Appendix — Consolidated Service Corp. v. Robinson, 103 S. Ct. 728 (1983) (No. 82-658)

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United States Court of Appeals

For the First Circuit

Nos. 81-1697

81-1698

81-1699

81-1700

ROBERT ROBINSON,

TRUSTEE IN BANKRUPTCY OF D.C. SULLIVAN

& CO., INC.,

PLAINTIFF-APPELLEE,

v.

WATTS DETECTIVE AGENCY, INC., ET AL.,

DEFENDANTS- APPELLANTS.

DANIEL SULLIVAN,

DEFENDANT-APPELLANT.

BILLY R. OTTE,

DEFENDANT- APPELLANT.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Davin S. Netson, U.S. District Judge]

Before

Campse.., Bownes AND Breyer, Circuit Judges.

Timothy H. Gailey, with whom Mark N. Polebaum, and Hale

and Dorr were on brief, for Watts Detective , Inc., et al.

James F. F , with whom Feeney & F was on brief, for

Daniel Sullivan.

July 19, 1982

Bownes, Circuit Judge. This appeal follows an action

brought by the trustee in bankruptcy of D.C. Sullivan Com-

pany against the defendants-appellants to recover the value of

assets allegedly misappropriated from the bankrupt Sullivan

Company. The appellants are Watts Detective Agency, Inc.,

the recipient of the assets, Consolidated Services Corporation,

Watts’ parent corporation, and Christopher P. Recklitis, presi-

dent of Watts and Consolidated (collectively, the Watts ap-

pellants); Daniel C. Sullivan, p~-‘dent and a director of the

bankrupt company; and Billy ... Jtte, vice-president and a

director of the bankrupt. The complaint alleged three separate

counts, each a different theory of liability, against all five

defendants: (I) that within a year prior to Sullivan Company's

bankruptcy defendants caused to be transferred to Watts the

company’s assets without fair consideration, rendering the

company insolvent, in violation of the fraudulent conveyance

section of the former Bankruptcy Act, 11 U.S.C.

§ 107(d)(2)(a) (repealed 1978);' (II) that defendants caused

such transfer to be made within a year prior to the company’s

bankruptcy with the intent to hinder, delay or defraud

creditors in violation of former 11 U.S.C. § 107(d)(2)(d); and

(III), a pendent state action claim, that Sullivan and Otte, in

facilitating the transfer, breached their fiduciary duty to

Sullivan Company and the other defendants all knowingly

participated in the breach of duty. The jury found all five

' Former 11 U.S.C. § 107(d)(2)(a) provides:

Every transfer made and every obligation incurred by a debtor within

one year prior to the filing of a petition initiating a proceeding under

this title by or against him is fraudulent (a) as to creditors existing at

the time of such transfer or obligation, if made or incurred without fair

consideration by a debtor who is or will be thereby rendered insolvent,

without regard to his actual intent{.]

At the time this action was commenced, the former Act was still in effect.

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defendants liable for the fraudulent conveyance under Count I,

found all defendants not liable on Count II, found only Sullivan

and Otte liable for breach of fiduciary duty under Count III, and

awarded damages to the trustee in the amount of $750,000.

The defendants all moved for judgment notwithstanding the

verdict pursuant to Federal Rule of Civil Procedure 50(b) and in

the alternative for a new trial pursuant to Federal Rule of Civil

Procedure 59(a). In a lengthy and thorough opinion the district

court denied the various motions, from which decision defendants

appeal in addition to appealing generally from the judgment on

the grounds of claimed trial errors. The trustee cross-appeals the

district court's denial of his motion to alter or amend judgment to

include prejudgment interest on the verdict and to enter judgment

against Watts, Consolidated and Recklitis on Count III.

We begin by setting forth the relevant facts, mindful that we

review the evidence and inferences faily drawn therefrom in the

light most favorable to the prevailing party. DeVasto v. Faherty,

658 F.2d 859, 861 (1st Cir. 1981); Engine Specialties, Inc. v. Bom-

bardier Ltd. , 605 F.2d 1, 9 (ist Cir. 1979), cert. denied, 446 U.S.

983 (1980).

The evidence consisted largely of admitted facts and the

testimony of Otte, Sullivan and Recklitis. The Sullivan Company

was in the business of supplying security guards to businesses, in-

dustrial plants and others. Sullivan, who was president and a

director, was in charge of the company’s finances. Otte, vice-

president and a director, was in charge of general management of

operations for the company. The company’s financial difficulties

started prior to the time of the transfer at issue. Since 1968 it had

owed the Internal Revenue Service for unpaid taxes which

amounted by April 1970 to over $210,000. In 1969 and 1970 its

sales were consistently exceeded by its disbursements, and for

thre weeks prior to the alleged transfer it issued payroll checks

which were returned because of insufficient funds.*

* The Sullivan Company payroll was substantial; the company employed ap-

proximately 225 full and part-time guards.

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In May 1969 Recklitis, on behalf of Consolidated, nego-

tiated with Otte over the possible purchase of the company.

Nothing resulted from these negotiations. By early 1970 the

IRS was pressing the company to pay its past due taxes, and, at

that time, Otte and Recklitis met again to discuss a possible

purchase by Consolidated or Watts.’ In mid-April Recklitis

made his first offer for the operating portion of the company’s

business, i.e. its customer accounts, employees and goodwill.

He offered to pay in installments for each of the succeeding

four years an amount equivalent to five percent of that portion

of the gross sales attributable to Sullivan Company customers.

Because the approximate annual gross sales of Sullivan was

one million dollars, this meant a contemplated purchase price

of two hundred thousand dollars. Otte was offered a job with

Watts as part of the deal. The offer to purchase the company

was contingent on agreement by the IRS to settle its claim.

Shortly after the offer was made, Otte telephoned all of

Sulliven Company’s seventeen customers to advise them of the

potential sale, to assure them of uninterrupted guard service

and to learn which customers would remain. The customers

apparently indicated they would remain with the new com-

pany provided there were continuity of service.

The first offer by Recklitis was rejected by Daniel Sullivan

as being too low. Within days, the IRS announced its intention

to levy on Sullivan Company's past accounts receivable which,

as of April 20, 1970, amounted to approximately $38,000.

Cash was needed by the company to meet its weekly payroll,

which was over $15,000, and within a few days Recklitis made

his second offer to purchase the company. This time the pro-

posed price was $50,000 cash and two percent of the gross sales

per year for four years, which, calculated in the same manner

as the first offer, amounted to a purchase price of approx-

> Consolidated, parent company to several service businesses, had in the

interim purchased Watts, another security guard business.

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imately $130,000. This offer was also contingent on IRS ap-

proval. Neither the first nor second Recklitis offer included the

assumption of the debts of Sullivan Company; only its opera-

tions were the subject of the negotiations.

On April 22, 1970, Recklitis, Otte and Sullivan met with

representatives of the IRS in hopes of arriving at an arrange-

ment that would meet with everyone's satisfaction. The IRS

would not approve Recklitis’ second offer and, at 5:00 P.M.

the IRS agent walked out of the meeting stating that the com-

pany’s accounts receivable would be levied upon the next mor-

ning. At that point, according to Otte, he, Sullivan and

Recklitis believed that in light of the impeding levies, the com-

pany was out of business. Recklitis then offered Otte a job

with Watts, which Otte accepted, promising to contact the

customer accounts and guards of Sullivan Company to try to

secure them for Watts. According to Otte, Recklitis stated that

“it’s a dirty way to do it, but these accounts are up for grabs.”

During this conversation, Sullivan walked out “completely

demoralized,” according to his testimony, and told Otte to do

whatever he had to do. At no time did Otte and Sullivan

discuss the effect of a Watts takeover on Sullivan Company's

creditors either with each other or with the other directors of

the company.

That evening and the next morning Otte, on behalf of

Watts, began calling Sullivan Company customers and super-

visory personnel to arrange for uninterrupted guard service.

He conducted this activity from the Sullivan Company offices

and continued to utilize the offices, telephone and record: of

the company for a brief period. Nine of the company’s former

customers were serviced by Watts on April 23 and within

several days Watts was servicing four more; of the seventeen

customer accounts belonging to Sullivan Company on April

22, thirteen were ultimately serviced by Watts. In the year

from April 23, 1970, to April 22, 1971, Watts received approx-

imately $680,000 in gross sales from these former customers of

Sullivan Company.

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The trustee alleged in his complaint that what was trans-

ferred to Watts fraudulently and as a breach of fiduciary duty

were the “operating and administrative organization of the

Sullivan Company, its employees, customers, goodwill and

business.” All appellants argue that there was no evidence at

trial that any “property,” as that term is used in the Bankrupt-

cy Act’s fraudulent conveyance provision, was transferred.‘ In

addition, they claim there was no proof of the amount by

which the bankrupt’s estate was purportedly diminished.

Sullivan also argues that there was insufficient evidence to

show he participated in the fraudulent transfer (Count I) and

that the evidence does not prove that he breached his fiduciary

duty to the corporation (Count III). Otte adopts all the

arguments of his co-appellants.

Motions for Judgment N.O.V.

Our standard of review of a denial of a motion for judgment

notwithstanding the verdict is well settled. “The motion is

properly granted only when, as a matter of law, no conclusion

but one can be drawn.” Rios v. Empresas Lineas Maritimas

Argentinas, 575 F.2d 986, 990 (Ist Cir. 1978). See also

DeVasto v. Faherty, 658 F.2d at 860; Hubbard v. Faros

Fisheries, Inc., 626 F.2d 196, 199 (1st Cir. 1980).

We turn first to appellants’ argument that no property of

the bankrupt company was transferred to Watts.° Specifical-

* This appears to be the only issue as to whether a frauduient transfer oc-

curred. The defendants did not claim that fair consideration was paid to

Sullivan Company, nor is there any dispute that the transaction occurred

during the statutory period when the company was or was thereby rendered

insolvent.

5 Appellants have not challenged the implicit finding of the jury that, as

the Bankruptcy Act requires, the transfer here was made by the “debtor.”

Both Sullivan (the company’s president) and Otte (the vice-president) were

directors of D.C. Sullivan & Co. and both took part in the meeting on April

22. Otte was quite active in he!ping Recklitis obtain the “property” trans-

ferred, and Sullivan did nothing to stop the transfer. Of course, had these

men been mere supervisory employees not empowered to act on behalf of the

company, a different situation would have been presented.

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ly, they claim: (1) that Otte and Sullivan Company guards

were not property; (2) that the Sullivan Company customers

were not property of the bankrupt and that no protected list of

customer names was transferred; and (3) that, because the

Sullivan Company was no longer an ongoing business by 5:00

P.M. on April 22, no goodwill was transferred.

The term “property” in the Bankruptcy Act “has been con-

strued most generously” for the purpose of protecting the

creditors of the bankrupt. Segal v. Rochelle, 382 U.S. 375, 379

(1966). Generally speaking, it is “anything of value — any-

thing which has debt paying or debt securing power.” Pirie v.

Chicago Title and Trust Co., 182 U.S. 438, 443 (1901).

This expansive definition of property in the bankruptcy con-

text is not limited to tangible assets. Items such as the

customers routes of driver-salesmen for a pastry distributor

could be property of the bankrupt company. In re Rubin, 378

F.2d 104 (3d Cir. 1967). Milk routes, found to be of substan-

tial value to a bankrupt dairy company, have been held to be

property of the bankrupt’s estate. Summe v. Chapman Dairy

Company, 238 F.2d 3 (8th Cir. 1956).

In Heyl v. Emery and Kaufman, Ltd., 204 F.2d 137 (Sth

Cir. 1953), the court found insurance policy “expirations” —

information which represents the right to solicit renewals of

customers — to be valuable property, and a bankrupt tenant’s

month-to-month tenancy was held to be a valuable property

right in Lesser v. Mendelson, 352 F. Supp. 321 (S.D.N.Y.

1971), aff'd sub nom. Lesser v. Jewel Factors Corp., 470 F.2d

108 (2d Cir. 1972). In both cases the courts, in ascribing value

to these items, focused on the value to the bankrupt business of

the expectation of continuity in these relationships. Heyl, 204

F.2d at 140; Lesser, 352 F. Supp. at 327.

The trustee argues that the transfer to Watts of the Sullivan

Company guards, customers and goodwill was essentially the

transfer of the continuity of service of the company’s opera-

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tion. In its opinion below the district court highlighted the

company’s reasonable expectancy of continued relationships

with its employees and customers and the value that this con-

tinuity imported to these relationships. There was evidence

that Sullivan Company had maintained the loyalty of

customers and employee guards for years. Sullivan testified

that providing uninterrupted guard service “was everything”

in keeping customers and that Otte was the key to this con-

tinuity. As a former FBI agent with contacts in the security

community, Otte was successful at obtaining customers and

retaining them in a highly competitive business. And, because

of the high regard in which he was held by company

employees, he was instrumental in keeping them over the

years, which was the key to being able to continue to provide

continual guard service to customers. In addition, there was

evidence that a number of customers required guards with

special security clearances and that, despite a general shortage

of such guards, Sullivan Company was always able to provide

them.

The court engaged in a lengthy in-depth analysis of the

transfers of the guards, customers and goodwill and held that

they were each susceptible of having value and, therefore, of

being “property” in a bankruptcy setting. We agree. We add,

however, that what was transferred to Watts amounted in the

aggregate to a transfer of the business itself. The whole was

greater than its parts.

The evidence showed that Otte’s relationships with the

supervisors, guards and customers of Sullivan Company were

what provided the necessary continuity for this service

business. Recklitis was fully aware that because of the loyalty

of the customers, supervisors and guards to Otte, he was the

key to obtaining and keeping the company’s customers

without a break in the continuity of operations.* Through hir-

* Recklitis was further able to insure continuity on the part of employees

by authorizing Otte to tell them that their past unpaid wages would be paid

by Watts if they came along.

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ing Otte, Watts was able to obtain thirteen out of Sullivan

Company’s seventeen customers and enough of its guards and

supervisors to continue providing service to these accounts.

In short, the jury could have found on this evidence that, in

hiring Otte, Watts effected the transfer of precisely that for

which it had been bargaining previously with Otte and Sul-

livan and had been prepared, until the previous day, to pur-

chase — the operating portion of the Sullivan Company

business — and that this package was acquired by Watts on

and after April 23, 1970.

Turning tc the problem of whether anything of real value

(such as goodwill) was transferred to Recklitis, the critical fact

question for the jury was whether or not at 5:00 P.M. on April

22, notwithstanding the impending IRS levies and the parties’

doubts about the company’s viability, Sullivan Company was

still a going concern. Appellants argue, naturally, that it was

not. They support this claim with citations to cases in which

the companies at issue were either in existence only nominally

or had ceased operations. See Trask v. Susskind, 376 F.2d 17

(5th Cir. 1967); Mossler Acceptance Company v. Martin, 322

F.2d 183 (5th Cir. 1963), cert. denied, 376 U.S. 921 (1964);

Langham, Langston & Burnett v. Blanchard, 246 F.2d 529

(Sth Cir. 1957); In re Windsor Industries, Inc., 459 F. Supp.

270 (N.D. Texas 1978). But they offer no authority for the

proposition that a company continuing to operate, albeit in

serious financial difficulty, is not a going concern.

In a case defining “going concern value” of a business one

court commented, “We do not think that the financial outlook

of the debtor corporation, or the intention of its stockholders

and directors to continue business or to liquidate at an early

date, is determinative of the question.” In re Nathanson, 64

F.2d 912, 913 (6th Cir. 1933). Instead, the court looked to see

“[i}f the business is in fact being conducted at the time” and

found that it was, despite an adverse financial picture. Id.

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There is no dispute that on April 22 the Sullivan Company

customers were being served by Sullivan Company guards.

