Allied Erecting and Dismantling Co., Inc. v. United States Steel Corporation
Filing
371
Memorandum Opinion and Order (Including Findings of Fact and Conclusions of Law) (Nunc Pro Tunc to Correct Amended Judgment Amount in Paragraph 3 of Doc. No. 370 ): Allied's Motion for Stay of Execution and Approval of Alternative Securi ty (Doc. No. 318 ) is denied. In order to seek a stay of execution of the Amended Judgment Entry, Allied must submit a supersedeas bond in the full amount of the Judgment Entry. In accordance with Fed. R. Civ. P. 62(d), any stay will take effect onl y if and when the Court approves the bond. Until such time, U.S. Steel may continue to execute upon the Amended Judgment Entry. Accordingly, simultaneous with the entry of these Findings of Fact and Conclusions of Law, the Court is signing and entering U.S. Steel's October 22 Writ and November 2 Writ (Doc. Nos. 325 , 334 ). Judge Sara Lioi on 3/21/2016. (P,J)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
ALLIED ERECTING & DISMANTLING
CO., INC.,
PLAINTIFF,
vs.
UNITED STATES STEEL
CORPORATION,
DEFENDANT.
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CASE NO. 4:12-cv-1390
JUDGE SARA LIOI
MEMORANDUM OPINION AND
ORDER (INCLUDING FINDINGS
OF FACT AND CONCLUSIONS
OF LAW)
[NUNC PRO TUNC TO CORRECT
AMENDED JUDGMENT AMOUNT
IN PARAGRAPH 3]
Before the Court is plaintiff Allied Erecting and Dismantling Co., Inc.’s
(“Allied”) Motion for Stay of Execution and Approval of Alternative Security [Doc. Nos. 318,
319].
I.
PROCEDURAL HISTORY
1.
On September 25, 2015, the Court issued its Judgment Entry disposing of all the
parties’ claims and granting defendant United States Steel Corporation (“U.S. Steel”) “a net
judgment against Allied in the amount of $9,845,447.35, plus postjudgment interest from
September 26, 2015 at the statutory rate set forth in 28 U.S.C. § 1961.” [Doc. No. 314]
(“Judgment Entry”).
2.
On October 23, 2015, U.S. Steel moved to alter or amend the judgment with
respect to Count II, arguing that it should not be required to pay any damages on that claim.
[Doc. No. 328].
3.
On March 17, 2016, the Court granted U.S. Steel’s motion to amend the judgment
and issued an Amended Judgment Entry granting U.S. Steel “a net judgment against Allied in the
amount of $10,684,754.52, plus postjudgment interest from September 26, 2015 at the statutory
rate set forth in 28 U.S.C. § 1961.” [Doc. No. 369] (“Amended Judgment Entry”).
4.
On October 9, 2015, Allied filed its Motion for Stay of Execution and Approval
of Alternative Security [Doc. No. 318] (“Motion for Stay”) and Memorandum in Support [Doc.
No. 319] (“Allied Memorandum”), along with supporting declarations from Allied President
John Ramun [Doc. No. 320] and Allied’s outside accountant Thomas Anness [Doc. No. 321]
(“Anness October 9 Declaration”).
5.
On October 22, 2015, U.S. Steel filed its Opposition to Allied’s Motion for Stay
[Doc. No. 324] (“U.S. Steel Opposition”). On that same day, U.S. Steel filed a Praecipe for
Issuance of a Writ of Execution relating to a wide variety of Allied’s assets, including Allied’s
vehicles, machinery, and equipment [Doc. No. 325] (“October 22 Writ”).
6.
On October 23, 2015, Allied filed a Notice of Appeal [Doc. No. 327].
7.
On November 2, 2015, U.S. Steel filed a Praecipe for Issuance of a Writ of
Execution relating to certain Allied bank accounts [Doc. No. 334] (“November 2 Writ”).
8.
On November 2, 2015, Allied filed a Reply in Support of its Motion for Stay
[Doc. No. 335] (“Allied Reply”), along with a supporting declaration from Allied President John
Ramun [Doc. No. 336].
9.
On November 30, 2015, the Court conducted a hearing on the Motion for Stay
and heard testimony from Thomas Anness 1 (by video deposition) and John Ramun. [Dec. 2,
2015 Minute Order].
1
Mr. Anness is a CPA associated with the accounting firm of Anness, Gertech and Williams. He has performed tax
and accounting services, including preparation of financial statements, for Allied since the early 1970’s. Anness
Depo. 6:5-7:5.
2
10.
On December 3, 2015, the hearing on the Motion for Stay continued, and the
Court heard further testimony from John Ramun, as well as testimony from U.S. Steel’s expert,
James Falconi2 of Berkeley Research Group (“BRG”). Tr. 59 and 174:12-14.3
11.
At the conclusion of the hearing, the Court requested Proposed Findings of Fact
and Conclusions of Law from the parties [Dec. 4, 2015 Minute Order], which both parties timely
submitted [Doc. Nos. 364 and 365].
II.
FINDINGS OF FACT
A.
Allied’s Efforts To Get A Bond.
