United States District Court, N.D. Illinois
January 27, 2004.
WAFRA CAPITAL PARTNERS, L.P., Plaintiff,
PRIME LEASING, INC. and WILLIAM A. BRANDT, JR., as Assignee, Defendants
The opinion of the court was delivered by: AMY J. ST. EVE, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Wafra Capital Partners, L.P., ("Wafra") sued Prime Leasing,
Inc. ("Prime") and William Brandt, Jr., as Assignee for Prime, for breach
of contract. On August 26, 2003 the Court entered a judgment in favor of
Wafra in the amount of $732,083. On October 1, 2003, Plaintiff filed a
motion for an order directing Brandt, the Assignee, to turn over
$732,509.88 from the funds held by Brandt in his capacity as Assignee for
the benefit of creditors of Prime. (R.13-1, Ex. D.) For the reasons set
forth below, Plaintiff's motion is denied.
On March 1, 1999, Plaintiff and Prime entered into a contract in which
Prime agreed to pay certain sums to Plaintiff. Prime failed to make such
On July 14, 2000, Prime and Brandt executed a Trust Agreement and
Assignment for the Benefit of Creditors of Prime Leasing, Inc. (the
"Assignment Agreement") in which Brandt was appointed to carry out the
Agreement. (R. 13-1, Ex. D.) Prime noted that it was indebted to various
entities. It transferred to Brandt "for the benefit of its creditors" the
title to all of its
remaining property and assets "so that the property so transferred
may be expeditiously liquidated and the proceeds thereof be fairly
distributed to its creditors without any preference or priority, except
such priority as is established and permitted by applicable law."
On July 8, 2003, Wafra filed this lawsuit against Prime and Brandt, as
Assignee for Prime, alleging breach of the March 1, 1999 contract. On
August 6, 2003, Prime made an offer of judgment in the amount of
$732,083. (R. 3-1.) Plaintiff accepted that offer on August 8, 2003. (R.
5-1.) On August 26, 2003, the Court entered a judgment against Prime in
the amount of $732,083. (R. 8-1.) On October 7, 2003, Plaintiff
voluntarily dismissed its case against Brandt.
On December 11, 2003, the Court granted Brandt's motion to reassign
this case as a related case to Wafra v. Prime Capital Corp., 01
C 4314 ("Wafra I"), pursuant to Local Rule 40.4. Wafra
I is a securities fraud case pending before this Court. For a
description of the allegations in Wafra I, see Wafra Leasing
Corp. 1999-A-1 v. Prime Capital Corp., 247 F. Supp.2d 987 (N.D.III.
In Illinois, an assignment for the benefit of creditors is "a voluntary
transfer by a debtor of his property to an assignee in trust for the
purpose of applying the property or proceeds thereof to the payment of
his debts." Consol Pipe & Supply Co. v. Rovanco Corp.,
897 F. Supp. 364, 370 (N.D. Ill. 1995). A legal "assignment for the benefit
of creditors passes legal and equitable title to the assignor-debtor's
property absolutely from the assignor-debtor to the assignee."
Id., citing Fed. Deposit Ins. Corp. v. Juron,
713 F. Supp. 1116, 1119-20 (N.D. Ill. 1989).
An assignment is invalid and unenforceable against nonparticipating
creditors if it
contains conditions "onerous" to creditors. Consol. Pipe,
897 F. Supp. at 370. "One condition which will render an assignment
invalid is when it puts creditors to a choice of taking a fraction of
their claims in settlement of the whole. . . . Thus assignments
purportedly for the benefit of creditors, which place such creditors upon
the choice of taking nothing at all or a fraction of their claims in
settlement of the whole, are invalid as to non-consenting creditors."
Wafra seeks a turnover of $732,083 in Brandt's possession. Wafra argues
that it is not governed by the Assignment Agreement and therefore a
turnover is appropriate. Wafra specifically argues that the Assignment
Agreement is unenforceable because it gives the Assignee the power to
compromise claims and to prefer specific creditors, and it absolves the
Assignee from all liability of his conduct. Wafra further argues that the
Assignee is improperly attempting to coerce Plaintiff and its affiliate
into releasing their claims against Prime in exchange for payment of a
small fraction of Prime's obligations to them.
I. The Assignment Agreement Does Not Provide For A Full Release
By Wafra Of Its Claims Against Prime As A Condition Precedent To
Wafra first argues that the Assignment Agreement provides for pro
rata distribution to "other creditors," and that the "facts and
circumstances" of this case establish that a full release by each
creditor "was intended to be one of the requirements." In its motion,
Wafra contends that the Assignee's prior settlement agreements, including
its settlement with James Friedman a former officer, director and
shareholder of Prime included a full release, and thus prove that
the Assignee is requiring Prime to release of its claims in exchange for
a pro rata settlement.
First, the plain language of the Assignment Agreement contradicts
Paragraph 3(g)(6) of the Assignment Agreement provides for the
pro rata distribution of assets to other creditors: "all
distributions to other creditors shall be, within each class, pro
rata in accordance with the terms of each creditor's indebtedness,
until all such debts are paid in full." Nothing in the Assignment
Agreement, however, requires a creditor to provide a release of claims in
exchange for the right to receive such a distribution.
Plaintiff next argues that Brandt's settlement with James Friedman, a
former officer and director of Prime, for a fraction of his claim and
Friedman's execution of a general release from liability supports its
argument that Brandt is forcing such a release in this case. Friedman is
an unliquidated creditor and thus situated differently than Plaintiff.
