In re Sawtelle Brothers Industries, Inc., Case No. 05-30233-JNF (D. Mass. 4/24/2008)
| Decision Date | 24 April 2008 |
| Docket Number | Adv. P. No. 06-1227.,Case No. 05-30233-JNF. |
| Parties | In re SAWTELLE BROTHERS INDUSTRIES, INC., Chapter 7 Debtor. STEWART F. GROSSMAN, CHAPTER 7 TRUSTEE, Plaintiff, v. CHESTER M. SAWTELLE and EASTERN BANK, TRUSTEE, under Stock Purchase Agreement dated August 27, 1981, as amended, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
The matter before the Court is "Plaintiff's Motion for Partial Summary Judgment" (the "Motion") filed by Stewart F. Grossman, as Chapter 7 trustee (the "Trustee") of Sawtelle Brothers Industries, Inc. (the "Debtor"), on May 31, 2007 in connection with the Complaint filed by him against Chester M. Sawtelle ("Mr. Sawtelle"), the now deceased sole preferred stockholder of the Debtor, and Eastern Bank ("Eastern") in its capacity as a successor trustee under a certain Stock Purchase Agreement dated August 27, 1981 and later amended on May 24, 1991.
The Complaint contains twelve counts as follows: (1) Count I entitled "Turnover Against Eastern Bank-Bankruptcy Code § 542;" (2) Count II entitled "Avoidance of Lien Against Mr. Sawtelle-Bankruptcy Code § 544;" (3) Count III entitled" Determination of Secured Status Against Mr. Sawtelle-Bankruptcy Code § 506;" (4) Count IV entitled "Fraudulent Transfer Against Mr. Sawtelle-Bankruptcy Code § 548;" (5) Count V entitled "Fraudulent Transfer Against Mr. Sawtelle-Bankruptcy Code § 544(b);" (6) Count VI entitled "Recovery of Fraudulent Transfers Against Mr. Sawtelle -Bankruptcy Code § 550;" (7) Count VII entitled "Declaratory Judgment Against Mr. Sawtelle and Eastern Bank-28 U.S.C. § 2201;" (8) Count VIII entitled" Declaratory Judgment Against Mr. Sawtelle and Eastern Bank-28 U.S.C. § 2201;" (9) Count IX entitled "Declaratory Judgment Against Mr. Sawtelle-28 U.S.C. § 2201;" (10) Count X entitled" Declaratory Judgment Against Eastern Bank-28 U.S.C. § 2201;" (11) Count XI entitled "Declaratory Judgment Against Eastern Bank-28 U.S.C. § 2201;"1 and (12) Count XII entitled "Declaratory Judgment Against Mr. Sawtelle-28 U.S.C. § 2201."
Through his Motion, the Trustee seeks summary judgment on Counts I through IV and VII through XII and on a counterclaim filed by Eastern. In support of his Motion, the Trustee filed a Statement of Undisputed Facts, to which neither defendant filed a substantive objection, and the affidavits of Craig Jalbert (the "Jalbert Affidavit"), the Trustee's accountant, and Pamela A. Harbeson, counsel to the Trustee. Mr. Sawtelle died on June 16, 2007,2 following the filing of the Complaint,3 and his probate estate (the "Sawtelle Estate") filed an objection to the Motion, supported by the Affidavit of Stephen W. Howe (the "Howe Affidavit").4 The Court heard the Motion and the objection 01 January 15, 2008. Eastern did not file an objection to the Motion. Nevertheless, it appears I at the January 15th hearing. Based upon the pleadings, affidavits, and the Trustee's Statement of Undisputed Facts, to which no party substantively objected, the Court now makes the following findings of fact and rulings of law pursuant to Fed. R. Bankr. P. 7051.
On August 27, 1981 the Debtor executed a Stock Purchase Agreement with its then stockholders, Mr. Sawtelle, M. Francis Higgins, and Joel McKoan, as well as EssexBank, as trustee, with respect to certain life insurance policies on the lives of the stockholders. The parties amended the agreement by an" Amendment Agreement" dated May 24, 1991 (the "1991 Amendment") by and among the Debtor, Sawtelle Brothers, Inc., the Debtor's subsidiary ("Brothers"), the surviving stockholders of the Debtor, Mr. Sawtelle and M. Francis Higgins,5 as well as Eastern which replaced EssexBank as trustee (as amended, the "Agreement"). The Agreement imposed certain restrictions on the transfer of shares of the Debtor's stock and provided for disposition of the shares upon the death of a stockholder. The Agreement created a trust under which Eastern, as trustee, nominally owned, maintained and administered certain life insurance policies on the lives of the stockholder, the premiums of which were to be paid by the Debtor.6 The cash surrender or death benefit value of the policies was to be used to fund the Debtor's redemption of the stockholders' equity in the event a stockholder died or, pursuant to a right of first refusal, wished to transfer his shares to a third party during his lifetime. No separate trust document exists regarding Eastern's rights and duties as a trustee with respect to the life insurance policies, and the Agreement, as amended, represents the entire understanding among the parties regarding the subject matter. The pertinent provisions of the Agreement are as follows:
Section 4. Purchase of Stock in Event of Death
In the event of the death of a Stockholder during the term of this Agreement, the [Debtor] shall be obligated to purchase and the legal representatives of the estate of such deceased Stockholder shall be obligated to sell, all of the Stock owned by such Decedent on the Applicable Date. The purchase price for each share of Stock so purchased shall be determined as provided in Article 5 of this Agreement.7
(b) [T]he purchase price of each share of preferred stock so purchased shall be its par value.