12.
Allied attempted to get a supersedeas bond in the full amount of the judgment. Tr.
60:1-4 (J. Ramun).
13.
As part of those efforts, Allied provided detailed financial information to three
separate sureties. That financial information included information about Allied’s assets, the
Gordon Brothers equipment appraisal (discussed below in Section II.B.3), and the CBRE Report
(discussed below in Section II.B.2(b)). Tr. 60:5-19 (J. Ramun); Exs. 3, 7.
14.
Allied pursued all possible options for securing a bond with those sureties, each of
whom also had brokers involved, and Allied offered all of the assets of all Allied-related entities,
which are comprised of Allied Consolidated Industries (the parent corporation), Allied Erecting
and Dismantling, Allied Industrial Equipment, Allied Industrial Contracting, Allied Industrial
Scrap, Allied Industrial Development Corporation, and Allied Gator (collectively the “Allied
Entities”) as collateral for the bond. Ex. 26; Tr. 10:6-18, 14:4-8; 60:20-61:5, 148:4-149:10. (J.
Ramun).
2
Mr. Falconi is a CPA and a certified fraud examiner who is also certified in financial forensics. Tr. 174:11-176:16
(J. Falconi). The Court finds that he is an expert in the field of accounting, pursuant to Fed. R. Evid. 702.
3
Transcript citations used herein refer to the transcript of the November 30 and December 3, 2015 hearing on the
Motion for Stay [Doc. Nos. 361-62]. Exhibit citations used herein refer to exhibits introduced at the same hearing.
3
15.
None of the three sureties was willing to issue a supersedeas bond utilizing those
assets as collateral for the bond. Tr. 61:6-8 (J. Ramun).
B.
Allied’s Alternative Security Proposals.
16.
In lieu of posting a bond in the full amount of the judgment, Allied is proposing to
secure the judgment with some of Allied’s equipment, real estate, and other assets; however,
Allied’s alternative security proposal does not include all of the assets that were offered to (and
rejected by) the sureties as collateral for the bond. Tr. 61:14-62:2 (J. Ramun).
17.
Throughout the post-trial proceedings, in what seemed to be an ever-changing
landscape, Allied has offered at least four iterations of its alternative security proposals.
18.
First, in its Motion for Stay, Allied offered to provide a security interest to U.S.
Steel in “some combination” of Allied’s dismantling equipment, attachment inventory, and/or
structural steel to secure U.S. Steel’s judgment. Allied Memorandum at 12; Tr. 116:8-12 (J.
Ramun).
19.
Second, in its Reply, Allied offered to provide a security interest to U.S. Steel in
certain parcels of Allied real estate, structural steel Allied salvaged from Fairless Works, and five
categories of equipment and machinery. Allied Reply at 7; Tr. 118:3-6 (J. Ramun).
20.
Third, at the November 30, 2015 hearing on Allied’s Motion for Stay of
Execution, Allied seemingly offered to add to its alternative security proposal the Giddings &
Lewis manufacturing equipment. Tr. 47:21-23, 118:7-15 (J. Ramun).
21.
Fourth, as it turns out, Allied’s third alternative security proposal was “clarified”
in its findings of fact as a willingness to substitute the Giddings & Lewis manufacturing
equipment for another component that Allied offered in its Reply. [Doc. No. 365, proposed
finding of fact at ¶ 37].
4
1.
22.
Structural steel.
As part of its alternative security proposal, Allied has offered to provide a security
interest to U.S. Steel in certain structural steel owned by Allied. That structural steel is the
material that Allied hand dismantled and match marked at Sheet & Tin during the Fairless
project in order to reassemble it at Allied’s headquarters in Youngstown, Ohio. Tr. 109:14-25 (J.
Ramun).
23.
Allied values that structural steel at $7.1 million for purposes of its alternative
security proposal. Allied Reply at 7; Tr. 110:1-4 (J. Ramun). The sole basis for that $7.1 million
valuation, however, is a pre-trial estimate prepared by Mr. Falconi. Allied did not engage an
independent expert to provide a valuation of the structural steel. Tr. 110:5-15 (J. Ramun).
24.
But Mr. Falconi, who the Court finds credible, clarified that Allied did not have a
fair understanding of his earlier opinion. Tr. 196:25-197:3 (J. Falconi). Mr. Falconi’s earlier
opinion assumed that, instead of selling the steel for scrap, Allied would use the steel to re-build
on its property in Youngstown the same buildings that Allied hand dismantled at Fairless Works.
Thus, the buildings would essentially be moved, albeit in pieces, and then reassembled. Ex. 12 at
7-8; Tr. 196:5-24 (J. Falconi). The $7 million valuation was Mr. Falconi’s estimate of what
fabricated steel for such buildings would have cost on the market at the time the steel was
acquired by Allied. In other words, it represented the value specific and unique to Allied in the
sense that Allied otherwise would have had to spend approximately $7 million to acquire the
same structural steel for use in the same buildings—buildings that Allied had a need for and
wished to construct on its premises. Id.
25.
