James v. McCoy
| Citation | 56 F.Supp.2d 919 |
| Decision Date | 30 March 1998 |
| Docket Number | No. C2-95-668.,C2-95-668. |
| Parties | Richard E. JAMES, Plaintiff, v. Eugene McCOY, Sr., Defendant. |
| Court | U.S. District Court — Southern District of Ohio |
Clyde C. Kahrl, Mt. Vernon, OH, for Plaintiff.
Tunney Lee King, Columbus, OH, for Defendants.
Plaintiff Richard E. James brings this action against Defendants Timothy McCoy, Teresa McCoy, Eugene McCoy, Sr., Sylvia McCoy, and Appliance Center of Mount Vernon, Inc. The action arises from Plaintiff's December 1982 sale of an appliance business known as the Appliance Repair Center to Defendant Timothy McCoy. Plaintiff alleges violations of the Securities Act of 1933, 15 U.S.C. § 77q; the Ohio Securities Act, Ohio Revised Code Chapter 1707; the Securities Exchange Act of 1934, 15 U.S.C. §§ 78(j) and 78(t); the Ohio Fraudulent Conveyance Act, Ohio Revised Code Chapter 1336; the Ohio Voluntary Assignment Act, Ohio Revised Code Chapter 1313; the Ohio General Corporation Law, Ohio Revised Code Chapter 1701; the Racketeering, Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. §§ 1961-1968; and Ohio Revised Code § 2923.32. The parties have consented to final judgment by Magistrate Judge. This action is now before the Court on Defendants' motion for summary judgment and Plaintiff's motion for partial summary judgment.
Plaintiff Richard James has spent his entire business career in the repair of household appliances. He formed Appliance Repair Center ("ARC") in 1966 and operated it as a sole proprietorship. ARC did not sell appliances. Defendant Timothy McCoy worked for ARC during high school and again beginning about December 1981. See James v. McCoy, 114 B.R. 489, 490-91 (Bankr.S.D.Ohio 1990).
In December 1981, Timothy McCoy told Mr. James that he and his father, Eugene McCoy intended to form an appliance sales business. Mr. James and Timothy McCoy began preliminary discussions about Mr. James selling ARC to Timothy and Eugene McCoy. See 114 B.R. at 491. In June 1982, Timothy McCoy, along with Eugene McCoy, Sr., Sylvia McCoy and Teresa McCoy, formed the corporation Appliance Center of Mount Vernon, Inc. ("ACMV") for the purpose of retail sales of appliances. See id. Mr. James alleges that Defendants formed this corporation for the purpose of defrauding him.
On November 2, 1982, Mr. James and Timothy McCoy executed a sales agreement for the sale of ARC to Timothy McCoy for $130,000 with the sale to close no earlier than January 1, 1985 and no later than January 1, 1988. See 114 B.R. at 491. ACMV began offering appliances for sale in December 1982. See id. Mr. James knew that ACMV was owned by Timothy, Teresa, Eugene, and Sylvia McCoy. See id. ACMV and ARC operated out of the same building. Timothy McCoy was co-manager of ARC, but he was also operating ACMV. Considerable friction arose between Mr. James and Timothy McCoy. See id.
On April 25, 1984, Mr. James and Timothy McCoy renegotiated the sales agreement. ). The Modified Sales Agreement provided that the purchase price would be $134,500. (Compl.¶ 13.10). Also on April 25, 1984, Timothy McCoy executed a promissory note in the amount of $116,500 in favor of Mr. James. (Compl.¶ 13.13). The promissory note required an initial payment of $25,000 on May 25, 1984, and subsequent installments to be paid once per year for the next five years. (Compl.¶ 13.13). Timothy McCoy made the first payment on May 25, 1984, but made no further payments. (Compl.¶ 13.15).
Mr. James was influenced in his decision to sell ARC to Timothy McCoy by his belief that he retained an ownership interest in ACMV and his belief that ACMV was profitable. See 114 B.R. at 494. . However, the sale of ARC was to Timothy McCoy as an individual, and Mr. James required no guarantees from ACMV or its share holders. See 114 B.R. at 494. He retained no security interest in the assets transferred to Timothy McCoy. There was no prohibition against Timothy McCoy himself transferring the assets to others.
