Temp-Way Corp. v. Continental Bank

• Decision Date: 13 March 1992
• Docket Number: Civ. A. No. 87-6930.
• Citation: 139 BR 299
• Parties: TEMP-WAY CORPORATION, Denis J. Spellman, and Martin F. Spellman v. CONTINENTAL BANK, Ronald Vicari, Frank Leis, and Francis Conway v. Mary Ellen SPELLMAN and Leslie F. Spellman.
• Court: U.S. District Court — Eastern District of Pennsylvania

139 B.R. 299 (1992)

TEMP-WAY CORPORATION, Denis J. Spellman, and Martin F. Spellman v. CONTINENTAL BANK, Ronald Vicari, Frank Leis, and Francis Conway v. Mary Ellen SPELLMAN and Leslie F. Spellman.

Civ. A. No. 87-6930.

United States District Court, E.D. Pennsylvania.

March 13, 1992.

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Janet M. Sonnenfeld, Harry R. Blackburn, Kathleen M. Smith, Jayne M. Billinson, Blackburn, Michelman & Tyndall, P.C., Philadelphia, Pa., for plaintiffs.

Andrew Bershad, Edward I. Swichar, Blank, Rome, Comisky & McCauley, Philadelphia, Pa., for defendants.

DECISION AND ORDER

BECHTLE, Chief Judge.

The instant lender liability action stems from the financial harm allegedly suffered by Temp-Way Corporation ("Temp-Way") and Denis J. Spellman and Martin F. Spellman ("the Spellmans"), resulting from a banking relationship with Continental Bank ("Continental") and several of its officers and employees, namely, Ronald Vicari, Frank Leis, and Francis Conway (the "defendants").¹ Temp-Way and the Spellmans (hereinafter collectively referred to as "plaintiffs") assert claims for breach of fiduciary duty, breach of financing agreement, business coercion and economic duress, fraud, intentional interference with contractual relations and negligent misrepresentation. Temp-Way alone seeks a determination of its secured status or, alternatively, its debt set-off.

The case was tried over ten days, from February 21, 1991 through March 6, 1991. The testimony comprised over 1,500 pages of transcript and the parties submitted close to 500 exhibits. The parties submitted requests for findings of fact and conclusions of law, together with briefs on the legal issues. Based on the pleadings, proof, and written submissions of the parties, the plaintiffs cannot prevail on their claims.

Continental included in its answer a three Count counterclaim and set-off naming Temp-Way, the Spellmans and Mary Ellen Spellman and Leslie Spellman (the "Spellman wives") as defendants. Count I of Continental's counterclaim and set-off asserts a claim against Temp-Way and the Spellmans for fraud. Count II of Continental's counterclaim seeks judgment against Temp-Way for amounts due and owing under various loan agreements, plus interest and attorney's fees. Count III of Continental's counterclaim alleges that the Spellmans and the Spellman wives are in default and liable under the Unlimited Surety Agreement, which they executed in their personal capacity, and seeks recovery, by way of set-off, or otherwise, of a sum in excess of $900,000, plus interest and attorney's fees. For the reasons discussed below, Continental does not prevail on Count I of its counterclaim but does prevail on Counts II and III.

FINDINGS OF FACT

Temp-Way Corporation and The Calcaras

1. Temp-Way, a Pennsylvania corporation, was formed in 1966 by Joseph Calcara, Leslie Weinstock and Jack Gill as a heating, ventilation and air conditioning company ("HVAC"). Temp-Way's operations included the installation, servicing, and parts distribution of HVAC systems. The operations largest component was service.

2. Temp-Way's banking relationship with Continental Bank began in 1966 when Temp-Way established a banking relationship with Continental's predecessor, Bank of Italia.

3. The Calcaras first met defendant Ronald Vicari in the mid-1960's. Vicari was then, and at all relevant times has been, a senior vice-president of Continental. Dolores Calcara, Joseph Calcara's wife, knew Vicari's wife, and Vicari's mother was a Temp-Way customer. From time to time, the Calcaras consulted with Vicari on an informal basis with regard to the management and financial condition of Temp-Way.

4. In 1975, Temp-Way moved from Porter Street in Philadelphia to Lindbergh Boulevard, Philadelphia, Pennsylvania. The building on Lindbergh Boulevard (the "Lindbergh Property") was built from the ground up and financed by the Pennsylvania Industrial Development Corporation ("PIDC") with Continental as the participating bank. Vicari facilitated the meeting between Temp-Way, Continental and PIDC, and Continental was the Mortgagee of the Lindbergh Property.

5. Beginning in 1977-1978, Dolores Calcara participated in Temp-Way's day-to-day operations on an irregular basis. By 1982, Dolores Calcara became Temp-Way's president.

