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TIAB COMMUNICATIONS CORPORATION v. KEYMARKET OF NEPA

May 20, 2003

TIAB COMMUNICATIONS CORPORATION, PLAINTIFF
v.
KEYMARKET OF NEPA, INC. AND SINCLAIR COMMUNICATIONS LICENSEE OF WILKES-BARRE, INC., DEFENDANTS.



The opinion of the court was delivered by: Thomas I. Vanaskie, Chief Judge

MEMORANDUM

The focus of this protracted case is a Federal Communications Commission ("FCC") FM operating license under the call letters WKRF that has been transferred several times. The original holder of this license, Tiab Communications Corp. ("Tiab"), has challenged the transfer of the license by its transferee, Crystal Castle, Inc. ("Crystal") to Keymarket of NEPA, Inc. ("Keymarket"), as well as Keymarket's transfer of the license to Sinclair Radio of Wilkes-Barre License, Inc. ("Sinclair"). Tiab essentially contends that the transfers should be deemed fraudulent under the Pennsylvania Uniform Fraudulent Transfer Act ("PUFTA"), 12 Pa. Cons. Stat. Ann. §§ 5101-5110 (West 1999). After two preliminary injunction proceedings, extensive discovery, and unsuccessful settlement efforts, the matter proceeded to a non-jury trial. Having carefully considered the evidence and the pertinent authorities, I find that Keymarket and Sinclair are liable to Tiab under PUFTA.

I. PROCEDURAL HISTORY

On April 21, 1997, Tiab filed a complaint against Keymarket in connection with Keymarket's acquisition of the FM operating license from Crystal. Tiab had sold the FM license to Crystal in August of 1994 in exchange for Crystal's agreement to assume certain debts of Tiab that exceeded $600,000. (Pl. Exhibit ("PX") 1.) The April 10, 1995 agreement between Crystal and Keymarket had called for Keymarket to pay Crystal $50,000 and to assume Crystal's indebtedness, including the unsatisfied obligations of Tiab that Crystal had assumed under its agreement with Tiab. (PX-3.) The liabilities approximated $500,000. (Id.) Subsequent to obtaining FCC approval of the transfer of the FM license from Crystal to Keymarket on June 2, 1995, Crystal and Keymarket executed an amendment to their agreement that dramatically reduced the amount of Crystal's liabilities that were to be assumed by Keymarket. (PX-5.) Tiab claimed that the amended transaction effected a fraudulent transfer intended to preclude Crystal from performing its contractual commitment to satisfy Tiab's indebtedness.

Shortly after commencing this action, Tiab filed a motion for preliminary injunction to restrain Keymarket from transferring the FM license to Sinclair. (Dkt. Entry 4.) By Memorandum and Order of August 7, 1997, I concluded that Tiab had established a reasonable likelihood of prevailing on its claim that the Crystal/Keymarket transaction violated PUFTA. (Dkt. Entry 17.) Because the proceeds from the sale of the WKRF-FM license to Sinclair represented Keymarket's only unencumbered asset that could be used as a source from which claims of Tiab's creditors could be satisfied, Tiab's motion for preliminary injunction was granted, and Keymarket was directed to deposit the proceeds of the sale of the FM license ($150,000) in an interest bearing account, with the account being maintained pending final adjudication of this case or until otherwise ordered by the Court. (Id.) Entry of the preliminary injunction, however, was conditioned upon Tiab's posting of a bond in the amount of $25,000 to protect Keymarket if it was found that the preliminary injunction should not have been issued. Tiab did not post the bond and the preliminary injunction did not become effective.

A case management conference was conducted on November 5, 1997, as a result of which deadlines were established for completion of discovery and the filing of dispositive motions. (Dkt. Entry 23.) On December 17, 1997, Tiab moved to amend the complaint to add Sinclair as a defendant. Tiab, however, failed to file a brief in support of its motion, as a result of which the motion was denied by Order entered on July 28, 1998. (Dkt. Entry 29). Tiab's motion for reconsideration of the Order denying the motion to add Sinclair as a defendant (Dkt. Entry 30) was granted by Order entered on November 20, 1998. (Dkt. Entry 36.) Tiab was directed to file its amended complaint within twenty (20) days. Tiab, however, did not comply with this directive. On March 9, 1999, Tiab changed counsel. (Dkt. Entry 37.) Following a telephonic status conference conducted on April 21, 1999, Tiab was granted leave to file its amended complaint. (Dkt. Entry 39.) Finally, on May 11, 1999, Tiab filed the amended complaint adding Sinclair as a defendant. (Dkt. Entry 41.) Thereafter, by Order entered on July 9, 1999, new deadlines for the completion of discovery and filing of dispositive motions were established. (Dkt. Entry 45.)

