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McFarland Dewey Securities Co., LLC v. American M S Industries, Inc.

United States District Court, E.D. Kentucky, Central Division

July 2, 2014

McFARLAND DEWEY SECURITIES CO., LLC, Plaintiff,
v.
AMERICAN M S INDUSTRIES, INC., et al., Defendants.

OPINION AND ORDER

KAREN K. CALDWELL, District Judge.

This matter is before the Court on Plaintiff's ("McFarland's") motion for summary judgment. For the reasons stated below, the motion will be granted.

I. BACKGROUND

McFarland claims it is entitled to judgment in the amount of $340, 000.00, plus interest, pursuant to several contracts it executed with American M s Industries, Inc. ("AMI") in 2004 and for which it has not been paid. AMI does not dispute execution of the agreements by George F. Hofmeister as President of AMI, nor the principal amount due. The dispute is whether any of the other named defendants in this action are jointly liable to McFarland.

The facts in the present case, as evidenced by the written contracts and the declaration of Alan McFarland are as follows. On May 26, 2004, AMI retained McFarland as its financial adviser to introduce it to a number of potential investors for purposes of raising funds for Bridge Financing and Permanent Equity Financing for acquisition of three businesses. DE 24-3. As compensation, AMI agreed to pay McFarland 10 percent of the Bridge Financing and at varying rates for the Permanent Financing. Id. at p. 2. The agreement was signed by McFarland and George Hofmeister as President of AMI. Id. at 3.

On July 26, 2004, AMI retained McFarland as its financial advisor in connection with raising approximately $4 million in Bridge Financing, an additional $3 million in subordinate debt, and raising up to $50 million of Permanent Equity Financing. AMI agreed to pay McFarland 10 percent of the gross proceeds for the Bridge Financing, 5 percent of the gross proceeds for the additional Bridge Financing, and at varying rates for the Permanent Financing. DE 24-4. Again, the agreement was signed by representatives of AMI and McFarland. Id. at 3. On August 2, 2004, AMI retained McFarland as its financial advisor to assist with the sale of three wholly-owned subsidiaries. As compensation for these services, McFarland was to be paid at the time of closing a flat fee of $100, 000 for AMI-Manchester and a fee of 3 percent of the "enterprise value" received for the other two subsidiaries. DE 24-5. This agreement was likewise signed by both parties. Id. at 3. At the time of all three of these agreements, AMI was wholly owned by the George S. Hofmeister Family Trust ("HFT").

McFarland performed the required services for AMI in 2004 and obtained financing from Airlie Opportunity Fund ("Airlie"). AMI requested that McFarland defer its compensation under the fee agreements until such time as the Airlie loans were repaid. McFarland agreed to defer payment of the fees but requested additional security for its fees. The HFT agreed to allow its assets to serve as security for payment of McFarland's fees. This agreement, made in 2004, was memorialized in a December 31, 2006 letter signed by the Trustee of the HFT. DE 24-2 at ΒΆΒΆ 9, 11, 12. In that letter, Douglas Holmes as Trustee of the HFT acknowledged that $7 million was raised by McFarland from Airlie and that McFarland agreed to defer receiving its fee until the principal of the loans was repaid to Airlie. DE 24-6. The letter agreement memorialized that the HFT pledged additional, "non-AMI, " assets as security and reconfirmed that the HFT recognized its obligation to pay McFarland the remaining fees upon any debt repayment to Airlie. This letter was signed by McFarland and the HFT Trustee. Id.

On April 12, 2007, another letter agreement was signed by McFarland and George Hofmeister as Trustee of the Hofmeister Children's' Trusts ("CTs"). DE 24-7. This agreement acknowledges that AMI "is now owned by the Hofmeister Children Family Trust." It notes that the HFT provided security for the loans to AMI by providing liens on certain non-AMI assets held by the HFT. It states that a $50, 000 payment to McFarland was due in December 2006 and has not been paid. It confirms that the CTs recognize their obligation to payor cause to be paid to McFarland the delayed placement fees owed upon any debt repayment. Id.

The Defendants do not dispute these facts, but instead argue that only AMI can be held liable as its corporate veil has not been pierced. McFarland's argument regarding liability of other defendants is based in part on the decision of Senior Judge Karl S. Forester in Limbright v. Hofmeister, No. 5:09-cv-107, 2011 WL 5523713 (E.D. Ky. November 14, 2011) (" Limbright "), which is incorporated by reference herein. In that case, Judge Forester concluded that George and Kay Hofmeister were the alter egos of the HFT and the CTs, and the CTs were the alter egos of the HFT. Id. at *4-7. Additionally, there were numerous transfers among the trusts and to individual defendants, which were held to be fraudulent transfers made to hinder, delay or defraud creditors. Id. at *8-9.

Defendants concede that McFarland is entitled to judgment against AMI. DE 28 at 2. They contend, however, that the HFT and the CTs were not parties to the original agreements, that Hofmeister was acting only in his official capacity as President of AMI, that the doctrine of Offensive Collateral Estoppel has no application to this case, that AMI's corporate veil has not been pierced, that the agreements of the HFT and CTs to pay the sums due to McFarland are not supported by consideration, and that the federal statutory interest rate would apply to any prejudgment interest. DE 28.

II. ANALYSIS

A. Summary Judgment Standard

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue of material fact exists if there is sufficient evidence favoring the nonmoving party for a reasonable jury to return a verdict in favor of that party. Anderson v. Uberty Lobby, Inc., 477 U.S. 242, 249 (1986). In other words, the determination must be "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52. The evidence, all facts, and any inferences that may permissibly be drawn from the facts must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

Once the moving party shows that there is an absence of evidence to support the nonmoving party's case, the nonmoving party must present "significant probative evidence" to demonstrate that "there is [more than] some metaphysical doubt as to the material facts." Moore v. Phillip Morris Companies, Inc., 8 F.3d 335, 340 (6th Cir. 1993). Conclusory allegations are ...


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