(a) The payment of the purchase price due to the Selling Stockholder shall be made as follows: ... (ii) If the sale is pursuant to Article 4 [] of this Agreement, an aggregate amount equal to the sum of (A) the proceeds of any Life Insurance [as defined in Article 8] received by [Eastern] by reasons of the Decedant's [sic] death and (B) the Side Fund [as defined in Article 8] principal balance respecting such Stockholder, or an amount equal to the total purchase price, whichever is smaller shall be paid by [Eastern] at the closing... The [Debtor] shall be discharged from its obligations hereunder to the extent of said payment made by [Eastern].
(a) In order to fund its obligations hereunder, the Corporation shall, to the extent such obligations exceed $10,000.00 respecting any Stockholder, enable [Eastern] to acquire and maintain in force a policy or policies of life insurance (the "Life Insurance") on each such Stockholder ... Such policies shall be maintained in such amounts that the net death benefits payable upon the death of the insured Stockh older when combined with the Side Fund principal balance respecting such Stockholder, shall equal or exceed the then purchase price hereunder applicable to his shares, (emphasis supplied). (i) Additional policies of Life Insurance at the direction of the [Debtor,] shall be applied for by [Eastern] when required hereunder on the Stockholders. (ii) As to each policy of Life Insurance, the [Debtor] and [Eastern] shall take necessary steps to:
A. Vest all right, title and interest therein in [Eastern]; and
B. Designate [Eastern] as the sole payee of any benefits thereunder; and
C. Make the policy irrevocably non-assignable and non-transferable to any person, firm or corporation other than the insured.
(c) The [Debtor] agrees to pay when due all premiums on Life Insurance policies taken out pursuant to this Agreement and interest on all outstanding policy loans ....
(d) In the event that the [Debtor] directs [Eastern] to purchase additional Life Insurance on any Stockholder, each Stockholder hereby agrees to co-operate fully by performing all the requirements of the insurer which are necessary conditions preceding the issuance of the insurance policies....
(e) [I]f this Agreement terminates before the death of a Stockholder, then such Stockholder shall have the option to purchase any policy or policies of Life Insurance owned by [Eastern], from [Eastern], for the price and upon the terms and conditions hereinafter set forth.
(i) The option to purchase such policy or policies shall be exercisable within a period of thirty (30) days following the termination of this Agreement, but not later than any closing at which such Stockholder is to sell or dispose of all of his shares in the [Debtor].
(ii) If such Stockholder desires to exercise his option to purchase the Life Insurance, he shall give written notice to the [Debtor], prior to the expiration of the option period, of his intention to exercise the option.
(iii) The price which the Stockholder exercising the option shall pay to purchase the Life Insurance policy or policies shall be the difference between:
A. The sum of:
(I) the cash surrender value thereof, if any, on the date of the closing..., plus
(II) The pro rata portion of any premium paid prior to such date which covers a period extending beyond such date; plus
(III) Any dividend or dividend accumulations.
B. Less the amount of any policy loan and interest thereon then accrued.
(iv) Upon payment of the purchase price to [Eastern], [Eastern] shall deliver to the Stockholder the Life Insurance policy or policies with instruments of assignment...sufficient to transfer ownership of the said policy or policies to the Stockholder, and pay to the [Debtor] the proceeds received from the Stockholder, (emphasis added).
Section 9. Powers and Duties of [Eastern)
[Eastern] shall:
(a) Be entitled to reasonable compensation for its services, which shall be paid for by the [Debtor].
(b) Use its best efforts to collect any sums due or owing under the policies of Life Insurance.
(c) Have no responsibility as to payment of the premiums on the Life Insurance Policies and interest on policy loans, other than furnishing the [Debtor] with notice of premiums ....
(d) Not be required to take any steps or institute any proceedings unless and until properly reimbursed and protected against liability....
(h) Be reimbursed for all reasonable expenses, disbursements and advances, including attorney fees,...
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