If the same steel were to be liquidated, however, there may not be any buyer who
wishes to use the steel to rebuild those same buildings. Thus, in the liquidation context, the value
of the steel on the scrap market is a better estimate of what the steel could actually garner to
5
satisfy U.S. Steel’s judgment. Tr. 197:5-21 (J. Falconi). Using prevailing market prices for scrap,
Mr. Falconi put a significantly lower scrap value on the steel of approximately $403,000. Ex. 12
at 7-8; Ex. 36; Tr. 197:15-24 (J. Falconi).
26.
Moreover, the structural steel that Allied is offering as part of its proposed
alternative security was offered to the sureties as collateral for the supersedeas bond. The sureties
rejected a package that contained that collateral. Tr. 61:6-8; 112:16-20 (J. Ramun).
2.
27.
Real estate.
As part of its alternative security proposal, Allied has offered to provide a security
interest to U.S. Steel in a number of parcels of real estate owned by Allied or Allied Industrial
Dismantling. The real estate consists of 2100 Poland Avenue (which includes the Allied
corporate office building and manufacturing facility), 2039 Poland Avenue, 1312 Poland
Avenue, and 166 parcels of vacant land. Tr. 64:3-66:12 (J. Ramun); Ex. 5; Ex. 22, Att. 3; Anness
Dep. 23:3-24:12 (Nov. 25, 2015) [Doc. No. 363-1] (“Anness Dep.”).
(a)
28.
Mahoning County tax appraisal.
The real estate Allied is offering as part of its alternative security proposal has a
total Mahoning County 2014 tax valuation of $6,972,820. Allied Reply at 7; Exs. 5-6; Ex. 22,
Att. 3; Anness Dep. 24:20-25:14, 26:13-20.4
29.
The majority of the $6,972,820 tax valuation relates to the office building
(Allied’s headquarters) and manufacturing facility at 2100 Poland Avenue. Tr. 67:13-16 (J.
Ramun); Ex. 22, Att. 3 ($6.28 million of $6.97 million tax valuation relates to office building
and manufacturing facility).
4
This value is substantially less than the $40 million in real estate carried on Allied’s books, which is based on cost,
not market, value. Ex. 1; Anness Dep. 10:13-11:15.
6
(b)
30.
Valuation of the 2100 Poland Avenue parcel.
At the request of one of its lenders, JP Morgan Chase, Allied undertook a
valuation of the parcels on which its manufacturing facility and corporate headquarters sit--a
46.13-acre area at or adjacent to 2100 Poland Avenue and owned by Allied. Ex. 7; Anness Dep.
28:7-29:1; Tr. 69:9-17 (J. Ramun). The valuation was performed by an entity called CBRE, who
generated a Valuation Report dated October 10, 2013. Ex. 7 (“CBRE Report”), at viii and1.
31.
The CBRE Report concludes that the value of the parcels at 2100 Poland Avenue
is $7,330,000 “as is,” and has an allocated real estate value of $6,998,000. CBRE Report at ix;
Anness Dep. 29:18-20.
32.
The CBRE valuation is dependent on an assumption of the accuracy of Allied’s
2013 cost estimation of $800,000 to $1,000,000 to complete the manufacturing facility. The
CBRE Report specifically “reserve[s] the right to alter [its] opinion of value if that estimate is
found to not be accurate or varies.” CBRE Report at x.
33.
That assumption proved to be incorrect. Mr. Ramun testified at the hearing that,
over two years later, the manufacturing facility is still not complete, and it will cost
approximately $3 million to complete the facility. Tr. 68:11-16 (J. Ramun).
34.
The CBRE Report’s valuation is also based on key market assumptions that may
not hold true. First, it is based on market opportunities that Allied’s accountant admits have
changed since 2013, specifically regarding the energy (fracking) industry. CBRE Report at ix;
Anness Dep. 93:13-94:5. Second, the over two-year age of the valuation means that it may no
longer reflect current market conditions and is therefore unreliable. Tr. 198:20-199:3 (J. Falconi).
Third, the CBRE Report does not reflect the parcel’s “forced liquidation” value. In the execution
or liquidation context, a perfect buyer who wants just such a facility may not emerge, and the
7
property is more likely to be sold at a discount. Tr. 198:12-19 (J. Falconi). Allied has offered no
evidence of the property’s liquidation valuation.
35.
Finally, the CBRE Report’s valuation “specifically assumed that the property is
not affected by any hazardous materials that may be present on or near the property,” a key
assumption that may not prove true. CBRE Report at 19; see also id. at 71; Anness Dep. 94:2295:14. Both parties’ accountants agreed that future remediation costs can affect the fair market
value of a property. Ex. 12 at 8; Tr. 199:4-16 (J. Falconi); Anness Dep. 101:11-21. Potential
environmental issues related to this and other Allied real estate parcels are discussed in the next
Section.
(c)
36.
Environmental issues.
Allied offered an LCS Environmental Site Assessment Report dated September
26, 2013 relating to the 46.13 acre parcel at 2100 Poland Avenue in Youngstown, Ohio. Ex. 23
(“LCS Report”); Tr. 82:2-8 (J. Ramun).
