Witter v. Torbett, Civ. A. No. 83-0130-B/A.
| Decision Date | 28 December 1984 |
| Docket Number | Civ. A. No. 83-0130-B/A. |
| Citation | 604 F. Supp. 298 |
| Court | U.S. District Court — Western District of Virginia |
| Parties | William D. WITTER and Charles R. Crofton, Plaintiffs, v. Thomas TORBETT, Karl Ketron, Americoal Corporation, Valmar Energy, Inc., Patrick Leuben and Incob Corporation, Defendants. |
James Schreiber, New York City, Carl A. Tibbetts, Roanoke, Va., for plaintiffs.
David Bromberg, New York City, James S. McLellan, Kingsport, Tenn., Birg E. Sergent, Pennington Gap, Va., for Torbett, Ketron, Americoal and Valmar.
Hugh P. Cline, Norton, Va., for Leuben and Incob.
Plaintiffs, Witter and Crofton, are citizens of the State of New York and the defendants and counter-plaintiffs, Torbett and Ketron, are citizens of the State of Tennessee. Americoal Corporation (Americoal) is a corporation organized and existing under the laws of the Commonwealth of Virginia with its principal operating office in Lee County, Virginia. This court has jurisdiction over this matter as there exists diversity of citizenship among the parties and the amount in controversy exceeds $10,000. 28 U.S.C. § 1332. Lueben and Incob have been dismissed as parties to this suit, following the transfer from the Southern District of New York.
Americoal Corporation was incorporated under the laws of Virginia on or about March 18, 1981 by a West German named Lueben. Americoal was to be a shell corporation owned 100% by a second shell corporation, Incob, of which Lueben was the sole shareholder. However, in July of 1981, when the Americoal stock was issued, the 1000 shares issued were divided as follows: Incob 333 1/3 , Valmar Energy, Inc., 666 2/3 . Valmar is a Tennessee corporation which is owned equally by Torbett and his wife (50%), and Ketron and his wife (50%). Neither Incob nor Valmar had a monetary investment in Americoal.
On August 22, 1981, Torbett and Ketron created a limited partnership known as Americoal Corporation and Associates of Virginia, Ltd. (AMVA). The business of the partnership, as stated in the partnership agreement, is to: "buy, sell, lease, operate, manage and mortgage any legal or equitable interest ... in real property ... mine, ship, sell and broker coal ... and to sell, lease or otherwise dispose of, coal and coal lands." (Plaintiffs' Exhibit 3). AMVA was to be divided into 100 ownership units, each of which was to represent the right to 1% of the net profits of AMVA. The partnership agreement also named Americoal Corporation as the general partner, and gave Americoal: "... the full, exclusive and complete authority and discretion in the management and control of the business of the limited partnership for the purpose herein stated, and (Americoal) shall make all decisions affecting the business of the limited partnership." (Plaintiffs' Exhibit 3).
In early 1982 Torbett and Ketron decided to attempt to force Lueben to relinquish ownership of his 333 1/3 Americoal shares. Lueben did in fact resign as a director of Americoal. The voluntary nature of Lueben's resignation was an issue at trial, although a fascinating and intriguing story, it is of no consequence in this opinion. In an agreement dated March 9, 1982, Lueben, acting on behalf of Incob, agreed to assign his 333 1/3 Americoal shares back to Americoal in exchange for 8 1/3 AMVA units, which represented 33 1/3 % of Americoal's holdings in AMVA. The AMVA units (25 initially) were Americoal's only asset. The Lueben-Incob-Americoal agreement noted that, by its terms, Lueben was to receive the equivalent of 8 1/3 % of AMVA's net profits, or a full one-third of Americoal's projected income. (Plaintiffs' Exhibit 4).
At nearly the same time as Lueben was exchanging his Americoal shares for AMVA units, the initial contacts were occurring between Yale Mining Corporation and Americoal. Yale held valuable leases and mining permits to certain lands which were adjacent to property leased by Americoal. Yale was in financial trouble. Yale's president, Richard Gilliam, approached Torbett in late February, 1982, to discuss a possible merger between Yale and Americoal. This initial meeting was unproductive. However, Gilliam and Ketron, still pursuing merger possibilities, traveled to New York in early July, 1982 and spoke with Crofton, who was the treasurer of Yale.
