Lone star liquidating trust. Key Executives for Lone Star Liquidating Trust.



Lone star liquidating trust

Lone star liquidating trust

Subscribe Lone Star Industries, Inc. Wilkinson, New Orleans, La. Rothschild, Skadden, Arps, Slate, Wilmington, for plaintiff-appellant. Lone Star Industries, Inc. The district court dismissed, F. OKC was a Delaware corporation with its principal place of business in Texas. On May 13, , the shareholders of OKC adopted a plan of liquidation. The plan called for the complete liquidation and distribution of OKC's assets within the year, i.

The plan excepted from distribution those assets reasonably necessary to provide for payment of OKC's liabilities on the expenses of liquidation. If the distribution could not be completed within the year, the plan called for transfer of the remaining assets and liabilities to a trust created for the benefit of OKC's stockholders.

As part of the purchase agreement, OKC agreed to complete a dock facility under construction at the New Orleans plant. The agreement further required that construction be completed by March 31, On May 5, , anticipating that not all of OKC's assets would be distributed by May 12, the OKC Board of Directors adopted a resolution establishing the Trust proposed in the plan of liquidation and appointing Charles Redwine trustee. OKC then distributed its limited partnership interest among its shareholders as a liquidating distribution.

On November 9, , construction of the dock facility was finally completed. In June , Lone Star filed this action against Redwine, as trustee of the Liquidating Trust, seeking damages for breach of the dock construction agreement. On June 12, , the district court granted the defendants' motion to dismiss on alternative theories, viz. On its own motion, the district court dismissed the action against the Trust because of the failure to join OKC, it being "regarded as indispensable" under Fed.

See supra note 2. All defendants agree with Lone Star that the court erred in dismissing the action on this theory. The court's holding rested on a single foundation: Despite this, we are of the opinion that OKC could not have been indispensable. We therefore join the parties in the conclusion that dismissal was improper. Regardless of the validity of the creation of the Trust itself and that of the assignment of OKC's obligations under the dock facility construction contract, which we discuss below, OKC could not have been indispensable to this action.

One fact is critical: Further, by this date OKC had also disposed of virtually all of its assets. In light of OKC's expiration, it is clear that it could not have been indispensable under Fed.

Thus, no "shaping of relief" would be necessary and whether or not "judgment rendered in [OKC's] absence [would] be adequate," addition of OKC as a party would not make it any more so.

Finally, it is probable that no "adequate remedy" would be available to Lone Star if we dismiss for non-joinder since it is unlikely that OKC could be joined in a Delaware state court and since, as we are informed, the Delaware statute of limitations appears to have run on Lone Star's contract action.

The district court, however, reasoned that no adequate judgment could be rendered in OKC's absence because creation of the Trust violated Delaware law and, alternatively, because the assignment of the construction contract was invalid under the terms of the trust agreement and the contract itself.

Thus, the court concluded, OKC was the only party that could have been liable on the contract and therefore was indispensable to Lone Star's suit. While we hold that even this could not render OKC itself indispensable, since it does not exist, we address this reasoning in order to refute any suggestion that it is OKC's legal successor whomever that may be that is indispensable.

We note that the district court's reasoning is also directed at the very merits of the contract action to the extent that it undermines the possibility of the Trust's liability. That provides all the more reason for us to address the court's alternative holdings on this issue.

We turn first to the court's conclusion that the Trust was not validly created. Assuming that the Trust came into existence on May 12, , the day following dissolution of OKC itself, the district court held that under Delaware law appointment of the Trust after dissolution was an improper method of "winding up. See supra note 4; see also In re Citadel Industries, Inc. Section of the same title provides for the alternative method of "winding up" by a court-appointed trustee, usually a director of the dissolved corporation, under the continuing supervision of the Delaware Court of Chancery.

Section expressly continues for three years the corporate existence of a dissolved corporation for certain limited purposes, including discharging its liabilities, distributing its assets and generally winding up its affairs.

