Opposition Brief — Liberty Mutual Insurance v. Commissioner

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No. 89-594

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CLERK >

In The

Supreme Court of the United States

October Term, 1989

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CLIFT C. LANE and DOROTHY P. LANE,

Petitioners,

JOHN E. PETERSON, JR., WALTER W. MINGER,

and EDWARD H. COVELL,

Respondents.

+

BRIEF IN OPPOSITION TO PETITION FORA

WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE EIGHTH CIRCUIT

/

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RONALD A. May

Attorney for Respondents

Wricut, Linpsry & JENNINGS

2200 Worthen Bank Building

200 West Capitol Avenue

Little Rock, Arkansas 72201-3699

(501) 371-0808

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

Page

CASES: .

Ackerman v. United States, 340 U.S. 193 (1950) ........ 6

Liljeberg v. Health Services Acquisition Corp., 108 S.

Ce Bee CHE ooo severe cnpevceeee see eeieperee ees 6

FEDERAL RuLEs OF CiviL PROCEDURE:

ee Se ooo advo eae ahh eee ee 4,5, 6,7

SECONDARY AUTHORITY:

7 Moore’s Federal Practice, { 60.27[1] at p. 60-270

SUED io ko ve cncecswscvableneen eee 6

STATEMENT OF THE CASE

It is difficult to respond with equanimity to Peti-

tioners’ Statement of the Case. It so grossly misrepresents

and distorts the record in this case that specific correc-

tions are inadequate. Respondents refer the Court to the

Appendix hereto, which is the District Court’s original

Memorandum Opinion of July 2, 1987, in support of the

judgment which Petitioners are now seeking to set aside

under Rule 60(b) of the Federal Rules of Civil Procedure.

What follows is a summary of that opinion.

Petitioners and the companies of which they were the

sole owners filed a Chapter 11 proceeding in November,

1982. A Plan of Reorganization was confirmed in August,

1984. It included provisions for a Special Panel to advise

Petitioners on the management of their companies.

Respondents were the members of that panel. They did

give advice to Petitioners, which Petitioners chose to

ignore. Because of persistent mismanagement, the bank-

rupts defaulted under the Plan of Reorganization. They

were facing imminent liquidation, including liquidation

of Petitioners’ personal assets, since Petitioners had per-

sonally guaranteed about half of their companies’ lia-

bilities, which exceeded $100,000,000.

Petitioners tried to sell their companies for more than

eight weeks. They were unable to secure a single offer

during that time. The companies had a negative net

worth of more than $8,000,000 and there was overwhelm-

ing evidence that Petitioners’ stock in the companies had

no value. It is not true that Respondent Minger “received

an offer to purchase the Lane Companies after the Special

Panel assumed control.” (Petition 4.) On June 24, 1985, -

Don Tyson of Tyson Foods, Inc., told Respondent Minger

that he would be interested in operating the companies

for sixty days after the Petitioners were out of manage-

ment to see if he wanted to buy the companies. No

follow-up on this conversation ever took place.

Creditors, aware of the likelihood of liquidation,

indicated that they wished Petitioners to give up manage-

ment and ownership of the companies. Petitioners urged

Respondents to take over as directors under the Plans’

provisions before the cure dates on the numerous

defaults expired. Respondents originally refused. They

finally agreed to do so, but only on condition that Peti-

tioners give up their stock in the companies. This was in

deference to the wishes of creditors that Petitioners relin-

quish their stock, as well as Respondents’ own concern

that Petitioners not be in a position to interfere with new

management.

Petitioners resigned as officers and directors and

assigned their stock to Respondents who received it as

trustees for the companies’ employees. The assertion in

the Petition (p.4) that Respondents are “the sole benefici-

aries of the trust” is false. See 851 F.2d at 197 (Appellate

Court opinion on appeal of original judgment herein).

The court below found that Petitioners “clearly and com-

pletely understood” the import of their actions in turning

over the companies to Respondents. Petitioners were

given a consulting contract paying them $150,000 over

two years.

Respondents assumed management of the companies

and-put into effect the policies and operations they had

previously and unavailingly recommended to Petitioners.

The companies began to make a profit. Respondents were

able to sell off an unprofitable part of the business at a

profit. Although the market for the companies’ products

had diminished seriously during the later period of Peti-

tioners’ management, Respondents were able to improve

the quality and marketability of the companies’ products.

As the companies’ financial condition improved, they

suddenly found themselves with a willing large-scale

consumer of their product, Tyson Foods. Tyson Foods had

contracted to supply poultry products to Burger King,

Inc. The demand exceeded Tyson Foods’ capacity, and it

started buying large quantities of poultry products from

Respondents’ companies. Eventually Tyson Foods

decided to buy the companies in order to protect its

access to their productive capacities. This transaction

occurred about nine months after Petitioners had trans-

ferred their stock to Respondents.

About three months later Petitioners filed this suit

seeking to obtain the proceeds of the Tyson sale for

themselves. Extensive discovery occurred and pre-trial

and post-trial briefs were submitted by both sides. After

the trial court rejected each of Petitioners’ claims, Peti-

tioners filed a motion for new trial, which was denied.

They appealed to the Court of Appeals, and the judgment

was affirmed. They filed a petition for rehearing, which

was denied. Petitioners’ new counsel, who had never

been formally substituted for Petitioners’ previous coun-

sel, then filed the motion to reopen. That motion was

filed more than seventeen months after the District

Courts’ judgment attacked herein. The motion was

denied, and the District Judge awarded sanctions against

Petitioners and their attorney. That decision was affirmed

on appeal. This Petition for Certiorari followed.

rN

—

SUMMARY OF ARGUMENT

The District Court’s Judgment and the Memorandum

Opinion on which it was based clearly demonstrate that

the law of Arkansas was applied in respect to every issue

in the case. Petitioners are trying to relitigate issues

which have already been litigated to conclusion. Rule

60(b) provides no basis for relief in these circumstances.

The filing of this Petition is frivolous.

y

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ARGUMENT

The decisions of the District Court and the Court of

Appeals were based on Arkansas law. Petitioners are

not entitled to relief in these circumstances under FRCP

60(b).

It is clear that the courts below recognized this as a

diversity case. The original complaint had asserted it to

be. This was admitted in the answer. The Court of

Appeals so characterized it. (Petitioners’ Appendix 2a.)

The trial in District Court went on for five days. Pre-

trial and post-trial briefs to the District Court exceeded

two hundred pages. Every single argument made on

either side was based on Arkansas law. Nothing in the

District Court’s Opinion suggests that the Arkansas law

was slighted or ignored. The Court of Appeals stated

specifically in the decision sought to reviewed here:

“The District Court’s opinion and this Court’s

affirmance were based on the application of

Arkansas law.” (Petitioners’ Appendix 2a.)

Respondents do not in any way concede that the

District Court erred in its application of Arkansas law.

However, even if it did, Petitioners are not entitled to use

Rule 60(b) in what the Court of Appeals called “a belated

effort to relitigate issues which should have been raised,

if at all, on direct appeal.” (Petitioners’ Appendix 2a to

3a.)

In the Court below Petitioners relied on Rule 60(b)(4)

as well as Rule 60(b)(6). Their Argument makes no refer-

ence to Rule 60(b)(4), which has to do with void judg-

ments. No suggestion is made, nor could be made, that

the District Court’s judgment was void. Consequently

~that argument has been waived.

