In re Texans CUSO Ins. Group, LLC
| Decision Date | 02 March 2010 |
| Docket Number | No. 09-35981-BJH-11.,09-35981-BJH-11. |
| Parties | 426 B.R. 194 (2010) In re TEXANS CUSO INSURANCE GROUP, LLC, Debtor. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas |
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Michael R. Rochelle, Scott M. DeWolf, Sean J. McCaffity, Rochelle McCullough LLP, Dallas, TX, for Debtor.
William A. Brewer, III, John W. Bickel, II, Michael J. Collins, Greggory A. Teeter, Bickel & Brewer, Dallas, TX, for Kevin M. Curley.
John Nicholas Schwartz, Toby L. Gerber, Fulbright & Jaworski, L.L.P., Dallas, TX, for Credit Union Liquidity Services, LLC.
On January 3, 2007, Curley sold the assets of Curley Insurance Group, LLC; Heartland Marketing Group, Inc.; KMC Insurance Services, Inc.; NCIS, Ltd.; NCIS Management, Inc. ("NCIS"); CEIS, Ltd.; CEIS Management, LLC; and Galway Financial Services (collectively, "CIG") to Texans CUSO Insurance Group, LLC ("the Debtor") and Texans CUSO Partners, LLC1 under the Amended and Restated Asset Sale and Purchase Agreement ("ARAPA"). Debtor's Ex. 1 ("ARAPA"), at 1-3. Pursuant to the ARAPA, the Debtor assumed the operations of CIG, with Curley to manage and direct those operations as the Debtor's President during a three-year "earn-out" period from January 1, 2007 through December 31, 2009 (the "Earn-Out Period") specified in the ARAPA and in a separate employment agreement (the "Employment Agreement") between the Debtor and Curley. ARAPA, at 13 § 3.1; Debtor's Ex. 6 ("Employment Agreement"), at 2 § 2. The purchase price for CIG was composed of an initial cash payment of $19 million, plus an additional amount of up to $21 million to be paid in three annual earn-out payments (collectively, the "Earn-Out Amount") calculated pursuant to a formula based upon the Debtor's earnings and revenue growth during the Earn-Out Period.2 ARAPA, at 13 § 3.1(a).
On April 27, 2007, less than four months into the first year of operations under these agreements, the Debtor terminated Curley's employment. Curley Ex. 1, at ESTIMATION00001218; Debtor's Ex. 126, at 4. Curley disputed the appropriateness of his termination. Debtor's Ex. 126, at 4. Pursuant to the ARAPA, the parties entered into binding arbitration on this issue (the "Employment Arbitration"), and the arbitrator returned an award on July 8, 2008, finding that Curley had been terminated without cause and was therefore entitled to reinstatement with back pay and benefits, along with pre-judgment interest (the "Employment Arbitration Award"). Debtor's Ex. 126, at 14.
As described in more detail below, from July through September 2008, Curley and the Debtor exchanged a number of communications regarding Curley's reinstatement. During this time, the Debtor also took some actions to prepare for Curley's reinstatement, and delivered to Curley a new organizational chart that indicated certain positions that had before reported to Curley, as the Debtor's President, now reported to the Debtor's Chief Financial Officer. The most hotly contested item between the parties at this time, however, was the Debtor's insistence that Curley address and resolve a number of issues, both from his brief tenure with the Debtor and from on-going business disputes. Curley objected to having to address and resolve these issues as improper conditions on his reinstatement. Ultimately, the Debtor demanded that Curley meet with the Debtor's Board of Managers on September 2, 2008. When Curley failed to appear for the meeting, the Debtor purported to terminate Curley a second time on September 25, 2008. Curley contends that he was never actually reinstated following the Employment Arbitration. On February 29, 2008, while the Employment Arbitration was still on-going, the Debtor informed Curley that its calculation of the earn-out payment for the first year under the ARAPA (the "Year 1 Earn-Out Payment") was zero. Curley objected to the Debtor's calculation and, pursuant to the ARAPA, the parties entered into a separate arbitration proceeding on the issue of the calculation of the Year 1 Earn-Out Payment (the "Accounting Arbitration"). On June 16, 2009, the arbitrator in the Accounting Arbitration issued a determination that the Year 1 Earn-Out Payment due under the ARAPA was $6,282,870.19 (the "Accounting Arbitration Award").