Appellants argue that, as a matter of law, as of 5:00 P.A1. on

that date, with the certainty of IRS levies on accounts receiv-

able the next morning, the company was in effect out of

business because it would be without funds to pay its

employees. We disagree. Under the facts here, the question

whether the company was a going concern was one of fact to

be determined by the jury. Sullivan testified that in the past,

when ine had come upon hard times, he had been fortunate in

obtaining cash on short notice. He stated that he could have

made telephone calls on the afternoon of April 22 to his various

sources and might have been able to borrow more money.

There was also evidence that in the past employees had con-

tinued to work despite receiving dishonored or no paychecks.

Thére is nothing in the record to indicate that the guards

would not have appeared the next morning at their regular job

sites on schedule. The accounts were still being serviced by

Sullivan Company and there was no evidence that they could

not have been serviced by the company the following day or

for an indefinite period thereafter. Thus, having found a

transfer to Watts of the operating portion of the Sullivan Com-

pany business, the jury was warranted in finding that the

transfer was of valuable property.

The Watts appellants further claim that there was insuffi-

cient proof as to the amount by which the bankrupt'’s estate

was diminished as a result of the fraudulent transfer. In their

motion for directed verdict they asserted that “plaintiff has in-

troduced no evidence ... that any property asserted to have

been so transferred decreased the value of the Sullivan Com-

pany’s assets.” They then argued for a judgment n.o.v. on the

grounds that “there was insufficient evidence to prove . . . that

any property asserted to have been so transferred decreased

the value of the Sullivan Company’s assets, and there was no

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evidence, or insufficient evidence, to warrant the jury verdict

for the plaintiff or the amount of damages.” On appeal, ap-

pellants appear to join these grounds as one issue. But because

they were distinct below and because the specific question of

damages was not raised in their motion for directed verdict,

we agree with the district court that the damages issues was

waived as a ground for a judgment n.o.v. See Matinez Moll v.

Levitt & Sons of Puerto Rico, Inc., 583 F.2d 565, 568-69 (1st

Cir. 1978).’

Appellants’ claim as to the diminution in value of the

bankrupt’s assets is essentially the same as their first argument

that no property, i.e. nothing of value, passed from Sullivan

Company to Watts. We have already determined that the

evidence permitted a finding that the company was still a go-

ing concern at the time of the transfer. The same evidence

which supported a finding that this operation had value also

sustains the finding that the bankrupt’s estate suffered a loss to

the extent of the transfer.

Finally, the Watts appellants argue that the lower court

erred in denying their motion by relying on facts not in

evidence and contrary to the parties’ binding admissions. This

claim relates to the court’s finding that certain individual

item: of property had value and its finding that the Sullivan

Company customer list was transferred. Because there was

sufficient evidence to sustain a finding that the subject of the

transfer was the Sullivan Company business itself, we need not

address the district court's treatment of the transfers separ-

ately.* We comment, however, briefly on the claim that the

court’s finding relative to the customer list was contrary to an

admitted fact.

” We do, however, consider it infra as a ground stated in appellants’ mo-

tion for a new trial.

* We have reviewed the specific claimed errors, however, and are satisfied

that nothing in the district court's analysis is inconsistent with a fair reading

of the record in the light most favorable to the trustee.

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Admitted Fact $54 states: “Prior to April 22, 1970, Watts

was already aware of the names of Sullivan Company's cus-

tomers.” Appellants argue that this stipulation precludes a fin-

ding that there was any transfer to Watts of the Sullivan Com-

pany’s customer list. The acquisition of this information by

Watts, however, occurred as a result of its access to the com-

pany’s books during its prior negotiations to purchase the com-

pany. Moreover, the evidence supports a finding that due to

Otte’s particular expertise and ongoing reletionships with

these customers, the transfer of the customers to Watts could

not have occurred but for his new position with Watts as of

April 22. The jury could reasonably have found that without

Otte’s personal ability to retain the customers and the

necessary guards to provide them uninterrupted service, the

customer accounts could not have been taken over by Watts.

Watts’ prior knowledge of the customers’ names, then, is

beside the point.®

We turn now to the claims of Sullivan and Otte. They make

only two new arguments in addition to those of the Watts ap-

pellants. They claim that they could not be liable for a

fre dulent conveyance (Count I) because they did not actively

participate in any transfer and that the evidence does not sup-

port the finding that they breached their fiduciary duty to

Sullivan Company in permitting its takeover by Watts (Count

III). We address the breach of duty argument first which, as a

pendent state claim, is to be decided under Massachusetts law.

It is a basic principle of corporation law that Sullivan and

Otte, as directors of the Sullivan Company corporation, owed

a fiduciary duty to the corporation to protect its interests. See,

e.g., Production Machine Co. v. Howe, 327 Mass. 372, 99

N.E.2d 32 (1951). “If the director does not exercise sufficient

care and sound personal judgment in his duties, he will be

* Recklitis testified that, even knowing who the company’s customers

were, it would not have been “proper” for Watts to have attempted to lure

them away.

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subject to a personal liability for mismanagement or negli-

gence.” 13A Massachusetts Practice § 465 at 207 (1971) (foot-

note omitted). Liability may be found even in the absence of

bad faith or dishonesty on the part of a director if he fails to

recognize his fiduciary duty. Production Machine Co. v.

Howe, 327 Mass. at —, 99 N.E.2d at 36. Moreover, affir-

mative malfeasance by a director is not necessary in order to

constitute a breach of duty; mere passivity can rise to the level

of negligence if the director does not “exercise the degree of

care which a prudent person ordinarily would use as a direc-

tor.” Hathaway v. Huntley, 284 Mass. 587, 188 N.E. 616, 618

(1933).

Our review of the record reveals sufficient evidence on

which the jury could base a finding of breach of fiduciary duty

by both Sullivan and Otte through their participation in the

transfer of the corporation’s property without fair considera-

tion while the company was insolvent. Sullivan’s testimony

was replete with virtual admissions of his own negligence.

When asked at trial to state the cause of Sullivan Company's

serious financial problems prior to April 1970, he stated that it

was largely due to his own mismanagement of the business. At

no time did he or Otte discuss the effect of a takeover by Watts

on the company’s creditors, nor did they consider discussing

the matter with the other directors and stockholders. Sullivan

also testified that the business was still alive when he and Otte

“handed it” to Recklitis, that he probably could have kept the

business running for a while if he had pursued his sources of

cash at the time. And, finally, after participating in an at-

tempt to sell the business and believing it, at 5:00 P.M. on

April 22, to be worth one million dollars, Sullivan “stopped

thinking” and walked away from the business. The jury could

reasonably have found this to have been an abandonment by

Sullivan of his fiduciary duty.

As to Otte, the evidence supports a finding of a more affirm-

ative breach of duty. Although one may be sympathetic to his

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feeling that as of 5:00 P.M. on April 22 he was unemployed

and that his own personal interests lay in accepting Recklitis’

job offer, he was still an officer and director of Sullivan Com-

pany to which he continued to owe a fiduciary duty. His

agreement to work for Watts and to attempt to bring with him

all of the customer accounts and guards of Sullivan Company

was the death blow to the corporation of which he was an of-

ficer and director. Otte’s abandonment of the sinking Sullivan

Company, taking with him its only operating assets, for a safe

berth with another corporation was sufficient grounds for a

finding that he breached his fiduciary obligations to Sullivan

Company.

We now turn to the issue of Sullivan and Otte’s liability

under Count I. Although not raised by either of them below or

before us, we think that under these facts there can be no

liability as a matter of law because neither Sullivan nor Otte

received any of the fraudulently transferred property.'® The

Act contemplates recovery by the trustee only from recipients

of fraudulently transferred property.

Our ruling is informed by the reasoning of the Ninth Circuit

in Elliott v. Glushon, 390 F.2d 514 (9th Cir. 1967), which held

that the trustee in bankruptcy could not recover the value of

fraudulently transferred property from an attorney who had

acted only as an escrow hulder and attorney for certain par-

ticipants in the ad ..itted transactions but had never received

any of the property involved. In reaching its conclusion, the

court first examined the pertinent sections of the Bankrutpcy

Act and noted that they “suggest with some certainty that

recovery may »« had only against persons who have received

the property in question.” Jd. at 515. Section 67(d) provides

‘© Because this issue was not raised below, we would ordinarily not con-

sider it for the first time on appeal. Johnston v. Holiday Inns, Inc., 595 F.2d

890, 894 (ist Cir. 1979). We recognized, however, in Dobb v. Baker, 505

F.2d 1041 (ist Cir. 1974), that we might deviate from this rule where the

new ground for reversal is “so compelling as virtually to insure appellant's

success.” Jd. at 1044. Here, the issue turns on an open and shut question of

law.

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that a transaction found to be fraudulent shall be “null and

void against the trustee... .” 11 U.S.C. § 107(d)(6). Section

70, which vests title in the trustee to, inter alia, property

fraudulently transferred by the bankrupt, 11 U.S.C.

§ 110(a)(4), gives the trustee his procedural rights to enforce

section 67(d) and provides that if a transfer is made which is

fraudulent under any applicable federal or state law, “[t)he

trustee sh all reclaim and recover such property or collect its

value from and avoid such transfer ... against whoever may

hold or have received it... .” 11 U.S.C. § 110(e)(2) (emphasis

added).

Noting a conflict among a few earlier cases and distinguish-

ing the leading one,'' the Elliott court acknowledged the

temptation to borrow from the principle of joint liability

among tortfeasors in order to permit recovery against a

nonrecipient. It nonetheless held that the purpose of sections

67(d) and 70 of the Act

is clearly to preserve the assets of the bankrupt; they are

not intended to render civilly liable all persons who may

have contributed in some way to the dissipation of those

assets. The Act carefully speaks of conveyances of prop-

erty as being “null and void,” and authorizes suit by the

trustee to “reclaim and recover such property or collect its

value.” The actions legislated against are not

“prohibited”; those persons whose actions are rendered

“null and void” are not made “liable”; and terms such as

“damages” are not used. The legislative theory is

cancellation, not the creation of liability for the conse-

quences of a wrongful act.

Id. at 516 (footnote omitted).

"' Brainard v. Cohn, 8 F.2d 13 (9th Cir. 1925), a case decided over four

decades before the same circuit, permitted recovery against a nonrecipient of

transferred property. In that case, however, a conspiracy had

been alleged, and the court held full recovery to be proper against a con-

spirator who received some but not all of the transferred merchandise. Cen-

tral to that decision was the fact that the conspirators had intermixed the

bankrupt’s property with their own. /d. at 15.

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Moreover, the court reasoned, the trustee may still have a

right of action for fraud or deceit under state law against those

who participated in the transaction. Recovery under the

Bankruptcy Act, however, embraces only the recipients of the

transferred property. We believe this analysis is correct and

adopt it, as other courts have done. See, e.g., Klein v. Tab-

atchnick, 610 F.2d 1043, 1048 n.4 (2d Cir. 1979); Jackson v.

Star Sprinkler Corp., 575 F.2d 1223, 1234 (8th Cir. 1978). See

also In re Christian & Porter Aluminum Co., 584 F.2d 326,

339 (9th Cir. 1978).

The judgments against Sullivan and Otte on Count I must

be reversed. This makes it unnecessary to discuss their claim

that there was no evidence that they actively participated in

any transfer of the assets of Sullivan Company, which, we

note, is untenable as to Otte.

Claimed Trial Errors

The Watts appellants claim first and foremost that

Sullivan’s opinion as to the value of Sullivan Company was er-

roneously admitted into evidence. Sullivan was permitted to

testify that, in his opinion, the business was worth approx-

imately one million dollars at the time of the transfer to Watts.

He relied in part for this opinion on his understanding that ser-

vice businesses such as his are valued at one dollar for each

dollar of annual gross sales. Because Sullivan Company had

accounts worth one million dollars as of April 1970, this was

the figure he used.

The district court permitted Sullivan to testify to his opinion

on the value of the business because, as president and majority

stockholder, he was the owner of the property. The court

noted that this opinion testimony of an owner is admissible

either as an opinion by a lay witness “based on ... per-

sonal perception” and “helpful to a clear understanding

of his testimony of the determination of a fact in issue”

under [Federal] Rule [of Evidence] 701, or as an expert

opinion by one who is “qualified as an expert by

knowledge ... [or] experience” under Rule 702.

A-17

The accompanying Advisory Committee Notes on Rule 702

make clear that the rule encompasses more than merely an ex-

pert in a technical sense. Rather, “within the scope of the rule

are not only experts in the strictest sense of the word, e.g.

physicians, physicists, and architects, but also the large group

sometimes called ‘skilled’ witnesses, such as bankers or lan-

downers testifying to land values.” Fed. Rules Evid. Rule 702,

28 U.S.C.A. at 462 (1975).

An owner of a business is competent to give his opinion as to

the value of his property. Kestenbaum v. Falstaff Brewing

Corp., 514 F.2d 690, 698 (5th Cir. 1975), cert. denied, 424

U.S. 943 (1976). See United States v. Sowards, 370 F.2d 87, 92

(10th Cir. 1966). Whether or not his opinion is accurate goes to

the weight of the testimony, not its admissibility. Meredith v.

Hardy, 554 F.2d 764, 765 (Sth Cir. 1977). Cf. Ford Motor Co.

v. Webster's Auto Sales, Inc. , 361 F.2d 874, 886 (ist Cir. 1966)

(plaintiff's method of valuation of damages attacked by defen-

dant; accuracy of plaintiff's testimony goes to weight not ad-

missibility). An owner's opinion as to value has been excluded

where the opinion rested on hypothesized facts or speculation

on circumstances not in existence. See Klapmeier v. Telecheck

International, Inc., 482 F.2d 247, 253 (8th Cir. 1973); Pacific

Mailing Equipment Corp. v. Pitney Bowes, Inc., 499 F. Supp.

108, 119 (N.D. Cal. 1980).

Appellants claim that Sullivan’s opinion was not based on

his personal knowledge as the owner of the company but solely

on the opinions of others. This claim derives from Sullivan's

testimony that he became aware of the gross sales valuation

formula through talking with other knowledgeable business-

men several years before and again after Recklitis’ offer. He

stated that he also talked to “other financial people” in Boston

who confirmed that the gross sales method was an accurate

measure of the value of a service company. We note that this is

a common and reliable way of obtaining knowledge. Most

knowledge has its roots in hearsay.

A-18

Appellants are mistaken, moreover, in their assertion that

his opinion came solely from the opinions of others. Sullivan's

testimony was that he relied on this valuation formula in part,

and there was evidence from which the district court properly

could have found Sullivan's substantial personal familiarity

with the property such that his opinion would be admissible.

He had been president and majority or near-majority

stockholder in the business since its beginnings in the late

1950's and had been in charge of the finances of the company,

securing loans from banks and other sources. He watched his

company expand to a million dollars worth of business in the

year prior to the takeover due to loyal customers who had

sizeable accounts and paid their bills regularly. These facts,

combined with other evidence indicating Sullivan's intimate

familiarity with his business, support the district court’s deter-

mination that his opinion as to value was admissible. The

testimony was subject to severe attack on cross-examination.

“(With the jury as fact finder shouldering the responsibility of

judging the credibility of the witness ... and assessing the

weight of opinion testimony,” Kestenbaum v. Falstaff Brew-

ing Corp., 514 F.2d at 699, we uphold the lower court's deter-

mination of the admissibility of this evidence as within its

sound discretion. See Mercado v. Wollard Aircraft Equip-

ment, Inc., 574 F.2d 654, 655 (Ist Cir. 1978); Redding v.

Picard Motor Sales, Inc., 403 F.2d 788, 792 (1st Cir. 1968).

