Kroblin Refrigerated Xpress, Inc. v. Pitterich
| Decision Date | 01 December 1986 |
| Docket Number | Nos. 85-3719,85-3720,86-3006 and 86-3332,No. 86-3005,No. 85-3719,No. 86-3006,86-3005,No. 85-3720,No. 86-3332,85-3719,86-3006,86-3332,s. 85-3719 |
| Parties | KROBLIN REFRIGERATED XPRESS, INC., Appellant in, v. Wernert J. PITTERICH. Wernert J. PITTERICH, Suzanne E. Rickards, Executrix of the Estate of E.C. McCormick, Harold D. Doyle, Dorothy Ortbring, Charles F. Rodgers, Gene Rotondi, John Trapp, Gerhard J. Brennan, William Kirk, A. David Millner, Edward F. Bowes, Robert E. Gesell, and Edward Kramer v. KROBLIN REFRIGERATED XPRESS, INC., Kroblin Transportation System, Inc., and Allen E. Kroblin. (Four Cases) Appeal of KROBLIN REFRIGERATED XPRESS, INC., inAppeal of Suzanne E. RICKARDS, Executrix of the Estate of E.C. McCormick, Harold P. Doyle and Dorothy Ortbring, inAppeal of Wernert J. PITTERICH, inAppeal of Harold P. DOYLE and Dorothy Ortbring, in |
| Court | U.S. Court of Appeals — Third Circuit |
David E. Lehman (argued), McNees, Wallace & Nurick, Harrisburg, Pa., for appellants in Nos. 86-3005, 86-3332 and for cross-appellees in Nos. 85-3719, 85-3720.
Michael P. Pitterich (argued), Pittsburgh, Pa., for appellant Wernert J. Pitterich in No. 86-3006.
Charles F.C. Ruff (argued), Hillary A. Sloan, Covington & Burling, Washington, D.C., Stephen Jurman, McCann, Garland, Ridall & Burke, Pittsburgh, Pa., for cross-appellant in Nos. 85-3719, 85-3720, for appellees in Nos. 86-3005, 86-3006, and for appellees in No. 86-3332.
Before ALDISERT, Chief Judge, and WEIS and MANSMANN, Circuit Judges.
The deregulation of the trucking industry during the Carter Administration and the complicated history of various sales of a trucking company that possessed valuable transportation rights prior to deregulation form the backdrop for numerous issues that command our attention here in consolidated appeals from a district court bench trial. The district court determined that Kroblin Transportation System, Inc. and Kroblin Refrigerated Xpress, Inc., as guarantor, breached an agreement to purchase Fleetwood Investment Company, a holding company that owned A.C.E. Freight, Inc. For relief, the court ordered specific performance of the contract of sale including payment of notes and prejudgment interest. The court also determined that a $100,000 claim of the principal seller, Wernert J. Pitterich, was not enforceable against the purchasers for lack of consideration.
We have appeals from all sides. Pitterich argues that adequate consideration supports his claim. Kroblin Refrigerated Xpress, Inc. ("Refrigerated") raises six questions of contract law: whether the district court (1) properly construed a "shall guarantee" clause in the sales agreement; (2) properly rejected a defense of frustration of purpose following the advent of deregulation; (3) properly ordered specific performance instead of awarding money damages; (4) properly determined that two shareholders of a corporation had standing to sue Refrigerated for payment on a promissory note; (5) properly decided that the law firm of Bowes, Millner & Rodgers did not breach a fiduciary duty by acting as counsel to the purchaser, Refrigerated, while holding a financial interest in Fleetwood, the seller; and (6) properly ordered Refrigerated to accept a note from Fleetwood to Pitterich as satisfaction of Pitterich's obligation to Refrigerated. Doyle and Ortbring, as well as Rickards, as executrix of the estate of E.C. McCormick, appeal from the district court's determination of the proper rate of prejudgment interest to accompany its remedy.
We will affirm the district court's determinations adverse to Refrigerated and will affirm the court's application of the Pennsylvania prejudgment interest rate. We will reverse, however, the district court's determination that adequate consideration did not support Pitterich's separate claim. The trial court had diversity jurisdiction over the subject matter of this action pursuant to 28 U.S.C. Sec. 1332, and applied Pennsylvania substantive law to the present controversy except for the issue relating to Refrigerated's acceptance of the Fleetwood note.
This lawsuit evolved from the attempted sale of A.C.E. Freight, Inc. to Refrigerated. Although ACE was an unprofitable company, it held one valuable asset: an ICC certificate of authority permitting it to carry freight from the northeast portion of the country to Chicago. The first of a series of sales of ACE's certificated rights began in 1968 when its shareholder, E.C. McCormick, sold ACE to Great Lakes Express Company ("Lakes"), a company owned by members of the Doyle family, including Harold Doyle and his sister, Dorothy Ortbring. Approximately nineteen shareholders constituted the Doyle group. Wernert Pitterich entered the scenario in 1970 when Lakes hired him as general manager of ACE.
