Edelstein et al v. Optimus Corporation

Filing 122

ORDER OF ATTACHMENT - 1. The motions for attachment, Filing Nos. 100 and 105 , are granted. Defendant is hereby enjoined from selling, transferring, converting, donating, or otherwise disposing of the artwork owned by defendant and specifically id entified in Exhibits D and E to the Affidavit of Michael L. Schleich in Support of Plaintiffs' Motion for Partial Summary Judgment 79 . 2. Defendant is further ordered to maintain possession of the artwork and to maintain any insurance currentl y covering the artwork. The court orders that defendant keep the art intact in the locations where they are currently displayed. 3. Plaintiffs shall post a bond in the amount of $500.00 within 24 hours of the entry of this Memorandum and Order. 4. During the hearing, defendant indicated it is attempting to sell one piece of art to test the market. Such art is valued at $250,000.00. The court will permit the defendant to continue to sell that one piece of art as set forth herein. 5. The court is requesting that the magistrate judge expedite this case, in view of the fact that the court has issued an order attaching the artwork. Ordered by Chief Judge Joseph F. Bataillon.(JAB) Modified on 10/18/2011 to unseal and send notice to parties. (JAB)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
STANLEY EDELSTEIN, IVAN GERARD,
PAT HOY, BARRY BLUE, ROBERT
CAMPNEY, GROVONDA COLEMAN,
WAYNE COREY, PETER DANIELSON,
WILLIAM GOLDMAN, DANA HAMIK,
MICHAEL HICKS, BILL KELLER,
RICHARD NEVINS, JOE SCHUETTE,
CHRISTL UPCHURCH, LORRAINE
VASHON, TIM WHITTINGHILL, and
PACESETTER CORPORATION
AMENDED AND RESTATED KEY
EXECUTIVE RETIREMENT PLAN, and
ROBERT SCHMIDT,
Plaintiffs,
v.
OPTIMUS CORPORATION,
Defendant.

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8:10CV61

ORDER OF ATTACHMENT

This matter is before the court following a hearing held October 4, 2011, regarding
attachment of art assets owned by the defendant in this case. See Filing Nos. 117 and
119 (text minute entries).

Plaintiffs filed a motion for immediate limited order of

attachment. Filing Nos. 100 and 105. The court previously found that the plaintiffs made
a preliminary showing that the defendant concealed the current ownership and value of its
artwork and is likely to convert its assets into money in order to place those assets out of
the plaintiffs’ reach. The court granted a temporary restraining order (Filing No. 108),
restraining the defendant from selling, transferring, converting, donating, or otherwise
disposing of the artwork owned by defendant and specifically identified in Exhibits D and
E to the Affidavit of Michael L. Schleich in Support of Plaintiffs’ Motion for Partial Summary

