IN RE: CALUMET FARM, INC.              91-51414

 

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

IN RE:

 

CALUMET FARM, INC.              91-51414

 

DEBTOR

 

MEMORANDUM OPINION

 

            This case is before the court on the objection of the debtor to the allowance of the claim of Donald Puckett, Nancy Puckett and Michael Sweeney, Claim No. 123, on the grounds the claim was filed after the bar date fixed by the court for filing claims.

            Calumet Farm, Inc. filed a petition for relief under chapter 11 of the Bankruptcy Code in this court on July 11, 1991.

            By order entered December 12, 1991 the court required all creditors and parties in interest to file proofs of claim by February 28, 1992 (Doc. #1591).  On December 31, 1991 counsel for the debtor in possession filed a certificate of service of notice of the last day for filing claims on all creditors and parties in interest (Doc. #168).

            Claim No. 123 was filed June 7, 2000, more than eight years after the bar date.

            Counsel for the claimants contends the claim is not barred because the debtor sent notice of the Calumet Farm, Inc. bankruptcy filing and of the claims bar date to itself, with the result these notices were ineffectual in barring the claim.

            The claim is based on a note in the amount of $1,425,520.08 issued by the debtor, Calumet Farm, Inc., to Calumet Farm Aircraft, Inc.  The note is described as the primary asset of Calumet Farm Aircraft.  The note allegedly matured August 24, 1988.

            The claim is filed as an unsecured claim in the amount of $1,104,523.48, the amount listed as owed by the debtor in Schedule A-3 to the chapter 11 petition.

            Among the creditors listed in Schedule A-3 as holding unsecured claims without priority are the following:

                        Date Incurred            Disputed            Amount

Creditor            Consideration            Undisputed  of Claim

 

Calumet Farm Aircraft, Inc.      Aug. 24, 1988            Disputed            $1,104,523.48

c/o Calumet            Note given in

P.O. Box 11810            exchange for

Lexington, KY 40578 money loaned

 

. . .

 

J.T. Lundy            Commissions            Disputed            $448,246.00

P.O. Box 608

Midway, KY 40347

 

J.T. Lundy            Seasons earned            Disputed            Unknown

P.O. Box 608            as stallion

Midway, KY 40347            manager

 

Lyle Robey            Commissions            Disputed            $189,373.48

430 West Third Street

Lexington, KY 40508

 

            August 24, 1988, listed as the date of the note executed by Calumet Farm, Inc. to Calumet Farm Aircraft, Inc., obviously is in error because the note allegedly was pledged to and accepted by Citizens Fidelity Bank and Trust Company of Louisville, Kentucky as collateral for a loan in the amount of $2,500,000 made by the bank on December 1, 1987 jointly and severally to Wright Enterprises, a Kentucky partnership, and the individual partners Bertha C. Wright, Lucille Wright Lundy, Warren Wright, III, Courtney Wright Lancaster, Thomas C. Wright, and J.T. Lundy.  See $2,500,000 promissory note executed by Wright Enterprises, et al. to Citizens Fidelity Bank attached to Proof of Claim No. 123.  The Calumet Farm, Inc. note pledged as collateral for the loan evidenced by the foregoing $2,500,000 note is not submitted in support of the claim.

            Calumet Farm Aircraft, Inc. was formed in January 1985 by attorney Gary R. Matthews.  The corporation’s registered office was given as 1100 Second National Bank Building, Lexington, Kentucky 40507, which at the time was the same as the address of Wright Enterprises.  Lyle G. Robey, 1100 Second National Bank Building, Lexington, Kentucky was named as the registered agent of Calumet Farm Aircraft, Inc.  Robey was named as the only member of the board of directors to conduct and manage the business of Calumet Farm Aircraft, Inc. until the first meeting of shareholders or until his successors shall be elected and qualify.

            Following the death in 1982 of Lucille Wright Markey, whose husband had willed her a life estate in Calumet Farm, the farm was incorporated in 1983.  The holders of the remainder interest in the farm were issued certificates of stock evidencing their interests in the corporation and in turn in the farm.  The principal interest in the farm, 62.5%, was held by the Warren Wright, Jr. Trust administered at that time by Second National Bank and Trust Company.  Warren Wright, Jr. had predeceased his mother, Lucille Wright Markey.  He named his widow, Bertha Wright, as the beneficiary of the trust created by his will.  Each of the four children of Warren Wright, Jr. and Bertha Wright held a 9.375% interest in Calumet Farm, evidenced by stock in the corporation.  Bertha Wright and her children, as well as J.T. Lundy, the husband of Lucille Wright Lundy, Lyle Robey, and Jake Graves, an officer of Second National Bank and Trust Company, served on the board of directors of Calumet Farm, Inc.

