In re Total Acquisition Corp., Bankruptcy No. 82-02196-BKC-SMW
| Decision Date | 08 April 1983 |
| Docket Number | Bankruptcy No. 82-02196-BKC-SMW,Adv. No. 82-0071-BKC-SMW-A,82-1109-BKC-SMW-A. |
| Citation | 29 BR 836 |
| Parties | In re TOTAL ACQUISITION CORP., Debtor. SOL-TABB, INC., Plaintiff, v. TOTAL ACQUISITION CORP., Defendant. Raymond A. McGEE, Plaintiff, v. TOTAL ACQUISITION CORP., Debtor/Debtor in Possession, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
Scott L. Baena, Stroock & Stroock & Lavan, Miami, Fla., for plaintiff Sol-Tabb.
Paul G. Hyman, Jr., Miami, Fla., for defendant.
John Genovese, Holland & Knight, Miami, Fla., for plaintiff McGee.
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON ADVERSARY COMPLAINTS
THIS MATTER came on to be heard by the Court on two complaints filed against this Debtor by Sol-Tabb, Inc. ("ST") and Raymond A. McGee ("McGEE"), respectively. Each of these adversary proceedings was tried before the Court separately however, as will be discussed further hereinbelow, both adversary proceedings concerned the same subject matter and, essentially, sought the same relief. Indeed, by stipulation of the parties, all of the record in the McGEE proceeding was adopted as part of the record in the ST proceeding. Accordingly, notions of judicial economy dictate that the Court consolidate its findings and conclusions in respect of both adversary proceedings in this single opinion. The Court heard the testimony and examined the evidence presented, observed the candor and demeanor of the witnesses, considered the arguments and memoranda of counsel, in each of the adversary proceedings, and makes the following findings of fact and conclusions of law.
This Court has subject matter jurisdiction of these contested matters pursuant to 28 U.S.C. § 1471 and § (d) of the Emergency Rule adopted by the Order of the United States District Court for the Southern District of Florida dated December 22, 1982.
The center of the controversy is an agreement between ST (which is also a debtor in Chapter 11 proceedings pending before this Court) and the Debtor herein, Total Acquisition Corp. ("TOTAL"), dated September 29, 1982 (the "agreement"). Briefly, that agreement provided for the sale of all assets of ST to TOTAL in consideration for, inter alia, TOTAL's assumption of ST's liabilities (with recourse), infusion of working capital by TOTAL, the purchase of equipment by TOTAL to be used in its forthgoing operations and a deferred payment pursuant to a promissory note payable to ST for the principal amount of $750,000.
Prior to the date of the agreement, ST was engaged in the operation of mechanical and electronic pin and video games. TOTAL, on the other hand, had no operations prior to the date of the agreement and, indeed, was formed for the sole purpose of effectuating the transfer contemplated by the agreement.
Due to a variety of circumstances, ST was experiencing a severe business downturn during 1982. The economic effect was that ST was unable to pay its debts as they came due and, further, it was unable to purchase equipment which would keep it competitive in its industry. The economic situation of ST became intolerable in mid-1982 and it sought a purchaser. Sometime in April, 1982, discussions occurred between ST and Mr. Lester Steiner, a prospective purchaser. Those discussions culminated in the agreement referred to above. During the course of the discussions ST made it clear to Mr. Steiner that it had two absolute and immutable requirements: First, Mr. Steiner had to demonstrate his commitment to the success of the operation by obtaining sufficient funds for its working capital. Second, ST's creditors were to be brought current and, over time, be paid in full. By that time, ST had indebtedness of some $4.5 million.
That ST was adamant in respect of its requirement that Mr. Steiner, who had by then organized TOTAL, have funds available for purposes of working capital is evidenced by, firstly, the agreement itself and, secondly, occurrences at the time of closing.
More specifically, Section 8(d) of the agreement provided:
(d) Line of Credit. That by the Closing Date, Buyer or TOTAL shall have established a sic irrevocable line of credit for $500,000 with a financial institution or other acceptable source to Seller to be used for working capital for Buyer and for no other purpose, for use immediately at closing.
