Old Colony Trust Company v. Penrose Industries Corp.

• Decision Date: 25 January 1968
• Docket Number: Civ. A. No. 42853.
• Citation: Old Colony Trust Company v. Penrose Industries Corp., 280 F.Supp. 698 (E.D. Pa. 1968)
• Parties: OLD COLONY TRUST COMPANY, United Ventures, Inc., and Gabriel Powers, Plaintiffs, v. PENROSE INDUSTRIES CORPORATION, Wm. Penn Broadcasting Company, Redevelopment Authority of the City of Philadelphia, William H. Sylk, Harry S. Sylk, Jonas Senter, Selma Katz, Sammuel Rosenblum, Simon Rosenblum, Leon J. Obermayer, Conservator, and Walter E. Heller & Co., Inc., Defendants, and the Borden Company, Intervenor Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

280 F. Supp. 698

OLD COLONY TRUST COMPANY, United Ventures, Inc., and Gabriel Powers, Plaintiffs, v.PENROSE INDUSTRIES CORPORATION, Wm. Penn Broadcasting Company, Redevelopment Authority of the City of Philadelphia, William H. Sylk, Harry S. Sylk, Jonas Senter, Selma Katz, Sammuel Rosenblum, Simon Rosenblum, Leon J. Obermayer, Conservator, and Walter E. Heller & Co., Inc., Defendants and the Borden Company, IntervenorDefendant.

Civ. A. No. 42853.

United States District Court E. D. Pennsylvania.

January 25, 1968.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Drinker, Biddle & Reath, by Henry W. Sawyer, III, and Walter L. Foulke, Philadelphia, Pa., for Old Colony Trust Co. and Gabriel Powers.

Howard G. Schneider, for Gabriel Powers.

Montgomery, McCracken, Walter & Rhoads, by John S. Estey and Hugh G. Moulton, Philadelphia, Pa., for United Ventures, Inc.

Wolf, Block, Schorr & Solis-Cohen, by Raymond J. Bradley and Michael L. Temin, Arlin M. Adams, Philadelphia, Pa., for William Penn Broadcasting Corp.

Michael H. Egnal, Philadelphia, Pa., and Joel H. Weinrott, Philadelphia, Pa., for William H. Sylk and Harry S. Sylk.

Josef Jaffe, Philadelphia, Pa., for Selma Katz and Samuel Rosenblum.

Alexander N. Rubin, Jr., J. Jerome Sklar, Frank E. Hahn, Jr., and Simon Pearl, Philadelphia, Pa., for the Conservator, Leon J. Obermayer.

Dilworth, Paxon, Kalish, Kohn & Levy, by William T. Coleman, Jr., Philadelphia, Pa., for Walter E. Heller & Co., Inc.

Joseph M. Field, Philadelphia, Pa., for Martin W. Field.

Israel Packel, Philadelphia, Pa., for Borden Co.

David Berger and Herbert B. Newberg, Philadelphia, Pa., for David E. Milgram.

Walter Stein, Philadelphia, Pa., for P. I. D. C. (Philadelphia Industrial Development Corp.).

VAN DUSEN, Circuit Judge.

SUR PLEADINGS AND PROOF UNDER COUNT II OF THE COMPLAINT

This case concerns a sale of collateral under Article 9 of the Uniform Commercial Code.It is now before the court after a non-jury trial on the issues raised in Count II of the Complaint: an action seeking a declaratory judgment¹ that the plaintiffs' sale of collateral was "commercially reasonable" and otherwise lawful.

History of the Case

The Complaint was filed June 1, 1967, by certain secured parties in this commercial transaction and the trustee holding the above mentioned collateral.The named defendants included various other secured parties, allegedly junior in lien, the debtor, and its subsidiary.Also named as a partydefendant was Leon J. Obermayer, who was appointed Conservator by this court with respect to certain assets of the debtor on May 11, 1965, in Civil ActionNo. 37995.Attached to the Complaint was a contract for sale of the collateral held by the plaintiffs, the common stock of a radio station (the debtor's wholly-owned subsidiary), which contract had been signed May 26, 1967.Count I of the Complaint sought preliminary injunctive relief to enable plaintiffs to consummate the sales contract.After a hearing on June 7, 1967, a preliminary injunction was granted by order of June 8, 1967, and modified after a further hearing June 13, 1967.These orders, declaring that defaults had occurred under the various agreements outlined below, enjoined the debtor or its officers from various acts which would alter the value of the collateral and required their cooperation in providing financial and other information as covenanted in the various security or pledge agreements (Documents 5 and 8).A third hearing was held June 21 on whether to require cooperation of the debtor and its subsidiary with the plaintiffs in their application to the F.C.C. for change in control of the radio station.²As had been discussed in the previous hearings, the court also stated its willingness to receive any other firm offers for the collateral radio station stock at this hearing to be used as evidence in deciding the issues under Count II.One such offer by David Milgram and Associates was followed by their motion to intervene as plaintiffs(Document 17 of June 26).After argument and briefing on the issue of what status such offers should have in this case, the court on July 10, 1967, denied the motion to intervene(Document 28), but gave Milgram leave to present argument amicus curiae at the end of the trial on Count II.This decision has been affirmed by the United States Court of Appeals for the Third Circuit, 387 F.2d 939(January 9, 1968).Inherent in this order was the conclusion by the court that such offers were relevant in this case only as evidence in the determination of "commercial reasonableness" under Count II.A fourth hearing on July 19, 1967, resolved the issue of a possible jury trial and scheduled the trial to the Court for August 23, 1967.The actual trial took 13 days and produced 2027 pages of testimony and over 100 exhibits.

