Court: United States Bankruptcy Court, N.D. Mississippi; October 13, 2000; Us Bankruptcy; United States Bankruptcy Court
A motion for summary judgment has been filed by the defendants, which include Winslow Communications, Inc., Robert D. Gross, Judith Ann Carroll Gross, AMW Cable Company, Inc., and AMW Cablevision, L.P. The plaintiffs, representing the Estate of Johnny B. Atkins and several individuals, have responded to this motion. The court asserts jurisdiction over the matter and the parties involved under 28 U.S.C. §§ 1334 and 157. It deems the primary issues in this adversary proceeding as 'core' causes of action, as defined by 28 U.S.C. § 157(b)(2)(A, B, H, and O). Although some aspects of the case may be classified as 'non-core', the parties have consented to the court's authority to issue final dispositive orders according to 28 U.S.C. § 157(c)(2).
AMW Cable Company, Inc. (AMW) was incorporated in Mississippi on September 1, 1987, with initial shareholders Johnny Atkins, Wayne Wright, and Louis McCray, each holding 1,000 shares. On August 11, 1989, Robert D. Gross acquired 2,067 shares for $130,000, and the shareholders executed a Shareholders' Agreement and Stock Purchase Agreement. Subsequently, on December 7, 1989, they formed a limited partnership, AMW Cablevision, and entered into a $1,000,000 loan agreement with First Interstate Bank of Denver (FIBD), securing the loan with all assets of both AMW and AMW Cablevision.
The shareholders approved the loan and security agreements on December 13, 1989. An amendment to the Shareholders' Agreement on January 1, 1990, altered share ownership, with Gross owning 2,353 shares. Following Atkins' death in a car accident on December 27, 1990, the remaining AMW officers resigned, leading to McCray being elected President and Gross as Vice President.
AMW defaulted on the loan, resulting in a Loan Modification Agreement with FIBD on May 6, 1992, negotiated by Gross. AMW filed for Chapter 11 bankruptcy on January 20, 1993, with Gross signing on its behalf. FIBD filed a secured claim of $1,143,672.90. On August 31, 1993, Gross, Mrs. Gross, and Winslow Communications purchased this claim for $525,000, which remained unpaid as of June 28, 1994.
AMW's second amended disclosure statement filed on January 4, 1994, assigned the FIBD claim to Gross, Mrs. Gross, and Winslow, indicating all assets would go to Winslow in lieu of foreclosure. The confirmed reorganization plan reflected share ownership percentages among the shareholders, with Gross holding 49%.
On June 28, 1994, a board meeting resulted in a motion to transfer AMW's assets to Winslow, supported by shareholders holding at least 74% of the voting shares, despite this action occurring after the plan's confirmation. Documentation of this asset transfer was included in the defendants' motion for summary judgment as Exhibit '9'.
Three primary issues are in dispute: 1) the legal authorization of AMW's bankruptcy case filed in the District of Colorado by its corporate officers, directors, or shareholders; 2) the legality of the asset transfer from AMW to Winslow in lieu of foreclosure and its compliance with due process; and 3) whether the plaintiffs' remedies should be pursued in the Bankruptcy Court for the District of Colorado under Rule 60(b) of the Federal Rules of Civil Procedure.
Summary judgment can be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. The court must assess the facts favorably for the nonmoving party, requiring the moving party to justify their claim for summary judgment. The nonmoving party must then demonstrate that a genuine issue exists. An issue is considered genuine if evidence exists favoring the nonmoving party, and a fact is material if it can influence the lawsuit's outcome under relevant law.
Regarding the first issue, the defendants submitted exhibits reflecting AMW's corporate activities, which appear legitimate at face value. However, plaintiffs contest their authorization and allege forgery related to a signatory. Due to these conflicting claims, the court finds material factual disputes exist, necessitating testimony to verify the authenticity and authorization of the corporate documents involved.
The legality of transferring AMW's assets to Winslow Communications, Inc. in lieu of foreclosure is under scrutiny, particularly regarding due process compliance. AMW was indebted to FIBD for $1,143,672.93, secured by its assets, and the Colorado Bankruptcy Court authorized the asset transfer as part of AMW's reorganization plan. Mr. and Mrs. Gross, along with Winslow, acquired FIBD's claim against AMW during this process. However, plaintiffs argue they were not adequately notified of developments in the bankruptcy case and were misled by Mr. Gross's representations about AMW's financial status.
The bankruptcy proceedings occurred prior to any ratification by AMW's directors and shareholders, raising questions about the validity of these actions. Although acquiring a claim in bankruptcy is permissible, the court is concerned whether Gross, in his roles with AMW, fulfilled his fiduciary duties when he acquired and assigned the FIBD claim. After the claim's acquisition, the debt owed by AMW was reduced to $525,000, and the plaintiffs contend that Gross misrepresented AMW's financial position, stating assets of $343,751.62 against liabilities of $1,215,719.74, leading to a significant net deficit.
These conflicting claims necessitate further evidence to determine if due process was observed and whether Gross's representations were misleading. The court draws on precedents indicating the importance of allowing trials to develop factual records, underscoring the need to clarify Gross's fiduciary responsibilities.
Plaintiffs' remedies concerning their claims must be addressed in the Bankruptcy Court for the District of Colorado under Rule 60(b), Federal Rules of Civil Procedure, but this requirement is currently on hold. The court seeks to determine whether the original bankruptcy filing by AMW had legitimate corporate authorization. Should the court find that the bankruptcy was legally authorized and properly conducted with due process and notice to AMW shareholders, it may conclude the proceedings in this court. Conversely, if the bankruptcy is deemed unauthorized, the court will then evaluate whether the plaintiffs' claims should be pursued in Colorado or can be resolved here. The court has identified material factual disputes between the parties, leading to the conclusion that the defendants' motion for summary judgment is not justified and will be overruled. An order will follow this opinion.
