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RCI HV, INC. v. TRANSTEC

May 28, 2004.

RCI HV, Inc., as successor-in-interest To H-V Roll Center, Inc. Plaintiff, -against- Transtec (RC) Inc., f/k/a Roll Center, Inc., and The Bank of New York, as successor-in-interest to United States Trust Company Defendants


The opinion of the court was delivered by: CHARLES HAIGHT, District Judge

Memorandum Opinion and Order

The above captioned case was originally assigned to the calendar of the late Judge Schwartz. Defendant moved by Order to Show Cause to vacate the default judgment entered against it by Judge Schwartz on December 11, 2002 for failure to file an answer. The motion came before me as the Judge sitting in Part I on January 12, 2004.

I issued an Order to Show Cause on defendant's motion on January 12, 2004 and scheduled its return for January 22, 2004. At the request of the parties, that date was moved to February 11, 2004. This extension provided time for the parties to file and serve responsive and reply briefs on the motion. On February 11, 2004, I heard oral argument by counsel for the parties. At the end of the hearing, I reserved decision. Having considered those arguments and the written submissions filed by the parties, and for the reasons that follow, I now vacate the default judgment. I. BACKGROUND

 A. The Parties

  At the times pertinent to this litigation, Roll Center, Inc., an Indiana corporation, engaged in the preparation and manufacture of speciality sheet metal. Roll Center was a wholly owned subsidiary of TransTec Group, Inc., a Michigan corporation, which was in turn a wholly owned subsidiary of TransTec PLC, a United Kingdom corporation (the "TransTec Companies"). In April 2002, Roll Center was administratively dissolved by the Indiana authorities for failure to pay corporate taxes and fees. While Roll Center is now known as "TransTec (RC) Inc.," I will refer to that company as "Roll Center" in this Opinion.

  The plaintiff in this action is RCI HV, Inc ("RCI"), as successor-in-interest to H-V Roll Center, Inc. (sometimes collectively "HV"), which in 1998 purchased certain assets from Roll Center. The circumstances of that transaction and its aftermath are set forth in Part I. B., infra, For purposes of identifying the parties to the case, it is sufficient to say that an escrow account was established pursuant to the purchase agreement, funded by Roll Center as seller of the equipment in question, which was intended to secure any claims for indemnification in favor of HV as buyer in accordance with the provisions of the purchase agreement. The United States Trust Company of New York ("US Trust") was named as the escrow agent.

  HV brought this action to obtain the funds held in escrow. Its original complaint named Roll Center and The Bank of America as defendants, the latter under the mistaken impression that The Bank of America had succeeded US Trust as escrow agent. In point of fact, The Bank of New York had succeeded US Trust in that capacity. Accordingly, plaintiff filed an amended complaint which eliminated The Bank of America as the second party defendant and named The Bank of New York in its place. The amended complaint repeats HV's allegations against Roll Center.

 B. The Transactions in Suit

  John Somers is named as representative of Roll Center and TransTec Group in a 1998 Asset Purchase Agreement for the sale of assets owned by Roll Center to plaintiff's predecessor in interest. James Jorgensen of the law firm of Hoeppner, Wagner & Evans was counsel for the TransTec Companies in connection with that sale.

  During much of the time pertinent to this motion, TransTec PLC was in receivership in the United Kingdom pursuant to a mortgage debenture not related to this case. The receivers, all partners of the accounting firm of Arthur Andersen, were John Talbot, Murdoch McKillog, and David Duggins. The United States representatives of these receivers were James Shinehouse and Wanda Underkoffler. Susan Moore of the law firm of Denton Wilde Sapte, whose offices are in London, England, was counsel for the receivers. James Plemmons of Dickinson Wright PLLC was counsel for TransTec PLC.

  H-V Roll Center ("H-V"), plaintiff' s predecessor in interest, was the corporate purchaser of assets belonging to Roll Center, Inc. H-V was a subsidiary of Precision Industrial Corporation. Genesis Worldwide I, Inc. ("Genesis I') subsequently purchased H-V. Genesis I filed for bankruptcy, after which time Genesis Worldwide II, Inc. ("Genesis II") purchased H-V. RCI HV, plaintiff in this case, is a subsidiary of Genesis n and is the named successor-in-interest for indemnification claims derived from the 1998 Asset Purchase Agreement.