Since the judgment attacked by Petitioners’ motion

was rendered more than a year prior to the motion’s

filing, the provisions of Rule 60(b)(1), (2) and (3) are

unavailable by the Rule’s own terms. Petitioners’ relief

can come only, if at all, under Rule 60(b)(6) having to do

with “any other reason justifying relief from the opera-

tion of the judgment.”

Petitioners do not suggest any reason why they are

entitled to the drastic relief afforded under Rule 60(b)(6)

except to say that is necessary “to accomplish justice.” A

quick glance at the District Court’s Memorandum Opin-

ion demonstrates that there was no injustice in that deci-

sion. Petitioners advance no analysis and cite no cases

similar to their own to suggest that Rule 60(b)(6) is appli-

cable to this case. Nor do they attempt to excuse or

explain why they waited more than seventeen months to

make their frivolous claim under Rule 60. The case of

Liljeberg v. Health Services Acquisition Corp., 108 S. Ct. 2194

(1988), cited by Petitioners emphasizes that such a motion

must be made within a reasonable time. 108 S. Ct. at 2204.

The District Court found the Petitioners’ motion was

untimely. (Petitioners’ Appendix 6a.)

There is an equally compelling reason why Peti-

tioners’ efforts to reopen the proceedings pursuant to

Rule 60(b)(6) must fail. As observed by Professor Moore:

“After a decision on appeal, a party may not ordinarily

reopen a judgment under clause (6) to litigate a matter

that either was or could have been litigated prior to or on

the appeal.” 7 Moore’s Federal Practice, 960.27[1] at p.

60-270 (1987). See also Ackerman v. United States, 340 U.S.

193 (1950). This is not the situation where developments

in the law either contemporaneous with or subsequent to

the initial trial court judgment have materially altered the

legal topography. The legal doctrines discussed in the

Petition which Petitioners claim are applicable to their

case, are ancient cases. There is no reason why they could

not have been cited and argued in the trial court or on the

first appeal. Since the Court below rejected Petitioners’

appeal initially and on rehearing, Petitioners cannot now

invoke Rule 60(b)(6) on grounds that could have been

raised during that appeal.

Apart from the meritless nature of the Petitioners’

claims, there is an even more fundamental reason why

certiorari should be denied. While the issues presented

were important to the litigants, they can in no sense be

construed as matters of pressing jurisprudential concern.

No issue of acute public importance is presented in this

7

case, nor does the controversy raised herein typify issues

that have divided the courts of appeals. Purely and sim-

ply, this Petition presents a dispute over the application

of law to a particular set of facts. Such is not a matter that

the vehicle of certiorari is designed to address.

a

vr

CONCLUSION

The relief sought is not available under Rule 60(b)

and Petitioners’ motion was untimely and frivolous. The

Petition for Certiorari should be denied.

Respectfully submitted,

RONALD A. May

Attorneys for Respondents

Wricut, Linpsey & JENNINGS

2200 Worthen Bank Building

200 West Capitol Avenue

Little Rock, Arkansas 72201-3699

(501) 371-0808

la

APPENDIX

MEMORANDUM OPINION

The plaintiffs in.this action, Clift C. Lane and Doro-

thy P. Lane, (Lanes) individually and as trustees under

the above noted trusts, commenced this action on July 30,

1986, seeking judgment decreeing an express trust for the

exclusive use and benefit of the Lanes upon the proceeds

of the sale, assignment and transfer of the stock in the

Lane Processing, Inc., (referred to hereinafter as either

LPI or the Lane companies, embracing the nineteen affili-

ated corporations owned by Clift and Dorothy Lane) to

Tyson Foods, Inc., and ordering the defendants, as

Trustees, to distribute the proceeds of such sale, assign-

ment and transfer of stock to plaintiffs. (Count one of the

complaint).

In Count two of the complaint, the Lanes seek a

reformation of the declaration of trust dated July 22, 1985,

so as to designate them as the sole beneficiaries there-

under. In Count three, the Lanes seek judgment decreeing

a constructive trust upon the proceeds of the sale, assign-

ment and transfer of the Lane Companies stock to Tyson

Foods, Inc., with defendants as constructive trustees for

the Lanes’ sole and exclusive benefit and ordering defen-

dants to distribute such proceeds to them.

The Lanes pray, in the alternative, for relief in the

form of rescission in Count four of the complaint.

Therein, the Lanes seek judgment rescinding the stock

transfer and assignment to defendant and restoring the

proceeds of the sale of the stock to Tyson Foods, Inc., to

them. Further, in the alternative, the Lanes seek judgment

reforming the stock transfer and assignment to reflect the

2a

alleged agreement and intentions of the parties and dis-

tributing the proceeds of the sale of the stock to Tyson

Foods, Inc., to them. (Count five).

On the date of the commencement of this action, July

30, 1986, the Lanes appeared by counsel before the Court

seeking a Temporary Restraining Order without notice to

the defendants. At the conclusion of the hearing and

upon good and sufficient showing, the Court entered the

TRO. On August 7, 1986, the Court extended the TRO to

August 15, 1986 under the provisions of Rule 65(d), Fed.

R. Civ. P. On August 15, 1986, the parties agreed to extend

the TRO to October 14, 1986. See: Rule 65(b), Fed. R. Civ.

P. On October 14, 1986, an Order was entered extending

the TRO to December 13, 1986, upon agreement of the

parties pursuant to Rule 65(b). It appears from the record

that the TRO expired of its own accord without addi-

tional extension of time. No hearing was conducted nor

was an Order entered on plaintiffs’ Motion for Prelimi-

nary Injunction. However, the defendants have not

attempted to distribute or otherwise dispose of the pro-

ceeds of the sale of the Lane Companies stock to Tyson

Foods, Inc., pending resolution of the issues by the

Court.!

The matter came to be heard on the merits in Tex-

arkana, Arkansas, commencing May 4, 1987. The matter

' However, the defendants advanced $100,000.00 to Frank

Barber, an accountant who formerly worked for the Lane Com-

panies. Mr. Barber testified that the advance is subject to

refund to the defendants in event Barber does not consummate

his proposed purchase of the Avanelle Motel In Hot Springs,

Arkansas, by a specified date.

3a

was tried to a completion in five days to the Court,

without intercession of a jury. Thereupon, the action was

taken under advisement at the conclusion of the testi-

mony. The parties were directed to file post trial briefs on

the issues as developed at trial. The briefs having been

received, the Court now proceeds to a decision on the

issues presented.

The Court incorporates herein findings of fact and

conclusions of law pursuant to Rule 52, Fed. R. Civ. P.

The Lanes testified at great length as to the history of

the Lane Companies. It is sufficient to state that the Lanes

developed their poultry operation from a single flatbed

truck hauling feed to a vertically integrated, multimillion

dollar, multistate operation consisting of some nineteen

affiliated corporations. This growth spanned some thirty-

five years of hard work. However, as is sometimes the

case, the business outgrew the operators.

The Lanes operated three divisions of their poultry

processing operation within the affiliated corporations.

The divisions consisted of the Arkansas Division, the

Alabama Division and the North Carolina Division.

Although each was operated separately, cash generated

by each division was often utilized to maintain the other

divisions, especially in the years in which the economy

disfavored the poultry industry.

The Lanes began to branch out into other businesses.

