Kilpatrick v. Kilpatrick
| Decision Date | 05 October 2006 |
| Docket Number | No. 2-05-237-CV.,2-05-237-CV. |
| Citation | 205 S.W.3d 690 |
| Court | Texas Court of Appeals |
| Parties | Donald E. KILPATRICK & Pamela Gale Johnson, Trustee, Appellants. v. Timothy S. KILPATRICK, Kevin K. Kilpatrick, Kilpatrick Limited Partnership, Kilpatrick Ventures, Ltd., Shamrock Investments, L.L.C., KSR Family, Ltd., KMK Family, Ltd., BPC Holding Corp., Pescor, Inc., and Berry Plastics Corporation, Appellees. |
Pennington Hill, LLP and H. Allen Pennington, Jr., Fort Worth, for appellant.
Kelly, Hart & Hallman, P.C., Marshall M. Searcy, Jr., William N. Warren, and Caj. D. Boatright, Fort Worth, for appellee.
PANEL A: LIVINGSTON, WALKER, and McCOY, JJ.
In three issues, Donald E. Kilpatrick asserts (1) his standing to prosecute his claims regarding his ownership of certain stock, (2) the status of Trustee Pamela Gale Johnson as a proper party to a lawsuit involved in this appeal, and (3) alternatively, the proper filing of an amended pleading concerning Pamela Gale Johnson, which the trial court refused to recognize. We affirm.
This is the case of the squabbling siblings. In 1966, Donald L. Kilpatrick ("Donald L."), the father of the Kilpatrick litigants, purchased Pescor Plastics, Inc. ("Pescor"). Donald L. was chief executive officer and chairman of the board until 1996. When Donald L. purchased Pescor, the company primarily manufactured insulated couplings and wire splicers, but it gradually diversified into other areas. By 2000, the company's primary product was plastic cups, sold to businesses such as 7-11, Pepsi-Cola, Coca-Cola, and Wal-Mart.
Donald L.'s son, Donald E. Kilpatrick ("Don"), became an attorney and assisted his father with legal issues affecting the company. While Don's brothers, Kelly, Tim, and Kevin, worked for Pescor after graduating from college, Don did not. Kevin started as a production worker in 1974 and worked his way to CEO by 1997. Tim also worked through the company ranks, beginning as a sales representative in 1985, and later becoming president in 1997. Additionally, Kelly was an officer and director. As a result of their work for the company, Kelly, Kevin, and Tim each received Pescor stock.
Don claimed that he had a close familial and business relationship with Tim and Kevin, trusting them as brothers, friends, confidants, and business partners. He stated that it was his expectation that they treat him with the utmost fairness and candor because he was both a member of the family and a member of the family business. Don claimed that this relationship gave rise to the existence of fiduciary duties owed to him by Kevin and Tim.
Don asserted that prior to September 26, 1997, Kevin and Tim engaged in a systematic pattern of verbal, physical, and mental abuse of their brother Kelly as part of Kevin and Tim's plan to gain control of Pescor. Don alleged that on or before September 26, 1997, Kevin and Tim, who owned and/or controlled two-thirds of the Kilpatrick Ventures Limited ("KVL"), Kilpatrick Limited Partnership ("KLP"), Shamrock Investments, L.L.C. ("Shamrock"), and the voting stock of Pescor, threatened that if Kelly, also a stockholder did not assign his interests in these entities to them, they would insure that Kelly (a) was removed from his position with Pescor, (b) was deprived of his salaried compensation, and (c) received nothing for his interests. As a purported result of this intimidation, on or about September 26, 1997, Kelly executed an Ownership Interest Purchase Agreement and Severance and Release Agreement, wherein Kelly sold his interests to Kevin and Tim and agreed to relinquish his position with Pescor.
Prior to June 1, 2000, the company books reflected that Don owned 1,000 non-voting shares of Pescor common stock (approximately 11.38%). Don asserted that he was unaware that this stock had been assigned to him and was unaware that he owned any issued stock in Pescor until Kevin and Tim approached him in April or May of 2000 and offered to buy the stock from him. Until that time, Don asserted, he expected to own twenty percent of Pescor because Donald L. had told all of his children that he was going to leave the company to them in equal shares upon his death.