On the same day that Mr. James sold ARC to Timothy McCoy, Timothy transferred the business assets of ARC to ACMV. ). The transfer from ARC to ACMV occurred before Timothy McCoy made any payment to Mr. James under the Modified Sales Agreement. ). The transfer of ARC from Timothy McCoy to ACMV was an undocumented transaction. ). There was no bill of sale, no promissory note, no security agreement, no closing statement, and no corporate minutes or other records documenting the sale. ). Timothy McCoy never told Mr. James of the sale of ARC to ACMV. ). All payments received by Mr. James were made from Timothy McCoy's personal checking account. ). ACMV issued a promissory note to Timothy McCoy in exchange for the assets of the business. ). Throughout 1984 and 1985 the four McCoys repeatedly held themselves out as co-owners of ARC, and at no time did they inform Mr. James that the ARC business had been sold to ACMV. ).
On May 24, 1985, knowing that Mr. James was preparing to file a complaint in Knox County against Timothy McCoy to enforce payment of the promissory note, Timothy McCoy filed a RICO action against Mr. James in federal district court for violation of the noncompetition agreement in the contract of sale. ). The corporation was not made a party to this lawsuit, but later claimed it was the proper party. ). Mr. James alleges that Defendants entered into this deception to distract Mr. James from the fact that ARC had been sold to ACMV. ).
When Timothy McCoy's racketeering action was dismissed, Mr. James filed a lawsuit in the Court of Common Pleas of Knox County, Ohio to collect on the amount due under the Modified Sales Agreement. ). On October 8, 1986, Timothy McCoy counterclaimed on the ground that Mr. James had violated the noncompetition agreement. ). At no time during the Knox County lawsuit did Defendants defend on the basis that Timothy McCoy was not the proper party to the suit, nor did Defendants disclose that ARC had been sold. ).
Mr. James alleges that from 1984 to 1988, the four McCoys repeatedly distributed dividends and capital from ACMV to themselves to the prejudice of creditors of ACMV. ). Timothy McCoy turned his stock back to the corporation for no consideration. ). Timothy McCoy made no effort to collect the moneys owed to him from the corporation during a five year period extending from 1984 through 1989, thereby prejudicing the creditors of ACMV. ).
On January 14, 1988. ACMV formed a subsidiary called McCoy Tanning Center, Inc. ). The subsidiary's name was subsequently changed to McCoy's Home Furnishings, Videos and More, Inc., ). Throughout the late 1980s and through 1991, the four McCoys jointly engaged in a series of businesses operating under various trade names, including: Appliance Center of Mt. Vernon, Inc., Hoagland Electric, McCoy's Home Furnishings, T-N-T Tape Rental, Newark Magnavox, McCoy's Incl, Appliance Repair Center, and Sunnyside Tanning. ). The four McCoys and ACMV also formed a subsidiary called Newark Magnavox and Appliance Center, Inc. ). ACMV entered into a joint venture with Marion Appliance, Inc. and Blevins Appliance and Electronics, Inc. ). Mr. James alleges that through the use of these various joint ventures, intertwining corporations, and through distributions to the principals, the four McCoys engaged in a series of transactions to leave Timothy McCoy with no assets in his name. ).
In October of 1988 Timothy McCoy filed a petition in bankruptcy. See In re McCoy, 114 B.R. 489 (Bankr.S.D.Ohio 1990). Timothy McCoy represented to the bankruptcy court that the business and the debt to Mr. James were his, and claimed he had no assets. ). Timothy McCoy did not list the debt from ACMV to himself as an asset. ). In 1985, Timothy and Teresa McCoy sold their house to Kevin and Karma Lamb and retained an unrecorded mortgage in the property. ). The mortgage was not paid off until March of 1992, four years after Timothy McCoy filed for bankruptcy. ). The existence of this property interest was never disclosed to the bankruptcy court or the trustee in bankruptcy.
Mr. James subsequently filed a petition in the bankruptcy court requesting that the debt owed by Timothy McCoy on the April 25, 1984 promissory note be deemed non-dischargeable. See James v. McCoy, 114 B.R. 489 (Bankr.S.D.Ohio 1990). On May 10, 1990, the bankruptcy court issued an order finding that...
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