Judgment, filed June 15, 2011, Filing No. 77, as Fine Art and 20th Century Decorative Art
and Designs (Filing No. 79, Ex. D (Doc # 79-5, Page ID # 637-38) & Ex. E (Doc # 79-6,
Page ID # 644-97)). The court further ordered the defendant to maintain possession of the
artwork and to maintain any insurance currently covering the artwork. Defendant moved
this court to dissolve the temporary restraining order. Filing No. 113. The court conducted
a brief hearing on September 30, 2011, and then continued the hearing to October 4,
2011, so that the parties could produce evidence in support of their respective positions.
The parties agreed at the September 30, 2011, hearing to dissolve the temporary
restraining order, and the defendant agreed it would not sell, convey or otherwise dispose
of any of the artwork until such time as the court made a final ruling on the motion for
attachment. Consequently, the court lifted the temporary restraining order.
Plaintiffs filed suit against their former employer, Optimus Corporation (f/k/a The
Pacesetter Corporation, hereinafter referred to as “Optimus”) alleging violations of the
Employee Retirement Income Security Act, (“ERISA”), 29 U.S.C. § 1001 et seq. In
general, plaintiffs contend Optimus denied them benefits under the Plan. Count I alleges
that Optimus used unreasonable actuarial assumptions to determine lump sum values of
the retirement benefits which decreased their value; Count II asserts that plaintiffs are
entitled to the correct amount of lump sum payments; Count III alleges that plaintiffs are
entitled to retirement benefits denied to them under the Plan; and Count IV requests
injunctive and equitable relief. Filing No. 43, Amended Complaint.
The defendant implemented the Plan in November 1981. The Plan required 15
years of service before a participant would be 100% vested. In a letter dated December
16, 2008, defendant advised the participants that the Plan was terminated and that
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participants would receive a lump benefit in December 2009. Filing No. 102-3, ID 1125,
Ex. A. Thereafter, plaintiffs received a calculation of their benefits. However, on February
2009, plaintiffs received a letter advising them that the calculations were incorrect. In
August 2009, plaintiffs received a letter from Phil Schrager, Board Chair, stating that
defendant did not have the ability to pay the retirement benefits. Defendant gave plaintiffs
two options: (1) receive an unsecured promissory note with no guarantee of payment and
pay taxes immediately on the full amount; or (2) receive 50% of the total benefit, forfeit the
rest, and only pay taxes on the amount received. If plaintiffs did not elect, they would
receive Option 1. Filing No. 102-2, at ID 1123, paragraph a. The letter said nothing about
a right to appeal or an appeal process, and defendant gave plaintiffs two weeks to make
the decision. Filing No. 18, Exs. A-C.
Defendant filed a motion to dismiss. Filing No. 14. On September 8, 2010, this
court issued an order denying defendant’s motion to dismiss on the basis that plaintiffs did
not have to follow the administrative exhaustion requirements, as they would be
meaningless in this case. Filing No. 28. On September 6, 2011, plaintiffs moved to attach
defendant’s artwork. Filling No. 100 and Filing No. 105. As noted above, on September
20, 2011, this court issued a temporary restraining order with respect to the same. Filing
No. 108.
The plaintiffs allege there is still approximately $3.2 million due and owing to them.
Although the plaintiffs at one time were primarily key executives, there is no evidence that
they had any knowledge at the time of their departure regarding the full value of the artwork
at issue in this case. The testimony received at the hearing indicated that it was the
defendant’s intent for many years that the artwork be donated to charity. However, the
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defendant is now winding down business and intends, according to plaintiffs, to sell off
assets and not contribute the money to the ERISA recipients. Instead, argue the plaintiffs,
the defendant intends to give the money to the stockholder/owners, Harley Schrager and
the Estate of Phillip Schrager. Defendant agrees that there will be no more income after
the loan portfolio is sold.
Defendant asks this court to deny the motion for attachment, arguing that plaintiffs
have failed to demonstrate facts supporting reasonable cause to attach in accordance with
the Neb. Rev. Stat. § 25-1001, prejudgment statute. The defendant principally argues that
the plaintiffs chose to take 50% of the Plan benefits and signed releases discharging
Optimus “from any and all claims.” The defendant also contends that this art collection is
substantially intact and has not been sold, transferred or donated to any third party. The
defendant contends that the art is an asset of the corporation and may be disposed of as
the Board sees fit. Finally, the defendant asserts that it has set aside an appropriate
reserve for this claim, that it is litigating this matter responsibly, and interference by this
court into its internal financial affairs is unwarranted.
This court can apply state law remedies to seize the property of a party. Fed. R.
Civ. P. 64. See, e.g., Enterprise Bank v. Magna Bank, 92 F.3d 743, 747 (8th Cir. 1996)
(applying Missouri law). An order of attachment cannot be granted unless the plaintiffs
prove, by a “preponderance of the evidence” one or more of the grounds set forth in Neb.
Rev. Stat. § 25-1001; MeccaTech, Inc. v. Kiser, 2008 WL 1774992 (D. Neb. 2008);
Andrews v. Schram, 562 N.W.2d 50, 53, 55-56 (Neb. 1997). Under Nebraska law, a
prejudgment attachment against the property of a defendant may be issued when the
defendant:
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(1)

has absconded with the intent to defraud his or her creditors;

(2)

has left the county of his or her residence to avoid the service of the
summons;

(3)

so conceals himself or herself that a summons cannot be served upon him
or her;

(4)

is about to remove his or her property, or a part thereof, out of the county in
which the property is located, with the intent to defraud his or her creditors;

(5)

is about to convert his or her property, or a part thereof, into money, for the
purpose of placing it beyond the reach of his or her creditors;

(6)

has property, or rights, in action, which he or she conceals;

(7)

has assigned, removed or disposed of, or is about to dispose of his or her
property, or a part thereof, with the intent to defraud his or her creditors; or

(8)

fraudulently contracted the debt or incurred the obligation for which suit is
about to be or has been brought.