Likewise, the directors continue in their capacities as directors after dissolution and therefore oversee the final acts of the corporation. International Clay Products Co. See In re Citadel Industries, Inc. Beacon Hill Real Estate Co. Contrary to the interpretation of the district court, Sec. Nor does it prohibit them from vesting such power in a trustee. In re Citadel, A. That language was not intended to suggest that directors and officers must personally oversee every aspect of winding up, but merely to underscore the contrast between dissolution situations in which Sec.

So long as a corporation's directors have the authority and will to wind up the dissolved corporation's affairs, the court held, there is no need to invoke the assistance of the Court of Chancery through Sec. We find no indication either in Citadel or in Sec. The district court held that had the Trust been created prior to dissolution, it would have been valid. However, the propriety of the trust as a winding up device should not depend on the date of its formal effectiveness since under Delaware law, i.

Assuming that the Trust itself was properly constituted, the concerted operation of provisions of the construction contract and provisions of the Trust Agreement does not invalidate the attempted assignment to the Trust of OKC's obligations under the construction contract.

The construction contract provides that "OKC shall have the right after April 15, , to assign its rights and obligations under the contract to any financially responsible party. This provision was intended to enforce compliance with certain provisions of the Internal Revenue Code, the benefits of which the parties to the agreement sought to reap.

The district court held that the Trust was not a "financially responsible party" under the contract and that the Trust could not, under the Trust Agreement, rightfully "engage in the business" of completing construction of the dock facility. We disagree with both holdings. We cannot conclude, as a matter of law, that the Trust was not a "financially responsible party. However, the united position the parties have taken relieves us--and the district court--of the burden of adjudicating these issues.

The district court's holding rests on a provision of the construction contract that the parties had the power to waive, modify, or even abrogate completely by agreement.

All parties agree that the assignment to the Trust was valid and effective and that the Trust is now responsible for the obligations of OKC. Indeed, the Trust has actually completed the construction called for by the contract. Whether this is interpreted as a modification of the assignment limitation, or as a waiver of a non-essential term, or as a refusal to nullify a merely voidable assignment, or as an understanding that the Trust was in fact a "responsible party" in the usage of the parties, we need not, nor have we been requested to, decide.

It is sufficient that the parties have agreed. When called upon to do so, it is our duty to protect the interests the contract was intended to serve. The remedy for violation of the provision lies in a suit for breach of the contract and avoidance of the assignment by a party to the contract presumably Lone Star. Since "financial responsibility" was an issue resolvable in the first instance by agreement of the parties themselves, we hold that the assignment from OKC to the Trust was effective and no impediment to suit against the Trust in the absence of OKC.

The district court also held that the Trust Agreement nullified the assignment of the contract obligation because a provision of the Trust Agreement prohibited the Trustee from engaging in any business in the name of the Trust. We disagree with the court's understanding of the legal effect of this provision and of the assignment itself. First, the provision is to be read in context and construed in light of its clear purpose: The proper remedy for enforcement of the provision would be suit against the Trustee by an interested party for breach of fiduciary duty.

To use a limitation on the powers of the Trustee as a device for rendering null an assignment of liability approved in the very document that gave the Trust its life would clearly be contrary to what was intended. Moreover, the Trustee could assume all of OKC's obligations under the contract without undertaking performance of it by merely assuming the obligation to satisfy any judgment arising from its breach.

See Committee Note to amended rule. One such consideration is the expiration of OKC as a legal entity and the consequent futility of joining it. Pragmatic and equitable considerations control the Rule 19 b analysis. Indispensability is a conclusory term, applied to a particular party only after the court has examined the enumerated factors and others relevant to the facts of a particular case in the light of "equity and good conscience.

If after this examination the court is convinced that it cannot proceed without a party, the party is labelled "indispensable" and the action is dismissed. We are convinced that this action can and should proceed without OKC as a party since OKC does not exist as a legal entity and since OKC's obligations under the construction contract properly devolved upon the Trust.

The district court dismissed, in the alternative, for failure to state a claim against the Trust under Fed. Having rejected both of these holdings, we conclude that Lone Star stated a claim against the Trust. In addition, on remand, Lone Star should be given leave to amend its complaint if any other infirmities become apparent. Our discussion concerning the expiration of OKC and the dissipation of any resulting prejudice under the factors articulated in Rule 19 b applies with full force here.

