Voest-Alpine Trading USA Corp. v. Vantage Steel Corp.

• Decision Date: 13 November 1990
• Docket Number: No. 89-2045,VOEST-ALPINE,89-2045
• Citation: 919 F.2d 206
• Parties: TRADING USA CORPORATION v. VANTAGE STEEL CORPORATION, Cypress International Corporation, Paige Steel, Inc., Paige Industries, Inc., Paige Steel Processing, Inc., Stabler, Marvin F. and Stabler, Holley Sue Vantage Steel Corporation, Marvin F. Stabler and Holley Sue Stabler, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 206

919 F.2d 206

VOEST-ALPINE TRADING USA CORPORATION v. VANTAGE STEEL CORPORATION, Cypress International

Corporation, Paige Steel, Inc., Paige Industries,

Inc., Paige Steel Processing, Inc.,

Stabler, Marvin F. and

Stabler, Holley Sue

Vantage Steel Corporation, Marvin F. Stabler and Holley Sue

Stabler, Appellants.

No. 89-2045.

United States Court of Appeals, Third Circuit.

Argued May 31, 1990.

Decided Nov. 13, 1990.

Patrick Kittredge (Argued), Gardenia L. Brooman, Kittredge, Donley, Elson Elson, Fullem & Embrick, Philadelphia, Pa., for appellants.

Stewart Dalzell (Argued), Mary E. Kohart, Drinker, Biddle & Reath, Philadelphia, Pa., for appellee.

Before STAPLETON, HUTCHINSON and GARTH, Circuit Judges.

OPINION OF THE COURT

GARTH, Circuit Judge:

This appeal arises from an action filed in the District Court for the Eastern District of Pennsylvania by the plaintiff-appellee Voest-Alpine Trading USA Corp. (hereinafter, "VATCO") claiming that the defendant-appellants, Vantage Steel Corporation ("Vantage"), Marvin F. Stabler, and Holley Sue Stabler ¹ (hereinafter, "Stabler") had, to the detriment of VATCO and other creditors, transferred the assets of one corporation controlled by the Stablers (Paige Steel Corp.) to another corporation established and controlled by them (Vantage), in such a manner as to violate the Uniform Fraudulent Conveyance Act, as adopted in Pennsylvania, 39 P.S.A. Secs. 351-63.

While this case was pending in the district court, where it had been brought on June 5, 1987, Vantage filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. VATCO was granted relief from the stay provisions of 11 U.S.C. Sec. 362 in an Order of the Bankruptcy Court dated December 30, 1988. In a bench trial, the district court after extensive fact-finding, held that Paige assets were fraudulently conveyed to Vantage and entered judgment for VATCO on November 14, 1989 in the amount of $520,070.06. 732 F.Supp. 1315. The district court also ordered certain equitable relief against the Stablers intended to accomplish the equivalent of a rescission of that conveyance.

We have diversity jurisdiction under 28 U.S.C. Sec. 1332(a). Vantage and the Stablers filed a timely appeal of the district court's final Order of November 14, 1989. 28 U.S.C. Sec. 1291.

We affirm in part but reverse so much of the district court's Order as provided that certain guarantees given by the Stablers to the New Jersey National Bank ("NJNB") inure to the benefit of VATCO.

I.

Vantage, a now-bankrupt Pennsylvania steel fabricator, is a successor to the Paige Group, a group of several now-defunct companies under the 100% control of Marvin and Holley Sue Stabler. The Paige Group was effectively dissolved in a series of transactions (described infra at 209-10) that took place on August 8, 1986. Vantage, itself also under the effective control of the Stablers, emerged out of the corporate reorganization as the successor to Paige, which had transferred and conveyed the Paige Group's assets to Vantage.

The commercial transaction underlying this appeal took place in August 1985. At that time, VATCO sold Paige $528,727 worth of steel, for which it received $100,000 on account. No further payments were made. VATCO soon thereafter filed suit in the District Court for the Eastern District of Pennsylvania. Paige did not contest the action, and VATCO on June 12, 1986 moved for summary judgment. On October 2, 1986, summary judgment was granted in favor of VATCO in the amount of $452,307.15. ² VATCO's judgment resulted in VATCO's becoming Paige's largest unsecured creditor, to the extent of about 50% of Paige's unsecured debt.

On June 13, 1986, the day after VATCO filed for summary judgment against Paige, the Stablers, through their attorney in that action and in conjunction with their secured lender, New Jersey National Bank (NJNB), to which they owed over $1.5 million, put the Paige Group up for sale. At the end of July 1986, Marvin Stabler and his attorney proposed to NJNB that Stabler form a new company that would, with financing from NJNB, purchase Paige's assets. That purchase was found by the district court to have been structured "through a 'foreclosure' by NJNB in order to launder the assets [in question] and cleanse the Paige Group of its unsecured debt." Finding of Fact No. 20.

