Pearson Bros. Co., Inc. v. Pearson, 89-1124.
| Decision Date | 13 April 1990 |
| Docket Number | No. 89-1124.,89-1124. |
| Citation | 113 BR 469 |
| Parties | The PEARSON BROS. COMPANY, INC., Appellant/Cross-Appellee, v. Leland PEARSON, Appellee/Cross-Appellant. |
| Court | U.S. District Court — Central District of Illinois |
Ronald R. Peterson, Chicago, Ill., for appellant/cross-appellee.
Don J. McRae, Kewanee, Ill., for appellee/cross-appellant.
Before the Court is an appeal by Pearson Bros. Company, Inc. and a cross-appeal by Leland Pearson. The District Court has jurisdiction for this appeal under to 28 U.S.C. § 158(a). This Court affirms the decision of the bankruptcy court, 98 B.R. 427, but for different reasons than those given by the bankruptcy court.
The first issue is whether the parties intended to agree to make an agreement to later execute a consulting/non-compete agreement.
The second issue is whether the agreement to agree constitutes a contract which is definite enough to enforce under Illinois law.
The third issue is whether, if the contract is too indefinite to be enforced, the Court can fashion an equitable remedy based upon promissory estoppel or based upon the federal policy favoring finality in Bankruptcy Reorganization Plans which have been approved.
Bankruptcy Rule 8013 provides that the findings of fact of the bankruptcy court shall not be set aside unless they are clearly erroneous. The District Court may review the bankruptcy court's conclusions of law de novo. Matter of Excalibur Automobile Corp., 859 F.2d 454 (7th Cir.1988).
The Pearson Bros. Company (hereinafter the "Debtor") is engaged in the business of manufacturing farm equipment. Leland Pearson founded the Debtor and prior to its reorganization was its only shareholder, its chief executive officer, and one of its directors. Also, at the time of the Debtor's reorganization, Leland Pearson's brother, Vernon Pearson, had retired from the Debtor and was working part-time in exchange for expenses, and LaVerne Charlet, a long time key employee, was still working for the Debtor. In November of 1983, the Debtor had incurred substantial debt, much of which had been guaranteed by Leland Pearson. When the Debtor was unable to meet its obligations, the Debtor filed a Chapter 11 proceeding, and Leland Pearson filed his individual Chapter 11 proceeding.
Originally, Leland Pearson's goal was to save his interest in the Debtor through a reorganization. Subsequently, he began to consider the alternative of selling his interest in the Debtor to a third party. Gerald Gidwitz learned that the Debtor was possibly for sale. In the summer of 1984, Leland Pearson and James Stearns, a representative of Gidwitz, attended a meeting. This initial meeting was exploratory in nature and no definite proposals were discussed. However, on several occasions Leland Pearson told Stearns he did not wish to work for a reorganized Debtor. Consequently, there was no discussion of the salary for Leland Pearson should Gidwitz acquire the Debtor. Exploratory type meetings between Gidwitz and Pearson continued during July of 1984. As a result of these meetings, Pearson decided to sell his interest in the Debtor. At this stage there had not been any negotiations concerning Leland Pearson's continued relationship with the reorganized Debtor and the compensation to be paid to him.
In August of 1984, the pace and intensity of the negotiations increased. On August 2, 1984, a special meeting of the Debtor's Board of Directors was held. All but one of the Directors, including Leland Pearson, were present at the meeting. One of the Directors was Wallace L. Edwards, President of Superior Gear Box, one of the Debtor's creditors. Also present were the Debtor's corporate counsel and the Debtor's special reorganization counsel. Stearns was present on behalf of Gidwitz and made a presentation to the Board which included a proposal whereby Gidwitz would pay $50,000 to the Debtor in exchange for new common stock and make payments to certain secured and unsecured creditors, with Leland Pearson and Vernon Pearson receiving fourth class preferred stock in the face amount of $250,000, to be redeemed with ten percent of the operating profits before federal tax beginning after the secured classes were fully redeemed. Leland Pearson would also be employed in a staff capacity under this proposal.
The meeting then moved in and out of formal and informal status. The informal portions of the meeting were attended by Stearns, Leland Pearson, corporate counsel, special reorganization counsel, and Edwards. It was the feeling of the Board, including Edwards, that Leland Pearson should receive something to recognize that he was the founder of the Debtor and to recognize that he had received a low salary over the years. Leland Pearson also wanted to be paid something for his interest in the Debtor and indicated that he did not want to work for the reorganized Debtor. Stearns had no opposition to a payment to Leland Pearson but indicated that it could not just be an outright payment and that Leland Pearson would have to provide some services in exchange for any payment. Negotiations ensued and it was agreed in principle that the Debtor would be paid in exchange for Pearson's agreeing to act as a consultant to the reorganized Debtor and in return for a covenant by Pearson not to compete. NOTE: The bankruptcy court found that an agreement in principle was reached at this point. Stearns indicated that the agreement had to be reduced to writing and Pearson felt he needed to review a written agreement.
Stearns recognized that Leland Pearson was not to be a full-time employee. Stearns wanted Pearson to be available to consult, but he did not want Pearson to spend so much time and be so visible that the creditors would feel that Pearson still had an active role in the reorganized Debtor. Stearns felt that too much activity and visibility would project an undesirable image. At this stage, it was Pearson's understanding that he would have to consult in exchange for any payment, but he understood that his efforts would be minimal and that he would be consulting primarily on pending products liability lawsuits. Stearns wanted to spell out the number of the hours that Pearson would provide consulting, but Pearson did not spell out the number of hours he would work.
Although the agreement in principle contemplated that Pearson would sign a covenant not to compete, it was Pearson's understanding that the covenant was to be limited to products then being produced by the Debtor and not applicable to products that would be developed after confirmation of the sale by the bankruptcy court. There never was any discussion of any geographic or time terms for the covenant. It was Pearson's understanding that he just would not compete. Stearns felt that Gidwitz could live with that kind of arrangement.
When the Board of Directors went back into their last formal session, they adopted a resolution which in principle adopted the plan as presented by Stearns, with eight revisions. Under this revised plan, Gidwitz was to acquire new common stock to be issued by the Debtor, with Pearson receiving some preferred stock. In addition, Pearson was to have the option to acquire certain assets of the Debtor. Charlet was to receive a consulting agreement in exchange for $10,000 per year for a period of five years. Additional provisions concerning Leland Pearson and Vernon Pearson were as follows:
The minutes of that meeting reflect that as to "Technical Matters" the attorneys for Gidwitz and the Debtor were to proceed with the drafting and filing of a plan of arrangement and that the Debtor's attorney were further authorized and directed to prepare all ordinary and necessary ancillary documents involved in the agreement of the parties.
On August 27, 1984, the Debtor filed a second amended plan of reorganization and amended disclosure statement. Section F of the disclosure statement provided in part as follows:
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