The Lanes purchased stock in banks and savings and loan

associations. By 1980, the Lanes had purchased 30% of

the outstanding stock in a competing poultry company,

Val-Mac, Inc. The Lanes had noted a trend in consumer

4a

purchasing toward “further processed” poultry prod-

ucts.2 Val-Mac operated facilities capable of further pro-

cessing. The testimony revealed that the further

processed broiler could be sold for a substantially higher

price per pound as compared to the broiler or fryer as

had been traditionally purchased by the consumer.

The Lanes were not capable of further processing in

their plants at the time they began acquiring Val-Mac

stock. Thus, in their opinion, with the purchase of Val-

Mac their market position would be greatly enhanced, as

would their return on their investment.

The Lanes later acquired an additional 47.5% owner-

ship interest in Val-Mac, bringing their interest to 77.5%.

Although the purchase price of between $17 and $18

million was paid in cash, the Lanes pledged 1.1 million

shares of the Val-Mac stock to Worthen Bank and Trust

Company of Little Rock in return for a loan of $10 mil-

lion. A refinancing agreement was executed to memorial-

ize the transaction. The lending arrangement was in the

form of a participation loan with other banking institu-

tions carrying a portion of the indebtedness. Mr. Lane

testified that this participation agreement increased the

loan limit to $18 million on this transaction. The Lanes’

2 “Further processing” of poultry entails more than the

usual procedure employed in processing birds. The term uti-

lized extensively at trial to describe this further processed bird

is a “WOG”, without giblets. Generally, the further processed

bird is deboned and the meat is fashioned into a variety of

products sold as a convenience to the consumer. Examples of

such WOG include the chicken fillet, chicken nugget and other

specialty poultry products.

5a

purpose in financing the transaction in this manner was

to hedge against the down cycle in the poultry industry.*

Also, the Lanes acquired an Arkansas bank and 44%

of the outstanding stock in a Denver, Colorado, savings

and loan association, 1st S & L. Mr. Lane testified that in

1981 he received an offer to buy the Ist S & L stock at a

potential profit of $15 million. (The offer was to purchase

the 550,000 shares held by the Lanes for $44.00 per

share.). However, soon thereafter, and before the transac-

tion could be consummated, interest rates rose sharply

and the profitability of the institution fell dramatically.

The prospective buyer of the stock at $44 per share did

not exercise his purchase rights.4

Mr. Lane testified that the refinancing agreement

with Werthen was partially contingent upon the sale of

the Ist S & L stock. When the Ist S & L deal fell through,

Worthen refused to renew the loan secured by the Lanes’

pledge of the Val-Mac stock. Worthen sold the loan to

Tyson Foods, Inc., one of the Lanes’ fiercest competitors.

The Val-Mac stock was sold to Bass Brothers for $20.00

per share. Nine :

3 The poultry industry, as described by Mr. Lane, has a

three year economic cycle. Defendant Edward Covell likewise

confirmed this three year cyclical pattern. The industry has

historically experienced this three year economic curve, with

most losses being incurred every third year of operation.

4 Lanes did sell the stock later, however. The stock

brought only $15.00 per share or $8.25 million gross.

6a

This course of events culminated in the Lane Com-

panies filing for protection under Chapter 11 of the Bank-

ruptcy Code on November 7, 1982, in the Middle District

of North Carolina, Greensboro Division. The -Consoli-

dated Plan of Reorganization (Plan) contains a succinct

summary of these events which led to the filing of this -

Chapter 11 petition. 7

The Lanes retained a law firm out of Washington,

D.C., Arent, Fox, Kintner, Plotkin and Kahn, to represent

them in the bankruptcy matter. The Arent, Fox firm had

previously represented the Lanes in an unrelated matter.

Mr. William Sullivan of the Arent, Fox firm handled the

matter. Also, local counsel out of North Carolina was

retained, the Honorable Jerry Tart (now Bankruptcy

Judge for the Middle District of North Carolina).

In the course of the bankruptcy proceeding, Mr. John

E. Peterson, Jr., (Peterson) a defendant herein, was

appointed as an examiner of the bankrupts’ estate. Peter-

son, a CPA, is a retired Vice President of Burlington

Industries with extensive experience and training in

financial and managerial matters. Through Peterson’s

duties as examiner, he became familiar with the opera-

tions of the Lane companies. He also was befriended by

the Lanes.

On July 25, 1984, the Plan was approved. The Plan

called for the creation of a Special Panel. [Plan Article

VII, §7.05(1)). William Sullivan, as counsel for the Lanes,

requested that Peterson serve on the Panel. The other

members of the Panel, Walter W. Minger and Edward H.

Covell, also defendants herein, were selected by the

Lanes, subject to approval by the Bankruptcy Court after

7a

notice to the creditors and a hearing. (§7.05(2) of the

Plan.) The Plan further provided that the “(m)embers

shall be independent and not presently employed by, or

affiliated with, either Lane, Lane’s competitors, or the

Creditors.” (Id.).

The Plan required the Special Panel to meet formally

on a regular basis, but not less than quarterly. The Plan

provided that at every formal meeting, the Special Panel

was to review the conformity of LPI, Lane Processing,

Inc., with the provisions of the Plan, and thereafter sub-

mit any relevant findings or recommendations for LPI’s

operations to the Board of Directors of LPI. (§7.05(4)).

Section 7.06 specified additional powers and duties

of the Special Panel. Subpart (2) provided that each of the

members of the Special Panel shall be an ex-officio mem-

ber of one or more of the Company Committees and shall

have such powers and duties as any other member of the

Committees. Subpart (3) provided that the Special Panel

was to receive all reports, budgets, reconciliations, and

financial statements of LPI prepared in the ordinary

course of business or pursuant to the provisions of the

Plan and that the Panel was to have access, upon request

and upon reasonable notice, to all financial and other

information of LPI.

Subpart (4) of §7.06 provided that Panel was to have

the authority to participate in the preparation of the

capital budget (which was be prepared on an annual

basis), and to review and approve said budget. Subpart

(5) specifically prohibited any merger or acquisition

between Lane and another entity without the Lanes first

obtaining the approval of the Special Panel.

8a

Section 7.06(7) provided as follows:

The Special Panel shall succeed to the powers

and duties of the Board of Directors of LPI only

upon the following conditions:

(A) The death or disability of both mem-

bers of the present Board of Directors; or

(B) If an Event of Default (provided for in

Section 9.01) has occurred.

If the Special Panel has succeeded to the

powers and duties of the Board of Directors of

LPI under Subsection (B) above, then the Special

Panel shall continue to hold such powers and

carry such duties until the Event of Default has

been cured and the Special Panel certifies in

writing that the condition which brought about

the Event of Default has been remedied and

such Event of Default is not likely to occur

again.

Article IX of the Plan addresses Events of Default and

Remedies. Section 9.02 provides that the Panel shall have

thirty (30) days after the occurrence of an Event of

Default to cure same before any Creditor might pursue

any of the outlined remedies. This, in essence, granted

the Panel an additional thirty day period in which to

rectify any Event of Default. Where the Lanes would be

allowed only thirty days to cure an Event of Default, the

Panel would be afforded the luxury, if such term is appro-

priate under the dire financial status of the Lanes com-

panies at the time, of sixty days to cure the default.