Appellants also argue strenuously that the district court

erred in allowing the trustee to introduce evidence of Recklitis’

1979 federal conviction for fraud. They claim that Federal

Rule of Evidence 609, permitting inquiry about a conviction

during cross-examination, is designed to limit the use of such

evidence to instances where a witness voluntarily places his

credibility in issue by testifying on direct examination. Here,

Recklitis was called as a witness by the trustee, who elicited

the information during direct examination. The trustee, on the

other hand, asserts that because Recklitis was an opposing

A-19

party, when he was called to testify he was being cross-

examined in the first instance, and, therefore, Rule 609 per-

mitted the inquiry. We conclude that the evidence was ad-

missible.

Recklitis, as a named defendant and president of Watts, was

an adverse party called as a witness by the plaintiff in his case-

in-chief. Federal Rule of Civil Procedure 43(b) governs the

mode of inquiry of this type of witness and provides in perti-

nent part:

A party may call an adverse party or an officer, director,

or managing agent of a public or private corporation or of

a partnership or association which is an adverse party,

and interrogate him by leading questions and contradict

and impeach him in all respects as if he had been called

(emphasis added). Federal Rule of Evidence 607 provides:

“The credibility of a witness may be attacked by any party, in-

cluding the party calling him.” Read together, these two rules

allow, in a civil case, the impeachment of an adverse party by

the party calling him through evidence of a prior criminal con-

viction. Impeachment under Rule 607 is not limited to occa-

sions where the party calling the witness is surprised or misled

by the testimony. Scholz Homes, Inc. v. Wallace, 590 F.2d

860, 863 (10th Cir. 1979). “Moreover, Rule 607, by its terms,

places no limitation on the manner in which a party may im-

peach his own witness, and there is no reason to believe that

such a witness cannot be impeached by evidence of a prior

conviction.” United States v. Dixon, 547 F.2d 1079, 1082 n.2

(9th Cir. 1976). There was no error in admitting this evidence.

We have carefully considered appellants’ other claims'* of

trial error and find them to be without merit

~ # They challenge a portion of the court's charge to the jury and its failure

to give a requested instruction. We find no error. Their claim that the verdict

Sa ee

Motions for New Trial

We turn now to appellants’ claims that their motions for

new trial based on insufficiency of the evidence were im-

properly denied by the district court. A motion for new trial

on this ground is subject to a standard of review as strict as

that for a judgment n.o.v. and we will reverse only if we find

an abuse of the trial court’s discretion. Hubbard v. Faros

Fisheries, Inc., 626 F.2d at 200; Rios v. Empresas Lineas

Maritimas Argentinas, 575 F.2d at 990. We have expressed the

test for granting a new trial as follows:

A trial court, in assessing whether to grant a new trial for

lack of legally sufficient evidence, does not properly do so

merely because it might have come tc a result different

from that reached by the jury. The district court should

order a new trial only when convinced that a miscarriage

of justice would otherwise obtain. Where credibility of

witnesses is at issue, special care should be taken not to in-

vade the province peculiarly pertaining to the jury.

Rios v. Empresas Lineas Maritimas Argentinas, 575 F.2d at

990 (citations omitted). Applying this standard, we conclude

that there was sufficient evidence from which the jury could

find a transfer of property to Watts which diminished the

assets of the bankrupt.

Turning to appellants’ claim that the trustee failed to prove

damages, we find that there was sufficient evidence to allow

the jury to award damages of $750,000. Sullivan and Otte

both testified that they believed the company to be worth one

million dollars, Sullivan asserting this to be the value at the

time of the transfer.'* There was evidence that in the year

following the takeover $680,000 of Watts’ gross sales was at-

tributable to customer accounts it had taken from Sullivan

Company.

"19 We observe that as parties-defendants, Otte’s and Sullivan's testimony as

to the value of the business before its takeover was against their own in-

terests, not only on the issue of danages but also as to their breach of duty to

the corporation.

A-21

Appellants argue that the only evidence before the jury on

the damages issue was in the nature of “guesswork” and

“speculation.” They use as authority antitrust cases in which

plaintiffs’ damage claims were based on speculating about

events that did not and/or might not occur. See, e.g., Keener

v. Sizzler Family Steak Houses, 597 F.2d 453, 457 (5th Cir.

1979); Klapmeier v. Telecheck International, Inc., 482 F.2d

at 253. Suffice to say that the fact situations in these cases are

inapposite to this. The evidence of damages here — of the loss

to Sullivan Company of its operating assets — was not a mat-

ter of conjecture. The jury was warranted in finding that the

business was still valuable on April 22 and that its transfer

without fair consideration while the company was insolvent

was fraudulent. It was free to accept or reject or give whatever

weight it deemed appropriate to the evidence of value at the

time of the transfer. Sullivan did not hypothesize in his

testimony; he did not say that the business would have been

worth a million dollars if the IRS levies were not imminent.

Indeed, on cross-examination by defense counsel he stated

that, even in light of the levies, the business was still worth

that amount because of the type of customers, the continuity

established and maintained, and the fact that the customers

regularly paid their bills on time. Sullivans opinion together

with the figure of Watts’ subsequent gross sales from the com-

pany’s former customers were sufficient to send the issue of

damages to the jury.

Cross-Appeal

We now come to the cross-appeal of the trustee. Pursuant to

Rule 59(e) of the Federal Rules of Civil Procedure, the trustee

filed in the district court a motion to alter or amend judgment.

The motion was granted with respect to the technical request

to change the name of the plaintiff to the successor trustee but

was denied in two other respects. The trustee claims the court

erred in denying his request for the addition of prejudgment

A-22

interest to the verdict on Count I and for the addition of

Watts, Consolidated and Recklitis to those found liable on

Count III.

Because Count I of the complaint stated a cause of action

arising under the Bankruptcy Act, whether or not the trustee is

entitled to prejudgment interest as an element of damages is a

maiter of federal law. See Rodgers v. United States, 332 U.S.

371, 373 (1947); Royal Indemnity Co. v. United States, 313

U.S. 289, 296 (1941); Furtado v. Bishop, 604 F.2d 80, &7 (ist

Cir. 1979), cert. denied, 444 U.S. 1035 (1980); Moore-

McCormack Lines v. Amirault, 202 F.2d 893, 897 (Ist Cir.

1953). In the absence of a general federal statute or a provision

in the Bankruptcy Act on prejudgment interest, we turn to

federal common law for guidance.

From the leading case of Roth v. Fabrikant Bros., 175 F.2d

665 (2d Cir. 1949), comes the general rule that a prevailing

plaintiff is entitled to prejudgment interest as an element of

damages when the amount of his claim is either “liquidated”

or “reasonably ascertainable by reference to established

market values.” Jd. at 669. It has been said that the court's

prejudgment interest inquiry is reduceable to “whether the de-

mand is of such a nature that its exact pecuniary amount was

either ascertained, or ascertainable by simple computation, or

by reference to generally recognized standards such as market

price{.]”'* Sedgwick, Damages § 300 at 571 (9th ed. 1912) (em-

phasis in original). Thus in Roth, a case involving a voidable

preference and a fraudulent transfer under the Bankruptcy

Act, because the preference claim involved recovery of a

definite sum, interest thereon was allowed. The court held

that recovery on the transfer claim on the other hand did not

entitle the plaintiff to interest because the amounts of those

‘* A simple example of a claim that is ascertainable is the claim for

payment for goods sold at a unit price. The contract does not call for a

specified, liquidated amount, but simple calculation accomplished by

multiplying the number of units sold times the price, will yield a

precise measurement.

D. Dobbs, Law of Remedies § 3.5 at 167 (1973).

A-23

claims were not reasonably certain, noting that “there could

hardly be a situation where the value of the property trans-

ferred was more uncertain than that of the highly speculative

items of jewelry involved in the plaintiff's claims.” 175 F.2d at

669. Apparently contributing to the court’s conclusion that the

value was uncertain and therefore not meriting interest was its

finding that “[t]he testimony differed as to the consideration

which might fix the value of the different items.” Jd. at 668.

In Jones v. United States, 258 U.S. 40 (1922), the Supreme

Court upheld an award of prejudgment interest on a claim

that timber land was converted, where the value of the land

was made ascertainable by the testimony of timber experts as

to the current market value of similar land. Interest was prop-

erly awarded, the Court held, because the owner was de-

prived of “property having a definite or ascertainable value.”

Id. at 49. .

Applying this analysis, the district court found that the

damages to Sullivan Company were not ascertainable with

sufficient certainty to require the addition of prejudgment in-

terest. With this conclusion we agree.

The trustee claimed, in bringing the action, the right to

recover from the defendants the vaiue of what was trans-

ferred, i.e. the operating portion of Sullivan Company. The

amount in dispute was not liquidated, there was no transfer of

a definite sum of cash, and the parties did not and do not agree

on the value of what was transferred. See Palmer v. Radio

Corp. of America, 453 F.2d 1133, 1140 (5th Cir. 1972). The

evidence as to the value of the transferred property ranged

from one million dollars to the $680,000 figure representing

Watts’ gross receipts from thirteen out of the seventeen former

Sullivan Company customers for the year following the

takeover.'® There was no evidence proferred by either party

~ 18 It would appear that a combination of these figures may have formed

the basis of the jury's verdict of $750,000. Watts retained approximately

75% of Sullivan Company's former customers. This percentage may have

been applied to the total gross receipts of $1,000,000 from all the seventeen

Sullivan Company customers.

A-24

as to any current market value for guard service business or for

service businesses generally, leaving the jury without the

guidance of an established, recognized standard of prices. See

Jones v. United States, 258 U.S. at 49; Roth v. Fabrikant

Bros., 175 F.2d at 669, 1 Sedgwick, Damages § 300 at 571. We

conclude, as did the district court, that the damages were not

ascertainable before trial with reasonable certainty and that,

therefore, the trustee was not entitled to prejudgment interest

except in the discretion of the jury. See Furtado v. Bishop, 604

F.2d at 98. By not requesting a jury instruction or objecting to

the court’s charge on damages, the trustee has waived any

claim to prejudgment interest.

The trustee’s final argument involves his motion to amend

or alter judgment to include the Watts appellants in the ver-

dict on Count III. His contention is that the verdict in their

favor is inconsistent with the verdict against them on Count I

and with the verdit against the others on Count III.

A motion to alter or amend judgment pursuant to Rule 59(e)

may not be granted where to do so would undermine the jury's

fact-finding role and trample on the defendant's seventh

amendment right to a jury trial. See Branson v. Prins In-

surance, Inc., 79 F.R.D. 662, 664 (D.S.D. 1978); 11 C.

Wright & A. Miller, Federal Practice and Procedure § 2817 at

111 (1973). If the relief sought here were granted, it would re-

quire a reexamination of the facts gound by the jury and a fin-

ding of liability where the jury had expressly found none.'*

© We have found only one federal case in which a district court granted a

Rule 59(e) motion which is in any way similar to our case. In Mumma v.

Reading Co., 247 F. Supp. 252 (E.D. Pa. 1965), a jury found the defendant

liable for negligence and, finding the plaintiff contributorily negligent in the

amount of 45% , reduced the verdict to that extent. Granting the motion to

amend the judgment to restore the verdict to the full amount of damages

found by the jury, the court declared that there was simply no evidence at all

of contributory negligence by the plaintiff. The court briefly alluded to the

question of whether granting the motion would call upon it to change the

factual findings of the jury and concluded that it was merely striking from

the judgment the erroneous portion “because it lacked both legal and

A-25

Moreover, a Rule 59(e) motion is addressed to the discretion

of the district court. Slater v. KFC Corp., 621 F.2d 932, 939

(8th Cir. 1980); York Chrysler-Plymouth, Inc. v. Chrysler

Credit Corp., 447 F.2d 786, 794 (Sth Cir. 1971); Florencio

Roman v. Puerto Rico Maritime Shipping, 454 F. Supp. 521,

526 (D.P.R. 1978).

We hold that there was no abuse of discretion in the denial

by the district court of the trustee’s motion to amend the judg-

ment as to Count III.

We affirm the finding of liability on Count I as to Watts

Detective Agency, Inc., Consolidated Services Corporation

and Christopher P. Recklitis. We reverse the finding of liabil-

ity on Count I as to Daniel C. Sullivan and Billy R. Otte. We

affirm the finding of liability on Count LI as to Daniel C.

Sullivan and Billy R. Otte. The verdict of the jury on damages

is affirmed.

Judgments accordingly.

factual justification.” Jd. at 260. Although we do not think Mumma has

much precedential! value, it is distinguishable from the case before us. The

jury there found the defendant liable. The amendment allowed by the court

only changed this as to the percentage of liability.

A-26

Unirep States District Court

District OF MASSACHUSETTS

Crvit Action No. 70-1336-N

Danie. GLOSBAND, TRUSTEE IN BANKRUPTCY OF

D. C. Sutzuivan & Co., INc.,

PLAINTIFF,

v.

Watts Derective Acency, INnc., Et AL.,

DEFENDANTS.

ORDER AND MEMORANDUM OF DECISION

August 28, 1981

Nexson, D.]J.

The trustee in Bankruptcy of D. C. Sullivan & Co., Inc.

(“Sullivan Company”) brought this action to recover the value

of certain of the bankrupt’s assets that were allegedly mis-

appropriated. Named as defendants were Watts Detective

Agency (“Watts”), the alleged recipient of the bankrupt's

assets; Consolidated Service Corporation (“Consolidated”),

Watts’ parent corporation; Christopher P. Reckiitis

(“Recklitis”), the President of both Watts and Consolidated;

and David C. Sullivan (“Sullivan”) and Billy R. Otte (“Otte”),

the bankrupt’s President and Vice-President. The Trustee pro-

ceeded against these defendants under the following three

theories of liability alleged in the complaint under separate

counts. First, that not more than one year prior to Sullivan

Company’s bankruptcy, and while Sullivan Company was in-

solvent or so as to render it insolvent, they caused certain of its

assets to be transferred to Watts for less than fair considera-

tion, in violation of former 11 U.S.C. § 107(d)(2)(a).' Second,

' [sie]

A-27

that they caused such transfer to be made not more than one

year prior to Sullivan Company’s bankruptcy with the actual

intent to hinder, delay, or defraud either existing or future

creditors in violation of former 11 U.S.C. § 107(d)(2)(d).

Third, that they unlawfully caused the bankrupt’s assets to be

diverted to Watts in violation of their fiduciary duty to

Sullivan Company.

The evidence introduced in the case purported to show the

following facts. Before the time of the alleged transfer of much

of its property to the defendants, Sullivan Company had come

upon financially hard times. Since 1968, it had owed the Inter-

nal Revenue Service unpaid payroll and withholding taxes

amounting by April 1, 1970 to over $210,000. (Admitted fact

25; Exhibit 15). Further, it owed taxes to the Commonwealth

of Massachusetts for the period 1961 to 1970 in the amount of

$57,893. (Admitted fact 27). In 1969 and 1970, its

disbursements continually exceeded sales by nearly 50% . (Ad-

mitted facts 19, 20, 22 and 23).

In May 1969, Recklitis and Otte engaged in preliminary

discussions about a possible sale of Sullivan Company, but

nothing resulted from the discussions. (Admitted fact 40).

In early 1970, Otte again discussed a possible sale of

Sullivan Company with Recklitis. (Admitted fact 41). By that

time Recklitis had become president of Watts as well as Con-

solidated. (Admitted fact 9).

In early April, Recklitis made an offer for the operating part

of the Sullivan Company amounting to approximately $250,000.

Sometime thereafter, Otte telephoned the customers of

Sullivan Company to inform them that Sullivan Company was

contemplating a . ‘le of its business and to learn whether they

would transfer their patronage to the purchaser. The

customers apparently indicated that they would stay with the

new company so long as service was uninterrupted.

