KeyBank Nat. Ass'n v. Michael
| Decision Date | 31 October 2000 |
| Docket Number | No. 35A05-9912-CV-541.,35A05-9912-CV-541. |
| Citation | 737 N.E.2d 834 |
| Parties | KEYBANK NATIONAL ASSOCIATION, Appellant-Respondent-Plaintiff, v. Stephen J. MICHAEL, as receiver for New Friction Material Company, Inc., Appellee-Petitioner, and Friction Material Company, Inc., A Delaware Corporation, Appellee-Defendant. |
| Court | Indiana Appellate Court |
Robert W. Eherenman, Charles J. Heiny, Melanie L. Farr, Haller & Colvin, P.C., Fort Wayne, Indiana, Attorneys for Appellant.
Grant F. Shipley, Shipley & Associates, Fort Wayne, Indiana, Attorney for Appellees.
KeyBank National Association (Key-Bank) appeals from the denial of its petition for foreclosure of a real estate mortgage, foreclosure of security interests in collateral, and the appointment of a receiver after Friction Material Company, Inc. (FMCI), a Delaware corporation and the predecessor to New Friction Material Company, Inc. (New Friction), defaulted on loans made by KeyBank. The following restated issues are presented for review:
1. Did the trial court err by finding that New Friction validly merged with FMCI and by entertaining New Friction's petition for appointment of a receiver?
2. Did the trial court err as a matter of law by failing to appoint a receiver over FMCI pursuant to KeyBank's request for foreclosure and the appointment of a receiver?
3. Did the trial court err by allowing the receiver to subordinate Key-Bank's security interests in favor of new lenders in order to resume the operation of the business?
4. Did the trial court err by denying KeyBank's objection to the receiver's attorney and by awarding expenses and fees to the receiver and the attorney from assets that constitute KeyBank's collateral?
5. Did the trial court err by denying KeyBank's motion for a change of judge?
We affirm in part, and reverse in part.
The facts disclose that FMCI, a Delaware corporation, manufactured asbestos and nonasbestos friction products including: clutch facings, brake blocks, brake linings, and industrial products. As of October 1999, FMCI focused on nonasbestos products. FMCI operated exclusively in Huntington, Indiana. FMCI was, at the time of these proceedings, the only manufacturer of clutch facings in the United States. FMCI was one of only five or six major manufacturers of brake blocks in the United States.
KeyBank1 and FMCI executed a revolving credit loan agreement in June 1996. The agreement provided a maximum of $1,950,000 as a revolving line of credit. The loan agreement continued an earlier agreement that contained a security agreement providing KeyBank with a security interest in all of FMCI's property, accounts receivable, inventory, machinery, and equipment, as well as "all replacements, accessions, substitutions, additions, products and proceeds, including insurance proceeds." Record at 22. In November 1997, the loan agreement was modified. FMCI's line of credit was reduced to $1,350,000. As additional security, a real estate mortgage was executed by FMCI in favor of KeyBank. The loan agreement terminated in June 1999 and all amounts owed by FMCI became due and payable. FMCI was in default and did not pay all of the obligations. KeyBank and FMCI restructured the obligations. KeyBank and FMCI executed a loan workout agreement in August 1999. The Amended and Restated Revolving Credit Note executed with the loan workout agreement provided, inter alia:
This Amended Note and every other obligation, indebtedness, and liability of Borrower to Bank, whether joint or several, absolute or contingent, due or to become due, and whether heretofore or hereafter contracted or existing and in whatsoever manner acquired by or accruing to Bank, whether before or after maturity and whether the same may have been or shall be participated (sic), in whole or in part to others, and including all amendments, extensions, and renewals thereof (all herein called "Obligations"), are secured as set forth in the Agreements [the previous notes and modifications executed between the parties].
Record at 103. The mortgage was amended to reflect the note executed with the loan workout agreement.
