Palmer v. Stokely

• Decision Date: 24 June 1966
• Docket Number: Civ. No. 64-101.
• Citation: 255 F. Supp. 674
• Parties: Philip I. PALMER, Jr., as Trustee in Bankruptcy of Blue Bonnet Discount Stamp Co., Inc., aka Blue Bonnet Stamp Company, Inc., and B & B Stamp Company, Inc., bankrupt, Plaintiff, v. Roy C. STOKELY, Neta K. Stokely, and Stokely Investment Company, a corporation, Defendants.
• Court: U.S. District Court — Western District of Oklahoma

255 F. Supp. 674

Philip I. PALMER, Jr., as Trustee in Bankruptcy of Blue Bonnet Discount Stamp Co., Inc., aka Blue Bonnet Stamp Company, Inc., and B & B Stamp Company, Inc., bankrupt, Plaintiff, v. Roy C. STOKELY, Neta K. Stokely, and Stokely Investment Company, a corporation, Defendants.

Civ. No. 64-101.

United States District Court W. D. Oklahoma.

June 24, 1966.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Norman E. Reynolds, Jr., Oklahoma City, Okl., and James R. Alexander, Dallas, Tex., for plaintiff.

Paul L. Washington, Oklahoma City, Okl., for defendants Stokely.

MEMORANDUM OPINION

DAUGHERTY, District Judge.

In this case the plaintiff as the duly qualified Trustee in Bankruptcy of Blue Bonnet Discount Stamp Co., Inc., in the United States District Court for the Northern District of Texas, seeks recovery against the defendants Roy C. Stokely, Loneta K. Stokely, and Stokely Investment Company, Inc., under the provisions of Sections 67d(2) and 70e of the Bankruptcy Act.

On April 28, 1960, the defendant, Roy C. Stokely, entered into a contract with A. L., Retha and W. R. Murrell, who were the sole stockholders of Blue Bonnet Discount Stamp Co., Inc., a Texas corporation, (hereinafter called Blue Bonnet or Bankrupt) to purchase all of Blue Bonnet's corporate stock.

This contract was immediately assigned by Stokely to the Stokely Investment Company (hereinafter called Stokely Investment) a corporation wholly owned by Stokely and the co-defendant, Loneta K. Stokely, his wife, except for two qualifying shares in her parents name. Stokely executed this assignment agreement for both himself and Stokely Investment. Shortly thereafter, by a document dated April 30, 1960, Stokely Investment transferred "all the capital stock of Blue Bonnet" to Southwest Premium Company (hereafter called Southwest) in exchange for the entire common stock of Southwest. Southwest did not receive its corporate charter for another five days. Again, Stokely signed for both parties. The capital stock of Southwest was $1,000.00 for which no money was actually paid in.

Whereas the sale of all of the Blue Bonnet corporate stock from the Murrells to Stokely was for a consideration of $102,517.25, by these documents this same corporate stock was immediately transferred to a wholly owned subsidiary of a wholly owned corporation, which subsidiary had an issued capital of only $1,000.00 for which nothing was actually paid.

Various assets of Blue Bonnet, including $40,231.23 in cash, a note receivable and a Pontiac, were transferred by Stokely direct to the Murrells for a total of Blue Bonnet assets being transferred to the Murrells in connection with their sale of all of the Blue Bonnet corporate stock in the sum of $53,745.86, which was thereafter treated by the Stokelys as an account receivable of Blue Bonnet and an account payable of Southwest.

The Stokelys owned another wholly owned corporation, Prudential Premium Company of Oklahoma, Inc., (hereafter called Prudential) which became involved in various transactions with Blue Bonnet and which was engaged in the same business as Blue Bonnet.

The Stokelys were obviously counseled and guided in their operations by their auditor, Darrell Kirby, who audited the various Stokely corporations, and prepared their tax returns and financial statements. Unfortunately neither Kirby nor the Stokelys could keep the various transactions between the different entities in order. Considerable confusion of entities in various transactions was noted.

Also either Kirby made the mistake of spelling out the Stokelys' intent for them or the Stokelys made the mistake of allowing a copy of the financial statement of Southwest to fall into the hands of the Trustee in Bankruptcy. In any event this statement succinctly outlined the scheme under the heading "Explanatory Comments" as follows:

"Southwest Premium Company was organized in Texas on May 4, 1960 with authorized common stock of $1,000.00 * * *.

"The company was organized mainly to acquire all of the stock of Blue Bonnet Discount Stamp Company. When this stock was purchased, it was desired to pay for it out of the assets of Blue Bonnet Discount Stamp Company. * * *

"The net result will be that the owners of the stock will have no money invested in the company and that all payments to the Murrell's will be made from the assets of Blue Bonnet Discount Stamp Company. This will result in effect in a partial liquidation of the company and the same result could have been achieved at the date of purchase except that any income tax benefit to be derived from the net operating loss carry forward would have been lost.

