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EDWARDS v. WYATT

July 14, 2004.

JOHN JOSEPH EDWARDS, Plaintiff,
v.
AARON WESLEY WYATT, Defendant.



The opinion of the court was delivered by: JAMES KELLY, Senior District Judge

MEMORANDUM AND ORDER

After a non-jury retrial in the above captioned matter, and review of the pleadings filed by the parties, the Court makes the following Findings of Fact, Conclusions of Law and decision.

I. FINDINGS OF FACT

  Jurisdiction

  1. Plaintiff John Joseph Edwards ("Edwards") is a citizen of the State of South Carolina.

  2. Defendant A. Wesley Wyatt ("Wyatt") is a citizen of the Commonwealth of Pennsylvania.

  3. The amount in controversy between Edwards and Wyatt in this case is alleged to exceed $75,000.

  Background

  4. In 1993, Edwards was the President of Pilot Air Freight Corporation ("Pilot"), a privately owned air freight forwarding business which was headquartered in Lima, Pennsylvania.

  5. In 1993, Edwards owned one-third of the stock — 33 and 1/3 shares out of 100 total issued shares — in Pilot. The remaining two-thirds of the company was owned by Edwards' cousins, Tom and Bill Edwards ("the Edwards cousins"), in equal amounts.

  6. In 1993, Edwards was introduced to Wyatt by Richard G. Phillips ("Phillips"), a local Philadelphia attorney who was counsel for Pilot, Edwards and Wyatt at the time. Phillips thought that Wyatt might be able to help Pilot by investing in the company.

  7. In January of 1994, Wyatt became an investor in Pilot and secured an option to purchase 45 shares in the company from the Edwards cousins. Wyatt was also given the right to appoint individuals to fill two seats on Pilot's five person Board of Directors.

  8. In January of 1994, through the same transaction in which Wyatt became an investor in Pilot, Phillips was made the Chairman of Pilot and acquired 10 shares in the company from the Edwards cousins. Phillips also became the Voting Trustee over the remaining 11 and 2/3 shares of the company owned by the Edwards cousins. Phillips was also given a seat on Pilot's Board of Directors.

  9. In January of 1994, through the same transaction in which Wyatt and Phillips became involved in Pilot, Edwards was given a three-year Employment Agreement with Pilot, which provided that he would be paid $200,000 in salary per year and be eligible to receive annual bonuses up to the same amount from the company. Edwards fully retained, however, his one-third ownership interest in Pilot. Edwards was also given the right to appoint individuals to fill the remaining two seats on Pilot's Board of Directors.

  10. In May of 1994, Edwards decided to adopt an exit strategy from Pilot because of Phillips' approach to running it, and hired attorney Don Auten to help him with that strategy.

  11. At a dinner meeting in March or April, 1995, Wyatt and Edwards agreed to take some corporate governance action to "eradicate Mr. Phillips from the Company."

  12. Wyatt and Edwards decided to join forces to exercise the combined power of the seats they controlled on Pilot's Board of Directors to vote to remove Phillips as Chairman of the company. Wyatt and Edwards also decided to terminate Pilot's retainer agreement paying $7,000 per week to Phillips' law firm.

  13. Shortly thereafter, Edwards' attorney gave him Plaintiff's Exhibit 9, an April 13, 1995 press release from Pilot announcing that Edwards was out and Phillips was back in at Pilot, because Wyatt had realigned himself with Phillips.

  14. Wyatt never called Edwards to discuss the franchisees' concerns that led to his decision to change sides and realign with Phillips.

  15. Plaintiff's Exhibit 12 is a transcript of the April 20, 1995 Pilot Board Meeting where Wyatt aligned himself with Phillips to vote Edwards out of Pilot and put Phillips back in charge of the company. At that meeting, Wyatt and Phillips gave employment agreements to each other. Wyatt's agreement was for eight years at $200,000 a year, plus bonuses and other benefits.

  16. Sometime shortly after the April 20th board meeting, Wyatt had a discussion with Phillips about Edwards. Phillips told Wyatt that he was going to cut off Edwards' money and litigate him into the ground, which stunned Wyatt.

  17. On August 20, 1996, Edwards commenced a bankruptcy proceeding under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Pennsylvania. In re: John Joseph Edwards, Bankruptcy No. 96-17868 (DWS).

  18. The assets of Edwards' bankruptcy estate consisted of his one-third interest in Pilot, a one-third interest in a real estate partnership which owned land upon which Pilot's businesses were situated, and certain claims Edwards had against third parties including Wyatt, Pilot and Phillips ("Edwards' Assets").

  19. In February, 1997, Edwards' voluntarily converted his Chapter 11 bankruptcy reorganization to a Chapter 7 dissolution.

  20. A Chapter 7 Trustee, Christine Schubert, was appointed and proceeded to employ a valuation expert to value Edwards' Assets.