Evidently, 1,000 shares of Pescor stock had been given to Don in two separate transactions. First, 100 shares had been given to each of the children, including Don, in 1973. Although Don asserted he had no knowledge of receiving 100 shares of Pescor at that time, Tim and Kevin claimed that Don did know of his ownership of these 100 shares. Second, Don claimed that he was gifted 900 additional shares of stock in 1993, again without his knowledge. While this stock ownership was reflected on the books and records of Pescor, Don continuously asserted that he was never informed of the gifts of stock nor were stock certificates evidencing this stock ownership ever issued to him. The company never paid any dividends or sent any correspondence to Don that would have informed him of his status as a shareholder. Tim and Kevin do not agree with Don's lack-of-knowledge argument.1
On December 13, 1990, Don filed for bankruptcy protection under Chapter 11 in the Bankruptcy Court for the Southern District of Texas, Houston Division ("1990 Bankruptcy"). Don claimed that he did not know of his ownership interest in Pescor at that time and therefore did not list ownership of such stock in his bankruptcy filings; instead Don asserted that he was aware only of a twenty percent expectancy interest in Pescor. According to Don, he informed the Trustee, Pamela Gale Johnson ("Trustee"), of the expectancy interest several times during his meetings with her, and the Trustee informed him that an expectancy interest in a closely-held family corporation was not something that the bankruptcy estate had any interest in pursuing.
As required by federal law, Don filed sworn schedules outlining his assets and liabilities. However, Don disclosed no interest in Pescor on his schedules, based he says, on the statement made by the Trustee. Particularly, Don made the following sworn (non)disclosures, under the penalty of perjury.
t. Stock and interests in incorporated and unincorporated companies (itemize separately)
-0-
b. Property of any kind not otherwise scheduled. Debtor has contingency fee agreements to represent individuals in personal injury type lawsuits. Until these cases are tried and monies collected these agreements have no present value
-0-
The 1990 Chapter 11 bankruptcy was converted to a Chapter 7 bankruptcy on January 24, 1991, and discharged on September 17, 1992. However, the Chapter 7 bankruptcy filing and estate, Case No. 90-07141, appears to still be open and has been the subject of ongoing and recent activity by the Trustee.
Five years later, on February 6, 1995, Don filed for bankruptcy protection under Chapter 13 in the Bankruptcy Court for the Southern District of Texas, Houston Division ("1995 Bankruptcy"). Just as in the 1990 Bankruptcy, Don did not disclose what he asserts he believed to be a one-fifth expectancy interest in Pescor, nor did Don disclose as an asset the shares of stock that had been assigned to him on the Pescor books of which he has urged he was unaware. This bankruptcy was dismissed on December 31, 1995.
Nine months later, on September 27, 1996, Don filed for bankruptcy protection a third time, again under Chapter 13 in the Bankruptcy Court of the Southern District of Texas, Houston Division ("1996 Bankruptcy"). As in the prior bankruptcies, Don did not disclose the asserted expectancy interest in the family business or his ownership shares of which he was allegedly unaware. This third bankruptcy filing included asset schedules and amended schedules that again failed to mention an interest in Pescor. Like the 1995 Bankruptcy, the 1996 Bankruptcy was dismissed.
According to Don, after finally becoming aware of his share interest, he amended his prior bankruptcy filings in August 2003 to reflect his ownership of the 1,000 shares of Pescor stock and the pendency of this lawsuit, but no creditors were harmed from his failure to disclose the stock in his bankruptcy schedules because the creditors in all three bankruptcies were paid in full, with interest. However, after the filing of Don's amended schedules on August 13, 2003, the bankruptcy estate paid over $56,879.29 towards Don's unsecured claims pursuant to the bankruptcy court's order of April 26, 2004.
According to Tim and Kevin, Pescor was experiencing financial difficulties in 1999 and 2000. Raw material costs, especially petroleum (from which plastic products are made), were steadily rising, while competition from larger companies kept prices the same. At this time Pescor was trying to gain an exclusive contract with Coca-Cola for a product known as the "ContourCup" that Tim had designed, but Pescor lacked the funds necessary to cover the front-end operational expenses that manufacturing the cup would require. To address these problems, Pescor drew heavily on a $4 million line of credit it had established with Frost Bank in February 1999. As a result, Pescor's debt on the line of credit rose to $1.8 million by December 31, 1999, and to $2.78 million by March 2002.
Tim and Kevin asserted that to resolve Pescor's impending financial crisis, Kevin sought credit from various financial institutions, such as GE Capital, Texas Chase Bank, and Frost Bank. But, because he and Tim had personally guaranteed Pescor's existing lines of credit at Frost and the company's manufacturing equipment collateralized a separate $3.3 million note with Frost, they needed additional collateral to secure any further financing....
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