Rogers v. CIT Grp./Equip. Fin. Inc.

• Decision Date: 19 August 2011
• Docket Number: ADVERSARY PROC. NO. 03-00122-EE,CASE NO. 01-06516-EE
• Parties: In re: B.C. ROGERS POULTRY, INC. B.C. ROGERS PROCESSORS, INC., Jointly Administered JOHN M. ROGERS, SR., AND J. KELLEY WILLIAMS, AS TRUSTEE OF THE J. KELLEY WILLIAMS REVOCABLE TRUST PLAINTIFFS v. THE CIT GROUP/EQUIPMENT FINANCING, INC., AND H. KENNETH LEFOLDT, AS LIQUIDATING TRUSTEE OF THE B.C. ROGERS LIQUIDATING TRUST DEFENDANTS
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Mississippi

IN RE: B.C. ROGERS POULTRY, INC.

B.C. ROGERS PROCESSORS, INC., Jointly Administered

JOHN M. ROGERS, SR.,

AND J. KELLEY WILLIAMS,

AS TRUSTEE OF THE

J. KELLEY WILLIAMS REVOCABLE TRUST PLAINTIFFS

v.THE CIT GROUP/EQUIPMENT FINANCING, INC.,AND H. KENNETH LEFOLDT, AS LIQUIDATING

TRUSTEE OF THE B.C. ROGERS LIQUIDATING TRUST DEFENDANTS

CASE NO. 01-06516-EE

ADVERSARY PROC. NO. 03-00122-EE

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF MISSISSIPPI

Dated: August 19, 2011

James W. O'Mara

Debra M. Brown

Phelps Dunbar LLP

Attorneys for Plaintiffs

William H. Leech

Danny E. Ruhl

Copeland, Cook, Taylor & Bush, P.A.

Attorneys for Defendant

The CIT Group/Equipment Financing, Inc.

J. Walter Newman, IV

Edward Ellington, Judge

Attorney for Defendant

H. Kenneth Lefoldt, Jr., as Liquidating

Trustee of the B.C. Rogers Liquidating Trust

TABLE OF CONTENTS

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON THE SECOND AMENDED COMPLAINT..........................................................................................................................................3

FINDINGS OF FACT............................................................................................................................4

TWO PRELIMINARY OBSERVATIONS.............................................................................................34

JURISDICTION......................................................................................................................................34

CONCLUSIONS OF LAW.......................................................................................................................35

A. Misrepresentation............................................................................................................................ 35

1. Intentional or Fraudulent Misrepresentation ..................................................................................36

a. Did McClelland's Note Constitute a Misrepresentation of Fact?.................................................... 37

b. Did McClelland Owe Rogers and Williams a Duty to Disclose the Heller Lease?......................................................................................................................................... 38

c. When Did McClelland Actually Know About the Double-Leased Equipment?....................................................................................................................................... 41

d. Did McClelland Intend for Rogers and Williams to Rely on the Note to Induce Them to Provide the Letters of Credit?................................................................................ 46

e. When Did Rogers and Williams Actually Know About the Double-Leased Equipment?...........................................................................................................................47

f. Did Rogers and Williams Reasonably Rely on McClelland's Note?............................................................................................................................................................. 48

2. Negligent Misrepresentation..............................................................................................................52

a. When Should McClelland Have Known About the Double-Leased Equipment?......................................................................................................................................... 53

b. Do the UCC Filings, Which Are Public Records, Render Rogers'

and Williams' Reliance Unreasonable?............................................................................................................53

B. Civil Conspiracy............................................................................................................55

1. What Object Did CIT and Koch Accomplish?...............................................................55

2. Was There a Meeting of the Minds Between CIT and Koch?....................................... 56

3. What Was the Unlawful Overt Act?.................................................................................57

C. Breach of the CIT Lease..................................................................................................59

1. Does the Independence Principle Bar Rogers and Williams from Asserting Subrogation Rights Against CIT?.....................................................................................60

2. Does the Doctrine of Equitable Subrogation Apply?.........................................................65

3. Does the "Made-Whole" Rule of Subrogation Apply?.......................................................67

4. Would Equitable Subrogation Prejudice Third Parties?..................................................... 68

D. Unjust Enrichment................................................................................................................71

1. Are Rogers' and Williams' Unjust Enrichment Claims Precluded by the Existence of Express Contracts?............................................................................................................72

