In re Wolman, 13072.

• Decision Date: 05 November 1971
• Docket Number: No. 13072.,13072.
• Citation: 334 F. Supp. 1246
• Parties: In the Matter of Jerry WOLMAN and Anne Wolman, Debtors.
• Court: U.S. District Court — District of Maryland

334 F. Supp. 1246

In the Matter of Jerry WOLMAN and Anne Wolman, Debtors.

No. 13072.

United States District Court, D. Maryland.

November 5, 1971.

Hyman P. Tatelbaum, Schimmel & Tatelbaum, Baltimore Md. and Robert B. Hirsch, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D. C. (Wexler, Weisman, Maurer & Forman, Philadelphia, Pa., on the brief), for Jerry and Anne Wolman.

Howard H. Conaway, Baltimore, Md., and Raymond Pearlstine, Wisler, Pearlstine, Talone & Gerber, Norristown, Pa. (Lawrence F. Rodowsky and Shale D. Stiller, Baltimore, Md., on the brief), for Leonard H. Tose.

THOMSEN, District Judge.

Jerry Wolman and Anne Wolman, the debtors in this Chapter XI Proceeding, seek review (1) of an order of the Referee dismissing their application (a) to vacate a prior order of the Referee approving a sale of the assets of the Philadelphia Eagles Football Club, Inc. (the Eagles) to Leonard H. Tose, or (b) to grant specific performance of an agreement between the Wolmans and Tose; and (2) of a preliminary order denying the Wolmans the right to take depositions until Tose's motion to dismiss their application was decided.

The following facts appear from the record of proceedings before the Referee.¹

1. At the time this Chapter XI proceeding was filed, December 13, 1967, the Wolmans owned 52% of the stock of the Eagles. The rest of the stock was owned or represented by the Foreman family (the Foremans).

2. All or part of the Eagles stock was pledged to or otherwise subject to secured claims of two banks (Morgan and Fidelity) and one contractor (Blake), who had claims against the Wolmans, the Foremans and/or the Eagles.

3. On April 22, 1968, the Wolmans proposed a plan of arrangement, which was modified slightly by a plan proposed on May 6, 1968. Those plans contemplated the formation of a new corporation —Jerry Wolman Enterprises, Inc. (Enterprises)—and a public offering of its stock to the end that a new company become the beneficial owner of the Eagles.

4. On May 27, 1968, the Wolmans filed another modified plan of arrangement, which was approved by a majority of their unsecured creditors in accordance with 11 U.S.C. 762. The stock offering by Enterprises was still an integral part of this plan, but it differed from the prior plans in that Wolman would become the beneficial and legal owner of the Eagles stock, as a result of a series of transactions after the contemplated sale of the stock of the new corporation. The change was made to satisfy the National Football League (NFL). This plan was never confirmed by the Bankruptcy Court (Referee).

5. While the Registration Statement of Enterprises was being processed at the SEC, Morgan and Fidelity pressed their application filed with the Referee for leave to enforce their rights against the Eagles stock under their security agreements. The loss of this stock would have compelled the Wolmans to abandon the contemplated stock offering by Enterprises, and would have compelled abandonment of the then proposed plan of arrangement.

6. When it became evident that the Wolmans would not be able to obtain a long enough stay of the applications of Morgan and Fidelity to permit the stock offering, the Wolmans entered into a "Compromise Agreement" dated October 31, 1968, with Morgan, Fidelity, Blake, McCloskey (an unsecured creditor of the Eagles), and the Foremans. The Compromise Agreement provided that if the Wolmans and the Foremans were not able to produce by December 31, 1968, a buyer for the Eagles who would close the transaction by March 31, 1969, the other parties to the Compromise Agreement would then have the right to negotiate and execute a cash sale of the Eagles on behalf of the owners (the Wolmans and the Foremans). Any such sale would be submitted for approval first to the Referee, and, if so approved, to the NFL. The Compromise Agreement provided for the priorities which would govern the distribution of the proceeds of any sale, and further provided that any such sales agreement contain the following defeasance clause:

"This agreement shall be null and void if all secured claims of Morgan Guaranty Trust Company of New York, The Fidelity Bank, and Blake Construction Co., Inc. and the claim of McCloskey & Co., Inc. and any obligations due Earl and Phyllis Foreman under a certain agreement dated as of October 31, 1968 with Jerry and Anne Wolman have been unconditionally paid in full, in cash, on or before 3 P. M. Philadelphia time on March 31, 1969. Otherwise, this agreement shall remain operative and effective and the closing hereunder shall be held at 3:30 P.M. on March 31, 1969, or on the day immediately preceding the date of a hearing involving Debtors under Section 376 of the Bankruptcy Act, or the day immediately preceding the date to which such a hearing is postponed or extended, without further action of any party hereto and without further action on the part of any Court. The terms `paid in full' and `claims' as used herein have the meanings given to them by a certain Compromise Agreement dated as of October 31, 1968, a copy of which is attached hereto."