The loan workout agreement provided, inter alia, that: 1) FMCI was not, at the time of execution of the agreement, delinquent in any tax obligations, 2) FMCI would use a cash management service known as a lockbox, which was a post office box controlled by KeyBank, to which FMCI directed its accounts receivable, 3) FMCI could not include inventory in its borrowing base to which it did not have an absolute right to payment, e.g., consigned inventory and inventory that was pre-billed but had not been shipped, 4) FMCI would maintain its debt-to-asset ratio such that FMCI did not have current liabilities in an amount that exceeded assets by more than $426,000.
In October 1999, KeyBank vice-president George Keely notified Robert Scott, FMCI's president, that FMCI had violated provisions of the workout agreement. The letter from Keely to Scott stated that, based upon the default, KeyBank accelerated the loan obligations. The letter demanded immediate repayment of the outstanding balance of $891,776.08, together with interest and collection expenses. KeyBank then instituted proceedings requesting foreclosure and the appointment of a receiver pursuant to Ind.Code Ann. § 34-48-1-1 (West 1999). The court scheduled a hearing on the request for a receiver for November 4, 1999.
On November 3, 1999, New Friction, as the purported successor by merger to FMCI, filed its petition for voluntary dissolution and for appointment of a receiver pursuant to Ind.Code Ann. § 23-1-47-1 (West 1989). Also on November 3, 1999, a hearing on the dissolution of New Friction was held without notice to KeyBank. New Friction asserted that it had been incorporated "for the sole purpose of acquiring all assets and obligations of Friction Material Company, Inc., thereby domesticating its assets and operations and thus authorizing the initiation of a voluntary dissolution by court proceeding under IC XX-X-XX-X(4)." Record at 135. New Friction's articles of dissolution asserted that New Friction was incorporated on November 2, 1999. New Friction requested the appointment of a receiver to liquidate the business.
On November 3, 1999, the trial court granted New Friction's petition for dissolution. In part, the court's order states:
The trial court consolidated KeyBank's action with the action commenced by New Friction. A hearing was held on November 10, 1999. On November 12, 1999, the trial court ordered the appointment of a receiver pursuant to New Friction's request. The order appointed Stephen J. Michael as receiver. The trial court granted the receiver's application to employ Grant Shipley as attorney for the receiver. Shipley had appeared for New Friction and FMCI at various stages of the proceedings.2
On November 16, 1999, KeyBank moved for a change of judge. The motion was denied on November 17, 1999. On November 22, 1999, KeyBank filed its praecipe for the record.
On December 3, 1999, the receiver filed a motion for leave to obtain secured credit, to grant a security interest in collateral, and to subordinate KeyBank's previous secured claims in favor of a new lender. KeyBank objected to subordination of its claims. KeyBank, inter alia, moved for disqualification of the counsel for the receiver and moved to stay the proceedings to allow KeyBank to pursue an interlocutory appeal.3 On December 21, 1999, the trial court entered an order allowing the receiver to obtain secured credit in an amount not to exceed $350,000 and to subordinate KeyBank's prior security interest in order to resume business operations.
On January 5, 2000, the trial court entered findings of fact and conclusions of law based upon the evidence presented at the hearings on November 7, 1999, November 10, 1999, December 7, 1999, and December 21, 1999.4 In pertinent part, the trial court stated:
21. At the close of all the evidence and argument on November 10, 1999, the Court announced from the bench that it would grant the motion of New Friction ... for a receiver with expanded authority as allowed under IC XX-X-XX-X(4), so as to permit operations to resume pending sale of the business as a going concern.
22. At the time of the trial, it was the Court's factual conclusion (which remains the Court's conclusion today) that a receiver with expanded authority as authorized under the corporate dissolution laws would be in a position to operate the business, market the company as a going concern, realize best value for the assets, and hold open the possibility of retaining employment and operations in Indiana. Mr. Scott had explained that most of the competition facing [FMCI] now comes from overseas, and that [FMCI] was the last American manufacturer of clutch facings.
23. It was then and remains today, the factual conclusion of this Court that the appointment of a receiver was and is necessary to secure ample justice to all parties.
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