            As indicated above Bertha Wright and the four Wright children were partners in Wright Enterprises.  J.T. Lundy, the husband of Lucille Wright Lundy, was the general partner of the partnership.

            Both Lyle Robey and J.T. Lundy testified at a hearing held by the court on October 11, 1991 in the Calumet Farm, Inc. case.  See Vol. 1 of the transcript of the hearing, pgs. 80-82, 99-123, 173-231.

            This hearing was held well before entry of the order on December 24, 1991 fixing February 28, 1992 as the bar date for filing proofs of claim.  Obviously, both Lyle Robey and J.T. Lundy had actual notice as well as notice by mail at their respective residences of the Calumet Farm, Inc. bankruptcy well before the bar date for filing claims.  By reason of the fact their claims and the claim of Calumet Farm Aircraft, Inc. were listed as disputed all were required to file proofs of claim.  Rule 303(c), Federal Rules of Bankruptcy Procedure.  The order of December 24, 1991 required all creditors to file claims by the bar date whether or not their claims were scheduled as disputed.

            Obviously, Lyle Robey, individually, is presumed to have received notice by mail of the bankruptcy filing of Calumet Farm, Inc. and of the claims bar date at his residence at 430 West Third Street, Lexington, Kentucky 40502.  In any event he had actual notice of the bankruptcy by reason of having testified in the case.

            The court finds that Lyle Robey individually and as registered agent of Calumet Farm, Aircraft, Inc. had actual notice of the Calumet Farm, Inc. bankruptcy well before the claims bar date.

            Mr. Robey, an attorney, testified he was associated with Calumet Farm, Inc. and Wright Enterprises during the period 1982 to 1991.  From the inception he served as Secretary and later as Secretary/Treasurer of Calumet Farm, Inc.  He was a director and on the executive committee of Calumet Farm, Inc. and was general counsel for Calumet Farm.

            J.T. Lundy served as President of Calumet Farm, Inc. from the inception of the corporation.  He was also the managing general partner, without interest, of Wright Enterprises, with authority under the partnership agreement to delegate any of his responsibilities and powers to Mr. Robey.  See transcript of hearing 10-11-91, pgs. 99-102.

            On August 1, 1982 the Wright heirs employed Mr. Robey as business advisor, financial advisor and legal advisor for themselves, husbands, wives and children, immediate family or such other persons as directed by the Wright family pursuant to the terms of a written employment contract.  The contract was for a period of five years.  It was amended September 30, 1987 and extended until September 30, 1990.  On August 23, 1990 J.T. Lundy, in his capacity as general partner of Wright Enterprises, purportedly with the concurrence of the Wright heirs, by letter of that date extended the contract through September 30, 1993.  In his capacity as business, financial and legal advisor of the Wright heirs Mr. Robey ran Wright Enterprises with authority delegated by the managing general partner, J.T. Lundy.

            During their respective terms as managing general partner and CEO of Wright Enterprises, J.T. Lundy and Lyle Robey arranged for the partnership and the Wright heirs to obtain for the partnership a $2,500,000 loan from Citizens Fidelity Bank and Trust Company of Louisville.  The loan was obtained December 1, 1987.

            As previously indicated, there are no corporate documents of Calumet Farm Aircraft, Inc. in the record before the court to indicate by what authority the Calumet Farm, Inc. note, in the face amount of $1,425,520.08, the primary asset of Calumet Farm Aircraft, Inc., was pledged as collateral for the loan obtained by Wright Enterprises from Citizens Fidelity Bank and Trust Company of Louisville.  The note and the assignment are not attached as supporting documents to Claim No. 123.

            Apparently Bertha Wright and her children were issued shares of stock evidencing their interest in Calumet Farm Aircraft, Inc.  They were to pledge these shares as additional collateral for the $2,500,000 loan to Wright Enterprises and themselves.  Only the stock of one of the children, Courtney Wright Lancaster, appears to have been delivered to Citizens Fidelity Bank & Trust Company as collateral for the loan.  Certainly the Wright heirs as members of the board of directors of Calumet Farm, Inc., as shareholders in Calumet Farm Aircraft, Inc. and as partners in Wright Enterprises were well aware of the Calumet Farm, Inc. bankruptcy.  They could have caused a proof of claim to be filed against Calumet Farm, Inc. on the note issued by the debtor to Calumet Farm Aircraft, Inc.

