Kool, Mann, Coffee & Co. v. Coffey, 01-4052.
| Decision Date | 29 July 2002 |
| Docket Number | No. 01-4052.,No. 01-4066.,01-4052.,01-4066. |
| Citation | 300 F.3d 340 |
| Parties | KOOL, MANN, COFFEE & CO., f/d/b/a Moore, Owen, Thomas & Co., and Thomas O. Moore, v. L. Coleman COFFEY and Robert Bruce Coffey, Appellants in No. 01-4052 (D.C. Civil No. 99-cv-00058) Moore, Owen, Thomas & Co. and Thomas O. Moore v. L. Coleman Coffey and Robert Bruce Coffey (D.C. Civil No. 99-cv-00204) Moore, Owen, Thomas & Co. and Thomas O. Moore v. Robert Bruce Coffey (D.C. Civil No. 00 cv-00230) *Kool, Mann, Coffee & Co., f/d/b/a Moore, Owen, Thomas & Co., Cross-Appellant in No. 01-4066. |
| Court | U.S. Court of Appeals — Third Circuit |
Christopher M. Hill (argued), Christopher M. Hill & Associates, P.S.C., Frankfort, KY, for Appellants.
Denise McClelland (argued), Frost, Brown & Todd LLC, Lexington, KY, A. Jeffrey Weiss, A. Jeffrey Weiss & Associates, St. Thomas, for Appellee/Cross-Appellant Kool, Mann, Coffee & Co.
Leslie Rosenbaum (argued), Rosenbaum & Rosenbaum, P.S.C., Lexington, Ky, for Appellee Thomas Owen Moore.
Before: AMBRO, FUENTES and GARTH, Circuit Judges.
This contentious dispute — spanning almost two decades, two bankruptcy filings, and countless appeals and counter-appeals — revolves around the sale of a business called Lake Cumberland State Dock, Inc. ("LCSDI") in 1985 by L. Coleman Coffey and his son, Robert Bruce Coffey (together, the "Coffeys"), to Kool, Mann, Coffee & Co., Inc. ("Kool Mann"), which is principally owned by Thomas O. Moore ("Moore"). The substantive claims asserted by the parties are actually relatively simple: the Coffeys claim that Kool Mann owes them the balance remaining of the $5 million purchase price from the sale of LCSDI, while Kool Mann contends that it is entitled to a number of set-offs against that balance because of alleged misrepresentations by the Coffeys as well as certain other deductions. It is the tortured procedural history of this matter which makes this appeal exceedingly — and unnecessarily — complex.
Since litigation began in 1986, this dispute has gone before, inter alia, the United States District Court for the Eastern District of Kentucky and the Sixth Circuit, twice before the Bankruptcy Court of the Virgin Islands (which issued numerous orders and opinions), twice before the District Court of the Virgin Islands, and once before us, the Third Circuit. We summarize the procedural history of this matter in more detail below. Suffice it to say that it has been 17 years since Kool Mann agreed to purchase LCSDI.
For our purposes here, we have detailed only those facts that bear on our current disposition.1 In light of the protracted nature of this litigation and the length of time and judicial resources it has consumed we have taken it upon ourselves to determine the value of the Coffeys' proof of claim in bankruptcy to be $238,280.78. We have done so even though under normal circumstances we might have been inclined to remand to the District Court for a remand to the Bankruptcy Court to recalculate the damage figures. In the interests of both judicial efficiency and fairness — and to terminate what has appeared to be interminable litigation — we will affirm the District Court's affirmance of the Bankruptcy Court's findings of fact of fraud and, for the reasons set forth in this opinion, conclude with the ruling that the amount owed by Kool Mann to the Coffeys in this proceeding is $238,280.78. We do so despite the fact that we will be affirming in part and reversing in part the District Court's October 2, 2001 judgment. However, in an effort to conclude this long standing controversy, we will not remand any portion of this appeal, even that segment we are reversing, but will rather decide the relevant value of the Coffeys' claim in this opinion and direct that that value be entered by the Bankruptcy Court.
LCSDI was a family-owned marina and houseboat rental business owned by the Coffeys on Lake Cumberland, Kentucky. It owned and operated an extensive system of docks and slips, a number of pontoon boats, and other boats which it rented to customers for use on Lake Cumberland. The boats were leased by LCSDI from Vacation Cruises ("VC"), a partnership also owned by the Coffeys. In 1986, VC owed about $700,000 to three regional banks in connection with the boats it owned.