37.
The LCS Report includes the corporate office and manufacturing facility at 2100
Poland Avenue. LCS Report at 1.
38.
The LCS Report is a Phase 1 Environmental Assessment. LCS Report at 1. A
Phase 1 Environmental Assessment is limited to interviews, a site reconnaissance, and a review
of historical documents. LCS Report at 7; Tr. 83:8-11 (J. Ramun). The LCS Report did not
involve any physical testing. LCS Report at 7; Tr. 83:23-25 (J. Ramun).
39.
The LCS Report states that “[t]he following conditions indicative of releases or
threatened releases of hazardous substances on, at, in, or to the subject property were identified
based on LCS’ historical research: The subject property was used as a contractor’s yard from at
least 1989 through 1998[;] A previous study indicated that one to two feet of slag fill was present
on a portion of the subject property . . . [; and] Adjacent properties have historically included an
8
east adjacent rail yard (from at least 1928 through at least 1998) and scrap specialists (from at
least 1984 through at least 1998.” LCS Report at 2.
40.
The LCS Report is the only environmental report, audit, or testing that Allied
provided for the parcel that contains the Allied office building and manufacturing facility at 2100
Poland Avenue. Allied has not offered any environmental clearance from any government entity
for the parcel that contains the Allied office building and manufacturing facility at 2100 Poland
Avenue.
41.
Allied did not provide any meaningful environmental report, audit, or testing for
any other real estate parcel that is part of its proposed alternative security. Allied has not offered
any meaningful environmental clearance from any government entity for any other real estate
parcel that is part of its proposed alternative security.5
42.
Many of the prior owners of the property on the north side of Poland Avenue
(across the road from the Allied office building and manufacturing facility) were known to
produce environmental waste, including Union Carbide, LTV Steel, Penn Iron and Metal, and
Pittsburgh and Lake Erie Railroad Company. Tr. 88:17-89:11 (J. Ramun); Ex. 22, Att. 3.
43.
The real estate that Allied is offering as part of its proposed alternative security
was offered to the sureties as collateral for the supersedeas bond. The sureties rejected a package
that contained that collateral. Tr. 108:8-109:2 (J. Ramun).
5
While Allied did offer a February 16, 1989 letter from LTV Steel that Allied alleges reflects soil testing at the
parcels across the road from Allied’s office building and headquarters, that document contains double, or even triple
hearsay. Moreover, it purports to reflect testing that was performed 26 years ago and appears to pertain only to one
30.797-acre vacant parcel (53-042-0-008.01-0) located on Center Street in Youngstown, Ohio, and owned by Allied
Industrial Development. Exs. 5, 6, 35; Tr. 155:18-157:18, 169:8-12 (J. Ramun). This is one parcel among the 166
vacant parcels offered by Allied, but its test results reveal nothing of the possible environmental hazards that might
(or might not) be present on the other parcels and only accounts for a small percentage (less than 10%) of the total
acreage being offered as alternate security.
9
3.
44.
Equipment and machinery.
As part of its alternative security proposal, Allied has offered to provide a security
interest to U.S. Steel in certain equipment and machinery. Allied Reply at 7; Tr. 114:12-15 (J.
Ramun).
45.
Allied values the specific equipment and machinery that it is proposing as
alternative security at $1,020,000. Allied Reply at 7; Tr. 114:16-19 (J. Ramun).
46.
The sole basis for that $1.02 million figure is a valuation, also conducted at the
request of Allied’s lender JP Morgan Chase, prepared by Gordon Brothers. Gordon Brothers
produced a report dated June 17, 2015 reflecting its valuation of Allied’s equipment and
machinery. Ex. 3 (“Gordon Brothers Report”). The Gordon Brothers Report presented both a
forced (lower) liquidation value and an orderly (higher) liquidation value for the equipment, and
Allied chose to utilize the orderly (higher) liquidation value in reaching its $1.02 million
valuation. Tr. 114:20-115:6 (J. Ramun).
47.
But when Allied’s assumptions about the sale of its equipment are tested against
the actual results of Allied’s two recent equipment auctions in September and November of
2015, it is clear that Allied’s proposed valuation is grossly optimistic. At actual auctions,
Allied’s equipment sold below the forced (lower) liquidation value estimated by Gordon
Brothers, and some of those diminished proceeds went to pay the auction company. Ex. 12 at 89; Exs. 39, 40; Tr. 200:5-203:13 (J. Falconi). In addition, Allied did not reduce the value of its
remaining equipment fleet by the overhead costs associated with the sale of those assets. Anness
Dep. 83:18-87:3.
48.
When compared against Allied’s historical performance at recent equipment
auctions, the equipment and machinery Allied is offering as part of its alternative security is
10
likely worth significantly less than Allied suggests and, according to Mr. Falconi, perhaps even
as little as $616,000. Ex. 12 at 8-9; Exs. 39, 40; Tr. 200:5-203:13 (J. Falconi).
49.
Moreover, the equipment and machinery that Allied is offering as part of its
proposed alternative security was offered to the sureties as collateral for the supersedeas bond.