            Citizens Fidelity Bank and Trust Company of Louisville had made several loans to the debtor Calumet Farm, Inc.  The bank, by counsel, timely filed eight claims in this bankruptcy case, Claims No. 72, 73, 74, 75, 76, 78, 94 and 103.

            The bank did not, as permitted by Rule 301(e)(3) of the Federal Rules of Bankruptcy Procedure, timely file a proof of claim based on the Calumet Farm, Inc. note payable to Calumet Farm Aircraft, Inc. purportedly held by the bank as collateral for the $2,500,000 December 1, 1987 loan to Wright Enterprises and the individual partners of the Wright Enterprises partnership.

            Wright Enterprises and the partners defaulted on the loan.  In 1992 Citizens Fidelity Bank and Trust Company filed suit in the Fayette Circuit Court against the partnership and the individual partners to collect the outstanding indebtedness on the note and to enforce the bank’s security interests in the collateral securing the loan.  Civil Action No. 92-CI-0563.

            On or about December 3, 1993 an agreed judgment was entered in the Fayette Circuit Court action whereby PNC Bank, Kentucky, Inc., which apparently in the interim had acquired Citizens Fidelity Bank and Trust Company, was granted judgment against the Wright Enterprises partnership in the principal sum of $1,532,642.35, plus interest accrued through October 26, 1993 in the amount of $319,642.35, plus future interest on the principal balance of the debt.

            PNC Bank was adjudged to hold a valid and enforceable security interest and lien on all property described in certain exhibits attached to the complaint.  The record before this court is insufficient for the court to determine whether the bank was adjudged a lien on the Calumet Farm, Inc. note payable to Calumet Farm Aircraft, Inc., allegedly assigned to the bank as collateral.

            PNC Bank was granted judgment in the amount of $1,300,000 plus interest against three of the individual Wright Enterprises partners, Warren Wright, III, Courtney Wright Lancaster, and Thomas C. Wright, jointly and severally.  The judgment against the individual partners became effective March 1, 1994.

            On April 22, 1994 PNC Bank, Kentucky, Inc., formerly known as Citizens Fidelity Bank of Louisville, Kentucky, executed an assignment whereby for a consideration of $85,000 the bank assigned retroactively to January 1, 1994 to Donald Puckett and Nancy Puckett an undivided 50% interest and to Michael Sweeney an undivided 50% interest, without recourse in “any and all interests PNC Bank may have, if any, in and to the Mortgage, the Citation Oil Interests and the Judgment.”

            PNC Bank warranted only that it was the lawful holder of the Mortgage and Judgment.  The mortgage is identified as being on all of Wright Citation I Ltd.’s interest in and to oil, gas and mineral leases and estates.  PNC Bank made no representation it was the lawful holder of an assignment of the Calumet Farm, Inc. note on which Claim No. 123 is based.

            On January 5, 1996 the debtor in possession filed a motion for approval of a settlement agreement dated December 22, 1995 between the debtor in possession and PNC Bank whereby several claims of the bank were withdrawn and the bank was found to hold only an unsecured claim in the amount of $2,100,000.  This was in conformity with an earlier settlement agreement of April 30, 1993, approved by order of the court entered on August 18, 1994.  See, Docs. No. 1325, 1625.

            The settlement agreement of December 22, 1995, which was approved by the court on February 2, 1996, provided that PNC Bank and Calumet Farm, Inc. thereby released all claims and causes of action against each other except the bank’s unsecured claim of $2,100,000.

            The latter settlement agreement occurred after the assignment of April 22, 1994 of the agreed judgment of December 3, 1993.  However, neither the judgment nor the assignment contain any reference to the so-called “Aircraft note” executed by Calumet Farm, Inc. to Calumet Farm Aircraft, Inc.  The agreed judgment is against the Wright Enterprises partnership and three of the partners, apparently because the other partners had sought relief in bankruptcy before the judgment was entered.  And, of course, Calumet Farm, Inc. was in bankruptcy at the time the suit was commenced.

            The judgment adjudges PNC Bank to hold a valid and enforceable security interest in all of the property described in the pledge agreement dated December 1, 1987, attached as “Exhibit 2” to the complaint; the collateral described in the collateral assignment dated December 1, 1987, attached as “Exhibit 3” to the complaint, and the collateral described in the Mortgage, Deed of Trust, Assignment, Security Agreement and Financing Statement dated July 6, 1988, attached as “Exhibit 4” to the complaint.  The judgment recites “the Defendants know of no other liens on any collateral subject to PNC Bank’s lien.