Subsequent to the meeting in New York, Crofton traveled to Tennessee where he met with Torbett and Ketron. It was this trip which Torbett described as leading "to negotiations and the formation of an alliance, and the takeover of Yale." (Tr. 4-631). Witter, who owned 33 1/3 % interest in Yale, also became involved in the Yale-Americoal negotiations. Witter was unhappy with Yale's then current management and saw a buy-out or merger as a way to gain a stronger voice in Yale's management decisions. Witter first met Torbett and Ketron on July 14, 1982. It was at this meeting that the four principles (Witter, Crofton, Torbett and Ketron) decided on a course of action which was to merge Yale into Americoal.
The meeting of July 15, 1982 produced a letter, written on Witter's letterhead, addressed to Torbett and signed by Crofton, as attorney-in-fact for Witter, which embodied the basic mechanics for the merger. This letter, known as the "July Option Letter" (Plaintiffs' Exhibit 12), provided that Witter would assign to AMVA his interest in Yale in exchange for 5.24 AMVA units. Furthermore, Witter agreed to become a member of Americoal's Board of Directors and, significantly, to assist Torbett in the acquisition of the remaining shares of the Yale stock. In exchange, Witter required Torbett to "... purchase the rights and interests of Incob Corporation if and when it is available, and to make available the opportunity to me to acquire the same...." (Plaintiffs' Exhibit 12). Obviously, at the time of this agreement, Incob no longer owned any stock in Americoal.
Also included the July letter was Witter's agreement to accompany Torbett and Ketron to London in August to meet with representatives of Labout Investments. Labout Investments handled investments for a wealthy Saudi Arabian family named Kaaki. Although the Kaaki family already owned a significant number of AMVA limited partner units, which represented a large investment, the plan was to seek an additional $2,000,000 to be used in part to fund Americoal/AMVA in a buy-out of the remaining investors in Yale.
By agreement dated July 22, 1982, Torbett and Ketron secured an option from Lueben, on behalf of Incob, to purchase Incob's 8 1/3 AMVA units (which had been a part of Americoal's original 25). This option was exercised August 6, 1982, at which time Torbett and Ketron, in their individual capacities, purchased Lueben's/Incob's interests for approximately $98,000. This effectively gave Torbett and Ketron, individually, the right to 33 1/3 % of Americoal's income from its AMVA holdings.
On August 9, 1982, in New York City, Crofton executed two notes, payable to the bearer, in the principal amount of $97,335 each and delivered the same to Torbett. In exchange, Crofton received a photocopy of an invalid Americoal stock certificate which purported to represent a transfer of 123.33 Americoal shares. Witter, on August 10, 1982, executed two similar notes, both for $97,335, payable to the bearer, which he likewise delivered to Torbett. He received from Torbett an IOU for 123.33 Americoal shares. Torbett signed this IOU as President of Valmar; however, he later, under oath, denied that he was then acting as president of Valmar.
Immediately following the exchange of these notes, the principals traveled to London in an effort to secure the $2,000,000 investment from the Kaaki family. The investment was not forthcoming. The principals' relationship then took a turn for the worse and the merger was never finalized. Currently Yale and Americoal are in bankruptcy and the notes are unpaid except for a single "no prejudice" payment by Witter.
Plaintiffs in this suit, Witter and Crofton, seek, inter alia, a declaratory judgment that the notes now held by Torbett and Ketron are void. Conversely, the defendants, Torbett and Ketron, assert a counterclaim which alleges that the plaintiffs have defaulted in payment of the notes. The defendants contend that the notes are negotiable, and valid in all respects. The defendants therefore seek judgment for the full amount of the notes with interest and costs. Both parties have also asked for compensatory and punitive damages on several theories.
Among the various grounds alleged by the plaintiffs as reasons that the notes should be held void are: (1) that the purchases of stock by Witter and Crofton were executory in nature and were never finalized because there were conditions precedent to the stock being issued and said conditions precedent have not occurred. Specifically, plaintiffs allege that the stock transaction was contingent upon the complete acquisition by Americoal/AMVA of Yale Mining Corporation, and furthermore, that the merger of Yale with Americoal was itself contingent upon Americoal receiving $2,000,000 from the Kaaki family; (2) that Torbett acted in his capacity as an attorney in his dealings with Witter and Crofton and in the course of said dealings violated the attorney-client relationship by unethical practices, concealment and by taking advantage of his position as an attorney for Witter and Crofton; (3) that Torbett and Ketron committed common law fraud in misleading Witter and Crofton; (4) that Torbett and Ketron were joint venturers with Witter and Crofton and that Torbett and Ketron violated the trust relationship which existed between joint venturers by not revealing all of the matters which were involved; (5) that Torbett and Ketron owed a duty of full disclosure to Witter and Crofton, pursuant to §§ 12(2) of the 1933 Securities Act.
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