Then, at the closing, Sol Tabb, chief executive officer of ST, insisted upon verification of the existence of the aforementioned line of credit. Thereupon, Mr. Steiner initiated two phone calls to what were purported to be financial institutions at which such lines of credit were available. A Closing Memorandum, also in evidence, was thereafter prepared to memorialize these conversations and the fact that Mr. Steiner and his two associates, Victor Sayyah and Sorkin Webbe, had lines of credit made available, each in excess of $500,000 at both Florida National Bank of Miami and American National Trust of Chicago.
The Court doubts the credibility of TOTAL's version of the foregoing telephone conversations. This is especially so in light of the testimony of Francis Guiffrida, Vice President of Florida National Bank of Miami, since he testified that no line of credit existed with that bank as was represented in the Closing Memorandum. Even more troublesome is the testimony of John Lubera, Executive Vice President of Florida National Bank of Miami, that that institution had never received a request for a line of that size from Messrs. Steiner, Sayyah or Webbe, nor ever heard of, Messrs. Sayyah and Webbe. Mr. Lubera did indicate that the bank previously had a loan relationship with Mr. Steiner, but that loan was for an insubstantial amount and had been repaid.
As far as American National Trust of Chicago, no evidence of the existence of a line was presented by TOTAL; however, the Court allowed TOTAL leave to produce evidence of such line after the close of the case. Several days beyond the time allowed by the Court for the submission of this evidence, TOTAL filed a motion to reopen the proceedings for the purpose of admitting a series of documents annexed to the motion. The documents so annexed were admitted in evidence subject to McGEE's and ST's right of requesting an evidentiary hearing with respect thereto. The documents, Exhibit F in the McGee proceeding, include a letter from Kurt Liljedahl, Commercial Bank Officer of American National Bank and Trust Company of Chicago, presumably the same entity referred to in the Closing Memorandum.
The Court finds that the documents have no probative value. More particularly, the documents relate to a line of credit extended by that institution to Victor Sayyah on September 16, 1982. It was, as stated above and as clearly provided for in the purchase agreement, expressly required by the parties that either TOTAL, or its parent company, Total Investment Company, shall have established a line of credit to be used for working capital in the continuing operations of TOTAL and for no other purpose.
Mr. Sayyah has been characterized as a rather substantial individual and successful businessman. It is not unusual to expect, therefore, that such a person would have financial capabilities with lending institutions. There is no proof that that line was in existence or that these was any loan availability under the line at the date of the closing. And, more importantly, there is no proof that the line was established for TOTAL's working capital purposes solely. Nothing contained in the Closing Memorandum closes that gap in the evidence, nor does it seem appropriate to make such an inference of such a critical fact.
Throughout his testimony, Mr. Steiner attempted to persuade this Court that he and his associates, Sayyah and Webbe, were of substantial wealth and resources so that the availability of credit was never a problem. The Court is not persuaded by this argument since there was an absolute requirement that a line of credit be established by the time of closing. Mr. Steiner's credibility was undermined by his testimony in respect of his own wealth. Much of the wealth he acclaimed was not even reflected on his own financial statement which is in evidence.
Events occurring subsequent to the closing upon the agreement also call into question the conduct of Mr. Steiner and TOTAL and, in certain instances, exhibit a course of conduct which characterized their business dealings with ST. At the closing a check was tendered by TOTAL to counsel for ST for attorneys' fees incurred in connection with the transaction. TOTAL was obligated for such expenses by virtue of the terms of the agreement as well as a closing memorandum dated October 1, 1982, also in evidence. That check was returned for insufficient funds.
More importantly, no payments whatsoever were made by TOTAL to any creditors of ST in derrogation of the second absolute and immutable requirement imposed by ST as aforesaid. By way of explanation, TOTAL argued that it did not make any payments to creditors because it disputed certain of the alleged debts. Even if true, this would not excuse TOTAL's refusal to pay every debt especially when it was aware of threatened...
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