2. Does Unjust Enrichment Constitute a Separate Cause of Action Under Mississippi Law?...................................................................................................................73

3. Was CIT Unjustly Enriched?.................................................................................................74CONCLUSION...................................................................................................................................75FINDINGS OF FACT AND CONCLUSIONS OF LAWON THE SECOND AMENDED COMPLAINT

This adversary proceeding came on for trial on April 15-16 and 19-20, 2010 (the "Trial") on the Second Amended Complaint (Adv. Dkt. No. 63)¹ filed by John M. Rogers, Sr. ("Rogers") andJ. Kelley Williams ("Williams"), as Trustee of the J. Kelley Williams Revocable Trust, and the Answer and Defenses of The CIT Group/Equipment Financing, Inc. to Second Amended Complaint ("CIT Answer") (Adv. Dkt. No. 71) filed by The CIT Group/Equipment Financing, Inc. ("CIT").

This proceeding is the latest in a continuing saga that began after B.C. Rogers Poultry, Inc. and B.C. Rogers Processors, Inc. ("BCR") defaulted on lease payments on certain industrial equipment used in its plants. CIT turned to the financial institutions that issued standby letters of credit supporting the lease and demanded payment of $3,000,000.00. The issuers paid CIT and turned to the applicants of the letters of credit, Rogers and Williams, for reimbursement. Rogers and Williams reimbursed the issuers and turned to BCR, but were unsuccessful. Rogers and Williams now turn to CIT, the beneficiary of the letters of credit, for the return of $3,000,000.00, damages, interest, and attorney's fees.

After considering the evidence presented at Trial and the briefs filed by the parties, the Court concludes for the reasons that follow that the relief sought by Rogers and Williams against CIT in the Second Amended Complaint is not well taken and should be denied.

FINDINGS OF FACT

Only a decade before it met its financial demise in 2001, BCR was one of the largest producers, processors, and wholesalers of chicken products in the nation. It was founded in central Mississippi in the early 1930s by B.C. Rogers. When he died in 1972, ownership of BCR passed to his three children. Of them, Rogers became chief executive officer ("CEO") of BCR and a member of its board of directors. BCR remained a family-owned company until 1981, when Rogers and Williams purchased all of BCR's stock from the heirs of B.C. Rogers (including from Rogers himself) and each acquired a 50% interest. As was the case with Rogers, Williams was anexperienced businessman. Sometime in the early 1970s, he became CEO of First Mississippi Corporation (which later changed its name to Chemfirst). Williams also has an impressive educational background, including a degree in chemical engineering from Georgia Institute of Technology and a master's degree in business administration from Harvard Business School. When they purchased BCR, Rogers continued in his dual roles as both CEO and director, and Williams became one of BCR's board members. In 1997, Rogers resigned as CEO, but Rogers and Williams remained as directors.

Rogers & Williams Sell BCR

On December 29, 1999, the year before the poultry industry experienced an economic downturn, Rogers and Williams, and their respective family trusts,² sold BCR for approximately $50,000,000.00 to two Employee Stock Ownership Trusts (the "ESOTs") in a leveraged buyout transaction. (CIT-4).³ The sale involved a series of complex, related transactions that all became effective on December 29, 1999, at which time, the newly-formed ESOTs became the owners of BCR.

Revolving Credit & Term Loan Agreement

Concurrent with the stock sale, BCR entered into an Amended and Restated Revolving Credit and Term Loan Agreement ("Revolving Credit and Term Loan Agreement") with Suntrust Bank,certain John Hancock entities, and other lenders (collectively referred to as the "Senior Lenders"). (CIT-2). Pursuant to the Revolving Credit and Term Loan Agreement, BCR borrowed an aggregate principal amount of $95,000,000.00 from the Senior Lenders who obtained a primary lien on all of BCR's assets, including after-acquired assets. This new financing arrangement modified BCR's original credit facility and was necessary in order to restructure BCR's existing debt, increase its working capital, and raise enough funds for the ESOTs to pay Rogers and Williams $25,000,000.00, the cash portion of the total ESOT purchase price. (CIT-2, CIT-4). In addition to the cash payment, BCR provided Rogers and Williams promissory notes in the amount of approximately $25,000,000.00, under which both of them were entitled to receive quarterly cash payments, representing accrued interest ("Quarterly Interest Payments"). Rogers and Williams expressly agreed to subordinate BCR's promissory...