Neb. Rev. Stat. § 25-1001.
For purposes of this hearing, the court finds as follows. First, the court agrees with
the defendant that it need not decide the ultimate issues in this case to make a decision
with regard to attachment. However, those issues will be considered as they relate to the
motion for attachment. Given those parameters, the court finds that the letter sent by
defendant to plaintiffs, Ex. 3, set forth artificial deadlines that caused plaintiffs to sign the
letter under duress. The court further finds sufficient evidence has been submitted that
defendant has concealed the value of the artwork from the plaintiffs in violation of Neb.
Rev. Stat. § 25-1001 (6).
The court bases this finding on the facts received at the hearing. First, this is a
closely held corporation. It was originally owned by two brothers, Phillip and Harley
Schrager. Phillip Schrager died and now the estate owns his portion of the corporation.
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The testimony of Donald D. Kluthe, CFO, showed that as far back as 2004 the artwork was
listed on the financial statements. However, the value listed apparently never exceeded
book value of $2,000,000. In reality, the artwork is reasonably valued at $28,000,000.
Filing No. 102, Ex. 7, Christie’s appraisal. In the last year or so, the $28,000,000 appraisal
for the art collection was given in connection with Phil Schrager’s estate. Filing No. 120,
Ex. 7; Filing No. 102-7, Christie’s appraisal. Further, never has the art been listed based
on the value of its individual pieces. For purposes of this hearing, it is clear that defendant
tried to conceal assets, and particularly the value of the assets, from the plaintiffs.
Throughout this litigation, defendant has not offered evidence concerning the value of the
artwork. It was only when the plaintiffs discovered that an appraisal, referred to as the Lutz
appraisal, had been done for Phillip Schrager’s estate, and plaintiffs asked for a copy of
that appraisal, did it come to light that the art was valued at $28,000,000.1 Further, the
defendant did in fact sell a piece of art on May 11, 2010, for $356,000.
The artificial deadline imposed on the plaintiffs by the defendant in that December
16, 2008, letter, effectively concealed the value of the artwork, and clearly misled the
plaintiffs as to the value of all the assets owned by the defendant. The defendant-imposed
IRS reporting deadline did not allow the plaintiffs time to obtain or examine financial
statements and to investigate the defendant’s assertion of insolvency for themselves.
Even if they had attempted a financial examination, they would not have had enough time
or information to determine the value of the artwork and to refuse to sign the agreements.
According to the testimony of Mr. Kluthe, he did not send any financial information to the

1

The court understands that the art will sell at a price that a willing buyer agrees to pay. That price
could be m ore or less than the $28,000,000.
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plaintiffs and he is not aware that anyone else did so either. For purposes of this motion,
plaintiffs have shown by a preponderance of evidence that defendant is trying to conceal
the art assets. This is sufficient evidence of concealment to meet the requirements of Neb.
Rev. Stat. § 25-1001(6).
Plaintiffs also ask this court to find the attachment is valid under Neb. Rev. Stat. §
25-1001(8) dealing with fraud. Plaintiffs contend, for purposes of this attachment motion,
that fraud occurred when the defendant sent a letter to plaintiffs indicating they had no
money to pay the ERISA benefits and advising plaintiffs that they must choose one of two
options within two weeks of the letter.

Plaintiffs found out much later that such

representation is in fact false, because there is an asset owned free and clear by the
corporation, the artwork, that is itself more than sufficient to fulfill the alleged pension
shortfall. Although the court notes that plaintiffs have not pled fraud in this case, for
purposes of this motion for attachment, there is sufficient evidence to find that the
defendant intended to defraud plaintiffs, by omission and misrepresentations, so as to
meet the requirements of Neb. Rev. Stat. § 25-1001(8).
Defendant has asked the court to permit them to continue to sell one piece of art
with a value of approximately $250,000. Defendant is interested in “testing the market” and
propose to use this one piece of art to do so. The court will allow defendant to continue
the process of selling this one piece of art. Any further sales of the remaining art in
question will be allowed only by further order of this court. The court orders that defendant
otherwise keep the art collection intact in the locations where they are currently displayed.
IT IS HEREBY ORDERED, ADJUDGED AND DECREED:
1. The motions for attachment, Filing Nos. 100 and 105, are granted. Defendant
is hereby enjoined from selling, transferring, converting, donating, or otherwise disposing
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of the artwork owned by defendant and specifically identified in Exhibits D and E to the
Affidavit of Michael L. Schleich in Support of Plaintiffs’ Motion for Partial Summary
Judgment, filed June 15, 2011, as Fine Art and 20th Century Decorative Art and Designs
(Filing No. 79, Ex. D (Doc # 79-5, Page ID # 637-38) & Ex. E (Doc # 79-6, Page ID # 64497)).
2. Defendant is further ordered to maintain possession of the artwork and to
maintain any insurance currently covering the artwork. The court orders that defendant
keep the art intact in the locations where they are currently displayed.
3. Plaintiffs shall post a bond in the amount of $500.00 within 24 hours of the entry
of this Memorandum and Order.
4. During the hearing, defendant indicated it is attempting to sell one piece of art
to test the market. Such art is valued at $250,000.00. The court will permit the defendant
to continue to sell that one piece of art as set forth herein.
5. The court is requesting that the magistrate judge expedite this case, in view of
the fact that the court has issued an order attaching the artwork.
DATED this 13th day of October, 2011.
BY THE COURT:

s/Joseph F. Bataillon
Chief District Judge

*This opinion m ay contain hyperlinks to other docum ents or W eb sites. The U.S. District Court for
the District of Nebraska does not endorse, recom m end, approve, or guarantee any third parties or the services
or products they provide on their W eb sites. Likewise, the court has no agreem ents with any of these third
parties or their W eb sites. The court accepts no responsibility for the availability or functionality of any
hyperlink. Thus, the fact that a hyperlink ceases to work or directs the user to som e other site does not affect
the opinion of the court.
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