Sullivan rejected Recklitis’ offer of $250,000 as being too

low. Subsequently, the IRS indicated that it would levy on

A-28

Sullivan Company's accounts receivable. On April 20, 1970,

Sullivan Company had accounts receivable of $37,997,52.

(Admitted fact 32). This money was needed principally to pay

employee salesmen. At that time, Sullivan Company had a

weekly payroll of $15,772.21 (Admitted fact 30) and a

negative balance in its check book of $44,735.98. (Admitted

fact 34). On April 22, 1970, Sullivan was in dire need of ob-

taining cash to meet that week’s payroll as well as to cover the

payroll checks sent out for the previous week. Apparently aware

of Sullivan’s worsening financial condition, Reckitis made a

second, lower offer which was contingent on IRS’ approval.

Negotiations between Watts, Sullivan Company and the

IRS followed. At a meeting at 5:00 PM on April 22, 1970, the

IRS rejected the last of the proposals made and stated to those

present—Otte, Sullivan and Recklitis—that it would levy on

Sullivan Company's accounts receivable the next day. After

the meeting, Sullivan indicated that he was walking away

from the business and that Otte should do whatever he had to

do. Recklitis then offered Otte employment with Watts, and

Otte accepted.

That evening and the next day, Otte began contacting the

employees and customers of Sullivan in order to arrange for

uninterrupted guard service. In this way, Watts, through

Otte, sought to take over what were—according to the plain-

tiff trustee—the major assets of the Sullivan Company starting

at 8:00 AM on the day the IRS was due to levy on Sullivan

Company’s accounts. On April 23, Watts began to service nine

of Sullivan Company’s former customers. (Admitted fact 55).

Within a few days, Otte had secured for Watts thirteen of

Sullivan Company’s seventeen customers and enough of its

employees to provide uninterrupted service for these clients.

For at least one or two weeks following April 22, Watts super-

vised the servicing of Sullivan Company's former customers

using the Sullivan Company’s offices. That year, ending April

22, 1971, some $680,562 of Watts’ gross sales were attributable

to Sullivan Company’s former customers. (Admitted fact 57).

A-29

The jury found all five defendants liable under Count I, and

found defendants Sullivan and Otte alone liable under Count

III; it further found that the bankrupt had sustained damages

in the amount of $750,000. The verdict on Count II was in

favor of the defendants. Pursuant to the jury's verdict, judg-

ment was entered.

Currently pending before this court are various post-verdict

motions urged on behalf of the several defendants. Defendants

Watts, Consolidated and Recklitis, found liable only under

Count I, have moved pursuant to F. R. Civ. P. 50(b) for judg-

ment notwithstanding the verdict and in the alternative have

moved pursuant to Rule 59(a) for a new trial, or a new trial on

the issue of damages alone, or a remittitur. Defendants Otte

and Sullivan, found liable under both Counts I and III, have

also each moved for judgment notwithstanding the verdict

and in the alternative for a new trial.

The motions for judgment notwithstanding the verdict shall

be treated first, followed by the motions for new trial. Within

each section the arguments of the various defendants shall be

addressed seriatim.

I. MOorTIONs FoR JUDGMENT NOTWITHSTANDING THE VERDICT

Defendants Watts, Consolidated and Recklitis advance

three basic arguments in support of their motions for judgment

notwithstanding the verdict. First, they argue that no “prop-

erty” of the bankrupt, as that term is used in the Bankruptcy

Act in connection with the definition of “transfer,” old 11

U.S.C. § 1(30), passed from the bankrupt to any of the defen-

dants. Second, they argue that there was no “transfer” within

the meaning of the Bankruptcy Act because there was no proof

that the bankrupt’s estate was diminished. And, third, they

argue that as a matter of law proof of the amount of damages

was insufficient. Defendant Otte essentially adopts the

arguments of Watts, Consolidated and Recklitis. Finally,

defendant Sullivan adopts the arguments of the others

g

A-3

argues in addition that there was insufficient evidence to hold

him liable under Count III, and that the verdict against him

(and Otte) on Count III is inconsistent with the verdict for

defendants Watts, Consolidated and Recklitis on that count.

As an initial matter we must set forth the proper standard

for ruling on a motion for judgment notwithstanding the ver-

dict. That standard holds that the motion shall be granted

only when, without weighing the credibility of any of the

evidence, the only conclusion that can reasonably be drawn

from the evidence, including all reasonable inferences, is a

verdict and judgment in favor of the moving party. Moore’s

Fed. Pract. { 50.07[2]; see Rios v. Empresas Lineas Maritinas

Argentinas, 575 F.2d 986, 989-90 (ist Cir. 1978) (standard for

appellate review of district court’s denial of motion). Another

attribute of the motion for judgment notwithstanding the ver-

dict is that it has as a prerequisite a motion for a directed ver-

dict. Martinez Moll v. Levitt & Sons of Puerto Rico, 583 F.2d

565, 568 (ist Cir. 1978); see F. R. Civ. P. 50(b) (“[A] party

who has moved for a directed verdict may move to have the

verdict and any judgment entered therein set aside and to have

judgment entered in accordance with his mction for a directed

verdict”). The purpose of this prerequisite “is to alert the

opposing party to the movant’s claim of insufficiency before

the case goes to the jury, so that his opponent may have an

opportunity to cure any deficiency in his case should the mo-

tion have merit.” Martinez Moll, 582 F.2d at 569. As a cor-

ollary to the rule requiring a motion for a directed verdict as a

prerequisite to a motion for judgment notwithstanding the

verdict, any ground not raised in a motion for a directed ver-

dict may not be raised in a later motion for judgment

notwithstanding the verdict. Sulmeyer v. Coca Cola Com-

pany, 515 F.2d 835, 846 (5th Cir. 1975); See F. R. Civ. P.

50(a). Thus, the defendants’ argument that the evidence was

insufficient to prove the amount of damages fails, as it was not

set forth at trial in any of the parties’ motions for a directed

A-31

verdict. The closest that the defendants came to raising that

was the statement in support of their motion for a directed ver-

dict by defendant Watts, Consolidated and Recklitis:

“(Defendants assert that plaintiff has introduced no evidence

that...any property asserted to have been. . . transferred

decreased the value of the Sullivan Company’s assets.” That

argument appears to duplicate defendants’ second main argu-

ment, to be considered infra. But it hardly amounts to fair

notice of an objection that there was insufficient evidence of

damages in any reasonably certain amount. Furthermore, in

light of the holding in Part II below that the amount of

damages found by the jury was not against the clear weight of

the evidence, it, a fortiorari, may not be disturbed by the

granting of a motion for judgment notwithstanding the verdict

that it was against the only reasonable conclusion that could

be drawn from the evidence.*

Having thus disposed of the third of the arguments of defen-

dants Watts, Consolidated and Recklitis, we may now turn to

their first two arguments. The primary claim of these defen-

dants, which is also urged by defendants Otte and Sullivan, is

that there was insufficient or indeed no evidence that “prop-

erty” of the Sullivan Company, as that term is intended in the

Bankruptcy Act, passed from the bankrupt to any of the defen-

dants. In order properly to evaluate this argument, it is

necessary to arrive at an understanding of the meaning of the

word “property” in this context.

All defendants were found liable under Count I of the com-

plaint, which rested on old 11 U.S.C. § 107(d)(2)(a): “Every

~ ® Holding the defendants barred from raising the issue of insufficiency of

proof of damages due to their failure specifically to raise that issue on

directed verdict is hardly unfair in this particular case, given the caution of

this court on the record at the time of the motion for directed verdict that “I

think that the parties have to be careful that they have complied with Rule

50-A insofar as it requires that the motion be accompanied by the grounds

upon which a directed verdict is requested.” Transcript, March 17, 1980, at 5-27.

A-32

transfer made. . . by a debtor within one year prior to the filing

of a petition initiating a proceeding under this title by or

against him is fraudulent (a) as to creditors existing at the time

of such transfer..., if made or incurred without fair con-

sideration by a debtor who is or will be thereby rendered insol-

vent, without regard to his actual intent.” A “transfer” is

defined under old Title 11 as including “the sale and every

other and different mode, direct or indirect, of disposing of or

parting with property or with an interest therein or with the

possession thereof... , absolutely or conditionally, voluntarily

or involuntarily,...as a conveyance, sale, assignment,.. .

gift,...or otherwise.” Repealed 11 U.S.C. § 1(30). And

“property” has been held to mean “something subject to

ownership, transfer, or exclusive possession and enjoyment,

which may be brought within the dominion and control of a

court through some recognized process.” In re Portland

Newspaper Publishing Co., 271 F. Supp. 395, 398 (D. Ore.

1967), quoting Gleason v. Thaw, 236 U.S. 558, 561 (1915). It

has also been decided, perhaps a bit more broadly, as

“anything of value—anything which has debt paying or debt

securing power.” Pirie v. Chicago Title & Trust Co., 182 U.S.

438, 443 (1901). The difficulty of formulating a comprehen-

sive yet meaningful definition of property was acknowledged

by the Supreme Court in Gleason: “The accurate delimitation

of the concept property would afford a theme especially ap-

posite for amplificative philosophic disquisition.” 236 U.S. at

560. The Court went on to observe that the Bankruptcy Act is

a pragmatic statute and its terms ought ordinarily to be ac-

corded the benefit of a pragmatic reading. Jd. More recently

the court has again emphasized the importance which must be

ascribed to the purposes of the Bankruptcy Act in interpreting

the terms, including “property,” which it employs. Segal v.

Rochelle, 382 U.S. 325, 379 (1966). The Court in that case

dealt with § 70a(5) of the Bankruptcy Act, former 11 U.S.C.

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§ 110(a)(5), which provided for the vesting in the trustee as of

the date of the petition in bankruptcy of the title of the

bankrupt to “property, including rights of action, which prior

to the filing of the petition he could by any means have

transferred or which might have been levied upon and sold

under judicial process against him, or otherwise seized, im-

pounded, or sequestered... .” It said, “[t}he main thrust of §

70a(5) is to secure for creditors everything of value the

bankrupt may possess in alienable or leviable form when he

files his petition. To this end the term ‘property’ has been con-

strued most generously and an interest is not outside its reach

because it is novel or contingent or because enjoyment must be

postponed. [citations omitted]” Jd. The Court in Segal also

recognized a sometimes limiting purpose of the Bankruptcy

Act, “to leave the bankrupt free after the date of his petition to

accumulate new wealth in the future,” Jd., but that purpose is

not relevant to the matter now at issue.

Therefore, adopting the general Segal approach of looking

to statutory purpose, it is this court’s holding that the term

“property,” as invoked in the definition of a “transfer” in the

context of former 11 U.S.C. § 107(d)(2)(a)’s proscription of

fraudulent transfers, should be interpreted “most generously”

to incorporate anything of value which but for the transfer

might have been preserved for the trustee to the ultimate

benefit of the bankrupt’s creditors. It should be noted that

under this approach the issue of whether or not something is

property “is necessarily a federal question, since it arises under

a federal statute intended to have uniform application

throughout the United States.” McKenzie v. Irving Trust Co.,

323 U.S. 365, 370 (1945) (meaning of “transfer” under the

Bankruptcy Act). Of course the amount of protection to which

some item of putative “property” is entitled under the law is

generally a matter for state law—at least assuming state law is

reasonable and not formulated simply so as to subvert the re-

quirements of federal law, Cf. DeSylva v. Ballentine, 351 U.S.

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that protection amounts to “property” under the Bankruptcy

Act is, as just stated, an issue of federal law. That is, while

state law will be permitted to determine the legal incidents of

ownership or possession of a thing, the state law characteriza-

tion of whether those incidents create a “property” right is not

controlling so far as a federal court is concerned. With these

general considerations in mind, therefore, it is necessary to

turn more specifically to the issue of which, if any, of the

things allegedly transferred in the case are considered “prop-

Certain items are fairly easy to deal with. Ownership or

possessory interests in office space would clearly constitute

property, whether in the form of fee simple ownership, a

tenancy for years, or even a tenancy at will. The court in

Lesser v. Mendelson, 352 F. Supp. 321, 327 (S.D.N.Y. 1971)

said, “Under the circumstances of the existing case, a month-

to-month tenancy is a valuable right of the bankrupt, since a

month-to-month tenant has every reason to believe that if he

continues to pay his rent and if there is no great demand for

the space by others, his month-to-month occupancy will con-

tinue without interruption for a substantial or indefinite

period.” This expectancy of continued occupation would ap-

pear to arise in even the barest tenancy at will or at sufferance,

absent contravening indicia such as a stormy landlord-tenant

relationship and the presence of other willing and financially

able prospective tenants, and would constitute something of

value which ought to be preserved to the trustee in bank-

ruptcy. Similarly, ownership or leasehold interests in office

furnishings and equipment would constitute “property” of the

bankrupt. The evidence in the case at hand would have sup-

ported a jury finding that the possession of the Sullivan Com-

pany’s office space and equipment was transferred, over a

period of at least several days and perhaps as long as several

weeks, to defendant Watts as of April 23, 1970. Since a

“transfer” under old 11 U.S.C. § 1(30) includes the disposition

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of or parting with “property or an interest therein or with the

possession thereof” [emphasis added], and an interest in office

space and equipment is “property,” the jury would have been

justified in finding a transfer of property at least to this extent.

Turning next to the issue of the employees of the Sullivan

Company, the analysis is not dissimilar. Considered individu-

ally, it may be that employees are not “property.” It is prob-

ably the case that the Sullivan Company could not have en-

joined competing firms from hiring one of its at-will employees

or enjoined such an employee from leaving, See Barry v.

Washburn-Garfield Co., 351 Mass. 797 (1970) (rescript

opinion). The mere fact that state law refuses to enjoin the

disturbance of a relationship does not, of course, mean that

the continuance of that relationship is not a property right.

The court in Lesser, for instance, considered as having value a

month-to-month tenancy even though its termination would

by definition not have been enjoinable. It is possible that the

expectancy of a continued landlord-tenant relationship, is

something of value which ought to be preserved for the benefit

of the trustee. On the other hand, it may be that there is

something unique about the freedom of individual employees

*» work where they choose so that even giving enough weight

vv the purposes of the Bankruptcy Act, Segal, supra, the expec-

tation of the continuation of a single at-will employer-

employee relationship may not be considered “property.” But

this issue need not be faced, as the jury in the instant case

could clearly have found that not one but most of the Sullivan

Company employees were transferred, in effect, to defendant

Watts as of April 23, 1970. Certainly the aggregate of a

business’ employees, even if they be individually not property,

is “property” within the meaning of the Bankruptcy Act. The

jury could reasonably have found an expectancy that at least

some of the employees would stay on for some indefinite

period. There was testimony, for instance, that most of the

Sullivan Company’s guards had been with it for years. The

A-36

jury could also have found from the testimony that some effort

had gone into the selection and training of those employees,

and most particularly that some of the guards would have

been highly sought after because of their security clearances

and familiarity with the job requirements of the customers

over whose premises they had watched. Taking all of this into

consideration, therefore, the jury could reasonably have found

that some value could have been realized by the bankrupt, or

by its successor the trustee, for the aggregate list of the

employees of the Sullivan Company. Thus the roster of

Sullivan employees, if not those employees taken as indi-

viduals, could be found to constitute “property” within the

meaning of the Bankruptcy Act.

Turning next to the customers of the Sullivan Company,

much the same may be said, although here more conventional

case law is of some assistance. Again, it is usually stated that

an injunction will not lie for solicitation of individual

customers of an enterprise by a competing enterprise where

those customers are not under some contractual obligation to

remain with the enterprise being “raided.” Cf. American

Republic Ins. Co. v. Union Fidelity L. Ins. Co., 470 F.2d 820,

825 (9th Cir. 1972). Again, this proposition may be less than

useful, or at least less than controlling, on the question of

whether an individual business-customer relationship and its

expectancy of continuation rise to the level of “property”

within the present context. But there are cases which hold,

even for purposes of enjoining competitors, that customers lists

are property. Since the only test in the present context is

whether a customer list is practically speaking something of

value to the trustee, and there are no concerns about freedom

of competition to be counterbalanced, evidence which

amounts to a showing of protected “property” under so-called

“customer list” cases would a fortiori rise to that level under

the Bankruptcy Act.

