Wieboldt Stores, Inc. v. Schottenstein
| Decision Date | 01 December 1988 |
| Docket Number | No. 87 C 8111.,87 C 8111. |
| Citation | 94 BR 488 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | WIEBOLDT STORES, INC., individually and on behalf of its Official Committee of Unsecured Creditors, Plaintiff, v. Jerome M. SCHOTTENSTEIN, et al., Defendants. |
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Sarah R. Wolff, Steven H. Cohen, M. Marshall Seeder, Sachnoff, Weaver & Rubenstein, Ltd., Chicago, Ill., for Wieboldt Stores.
Paul P. Daley, James D. St. Clair, Albert H. Notini, Hale & Door, Boston, Mass., Joseph E. Coughlin, Richard Golding, Lord, Bissell & Brook, Chicago, Ill., for Jerome Schottenstein, Schottenstein Stores Corporation, Geraldine Schottenstein, Jay L. Schottenstein, Susan Schottenstein, Ann Schottenstein, Saul Schottenstein, Ari Deshe, Jon Diamond, Irving Harris, George Kolber, Thomas Keteler.
David Bodiker, Bodiker & Holland, Columbus, Ohio, for Charles H. Schottenstein, Gary Schottenstein, Randee Schottenstein, Robert M. Schottenstein, Estate of Alvin Schottenstein.
Joel Walosky, Daniel H. Mintz, Parker, Chapin, Flattau & Klimpl, New York City, Donald E. Egan, Lee Ann Watson, Deborah A. Borrowdale, Katten, Muchin & Zavis, Chicago, Ill., for MBT Corporation, Julius Trump, Edmond Trump, James M. Jacobson, Albert Roth.
James E. O'Halloran, Clifford G. Kosoff, John F. Hennessy, Jr., O'Halloran, Lively & Walker, Northbrook, Ill., for David C. Keller and Robert A. Podesta.
Kenneth R. Gaines, Dennis P. Birke, Altheimer & Gray, Chicago, Ill., for William Darrow.
Michael Greenwald, Hess, Kaplan & McDowell, Ltd., Chicago, Ill., Phil C. Neal, Ralph T. Russell, Jr., Joel M. Hurwitz, Lawrence M. Benjamin, Neal Gerber Eisenberg
& Lurie, Chicago, Ill., for BA Mortgage and International Realty Corp.
Jeffrey R. Liebman, Marc C. Smith, Arvey, Hodes, Costello & Burman, Chicago, Ill., for General Electric Credit Corp.
Michael A. Weininger, Barry A. Erlich, Marjorie E. Scaffner, Katz, Randall & Weinberg, Chicago, Ill., Susan Getzendanner, Allan S. Brilliant, Skadden, Arps, Slate, Meagher & Flom, Chicago, Ill., for State Street Venture, One North State Street Limited Partnership Boulevard Bank National Assoc.
Philip V. Martino, Mark A. Berkoff, Rudnick & Wolfe, Chicago, Ill., for Polk Bros., Inc. and Polk Bros. Foundation.
Mr. Jerome Reisman, Mr. Neil A. Miller, Reisman, Peirez, Reisman & Calica, Garden City, N.Y., Brian Ira Tanenbaum, James W. Corbett, Lynn & Levenstein, Ltd., Chicago, Ill., for Julian Jawitz.
Roger L. Longtin, Stephen L. Agin, Keck, Mahin & Cate, Chicago, Ill., Gerald Harris, Paul H. Aloe, Rubin, Baum, Levin, Constant & Friedman, New York City, for Saugatuck Investments Co., Inc. and Weston Associates.
Ronald L. Farkas, Ginsburg & Farkas, Chicago, Ill., for Sam Ashley and Sarah Ashley.
Floyd Babbitt, Richard H. Chapman, Fagel, Haber & Maragos, Chicago, Ill., for Norma Baurer, Sol Braverman, Arthur B. Crap, Michael Fabrikant, Howard Gottlieb, Esther Gottlieb, Harold E. Grotta, Warren Grover, Richard B. Harper, Allan Janoff, Patrick Koerber, Harry Latkin, Harry Rice, Benjamin R. Siegal, Jean D. Siegal, Gloria Spivak, Hannah R. Ziver.
Paul W. Beltz, William A. Quinlan, Paul William Beltz, P.C., Buffalo, N.Y., for Paul W. Beltz, Margaret Nichols, Robert Nichols, John J. Sullivan, Rosemary Westbrook.
Harry Wachtel, Gold & Wachtel, New York City, for Wilfred B. Cohen, Gerald Olin and Suzanne Olin.
M. William Munno, Seward & Kissel, New York City, for Robert Goldfarb.
Harley C. Guthrie, Dorothy M. Guthrie, Tampa, Fla., pro se.
Mr. John G. Cadwell, Warawsky McNeal & Associates, Chicago, Ill., for Angilos Christ Haralampus.
Peter B. Shaeffer, Chicago, Ill., for Evelyn Harmelin.
David A. Baugh, Kenneth S. Ulrich, Portes, Sharp, Herbst & Kravets, Ltd., Chicago, Ill., Mr. Edward R. Aranow, Botein, Hays & Sklar, New York City, for Abraham J. Hart, Edward J. Hart, Elinor Rogosin, and Norte & Company.
James H. Wolf, Chicago, Ill., for Victor Marek.
Robert K. Neiman, Holleb & Coff, Chicago, Ill., for Seymour Neiman.
Samuel S. Pace, Lorraine E. Pace, Crystal Lake, Ill., pro se.