The sureties rejected a package that contained that collateral. Tr. 61:6-8; 115:23-116:3 (J.
Ramun).
4.
50.
Manufacturing equipment.
As part of its alternative security proposal, Allied—for the first time—offered at
the November 30, 2015 hearing to provide a security interest to U.S. Steel in additional
equipment and machinery. Tr. 47:21-23, 118:7-15 (J. Ramun).
51.
Specifically, Allied offered to provide a security interest to U.S. Steel in Allied’s
Giddings & Lewis manufacturing equipment. Allied purchased the manufacturing equipment in
2006, and it is nearly 10 years old. Tr. 118:16-19 (J. Ramun). As previously indicated, however,
Allied is not offering this equipment in addition to the other property but, rather, in lieu of some
of it. [Doc. No. 365, proposed finding of fact at ¶ 37.]
52.
The Gordon Brothers Report values the Giddings & Lewis manufacturing
equipment at $4.8 million in an orderly liquidation and $3.5 million in a forced liquidation.
Gordon Brothers Report at 18; Tr. 119:1-5 (J. Ramun).
53.
Once again, however, Allied’s recent equipment auctions must guide the Court as
to the accuracy of the Gordon Brothers valuation. That experience shows that this equipment is
likely to garner less than 90% of its forced (lower) liquidation value or less than approximately
$3.15 million. Tr. 203:22-204:10 (J. Falconi).
54.
Significantly, in its proposed findings of fact, Allied further clarified that this
equipment was being offered in lieu of, or in substitution of, some portion of the alternative
11
security that Allied “already proposed.” Thus, it is not being offered in addition to the other
proposed security. [Doc. No. 365, proposed finding of fact at ¶ 37.]
55.
Moreover, the Giddings & Lewis manufacturing equipment that Allied is now
offering as part of its proposed alternative security was offered to the sureties as collateral for the
supersedeas bond. The sureties rejected a package containing that collateral. Tr. 61:6-8; 119:1215 (J. Ramun).
5.
56.
Professionals’ security interest and offer to subordinate.
As of November 3, 2015, Allied owed $1,266,304 to Eckert, Seamans, Cherin,
and Mellott, LLC; $175,462.52 to Nadler, Nadler, and Burdman Co., LPA; and $196,208 to
Anness, Gerlach, and Williams. Ex. 24 at ¶ 8; Tr. 90:1-13 (J. Ramun).
57.
In August 2015, Eckert, Seamans, Cherin, and Mellott (“Eckert”); Nadler, Nadler,
and Burdman (“Nadler”); and Anness, Gerlach, and Williams (“AGW”) (Eckert, Nadler, and
AGW referred to collectively as the “Allied Professionals”) asked Allied to enter into a series of
agreements to provide the Allied Professionals with a security interest in Allied’s assets. Tr.
90:14-19 (J. Ramun).
58.
On August 24, 2015, Allied and the Allied Professionals entered into an Open-
End Mortgage, Security Agreement and Assignment of Rents and Profits that assigned to the
Allied Professionals a security interest in certain real property owned by Allied, including the
Allied corporate office and manufacturing facility at 2100 Poland Avenue that Allied has offered
as part of its alternative security proposal. Ex. 25 (“Mortgage”); Tr. 91:16-92:2, 92:14-18, 93:811 (J. Ramun).
59.
The amount of the Allied Professionals’ security interest in the mortgaged real
property includes all amounts then due and owing to the Allied Professionals, along with any
12
future additional amounts owed to the Allied Professionals, up to a maximum of $3 million.
Mortgage § 5.4; Tr. 93:18-94:9 (J. Ramun).
60.
On August 24, 2015, the Allied Entities and the Allied Professionals also entered
into a Consideration and Security Agreement All Assets that assigned to the Allied Professionals
a security interest in essentially all of the assets of the Allied Entities, including the structural
steel, machinery, and equipment that Allied has offered as part of its alternative security
proposal. Ex. 26 (“All Asset Security Agreement”) § 1; Tr. 94:14-97:17, 115:7-12, 119:6-9 (J.
Ramun).
61.
The All Asset Security Agreement affords the Allied Professionals a number of
rights with respect to the assets of the Allied entities, including “the right to take possession of
all Goods in which [the Allied Professionals have] been granted a security interest pursuant to
this Agreement . . . .” All Asset Security Agreement § 8.1; Tr. 97:18-98:20 (J. Ramun). In
addition, the All Asset Security Agreement affords the Allied Professionals “the right to sell or
otherwise dispose of the Collateral or any part thereof or any interest therein at any time or from
time to time.” All Asset Security Agreement § 8.4; Tr: 98:21-99:7 (J. Ramun).
62.
The security interests in favor of Allied’s Professionals are reflected in a UCC
Financing Statement that was filed with the Mahoning County, Ohio Recorder on August 25,
2015. Ex. 27 (“UCC Statement”) (the Mortgage, the All Asset Security Agreement, and the UCC
Statement are referred to collectively as the “Allied Professionals’ Security Instruments”).
63.