On October 22, 1999, Tiab moved for a preliminary injunction to restrain Sinclair from transferring the WKRF-FM license to Entercom Communications Corp. ("Entercom"). (Dkt. Entry 48.) Disposition of this second preliminary injunction motion was deferred pending settlement efforts. After the settlement discussions proved unsuccessful, the motion was referred to United States Magistrate Judge Thomas M. Blewitt, who conducted evidentiary hearings in May and July of 2000. By Report and Recommendation filed on October 19, 2000, Magistrate Judge Blewitt proposed that the motion for a preliminary injunction be denied. (Dkt. Entry 98.) After consideration of objections to Magistrate Judge Blewitt's report and recommendation, Tiab's preliminary injunction motion was denied by Order of November 1, 2000. (Dkt. Entry 104.)

A non-jury trial was conducted on April 25, 2001. At trial, the defendants called two witnesses: Robin Smith, the Chief Financial Officer of Sinclair, and Kerby Confer, the president and sole shareholder of Keymarket. By stipulation, the parties incorporated into the trial record the testimony and exhibits introduced during the previous preliminary injunction hearings. The parties filed post-hearing briefs and reply briefs, thereby completing the record.

II. FINDINGS OF FACT*fn1

A. The Parties

1. At the time this action was filed, plaintiff Tiab was a Pennsylvania corporation with its principal place of business in Mount Pocono, Pennsylvania. (Aug. 7, 1997 Mem. Op., Dkt. Entry 17, Finding of Fact No. 1.)

2. At all times material to this action, Jeff Woehrle was the sole officer, director and stockholder of Tiab and is personally liable for the debts of Tiab. (Id., Finding of Fact No. 2.) Currently, Tiab is 100% owned by Nassau Broadcasting Holdings, Inc. Tiab is now a reorganized debtor pursuant to the terms of a reorganization plan proposed by Nassau and confirmed by the Bankruptcy Court for the Middle District of Pennsylvania.

3. Crystal Castle was a Pennsylvania corporation. Stacey DeWitt was the president and sole shareholder of Crystal. (Id., Finding of Fact No. 7.)

4. Defendant Keymarket is a Georgia corporation with its principal place of business in Augusta, Georgia. At all pertinent times, Kerby Confer was the President and sole shareholder of Keymarket, and Donald J. Alt was the Vice President, Secretary, and Treasurer of Keymarket. (Id., Findings of Fact Nos. 3-4.)

5. Defendant Sinclair is a Maryland corporation with its principal place of business in Baltimore, Maryland.

B. Tiab's Transfer of the FM License to Crystal

6. On or about August 29, 1994, Tiab entered into a sales agreement with Crystal whereby Crystal was to purchase an FM radio station with call letters WKRF-FM (formerly WPMR-FM), the FCC operating license, and related items in consideration for, inter alia, Crystal's assumption of certain debts owed by Tiab totaling more than $600,000. (PX-1.)

7. Following approval by the FCC, the assignment of the FM license from Tiab to Crystal was completed on November 1, 1994. (Aug. 7, 1997 Mem. Op., Dkt. Entry 17, Finding of Fact No. 6.)

8. The sole shareholder of Crystal, Stacey DeWitt, had served as the sales manager at Tiab for a year prior to the closing of the sale between Tiab and Crystal. (Id., Finding of Fact No. 7.)

C. Crystal's Transfer of the FM License to Keymarket

9. In early 1995, defendant Keymarket entered into negotiations with Crystal for the purchase of the WKRF-FM radio station and the FCC operating license. Keymarket was interested in the purchase of WKRF-FM in order to rebroadcast the signal of a popular FM station owned by Keymarket in the Wilkes-Barre region, WKRZ, to expand the geographic reach of that station. (Stipulation of Facts, Dkt. Entry 77 ("Stip."), ¶ 25.)

10. On April 10, 1995, an Asset Purchase Agreement for the WKRF-FM radio station, the FCC operating license, and related items was executed between Crystal and Keymarket. (PX-3.)

11. Included in the consideration due from Keymarket to Crystal for this transfer was Keymarket's assumption of Crystal's debts, including the unsatisfied obligations of Tiab that Crystal had assumed under the August 29, 1994 Agreement, and a payment of $50,000 to Crystal. (PX-3, 4.)

12. At the time this Agreement was executed, many of the operating assets used in the radio station were the subject of equipment leases. (Aug. 7, 1997 Mem. Op., Dkt. Entry 17, Finding of Fact No. 10.)

13. Among the scheduled debts that Keymarket agreed to assume was the indebtedness of $162,418 on equipment leases held by, inter alia, Dean Kresge, t/a Phonetic Services, Inc. This lease covered essentially all of the assets used in the operation of the radio station. (Id., Finding of Fact No. 11.) The debts of Tiab that Keymarket agreed to assume also included $173,300 (exclusive of accrued interest) to William and Marjorie Woehrle, and $32,512 to George Marcinek, CPA. (PX-3, Ex. D.) In total, the indebtedness assumed by Keymarket as of April 10, 1995 was $473,692.90. (Id.)