6. In the latter part of the 1970's or early part of the 1980's, the original Temp-Way ownership group disbanded leaving the Calcaras in control. The Calcaras, thereafter, decided to sell the business. Dolores Calcara answered an advertisement placed in a trade journal in mid-1983 by the Spellmans, who were seeking to buy a medium-sized HVAC company.

7. On October 18, 1983, Dolores Calcara wrote to Vicari and stated in relevant part, the following:

The probability of the sale of Temp-Way has grown more positive in the past two weeks. The potential buyers, even to my very guarded eye, are serious and stable. They have informed us that they do have a financing source on line. They have not committed to it as yet as they intend to pursue other sources to be certain of the most advantageous deal, interest wise. They had not yet met with Mr. Lynch of Continental but say they still plan to. I know I have not violated their confidence or spoiled any plans in telling you in advance of their intention. My trust in you and your discretion is implicit.

We have agreed, in principal, to a stock purchase, to a price, and to an employment contract for Mr. Calcara. All the paperwork will be drawn by their representative based on full and accurate disclosure. We shall turn over Temp-Way graciously and honorably. When, and if, finalization is at hand you shall be totally informed to the extent you may want either as banker or friend, or both.

I want this to happen very much. I want it for several reasons, all good and positive. I have convinced Mr. Calcara it is not only the right thing to do, it is the right time to do it. You once said to know the time to let go. All my instincts say it is now that time to pass on to the next time of life. I would be most grateful for any assistance you might contribute to help make this happen. . . .

Letter dated October 18, 1983 from Temp-Way's Dolores Calcara to Vicari at Continental (Plaintiffs' Exhibit 10). The letter did not identify the Spellmans as the potential buyers. As of the date of the letter, the Spellmans had not met with any personnel from Continental.

8. Temp-Way's cash flow was consistently poor, and by October 11, 1983, payments to Continental for Temp-Way's mortgage were three months in arrears. Continental sent Temp-Way a form letter notifying it of the delinquency and requesting that it remit the $7,159.20 mortgage payment for August, September, and October, 1983. Payment for the mortgage held by Continental was always the last bill that Temp-Way paid. Typically, Dolores Calcara would wait for a delinquency notice from Continental before paying the bill to bring Temp-Way current.

The Spellmans

9. Denis Spellman graduated from the University of Scranton in 1970 and worked in the field of education. Before joining Temp-Way, Denis Spellman was employed for five years as vice president of marketing and sales by Sosmetal Products, a national distributor of industrial and maintenance supplies and tools.

10. Martin Spellman had experience in estimating and sales in the mechanical contracting field. Prior to his involvement with Temp-Way, he was employed with Catalytic, Inc., an engineering contractor.

11. In late 1983, or early 1984, Denis Spellman consulted with Steven Deviney, a certified public accountant, employed by Zelenkofske-Axelrod & Company ("Zelenkofske"), concerning Temp-Way's acquisition. Steven Deviney reviewed Temp-Way's financial statement for the calendar year ending 1983. Pursuant to that review, Deviney considered the financial condition of the company, including the "tax value" of Temp-Way's $442,219 net operating loss carryforward from the years 1980, 1981, 1982, 1983, and 1984. See Temp-Way's Financial Statements, December 31, 1983 (Plaintiffs' Exhibit 19). At that time, Deviney informed Denis Spellman that Temp-Way's financial condition did not merit the $1,000,000 asking price. (2/28/91 N.T. 72). Deviney told Denis Spellman that the working capital ratios of the company were too high because the current payables exceeded the current assets. Deviney further advised that unless the working capital ratios were reduced by converting the current portion of Temp-Way's liabilities to long-term debt, Temp-Way would be using current revenues to pay off old liabilities. Deviney recommended that the Spellmans go forward with the purchase if there was an infusion of working capital and Temp-Way's payables were converted to long-term debt.

12. In January, 1984, Vicari received from E.V. Caruso, vice chairman of Continental's board, Temp-Way's yearly management review write-up which was prepared by Timothy Abell and Cathy Williams of Continental's credit department. The report enumerated the bank's assessment of Temp-Way's financial strengths and weaknesses. Specifically, the write-up noted Temp-Way's continued profitability despite the decline in sales and the guarantors' financial strength. The four stated weaknesses were: 1) the company's deteriorated liquidity and capital position; 2) the rate shortage on customer profitability; 3) the stale personal financial statements; and 4) the fact that the offering basis loan had not paid out since 1978.

13. Between December, 1983 and April, 1984, Vicari met with the Spellmans several times. In the course of those discussions, Vicari suggested that Temp-Way was not in a position for a leveraged buy-out unless the purchasers could provide substantial financing or assets. Vicari also stated that Temp-Way was mismanaged and that it continued to survive because the Calcaras' personal property was sufficient to collateralize the...