Allied and the Allied Professionals first discussed the possibility of entering into
the Allied Professionals’ Security Instruments after the trial in this matter concluded on June 4,
2015. Tr. 100:18-101:4 (J. Ramun). Despite their approximately 30-year history representing
13
Allied, none of the Allied Professionals had ever before asked Allied to sign such security
agreements. Tr. 101:5-7 (J. Ramun).
64.
Allied does not know the amount of Eckert’s security interest in August 2015
when the Allied Professionals’ Security Instruments were signed, and Allied does not know the
amount of Eckert’s current security interest. Allied does know, however, that the amount of
Eckert’s security interest is increasing. Tr. 101:24-102:7 (J. Ramun).
65.
Allied does not know the amount of Nadler’s security interest in August 2015
when the Allied Professionals’ Security Instruments were signed, and Allied does not know the
amount of Nadler’s current security interest. Tr. 102:8-15 (J. Ramun).
66.
Allied does not know the amount of AGW’s security interest in August 2015
when the Allied Professionals’ Security Instruments were signed, and Allied does not know the
amount of AGW’s current security interest. Tr. 102:16-22 (J. Ramun).
67.
The Allied Professionals’ Security Instruments were signed in late August 2015
after the jury verdict and before the Judgment Entry. The security interests reflected in those
documents purport to attach to all the property in Allied’s proposed alternative security.
68.
Near the end of the December 3, 2015 hearing on Allied’s Motion for Stay,
Allied’s counsel represented that he had authority on behalf of the Allied Professionals to offer
to subordinate their security interests in the proposed alternative security to that of U.S. Steel in
the event the Court approves the proposed alternative security. Tr. 163:7-164:7. Notably,
however, in its proposed findings of fact, Allied clarifies that the Allied Professionals “have not
agreed to subordinate their security interest in any property or equipment of Allied above and
beyond that contained within the alternative security package . . . comprised of the ‘Secured
Assets’ specifically identified in Document No. 335-1, PageID# 21963-64.” [Doc. No. 364 at n.
14
3.] The reason for this is that Allied may need to liquidate some of its other property to pay the
Allied Professionals and other trade creditors. Id.
6.
69.
Conclusions regarding the proposed alternative security.
Based on his valuation of the proposed alternative security, Mr. Falconi reached a
conclusion to a reasonable degree of accounting certainty that the proposed alternative security is
insufficient to secure U.S. Steel’s judgment pending the appeal of this matter. Tr. 204:11-15 (J.
Falconi). The Court agrees with that conclusion.
70.
The Court finds that there are significant reasons to doubt Allied’s valuation of its
proposed alternative security and concludes that the value of the proposed alternative security is
well short of the approximately $15 million estimate Allied has represented. Allied Reply at 7.
71.
Specifically, the Court finds that Allied has established a proposed alternative
security value of approximately $4,169,000, given the scrap value of the structural steel, the
uncertain value of the real estate, and the realistic value of the equipment based on recent, actual
auctions of Allied’s equipment. This figure consists of approximately $403,000 for the structural
steel, approximately $616,000 for the originally-proposed equipment pieces, and approximately
$3,150,000 for the Giddings and Lewis manufacturing equipment offered in lieu of other
previously proposed alternate security. Ex. 12 at 5-9; Tr. 203:22-204:7 (J. Falconi).
72.
Moreover, the Court finds that the Allied Professionals’ security interests have the
potential to significantly impact the value of the proposed alternative security and spawn
litigation regarding priority interests in the real property and equipment being offered to secure
the judgment. The amount of that impact is unknown because Allied has failed to establish the
amount of the security interest. Moreover, the Court finds that the Allied Professionals’ control
over the proposed alternative security (including the right to take possession of and sell those
15
assets) provides further evidence that the proposed alternative security is insufficient to secure
U.S. Steel’s judgment. Exs. 25, 26, 27; supra ¶ 60.
73.
Finally, the Court finds the three independent, third-party sureties’ refusal to
accept as collateral for the supersedeas bond the very assets that Allied is offering to U.S. Steel
as alternative security is strong evidence that the alternative security is inadequate. Indeed,
Allied unsuccessfully offered the sureties assets well in excess of the proposed alternative
security, including all of the assets of the Allied Entities. Specifically, the Court finds that the
sureties’ refusal to accept all of the Allied Entities assets as collateral for an obligation of the
same exact amount as the U.S. Steel judgment confirms that the proposed alternative security is
insufficient. This is especially true when the assets being offered to U.S. Steel are only a portion
of the value of the assets being offered to the third-party surities.
C.
Allied’s Post-Verdict and Post-Judgment Asset Transfers.
74.
Allied has engaged in several post-verdict and post-judgment asset transfers that
lead the Court to question Allied’s representations that it will secure its assets for U.S. Steel’s
eventual execution post-appeal. Those include the following.
1.
75.
Manufacturing equipment transfer from Allied Erecting and
Dismantling to Allied Gator.