Section 9.02 outlines the remedies available to the

creditors should an Event of Default occur and continue

without being cured. The Plan specifically granted the

creditors the right to declare their indebtedness due and

payable without presentment, further notice or demand.

9a

Also, the creditors were granted the right to pursue any

and all remedies under their respective debt instruments,

documents and agreements, as well as any remedy avail-

able under the law.

The Lanes continued to operate the affiliated com-

panies as debtors-in-possession following appointment of

the Panel. The members of the Panel performed their

duties as specified in the Plan. During the course of their

performance, the Panel made recommendations® to the

Lanes in an attempt to bolster the deteriorating financial

condition of the companies. However, the suggestions

were not heeded.

5 The Lanes were attempting to develop a line of chicken

sausage for marketing. This effort proved to be overly costly

and nonproductive. Further, the Lanes were trucking excess

laying stock, generally larger, older birds, from its Arkansas

production facilities to a processing plant in Fort Worth, Texas.

The testimony revealed that the Grannis, Arkansas, and Broken

Bow, Oklahoma, processing plants, were not operating at

capacity, yet the Lanes insisted on incurring the expense of

transportation of these birds to Fort Worth.

Also, there was a lack of rational planning by the Lanes in

the balance between breeder flocks and need for chicks by

growers. There were substantially more eggs being produced

than were necessary to meet the demand for chicks by the

growers. Although the excess eggs were marketed, a loss per

dozen was being incurred. The testimony revealed that the

Lanes also indulged in research and development of a “leaner

chicken”.

The Panel recommended that each of these items be either

eliminated or addressed on a rational basis. At the time, with

cash flow at a critical point, these projects were draining

resources which could reasonably have been expended in other

areas for the long term survival of the companies.

10a

During the period of time from confirmation of the

Plan through June 1985, the Lane companies suffered

staggering losses. Although these losses were in part due

to the economic conditions, i.e. high feed costs, high

interest rates, and low market prices, the losses were

greatly a result of poor managerial decisions by the

Lanes, such as noted above. The stockholders equity in

the companies had diminished to a negative $8,197,237.00

by June 30, 1985, with losses for the preceding twelve

months totaling $8,917,777.00.

In June 1985, the condition of the companies was

such that it became apparent that each of the scheduled

payments as required under the Plan could not be made.

Thus, Events of Default were inevitable. The occurrence

of an Event of Default without cure by August 2, 1985,

would have required the Lanes to relinquish their posi-

tions as the Board of Directors and as Officers. The Panel

would have been required to assume the roles of the

Board of Directors under the Plan. Further, an occurrence

of an Event of Default without cure could bring about

foreclosure on security by creditors and liquidation of the

companies.

In order to secure much of the needed capital for the

operations, the Lanes had executed personal guaranties

in excess of $50 million. Although the Lanes were entitled

to claim exemptions for certain property under state law

and the Plan provided for the retention of certain “per-

sonal assets”, as defined in the Plan, in the event of a

liquidation the Lanes’ personal assets would be subject to

the claims of creditors. (Section 9.02, noted above). The

assets in jeopardy were valued in excess of one million

dollars.

lla

The Lanes made an offer to the employees and the

growers whereby, in return for accepting a decrease in

pay, the Lanes would issue stock to these employees and

growers. This proposal caused grave concern on the part

of the Panel and the creditors. The proposal was in direct

contravention of the regulations of the Securities

Exchange Commission and the Arkansas laws concerning

stock offerings. This proposal constituted an event of

~ default.

Approximately June 24, 1985, Tyson Foods

approached defendant Walter Minger about possibly

acquiring the Lane operation. This inquiry was relayed to

the other two panel members. Tyson’s interest was to

initially operate the companies for a period of time in

order to determine whether to purchase the companies.

The Tyson proposal was conditioned upon the Lanes

being out of the operation prior to any take over. Tyson’s

interest was not conveyed to the Lanes despite the fact

that Clift Lane testified that he had been openly seeking a

purchaser for the companies.® Neither Lane nor Don

6 Clift Lane testified at length about his efforts to sell the

companies prior to divestment. Lonnie A. “Bo” Pilgrim, the

owner of Pilgrim’s Pride, an independent poultry company,

testified that he made more than one offer to purchase the

companies both from the Lanes.and from the Panel after

divestment. However, Mr. Lane refused Pilgrim’s offers as

being too low. The Panel also believed that Pilgrim’s offers

were not reasonable. . :

Pilgrim’s testimony is viewed by the Court as being

biased. Pilgrim’s credibility is tainted by his attitude toward

(Continued on following page)

12a

Tyson, Chairman of Tyson Foods, held the other in high

esteem.

Less than one week earlier, June 19, 1985, Clift Lane

had estimated that he could sell the entire operation for

around $35 million. This statement was made in the

course of a meeting in Greensboro, North Carolina, with

the Panel and creditors. The Lanes place emphasis upon

this sales price estimate because, in dollar amount, it

mirrors the price paid by Tyson. However, in January

(Continued from previous page)

the Panel. Pilgrim wanted to purchase the Lane operation.

However, even according to Clift Lane, Pilgrim wanted to

purchase at a “fire sale.” The industry is highly competitive.

The purchaser of an operation the size of the Lane companies

could have gained substantially in production, output and

market share.

Lane sought to sell the Alabama Division. Lane wished to

utilize the funds from such a sale to stabilize the sagging cash

flow in the North Carolina and Arkansas Divisions. However,

the creditors refused to approve a transfer of funds from any

such sale to either of the other two divisions, in that such a

transfer would be contrary to the terms of the Plan. Thus,

efforts to sell the companies in parts was abandoned by the

Lanes.

Lane employed Donald Armbrust, a journeyman in the

commercial financing area, as a broker of sorts in attempt to

arrange a sale. Armbrust testified at length concerning a pack-

age he developed. He stated that the package was presented to

ConAgra, Sparks Commodities and Roga, a South African

entity. Armbrust produced no corroboration of the interest of

these companies. Armbrust stated that the discussions with

each were via telephone. Armbrust was terminated by the

Panel the day following divestment. The Court is not per-

suaded that any of the contacts with these three entities could

rise to the level of a bona fide prospect.

13a

1986, and prior to the Tyson sale, the North Carolina

Division was sold. Thus, the sales prices are not substan-

tially equivalent.

As a result of these occurrences, the Panel scheduled

a meeting in Grannis, Arkansas, at the Lane offices. The

Panel met in Grannis ‘on July 1 and 2, 1985. The Lanes

paint a picture of treachery in the mill the night of July 1,

1985. It is admitted by the defendants that they met that

night with Mel Sullivan, a ranking employee of Lane, and

David Van Bebber, in-house counsel for the Lanes. How-

ever, the Lanes have failed to show how this otherwise

innocent gathering could be construed as a planning ses-

sion for a coup against them. It was established by the

evidence that there is very little activity in Grannis after

sundown. The panel members and Mel Sullivan simply

enjoyed a casual dinner together. Thereafter, they retired

to Sullivan’s home for conversation, where Van Bebber

joined them. Peterson testified that the usual topics at

such a visit included quail hunting and fishing. Whether

there was any mention ‘of the Lane companies or their

problems is not determinative of the issues herein.

On July 2, at a meeting with members of the Panel

and Lanes, the cash flow within the companies was the

major issue confronting the continued existence of the

companies. Also, the course of action to be taken in light

of the Notices of Default, which had been received by the

Lanes, was a subject of discussion.