"Blue Bonnet Discount Stamp Company is a wholly owned subsidiary of Southwest Premium Company. Your ownership of the two companies is represented by the 1000 shares of stock of Southwest Premium Company."

The evidence disclosed that the inventory of Blue Bonnet was reduced approximately $115,000.00 within one year after the Murrells sold to Stokely and during the same period the cash was reduced over $60,000.00. There was also a reduction in the equipment and furniture.

$17,000.00 was transferred from Blue Bonnet to Prudential on August 8, 1960, which, it was subsequently stipulated and agreed, was a payment on new catalogs. $10,000.00 was then transferred from Blue Bonnet to Stokely Investment on November 16, 1960, $5,000.00 to the same company on March 24, 1961 and $2,000.00 to the same company on April 21, 1961. The books and records of Blue Bonnet reflected these as additions to its accounts receivable bringing the total thereof to $70,745.86 but subsequently this money was applied to the purchase price of premium catalogs which were acquired by Blue Bonnet in conjunction with Prudential and which were identical with the Prudential catalog except for the cover. The catalogs were said to have been acquired jointly so as to reduce the per unit cost.

About January 31, 1961, Stokely Investment, which owned Southwest, entered into an agreement with Andrew J. Douds, manager of Blue Bonnet, to transfer Southwest (which owned Blue Bonnet) to him for which the principal consideration was Douds' assumption of the balance then due to the Murrells of $45,000.00 on their sale of Blue Bonnet to Stokely. Nothing was paid on this obligation by Douds and he was released from the transfer by an instrument dated August 22, 1961.

For several months prior to the release of August 22, 1961, Douds and Stokely both participated in efforts to sell Blue Bonnet and finally on August 23, 1961 a contract was made with Howard Hedges to transfer the capital stock of Blue Bonnet to Hedges and the only obligation stated therein was that Blue Bonnet under Hedges' ownership would pay a large existing account payable. This was never fully paid.

Hedges' CPA, Dale Lingren, and Hedges both testified that the company was clearly insolvent at that time even including as an asset an account receivable from Southwest of $70,745.86. Hedges' bookkeeper stated that the business was losing at least $5,000.00 monthly at the time according to her computations. The last financial report of Blue Bonnet dated April 31, 1961, which was prepared by Kirby on May 24, 1961, reflected an insolvent condition of $28,508.00 with the $70,745.86 account receivable from Southwest included as an asset. Blue Bonnet's next prior financial statement as well as its tax returns (all prepared by Kirby) reflected the condition at the end of its fiscal year, October 31, 1960, to show the company solvent by only $13,787.00. This included the Southwest account receivable as of that date of $53,745.86. The evidence, therefore, seems clear that the company became insolvent at least as early as January 1, 1961. It follows that the property remaining in its hands was an unreasonably small capital at a time prior thereto by several months.

At about the time of the sale of Blue Bonnet to Hedges, Stokely and Kirby apparently concluded it was advisable to cancel the account receivable owed Blue Bonnet by Southwest in the amount of $53,745.86 and prepared an agreement ostensibly dated December 21, 1960, cancelling this debt which is signed by Stokely for both Blue Bonnet and Southwest. Plaintiff, however, produced an expert witness on questioned documents, Madge McPherren, who caused magnified pictures to be taken of a portion of this cancellation document which clearly reflects the fact that the document was originally typed to read the 21st day of August, 1961. She further testified that this document was typed at the same time and by the same typewriter that typed the sale agreement dated August 23, 1961, which Stokely and Hedges signed.

The defendants next relied upon corporate minutes ostensibly authorizing the cancellation as of December 6, 1960, but the testimony shows that Hedges requested the corporate minutes but was unable to obtain them for several months after he took over the business and the questioned document expert's testimony again made it clear that said minutes were not prepared at or about the dates reflected therein. The secretary of the corporation, the defendant, Loneta K. Stokely, did not know who typed the corporate minutes, when or where they were typed, the color or size or shape of the corporate minute book, or where it was kept and the evidence is, therefore, rather conclusive that the minutes were prepared after the fact. Regardless of this the mere authorization to an officer contained in the minutes to cancel an obligation does not effect a cancellation of the obligation without more.

Hedges managed to keep the business alive for a short period but it subsequently was declared a bankrupt on a petition filed against it on April 30, 1962, with very substantial obligations outstanding of both merchandise creditors and premium stamp holders.

This case was tried to the Court without a jury. The plaintiff presented his case by way of testimony from the defendants, Roy C. and ...