A comparison of Allied’s September 2015 and June 2015 financials reveals a
recent movement of assets from Allied to Allied Gator. Specifically, Mr. Falconi identified a
decrease in Allied’s assets, coupled with an increase in Allied Gator’s assets, and a
corresponding increase in debt from Allied Gator to Allied, all of which occurred on September
30, 2015—after the Court’s September 25, 2015 Judgment Entry. Exs. 1, 37; Ex. 12 at 10-13; Tr.
181:23-184:1, 189:20-190:22 (J. Falconi). Allied Gator’s equipment assets increased by over $8
16
million, and the intercompany debt to Allied increased by a post-depreciation amount of nearly
$7 million. Exs. 1, 10, 37; Ex. 12 at 10; Tr. 189:4-190:22 (J. Falconi).
76.
Allied does not contest the substance of its financial statements. Instead, it claims
that Allied Gator initially bought equipment for Allied’s manufacturing facility, but the
equipment was wrongly placed on Allied’s books. Ex. 38. Mr. Anness characterized the
accounting as an “inadvertent error,” and said that the machines were “reflected on the Allied
Erecting fixed asset schedule when [they] should have been on the depreciation schedule of
Allied Gator.” Anness Dep. 43:16-44:7. Allied claims that it attempted to correct its mistake by
placing the manufacturing equipment on Allied Gator’s books instead of Allied’s, on September
30, 2015. Ex. 38; Anness Dep. 38:7-9 (alleging that Allied corrected the mistake via “a
reclassification from one depreciation schedule” to another). Mr. Anness initially, though not
consistently, denied any transfer of assets. Anness Dep. 44:14-25.
77.
Allied’s financials are not consistent with its explanation that this was simply an
accounting mistake and not a transfer of assets.
78.
As Mr. Falconi explained, if the assets were mistakenly on the wrong books, one
would expect to see a correction to shareholder’s equity, with the equity of Allied decreasing (to
account for assets that should not have been there) and the equity of Allied Gator increasing (in
accordance with the additional assets). Tr. 186:10-188:9 (J. Falconi). Instead, Allied’s financials
show changes in intercompany receivables, or the amounts that Allied Gator owed to Allied,
which is not consistent with Allied’s explanation that it was fixing a “mistake.” Id.
79.
Mr. Falconi further explained that it is not likely for such assets to have appeared
on a depreciation schedule by mistake, because such schedules have to be reconciled to the
company financials. Tr. 184:2-185:19 (J. Falconi). In this case, the transferred equipment
17
remained on Allied’s books, as an asset, apparently for years, giving the impression that it was
consciously accounted for in that manner. Id.
80.
Allied’s own intercompany reconciliation reflects intercompany debt from Allied
Gator to Allied that would result from a movement of assets. Ex. 13; Anness Dep. 103:8-104:10;
Tr. 246:21-248:11 (J. Falconi).
81.
Additionally, Allied’s September 30, 2015 accounting journal entries characterize
the transaction as a “Transfer of Asset from Allied Erecting to Allied Gator,” the amount of that
transfer being $8,682,235. Ex. 10; Tr. 132:11-13 (J. Ramun). That $8.6 million “Transfer of
Asset from Allied Erecting to Allied Gator” occurred five days after the Court issued the $9.8
million Judgment Entry in U.S. Steel’s favor in this case. The same September 30, 2015 journal
entries increased Allied’s intercompany receivable due from Allied Gator by $6,752,849 and
increased Allied Gator’s intercompany payable to Allied by $6,752,849. Ex. 10.
82.
Thus, Allied’s accounting records are consistent with Mr. Falconi’s opinion that
assets did move from Allied to Allied Gator.
83.
Moreover, despite his original denial, Mr. Anness characterized the relevant
accounting as a “transfer” multiple times. Anness Dep. 46:21-47:6, 103:8-104:10, 106:7-107:9,
109:15-18, 110:25-111:15. Mr. Falconi testified that such characterizations were consistent with
his opinions concerning the transfer. Tr. 191:12-192:5 (J. Falconi).
84.
In addition, the timing of the asset transfer is telling. Though the equipment was
purchased in 2006, no purported correction was undertaken to Allied’s financials until
September 30, 2015. Ex. 10; Anness Dep. 39:24-40:3, 43:21-25. The Court entered judgment on
September 25, 2015. It is not credible that a multi-million-dollar mistake could go unnoticed for
18
nearly a decade and then suddenly be discovered and corrected only five days after judgment
was entered.
85.
The Court also rejects Allied’s explanation for an additional reason: the
contention that Allied Gator was the original purchaser of the transferred assets is not credible.
86.
Allied’s own testimony defeats its position on this point. Allied originally
contended that Allied Gator is the entity that bought the manufacturing equipment that is to be
placed in Allied’s manufacturing facility. Ex. 38; Tr. 131:2-6 (J. Ramun); see also Anness Dep.
38:12-16. Allied subsequently conceded, however, on multiple occasions, that the funds used to
purchase the manufacturing equipment actually came from Allied Consolidated Industries, which
obtained its funds from various entities, including Allied. Tr. 150:8-18 (J. Ramun); Anness Dep.
105:8-107:9, 108:10-109:9.
87.