Dorothy Lane insists strongly that she and Peterson

secretly met in her office on that July 2, after the regular

meeting with the Panel, to discuss a proposed transfer of

stock and managerial responsibility to the Panel. Dorothy

l4a

Lane contends that Peterson assured her that the Panel _

did not want her money and that the stock, if transferred,

would be held for her and Clift as beneficial owners. This

alleged promise by Peterson is the primary basis for the

Lanes’ claims for relief. Dorothy Lane told no one, not

even her husband, about this alleged secret agreement.

Peterson specifically denied that he told her the

Panel would hold the stock for the benefit of the Lanes.

He admits that he stated that the Panel did not want her

money. Of course, the purpose for the Panel’s existence

was to guide, advise and assist Clift and Dorothy Lane in

rehabilitating their companies, not drive them to financial

ruins. Peterson and the other Panel members recognized

that it was in the best interests of the Lanes to avoid a

liquidation. They sought to protect that interest. The

Panel also sought to return the companies to profitable

entities by solidifying their financial positions. Unless

and until the Panel gained the power to manage the

companies, rather than standing in the role of advisor,

their efforts would be fruitless. The Lanes had previously

chosen to disregard meritorious recommendations made

by the Panel. (See note 5, supra and at page 17).

The Court~has tfeviewed the testimony concerning

this alleged secret agreement and finds that the testimony

of Dorothy Lane lacks credibility. The strong weight of

the evidence bears in favor of Peterson’s version of the

events occurring July 2, 1985. It is questionable that Doro-

thy Lane would have received such a commitment from

Peterson then not relayed same to her husband. It is also

questionable that Peterson would have entered an agree-

ment of such magnitude without consulting Minger and

Covell, the other two Panel members. In the event that

15a

Peterson might have entered such an understanding, he

would have surely then conveyed the matter to Minger

and Covell. Both Minger and Covell disavowed any

knowledge in this regard. The Panel operated upon a vote

of the majority, not the ex parte, secret approval of a

single member. Plan, Article 7.05(4). Peterson’s assent to

this transaction would have been subject to the approval

of at least one of the remaining two Panel members. All

other matters affecting the Panel’s operation were pre-

sented in such a fashion.

Between July 2 and July 17, the creditors “floated” a

proposal that the Lanes would, prior to August 2, relin-

quish control, as directors and as stockholders, to the

Panel. (Pursuant to the Plan, on August 2 the Panel

would have been required to assume such control if there

was no cure of the Events of Default.) In return the

creditors would release the personal guaranties and allow

the Lanes a short-term consulting contract. A large credi-

tor rejected the proposal prior to any action being taken

by the Lanes. The Lanes made no mention of any secret

agreement with Peterson while this proposal was being

considered.

Thereafter, the Lanes came to a full realization of the

depth of their dilemma. Dorothy Lane suggested to Peter-

son that, if she (and Clift) could be released from the

personal guaranties, they would relinquish control of the

companies. While the Lanes had dedicated their life’s

work to the companies, the retention of their remaining

personal assets, including their homes in Grannis and

Dallas, Texas, vehicles, jewelry, clothing and a number of

farms embracing several thousands of acres of land,

became of the utmost importance. The consequences of a

liquidation had been explained to the Lanes by letters

from their attorney, William Sullivan.

l6a

As each day passed the financial position of the

companies deteriorated. The cure periods on the Events

of Default were rapidly expiring. The Panel met in Wash-

ington, D.C, in an office within the Arent, Fox firm on

July 17, 1985. This location was chosen primarily out of

convenience to the Panel. Although the Panel had on

several occasions expressed strong reservations about

assuming control, the Panel unanimously agreed that

they would accept an early take over of the companies, as

requested by the Lanes, if and only if the Lanes relin-

quished all control and power in the companies, includ-

ing a transfer of all stock. Covell expressed a fear that, if

the Lanes did not surrender their ownership, they could

assert their power to defeat any program implemented by

the Panel. Also, the Panel initially believed that they

could use the stock to attract new and qualified manag-

erial personnel.

The Panel’s proposal was conveyed to William Sul-

livan, counsel for the Lane companies, who immediately

contacted the Lanes through Dorothy Lane. While the

Panel was in the meeting, Sullivan relayed the Lanes

acceptance of the proposal. Dorothy Lane testified that

she approved of Sullivan’s working with the Panel in

working out the details of the transfer. Acceptance of the

proposal was subject to a potential sale of the companies.

Again, Dorothy Lane made no mention of the alleged

secret agreement to Sullivan or any other person.

The proposal did not initially require the stock to be

placed in trust. The original proposal was to “turn the

stock back to the companies.” However, after assessing

the ramifications of such a transaction, it was determined

that the companies could not operate without outstand-

ing stock. Thus, the idea of the creation of a trust was

17a

suggested by Sullivan. The idea of a trust was not con-

veyed to the Lanes. é

It was the opinion of the Panel that the stock was

without value, “worthless”, at that time. The net worth of

the companies exceeded a negative $8 million. The stock

carried a negative book value. The physical conditions of

the facilities had been neglected because of the cash

shortfalls. Although the plan called for expenditure for

capital improvements; there were simply insufficient

funds to perform all the improvements that were needed.

The date of July 22, 1985, in Grannis, Arkansas, was

established for consummation of the stock transfer agree-

ment and related documents. The duty of preparing the

necessary documentation was placed in the hands of

Sullivan and his law firm. The final product was not

concluded until late the evening of July 21, 1985, a Sun-

day. (Sullivan testified that he discovered a slight error

which was corrected on July 22. However, the correction

did not substantively alter the documents.)

The Lanes place great significance upon Sullivan’s

failure to teletype copies of the documents to them prior

to July 22. In the course of the bankruptcy matter, Sul-

livan had teletyped important information to them on a

regular basis. However, considering the time and effort

expended in merely concluding the drafting, the time at

which the product was finalized, and the fact that Sul-

livan then was required to travel halfway across the

country, the Court finds that Sullivan did that which

could reasonably have been expected under the circum-

stances. In fact, it required a monumental effort to con-

clude this phase of the transaction within the time frame

allowed.

18a

In route to the meeting in Grannis, the Panel mem-

bers met at the Amfac Hotel near Dallas-Fort Worth air-

port on July 21, 1985. Sullivan arrived there that evening

with the necessary documents. Of special importance, the

Panel was for the first time made privy to general provi-

sions of the trust instrument that evening. Upon being

informed of the essence of the instrument by William

Sullivan, the Panel approved the trust idea there.

The following morning the Panel and Sullivan trav-

eled to Grannis, via Texarkana. Upon arrival around the

noon hour, lunch was taken in the lunchroom at the Lane

building. After lunch, the Lanes met with their tax con-

sultants concerning the tax ramifications of their pro-

posed transactions. Thereafter, the Panel, the Lanes,

Sullivan, Tart and Van Bebber met in a conference room

for execution of the documents. The “Revised Lane

Agenda” had been previously prepared by Sullivan. This

agenda was followed strictly.

