Starns v. Avent

• Decision Date: 24 January 1989
• Docket Number: Civ. A. No. 86-86-B.
• Citation: 96 BR 620
• Parties: Donald P. STARNS, in his capacity as Trustee for Rodney D. Hendrick, Chapter 11 Debtor, and Rodney D. Hendrick v. H.E. AVENT, et al.
• Court: U.S. District Court — Middle District of Louisiana

96 B.R. 620 (1989)

Donald P. STARNS, in his capacity as Trustee for Rodney D. Hendrick, Chapter 11 Debtor, and Rodney D. Hendrick v. H.E. AVENT, et al.

Civ. A. No. 86-86-B.

United States District Court, M.D. Louisiana.

January 24, 1989.

Randall A. Smith, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, La.,

John L. Avant, Avant & Falcon, Baton Rouge, La., Russ M. Herman, Herman, Herman, Katz and Cotlar, New Orleans, La., Steven J. Lane, Matthew P. Chenevert, and R. Wayne Byrd, pro hac vice, for defendants.

John C. Lindsay, Bennettsville, S.C., in pro per.

POLOZOLA, District Judge:

Rodney D. Hendrick filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code on November 21, 1983 in the Bankruptcy Court for the Middle District of Louisiana.¹ Donald P. Starns was appointed trustee of the debtor's estate. During the course of these proceedings the attorney for the trustee filed an application with the bankruptcy court seeking authority to sell 310 shares of stock which Hendrick owned in PFC, Inc. d/b/a Stingray Boat Company ("Stingray").

Stingray is a South Carolina corporation which is engaged in the manufacture and distribution of recreational boats. Hendrick filed an objection to the sale of his Stingray stock. The bankruptcy judge conducted an adversary hearing and on February 13, 1985 authorized and confirmed the sale of Hendrick's stock in Stingray to James A. Fink, Jr. Immediately after the hearing on February 13, 1985, Hendrick's stock was delivered to James A. Fink, Jr. and the trustee received $150,000 which was paid by a cashier's check drawn on a South Carolina bank. As further consideration for this transaction, Hendrick was dismissed as a party in a suit which had been filed against him in the Court of Common Pleas for the County of Darlington, South Carolina by Francis A. Collins, who was an officer, stockholder and director of Stingray.

On February 14, 1985, the trustee filed an application with the bankruptcy court seeking to employ special counsel to investigate the circumstances surrounding the February 13, 1985 stock sale. Numerous depositions, which were authorized by the bankruptcy court under Bankruptcy Rule 2004, were taken in connection with this investigation. At no time did the trustee, Hendrick, or any other party to the bankruptcy proceeding file an appeal or any other post trial motions under Rules 52(b), 59(d), (e) or 60(b) of the Federal Rules of Civil Procedure to overturn, vacate or modify the February 13, 1985 judgment of the bankruptcy court. The trustee filed this suit on February 12, 1986 on behalf of Hendrick.

The original complaint was filed under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq. ("RICO"), the Securities Exchange Act of 1934 (15 U.S.C. § 78j) and the Rules and Regulations of the Securities and Exchange Commission, including without limitation 10 B-5 (17 C.F.R. § 240.10 B-5). Named as defendants in the original complaint were the following parties: H.E. "Bobby" Avent, Sr. and his son, Mark S. Avent, directors of Stingray since January 31, 1985, and two of the ultimate purchasers of Hendrick's stock; Brantley T. Burnett; W.J. Kinney, a director of Stingray after February 13, 1985 and one of the ultimate purchasers of Hendrick's stock; James A. Fink, Jr., an owner, director, and president of Stingray from 1979 through the date of the filing of this complaint; Deborah W. Fink, the wife of James A. Fink, Jr. who was a director and the secretary-treasurer of Stingray during the negotiations for the purchase of Hendrick's stock; and John C. Lindsay. The plaintiff filed a second amended complaint on November 6, 1987 which added several state law claims, based on misrepresentations, omissions, breach of fiduciary duty and rescission of contract.

The defendants have filed a motion to dismiss and, in the alternative, a motion for summary judgment.² Defendants base their motion on the following grounds:

(a) This suit is an impermissible collateral attack on a final judgment rendered by the bankruptcy court on February 13, 1985 to which no appeal was taken;

(b) Private rights of action to enforce Rule 10b-5 and RICO claims do not lie with regard to the sale and purchase of securities in an exchange approved by a court;

(c) Plaintiff\'s second amended complaint cannot be construed as a Rule 60(b) motion under the Federal Rules of Civil Procedure, and even if it is considered as a Rule 60(b) motion, the motion is not timely;

(d) James A. Fink, Jr. is absolutely immune from civil liability for any misstatement or omission as a witness in the bankruptcy court; and

(e) The order of the bankruptcy court is res judicata.