Friday, August 8, 1986 witnessed a series of simultaneous transactions, which the district court found to have been in reality a single integrated and fraudulent transaction whose purpose and effect was to convey assets, at less than fair value, from the old corporation, Paige, to the new corporation, Vantage, without exposing them to Paige's creditors. Findings of Fact No. 30, 43, 52-61. Through these transactions, the Stablers were able to freeze out VATCO and other unsecured Paige creditors while maintaining for themselves an equity interest in, and full effective control over, the new firm, Vantage. Finding of Fact No. 68.

The following transactions took place simultaneously at 5:00 p.m. on August 8, 1986: (1) NJNB foreclosed on all Paige assets, including receivables; (2) NJNB sold all of those assets, other than receivables to Vantage; ³ (3) Vantage purchased the Paige inventory for $513,645 or about half of its book value; (4) NJNB gave Vantage a $2 million revolving line of credit, $513,645 of which was used immediately to purchase the Paige inventory and another $500,000 of which was used to purchase Paige's other assets (except receivables); ⁴ (5) NJNB made a term loan to Vantage of another $500,000 for the purpose of buying Paige's machinery and assorted equipment; (6) NJNB released an $80,000 Stabler Certificate of Deposit it had been holding as security for the Paige loan and exchanged it for a new personal guarantee by the Stablers of $200,758--the approximate amount of outstanding Paige receivables, and an amount that was in fact collected within six months.

Thus, on Monday morning August 11, 1986 Vantage opened for business with Stabler as an officer of Vantage and with the same address, staff, office, telephone number, and assets that Paige had closed with at the end of the day on Friday, August 8. Findings of Fact No. 52-56.

Before the foreclosure, Paige was a troubled but going business with assets of over $1.7 million, ⁵ a debt to NJNB of $1.5 million (guaranteed by the Stablers whose known assets were about $300,000), ⁶ and debts to unsecured creditors of about $800,000, which included the debt owed to VATCO. After the August 8, 1986 transactions, Paige had no assets and no secured debts. It did, however, continue to owe its unsecured creditors, who for their part, however, now had no Paige assets from which to collect.

Stabler, with the assistance of his attorney and over his own name, on August 22, 1986 sent a letter on Paige stationery to all of Paige's creditors advising them that "there are no assets remaining with which to make any payments on Paige's account...." After expressing his disappointment that "Paige could [not] restructure its financing to continue in business," Stabler described the recently executed combined transactions as follows:

At the end of July Paige's lender discontinued further extensions of credit and foreclosed on Paige's assets, as permitted under the loan agreement. Our lender has since sold Paige's assets, and after applying the proceeds of the sale to the loan, Paige continues to have more than $300,000 of secured debt outstanding. I remain personally liable ... and have had to pledge my assets to secure this obligation.

The district court, in its Findings of Fact No. 64-68, characterized Stabler's purpose in sending the letter, in failing to identify the asset purchaser as Vantage, and in concealing the relationship between the foreclosure and the sale of assets, as an attempt to conceal the August 8, 1986 transaction with the intent to defraud Paige's unsecured creditors, including VATCO. In addition, the district court found that Vantage was used as an instrument to preserve the Stablers' equity in the new business. Findings of Fact 64-68 read as follows:

64. Marvin Stabler's purpose in sending the letter was to convince his unsecured creditors that it would be futile to scrutinize the transaction whereby Paige Steel's assets were purportedly foreclosed upon by Paige's secured lender. He did this by stating that a significant amount of secured debt remained outstanding which would take precedence over the unsecured debt in the event any remaining assets were found in the hands of Paige Steel....

65. The letter failed to identify the purchaser of the assets as Vantage, thereby making it difficult for any creditor to follow Paige's assets into the hands of their new owner.... The letter also failed to disclose the Stablers' controlling equity interest in Vantage.

66. By stating that the foreclosure took place at the end of July, 1986, the letter concealed the instantaneous relationship between the foreclosure and the sale of the assets.

67. The efforts to conceal the August 8, 1986 transaction and the structure of the transaction itself establish that Stabler intended to hinder and delay collection by, and to defraud, Paige Steel's unsecured creditors, including VATCO.

68. The Stablers used Vantage as their instrument to attempt to take the assets of Paige Steel free from VATCO's claim and to preserve their equity position in the business.

VATCO was one of the recipients of Stabler's letter of August 22. Not long thereafter, on October 2, 1986, VATCO was granted summary judgment in its earlier action against Paige for $452,307.15. VATCO then pursued discovery in aid of execution of its judgment. VATCO's discovery efforts, according to the findings of the district court, "were met with objections at every stage," and, when finally deposed in January 1987, Stabler "lied under oath in several material respects." ⁷

Finally, VATCO brought this suit against Vantage and the...