The second sale took place in 1971 when Lakes sold ACE to the Fleetwood Investment Corporation, a holding company consisting of twelve investors. Edward Bowes, A. David Millner, and Charles Rodgers of the law firm of Bowes, Millner & Rodgers were three of the investors. Pitterich held twenty percent of the Fleetwood stock. Two notes figured in the sale by Lakes to Fleetwood: ACE gave McCormick an unsecured note for $1,000,000 ("McCormick note") and Fleetwood gave Lakes a note for $800,000 secured by ACE stock ("Lakes note").
After three years, in 1974, Pitterich moved to take over Fleetwood. He purchased the eighty percent interest of the other eleven Fleetwood shareholders for $80,000 in cash and $480,000 in promissory notes payable to Fleetwood ("Fleetwood notes"). Pitterich borrowed the cash payoff from John Loudermilk and, in return, gave Loudermilk an interest in certain Fleetwood stock.
Allen Kroblin then entered the scene and laid the groundwork for the third sale of ACE. Kroblin owned several trucking companies and was chief executive officer of Refrigerated, which held ICC certificates of authority in the midwestern and eastern United States, but none in the Pennsylvania-Chicago corridor. Kroblin became interested in purchasing ACE in order to acquire ACE's operating authority, which included the corridor rights between Pennsylvania and Chicago. Negotiations began with Pitterich, who controlled Fleetwood which in turn owned ACE.
Before he could totally convey Fleetwood to Kroblin, Pitterich had to buy out Loudermilk's interest in Fleetwood. On November 11, 1976, Kroblin agreed to lend Pitterich $200,000 in exchange for a note from Pitterich ("Pitterich note"). An accompanying pledge agreement provided that Pitterich would use the money to repurchase Loudermilk's interest in Fleetwood. Pitterich subsequently used the money for this purpose. With Loudermilk out of the picture, Kroblin could deal exclusively with Pitterich. In December 1976, Kroblin retained the Bowes, Millner firm to represent Refrigerated in connection with the ICC proceedings relating to the ACE purchase.
On March 17, 1977, the third sale took place. Refrigerated and Pitterich entered into a purchase agreement for Fleetwood. This was a highly complicated transaction that required an ICC grant of temporary authority to the purchaser pending final approval of the sale. In exchange for Pitterich's Fleetwood stock, Refrigerated agreed to pay Pitterich $10,000 in cash and make payments on the three outstanding notes to McCormick, Lakes, and Fleetwood. The agreement provided that the transaction would be consummated upon final approval of the ICC.
On the same date, Refrigerated and Pitterich entered into a noncompetition agreement. Refrigerated agreed to pay Pitterich $100,000 over a period of five years in exchange for Pitterich's promise not to compete with ACE in the Pennsylvania-Chicago corridor during this time. The agreement, however, gave Pitterich the right to terminate the covenant not to compete and receive the $100,000 immediately.
On behalf of Refrigerated, the law firm of Bowes, Millner filed with the ICC applications to obtain temporary authority over the ACE territories and approval of the Fleetwood-Refrigerated transaction. The ICC thereafter issued Refrigerated temporary authority to operate ACE; Refrigerated proceeded to use ACE's transportation rights in the Pennsylvania-Chicago corridor. On May 1, 1977, Refrigerated began making payments on the notes payable to McCormick, Lakes, and Fleetwood. Refrigerated and Pitterich subsequently entered into a first supplemental agreement which altered the structure of the temporary authority but did not affect the essence of the March 17 agreement. On October 12, 1977, the ICC authorized Refrigerated to purchase the Fleetwood stock.
In the fall of 1977, however, Kroblin reorganized his companies. Under his plan, Arrow Freight Lines, Inc. and a new trucking company, Kroblin Transportation System, Inc., would become the purchasers of Fleetwood. ACE would then be merged into Kroblin Transportation which would thereafter operate as a general carrier, while Refrigerated would transport refrigerated goods.
On November 17, 1977, Pitterich and Refrigerated entered into a second supplemental agreement substituting Arrow/Kroblin Transportation as the Fleetwood purchaser. In exchange, Refrigerated guaranteed the terms of the original and first supplemental agreements. It is this guarantee clause that constitutes a major question for decision in these appeals. The Bowes, Millner firm thereafter filed applications with the ICC seeking approval of the Arrow/Kroblin Transportation substitution.
In 1979, the deal went flat. In anticipation of deregulation of the trucking industry, the ICC became increasingly liberal in granting certificates of authority. Realizing that the once-regulated Pennsylvania-Chicago corridor rights could now be readily obtained from the ICC, Kroblin sought to block ICC approval of the Fleetwood-Arrow/Kroblin Transportation deal. The ICC, however,...
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