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The customer list cases deal generally with the issue of

whether absent specific contractual provisions a former

employer may be enjoined from soliciting customers from the

roster of customers of his former employer. In most cases,

customer list cases form a particular element of the general

field of trade secret or confidential information law.

“[A]lthough an employee may carry away and use general skill

and knowledge acquired during the course of his employment,

he may be enjoined from using or disclosing confidential infor-

mation so acquired. [citations omitted]” New England Overall

Co. v. Woltmann, 343 Mass. 69, 75 (1961). “An examination

of the authorities leads to the conclusion that no general and

invariable rule can be laid down where an employee, after

leaving his employment, has made use of the information ob-

tained by him through lists furnished by his employer, and

that the question turns upon whether in a given case the list

was confidential, and, if so, whether that fact should be

submerged in the interests of free competition.” Wooley’s

Laundry, Inc. v. Silva, 304 Mass. 383, 389 (1939). In some

cases, customer lists, even if not confidential, may be protec-

table property under the customer list cases if they are reduced

to writing, as opposed merely to existing in memory:

The significance of the possession by an employee of a

written list of his former employer's customers, as

distinguished from the retention of their names in

memory, in any particular case, where the information is

not confidential, lies in the fact that the employer is the

owner of the written paper, though partly or wholly

prepared by the employee, in the fact that the list of

customers was copied or written out in violation of a duty

to the employee, or, perhaps, in the fact that the

employer, in carrying off the written list, is carrying off

something more than experience gained by him in the

business.

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DiAngeles v. Scauzillo, 287 Mass. 291, 297-98 (1934). The

DiAngeles court seemed to treat the employer as the “owner of

the written paper” if it was furnished by the employer, was a

part of his system of accounts, was kept by the employee at the

express or implied direction of the employer, or was essential

to the business. Jd. at 298. A list would be considered to be

“copied or written out in violation of a duty to the employer”

where it was written “in violation of any express or implied in-

struction of the [employer], surreptitiously, or for any disloyal

purpose, such as preparing for further competition with him.”

Id. And a list might be “something more than experience

gained by [the emnloyee] in the business” where it “could [not]

have been successfully carried in memory.” Id. Finally, in

determining whether a customer list or other business infor-

mation, whether or not in written form, is confidential,

the Restatatement of Torts, § 757, comment b, sets out six

factors of relevant inquiry: (1) the extent to which the in-

formation is known outside the business; (2) the extent to

which it is known by employees and others involved in

the business; (3) the extent of measures taken by the

employer to guard the secrecy of the information; (4) the

value of the information to the employer and to his com-

petitors; (5) the amount of effort or money expended by

the employer in developing the information; and (6) the

ease or difficulty with which the information could be

properly acquired or duplicated by others.

Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840

(1972). The Jet Spray court emphasized in particular the im-

portance of the third factor, i.e., that the employer “not fail to

take all proper and reasonable steps to keep it secret.” Id. at

843. Often this would entail “periodic warnings and constant

admonitions of secrecy.” Id. at 844. But Jet Spray itself found

a certain report confidential where only one copy was kept

and it was given personally to one of the defendants to read,

those facts constituting “sufficient and appropriate precau-

tions to keep the report secret.”

A-39

In the present case the jury could reasonably have found the

existence of confidential or otherwise protected business infor-

mation which was transferred to defendant Watts on or about

April 23, 1970. The jury could have found that the list of

customers of the bankrupt had been acquired over some period

of time and with some effort,’ and that such a list was of great

value to the bankrupt and would be to potential competitors.

The jury could have found the value of the list enhanced

beyond that of an ordinary customer list because of the

peculiar importance of continuity of service in the security

guard business. The jury could have found that knowledge of

the entire customer list was confined to defendant Otte and his

assistant James Margotta—who together managed the daily

operation of the company—even though individual guard

employees were of course familiar with the identity of

customers whom they personally served. The jury could have

found that while it would be relatively easy for competitors to

observe a particular business and to ascertain whether it was

among the bankrupt’s customers, some significant difficulty

would have arisen in duplicating the bankrupt’s entire

customer list, as that would have involved surveying all

businesses in the area which would potentially be in need of

security guards and ascertaining whether or not their needs

were being serviced by the bankrupt. Under this combination

of findings, the customer list would qualify as confidential

under the Restatement as cited in Jet Spray. In addition, the

customer lists could reasonably be found to be protected even

if not confidential as a list reduced to written form under the

DiAngeles rationale. That is, the jury could reasonably have

found the customer list to be on paper owned by the Sullivan

Company in that the paper was provided by the bankrupt and

was kept at its direction. The jury could have found that the

actual paper containing the list was appropriated or used by

* There was testimony that most of the company’s customers had been.

with it for several years.

A-40

defendants Watts and Otte and others for a period of at least

several days and perhaps several weeks after April 23. Addi-

tionally, the jury could have found the list to have been ap-

propriated in violation of defendant Otte’s duty to his

employer, as it was being employed to the benefit of a com-

petitor—defendant Watts— at a time when the Sullivan Com-

pany had not voluntarily filed a petition in bankruptcy or in-

dicated in any way that it was terminating its business opera-

tions. See infra.

Thus the jury could reasonably have found the customer list

transferrd to defendant Watts on April 23 to have been “prop-

erty” within the conventional definition of the customer list

cases. As indicated earlier, this would seem a fortiori to make

it “property” within the contemplation of the Bankruptcy Act,

where the overriding policy involved is to preserve anything of

real value to the trustee in bankruptcy. Under this broader

definition of property, most customer lists would qualify as

having at least some value. What the Woolley’s Laundry court

said about a list of laundry delivery customers appears equally

applicable to a list of security guard customers:

The value of a list depends in great measure upon the

good opinion of the goods that the employer may sell or

the work that he may do for his customers. It is un-

doubtedly true that a delivery route for certain com-

modities has a certain sales value. This is usually so

because some one can be found who is willing to pay

something for the opportunity of serving the customers in

the hope that he may continue to hold their patronage.

304 Mass. at 390. Thus the jury could reasonably have found

that there was some value, and indeed substantial value, to the

Sullivan Company customer list, for much the same reasons

that it could have found the list to be confidential. Further-

more, there was testimony that many customers had had con-

tinued good relations with the bankrupt, a factor that would

enhance the value of the list. Under both the somewhat

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restricted customer list cases and the broader compass of the

definition of “property” fashioned earlier in this opinion, the

jury could reasonably have found the Sullivan Company lists

transferred to defendant Watts to have been property.

Under a similar analysis, other business information, all of it

in written form, could have been found by the jury to amount

to “property” under the Bankruptcy Act and to have been

transferred to defendants. Thus there was testimony that

schedules showing the times at which individual guards were

to report to individual customers, the telephone numbers and

addresses of guard and supervisory employees, as well as a

detailed manual setting forth the needs and requirements of

each of Sullivan Company’s customers were also appropriated

to the use of defendant Watts on April 23, 1970 for a period of

at least several days or weeks. Such information could

reasonably be found to be confidential and thus a trade secret,

or at least in written form on paper owned by the bankrupt or

appropriated in violation of a duty to it and thus qualifying as

property by analogy to the written customer list cases. Fur-

thermore, all of this information could quite reasonably be

found something of value which the bankrupt or its successor

the trustee could have sold. Under either approach, the infor-

mation would qualify as Bankruptcy Act “property.”

Finally, it remains to consider the least tangible alleged

asset of the Sullivan Company which the trustee argues was

“property” transferred to the defendants— goodwill. Goodwill

at one time was thought of as “nothing more than the proba-

bility, that the old customers will resort to the old place.”

Cruttwell v. Lye, 17 Ves. 335, 346, cited in Griffith v. Kirley,

189 Mass. 522, 527 (1905). “{I]}f it be assumed that a firm has

been in existence for a time long enough to establish a business

sufficiently permanent in character to include not only its

customers but the incidents of locality and a distinctive name,

these advantages constitute a going business enterprise; and it

may then be said that the name and what is done under

A-42

it go together; and a good will exists which forms an asset of

commercial value... .” Moore v. Rawson, 185 Mass. 264, 273

(1904). Beyond name and location, goodwill! is now taken to

mean “all that goes with a business in excess of its mere capital

and physicai value, such as reputation for promptness, fidel-

ity, integrity, politeness, business sagacity and commercial

skill in the conduct of its affairs, solicitude for the welfare of

customers and other intangible elements which contribute to

successful commercial adventure.” Martin v. Jablonski, 253

Mass. 451, 457 (1925). Goodwill “is a right of property which

the courts will guard as carefully as it would visible, tangible

property.” George G. Fox Co. v. Glynn, 191 Mass. 344, 349

(1906). Further, “[a] corporation may have a valuable good

will even though the business may have been conducted at a

loss during certain years, [citation omitted], and the existence

of good will is not negatived by an omission to carry it upon

the books at a certain valuation. [citation omitted]. Commis-

sioner of Corporations & Taxation v. Ford Motor Co., 308

Mass. 558, 571 (1941). As stated earlier, the state court

characterization of goodwill as “property” is not binding

under the Bankruptcy Act, but as goodwill is by definition

something of value in a going concern which attaches by

reason of its name, location, skill, reputation and the like

clearly is “property” for the purposes of this opinion.

Analytically distinct from the concept of goodwill yet

somewhat related is what has been termed “going concern

value.” “An additional element of value attaches to property,

considered in the aggregate, by reason of its having been

assembled for the conduct of a given business and its fitness for

such use.” In re Nathanson Bros. Co., 64 F.2d 912, 913 (6th

Cir. 1933). In other words, because the resources of an on-

going enterprise are used in conjunction with each other they

may well have a collective value, as so used, in excess of the

sum of the values of the individual resources taken separately.

A-43

Both goodwill and the Nathanson Bros. “going concern

value” are going concern values in the sense that each arises

initially only in conjunction with a going concern. When an

enterprise ceases to be a going concern, goodwill evaporates,

gradually if not instantly. Of course it may re-arise in the

hands of a successor business, but that is dependent upon its

performance, and would constitute the goodwill of that enter-

prise. So far as the original enterprise is concerned, and so far

as the bankrupt in the instant case is concerned, the existence

and value of goodwill depend upon the enterprise’s status as a

going concern.

“Going concern value,” as that term was used in Nathanson

Bros., is somewhat different. Though it initially arises like

goodwill, out of the arrangement of resources in a going con-

cern, upon the death of that going concern the value would re-

main in the aggregate assets so long as those assets can be

transferred together to a willing individual or entity which

contemplates utilizing them together.

There are other differences between goodwill and “going

concern value” as defined above. The latter concept has a kind

of internal focus, as it is the added increment of value which

attaches to a business by virtue of the way in which its indi-

vidual assets and components are arranged and utilized in con-

junction with each other. The concept of goodwill, on the

other hand, has a more external focus, as it is derived from the

attitude of customers and potential customers by virtue of the

history of past performances by a company. These two notions

are related, of course. Thus a business may be inefficiently ar-

ranged internally so as to reflect only a small Nathanson Bros.

increment and this may result as well in poor performance so

far as customers are concerned, giving rise as a result to a small

goodwill value. And, as stated earlier, both concepts describe

essentially intangible assets which are capable of existing only

as part of a going concern. In any event, both types of intan-

gible, as items of value from which the trustee and hence

creditors could realize a benefit, are “property” under the

Bankruptcy Act.

A-44

Before determining whether or not the jury could have

found the existence of goodwill or “going concern value” in the

case at bar, it is necessary to define what in law is cognizable

as a “going concern.”* A debtor should not be regarded as a

going concern “if at the time of [the alleged transfer] he was

financially dead or mortally wounded.” In re Fred D. Jones

Co., 268 F. 818, 819 (7th Cir. 1920). In general, a business

would no longer be a going concern where it is inoperative.

For example, in Langham, Langston & Burnett v. Blanchard,

246 F.2d 529 (5th Cir. 1957), the court noted that the

bankrupt, a mining company which had drilled wells but

shortly thereafter had ceased all mining operations, could not

properly be valued as a going concern. The same was found to

be the case in Trask v. Susskind, 376 F.2d 17, 20 (5th Cir.

1967), which held that there is no attempt to transfer the

goodwill of a going concern where the business has itself

voluntarily declared bankruptcy and ceased doing business.

Id. at 20.

Given these various definitions and principles, the jury

reasonably could have found the existence of both goodwill

and “going concern value” in the bankrupt. First, the jury

could have found that as of the time of the alleged transfer the

Sullivan Company was a going concern. There was no

evidence that the Sullivan Company had declared bankruptcy

and ceased doing business as had the bankrupt in Trask. The

contention of the defendants is not that as of the end of the

business day on April 22, 1970 the company was actually out

of business; indeed, they admit that as of that day some seven-

teen customers were still being serviced. (Admitted Facts 17,

~ 4 Strictly speaking, the continued existence of a going concern is not

necessary to the existence of “going concern value” if, as noted above, there

exist willing buyers for the aggregate resources of a firm. But as no evidence

of the existence vel non of such buyers was introduced in this case, the ex-

istence of “going concern value” here, practically speaking, is dependent

upon the bankrupts still having been a going concern at the time of the

transfer.

A-45

55). Rather, they contend that in the light of the financial con-

ditions of the company and the impending levy of the IRS

upon its accounts receivable the next morning, as of the end of

that day the company was constructively no longer a going

concern in that it would be unable to resume business the next

day. In addition to the fact that the cases cited above seem to

require an actual cessation of business to find a firm no longer

a going concern, there was evidence that the Sullivan Com-

pany had been operating heavily in debt for some time, that

the IRS levy would have affected only past due accounts and

not future receivables, and that the company had on past

occasions found last-minute finances to help it remain afloat.

Thus, the jury could reasonably have inferred that the com-

pany could have continued in operation under its cir-

cumstances for some additional period of time, remaining at

least temporarily unaffected by any threatened or actual IRS

levy, and that it was therefore still a going concern.

Given the existence of a going concern, there was ample

evidence to support a jury finding of the existence both of

goodwill and “going concern value.” For instance, there was

evidence that many customers had been satisfied with the ser-

vices provided by the bankrupt, and in particular as orches-

trated by the defendant Otte; that the guards provided by the

bankrupt were often peculiarly qualified for the service of par-

ticular customers because of their possession of FBI security

clearances; and that there was a knowledge by the bankrupt of

the needs of its customers, which knowledge was reflected in a

detailed company manual and utilized in the assignment of

guards to specific customers. There was evidence that many of

the Sullivan Company’s customers had been with it for years.

In addition, there was evidence that prior to the alleged

transfer the various customers had agreed that they would re-

main with the bankrupt if it were transferred so long as the

new company retained the bankrupt’s employees and guard

services were continued uninterrupted. And there is evidence

A-48#

that within two or three days after the transfer thirteen of the

bankrupt’s seventeen customers were being serviced by

defendant Watts. From all of these facts the jury could

reasonably have found both the degree of internal

arrangement and juxtaposition of resources and external

customer satisfaction which would amount to the existence of

goodwill and the Nathanson Bros. increment of “going

concern value.”*

In conclusion, therefore, there was sufficient evidence in the

record upon which the jury could find the existence of

property of the Sullivan Company which was transferred to

the defendant Watts.