  During periods of time critical to this litigation, Karl Frydryk was an officer of H-V; Walter Stasik was President and CEO of Genesis II; Bruce Marino was Vice President and General Counsel of Genesis II; and Elliot Davis of the law firm of Kirkpatrick and Lockhart LLP was counsel for RCIHV.

  According to the submissions of the parties and documents contained in the court file, the facts surrounding this dispute are as follows. On or about July 24, 1998 plaintiff "H-V Roll Center, Inc., a Pennsylvania corporation," entered into an Asset Purchase Agreement (the "Agreement") with "TransTec PLC, a public limited company incorporated under the laws of England," "TransTec Group, Inc., a Michigan corporation and wholly-owned subsidiary of TransTec," and "Roll Center, Inc., an Indiana corporation and wholly-owned subsidiary "of TransTec Group. Agreement at 1. This Agreement was for the purchase of property and assets owned by Roll Center.

  As part of the Agreement, "the Companies," referring to TransTec PLC, TransTec Group, and Roll Center, "jointly and severally [agreed to] indemnify, defend and hold harmless" the purchasing parties for a number of different potential commercial and environmental liabilities. Agreement at 30. In support of this indemnification, the Agreement provided that $250,000, or approximately one-third, of the purchase price for Roll Center's assets would be paid to an escrow fund, later to be disbursed depending upon the resolution of any potential claims for indemnification. According to the Escrow Agreement, which was entered into by Roll Center and H-V only, funds from the Escrow Account could only be disbursed pursuant to an agreement signed by both Roll Center and H-V or by a court order. United States Trust Company of New York ("US Trust") was the escrow agent.

  On January 20, 2000 Karl Frydryk, writing on behalf of H-V Roll Center, provided written notice to all three TransTec Companies and to James L. Jorgensen, counsel to the TransTec Companies in connection with the Assent Purchase Agreement, of two potential litigation claims for which H-V would seek indemnification. One related to the sale of a "Sarclad Machine" (the "NEO" claim). The other was for liability derived from alleged environmental harms (the "Great Lakes" claim).

  On July 26, 2000 the British law firm of Denton Wilde Sapte, counsel for TransTec PLC's receivers, wrote to Frydryk and representatives of all three TransTec Companies. In this letter Denton Wilde Sapte referred to the claims set forth in the January 20, 2000 letter, but took the positions that the NEO claim had been resolved and that the Great Lakes claim would not be pressed. Accordingly, counsel requested that H-V and Roll Center take appropriate steps to arrange for the release of the escrow funds and keep TransTec Group and TransTec PLC apprised of these efforts.

  On July 27, 2000 Frydryk wrote to Susan Moore at Denton Wilde Sapte. In this letter Frydryk notified Moore that Genesis, through H-V, had outstanding claims for indemnification and, therefore, could not agree to release the escrow funds.

  On August 25, 2000 Bruce Martino, Vice President and General Counsel of Genesis World Wide, then sole owner of H-V, wrote to all three TransTec Companies (i.e. Roll Center in Ann Arbor Michigan, TransTec Group in Ann Arbor Michigan, and TransTec PLC in Birmingham England), James L. Jorgensen (who represented the TransTec Companies in connection with the sale of Roll Center's assets), and Susan Moore at Denton Wilde Sapte, providing further details relating to the NEO claim and demanding payment from the escrow account for alleged damages arising from this claim.

  On September 19, 2000, Martino addressed a second letter to the same parties, again seeking payment from the escrow account for damages relating to the NEO claim. On February 25, 2002 Annette Kos, a representative of the Bank of New York, wrote a letter addressed to Wanda Underkoffler and to Bruce Martino notifying them that the Bank of New York had replaced US Trust as escrow agent, and that the escrow account and the funds therein had been transferred to the control and possession of The Bank of New York. Kos had previously been advised by Elliot Davis, representing plaintiff, in a letter dated February 19, 2002 and copied to James Shinehouse, that there were still claims outstanding on the escrow ...


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