In re Tenn-Ero Corp.
| Decision Date | 15 October 1981 |
| Docket Number | 75-1521-HL.,Bankruptcy No. 75-1520-HL |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts |
| Parties | In re TENN-ERO CORPORATION, Avon Sole Company, Bankrupts. PENSION BENEFIT GUARANTY CORPORATION, Plaintiff, v. TENN-ERO CORPORATION, Avon Sole Company and Herbert C. Kahn, Trustee, Defendants. PENSION BENEFIT GUARANTY CORPORATION v. OUIMET CORPORATION, Ouimet Stay & Leather Company and Ouimet Welting Company. |
COPYRIGHT MATERIAL OMITTED
Sidney Werlin, Boston, Mass., for trustee.
Herbert C. Kahn, Boston, Mass., trustee.
Friedman & Atherton, Richard G. Maloney, Maloney, Williams & Baer, P.C., Boston, Mass., for Ouimet Group.
Paul F. Ware, Goodwin, Proctor & Hoar, Boston, Mass., for PBGC.
On remand of these proceedings, counsel have been given an opportunity to submit additional evidence and have all declined; they have submitted additional memoranda referencing previously filed briefs and pertinent portions of the record. The Court has examined the material submitted, reviewed the transcript and makes the following findings and rulings.
As a threshold issue1 the Court must determine the standard of review to be applied to the determinations of the Pension Benefit Guaranty Corporation (PBGC) of the date and method to be used in valuing the combined net worth of the Ouimet Group as previously defined by the Court of Appeals. Pension Benefit Guaranty Corp. v. Ouimet Corp., 630 F.2d 4 (1st Cir. 1980) cert. denied 450 U.S. 914, 101 S.Ct. 1356, 67 L.Ed.2d 339 (1981) as well as the ultimate net worth of the group. PBGC by statute (29 U.S.C. § 1362) cannot assert its admitted claim of $552,339.64 against more than 30 percent of the net worth of the group. Therefore, in order for PBGC to be entitled to collect its entire claim, the net worth of the group must equal or exceed $1,841,132.10.
This Court is limited by law in the extent it can review the determination of the PBGC. The determination by PBGC to use December 31, 1974 as a valuation date under § 4062(b)(2)2 of the Employment Retirement Income Security Act (ERISA) and its determination that a fair market valuation best reflects the employer's economic condition under § 4062(c)(1)3 of ERISA cannot be reviewed by the Court, since they each fit into the standardless discretion exception to judicial review for administrative agencies. Were it open, I would neither find these agency choices an abuse of discretion nor would I intend to imply that they were the only justifiable choices. Davis Associates, Inc. v. Secretary, Dept. of Hous. & U.D., 498 F.2d 385 (1st Cir. 1974); Hahn v. Gottlieb, 430 F.2d 1243 (1st Cir. 1970).
This Court does, however, have a limited right to review PBGC's determination of the net worth of the controlled group. ERISA does not require an agency hearing prior to the agency determination of net worth. PBGC, on page 31 of their initial Memorandum of Law, conceded the employer's right to trial de novo and, in fact, a 12-day trial was held.
The instant case is similar to those in which the Supreme Court has held that de novo court review of agency action satisfies due process. The PBGC, without any prior evidentiary hearing, assessed a liability against the Bankrupts and the Ouimet Group. To enforce collection of that assessment, the instant court action has been necessary. 29 U.S.C. § 1368(d). Therefore, this Court, in offering all parties the opportunity to present their cases, must consider the evidence presented de novo. Ewing v. Mytinger & Casselberry, 339 U.S. 594, 70 S.Ct. 870, 94 L.Ed. 1088 (1950); Lichter v. United States, 334 U.S. 742, 68 S.Ct. 1294, 92 L.Ed. 1694 (1948) Nickey v. Mississippi, 292 U.S. 393, 54 S.Ct. 743, 78 L.Ed. 1323 (1934).
In light of the de novo hearing requirement, the Court's scope of review of the PBGC's action is fairly broad. To the extent necessary to its decision, the Court "shall decide all relevant questions of law, interpret constitutional and statutory provisions and determine the meaning or applicability of the terms of an agency action." APA § 10(e), 5 U.S.C. § 706. The Court shall set aside an agency action if it is, inter alia, arbitrary, capricious, contrary to constitutional right or "unwarranted by the facts to the extent that the facts are subject to a trial de novo by the reviewing court." Id.