On August 4, 2008, Curley filed suit in state district court to confirm the Employment Arbitration Award and to recover the attorneys' fees he had incurred in connection with the Employment Arbitration (the "State Court Action"), to which Curley later added various other claims, including breach of contract for alleged violations of the ARAPA and the Employment Agreement, and breaches of fiduciary duties by the Debtor. On June 19, 2009, Curley also filed an application in the State Court Action to confirm the Accounting Arbitration Award. The parties were set for trial in the State Court Action on Curley's claims in relation to the Employment Arbitration Award, the Accounting Arbitration Award, the ARAPA, and the Employment Agreement on November 9, 2009.
On September 5, 2009, the Debtor filed a voluntary petition under Chapter 11 in this Court, thereby commencing this bankruptcy case (the "Case"), which stayed the State Court Action. At a hearing held on November 11, 2009, the Court granted the Debtor's motion to estimate the amount of Curley's claim for purposes of allowance and voting under 11 U.S.C. § 502(c), and entered an Order on December 21, 2009 that detailed the estimation procedures ultimately agreed upon by the parties (the "Estimation Procedures").
Pursuant to the Estimation Procedures, the parties agreed that this Court would rule on certain of the issues pending in the State Court Action including: (i) whether the Accounting Arbitration Award should be confirmed, and (ii) whether Curley was entitled to recover the attorneys' fees he incurred in enforcing his rights under the Employment Agreement. In separate Memorandum Opinions and Orders issued on December 30, 2009 and January 11, 2010, respectively, this Court (i) confirmed the Accounting Arbitration Award, concluding that Curley was entitled to recover $6,282,870.19 as the Year 1 Earn-Out Payment, and (ii) ruled that Curley was entitled to recover the attorneys' fees and expenses he incurred in the Employment Arbitration,3 with the amount of such fees and expenses to be determined as part of the Estimation Hearing.
Pursuant to the Estimation Procedures, the parties conducted limited discovery and submitted pre-hearing briefs. The Court heard fact and expert testimony on January 14 and 15, 2010, and the parties submitted post-hearing briefs and proposed findings of fact and conclusions of law on January 27, 2010. The estimation of Curley's claim against the Debtor is a contested matter pursuant to Federal Rule of Bankruptcy Rule 9014. This Memorandum Opinion and Order contains the Court's findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure.
On November 30, 2009, Curley filed a proof of claim (Claim No. 3-1) in the Case. On January 6, 2010, Curley filed an amended proof of claim (Claim No. 3-2) for $23,457,945.21. For estimation, however, Curley now asserts a right to recover $22,270,277.76 from the Debtor. See Curley Post-Hearing Brief, at 2-3.4 Curley calculates his claim as follows: (i) damages of $347,699.05 for back pay and benefits due under the Employment Agreement together with pre-judgment interest; (ii) the Year 1 Earn-Out Payment of $6,282,870.19, as confirmed by this Court; (iii) damages of $13,837,699.52, representing the additional amounts Curley contends he would have earned pursuant to the earn-out calculation required by the ARAPA but for his wrongful termination by the Debtor; and (iv) attorneys' fees and expenses of $1,802,009.00. Id. at 2-3; see TR, Jan. 15, 2010 at 143:8;154:4.
The Debtor asserts that Curley's claim should be estimated at zero for several reasons. Recognizing that the Court has already confirmed that Curley holds an allowable claim of $6,282,870.19 for the Year 1 Earn-Out Payment, the Debtor contends that this amount (and any other amounts estimated to be due to Curley here) is subject to offsets to the purchase price that the Debtor paid to acquire CIG. Specifically, the Debtor contends that any claim Curley has against the Debtor must be offset by adjustments to the purchase price for CIG of: (i) $4.3 million to $6.3 million5 for the Debtor's loss of earnings from one of CIG's business units, NCIS, because of Curley's acts to shut down the operations of NCIS; and (ii) $3.1 million for the value of revenues from a number of large insurance agents that "went direct" shortly after the purchase of CIG, since Curley allegedly knew of these planned departures but failed to disclose this fact to the Debtor before closing.
The Debtor also contends that Curley's claim should be estimated at zero because (i) Curley is not entitled to any further damages for the Debtor's alleged breach of the Employment Agreement because Curley was...
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