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United States Bankruptcy Court for the Northern District of Texas, Dallas Division
December 23, 2021, Decided
Case No. 16-30503-SGJ-7, Chapter 7, Adv. No. 16-03025-SGJ
FINDINGS OF FACT AND CONCLUSIONS OF LAW IN SUPPORT OF JUDGMENT IMPOSING LIABILITY ON FACTORING COMPANY, REPUBLIC BUSINESS CREDIT, LLC
The above-referenced adversary proceeding (the "Adversary Proceeding") involves: (a) a decades-old metal fabricating business; (b) its long-time owner; and (c) a factoring company. There was a short-lived financing arrangement among the parties that went terribly wrong. This is, at bottom, a "lender liability suit" that was commenced after the business (actually, three related businesses) filed Chapter 11 and later converted their cases to Chapter 7.
The bankruptcy trustee (now standing in the shoes of the failed business enterprise) and the former owner of the businesses each allege that: (a) improper conduct of the factoring company ultimately destroyed the business enterprise which—although experiencing financial distress—had prestigious customers and a hopeful future; and (b) the factoring company unlawfully put a lien on and coerced the former owner to sell his exempt homestead and pay over the sale proceeds to the factoring company (based on a broken promise to resume factoring, if he did). The bankruptcy trustee [*4] and former owner allege more than a dozen torts against the factoring company, in addition to breach of contract.
In a nutshell, the theory of the bankruptcy trustee's case is that the factoring company: (i) refused to advance funds under the applicable factoring and inventory loan agreements in good faith and in the manner promised—in fact, almost immediately taking a stance that the businesses were in an "over-advanced" position, which was not only not a defined concept in the agreements, but was problematic in light of several weeks of due diligence and awareness regarding certain slow-paying accounts and inventory status; (ii) charged fees, expenses, penalties and other items against "reserves" (contributing to the alleged "over-advanced" position), without any transparency; (iii) exercised excessive control over the businesses, by controlling what vendors, employees, and expenses got paid, and insisting on direct payments to them by the factoring company rather than funding to the businesses as contemplated by the underlying agreements (i.e., the argument being that this was an improper exertion of control; there were no amendments of documents or forbearance agreements to justify [*5] deviating from the underlying agreements). This, collectively, is argued to have caused the businesses' failure.
As for the owner of the businesses, the factoring company allegedly wrongfully coerced him to transfer to it his equity from his exempt homestead in violation of the Texas Constitution and Texas Property Code (and misrepresented in the process that the factoring company would resume making advances on accounts receivable if he did so, with no intention of doing so and, in fact, never doing so). The factoring company took a termination fee of $75,000 immediately after receiving $225,000 of sale proceeds from the home, without disclosing the termination fee. The factoring company thereafter continued to accept accounts receivable collections but extended no funding.
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
2021 Bankr. LEXIS 3502 *; 2021 WL 6101847
In re: BAILEY TOOL & MANUFACTURING COMPANY. Debtor.BAILEY TOOL & MANUFACTURING COMPANY, HUNT HINGES, INC. and CAFARELLI METALS, INC., Plaintiffs, v. REPUBLIC BUSINESS CREDIT, LLC, Defendant and Counter-Plaintiff, v. BAILEY TOOL & MANUFACTURING COMPANY, HUNT HINGES, INC. and CAFARELLI METALS, INC., Counter-Defendant.REPUBLIC BUSINESS CREDIT, LLC, Third-Party Plaintiff, v. JOHN BUTTLES, TENNECO, INC., TRELLEBORG AUTOMOTIVE USA, INC. Third-Party Defendants.
Factoring, funding, homestead, Inventory, receivables, accounts receivable, lender, default, collections, customers, advances, damages, termination, Borrowing, collateral, credibly, loan agreement, eligibility, termination fee, email, manufacturing, ineligible, expenses, event of default, over-advance, attorney's fees, representations, Purchaser, employees, Loans
Evidence, Weight & Sufficiency, Governments, Courts, Authority to Adjudicate, Business & Corporate Compliance, Contracts Law, Breach, Breach of Contract Actions, Torts, Defenses, Exculpatory Clauses, Intentional & Reckless Acts, Contracts Law, Public Policy Violations, Breach of Contract Actions, Elements of Contract Claims, Contract Interpretation, Good Faith & Fair Dealing, Bankruptcy Law, Types of Claims, Unsecured Priority Claims, Subordination, Contracts, Intentional Interference, Elements, Burdens of Proof, Preponderance of Evidence, Fraud & Misrepresentation, Actual Fraud, Automatic Stay, Scope of Stay, Claims Against Estate Property, Liens, Setoffs, Administrative Powers, Violations of Stay, Bankruptcy, Case Administration, Bankruptcy Court Powers, Civil Procedure, Sanctions, Contempt, Civil Contempt, Violations of Stay, Contempt Actions, Damages, Judgments, Enforcement & Execution, Exemptions From Execution, Real Property Law, Exemptions & Immunities, Homestead Exemptions, Family Law, Marital Duties & Rights, Property Rights, Homestead Rights, Legislation, Interpretation, Financing, Mortgages & Other Security Instruments, Definitions & Interpretation, Constitutional Law, State Constitutional Operation, Secondary Financing, Home Equity Credit Lines, Damages, Types of Damages, Compensatory Damages, Remedies, Contracts of Sale, Enforceability, Fraud & Misrepresentation, Inferences & Presumptions, Inferences, Negligent Misrepresentation, Remedies, Punitive Damages, Clear & Convincing Proof, Punitive Damages, Aggravating Circumstances, Measurement of Damages, Judicial Review, Determinative Factors, Judgment Interest, Prejudgment Interest