The second ground asserted by the defendants Watts,

Consolidated and Recklitis, and adopted as well by defendants

Otte and Sullivan, in support of their motion for judgment,

notwithstanding the verdict is that there was insufficient

evidence of a diminution in value of the estate of the bankrupt

* Defendants’ motion for judgment notwithstanding the verdict attacks the

sufficiency of the evidence to prove the existence of “property,” including

goodwill and “going concern value,” in the hands of the bankrupt at the time

of the alleged transfer, rather than the sufficiency of evidence of a “transfer.”

The latter issue would be somewhat interesting in the context of goodwill and

“going concern value.” It has been said that “(o}rdinarily, goodwill cannot

be transferred separate and apart from tangible assets,” that goodwill moves

only where there is a “transfer ... of the corporation[} as a going concern.”

Trask 376 F.2d at 20. Certainly, “when the entire assets of a business are

sold, there is a presumption that good will passes.” United Tool & Industrial

Supply Co v. Torrisi, 356 Mass. 103, 106 (1969). But the test of whether

goodwill has been transferred is not necessarily whether all or substantially

all of a business’ other assets have been transferred -— although that would

suffice under United Tool — but rather “whether the assets which are

[transferred] are sufficient to enable the purchases to ‘go on in real continuity

with its past.’ (Mutual Life Ins. Co. Menin, 2 Cir., 115 F.2d 975).” Merry

Hull & Co. v. Hi-Line Co., 243 F. Supp. 45, 51 (1965). This same analysis

would seem to apply to “going concern value.” With evidence supporting a

finding of a transfer of the aggregate of employecs and most customers, of

guard schedules and manuals, and of at least temporary occupation and use

of office space and equipment, the jury would be justified in finding a

transfer as well of goodwill and “going concern value.”

A-47

as a result of any transfer which the jury may have found to

have taken place. It is not quite clear what contentions the

defendants intend to raise by this ground. To the extent that

their argument is simply that no “property” was transferred

from the bankrupt’s estate, that contention has already been

considered. Defendants appear to be arguing, however, that

even if “property” was transferred from the estate, it was not

property of any value, as the Sullivan Company could not by

virtue of its precarious economic condition have realized

anything from the sale of that property. To some degree, the

concept of property with no value may be internally

contradictory in light of the definition of property as any thing

of value, which thus ought to be preserved to the benefit of the

bankruptcy trustee.

In any event, assuming that it is ontologically permissible to

speak of entirely valueless property, it is clear that in this case

the same evidence which permitted the jury to find the

existence of property would permit it to find that property had

some value. And, as to certain of the types of property which

the evidence permitted the jury to find, such property has

value as a matter of definition. That is, goodwill and the

Nathanson Bros. “going concern value” represent the values

that attach to a firm by virtue of customer satisfaction and

internal coordination and arrangement of resources. Fo the

jury to find such property to exist means of necessity that the

bankrupt could have sold it, and thus realized some price in

conjunction with a transfer of the operations of the business,

all contrary to the defendants’ contention. Finally, to the

extent that the defendants argue under this ground that no

property of the bankrupt of the type involved in this case could

have had any value because the company was not at the time

of the transfer a going concern, that contention has already

been answered above. Thus the jury could reasonably have

found the bankrupt’s est ate to have been diminished by virtue

of the transfer which it found it to have occurred.

A-48

Finally, it remains to treat of the separate arguments of

defendant Otte and Sullivan. Defendant Otte essentially only

adopts the arguments of defendants Watts, Consolidated and

Recklitis. As those defendants did not address themselves to

liability under Count III, and as the other arguments of those

defendants have already been dealt with, defendant Otte’s

liability under Count III can only be sustained.* Turning to

the motion of defendant Sullivan, he too basically adopts the

arguments of his co-defendants. The only new arguments he

advances pertain to Count III, under which he argues both

that the evidence was insufficient to connect him with the

fraudulent transfer scheme of defendants Watts, Con-

solidated, Recklitis and Otte and that the verdict against

him (and Otte) on Count III is inconsistent with the verdict on

that count for defendants Watts, Consolidated and Recklitis.

The second argument may be dismissed summarily. No

authority is cited by Sullivan for the proposition that a verdict

supported by sufficient evidence is to be overturned and a

judgment for the moving party entered simply because the

jury did not find against other defendants which found against

him. Indeed, while verdict inconsistency is sometimes a

ground for the awarding of a new trial, see infra, the sole issue

on a motion for a judgment notwithstanding the verdict is the

* By adopting the arguments of co-defendants, Otte preserves those

arguments only to the extent they were made. While defendants Watts,

Consolidated and Recklitis argued that there was insufficient evidence of the

existence of property or of a transfer of such which diminished the estate in

value, they did not argue that even if there was sufficient evidence as to these

two factors that that would not rise to the level of a breach of fiduciary duty

under Count III, and thus Otte himself may not be heard to so argue. Given

the nature of an officer's fiduciary duty to his corporation, see infra, the

argument that participation in a fraudulent transfer under the Bankruptcy

Act is not violative of that duty would be rather unlikely to prevail. In any

event, since it is held above that there is sufficient evidence to sustain the

jury’s verdict against Otte under Count I, it is legally irrelevant whether

there is also sufficient evidence to sustain its verdict against him under Count

Ill.

A-49

sufficiency of the evidence and the law to support the verdict

as it concerns the moving party only. Garrison v. U.S., 62 F.2d

41, 42 (4th Cir. 1932); see generally, 9 C. Wright and A.

Miller, Federal Practice and Procedure, § 2531 (1971). And as

to the sufficiency of the evidence, the jury could reasonably

have found that Sullivan breached his fiduciary duty to the

bankrupt by participating in a transfer of the corporation’s

property without fair consideration at a time when the

corporation was insolvent. The evidence showed that

defendant Sullivan was President and a director of the

bankrupt. “The directors of a commercial corporation stand in

a relation of trust to the corporation and are bound to exercise

the strictest good faith in respect to its property and business.”

Goodwin v. Agassiz, 283 Mass. 358, 361 (1933). They have “a

duty of reasonably protecting and conserving its interests.”

Lincoln Stores, Inc. v. Grant, 309 Mass. 417, 421 (1941). The

jury could reasonably have found Sullivan not to have lived up

to his legal duty even though his failure to do so was not

motivated by a desire for personal profit. This was not the

usual case of double-dealing or other conflict of interest.

Nonetheless, there was evidence that Sullivan had been a

party to earlier attempts by defendants Watts and

Consolidated through their President, defendant Recklitis, to

purchase the bankrupt for valuable consideration, that those

efforts had culminated in the April 22, 1970 meeting to which

the IRS was a party, that the result of that meeting was that

the Recklitis was unwilling to pay the $50,000 which he had

previously offered to purchase the bankrupt. The jury could

reasonably have found that Sullivan then abandoned his

fiduciary duty toward the corporation and, in his own words,

“handed over the business” to Recklitis. There was thus

sufficient evidence to find Sullivan liable under Count III.’

7 In any event, as it is held above that there is sufficient evidence to find

against Sullivan under Count I, Count III is unnecessary to sustain the

judgment against him.

A-50

In sum, as to all defendant and all relevant counts, there is

sufficient evidence in the record from which the jury could

reasonably find liability. The various motions for judgment

notwithstanding the verdict are denied.

II. Morions For New Triat

Defendants Watts, Consolidated and Recklitis move for a

new trial pursuant to F. R. Civ. P. 59(a) on several grounds:

insufficiency of the evidence, improper admission of opinion

evidence, improper instruction of the jury, improper conduct

of opposing counsel, and excessiveness of the damage award.

The three defendants seek, in the event that a full new trial is

not ordered, a partial new trial on the issue of damages above,

or a remittitur. Defendant Otte incorporates these arguments

and adds in addition that the verdict on Count III was against

the weight of the evidence and inconsistent with the verdicts

on Count I and II. Defendant Sullivan also adopts the

arguments of Watts, Consolidated and Recklitis and attacks

the verdict on Count III as contrary to the evidence and court's

instructions.

F. R. Civ. P. 59(a)(1) provides: “A new trial may be granted

to all or any of the parties and on all or part of the issues (1) in

an action in which there has been a trail by jury, for any of the

reasons for which new trials have heretofore been granted in

actions at law in the courts of the United States....” In

Montgomery Ward & Co. v. Duncan, 311 U.S. 243, 251

(1940), the Supreme Court in passing catalogued, though not

exhaustively, some of the grounds upon which new trials may

be granted: “The motion for a new trial may involve the

discretion of the court insofar as it is bottomed on the claim

that the verdict is against the weight of the evidence, that the

damages are excessive, or that, for other means, the trial was

not fair to the party moving; and may raise questions of law

arising out of alleged substantial errors in admission or

rejection of evidence or instructions to the jury.”

A-5l

Defendants Watts, Consolidated and Recklitis first argue

for a new trial on the ground that verdict on Count I was

against the weight of the evidence for the same reasons that

they argued that they were entitled to a judgment

notwithstanding the verdict on that count: i.e., that there was

insufficient evidence of “property,” that there was insufficient

evidence of a diminution in value of the estate, and that there

was insufficient evidence of damages. In the First Circuit, the

standard for granting a new trial on the ground of

insufficiency of the evidence is as follows:

A trial court, in assessing whether to grant a new trial

for lack of legally sufficient evidence, does not properly

do so merely because it might have come to a result

different from that reached by the jury. The district court

should order a new trial only when convinced that a

miscarriage of justice would otherwise obtain. Where

credibility of witnesses is at issue, special care should be

taken not to invade the province the jury.

Rios v. Empresas Lineas Maritimas Argentinas, 575 F.2d at

990. As to the defendants’ first two arguments on the

insufficiency of the evidence, the evidence has been set forth

supra in consideration of the motion for judgment

notwithstanding the verdict. It is clear from that discussion

that the evidence supporting a finding of the existence of

various types of “property” in the bankrupt and of a

diminution in the bankrupt’s estate was quite substantial.

Turning to a third contention of insufficiency of the

evidence concerning damages, less summary treatment is in

order. That issue was not discussed earlier on the motion for

judgment notwithstanding the verdict because the defendants

had waived it by failure to include it in their motion for a

directed verdict. See p. 6, supra. But the making of a specific

motion for a directed verdict is not a prerequisite for the

pressing of a subsequent motion for a new trial, and the

damages issue may thus be raised in the present context. This

A-52

argument of the defendants also appears to overlap with, if

not to be indistinguishable from, the defendants’ fifth

argument on the motion for a new trial, namely, that the

damages are excessive. These arguments shall be considered

together.

In the First Circuit, damage awards even if “extremely

high” are not to be overturned and a new trial granted where

they are not “grossly excessive” or “shocking to the

conscience.” LaForest v. Autoridad de las Fuentes Fluviales de

Puerto Rico, 536 F.2d 443, 447 (ist Cir. 1976). A “sort of

irrationality” may have to appear. Jd. In this case, the jury’s

damage award is not inconsistent with the evidence. Sullivan,

himself, hardly a disinterested party, testified that in his

opinion the business was worth one million dollars. Otte

testified to the same effect. Beyond this, there was evidence

that defendant Watts, in the year subsequent to the transfer

from the bankrupt to it, had derived gross sales of some

$680,000 from that portion of its business which was based on

customers which had formerly been serviced by the Sullivan

Company. It was for the jury to access the credibility and

significance of this evidence. Rios, 575 F.2d at 990. Aside from

the admissibility issues to be addressed momentarily, this court

is satisfied that the jury verdict of a $750,000 award was not

“grossly excessive,” nor perhaps even “extremely high.” This

court cannot conclude that there was a patent miscarriage of

justice.

Turning to the defendants’ second argument, their

contention is that Sullivan’s opinion testimony as to the value

of the Sullivan Company at the time of the alleged transfer

was improperly admitted, and that Otte’s opinion was

dependent solely upon Sullivan’s and thus equally improperly

admitted. Defendants cite Winthrop Products Corp. v. Elroth

Co., 331 Mass. 83, 85 (1954) and Maher v. Commonwealth,

291 Mass. 343, 348-49 (1935) for the proposition that while the

A-53

owner of a business is usually competent to offer an opinion as

to its value, he may not do so when his opinion is not based on

personal knowledge or is based only on the opinion of others.

They argue that at trial defendant Sullivan, the majority

shareholder and President of the bankrupt, offered an opinion

which was based solely on the opinions of others whom he had

heard say that service businesses could be valued at the level of

their gross sales. Thus Sullivan ventured the opinion that the

Sullivan Company was worth approximately one million

dollars. This error in the admission of evidence, argue the

‘efendants, warrants the granting of a new trial.

This argument of the defendants fails in several respects.

The cited Winthrop Products case holds that an owner of a

corporation with knowledge of its property may testify as to

the value of that property. Similarly, the Maher case

recognizes that a landowner ordinarily may testify as to the

value of his land because “commonly he is familiar with its

characteristics and its availability for actual and potential

valuable uses.” 291 Mass. at 348. But when a landowner was

testifying based “in substantial respects” upon the opinions of

real estate experts and had had no opinion of his own prior to

talking with such experts, and where he “also gave weight to

the element of sentimental value,” the testimony was held

“based upon erroneous foundations” and improperly

admitted. Id. at 348-49. In the present case, however,

Sullivan's testimony demonstrated substantial familiarity with

the operations of the business. While he did testify that he was

basing his opinion in part upon the statements of others, no

element of sentimental value was included within his

valuation, and his personal familiarity with the business

clearly was a substantial element. Sullivan's testimony thus

might well be admissible under Maher and its weight a matter

for the jury. In any event, in the federal courts the Federal

Rules of Evidence are controlling on questions of admissibility,

not state decisional law.

A-54

An owner’s testimony as to the value of his own property

could be admissible either as an opinion by a lay witness

“based on ... personal perception” and “helpful to a clear

understanding of his testimony or the determination of a fact

in issue” under Rule 701, or as an expert opinion by one who is

“qualified as an expert by knowledge ... [or] experience”

under Rule 702. “[A]n owner, because of his ownership, is

presumed to have special knowledge of the property and may

testify as to its value.” United States v. Soward, 370 F.2d 87,

92 (10th Cir. 1966) [emphasis supplied]. “The opinion

testimony of a landowner on the valuation of his land has been

admitted in federal courts without further qualification.”

United States v. 3,698.63 Acres of Land, 416 F.2d 65, 67 (8th

Cir. 1969) (citing Sowards). Sowards rejected an owner's

opinion testimony because his testimony reveale” _ to be

speculative and conjectural, thus rebutting the presumption of

special knowledge which would otherwise attach. But in the

instant case Sullivan’s testimony revealed him to have

adequate knowledge of his business to permit the admission of

his opinion as to its value, leaving the issue of the weight to be

accorded that testimony to the jury.* Otte’s testimony was

similarly admissible. No new trial is warranted by the

evidentiary decisions taken by this court at trial.

Defendants Watts, Consolidated and Recklitis advance as a

third ground for the granting of a new trial the argument that

the court improperly instructed the jury as to the test for

determining the value of any property of the bankrupt

transferred to defendants and also that the value of any back

wages owed by the bankrupt which were paid by defendant

Watts was not to be treated by the jury as consideration for

any transfer.

* It should be noted that the jury apparently did not credit that testimony

fully, as the damage award was significantly less than Sullivan's one million

dollar value estimate. In arriving at its figure, the jury may well have taken

into account the testimony that in the year following the transfer defendant

Watts grossed some $680,000 from former customers of the bankrupt.