The Box defendants, however, present additional arguments supporting a finding of unacceptable prejudice. Their arguments are not well taken. Several of the Box defendants' arguments speak to prejudice resulting only from their inclusion in this action and the simultaneous exclusion of the other shareholders of OKC. Merely because Box claims that the other shareholders of OKC may be liable with him as a shareholder does not demonstrate or even affect the indispensability of OKC itself.

Under Rule 19 b the Box defendants must show prejudice and inadequacy of judgment resulting from OKC's absence, not the other shareholders'. That they may at some point desire to join the other shareholders as third party defendants because Lone Star did not join them as direct defendants is not an argument for OKC's indispensability.

Nor do the "proof problems" that the Box defendants imagine militate in favor of OKC's indispensability. The problems are in fact illusory. For example, to the extent OKC's knowledge and intent in transferring its mineral interests to Box and the limited partnership are relevant, OKC's former directors and officers will be available to testify thereto.

Moreover, joinder of OKC itself would in no way help resolve any such problems that actually do confront the Box defendants. There the debtor was considered indispensable because a the plaintiff sought to set aside the allegedly fraudulent conveyance, b in any event, the debtor had retained, even after the conveyance, "complete dominance and control" of the assets transferred, and c the debtor was solvent and financially healthy so that forced joinder would be effective.

See Provident Tradesmens, U. The district court relied on Del. Section b requires that a plaintiff procure a judgment against a corporation where he seeks to recover against officers, directors or stockholders personally for a debt of the corporation.

This being so, we are not called upon to resolve a conflict between this state statute and Fed. Lone Star proceeds against Box based on the distributions he received as a general partner of the limited partnership; Lone Star does not seek to "pierce the corporate veil" of OKC and hold Box liable in his capacity as a shareholder of OKC.

Section does not apply to such independent causes of action.

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Lone star liquidating trust

Subscribe Lone Star Industries, Inc. Wilkinson, New Orleans, La. Rothschild, Skadden, Arps, Slate, Wilmington, for plaintiff-appellant. Lone Star Industries, Inc. The district court dismissed, F. OKC was a Delaware corporation with its principal place of business in Texas.

On May 13, , the shareholders of OKC adopted a plan of liquidation. The plan called for the complete liquidation and distribution of OKC's assets within the year, i.

The plan excepted from distribution those assets reasonably necessary to provide for payment of OKC's liabilities on the expenses of liquidation. If the distribution could not be completed within the year, the plan called for transfer of the remaining assets and liabilities to a trust created for the benefit of OKC's stockholders. As part of the purchase agreement, OKC agreed to complete a dock facility under construction at the New Orleans plant.

The agreement further required that construction be completed by March 31, On May 5, , anticipating that not all of OKC's assets would be distributed by May 12, the OKC Board of Directors adopted a resolution establishing the Trust proposed in the plan of liquidation and appointing Charles Redwine trustee. OKC then distributed its limited partnership interest among its shareholders as a liquidating distribution.

On November 9, , construction of the dock facility was finally completed. In June , Lone Star filed this action against Redwine, as trustee of the Liquidating Trust, seeking damages for breach of the dock construction agreement. On June 12, , the district court granted the defendants' motion to dismiss on alternative theories, viz.

On its own motion, the district court dismissed the action against the Trust because of the failure to join OKC, it being "regarded as indispensable" under Fed. See supra note 2. All defendants agree with Lone Star that the court erred in dismissing the action on this theory. The court's holding rested on a single foundation: Despite this, we are of the opinion that OKC could not have been indispensable. We therefore join the parties in the conclusion that dismissal was improper.

Regardless of the validity of the creation of the Trust itself and that of the assignment of OKC's obligations under the dock facility construction contract, which we discuss below, OKC could not have been indispensable to this action. One fact is critical: Further, by this date OKC had also disposed of virtually all of its assets. In light of OKC's expiration, it is clear that it could not have been indispensable under Fed.