7. On December 6, 1968, the Referee entered an order authorizing the execution of the Compromise Agreement, with the date by which the Wolmans and the Foremans were to produce a buyer extended to January 31, 1969, and the date on which the transaction would be closed and the defeasance clause would become inoperative extended to May 1, 1969.²

8. On January 28, 1969, the Wolmans filed a petition referring to certain delays in obtaining effective registration of the proposed public stock offering, which delays had added a material element of hazard to the Wolmans being able to comply with the time limitations in the Compromise Agreement. The petition continued:

"11. In order to avoid their Plan of Arrangement from being dismissed and to avoid further complication, the Debtors have interested Leonard H. Tose, an industrialist of large means and impeccable reputation to enter into an Agreement (The Tose Agreement) by which he will acquire the right, title and interest of Earl and Phyllis Foreman and others in the Wrap Up Agreement relative to the Eagles stock, and he will acquire the secured position and claims of all the other parties to the Compromise Agreement. Tose will advance the necessary funds which his written undertaking requires (herewith being submitted to the Bankruptcy Court as a sealed instrument for the purposes of information) to acquire the above interests in the Wrap Up Agreement before Noon on January 30, 1969, and upon approval of the court on this petition will acquire an assignment of the position of the secured and other parties to the Compromise Agreement and will do so on or before Noon, January 30, 1969. The Tose Agreement is also defeasible, in accordance with the terms of the Compromise Agreement which, except as to any conflict with the Tose Agreement, is to remain in full force and effect.

"12. The benefits which will accrue to the Debtors' estate from the Tose Agreement are these:

"(a) The date of default under the Compromise Agreement will be extended from May 1, 1969, to August 1, 1969, and will thus give the Debtors a reasonable margin of safety against delay in the effective registration of the public issue."

Then followed a recitation of other claimed benefits to the Debtors' estate.³

9. A hearing on that petition was held on January 29, 1969. On January 30, 1969, an order was passed authorizing the Wolmans to borrow up to $15,500,000 from Tose upon the security of their stock of the Eagles and the assets of that corporation. However, Tose was unable to consummate the necessary arrangements to make the proposed loan to the Wolmans.

10. The Wolmans then negotiated with Tose for the sale of the assets of the Eagles to him. The Eagles entered into an agreement of sale, signed by Jerry Wolman as its President, apparently backdated to January 16, 1969, providing for the sale of all assets of the Eagles to Tose for $15,600,000, less certain corporate liabilities assumed by Tose. That agreement was submitted to the Referee on January 31, 1969.

11. During their negotiations with Tose, the Wolmans were continuing their preparations for the public offering of the stock of Enterprises. On February 4, 1969, the Wolmans received a comment letter from the SEC. A preliminary prospectus for the new corporation was issued on February 14, and on March 20 the corporation issued its final prospectus and began selling its stock. The prospectus stated that the corporation was to be firmly bound to refund the entire purchase price paid by the public for the stock if gross proceeds of $36,750,000 were not obtained from the sale of such stock by May 1, or if all of the events of closing,⁴ as defined, did not occur by May 1.

12. On February 4, the Wolmans filed an application praying that an order be passed approving and confirming the sale of the assets of the Eagles to Tose. The Referee passed an order on February 12, fixing March 11 as the date by which designated persons were required to show cause why the January 16 sales agreement, or such other or better proposal as might be offered pursuant to an invitation to bid, should not be approved and confirmed.

13. Prior to the hearing and auction on March 11, the Wolmans and Tose entered into an agreement dated March 11, which is the center of the present controversy. The pertinent provisions of that agreement were:

"WHEREAS, TOSE desires to aid the WOLMANS if they cannot, for any reason, obtain confirmation of their Plan of Arrangement on or before May 1, 1969, to extend the defeasance time described in the Referee's invitation to bid,

"NOW THEREFORE, in consideration of the above and other premises, each of the parties hereto intending to be legally bound hereby, it is AGREED that:

"(1) If TOSE becomes the successful bidder, and the WOLMANS are able to fund the Debtors' Plan of Arrangement, they shall have until 4:00 P.M.,

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