            These exhibits are not attached to the Proof of Claim No. 123.  There is no evidence before this court that the “Aircraft note” was ever assigned to PNC Bank as provided by Section 1.02 of the loan agreement of December 1, 1987.  The record before this court indicates that only 93.75 shares of the 1000 shares of Calumet Farm Aircraft, Inc. were actually delivered to the bank.

            The court is unable to find that the “Aircraft” note was ever assigned to the bank or that PNC Bank was adjudged in the state court action to hold a valid and enforceable security interest and lien on the note.


CONCLUSIONS OF LAW:

            The court is satisfied that Lyle G. Robey, the registered agent of Calumet Farm Aircraft, Inc. had actual notice of the Calumet Farm, Inc. chapter 11 bankruptcy well before expiration of the February 28, 1992 bar date for filing claims.  He was listed as a creditor, individually, and by reason of that fact is presumed to have received notice by mail of the bankruptcy at his home address at 430 West Third Street, Lexington, Kentucky.  He testified as a witness in the Calumet Farm, Inc. case on October 11, 1991, more than four months prior to the expiration of the February 28, 1992 bar date for filing claims.  Although Mr. Robey had been terminated as the financial, business and legal advisor of Wright Enterprises and the individual Wright partners, he remained the process agent of the corporate entity of Calumet Farm Aircraft, Inc.  In his capacity as process agent he could have notified someone in Aircraft to file a claim on the note to Calumet Farm Aircraft, Inc. executed by the debtor.

            Obviously, Citizens Fidelity Bank and Trust Company of Louisville, the alleged holder of the “Aircraft” note by way of pledge and assignment, had notice of the Calumet Farm, Inc. bankruptcy.  The bank, by counsel, timely filed numerous claims in the case.  The bank did not timely file a claim on the “Aircraft” note allegedly held as collateral securing the December 1, 1987 loan to Wright Enterprises and the partners thereof, as permitted by Rule 301(e)(3).

            The present claimants on the unproduced “Aircraft” note are bound by the inaction of their predecessors in interest.  The claim is barred.

            Moreover, as indicated by the facts, assuming there was an assignment approved by the directors of Calumet Aircraft, Inc. and executed by an authorized representative of the corporation assigning the Calumet Farm, Inc. note to Citizens Fidelity Bank and Trust Company of Louisville as collateral for the December 1, 1987 loan to Wright Enterprises, the agreed judgment entered in the Fayette Circuit Court action by the bank against Wright Enterprises makes no mention of this item of collateral, nor does the assignment by PNC Bank, Kentucky, Inc. to Donald and Nancy Puckett and Michael Sweeney executed on April 22, 1994, on which Claim No. 123 is based.

            Accordingly, the objection of the debtor to the allowance of Claim No. 123 is sustained on the grounds (1) the claimants have not established ownership by way of assignment of the $1,425,520.08 note of the debtor, Calumet Farm, Inc., to Calumet Farm Aircraft, Inc., on which the claim is based, (2) the claim, even if valid, is barred as late filed, (3) assuming the claimants have standing, which this court doubts, to object to the sufficiency of the notice to Calumet Farm Aircraft, Inc. of the Calumet Farm, Inc. chapter 11 bankruptcy, the court finds Calumet Farm Aircraft, Inc., through its agent for service of process received notice of the bankruptcy and of the claims bar date well prior to the expiration of the bar date of filing claims, and (4) Citizens Fidelity Bank and Trust Company, if it held the “Aircraft” note when bankruptcy intervened, had notice of the bankruptcy and the claims bar date.

            The objection of the debtor to allowance of Claim No. 123 should be sustained.

            Dated this _____ day of March 2002

                        By the court –

 

                        _______________________________

                        JOE LEE, U.S. BANKRUPTCY JUDGE

 

Copies to:

 

Elizabeth Lee Thompson, Esq.

J. Michael Debbeler, Esq.

U.S. Trustee


UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

IN RE:

 

CALUMET FARM, INC.              91-51414

 

DEBTOR

 

 

 

 

ORDER

 

            In conformity with the memorandum opinion of the court this day entered, IT IS HEREBY ORDERED that the objection of the debtor to the allowance of the claim of Donald Puckett, Nancy Puckett and Michael Sweeney, Claim No. 123 is SUSTAINED.

            Dated this _____ day of March 2002

                        By the court –

 

                        ________________________________
                        JOE LEE, U.S. BANKRUPTCY JUDGE

 

Copies to:

 

Elizabeth Lee Thompson, Esq.

J. Michael Debbeler, Esq.

U.S. Trustee