14. Crystal and Keymarket also entered into an agreement that allowed Keymarket to begin rebroadcasting the WKRZ signal over Crystal's license. (PX-20.) The FCC was apprised of this agreement. (Id.)

15. Prior to June 16, 1995, Tiab was made aware of the existence of the Keymarket/Crystal transaction and Tiab was assured that Keymarket would take care of the Tiab/Crystal creditors. (Aug. 7, 1997 Mem. Op., Dkt. Entry 17, Finding of Fact No. 12.)

16. Jeff Woehrle relied on those assurances as well as exhibit "D" of the April 10, 1995 Agreement, which evidenced Keymarket's intent to assume the debts of Tiab and Crystal, to convince Tiab's creditors that Keymarket would satisfy their claims. (Id., Finding of Fact No. 13.)

17. The FCC approved the assignment of the license from Crystal to Keymarket on June 2, 1995. (Id., Finding of Fact No. 14.)

18. Shortly after this approval, Keymarket's Donald Alt wrote a memo to Kerby Confer, the President of Keymarket, and Robert Wright, Keymarket's counsel. In this memo, Alt stated:

Wow! The FCC granted the transfer of [the FM License] on Friday denying the two petitions to deny.
We should still wait for "finality" because the LMA petitioners will likely ask for reconsideration and our agreement nonetheless remains in place.
We do though have to review the transaction and amend if necessary to better protect ourselves from possible litigation.
(PX-11.)

19. On June 16, 1995, subsequent to FCC approval of the transfer of the FM license, Crystal and Keymarket executed an Amendment to their April 10, 1995 Asset Purchase Agreement. (PX-5.)

20. The Amendment, inter alia, reduced the cash consideration to be paid by Keymarket to Crystal from $50,000 to $25,000. Moreover, it substantially reduced the amount of Crystal's liabilities that were to be assumed by Keymarket. (Aug. 7, 1997 Mem. Op., Dkt. Entry 17, Finding of Fact No. 16.)

21. None of the obligations of Tiab assumed by Crystal in the August 29, 1994 transfer, which were to have become the ultimate responsibility of Keymarket under the original agreement between Crystal and Keymarket, were included in the schedule of debts assumed by Keymarket pursuant to the June 16, 1995 Amendment. (Id., Finding of Fact No. 17.) In particular, the schedule of indebtedness assumed by Keymarket under the amended agreement excluded the Kresge equipment lease of $162,418, the Woehrles' claim of approximately $200,000, and the $32,512 claim of Mr. Marcinek. (Compare PX-3, Ex. D, with PX-5, Ex. D.)

22. The value of Crystal's obligations assumed by Keymarket in the original Asset Purchase Agreement of April 10, 1995, including those originally incurred by Tiab, was approximately $473,693. (PX-1, Ex. D.) The amount of Crystal's debt assumed by Keymarket pursuant to the terms of the June 16, 1995 Amendment to the Agreement was reduced to $34,000. (See PX-5.)*fn2

23. None of the creditors of Tiab or Crystal were informed of this Amendment in advance of its execution; nor was their consent or approval sought. (Aug. 7, 1997 Mem. Op., Dkt. Entry 17, Finding of Fact No. 20.)

24. The transfer of the station assets, including its FCC license, was consummated by the parties on June 16, 1995. (Id., Finding of Fact No. 21.)

25. Crystal was subsequently forced into bankruptcy by its creditors and has consented to an order for relief under the provisions of 11 U.S.C. § 701 et seq. (Id., Finding of Fact No. 23.)

26. Crystal was insolvent from its inception because it assumed liabilities that could not be paid through the station's activities in the ordinary course of business. (Id., Finding of Fact No. 24.)

27. The June 1995 Amendment to the Asset Purchase Agreement was intended to bring difficult creditors of Crystal and Tiab to the bargaining table with the hope that they could be persuaded to take a less hardline approach with regard to their claims.*fn3 (July 29, 1997 Notes of Testimony ("N.T.") at 91-104.)

28. The majority of the tangible assets transferred from Crystal to Keymarket were owned by Phonetic Services. These assets were leased by Crystal. (Aug. 7, 1997 Mem. Op., Dkt. Entry 17, Finding of Fact No. 26.) Keymarket was aware of this equipment lease before entering into the original agreement. (Alt Dep. at 100.)

29. Despite being unable to obtain unencumbered ownership of these assets, Keymarket made use of these assets from the day it obtained the FCC license on June 16, 1995. (Aug. 7, 1997 Mem. Op., Dkt. Entry 17, Finding of Fact No. 27.)

30. Keymarket incurred expenses of approximately $97,000 in the Crystal-Keymarket transaction, which included rental of premises owned by Mt. Pocono Broadcasting, Inc. (PX-14.)

31. Following the acquisition of Crystal's assets, Donald Alt of Keymarket made attempts to negotiate the reduction of the Tiab debts that had been assumed by Crystal and which would have been assumed by Keymarket ...


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