  21. The Trustee's valuation expert, Steven Scherf, CPA, fixed a value of $2,745,000 for Edwards' Assets: $2,600,000 for the interest in the Pilot stock and $145,000 for the interest in the Edwards partnership.

  22. In the fall of 1997, Wyatt owned forty-five percent of the issued and outstanding stock of Pilot, Edwards' Chapter 7 Trustee controlled his thirty-three and one-third percent of Pilot's stock, and the balance of Pilot's stock was owned or controlled by Phillips, who also served as Pilot's President and Chief Executive Officer.

  23. Around the time of the bankruptcy proceeding, Wyatt was sued in the United States District Court in Camden, New Jersey in an action seeking to invalidate his purchase of his option to purchase forty-five shares of Pilot stock.

  Wyatt and Edwards discuss a potential alignment

  24. In December 1997, one of Wyatt's lawyers, Jay Ochroch, Esquire ("Ochroch"), and Edwards' lawyer, Stephen L. Braga, Esquire ("Braga"), met to discuss a potential alignment between Edwards and Wyatt and the possibility of trying to effect a sale of Pilot.

  25. During December, 1997, Braga also met with Phillips to discuss a possible alignment between Edwards and Phillips. Edwards and his counsel later decided to pursue their negotiations with Wyatt.

  26. During the months of December 1997 and January and February 1998, Wyatt and Edwards' representatives met to outline and finalize the contents of a written settlement agreement specifying what Wyatt and Edwards would try to accomplish by their collaborative efforts.

  February 1998 Settlement Agreement

  27. Plaintiff's Exhibit 30 is a written settlement agreement that was executed by Edwards and Wyatt on February 18, 1998 in furtherance of their mutual ambition to sell either the assets or the stock of Pilot ("the Settlement Agreement").

  28. The Settlement Agreement contains an integration clause that specifically and expressly provides that the Settlement Agreement "and the documents delivered pursuant hereto constitute the entire agreement and understanding between the Parties hereto as to the matters set forth herein and supersede and revoke all prior agreements and understandings, oral and written, between the parties hereto or otherwise with respect to the subject matter hereof."

  29. The Settlement Agreement integration clause commits the parties to change the Settlement Agreement only in writing: "[n]o change, amendment, termination or attempted waiver of any of the provisions hereof shall be binding upon any party unless set forth in an instrument in writing signed by the parties."

  30. Edwards was represented by Braga during the negotiations of the Settlement Agreement. Braga was aware of the existence and effect of the integration clause.

  31. It is undisputed that Edwards' pre-petition claims for money from Pilot are property of Edwards' bankruptcy estate for the benefit of Edwards' creditors, and do not belong to Edwards. Obligations under the Settlement Agreement

  32. The Settlement Agreement contemplated, inter alia, a consulting agreement between Edwards and one of Wyatt's companies (the "Consulting Agreement").

  33. Pursuant to the Consulting Agreement, Wyatt agreed and caused Edwards to be paid a fee of $6,731 per week for 26 weeks. Wyatt also paid $150,000 to Braga's law firm towards Edwards' legal bills and also provided Edwards with the use of a 1998 Acura automobile.

  34. Pursuant to Paragraph 5 of the Settlement Agreement Wyatt loaned Edwards $500,000, which was later repaid.

  35. The operative provision of the Settlement Agreement regarding the sale of Pilot's assets or stock is Paragraph 6. This provision of the Settlement Agreement is titled, Sale of Stock. It required both parties, inter alia, to "use their best efforts to cause Pilot, its shareholders and directors to sell either all or substantially all of the assets of Pilot, the stock of Pilot or cause an initial public offering of the Pilot stock at a price mutually acceptable to the Parties."

  36. In furtherance of this sale, Wyatt and Edwards also agreed to assure that each had equal power to appoint two board members and they agreed to petition the Bankruptcy Court to join them in appointing a financial advisor for the purpose of seeking a sale or IPO of Pilot, or, alternatively, to convert Edwards' Chapter 7 to a Chapter 11 case so that Edwards could, as a debtor in possession, pursue a sale of Pilot's assets or stock.

  37. On February 18, 1998, Wyatt had no other commitments to Edwards outside the written Settlement Agreement.

  38. The parties agree that Wyatt fulfilled each and every obligation contained in the Settlement Agreement.

  Initial Public Offering of Pilot

  39. Wyatt arranged for various professionals to attend a meeting with Edwards' Chapter 7 Trustee and assist him and Edwards in their effort to persuade Edwards' Chapter 7 Trustee to permit an Initial Public Offering ("IPO") of Pilot.

  40. Edwards attended the meeting with the Trustee where a presentation was made to try to convince her to support a joint motion to make an IPO of Pilot. There were a number of professionals at the meeting. None of the IPO professionals were retained by Wyatt. They were there ...


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