In re Unit Power, Inc., Bankruptcy No. 96-49048-293
| Decision Date | 22 July 1997 |
| Docket Number | Bankruptcy No. 96-49048-293,Adversary No. 97-4045. |
| Citation | 211 BR 910 |
| Parties | In re UNIT POWER, INC., Debtor. UNIT POWER, INC. and The Official Unsecured Creditors' Committee of Unit Power, Inc., Plaintiffs, v. Donald E. DWYER and William R. Boxdorfer, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Missouri |
Craig A. Smith, Suelthaus and Walsh, St. Louis, MO, for Unit Power, Inc.
Bonnie Clair, Office of U.S. Trustee, St. Louis, MO.
Peter D. Kerth, Gallop, Johnson & Neuman, Clayton, MO.
Mike Young, Edwards, Singer, Wolk & Spoeneman, Clayton, MO.
Francis X. Buckley, Jr., Thompson Coburn, St. Louis, MO.
This Court has jurisdiction over the parties and subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 29 of the United States District Court for the Eastern District of Missouri. This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(B), which the Court may hear and determine.
1. Debtor, Unit Power, Inc. (Unit Power) filed a Petition for Subordination and for Determination of Treatment of Claims on February 24, 1997. Unit Power asked the Court, inter alia, to apply section 502(b)(7) of the Code to the claims, if any, of Donald E. Dwyer and William R. Boxdorfer (claimants) and limit those claims to an amount "believed not to exceed $117,610.00 per claimant."
2. The Court granted the Official Unsecured Creditors' Committee's (Creditors' Committee) Motion to Intervene in this adversary and on May 29, 1997, the Creditors' Committee filed a Motion for Partial Summary Judgment On Limitation of Claims of Defendants.
3. The parties briefed the issue of whether section 502(b)(7) applies to cap Dwyer and Boxdorfer's claims.
Claimants, Dwyer and Boxdorfer, state in their brief that they "do not dispute those facts set out by the Creditors' Committee in its memorandum in support of its summary judgment motion." Those facts may be summarized as follows:
1. William R. Boxdorfer and Donald E. Dwyer were majority shareholders, directors and officers of the Debtor, Unit Power, Inc., until 1993 when they sold the company to Tokyo Iron Works, a Japanese national company.
2. On March 31, 1993, Boxdorfer and Dwyer executed employment contracts, entitled Employment Agreements, in which they agreed to provide services to the Debtor. On that same day each claimant executed a document entitled Stock Purchase Agreement by which he sold his shares in Unit Power to Tokyo Iron Works.
3. The Employment Agreements the Debtor executed with Boxdorfer and Dwyer were substantially similar to one another. The only significant difference being that Boxdorfer's Employment Agreement purported to employ him as "to an executive general manager position" and Dwyer's Employment Agreement purported to hire him "to an executive or sales manager." Each Employment Agreement specified it was to be effective March 31, 1993 through July 31, 1998 and provided that the employee-party to it would receive a yearly salary of $75,000.00 plus incentive pay equal to ten percent of the Debtor's net income, provided that the total not exceed the sum of the prior years' total and $25,000.00. The Employment Agreements also provided that Dwyer and Boxdorfer's salaries would be "subject to the usual payroll deductions in accordance with the general practices of the Debtor." Further, the Employment Agreements contained provisions governing vacation leave and fringe benefits. The third numbered section of each agreement barred Dwyer and Boxdorfer from "engaging in any business activities similar to those of Debtor with or for any other person or entity to any extent other than the extent required by the terms and conditions of this Agreement." The Agreements do not contemplate the deaths of Dwyer and Boxdorfer but provide that either's employment will terminate if he is disabled for more than 180 days in any twelve (12) month period and he is paid severance pay equal to his current base salary for one year. Finally, each agreement provided that Dwyer and Boxdorfer could be terminated either upon becoming disabled as defined in the Employment Agreements or "for cause" after being given written notice and an opportunity to cure.
4. On July 16, 1993, the Debtor notified Boxdorfer and Dwyer that their Employment Agreements were terminated effective July 26, 1993. The termination date was later extended to August 23, 1993 by a letter agreement.
5. On October 15, 1993, Boxdorfer and Dwyer commenced an action in the Circuit Court of St. Louis County, Missouri against the Debtor seeking damages for the alleged breach of their Employment Agreements. The Debtor filed a counterclaim.
6. On August 13, 1996, Circuit Judge Robert G.J. Hoester awarded Boxdorfer and Dwyer a total of $1,599,792.10 in damages for the Debtor's alleged breach of the Employment Agreements. Judge Hoester also entered judgment for Debtor on its counterclaim. All parties have appealed Judge Hoester's decision and the case is currently pending in the Missouri Court of Appeals, Eastern District.
7. On October 28, 1996, the Debtor filed its Petition for relief under Chapter 11 of the Bankruptcy Code. The Debtor's schedules indicate that Boxdorfer and Dwyer each hold contingent, disputed claims in the amount of $650,000.00 representing the alleged damages arising from the breach of their Employment Agreements.
Additionally, the Court notes that Boxdorfer and Dwyer have filed affidavits in which each swears that he considered his execution of the Employment Agreement to be an integrated part of the sale of his shares to Tokyo Iron Works and that absent the execution of the Employment Agreement he would not have sold his shares for the cash price Tokyo Iron Works paid. Each also attested that he considered the Employment Agreement to be consideration for the sale of his stock and that he opted to accept a form of deferred payment, namely salary, because it allowed him to spread out the payment and pay income tax as opposed to capital gain tax. Lastly, each claimant attested that the Employment Agreements' failure to detail the claimant's job duties and alleged continuation of the agreement should the claimant become disabled evidence the fact that the Agreement "was not purely an employment agreement."
The issue before the Court is whether section 502(b)(7) of the Bankruptcy Code should be applied to limit the claims of Boxdorfer and Dwyer. The Court does not today decide whether to allow Dwyer and Boxdorfer's claims.
Section 502(b)(7) provides:
The Creditors' Committee argues that section 502(b)(7) applies to Dwyer and Boxdorfer's claims because they "represent compensatory damages arising from the breach of their five year Employment Agreements." The Creditor's Committee presumes that the Employment Agreements are "employment contracts" as that term is used in section 502(b)(7).
The Debtor, in a memorandum filed in support of the Creditors' Committee's motion, refutes the argument that the Employment Agreements Dwyer and Boxdorfer executed were part of the consideration for which they exchanged their Unit Power stock. The Debtor points out that the claimants sold their stock in Unit Power to Tokyo Iron Works under Stock Purchase...
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