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MUTUAL BEN. LIFE INS. CO. v. ATLAS FIN. CORP.

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA


November 25, 1970

The MUTUAL BENEFIT LIFE INSURANCE COMPANY, Plaintiff, and The Equitable Life Assurance Society of the United States, John Hancock Mutual Life Insurance Company, Aetna Life Insurance Company, Bankers Life Company, Connecticut General Life Insurance Company, Continental Assurance Company, Indianapolis Life Insurance Company, Maccabees Mutual Life Insurance Company, and the United States Life Insurance Company in the City of New York, Intervenor Plaintiffs,
v.
ATLAS FINANCIAL CORPORATION, Defendant

Hannum, District Judge.

The opinion of the court was delivered by: HANNUM

FINDINGS OF FACT AND CONCLUSIONS OF LAW AND ORDER

HANNUM, District Judge.

 Presently before the court is the Motion of plaintiff and intervenor plaintiffs, pursuant to Rule 65, Fed. R. Civ. P., for a Preliminary Injunction seeking to restrain defendant from making any payments to its former parent corporation, Scientific Resources Corporation, under the terms of a tax sharing agreement dated September 15, 1965, as amended December 31, 1966. Accordingly, after hearing and due consideration of this matter, the court makes the following:

 FINDINGS OF FACT

 1. Plaintiff and intervenor plaintiffs are among a group of institutional lenders ("noteholders") who have made certain loans to defendant. Defendant is a finance company and is primarily engaged in the financing of consumer loans, and in particular, home improvement loans.

 2. Noteholders, including plaintiff and intervenor plaintiffs, were owed by Atlas, as of September 30, 1970, the principal sum of $26,550,000.

 3. By virtue of various acts of default on the part of defendant under the Note Agreements with noteholder, the entire principal balance of $26,550,000 was accelerated and became immediately due and payable during the period June-July, 1970.

 4. Defendant was unable to pay the sum of $26,550,000 to noteholders, and accordingly plaintiff and intervenor plaintiffs, on behalf of all noteholders, entered into an interim Stipulation with defendant dated September 30, 1970, which Stipulation resolved, on an interim basis, a number of the matters in dispute between the parties hereto.

 5. Just prior to the time the parties entered into the Stipulation dated September 30, 1970, defendant advised plaintiff and intervenor plaintiffs that defendant proposed to make a payment of approximately $385,000 to its former parent corporation, Scientific Resources Corporation, pursuant to a tax sharing agreement.

 6. Plaintiff and intervenor plaintiffs requested defendant to defer making such a payment until they had an opportunity to review the propriety of such a payment under the tax sharing agreement.

 7. Defendant was unwilling to agree to defer said payment, and defendant advised plaintiff and intervenor plaintiffs that it intended to make such payment on September 30, 1970.

 8. Plaintiff and intervenor plaintiffs thereupon filed a motion for temporary restraining order which was granted by this court, and a temporary restraining order was entered by Judge Joseph Lord, III on September 30, 1970 restraining defendant, until further order of the court, from issuing any checks or making any payments to Scientific Resources Corporation, or any affiliated corporation, under the terms of the tax sharing agreement.

 9. By stipulation of the parties hereto, said temporary restraining order was extended to November 10, 1970, on which date plaintiff and intervenor plaintiffs filed a motion for preliminary injunction.

 10. Said motion for preliminary injunction requested the court to enjoin the defendant, its agents, servants and employees, pending the final hearing and determination of this action, from issuing any checks and making any payments to Scientific Resources Corporation or any affiliated corporation under the terms of the tax sharing agreement.

 11. A hearing was held on the motion for preliminary injunction on November 16-17, 1970.

 12. By a Stipulation dated November 16, 1970, counsel for all the parties hereto agreed to narrow the issues before the court on the hearing, and further agreed that if the court determined, after the hearing, that:

 

(a) The rights of plaintiff and intervenor plaintiffs would be prejudiced, within the meaning of paragraph 5(g) of the Stipulation dated September 30, 1970, if such payment were made by defendant, and that plaintiff and intervenor plaintiffs do not have to prove irreparable harm, or

 

(b) The rights of plaintiff and intervenor plaintiffs would be irreparably harmed if such payment were made by defendant, then

 under said Stipulation the parties hereto agreed that if the court found in favor of plaintiff and intervenor plaintiffs on either or both of (a) and (b) above, that plaintiff and intervenor plaintiffs were entitled to a preliminary injunction. 13. During the recent years, defendant has incurred substantial operating losses. The audited financial statements of defendant for the fiscal years ended September 30 show the following net profits (or losses): 1966 Net Income $1,541,069. 1967 Net Income 532,970. 1968 Net Loss (2,379,262.) 1969 Net Loss (3,668,691.)

19701125

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