Thus, no "shaping of relief" would be necessary and whether or not "judgment rendered in [OKC's] absence [would] be adequate," addition of OKC as a party would not make it any more so. Finally, it is probable that no "adequate remedy" would be available to Lone Star if we dismiss for non-joinder since it is unlikely that OKC could be joined in a Delaware state court and since, as we are informed, the Delaware statute of limitations appears to have run on Lone Star's contract action.

The district court, however, reasoned that no adequate judgment could be rendered in OKC's absence because creation of the Trust violated Delaware law and, alternatively, because the assignment of the construction contract was invalid under the terms of the trust agreement and the contract itself. Thus, the court concluded, OKC was the only party that could have been liable on the contract and therefore was indispensable to Lone Star's suit. While we hold that even this could not render OKC itself indispensable, since it does not exist, we address this reasoning in order to refute any suggestion that it is OKC's legal successor whomever that may be that is indispensable.

We note that the district court's reasoning is also directed at the very merits of the contract action to the extent that it undermines the possibility of the Trust's liability. That provides all the more reason for us to address the court's alternative holdings on this issue.

We turn first to the court's conclusion that the Trust was not validly created. Assuming that the Trust came into existence on May 12, , the day following dissolution of OKC itself, the district court held that under Delaware law appointment of the Trust after dissolution was an improper method of "winding up.

See supra note 4; see also In re Citadel Industries, Inc. Section of the same title provides for the alternative method of "winding up" by a court-appointed trustee, usually a director of the dissolved corporation, under the continuing supervision of the Delaware Court of Chancery. Section expressly continues for three years the corporate existence of a dissolved corporation for certain limited purposes, including discharging its liabilities, distributing its assets and generally winding up its affairs.

Likewise, the directors continue in their capacities as directors after dissolution and therefore oversee the final acts of the corporation. International Clay Products Co. See In re Citadel Industries, Inc. Beacon Hill Real Estate Co. Contrary to the interpretation of the district court, Sec.

Nor does it prohibit them from vesting such power in a trustee. In re Citadel, A. That language was not intended to suggest that directors and officers must personally oversee every aspect of winding up, but merely to underscore the contrast between dissolution situations in which Sec.

So long as a corporation's directors have the authority and will to wind up the dissolved corporation's affairs, the court held, there is no need to invoke the assistance of the Court of Chancery through Sec. We find no indication either in Citadel or in Sec. The district court held that had the Trust been created prior to dissolution, it would have been valid.

However, the propriety of the trust as a winding up device should not depend on the date of its formal effectiveness since under Delaware law, i. Assuming that the Trust itself was properly constituted, the concerted operation of provisions of the construction contract and provisions of the Trust Agreement does not invalidate the attempted assignment to the Trust of OKC's obligations under the construction contract.

The construction contract provides that "OKC shall have the right after April 15, , to assign its rights and obligations under the contract to any financially responsible party. This provision was intended to enforce compliance with certain provisions of the Internal Revenue Code, the benefits of which the parties to the agreement sought to reap.

The district court held that the Trust was not a "financially responsible party" under the contract and that the Trust could not, under the Trust Agreement, rightfully "engage in the business" of completing construction of the dock facility. We disagree with both holdings. We cannot conclude, as a matter of law, that the Trust was not a "financially responsible party. However, the united position the parties have taken relieves us--and the district court--of the burden of adjudicating these issues.

The district court's holding rests on a provision of the construction contract that the parties had the power to waive, modify, or even abrogate completely by agreement. All parties agree that the assignment to the Trust was valid and effective and that the Trust is now responsible for the obligations of OKC.

Indeed, the Trust has actually completed the construction called for by the contract. Whether this is interpreted as a modification of the assignment limitation, or as a waiver of a non-essential term, or as a refusal to nullify a merely voidable assignment, or as an understanding that the Trust was in fact a "responsible party" in the usage of the parties, we need not, nor have we been requested to, decide.

It is sufficient that the parties have agreed. When called upon to do so, it is our duty to protect the interests the contract was intended to serve. The remedy for violation of the provision lies in a suit for breach of the contract and avoidance of the assignment by a party to the contract presumably Lone Star. Since "financial responsibility" was an issue resolvable in the first instance by agreement of the parties themselves, we hold that the assignment from OKC to the Trust was effective and no impediment to suit against the Trust in the absence of OKC.