A-55

On the first issue defendants argue that an instruction on

value based upon what a willing buyer would pay a willing

seller was inappropriate inasmuch as a seller in the desperate

financial position of the Sullivan Company could hardly be

characterized as willing. But this ignores the testimony con-

cerning prior negotiations between the bankrupt and defen-

dant Recklitis regarding the possible sale of the company, from

which a reasonable inference is permitted that the bankrupt

would in fact have been a willing seller at the time of the

transfer without consideration which the jury found to have

taken place in this case. And the proper measure of damages is

that amount of which the trustee, as representative of the

bankrupt’s creditors, was deprived by virtue of the transfer of

assets at issue in this case. Certainly the trustee, seeking to

maximize the return to those creditors, would have been in the

position of a willing seller. Defendants, by their actions,

deprived the trustee and this court, of the opportunity to

ascertain precisely what amount could have been realized

from the assets. As to the other claimed erroneous instruction,

there was testimony that some time after Watts took on the

employees of the bankrupt on or about April 23, 1970, it paid

such employees back wages owed them by the Sullivan Com-

pany in an amount totalling $39,000. This court instructed the

jury that any such payment was not to be taken into account in

evaluating the adequacy of any consideration paid by the

defendants for the transfer of Sullivan Company assets. As

there was no evidence that any such payment was bargained

for by the bankrupt as part of the transfer — or, indeed, that

the bankrupt engaged in any bargaining whatsoever regarding

this particular transfer — it was proper to instruct the jury to

the effect that this was not consideration. In any event, where

the jury reasonably found the value of the property transferred

to defendants to be some $750,000, and where there was no

evidence of any direct consideration paid by the defendants for

the transferred property, any error involved in instructing the

A-56

jury not to consider the $39,000 if they found it to have been

paid would be t:ermless under Fed. R. Civ. P. 61: “[N]o error

or defect in any ruling or order or in anything done or omitted

by the court .. . is ground for granting a new trial ... unless

refusal to take each such action appears to the court to be in-

consistent with substantial justice.” No problem of substantial

justice appears when, under the relevant statute, considera-

tion is “fair,” “in good faith,” “in exchange,” and “a fair

equivalent.” Old 11 U.S.C. § 107(d)(1)(c). See, e.g., Misty

Management Corp. v. Lockwood, 539 F.2d 1205, 1212 (9th

Cir. 1976). Under such a definition, $39,000 could not be “fair

consideration” for property found by the jury to be worth

$750,000. No new trial is warranted on this ground.®

The final ground on which defendants Watts, Consolidated

and Recklitis base their motion for a new trial is an argument

that opposing counsel exceeded the limits of proper argument

in his closing to the jury with the result that the jury verdict

was ostensibly inflamed by passion and prejudice rather than

based on reason. Counsel for the plaintiff made several

references in his closing to the fact that defendant Recklitis

had once been convicted of criminal fraud and argued that he

was the mastermind of a scheme in this case to obtain the only

valuable assets of the Sullivan Company for no consideration.

Counsel asked rhetorically whether the jury would believe “a

convicted fraud” and urged the jury not to fall for Recklitis’

defense that nothing of value had been transferred to defen-

dants”. “That's his final con, to try and con you. Don’t fall for

it, please.” The Federal Rules of Evidence specifically allow

the use of prior convictions to impeach a witness under certain

circumstances. F. R. E. 609(a). But those same rules in general

prohibit the use of evidence of prior crimes to prove a propen-

* Defendants also appear to argue that they are entitled to a set-off of some

$39,000 from the verdict as determined by the jury. But defendants did not

claim such a set-off or counterclaim in their answer nor was such an issue ef-

fectively tried to the jury. See F. R. Civ. P. 15(b).

A-57

sity for committing similar acts or offenses from which it may

be inferred that the act or offense at issue in the trial was in

fact committed by a defendant. F. R. E. 404(b). The rationale

behind this general rule is that the probative value of the

evidence of the prior crime is outweighed by the “dangerous

baggage of prejudice, distraction from the issues, time con-

sumption, and hazard of surprise.” Clearly, McCormack’s

Evidence, 2d ed., 1972, 445. Thus if an argument of counsel

improperly attempts to focus the jury's attention on the

character of a defendant so as to play upon prejudice and

distract from the issues truly at hand, a new trial might be

justified. But in this case, there is no evidence from the jury's

verdict — which, as stated above, was quite within the bounds

of the evidence — that it was the result of prejudice. Nor was

the jury’s verdict directed only at Recklitis, the defendant who

was the object of the purportedly prejudicial remarks. And

counsel's statements in any event were not egregious either in

kind or in number. “While counsel’s argument might have

been in better taste, yet we are not convinced that it contained

matter likely to mislead the jury or to prevent a fair verdict. In

arguing to a jury, counsel must properly have some latitude so

long as prejudice does not appear.” Schwartz v. Northwest

Airlines, Inc., 275 F.2d 846 (2d Cir. 1960). Finally, it should

be noted that at no time during the trial did defendant's

counsel take exception to any remark made by opposing

counsel, nor did he make any formal objection to any of the

matters he now contends were so prejudicial as to justify the

granting of a new trial. “If in fact defendant's counsel felt ag-

grieved by the alleged prejudicial comments and conduct, he

should have called the matter to the court's attention so as to

give the court an opportunity to take corrective action.”

Faudree v. Iron City Sand & Gravel Co., 315 F.2d 647, 651-52

(3d Cir. 1963). Accordingly, a new trial is not warranted in

this case on the grounc. .f improper conduct of counsel or a

verdict which is the product of passion, bias or prejudice.

A-58

Finally, it remains to deal with defendants Otte and

Sullivan's additional arguments for granting a new trial on

their behalf. Both defendants argue that the evidence was in-

sufficient as to Count III. But the same evidence which was

held sufficient earlier in the opinion to withstand a motion for

judgment notwithstanding the verdict is also sufficient to

satisfy this court that there was no miscarriage of justice as to

Count III. There was ample evidence to support a finding of a

breach by defendants Otte and Sullivan of their fidiciary duty

to the corporation of which they were officers. Defendant

Otte also argues that the verdict against him on Count III was

inconsistent with the verdicts on Counts I and II. This court is

at a loss to discern any inconsistency among the verdicts on the

three counts as to defendant Otte. It is perfectly consistent to

find that Otte participated in a transfer of assets during a time

of insolvency (Count I) and in a breach of fiduciary duty

(Count III) but did not possess an actual intent to defraud

(Count II). And if defendant Otte is seeking to raise any incon-

sistency between his being found liable under Count III and

defendants Watts, Consolidated and Recklitis being found not

liable — as defendant Sullivan sought to do on his motion for

judgment notwithstanding the verdict — no new trial is

justified, as there was ample evidence to find against defen-

dant Otte under Count III and he is not prejudiced by any

failure or inconsistency on that count as regards other defen-

dants.

As to defendant Sullivan, he argues that the verdict against

him on Count II was “contrary to the instructions by the

Court.” But as no specific instances of inconsistency are raised,

and as the verdict against Sullivan, as against Otte, seems

perfectly proper under this Court's instructions, no new trial is

in order.

A-59

In sum, all motions of all defendants for judgment not-

withstanding the verdict or for full or partial new trials or for

a remittitur are denied. The verdict and judgment as entered

shall stand.

s/Davip S. NELSON

Daviw S. NELSON

United States District Judge

A-60

Gies 31

Judgment on Jury Verdict

Unrrep States District Court

FOR THE

District OF MASSACHUSETTS

Crvuz Action Fite No. 70-1336-N

Danie. GLOsSBAND, TRUSTEE ON BANKRUPTCY

For tHe D.C. SuLtivAN ComMPaANy

v.

Watts Derective Detective Acency, INc.,

CONSOLIDATED Service Corp. ,

CuristorpHer P. Reckxtis,

DANIEL SULLIVAN,

WituaM Orrte.

JUDGMENT

This action came on for trial before the Court and a jury,

Honorable David S. Nelson, United States District Judge,

presiding, and the issues having been duly tried and the jury

having duly rendered its verdict,

It is Ordered and Adjudged

Count One: VERDICT FOR THE PLAINTIFF.

Count Two: Venpict ror THE DEFENDANT.

Count Turee: Danie: GLosBAND vs. Watts Detective

Acency, INc.

VERDICT FOR THE DEFENDANT.

DanteL GLOSBAND vs. CONSOLIDATED SERVICE

Corp.

VERDICT FOR THE DEFENDANT.

A-61

Dante, GLOSBAND vs. CHRISTOPHER RECKLITIS

VERDICT FOR THE DEFENDANT.

Dante. GLOsBAND vs. DANiEL SULLIVAN

VERDICT FOR THE PLAINTIFF.

Dante. GLosBanp vs. WiLtiaM OrTe

VERDICT FOR THE PLAINTIFF.

Tue PLAINTIFF HAS SUSTAINED DAMAGES IN THE AMOUNT OF

$750,000.00.

Dated at Boston, Massachusetts, this 20th day of March, 1980.

(s) Francis B. DeLto Russo

Francis B. Deiito Russo

Dpy. Clerk of Court

United States Court of Appeals

For the First Circuit

Nos. 81-1697

81-1698

81-1699

81-1700

ROBERT ROBINSON,

TRUSTEE IN BANKRUPTCY OF D.C. SULLIVAN

& CO., INC.,

PLAINTIFF-APPELLEE,

v.

WATTS DETECTIVE AGENCY, INC., ET AL.,

DEFENDANTS- APPELLANTS.

DANIEL SULLIVAN,

DEFENDANT-APPELLANT.

BILLY R. OTTE,

DEFENDANT-APPELLANT.

Before

CAMPBELL, BowNnes AND Breyer, Circuit Judges.

ORDER OF COURT

Entered September 14, 1982

The petition for rehearing by defendant-appellant Billy R.

Otte is denied for the same reasons as that of defendant-

appeliant Daniel Sullivan.

By the Court:

(s) Dana H. Ga.iup

Clerk.

United States Court of Appeals

For the First Circuit

Nos. 81-1697

81-1698

81-1699

81-1700

ROBERT ROBINSON,

TRUSTEE IN BANKRUPTCY OF D.C. SULLIVAN

& CO., INC.,

PLAINTIFF-APPELLEE,

v.

WATTS DETECTIVE AGENCY, INC., ET AL.,

DEFENDANTS-APPELLANTS.

DANIEL SULLIVAN,

DEFENDANT-APPELLANT.

BILLY R. OTTE,

DEFENDANT-APPELLANT.

Before

CAMPBELL, BowNES AND Breyer, Circuit Judges.

ORDER OF COURT

Entered September 14, 1982

The petition for rehearing by Daniel Sullivan, defendant-

appellant, is denied.

1. The district court properly assumed jurisdiction of the

pendent state claim. The issue under Count I (fraudulent con-

veyance under the Bankruptcy Act) and the pendent state

claim of Count III (breach of fiduciary duty) “derived from a

A-64

common nucleus of operative fact” and were so intertwined

that “considerations of judicial economy, convenience and

fairness to the litigants” required that they be tried together.

United Mine Workers v. Gibbs, 383 U.S. 715, 725-26 (1966).

This is not the situation of Rice v. Fellows of Harvard College,

663 F.2d 336, 339 (1st Cir. 1981), where the federal claim was

dismissed prior to trial and the court ruled on the pendent

state claim. The facts as to whether Sullivan or Otte

(defendant-appellant) received any of the fraudulently

transferred property could not be determined until after trial.

We note that before us neither Sullivan nor Otte raised the

issue of receipt of the fraudulently transferred property. Slip

op. at 14.

2. The second half of appellant’s petition is merely a

rehash and reargument of the conclusions and inferences to be

drawn from the evidence.

By the Court:

(s) Dana H. Ga.iup

Clerk.

United States Court of Appeals

For the First Circuit

Nos. 81-1697

81-1698

81-1699

81-1700

ROBERT ROBINSON,

TRUSTEE IN BANKRUPTCY OF D.C. SULLIVAN

& CO., INC.,

PLAINTIFF-APPELLEE,

v.

WATTS DETECTIVE AGENCY, INC., ET AL.,

DEFENDANTS-APPELLANTS.

DANIEL SULLIVAN,

DEFENDANT-APPELLANT.

BILLY R. OTTE,

DEFENDANT-APPELLANT.

Before

CAMPBELL, BOWNES AND Breyer, Circuit Judges.

ORDER OF COURT

Entered September 14, 1982

The petition of the trustee-appellee for rehearing is denied.

We think the appellee’s reliance on condemnation cases is

inapposite. In such cases there has been a taking by the

government and the main issue is the fair market value of the

property (usually real estate) at the time of the taking. The fair

market value is, in most condemnation cases, determined by

A-66

the finder of fact based on the testimony of independent expezt

witnesses. Here, there was no testimony by independent ex-

pert witnesses of the ‘air market value of the assets transferred

to Watts. The principal evidence as to the value of the business

came from Sullivan and his testimony, which we held was

properly admitted, was as to the value of the business as a

going concern, which was what Watts acquired. See slip op. at

9. While such evidence was sufficient to make the question of

value one which the jury could decide, it does not compel the

conclusion that the district court erred in ruling that the

damages were not ascertainable before trial with reasonable

certainty. See slip op. at 24.

The leading case on the question of prejudgment © terest is

not, as appellee asserts, Jones v. United States, 256 U.S. 40

(1922), which is a condemnation case, but, as we stated in our

opinion at page 22, is Roth v. Fabrikant Bros., 175 F.2d 665

(2d Cir. 1949), which involved a voidable preference and a

fraudulent transfer under the Bankruptcy Act. Augustus

Hand’s ruling applies directly to the case at bar: “In our

opinion, the recoveries allowed in the verdict for fraudulent

transfers should not bear interest, for the amount of those

claims were neither liquidated nor reasonably ascertainable by

reference to established market values.” Id. at 669.

By the Court:

(s) Dana H. Gatiup

Clerk.

[cc: Messrs. Freeley, Brown, Gailey and Featherston]

United States Court of Appeals

For the First Circuit

Nos. 81-1697

81-1698

81-1699

81-1700

ROBERT ROBINSON,

TRUSTEE IN F-?.»'KRUPTCY OF D.C. SULLIVAN

& CO., INC.,

PLAINTIF¥- APPELLEE,

v.

WATTS DETECTIVE AGENCY, INC., ET AL.,

DEFENDANTS-APPELLANTS.

DANIEL SULLIVAN,

DEFENDANT-APPELLANT.

BILLY R. OTTE,

DEFENDANT-APPELLANT.

Before

CAMPBELL, BOwNES AND Breyer, Circuit Judges.

ORDER OF COURT

Entered September 14, i982

The petition for rehearing of defendant-appellant Christo-

pher P. Recklitis is denied.

Recklitis claims that he, as with Sullivan and Otte, never

received any of the fraudulently transferred property; that it

was transferred to Watts Detective Agency, Inc. We cannot,

however, ignore the relationship between Watts, Consoli-

A-68

dated Services Corporation and Recklitis. Watts, the initial

recipient of the assets of the bankrupt, was owned by Con-

solidated which in turn was controlled by Recklitis; his trial

testimony was that he was the sole stockholder of Con-

solidated. And it was Recklitis that initiated and consum-

mated the entire transaction.

Under 11 U.S.C. § 110(e)(2), the trustee has the duty to

recover the value of fraudulently transferred property from

“whoever may hold or have received it.” (emphasis added). As

noted in Elliott v. Glushon, 390 F.2d 514, 516 (9th Cir. 1967),

the purpose of the relevant sections of the Bankruptcy Act “is

clearly to preserve the assets of the bankrupt.” The trustee has

a judgment against each of these three interlocked defendants

for the value of the assets. For his purposes, it matters not

which defendant satisfies the judgment. Because Recklitis

owns Consolidated and through it controls Watts, he is the one

to determine how the judgment is to be paid. Jackson v. Star

Sprinkler Corp. of Florida, 575 F.2d 1223, 1235 (8th Cir.

1978). But he cannot escape personal liability if it develops

that both Consolidated and Watts are now empty shells.