As each item was presented to the interested parties,

it was briefly explained by William Sullivan. The Lanes

7 The Revised Lane Agenda contained thirteen separate

items: (1) Execution of Statement; (2) Execution of Declaration

of Trust; (3) Execution of Certification and Indemnity re lost

Lane Processing, Inc. stock certificates; (4) Execution of Written

Consents of Directors concerning issuance of original or

replacement stock; (5) Execution of original or replacement

Stock Certificates; (6) Resignations executed; (7) Written Con-

sent of Shareholders executed; (8) Stock transfer agreement is

executed; (9) Endorse and deliver stock certificates to trustees;

(10) Written Consent of New Directors; (11) Agreement relating

to Consulting and Certain Assets is executed; (12) New stock

certificates are executed; and (13) Distribution of Press Release.

19a

were afforded the opportunity to discuss any matter con-

cerning any of the documents as they desired. The

testimony revealed that the only controversy arising that

afternoon concerned the Agreement relating to Consult-

ing and Certain Assets, item 11 on the agenda. Clift Lane

initially reacted adversely to the provision that his con-

sulting agreement could be terminated on seven days

notice after any reasonable determination of material

breach of the agreement or after any liquidation or sale of

the companies. Paragraph 1.03 of Agreement. After a

brief conference, Dorothy convinced Clift to sign this

agreement.

The Lanes make much ado about the fact that the

entire agenda was completed in less than two hours.

From the testimony, the Court finds that the Lanes clearly

and completely understood the nature and the substance

of each item which they signed that date. This is evi-

denced also by the fact that, while the Consultancy

Agreement was the eleventh item on the agenda and the

disputed paragraph was located on the third page of that

document, the Lanes tended to not merely sign each item

mechanically. Instead, though they did not closely scruti-

nize each line of each document, they did give consider-

ation to the nature and circumstances of the transactions.

Some of the items, such as the execution of statement

(item 1), execution of original or replacement stock certif-

icates (item 5), execution of resignations (item 6), execu-

tion of written consent of shareholders (item 7), and

endorsing and delivering stock certificates to trustees

(item 8) required little more than the time necessary for

the Lanes to affix their signatures to each document.

20a

Furthermore, the Panel understood the nature of the mat-

ters which required their signature, thus, the signing of

the trust instrument and the execution of new stock cer-

tificates merely required the time necessary for the signa-

tures to be affixed thereto.

The Lanes were provided a copy of the press releases

which reflected that they had relinquished’ “total contro]

over the corporate stock and other assets” (Agenda Item

13). The meeting was then adjourned.

Although neither Lane was provided a copy of the

trust instrument, the Panel was under no obligation to do

so. Dorothy Lane asked Peterson for a copy but he

politely refused.

Following the meeting with the Lanes, the Panel,

acting as the directors of the Lane companies and the

trustees of the trust holding the stock to said companies,

met with management personnel, then with employees.

Both groups were informed that the employees were the

beneficial owners of the companies. Mrs. Lane was

informed by employees and by Armbrust that the stock

was being held in trust for the employees.

The Panel assumed its new duties with vigor. Each

member was accompanied by lofty credentials. Peterson,

a C.P.A., has much experience in financial and industrial

management. Minger is a retired loan officer with the

Bank of America, specializing in agri-business and

finance. Covell is the retired operator of an integrated

poultry business and is now director of the Federal

Reserve Bank at Richmond, Virginia. Covell maintained a

poultry consulting service after his retirement from the

processing business.

21a

Excess programs such as the chicken sausage project

and the trucking of birds to Fort Worth were discon-

tinued. The Fort Worth plant was closed. The production

at the Grannis and Broken Bow plants, which were oper-

ating at below capacity while birds were being trucked to

Fort Worth, was increased. New quality control standards

were developed. The improvements in quality control cut

the amount of discounts and allowances for shrinkage at

the dock of a buyer. The Panel also eliminated some field

and general employees and streamlined middle manage-

ment. A marketing plan was also implemented.

At the time the Panel assumed control, the companies

were operating on a marginal basis on their feed supplies.

This was compounded by the cancellation of the bond on

their bills of lading. Without feed the growers could not

deliver birds for processing. Also, the lack of feed would

cause the loss of egg production. The companies had no

access to trade credit or institutional credit. There had

been no specific marketing plan. Rather, the Lanes exer-

cised a marketing plan of “spot dumping.” There were no

regular buyers for the products.

Although the Panel made the determination that a

sale of all or any part of the companies would be in the

interest of the trust, they concentrated their efforts

toward improving profitability. The Panel determined

that the Lane companies should be a going concern prior

to any sales offerings. The companies would not, other-

wise, have been a marketable item, at least not marketa-

ble at any reasonable price.

The Panel negotiated a contract with Tyson Foods for

the delivery of WOGs. This contract was profitable and

22a

provided a steady market. Thus, the cash flow stabilized.

As time passed, the quality control continued to improve,

as did efficiency and output.

Late in the fall of 1985, the Panel negotiated for the

sale of the North Carolina Division to Townsend, Inc., a

Delaware processing company. This sale netted, after sat-

isfaction of the outstanding indebtedness against the

North Carolina operation, a profit of $3 million to the

Lane companies. The North Cafolina Division had carried

a substantial percentage of the indebtedness of the Lane

companies. This division was also in the poorest physical

condition of the three divisions.

The improvement of the companies was not totally

due to the work of the Panel, however. The market stabi-

lized with price climbing from an industry average of

4.15 cents per pound in June 1985 to 6.16 cents per pound

return in March 1986. Feed cost dropped as broiler prices

increased. However, upon cross examination of Mr. Cov-

ell, plaintiffs’ counsel developed that under the compara-

tive analysis of costs and other factors of different

companies, i.e. Agrametrics, as developed by Mr. Covell

and another individual, the Lane companies ranked dead

last in the industry at the time the Panel assumed control.

Although the Lane companies remained below the indus-

try average, the Panel substantially improved the indus-

try standing-of the Lane companies within the short

period of time they operated the companies.

In March 1986, the Panel began negotiating with

Tyson Foods for the sale of the Lane companies. Tysons’

interest in purchasing the Lane companies grew out of

the Lane companies’ exceptional performance on the

23a

WOG contract. Had the Lane companies not improved in

all aspects of its production, processing and marketing

through the efforts of the Panel and the employees, it is

extremely doubtful that Tysons would have entered such

negotiations. A Letter of Intent was later executed.

In May 1986, a Stock Purchase Agreement was

entered between Tyson Foods, Inc., and the Lane com-

panies, with the Panel members acting on behalf of the

Lane companies. A purchase price of $35 million was

negotiated, payable in $15 million cash and an install-

ment note of $20 million payable in ten yearly

installments.

These funds have been maintained by the Panel as

Trustees for the benefit of the named trust beneficiaries.

The designation of beneficiaries in the trust instrument

has been amended on two occasions, more clearly delin-

eating the class of beneficiaries.

The Lane companies’ bankruptcy matter has, for all

practical purposes, been concluded. There remain to be

made some payments to unsecured creditors who cannot

be located. Otherwise, all the requirements under the

Plan have been fulfilled. The Lanes have been absolved

from liability on their personal guaranties which

exceeded $50 million. Their interest in protecting their

personal assets from creditor claims has been satisfied.

The Panel avoided both liquidation of the Lane com-

panies and foreclosure on the creditors’ security, includ-

ing the personal guaranties.