David D. MacKnight, Stephen P. Mayka, Lacy, Katzen, Ryen & Mittleman, Rochester, N.Y., Michael A. Stick, Bruce W. Melton, Butler Rubin Newcomer Saltarelli & Boyd, Chicago, Ill., for Mary Caccamise, Samuel Caccamise, Sarah B. Dunkirk.
Random R. Burnett, Black, Crotty, Sims, Hubka, Burnett and Samuels, Daytona Beach, Fla., for Louis P. Samuels.
John C. DeWolfe, Jr., William J. Stevens, DeWolfe, Poynton & Stevens, Chicago, Ill., for Robert Alan Strobel.
Willaim E. Lane, Willmette, Ill., for Fred Lang.
Ms. Muriel Wageman, Chicago, Ill., pro se.
Wieboldt Stores, Inc. ("Wieboldt") filed this action on September 18, 1987 under the federal bankruptcy laws, 11 U.S.C. §§ 101 et seq., the state fraudulent conveyance laws, Ill.Rev.Stat. ch. 59, ¶ 4, and the Illinois Business Corporation Act, Ill.Rev.Stat. ch. 32, ¶ 1.01 et seq. Pending before the court are numerous motions to dismiss this action under Rules 9(b), 12(b)(2), 12(b)(6) and 19 of the Federal Rules of Civil Procedure.
Wieboldt's complaint against the defendants concerns the events and transactions surrounding a leveraged buyout ("LBO") of Wieboldt by WSI Acquisition Corporation ("WSI"). WSI, a corporation formed solely for the purpose of acquiring Wieboldt, borrowed funds from third-party lenders and delivered the proceeds to the shareholders in return for their shares. Wieboldt thereafter pledged certain of its assets to the LBO lenders to secure repayment of the loan.
The LBO reduced the assets available to Wieboldt's creditors. Wieboldt contends that, after the buyout was complete, Wieboldt's debt had increased by millions of dollars, and the proceeds made available by the LBO lenders were paid out to Wieboldt's then existing shareholders and did not accrue to the benefit of the corporation. Wieboldt's alleged insolvency after the LBO left Wieboldt with insufficient unencumbered assets to sustain its business and ensure payment to its unsecured creditors. Wieboldt therefore commenced this action on behalf of itself and its unsecured creditors, seeking to avoid the transactions constituting the LBO on the grounds that they are fraudulent under federal and state fraudulent conveyance laws.
William A. Wieboldt began operating Wieboldt in Chicago as a dry goods store in 1883. Mr. Wieboldt's business prospered and diversified. In 1907 Wieboldt was incorporated under Illinois law. Wieboldt's business continued to expand. In 1982 Wieboldt's business was operated out of twelve stores and one distribution center in the Chicago metropolitan area.1 At that time, Wieboldt employed approximately 4,000 persons and had annual sales of approximately $190 million. Its stock was publicly traded on the New York Stock Exchange.
During the 1970's, demographic changes in Wieboldt's markets, increased competition from discount operations, and poor management caused Wieboldt's business to decline. Wieboldt showed no profit after 1979 and was able to continue its operations only by periodically selling its assets to generate working capital. These assets included its store in Evanston, Illinois and some undeveloped land.
Wieboldt brings this action against 119 defendants. These defendants can be grouped into three non-exclusive categories: (1) controlling shareholders, officers and directors; (2) other shareholders of Wieboldt's common stock who owned and tendered more than 1,000 shares in response to the tender offer ("Schedule A shareholders"); and (3) entities which loaned money to fund the tender offer.
The individuals and entities who controlled Wieboldt in 1982 became controlling shareholders as a direct or indirect result of a 1982 takeover effort. At some time prior to or during 1982, Julius and Edmond Trump, each citizens of the Republic of South Africa and permanent residents of New York, purchased 30% of Wieboldt's outstanding shares by launching a takeover. After the takeover, the Trump brothers conveyed approximately one-half of these shares to Jerome Schottenstein and, directly or indirectly, to certain persons and entities affiliated with Mr. Schottenstein (collectively referred to as the "Schottenstein interests").2 As a result of these transactions, the Schottenstein interests and the Trump brothers (through its agent, MBT Corporation) (collectively referred to as the "Trump interests") each owned approximately 15% of Wieboldt's then outstanding shares and became Wieboldt's controlling shareholders.3
Wieboldt's Board of Directors consisted of nine individuals. In late 1982, Mr. Schottenstein became the Chairman of the Board. He nominated Irving Harris, George Kolber, and Myron Kaplan to serve as directors. William W. Darrow, Robert A. Podesta, and David C. Keller also began serving in 1982. In 1984, MBT Corporation nominated James Jacobson and Albert Roth to the Wieboldt Board of Directors. These nine individuals served on the Board until December 19, 1985.
In addition to the Schottenstein and Trump interests, Wieboldt had a number of shareholders as of December 20, 1985 who owned more than 1,000 shares of Wieboldt's common stock. Wieboldt has listed these shareholders and the number of shares that they held on that date on a schedule which they have appended to their complaint ("Schedule A").4 Directors Keller, Podesta and Darrow (the "insider shareholders") also owned more than 1,000 shares each.5
On November 20, 1985 WSI commenced a tender offer for all outstanding shares of Wieboldt's common stock, for all of Wieboldt's outstanding shares of preferred stock, and for all outstanding options to purchase Wieboldt's stock. The tender offer was financed through three related financial...
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In re Heilig-Meyers Co.
...two cases that bear on defendants' position that plaintiff's lien transfer allegations are inadequate. In Wieboldt Stores, Inc. v. Schottenstein, 94 B.R. 488, 505-06 (N.D.Ill.1988), the court considered a 12(b)(6) motion to dismiss a § 548 complaint, including allegations that lien transfer......