Matter of Teltronics Services, Inc.
| Decision Date | 05 April 1983 |
| Docket Number | Bankruptcy No. 79-B-2725 (CHG) |
| Parties | In the Matter of TELTRONICS SERVICES, INC. Bankrupt. ANACONDA-ERICSSON, INC., successor by merger of LM Ericsson Telecommunications, Inc., Plaintiff, v. Jules J. HESSEN, as Trustee in Bankruptcy of Teltronics Services, Inc., Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
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Sullivan & Cromwell, New York City, Richard G. Lyon, Greenwich, Conn., for plaintiff Anaconda-Ericsson, Inc. Hahn & Hessen, New York City, for trustee.
DECISION
Plaintiff Anaconda-Ericsson, Inc. commenced an adversary proceeding against the bankrupt, Teltronics Services, Inc., seeking inter alia a declaration of its rights in certain assets of the bankrupt, and relief from the stay of enforcement of those rights. The trustee interposed various affirmative defenses and a counterclaim for equitable subordination.
In essence, the trustee contends that the plaintiff fraudulently induced Teltronics to default under a certain loan agreement, thereby enabling plaintiff to seize its collateral and take over the business of Teltronics. Conversely, plaintiff avers that its conduct toward the debtor was entirely within the bounds of lawful and reasonable commercial practice. After trial of the issues presented, the court makes the following findings of fact and conclusions of law.
1. Plaintiff Anaconda-Ericsson, Inc., a Delaware corporation, is the successor by merger to L M Ericsson Telecommunications, Inc. ("LMU"). The merger of LMU into plaintiff occurred on January 28, 1982. Pre-trial Order, Schedule C ¶ 1. (Hereinafter all references to "Schedule C" relate to the stipulated facts incorporated into the Pre-trial Order dated November 1, 1982.)
2. Prior to its merger with plaintiff, LMU was a New York corporation with its principal place of business at 100 Crossways Park West, Woodbury, Nassau County, New York, and before 1980 it was a wholly-owned subsidiary of Telefonaktiebolaget L M Ericsson ("LME"), a Swedish corporation. Schedule C, ¶ 1.
3. Between January 1, 1978, and March 31, 1979, the following individuals were officers, directors, or employees of LMU and certain of their positions were referred to internally by designations indicated in parentheses:
4. Between January 1, 1978, and March 31, 1979, Carl O. Lennmalm was also the president of The Ericsson Corporation, a wholly-owned subsidiary of LME with its principal place of business in New York, New York, and that position was referred to internally by the designation "TECC." Schedule C, ¶ 3.
5. LME is based in Stockholm, Sweden, and manufactures telephone equipment, including private automatic branch exchanges ("PABXs"). Schedule C, ¶ 4.
6. Between January 1, 1978, and March 31, 1979, the following individuals were officers or employees of LME and their positions were referred to internally by the designations indicated in parentheses:
7. Teltronics Services, Inc. ("Teltronics") is a New York corporation, organized in May 1970, that began its operations in July 1971. Teltronics became a publicly-owned corporation in 1973. Prior to March 6, 1979, Teltronics' shares were publicly traded in the over-the-counter market. Schedule C, ¶¶ 6, 7; exh. T-321D at 1, T-342 at 5.
8. The parties have stipulated that Schedule C, ¶ 6.
9. From January 1, 1978, to March 31, 1979, the following individuals were officers or employees of Teltronics:
10. Prior to March 6, 1979, Teltronics acted as an independent distributor of business telephone equipment manufactured by LME. Teltronics purchased such equipment from LMU and, in turn, sold or rented such equipment to Teltronics' customers, who were the users thereof. Teltronics was LMU's principal distributor of PABX equipment for the New York metropolitan area. Schedule C, ¶¶ 10, 11.
11. Since May 1980, Jules J. Hessen has been and now is the duly qualified and acting trustee in bankruptcy of Teltronics. Schedule C, ¶ 9.
12. On September 18, 1979, four creditors of Teltronics, including LMU, filed an involuntary bankruptcy petition against Teltronics in this court under section 59(b) of the Bankruptcy Act of 1898. On September 28, 1979, Teltronics filed a voluntary petition in this court seeking relief under Chapter XI of the Bankruptcy Act. Pursuant to Bankruptcy Rule 11-44(a), LMU was thereupon automatically stayed from acting or proceeding to enforce its claimed security interest in certain of Teltronics' assets.