Discussion

A.Facts

Penrose Industries Corporation("Penrose") is indebted to the plaintiffs, United Ventures, Inc.("United") and Gabriel Powers("Powers").United holds certain "senior notes" currently being $740,000. principal amount of 5½% interest-bearing notes.Powers also holds certain notes ("Powers Notes"), being $1,000,000. principal amount.As security for these notes, Penrose pledged on August 20, 1960 and August 21, 1962, respectively, the entire capital stock of its wholly-owned subsidiary, William Penn Broadcasting Company("WPEN").The plaintiff, Old Colony Trust Company("Old Colony"), is acting as trustee for United and Powers under the "Senior Stock Pledge" agreement with United and the "Powers Stock Pledge" agreement with Powers.

Defendants William and Harry Sylk("Sylks") are the chief officers of WPEN and Penrose and effectively control them both.On January 31, 1962, WPEN issued a debenture ("the debenture") to the Sylks, "acting for themselves and others as their respective interests appear."This debenture was then pledged on August 21, 1962 to United and Powers as additional collateral to secure the debt Penrose owed the plaintiffs(the "Senior Debenture Pledge" agreement and "Powers Debenture Pledge" agreement, respectively).Since December 1, 1964, Penrose has been in default under all these agreements as determined in the findings, and order of June 8, 1967(Document 5) and as more fully shown at trial.Although the Powers Notes provided for no interest for the first five years, this was waived by Penrose on July 13, 1966(P-79), when it agreed to pay Powers his interest from December 1, 1964, at 6% per annum as consideration for Powers not fully enforcing his rights under the original note purchase agreement with Penrose (dated July 1, 1962), which would have required the immediate sale of the WPEN stock in December 1964(par. 1B of P-77).Accordingly, United and Powers, as the two most senior secured parties, seek payment from the collateral of $1,740,000. principal amount of indebtedness, plus interest owed, plus the reasonable expenses and attorneys' fees incurred by them and the trustee, Old Colony, in efforts to realize on this collateral.

Since December 2, 1964, there is no question that Penrose, the Sylks, and the other secured parties junior to United and Powers have had ample notice that first two secured parties wanted to sell the collateral.³Powers was also informally in touch with the Sylks throughout the period since December 1964 and for purposes of such communication, the Sylks were both principal officers of the debtor Penrose and junior secured parties as well.

For various reasons, however, the secured parties have been unable to negotiate a contract of sale for the WPEN stock until now.To begin with, the Sylks have generally been opposed to any sale, WPEN being perhaps the most valuable remaining asset of Penrose (see N. T. 6/7/67-60-66).Since May 11, 1965, a Conservator has been attempting to realize the maximum amount from certain assets of Penrose in a capacity similar to that of a common law receiver (Civil ActionNo. 37995) and has made known his claim to this asset.During this period, WPEN has perhaps been Penrose's most valuable asset and pays the Sylks both a generous salary and rents as a landlord, which one appraiser found to be comparatively high (P-14).WPEN has apparently also been useful during the Penrose insolvency as a guarantor for certain Penrose obligations.⁴Both before and after the Conservator was appointed, having the stock of a radio station as collateral was apparently quite useful for Penrose and the Sylks.F.C.C. regulations prevented the secured parties from controlling the station even though they had the stock 47 U.S.C. § 310(b);see, e. g., Lorain Journal Company v. F.C.C., 122 U.S.App.D.C. 127, 351 F.2d 824(1965), cert. den.383 U.S. 967, 86 S.Ct. 1272, 16 L.Ed.2d 308(1966), and with the stock held by a trustee, junior interests could be created, slotted, or rearranged to provide flexible collateral for many situations.It appears from the testimony and many exhibits that the group of secured parties below United and Powers included the Philadelphia Redevelopment Authority, Walter E. Heller & Co., Inc.("Heller"), Jonas Senter("Senter"), and the Sylks in a complex of priorities that need not be determined in this decision, but one which shows an additional reason the Sylks wanted any sale delayed if possible.

Against this background of a conservatorship claiming an interest in the collateral and opposition from those who had effective control of the "collateral" radio station, the plaintiffs had to attempt a sale if they were ever to secure repayment of the amounts owed them.After the default notices of December 2, 1964(P-10), Old Colony and Powers demanded, without success, (P-11, December 11, 1964) that the Sylks honor their agreement of July 1, 1962(P-78) wherein they had promised personally to purchase the stock of WPEN for $3,500,000. in the event of default.

The plaintiff's next step was to secure a competent appraisal of the value of the WPEN stock.In...