Unlike the lawyer in Glushon, Recklitis was not a mere escrow

holder or conduit through whom the assets passed. His corpo-

rate position made him the ultimate beneficiary of the

fraudulent transfer. Under these circumstances, the corporate

fictions must be disregarded. Eisenrod v. Utley, 211 F.2d 678,

681 (9th Cir. 1954). We do not think we erred in treating these

three defendants as one. Slip op. at 2.

By the Court:

(s) Dana H. GaLiup

Clerk.

[cc: Messrs. Freeley, Brown, Gailey and Featherston]

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Unrrep States Districr Court

District OF MASSACHUSETTS

Crvit Action No. 70-1336-M

DanteL M. GLosBAND, TRUSTEE IN BANKRUPTCY

or D.C. Sutuivan & Company, INc.

v.

Watts Detective AcEency, INc.,

CONSOLIDATED SERVICE Corp.,

CurisTOPHER P. Reck.iTIis,

Bitty R. Orre and

Dante C. SULLIVAN

PRE-TRIAL ORDER

Filed October 13, 1977

As the result of the pre-trial conference had, whereat the

plaintiff was represented by Daniel F. Featherston, Jr., 7

Water Street, Boston, Massachusetts, and Benjamin Goldman,

6 Beacon Street, Boston, Massachusetts, and the defendants

Watts Detective Agency, Inc., Consolidated Service Corp.

and Christopher P. Recklitis by Evan Y. Semerjian and

Timothy H. Gailey, Hale and Dorr, 28 State Street, Boston,

Massachusetts, the defendant Billy R. Otte by Benjamin

Brown, 6 Beacon Street, Boston, Massachusetts, and the

defendant Daniel C. Sullivan by James F. Freeley, Jr., 183

State Street, Boston, Mevsachusetts, their attorneys of record,

the following issues of fact and law were framed and exhibits

identified:

JURISDICTION

(1) Jurisdiction is vested in this Court by virtue of

plaintiff's claim that it has stated a cause of action under Sec-

tion 67(d) and 67(e) of the Bankruptcy Act (11 U.S.C. §107) by

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purportedly alleging a fraudulent conveyance of the property

of the bankrupt plaintiff, and with respect to Count 3, by vir-

tue of the Court’s pendant jurisdiction, under 28 U.S.C.

§1331.

ADMITTED FACTS

(2) The following facts are admitted by the parties:

Admitted Fact 1. The plaintiff is the trustee in bankruptcy

of D.C. Sullivan & Company, Inc.

Admitted Fact 2. D.C. Sullivan & Company, Inc. (herein-

after called Sullivan Company) was a corporation organized

under Massachusetts law with a usual place of business at 89

State Street, Boston, Massachusetts.

Admitted Fact 3. Sullivan Company was in the business of

supplying security guards to business, industrial and other

users.

Admitted Fact 4. A list of the holders of the capital stock of

Sullivan Company is annexed hereto and marked “A”.

Admitted Fact 5. The defendant Watts Detective Agency,

Inc. (hereinafter called Watts) (to be agreed to by counsel

prior to trial). In 1970 Watts had a usual place of business at

40 Court Street, Boston, Massachusetts.

Admitted Fact 6. Watts was and had been since prior to

1970 in the business of supplying security guards to businesses,

industrial plants and similar facilities.

Admitted Fact 7. The defendant Consolidated Service

Corporation (hereinafter called Consolidated) was a corpora-

tion organized under Massachusetts law with a usual place of

business at 140 Brookline Avenue, Boston, Massachusetts.

Admitted Fact 8. Consolidated was and in 1970 had been

for many years in the business of supplying janitorial and

cleaning services.

Admitted Fact 9. During 1970 the defendant Christopher

P. Recklitis (hereinafter called Recklitis) was the President of

both Watts and Consolidated.

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Admitted Fact 10. The defendant Billy R. Otte (herein-

after called Otte) was vice president and a director of Sullivan

Company whose duties included general management of

operations for the company.

Admitted Fact 11. The defendant Daniel C. Sullivan

(hereinafter called Sullivan) was president and a director of

Sullivan Company.

Admitted Fact 12. During 1970 Watts was a wholly-

owned subsidiary of Consolidated.

Admitted Fact 13. In 1970 the president, treasurer, clerk

and directors of Watts were the same persons as the president,

treasurer, clerk and directors of Consolidated.

Admitted Fact 14. During its operation, Sullivan Com-

pany had a facility clearance from the United States govern-

ment, and employed approximately 225 full-time or part-time

guards, many of whom had security clearances.

Admitted Fact 15. From 1965 through 1969, the number

of customers Sullivan Company serviced each year declined

from 35 customers in 1965 to 26 customers in 1969.

Admitted Fact 16. At the beginning of April 1970 Sullivan

Company had 17 customers.

Admitted Fact 17. A copy of Sullivan Company’s ledger

showing its sales for April 1970, listing its customers and the

dollar amount of sales made to each, is attached hereto and

marked “B”.

Admitted Fact 18. Of the 17 customers Sullivan Company

serviced in April 1970, four required guards with United States

government security clearances: Honeywell, Inc., Epsco, In-

corperated, High Voltage Engineering and Itek Corporation.

Admitted Fact 19. During calendar year 1969 Sullivan

Company had sales of $1,060,854.46 and made disbursements

of $1,518,694.30.

Admitted Fact 20. During the three months from January

1, 1970 through March 31, 1970, Sullivan Company had sales

of $239,909.60 and made disbursements of $334,879.13.

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Admitted Fact 21. Copies of Sullivan Company's ledgers

showing said sales and disbursements by month from January

1969 through March 1970 are annexed hereto and marked “C”.

Admitted Fact 22. In March 1970 Sullivan Company had

sales of $94,195.34 and made disbursements of $121,844.00.

Admitted Fact 23. From April 1 through April 22, 1970

Sullivan Company iad sales of $66,881.64 and made

disbursements of $73,557.60.

Admitted Fact 24. Copies of Sullivan Company’s ledgers

showing sales and disbursements for March 1 through April

22, 1970 are attached hereto and marked “D”.

Admitted Fact 25. From April 1969 through April 1970,

the United States Internal Revenue Service (“IRS”) filed

notices of tax liens for back taxes owed by Sullivan Company

in the total amount of $175,124.24 and in June and July, 1970,

filed additional notices of tax liens in the total amount of

$35,244.77. The kind and amount of taxes owed and the dates

when notices of tax liens were filed are set out as follows:

Kind of Tax and ing interest and Dates notices

lien fees) were filed

& FICA $ 28,307.45 4/16/69, 4/17/69,

3rd Qtr. 1968 1/14/70

Withholding & FICA 44,817.02 5/8/69, 10/9/69,

4th Qtr. 1968 1/14/70

& FICA 22,970.40 12/5/69, 1/14/70,

Ist Qtr. 1969

Withholding & FICA 9,366.53 1/20/70

2nd Qtr. 1969

& FICA 25,051.15 3/19/70

3rd Qtr. 1969

& FICA 41,359.87 4/24/70, 4/27/70

4th Qtr. 1969

Withholding & FICA 24,641.56 6/26/70

Ist Qtr. 1970

& FICA 10,603.21 7/21/70

2nd Qtr. 1970

FUTA 1969 3,251.82 2/30/70

TOTAL $210,369.01

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Admitted Fact 26. On November 5, 1970 the IRS filed on

behalf of the United States government a proof of claim in

bankruptcy against Sullivan Compeny claiming the above

amounts were owed to the United States as unpaid taxes. A

copy of that proof of claim together with two amendments

thereto is attached hereto and marked “E”.

Admitted Fact 27. As of April 22, 1970 Sullivan Company

was indebted to the Commonwealth of Massachusetts for

employee withholding taxes from 1969 to 1970 in the amount

of approximately $57,893.

Admitted Fact 28. As of April 22, 1970 Sullivan Company

was indebted to the Commonwealth of Massachusetts Division

of Employment Security in the amount of $2,116.

Admitted Fact 29. As of April 22, 1970 Sullivan Company

was also indebted to creditors other than governmental agen-

cies in the amount of approximately $610,000, of which

approximately $375,000 was secured by real estate.

Admitted Fact 30. During the week ending April 19, 1970,

Sullivan Company had approximately 210 full- or part-time

employees and had a weekly payroll of $15,772.21 per week,

including $14,476.45 for field salaries and $1,295.76 for ex-

ecutive, officers and office staff payroll.

Admitted Fact 31. A copy of Sullivan Company's payroll

analysis for April 1970 is attached hereto and marked “F”.

Admitted Fact 32. As of April 20, 1970 Sullivan Company

had accounts receivable in the amount of $37,997.52.

Admitted Fact 33. Sullivan Company’s list of accounts

receivable as of April 20, 1970 is attached hereto and marked

“GC”.

Admitted Fact 34. As of April 22, 1970, Sullivan Com-

pany’s checking account with the Capital Bank & Trust Com-

pany was overdrawn in the amount of $44,735.98.

Admitted Fact 35. A copy of the Statement of Account for

the month of April, 1970 submitted by Capital Bank & Trust

Co. to Sullivan Company is attached hereto and marked “H”.

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Admitted Fact 36. From April 2 through April 20, 1970,

overdraft charges of $2,200.00 computed at a rate of $5 per

check were made to the Sullivan Company account with the

Capital Bank & Trust Co. :

Admitted Fact 37. Copies of 12 notices of overdraft charge

from the Capital Bank & Trust Co. to D.C. Sullivan Co., Inc.

for the period April 2 through April 20, 1970 are attached

hereto and marked “I-1” through “I-12”.

Admitted Fact 38. From April 1 through April 21, 1970,

checks in the total amount of over $14,500 were presented for

payment against insufficient funds in the account of Sullivan

Company with the Town Bank & Trust Co.

Admitted Fact 39. Copies of advice notices to Sullivan

Company by the Town Bank & Trust Co. as to check present-

ments against insufficient funds are attached hereto and

marked “j-1” through “J-11”.

Admitted Fact 40. In approximately May, 1969, Mr. Ben-

jamin Goldman, an attorney having a usual place of business

at 6 Beacon Street, Boston, Massachusetts, telephoned

Sullivan Company to inquire whether it might be interested in

selling its guard business. He arranged for Otte to meet with

Recklitis to discuss the possibility of such a sale to Con-

solidated, but these discussions were terminated shortly

thereafter, with no results.

Admitted Fact 41. In early 1970 Mr. Goldman again ar-

ranged for a meeting between Otte and Recklitis for the pur-

pose of discussing a possible purchase of Sullivan Company by

Watts or Consolidated.

Admitted Fact 42. Otte also made telephone calls to every

customer of Sullivan Company informing them that it was

contemplating a sale of its business but that no sale had yet

been arranged.

Admitted Fact 43. In March 1970, Sullivan Company

issued seven payroll checks in the total of $299.88 which were

not paid and were returned for insufficient funds.

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Admitted Fact 44. On April 3, 1970, Sullivan Company

issued 43 payroll checks in the total amount of $2,617.37

which were not paid and were returned for insufficient funds.

Admitted Fact 45. On April 10, 1970, Sullivan Company

issued 63 payroll checks in the total amount of $3,406.86

which were not paid and were returned for insufficient funds.

Admitted Fact 46. On April 17, 1970, Sullivan Company

issued 97 payroll checks in the total amount of $9,053.70

which were not paid and were returned for insufficient funds.

Admitted Fact 47. For at least a month prior to April 22,

1970, Sullivan Company was unable to pay its debts as they

became due.

Admitted Fact 48. As of 5:00 P.M., April 22, 1970,

Sullivan Company’s payroll checks for that week, as well as for

the previous week or earlier, would not be honored because no

cash would be available to cover them.

Admitted Fact 49. On and after April 23, 1970, the IRS

levied on all or most of Sullivan Company's account

receivable.

Admitted Fact 50. A copy of one such notice of levy filed

by the IRS on April 23, 1970 against any monies owed Sullivan

Company by New England Telephone & Telegraph Co. is at-

tached hereto and marked “K”.

Admitted Fact 51. Of Sullivan Company's accounts

receivable existing as of the close of business on April 22, 1970,

Sullivan Company ultimately received only $1,779.13.

Admitted Fact 52. Watts also contacted the former

Sullivan Company employees to offer to hire them. Waits

agreed to pay the former Sullivan Company employees back

wages which Sullivan Company had been unable to pay, or

which were paid with checks which were not honored because

of insufficient funds.

Admitted Fact 53. Wats paid approximately $39,000.00 to

former employees of Sullivan Company for wages or salaries

owed them by Sullivan Company for services rendezed prior to

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April 23, 1970. Watts paid nothing to any former Sullivan

Company employees who did not become employees of Watts.

Admitted Fact 54. Prior to April 22, 1970, Watts was

already aware of the names of Sullivan Company's customers.

Admitted Fact 55. On or about April 23, 1970, Watts

began to service ni*xe o. Sullivan Company's former customers.

On April 25, 1970, Watts began to service four more of the

former Sullivan Company customers. Watts never serviced the

remaining four former customers of Sullivan Company.

Admitted Fact 56. A list of the former Sullivan Company

customers who were serviced by Watts after April 22, 1970 is

attached hereto and marked “L”.

Admitted Fact 57. In the year from April 23, 1970 to April

22, 1971, Watts received $680,562.00 in gross sales from pro-

viding guard services to the thirteen former Sullivan Company

customers which Watts provided guard services to in that

period.

Admitted Fact 58. Shortly after beginning to service the

former Sulliva 1 Company customers, Watts determined that

it would not ~ able to service several of those customers at the

prices which Watts had been charging them, and it raised the

charges to those customers during the months of July, August

and September, 1970.

Admitted Fact 59. The following is a list of those former

customers of Sullivan Company whose prices per hour were

raised by Watts in July, August and September, 1970:

Original rate Increased rate

Customer perhour § perhour Month of change

Boston College $2.50 $2.80 August, 1970

Epsco Corp. 2.70 3.15 September, 1970

Holy Cross 2.50 2.85 July, 1970

Liberty Mutual 2.75 3.27 September, 1970

Massachusetts State

College at Worcester 2.45 3.05 August, 1970

New England Telephone 2.60 3.11 September, 1970

Sheriden Silver 2.45 2.99 August, 1970

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Admitted Fact 60. The customers whose prices were not

raised by Watts generally had been charged a rate of $2.80 per

hour or more.

Admitted Fact 61. Of the thirteen former customers of

Sullivan Company which Watts serviced after April 22, 1970,

four terminated their use of Watts before the end of 1970,

another terminated in March, 1971, and three more termi-

nated in 1972, 1973 and 1974. A list of those customers and the

dates on which they terminated their use of Watts is attached

hereto and marked “M”.

Admitted Fact 62. Watts neither billed nor received from

the former Sullivan Company customers any payment for ser-

vices rendered those customers by Sullivan Company.

Admitted Fact 63. On May 22, 1970, a petition in

Bankruptcy against Suliivar Company was filed by certain

creditors in the United States District Court for the District of

Massachusetts, Bankruptcy No. 70-614. A copy of that petition

is attached hereto and marked “O”.

Admitted Fact 64. On May 22, 1970, Sullivan Company

was adjudicated bankrupt.

Admitted Fact 65. On September 2, 1970, Benjamin

Goldman filed a proof of claim in bankruptcy against Sullivan

Company for the sum of $50,000 purportedly for broker's ser-

vices rendered and commissions earned in 1970 from Sullivan

Company. A copy of that proof of claim is attached hereto and

marked “P”.

Admitted Fact 66. On September 8, 1971, the plaintiff

filed in the Sullivan Company bankruptcy proceeding in the

United States District Court for the District of Massachusetts a

Statement of Affairs for Sullivan Company, together with a

Summary of Debtr and Assets and Schedules A and B thereto.

A copy of the Statement of Affairs, Summary of Debts and

Assets and Schedules A and B are attached hereto and marked

“Q”,