The plaintiff has filed an opposition to the defendants' motion. Plaintiff contends he does have the right to bring the pending action even though no appeal was taken by the bankruptcy court because the bankruptcy court has authorized the current suit. Plaintiff further contends that the Court should change the judgment entered by the bankruptcy court on February 13, 1985 under Rule 60(a) of the Federal Rules of Civil Procedure to clearly reflect this fact. Plaintiff also argues that his second amended complaint should be considered as a Rule 60(b) motion. Should the Court consider the second amended complaint as a Rule 60(b)(3) motion, plaintiff contends the motion is timely filed because the amendment relates back to the date the original complaint was filed. Finally, plaintiff contends the Court should treat his second amended complaint as a Rule 60(b) motion alleging the defendants committed a fraud on the bankruptcy court.

For reasons which follow, the Court finds that defendants' motion to dismiss or in the alternative for summary judgment should be granted.

I. Background:

Stingray was formed on March 19, 1979. Its headquarters is located in South Carolina. When the corporation was formed, 100 shares of stock at $10.00 par value were issued. Additional funds which were necessary to form the corporation came from a secured loan from Louisiana National Bank in Baton Rouge. Hendrick received ten shares of stock and Herb Polk, James A. Fink, Jr., and Francis A. Collins received thirty shares each. At the time the corporation was formed, Hendrick was married to Judy Polk, who was Herb Polk's daughter. Hendrick and his wife were divorced on April 15, 1983. James A. Fink, Jr., Hendrick and Collins were the initial directors of Stingray and served as president, vice president and secretary-treasurer, respectively. On June 12, 1981, a stockholders meeting was held in Hartsville, South Carolina. During this meeting, Stingray was authorized to issue 3,000 shares of common stock at $10.00 par value. Herb Polk received 1,800 shares of this stock, James A. Fink, Jr. received 900 shares, and Hendrick received 300 shares. Thus, the ownership of Stingray was as follows:

                                    Pre-Issue  Post-Issue
                Herb Polk              30%        59%
                James A. Fink, Jr.     30%        30%
                Collins                30%        01%
                Hendrick               10%        10%
                

At the June 12, 1981 meeting, Collins was removed as a director of Stingray and was replaced by Herb Polk.

Stingray held another stockholders meeting on April 21, 1983. At this meeting, Judy Polk replaced Hendrick as a director and vice-president of the company. The board of directors also included James A. Fink, Jr., Debbie Fink and Herb Polk. The board named James A. Fink, Jr. as president, Judy Polk as vice-president, and Debbie Fink as secretary-treasurer.

On October 23, 1983, Collins filed a suit in the Court of Common Pleas for the County of Darlington, South Carolina (No. 83-CP-16-570) seeking equitable and monetary relief from Stingray, James Fink, Herb Polk, and Hendrick. Collins contended in his suit that there were various irregularities and improprieties committed by these defendants in connection with the June 12, 1986 stock issue of Stingray.³ Collins was represented in the South Carolina suit by James M. Saleeby, Edward E. Saleeby and John J. James II. The defendants in the South Carolina suit were represented by Lindsay and Henry Hammer.

On November 21, 1983, Hendrick filed his Chapter 11 petition with the bankruptcy court for the Middle District of Louisiana. The bankruptcy court authorized the trustee to retain the services of John M. Milling, a South Carolina attorney, to represent the interest of the trustee in Collins' South Carolina lawsuit. Milling then filed an amended answer and a cross-claim against James A. Fink, Jr., Herb Polk, and Stingray.

During this time Dwight Holder and Gil Walker, two individuals who were interested in purchasing a controlling interest into PFC, Inc., received and reviewed certain financial information of the company. They were assisted in this investigation by Raymond Mosteller, a certified public accountant. In September of 1984, Lindsay and Ed Saleeby met with Mosteller and Holder. In November of 1984, Lindsay informed H.E. Avent, Sr., Don Wason, and Brantley Burnett of Stingray and suggested to them that this was a good investment which they should consider. Thereafter, these parties and their certified public accountants made examinations of the financial records of the company. After this investigation was completed, H.E. Avent, Sr. and Burnett indicated that they had an interest in acquiring a controlling interest in Stingray. After visiting the boat company and reviewing financial information, H.E. Avent, Sr. contacted South Carolina National Bank ("SCN") about financing a purchase of 70% of the stock. On December 21, 1984, James A. Fink, Jr. travelled to Baton Rouge, paid off a Stingray loan at Louisiana National Bank and received from the bank certain stock certificates pledged to secure the loan. James A. Fink, Jr. also delivered Hendrick's stock certificate to the trustee on this date. On December 22, 1984, a meeting was held in the office of Edward Saleeby...