Kool Mann is an exceedingly complex leasing business.2 Primarily, Kool Mann's business consisted of purchasing certain equipment (such as computers, telephones, trailers, and construction equipment) and leasing them to various customers known as users. In turn, Kool Mann would assign the lease payments as security against financing which was used to purchase the equipment in the first place. Under this arrangement, Kool Mann's investors were purportedly enabled to utilize certain income tax incentives and investment tax credits, take depreciation on the equipment, and sell the equipment at the expiration of the lease for a profit. Kool Mann operated this arrangement successfully for a number of years.
In the fall of 1985, Moore, the principal owner of Kool Mann, approached the Coffeys about purchasing LCSDI and VC. On December 11, 1985, Moore agreed that Kool Mann would pay a total of $5 million to the Coffeys for the outstanding stock of LCSDI.3 A first payment of $200,000 was due at closing, and an additional $800,000 (plus interest at a 10% per annum rate) was payable three months later (together, the "down payment"). The remaining principal balance was to be paid pursuant to an installment promissory note, which contemplated five annual installments of $150,000 principal and a final balloon principal payment for the remaining $3,250,000 due on September 30, 1991. The note also provided for interest to be paid with the installment payments at 0.5% above the prime interest rate. The Coffeys were provided with a security interest in the assets of LCSDI and a personal guaranty by Moore. The closing was scheduled to take place on December 31, 1985.
The Coffeys provided Kool Mann with unaudited September 30, 1985 and November 30, 1985 financial statements (together, the "financial statements"). After realizing that transactions concerning certain houseboats were not accurately described on the financial statements, L. Coleman Coffey wrote a letter to Moore on December 20, 1985 (the "December 1985 Letter") stating that
The sale was finalized on December 31, 1985 pursuant to a Purchase and Sale Agreement dated December 31, 1985 (the "Purchase Agreement"). The representations and warranties in the Purchase Agreement were modified to reflect the existence of the December 1985 Letter, stating
(e) The financial statements as of November 30, 1985 ... are complete and correct and fairly represent the financial condition of the Corporation ... except as noted, discussed and agreed by the parties and evidenced by a letter to Tom Moore of December 20, 1985, which is hereto attached and herein incorporated.
Moreover, the parties entered into a side letter dated December 31, 1985, whereby the Coffeys agreed that any favorable tax savings they received due to the capital gains treatment of the disposition of the houseboats (the "Tax Savings") would serve to reduce the final balloon payment to be paid by Kool Mann on September 30, 1991 (the "Tax Savings Side Letter").
Shortly after the sale, a dispute arose as to which party would assume certain pre-existing debts of LCSDI, totaling approximately $1.213 million for the houseboat fleet it owned (including the $700,000 debt originally held by VC). In the fall of 1986, Kool Mann filed suit in federal court in Kentucky seeking declaratory relief as to the assumption of debt issue and also sought a set-off against the purchase price of LCSDI for alleged misrepresentations and accounting fraud by the Coffeys. The Coffeys counterclaimed for judgment on the $ 4 million balance due on the purchase price. The Coffeys also filed suit in state court against Moore, individually, under his personal guaranty. That action was removed to federal court and both were consolidated before the Honorable Karl S. Forester, U.S. District Court Judge for the Eastern District of Kentucky.
The Kentucky federal court bifurcated the assumption of debt issue from the misrepresentation and fraud issue. After a six-day trial, Judge Forester ruled on January 31, 1990 that Kool Mann had agreed to assume the company's debt when it agreed to pay $5 million for LCSDI, and that therefore Kool Mann was not entitled to set-off the amount of the assumed debt against the money it owed. See Moore, Owen, Thomas v. Coffey, 1991 WL 519627, slip op. at ¶¶ 6, 8, 10, 14.I (E.D. Ky. Jan. 31 1990). That ruling was not appealed.
On December 20, 1990, while the fraud issue was still pending before the district court in Kentucky, Kool Mann filed for bankruptcy protection in the Virgin Islands, where it purportedly maintained certain offices. Recognizing that he could not rule against Kool Mann due to its pending bankruptcy, Judge Forester entered summary judgment against Moore on October 11, 1991, rejecting Kool Mann's charge of fraud and holding that Moore was responsible for the balance owed to the Coffeys.
The Sixth Circuit reversed, finding a material issue of fact concerning the alleged misrepresentations. That court also held that the obligation of Moore on his personal guaranty could not be determined until the amount due from Kool Mann was first ascertained, and ruled that if fraud on the part of the Coffeys were to be found, Moore's personal liability under the guaranty would be discharged. See Moore, Owen, Thomas & Co. v. Coffey, 992 F.2d...
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