The Court is asked to impose an express trust for the

benefit of the Lanes. Based upon the facts adduced at trial

and the record as a whole, the Court finds that the entire

24a

agreement of the parties, i.e. the Lanes and the Panel, is

embodied in the instruments executed July 22, 1985. The

Stock Transfer Agreement contains an integration clause,

specifically reciting that the entire agreement and under-

standing of the parties concerning the transfer of the

stock is set forth in that instrument. Under the terms of

the agreement the Lanes transferred all stock and the~

responsibilities and burdens of ownership unequivocally.

Both Clift and Dorothy Lane signed the agreement with-

out threat, coercion or intimidation. The agreement was

freely entered and for good and valuable consideration.

The burden is upon the Lanes to prove such an

express trust by clear and convincing evidence. Thom v.

Geyer, 254 Ark. 718, 497 S.W.2d 689 (1973); Moore v. Law-

rence, 252 Ark. 759, 480 S.W.2d 941 (1972); Wargo v. Wargo,

226 Ark. 36, 289 S.W.2d 879 (1956). As noted heretofore,

the issue of whether Peterson secretly promised Dorothy

Lane that he would hold the stock in trust for the Lanes

turns upon the Court’s assessment of credibility. The

Court having resolved this issue in favor of Peterson’s

version of the events occurring July 2, 1985, the plaintiffs

have failed to meet their burden on this issue.

Furthermore, the Arkansas Supreme Court, as recog-

nized by the Eighth Circuit Court of Appeals in American

Bonding Co. v. Horde, 98 F.2d 350 (1938), has declared a

strong presumption against the existence of a secretly

created oral trust, such as the alleged trust herein. The

Lanes have failed to overcome that presumption with the

proof adduced.

The Court notes that Dorothy Lane never, prior to the

time of the transfer, conveyed this alleged secret trust to

25a

her husband, the only other party to have received any

benefit from such an arrangement. The Lanes are hard

pressed to establish how Clift could have been relying

upon such an oral agreement at the time he executed the

documents on July 22, 1985. He was acting pursuant to

his own wishes to be relieved of any further obligation or

responsibility to the Lane companies, notwithstanding his

selfserving statement that he did not know he was giving

away the entire business at the time.

Clift testified that Dorothy wanted to “get out early”,

with no mention of any secret trust. However, some one

year later, at the commencement of this action and when

he hopes to divide the proceeds of the Lane sale with

Dorothy solely, Clift Lane asserts that he was acting pur-

suant to Peterson’s promise. The Court finds this asser-

tion to be totally without credibility.

The Lanes’ theory of a constructive trust must like-

wise fail due to their failure to meet the high burden of

proof placed upon them as cited above. The members of

the Panel acknowledge that they stood in a special capac-

ity in their roles. Under the Plan the Panel served to aid

in the business for the benefit of the Lanes, and the -

affiliated companies, and the creditors. The Plan further

provided that the Panel shall be independent and not

affiliated with the Lanes or creditors.

Notwithstanding the Lanes’ assertion, the Panel was

not privy to any well protected business secrets or privi-

leged, sensitive information, prior to assuming the direc-

torship of the companies. The Panel was privy to

financial information pertinent to the success or failure of

tie ial

26a

the companies. This information was likewise available to

the creditors in the bankruptcy action.

Even if the Panel stood in fiduciary position to the

Lanes, the Court is of the opinion that there was no

breach of any duty owed. The plaintiffs have shown no

culpable ¢onduct on the part of the Panel members.

Rather, the clear and convincing weight of the evidence

shows that the July 22, 1985, events, and the facts leading

up to that date, involved no fraud, actual or constructive,

or impropriety on the part of the Panel. No violation of

confidence occurred, at least, no breach by the Panel

members.

The Lanes point out certain facts in support of their

constructive trust assertions. The Court is of the opinion

that disclosure of the Tyson interest of June 1985 would

have served no useful purpose in consideration of the

attitude toward Don Tyson held by Clift Lane. As evi-

denced by Clift Lane’s testimony concerning the sale of

the Val-Mac stock and Worthen’s sale of the refinancing

agreement and note to Tysons, Clift Lane harbored a

heartfelt dislike for Don Tyson. It can be inferred that

Clift Lane woutd rather have suffered the perils of the

bankruptcy matter than sell the operations to his fiercest

rival.

Insofar as whether the stock was transferred to the

companies (“turned back to the companies”) or placed in

trust for the employees was of no consequence to the

Lanes. They wished to be relieved of the struggles with

no cash, the pressures, hardships, and headaches associ-

ated with their attempts to salvage the failing operation.

~ The Lanes knew that all of their years of work was

27a

crumbling around them. Their efforts to save the com-

panies had failed.

The mere fact that the defendants, as Trustees and

members of the Panel, acquired the stock from the Lanes

does not raise any inference of dishonesty or impropriety.

No credible evidence of improper conduct has been

offered. Rather, the Panel acted in good faith and in

fairness in connection with the events surrounding the

transfer of stock and execution of the declaration of trust.

The Lanes contend that the Panel should have sug-

gested to them that they might have a need for legal

eounsel on July 22, 1985. This contention is preposterous.

The Lanes were business people with substantial experi-

ence in business matters. Further, Clift Lane has been

described by the Eighth Circuit Court of Appeals as being

a “sophisticated investor and entrepreneur.” Geldermann

and Company, Inc., v. Lane Processing, Inc., 527 F.2d 571

[8th Cir. 1975). The Court is of the opinion that Clift

Lane’s status as a businessman has not materially

changed since 1975.

Had the Lanes felt that they were in need of legal!

assistance other than fromx William Sullivan, they were

free to so request. It was pursuant to the Lanes’ consent

of July 17, and upon their behalf, that Sullivan prepared

the documents. The Lanes neither requested advice nor

raised any questions of the propriety of any of the instru-

ments presented, aside from the consulting agreement.

The Panel was under no duty to make any suggestion

pertaining to legal counsel.

The Lanes seek to reform the stock transfer agree-

ment. The burden is upon the Lanes to show by clear and

a

28a

convincing evidence either a mutual mistake or a uni-

lateral mistake on their part and fraud or other inequita-

ble conduct on the part of the Panel in order for the Court

to reform the contract. McDermott v. United States, 760

F.2d 879 (8th Cir-1985); American Public Life Insurance Co.

v. Wheeler, 477 F.2d 1019 (8th Cir. 1973); Harbour v. Shef-

field, 269 Ark. 932, 601 S.W.2d 595 (Ark. App. 1980); York

v. McKamy, 175 Ark. 1170, 300 S.W.2d 317 (1927). A failure

to understand the legal effect of language contained in

the agreement is not a basis for reformation. See Clampett

v. Ponder, 91 F. Supp. 533 (W.D. Ark. 1950); Rector v.

Collins, 46 Ark. 167 (1885). A mutual mistake is one which

is reciprocal and common to both parties, each alike

laboring under the same misconception in respect to the

terms of the written instrument. Yeargan v. Bank of Mont-

gomery County, 268 Ark. 752, 595 S.W.2d 704 (Ark. App.

1980).

The instruments executed on July 22, 1985, do not

violate the understanding of the parties, both the Lanes

and the Panel. There was no mutual mistake. The Court is

of the opinion that the instruments accomplished their

intended pUrpose.

The Court has found herein above that there was no

fraud or other inequitable conduct on the part of the

Panel. Thus, the Lanes’ assertion of unilateral mistake

fails.