13. On October 16, 1979, LMU filed its complaint in the instant adversary proceeding, seeking: (1) relief from the stay, (2) a declaratory judgment as to the enforceability of its claimed rights in certain collateral, (3) an injunction, (4) an accounting, and (5) ancillary relief.
14. On April 30, 1980, Teltronics was adjudicated a bankrupt. Pursuant to Bankruptcy Rule 601, LMU continued to be stayed from acting or proceeding to enforce its claimed security interest.
15. The trustee was subsequently appointed and he qualified on May 20, 1980.
16. Pursuant to a stipulation between LMU and the trustee dated June 27, 1980 and approved by Bankruptcy Judge Cecelia H. Goetz of this court on July 8, 1980, the trustee served an answer to LMU's complaint, asserting affirmative defenses and a counterclaim for equitable subordination of LMU's claim. The trustee's answer also sought dismissal of LMU's complaint, the imposition of a constructive trust upon monies and property already received by LMU and ancillary legal and equitable relief.
17. On March 20, 1981, Judge Goetz granted motions by LMU respectively for summary judgment and dismissal of the trustee's equitable subordination counterclaim. L M Ericsson Telecommunications, Inc. v. Teltronics Services, Inc., Adv. No. 79-B-2725 (Bkrtcy.E.D.N.Y.), rev'd & , 18 B.R. 705 (D.C.E.D.N.Y.1982). Judge Goetz's decision, which was predicated in part on the res judicata effect of the prior dismissals of two securities and antitrust actions brought by Teltronics against LMU et al. in the District Court for the Southern District of New York, Teltronics Services, Inc. v. L M Ericsson Telephone Co., No. 79 Civ. 1233 (S.D.N.Y.1979); Teltronics Services, Inc. v. L M Ericsson Telecommunications, Inc., 486 F.Supp. 836 (S.D.N.Y.), aff'd, 642 F.2d 31 (2d Cir.), cert. denied, 452 U.S. 960, 101 S.Ct. 3108, 60 L.Ed.2d 971 (1981), was reversed and remanded by District Court Judge Edward R. Neaher. 18 B.R. 705 (D.C.E.D.N.Y.1982.)
18. On April 9, 1982, Judge Goetz recused herself from the trial of this adversary proceeding. The adversary proceeding was thereafter reassigned for all purposes to Bankruptcy Judge C. Albert Parente.
19. Pursuant to section 2(7) of the Bankruptcy Act, this court has jurisdiction to determine all controversies relating to the collection, liquidation, and distribution of a bankrupt estate and the court may exercise summary jurisdiction over any controversy arising in a proceeding under the Act if no party objects to its exercise of such jurisdiction prior to the expiration of his time to answer. In this adversary proceeding no party has objected to this court's exercise of its summary jurisdiction. Pre-trial Order, Schedule B.
20. Commencing in April 1975, LMU guaranteed a series of loans, aggregating in excess of $7.5 million, that were made to Teltronics by Citibank, N.A. ("Citibank"), and Nordic American Banking Corporation ("Nordic"). Schedule C, ¶ 17. The primary purpose of these loans was to provide Teltronics with sufficient capital to purchase PABX equipment from LMU, which it would in turn lease or sell to its customers. Tr. 225.2-226.15 (SGM).
21. Teltronics entered into a loan agreement with Citibank dated as of April 15, 1975, which was subsequently amended by agreements dated December 31, 1975, June 24, 1976, April 15, 1977, December 28, 1977, March 24, 1978, and April 26, 1978 (as amended, the "Citibank Loan Agreement"). Schedule C, ¶ 18.
22. Under the Citibank Loan Agreement, Teltronics executed a promissory note payable to Citibank, dated April 28, 1977, in principal amount of $3.7 million (the "Citibank Note"). Schedule C, ¶ 19.
23. LMU guaranteed payment of principal and interest under the Citibank Loan Agreement by a guarantee dated June 23, 1975, as subsequently amended. Schedule C, ¶ 20.
24. The principal amount outstanding on March 6, 1979, under the Citibank Loan Agreement...
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