which are a form of demand account, in the 1982-1983 time period. Due to the statutory prohibition against the acceptance of deposits, the Auditor's office required Morris Plan to discontinue that type of activity.
The money received by Morris Plan of Iowa in return for issuance of thrift certificates is then loaned to individuals and businesses. These loans are principally consumer-type loans for automobiles, real estate, and household goods. The company also engages in a certain amount of small commercial loan activity.
In addition, Morris Plan of Iowa over the years has loaned money to other affiliates of MorAmerica. These loans would be made by loaning money to its parent corporation, The Morris Plan Company. The Morris Plan Company would in turn loan money either to the parent organization, MorAmerica, or down to the other subsidiaries of The Morris Plan Company, those subsidiaries being The Illinois Morris Plan Company, The Morris Plan of Wisconsin, Inc., and MorAmerica Life Insurance Company. In recent years these loans from Morris Plan of Iowa to The Morris Plan Company and other affiliate corporations ranged from a high of $56,212,378 as of the end of the fiscal year ending September 30, 1981, to a low of $35,503,144 as of the end of the fiscal year ending September 30, 1984. As of September 30, 1985, those loans had increased to $49,955,823. The testimony shows that of the approximately $50,000,000 in loans made by Morris Plan of Iowa to The Morris Plan Company, $15,000,000 had been loaned by The Morris Plan Company to its subsidiary companies, while the remaining $35,000,000 had been loaned to the parent corporation, MorAmerica.
The record is unclear as to the entire explanation for the increase of indebtedness from approximately $35,000,000 in 1984 to $50,000,000 in 1985. However, some of the increase was attributable to the fact that MorAmerica had also issued investments to the general public and used the proceeds from those investments to fund its various operations. As of October 1, 1984, MorAmerica discontinued issuance of those debt securities and redeemed the outstanding securities as they became due. The security holders were advised that they could invest the monies received through the redemption of those certificates in the debt securities issued by Morris Plan of Iowa. Consequently, Morris Plan of Iowa was required to loan more money to MorAmerica (through The Morris Plan Company) in order for MorAmerica to have the necessary liquidity to redeem the debt securities as they became due.
At the same time, MorAmerica was experiencing financial difficulty with its mortgage company subsidiary. An undetermined amount of money was loaned by MorAmerica to that subsidiary in the year prior to the Chapter 11 filing.
In February, 1985, state regulators were becoming uncomfortable with the Morris Plan of Iowa and MorAmerica financial situation. The audit report for the fiscal year ending September 30, 1984 had not been received as of that date, and the State Auditor was aware of the fact that MorAmerica and Morris Plan of Iowa had changed auditors and were having difficulty in preparing the report. In April, 1985, the State Auditor demanded and began to receive monthly financial reports on the status of both companies. Subsequently, it became clear that MorAmerica would have difficulty meeting its loan obligations to the subsidiary corporations. As a consequence, the filing of a Chapter 11 proceeding for MorAmerica became a possibility.
These events culminated in a meeting held on August 30, 1985. In attendance at that meeting were representatives of the State Auditor's office, including the Auditor and Mr. William Hawthorne, Director of the Financial Institutions Division of the Auditor's office, as well as representatives of Morris Plan of Iowa and MorAmerica. The alternatives available to both companies were discussed in great detail. The parties were concerned that the two companies were so intertwined in the minds of the general public that a filing by MorAmerica would result in a run on the assets of Morris Plan of Iowa.
Liquidation of Morris Plan of Iowa was considered as an alternative, but was rejected because the Auditor's office retained confidence in the management abilities of The Morris Plan of Iowa management, and due to the Auditor's belief that reorganization would provide the best alternative for maximizing recovery to the creditors and treating all creditors fairly.
The Auditor's office was also very concerned about the protracted time period which would be required if the Auditor were to close Morris Plan of Iowa and commence liquidation. The Auditor's office had recent experience with the reorganization of an industrial thrift known as American Securities. The Auditor's office felt that bankruptcy court reorganization had been a very workable solution to those problems and was very hopeful that the same type of solution could be worked out for Morris Plan of Iowa.
Thus, the conclusion reached at the meeting, which was supported and endorsed by the Auditor's office, was to have both companies, that is, MorAmerica and Morris Plan of Iowa, file for Chapter 11 reorganization. It was the opinion of the Auditor's office that such a filing would be the best way to protect all creditors, prevent a run on Morris Plan of Iowa assets and allow Morris Plan to treat all creditors fairly and equally. MorAmerica and Morris Plan of Iowa filed their Chapter 11 petitions that...
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