The standards for this Court's scope of review must take into account that the agency has already acted, albeit without a hearing. Even the Court's de novo reception of evidence cannot ignore the agency's findings. Thus, unless the weight of the evidence presented in the de novo hearing compels a contrary finding, the Court must uphold the agency action. It is the burden of the aggrieved party to establish that the agency action complained of violates statutory or procedural requirements or is unwarranted according to the weight of the evidence. Redmond v. United States, 507 F.2d 1007 (5th Cir. 1975).
The evidence on fair market value was hotly contested and like most valuation evidence, left the Court at times wondering if both sides were dealing with the same companies since the experts seemed to have no common ground. The valuation process was best described by the Ouimet Group expert as not a "scientific exercise but a matter of judgment." He characterized his two approaches not in technical terms such as capitalization of a projected earnings stream, (which really magnifies the speculation by multiplying an assumption by a guess) comparable company analyses, weighted average of prior earnings ratios, ratios of prior years' profitability trends, or discounted cash flow, all calculated to imply a mathematical provability, but simply as a practical businessman's approach and a theoretical approach. How much more appealing is Mr. Spaulding's approach in determining ratios and value:
Valuation is a problem faced by all courts and daily by bankruptcy courts where it is recognized that an estimate without "mathematical certitude" is all that can be achieved in determining future earning capacity for valuation purposes. In re King Resources Co., 651 F.2d 1326 (10th Cir. 1980).
In the matter of arriving at fair market value of ongoing or liquidating business, this Court would doubt that in 1976 it had less expertise than this newly created agency with its extremely inexperienced expert, Mr. Fults, who apparently got most of his opinions on comparable price-earnings ratios and projected earnings, as of December 31, 1974, from conversations with a former securities analyst and, admittedly, made no attempt to find out what the market indicators anticipated the future earnings to be. Were the Court free to determine this matter without being required to support the administrative agency as long as all of the evidence would at least warrant its determination, the Court would reach a somewhat different result.
In a matter as nebulous as valuing a closely held nonpublicly traded, relatively small business, I cannot say there isn't sufficient evidence to warrant the method and result arrived at by Mr. Fults and, therefore, the agency determination in all but one aspect is warranted by the record. Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965); Red Lion Broadcasting Co. v. F.C.C., 395 U.S. 367, 381, 89 S.Ct. 1794, 1801, 23 L.Ed.2d 371 (1969); Pension Benefit Guaranty Corporation v. Diamond Reo Trucks, Inc., 509 F.Supp. 1191, 1195 (W.D.Mich.1981). Because I find Mr. Spaulding more persuasive when he is not talking about book value, his conclusions as to fair market value are substantially closer to how I might be inclined to find.
The Ouimet Group suggests that various provisions give the Bankruptcy Court broader powers to determine for itself claims against the estate, and they point to the tax claim cases. Helvering v. Taylor, 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623 (1935); Pizzarello v. United States, 408 F.2d 579 (2nd Cir. 1969); Compton v. United States, 334 F.2d 212 (4th Cir. 1964). To be even more persuasive, they might have pointed to the discharge cases where state court and administrative agency determinations are sometimes discarded by the Bankruptcy Court based on the doctrine of exclusive control of the bankrupt's property, and the concept of the debtor's fresh start. Perez v. Campbell, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971); Brown v. Felson, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979); Comm. of Massachusetts v. Hale, 618 F.2d 143 (1st Cir. 1980); In re Winters, 586 F.2d 1363 (10th Cir. 1978); In re Jack Eskenazi, 6 B.R. 366, 6 B.C.D. 1140 (9th Cir. Bkrtcy.App. Panel 1980). These cases are the progeny of the Supreme Court's decision in Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966). As appealing as that approach is, it is not applicable to the present problem. If the contest existed as to the agency claim of $552,339.64, that line of cases might well apply; however, the claim is conceded, and the issue presented concerns the nonbankruptcy ameliorating provision of ERISA which limits recovery to 30% of net worth of the control group. 29 U.S.C. § 1362.
In one area, Mr. Fults' evaluation is not supported by the evidence and cannot stand; that is the failure to apply any discount for the contingent liabilities. The negative net worth, if there is such a term, does not get subtracted because we are not concerned with accountant's numbers, but the likely effect of the liabilities in the marketplace. Whatever the bankrupt companies' losses, they had already occurred and would not directly effect asset value. See Pension Benefit Guaranty Corporation v. Diamond Reo Trucks, Inc., 509 F.Supp. 1191 (W.D.Mich.1981). Note, however, that case is at least distinguishable in that the liquidating company was already in bankruptcy on PBGC's chosen date. Here, the date on which value must be...
To continue reading
Request your trial