Brandt's individual settlement with Friedman and the circumstances
surrounding it are not conclusive with respect to Plaintiff's position.
The Court is not persuaded by this argument.
Furthermore, Plaintiff attempts to support its argument by a statement
made by Brandt's attorney David Missner during an October 22, 2003
conference call. That call involved an attempt to settle Wafra I
and other claims. The initial conversation included Plaintiff's attorneys
and attorneys for the Trustee for the Pools, the largest claimant against
Prime's assets. At some point during the conference call, Missner joined
the participants. Plaintiff argues that Missner told the other
participants that if they consented to a certain settlement proposal,
Brandt "will need releases from Wafra as a condition of the Assignee's
approval of any payment to Wafra Capital and Wafra Leasing." (R. 13-1, Ex
A ¶ 5.) Plaintiff contends that these statements prove that Brandt is
requiring a release in exchange for a pro rata payment of
Plaintiff's claims. It is clear, however, that these statements were made
during settlement negotiations and are not appropriate to use against
Brandt here. Fed.R.Evid. 408. Rule 408 provides:
Evidence of (1) furnishing or offering or
promising to furnish, or (2) accepting or offering
or promising to accept, a valuable consideration
in compromising or attempting to compromise a
claim which was disputed as to either validity or
amount, is not admissible to prove liability for
or invalidity of the claim or its amount. Evidence
of conduct or statements made in compromise
negotiations is likewise not admissible. This rule
does not require the exclusion of any evidence
otherwise discoverable merely because it is
presented in the course of compromise
negotiations. This rule also does not require
exclusion when the evidence is offered for another
purpose, such as proving bias or prejudice of a
witness, negativing a contention of undue delay,
or proving an effort to obstruct a criminal
investigation or prosecution.
Fed.R.Evid. 408. "Under Rule 408, the Court has broad discretion when
deciding whether to admit evidence of settlement that is offered for
`another purpose'." Objectwave Corp. v. Authentix Network, Inc.,
No. 00 C 7823, 2001 WL 204768, at *2 (N.D.III. Mar. 1, 2001). The Court
declines to admit it here.
Even if the Court considered Missner's statements, such statements do
not support Plaintiff's position. According to Missner, when he joined a
conference call between Wafra and another securitization holder
the Pools an attorney for the Trustee of the Pools informed him
that the Pools and Wafra had had settlement negotiations and that he had
proposed a settlement in which the parties would agree that the assets
held by the Assignee would be divided among the claimants according to
specific proposed terms. Missner responded "that if the parties (Wafra
and the Pools) each agreed to an overall agreement, the Assignee would
probably go along with a settlement provided that each party to the
settlement each execute a general release in favor of the Assignee so as
to avoid any further litigation between the parties and also enable the
Assignee to close the Estate." Missner further has affirmed that he did
not "at that time, or any other time, demand that Wafra must execute a
release in return for being allowed a claim against the Estate in the
amount of $732,083."
This Court is familiar with Brandt's attempts to settle this case given
the settlement negotiations conducted by the Court in Wafra I.
The representations by Missner in his January 15, 2004 affidavit are
consistent with facts previously represented to this Court. Missner's
statements do not support Plaintiff's argument that the Assignee was
forcing them to execute a general release as a condition precedent to
receiving a pro rata distribution of the judgment in this case.
II. The Assignment Agreement Does Not Allow The Assignee To
Compromise Claims And Prefer Customers
Next, Wafra argues that the Assignment Agreement is defective because
it gives the Assignee the power to compromise the claims of creditors and
to give preference to creditors. Paragraph 3(f) of the Assignment
Agreement provides that the Assignee has the power "to settle any and all
claims against or in favor of [Prime] with full power to
compromise. . . ." The power of an assignee to compromise claims alone
does not invalidate an assignment. See Reynolds v. Burns,
20 Ill.2d 179, 190, 170 N.E.2d 122 (1960). See also Consol Pipe,
897 F. Supp. at 370 (assignment invalid where it "gives the assignee the
power both to compromise creditors' claims and to prefer
creditors") (emphasis added); Tribune Co. v. R&J Furniture,
20 Ill. App.2d 370, 155 N.E.2d 844 (Ill.App. Ct. 1959) (same). Contrary
to Wafra's suggestion, however, the power to compromise is not joined
with the power to prefer one creditor over another. To the contrary,
the Assignment Agreement mandates that the Assignee pay claims pursuant
to the priorities identified in section 3 of the Agreement unless
"applicable law requires payment of certain claims or class of claims
in priority over and prior to payment of other claims in priority other
than as set forth above." Wafra's argument that paragraph 3(g)(6) allows
for the pro rata
distribution is not supported by the plain language of the
III. The Assignee Must Act in Good Faith
Wafra next challenges the validity of the Assignment Agreement based on
the liability of the Assignee. Wafra contends that the Assignment
Agreement relieves the Assignee from any responsibility for his wrongful
acts, and is thus void.
Paragraph 7 of the Assignment Agreement provides, in relevant part: "It
is understood and agreed that the Trustee-Assignee is to assume no
personal liability or responsibility for any of his acts as
Trustee-Assignee herein, but his obligation shall be limited to the
performance of the terms and conditions of the Trust Agreement, in good
faith and in the exercise of his best judgment." This provision clearly
provides that the Assignee must act in good faith and exercise his best
judgment. Thus the Assignee is absolved from liability only if he
performs his duties in good faith and in the exercise of his best
judgment. This provision does not render the assignment invalid.
Plaintiff's motion for a turnover is denied. Defendants' motion to
strike is denied as moot.
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