The district court also held that the Trust Agreement nullified the assignment of the contract obligation because a provision of the Trust Agreement prohibited the Trustee from engaging in any business in the name of the Trust.

We disagree with the court's understanding of the legal effect of this provision and of the assignment itself. First, the provision is to be read in context and construed in light of its clear purpose: The proper remedy for enforcement of the provision would be suit against the Trustee by an interested party for breach of fiduciary duty.

To use a limitation on the powers of the Trustee as a device for rendering null an assignment of liability approved in the very document that gave the Trust its life would clearly be contrary to what was intended.

Moreover, the Trustee could assume all of OKC's obligations under the contract without undertaking performance of it by merely assuming the obligation to satisfy any judgment arising from its breach.

See Committee Note to amended rule. One such consideration is the expiration of OKC as a legal entity and the consequent futility of joining it. Pragmatic and equitable considerations control the Rule 19 b analysis. Indispensability is a conclusory term, applied to a particular party only after the court has examined the enumerated factors and others relevant to the facts of a particular case in the light of "equity and good conscience.

If after this examination the court is convinced that it cannot proceed without a party, the party is labelled "indispensable" and the action is dismissed.

We are convinced that this action can and should proceed without OKC as a party since OKC does not exist as a legal entity and since OKC's obligations under the construction contract properly devolved upon the Trust. The district court dismissed, in the alternative, for failure to state a claim against the Trust under Fed.

Having rejected both of these holdings, we conclude that Lone Star stated a claim against the Trust. In addition, on remand, Lone Star should be given leave to amend its complaint if any other infirmities become apparent. Our discussion concerning the expiration of OKC and the dissipation of any resulting prejudice under the factors articulated in Rule 19 b applies with full force here.

The Box defendants, however, present additional arguments supporting a finding of unacceptable prejudice. Their arguments are not well taken. Several of the Box defendants' arguments speak to prejudice resulting only from their inclusion in this action and the simultaneous exclusion of the other shareholders of OKC. Merely because Box claims that the other shareholders of OKC may be liable with him as a shareholder does not demonstrate or even affect the indispensability of OKC itself.

Under Rule 19 b the Box defendants must show prejudice and inadequacy of judgment resulting from OKC's absence, not the other shareholders'. That they may at some point desire to join the other shareholders as third party defendants because Lone Star did not join them as direct defendants is not an argument for OKC's indispensability. Nor do the "proof problems" that the Box defendants imagine militate in favor of OKC's indispensability. The problems are in fact illusory.

For example, to the extent OKC's knowledge and intent in transferring its mineral interests to Box and the limited partnership are relevant, OKC's former directors and officers will be available to testify thereto.

Moreover, joinder of OKC itself would in no way help resolve any such problems that actually do confront the Box defendants. There the debtor was considered indispensable because a the plaintiff sought to set aside the allegedly fraudulent conveyance, b in any event, the debtor had retained, even after the conveyance, "complete dominance and control" of the assets transferred, and c the debtor was solvent and financially healthy so that forced joinder would be effective.

See Provident Tradesmens, U. The district court relied on Del. Section b requires that a plaintiff procure a judgment against a corporation where he seeks to recover against officers, directors or stockholders personally for a debt of the corporation.

This being so, we are not called upon to resolve a conflict between this state statute and Fed. Lone Star proceeds against Box based on the distributions he received as a general partner of the limited partnership; Lone Star does not seek to "pierce the corporate veil" of OKC and hold Box liable in his capacity as a shareholder of OKC. Section does not apply to such independent causes of action.

Lone star liquidating trust

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4 Comments

  1. Several of the Box defendants' arguments speak to prejudice resulting only from their inclusion in this action and the simultaneous exclusion of the other shareholders of OKC. Section of the same title provides for the alternative method of "winding up" by a court-appointed trustee, usually a director of the dissolved corporation, under the continuing supervision of the Delaware Court of Chancery. The district court did not dismiss on this ground.

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