The Lanes contend that because the stock was not

“turned back to the company” there exists a mistake of

fact. As noted above, it was the Lanes’ desire to be shed,

in whatever manner, of the duties and responsibilities

associated with the direction of the companies. Dorothy

29a

Lane stated after closing the transfer that it was “better

that the companies go down with you than with us.” For

the Lanes to now allege that they would not have exe-

cuted the stock transfer as drafted had they known that

the stock was being placed in trust for the benefit of the

employees is at best selfserving.

The Lanes’ fourth claim for relief is rescission. The

burden is upon the Lanes to establish their right to re-

scind the stock transfer agreement by clear and convinc-

ing evidence. Centex Construction Co. v. James, 374 F.2d 921

(8th Cir. 1967); Baker v. Helms, 244 Ark. 29, 423 S.W.2d 540

(1968); Herr v. Murphee, 240 Ark. 834, 402 S.W.2d 393

(1966).

In the case of Herrick v. Robinson, 267 Ark. 576, 595

S.W.2d 637 (1980), the Arkansas Supreme Court held:

For rescission to be effective it must be timely.

One who desires to rescind upon the ground of

fraud or deceit must, as soon as he discovers the

truth, announce his purpose at once, adhere to

it, and act with reasonable diligence, so that all

parties may be restored to their original position

as nearly as possible; if he continues to treat the

property involved in the transaction as his own

or conducts himself as though it were still sub-

sisting and binding, he will be held to have

waived the objection and will be conclusively

bound by the contract as if the fraud had not

occurred. First National Bank v. Coffin, 184 Ark.

396, 42 S.W.2d 402; Ratliff v. Bank of New Orleans

& Trust Co., (1979), 266 Ark — , 586 S.W.2d 237;

McCormick v. Daggett, 162 Ark. 16, 257 S.W. 358,

13 Am. Jur. 2d 530 (Cancellation of Instruments),

§44. Furthermore, as a condition precedent to an

effective rescission, the party rescinding must

restore, or offer to restore, the opposite part to

30a

his former position. Davis v. Tarwater, 15 Ark.

286; Bellows v. Cheek, 20 Ark. 424; Stanford v.

Smith, 163 Ark. 583, 260 S.W. 435. See also United

States v. Arkansas Mill, 216 F.2d 241 [8th Cir.

1954).

Herrick v. Robinson, 267 Ark. 576, 595 S.W.2d at 643.

In McCormick v. Daggett, supra, the Arkansas Supreme

Court ruled that “he (the party seeking rescission) is not,

says Pomeroy, ‘allowed to go on and derive all possible

benefits from the transaction, and then claim to be

relieved of his own obligation by rescission... .”” 586

S.W.2d at 239, citing Pomeroy’s Equity Jurisprudence (4th

ed.) vol. 2, §897. _

The above-cited principles herein applied, the Court

finds that the Lanes were less than diligent in their efforts

to rescind the stock transfer. Notwithstanding their testi-

mony that they began searching for an attorney soon

after executing the documents, there is no corroboration

of such effort. Further, the Lanes were advised by the

press release on July 22 and by Armbrust and employees

the following day, that they had “given away” the com-

panies. The Lanes took no actions, either written or ver-

bal, to dispute the nature of the transfer. The reasons

offered for their silence are not persuasive. Therefore, the

Court concludes that the claim for rescission is barred.

The Lanes chose to challenge their transfer of the owner-

ship only after the rehabilitation of the companies by the

Panel and employees. .

Furthermore, the Court is of the opinion that,

because of the time elapsed between the execution of the

siock transfer and other documents and the institution of

this action, it would be impossible to restore the parties

3la

to their original position. The Lanes were paid their con-

sulting fees as provided by the agreement. The Panel sold

first the North Carolina operation for a profit after satis-

faction of the heavy debt laid on that division by the

Lanes. The Panel made the operations profitable. The

Panel was successful in negotiating an arrangement with

the creditors on Alabama and Arkansas divisions to

accept a reduction in their claims. Then, these two divi-

sions were made marketable, resulting in the Tyson sale.

The Lane companies are near discharge by the Bank-

ruptcy Court in North Carolina, with only a few

unsecured claims remaining to be paid. Mr. Peterson

stated that he, as examiner, was required to make a final

report to the Bankruptcy Court. All of this transpired

without any effort by or assistance from the Lanes. To

allow them to reclaim the companies they abandoned at

the brink of collapse by reforming the stock transfer

agreement or by rescinding the agreement would be

unconscionable. Of course, had the companies not sold

for a profit, this action would never have been

commenced.

Without the efforts of the Panel (and the employees),

the companies would have been forced into liquidation.

By early takeover on July 22, the panel was able to extend

the cure periods some 30 days under the Plan. Also, the

Panel negotiated with creditors for forbearance on the

payments while they implemented the changes necessary

to pull the companies from the depths of their financial

dilemma.

Even if the rescission claim had been timely made,

the Court is of the opinion that the Lanes have failed to

sustain their burden of proof. (See discussion of the

32a

Lanes’ claim for reformation above (finding no mutual

mistake, unilateral mistake or fraud, deceit or inequitable

conduct on the part of the Panel members)). The Lanes

received precisely that for which they bargained, their

release from the company and, in the course of events,

the preservation of their personal assets by avoidance of

liquidation and foreclosure on the personal guaranties.

They also were provided a means of support in the con-

sultancy contract. Valuable consideration was given by

the Panel.

The Court is of fhe opinion that the stock transfer

agreement and the related documents executed on July

22, 1985 are unambiguous. Further, the Court finds no

credible evidence that the transactions, taken as a whole

and separately, are unconscionable. An unconscionable

contract is one which “no man in his senses and not

under delusion would make on one hand, and... no

honest and fair man would accept on the other... .”

Hume v. United States, 132 U.S. 406, 411 (1889); Geldermann

& Co. v. Lane Processing Co., supra. The Court has herein

made the specific findings of fact concerning the circum-

stances surrounding the negotiation and execution of the

instruments. The Court finds no. gross inequality of bar-

gaining power and that the Lanes were aware of and

comprehended the import of their actions.

The Lanes make a plea for reformation of the trust

instrument executed by the Panel, as Trustees, on July 22,

1985. The Court inquired at the close of the testimony in

this case whether the parties could strike an accord on the

designation of beneficiaries, possibly including the Lanes

as beneficiaries under the Declaration of Trust. The trust

instrument provides that “the Trustees may amend this

33a

Declaration, so long as the provisions of Sections 4 and 5

are not amended.” This power has been exercised on two

occasions, more clearly delineating the beneficiaries.

However, such a compromise has evidently been unac-

ceptable by the parties.

The Court is of the opinion that the Lanes are not

parties to the Declaration of Trust, thus, they have no

right to reformation of that instrument.

Therefore, the Court concludes that the plaintiffs,

Dorothy P. Lane and Clift C. Lanes, individually and as

Trustees, have failed to sustain their burden of proof on

each count of their complaint. The Court concludes that

the complaint should be dismissed with prejudice and

Judgment entered for the defendants. A separate Judg-

ment shall be entered contemporaneously herewith.

Dated this 2nd day of July, 1987.

Oren Harris

UNITED STATES DISTRICT JUDGE

-

U.S. DISTRICT COURT

WESTERN DIST. ARKANSAS

FILED

July 02, 1987

BEVERLY R. STITES, Clerk

By Deputy Clerk

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