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WAFRA CAPITAL PARTNERS, L.P. v. PRIME LEASING

January 27, 2004.

WAFRA CAPITAL PARTNERS, L.P., Plaintiff,
v.
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.

BACKGROUND

  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 payments.

  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 Page 2 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. 2002).

  ANALYSIS

  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 Page 3 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." Id.(citations omitted).

  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 Receiving Payment

  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 Plaintiff's position. Page 4 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, ...


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