Though invoices for the equipment show Allied Gator’s name, the Court finds
that that is not indicative of ownership, especially when Allied has admitted that the money to
purchase the equipment did not come from Allied Gator. Ex. 10; Tr. 217:23-218:13, 244:12-25
(J. Falconi).
88.
Furthermore, Allied’s own intercompany receivables identify the source of the
funds used to buy the equipment, and they indicate it was Allied. Anness Dep. 110:4-111:15. If
Allied Gator had bought the equipment in 2006, there would have been no need to ever associate
the equipment with an intercompany debt to Allied. Tr. 188:10-18 (J. Falconi). Thus, the
undisputed intercompany receivable is irreconcilable with Allied’s claims.
89.
Additionally, in his analysis of Allied Gator’s financials, Mr. Falconi testified that
Allied Gator had not generated enough cash historically to have paid for the transferred
equipment. Ex. 12 at 11-12; Tr. 188:19-189:3 (J. Falconi).
19
90.
There are other, non-financial, reasons for believing the equipment was purchased
by Allied, not Allied Gator. Allied is the entity that owns the office building and manufacturing
facility at 2100 Poland Avenue. Tr. 130:16-19 (J. Ramun). Allied is the entity that contracted
with U.S. Steel to perform manufacturing work. Tr. 130:20-23 (J. Ramun). Allied is the entity
that accepted the $10 million manufacturing advanced payment from U.S. Steel. Tr. 130:24131:1 (J. Ramun). It is likely that Allied would have funded the equipment put in the facility.
91.
The evidence that Allied Gator did not initially purchase the equipment at issue
bolsters the conclusion that the assets must have been transferred from Allied to Allied Gator.
92.
The effect of this transfer is to remove millions of dollars in assets from the entity
against which U.S. Steel has a judgment. Allied’s Intercompany Reconciliation statement reveals
that, as of September 30, 2015, Allied Gator owes Allied $13,246,998, an amount which includes
this transfer and which Allied’s accountants admit Allied Gator cannot pay. Ex. 13; Anness
103:17-105:7. Allied’s President, John Ramun, also admitted that there’s no plan for Allied
Gator to pay Allied the $13.2 million; in fact, he denied that Allied Gator owes Allied the $13.2
million recorded in Allied’s own financials. Tr. 143:19-144:4 (J. Ramun). Thus, the effect of this
transfer is that Allied has replaced tangible assets of real value with a debt from Allied Gator that
is likely uncollectible. Tr. 190:23-191:11 (J. Falconi).
2.
93.
Scrap transfers from Allied Erecting and Dismantling to Allied
Industrial Scrap.
Mr. Anness explained that Allied generates scrap, which it owns, as part of its
operations, but those scrap assets are sold by another entity, Allied Industrial Scrap (“AIS”), and
the proceeds are kept in yet another entity, Allied Consolidated Industries. Anness Dep. 62:2264:15, 65:18-66:25; Tr. 192:19-193:13 (J. Falconi).
20
94.
After the proceeds of Allied’s scrap are accounted with AIS, AIS “loans” the
proceeds back to Allied, leaving Allied with approximately $20 million in debt to AIS for the
value of the scrap Allied generated. Ex. 13; Tr. 194:3-16 (J. Falconi). Essentially, Allied’s
tangible scrap assets are converted to a liability to another entity. Id.
95.
Allied’s own intercompany reconciliation shows the magnitude of this asset
diversion, indicating that Allied owes AIS over $20 million. Ex. 13; Tr. 193:14-194:19 (J.
Falconi).
96.
This ongoing practice of value migration from Allied to AIS will continue to
drain Allied of assets. Tr. 220:11-17 (J. Falconi).
3.
97.
Purported security interests created post-verdict.
The Allied Professionals’ security interests also constitute a post-verdict transfer
of assets that U.S. Steel has argued is voidable under the Ohio Fraudulent Transfers Act. See
generally Objection to Distribution of Auction Proceeds [Doc. No. 344] (“U.S. Steel
Objection”).
98.
As set forth above and in U.S. Steel’s Objection, despite their approximately 30-
year history representing Allied, none of the Allied Professionals had ever asked Allied to sign
security agreements before the verdict in this case. Tr. 101:5-7 (J. Ramun). The timing of the
attempted creation of these purported security interests, which were executed after the jury
verdict but before the entry of an executable judgment, raises suspicion as to the propriety of
Allied’s behavior with respect to U.S. Steel’s collection efforts.
4.
99.
Conclusions regarding Allied’s asset transfers.
Based on the post-judgment transfer of Allied’s equipment assets to Allied Gator,
Allied’s ongoing scrap asset transfers to AIS, and the post-verdict but pre-judgment attempts to
create a secured interest in essentially all of the Allied Entities’ assets in favor of the Allied
21
Professionals, Mr. Falconi reached a conclusion to a reasonable degree of accounting certainty
that U.S. Steel has reasonable grounds for insecurity concerning the availability of assets to
satisfy the judgment after an appeal. Tr. 194:25-195:16 (J. Falconi). The Court agrees.
D.
Allied’s Financial Condition.
100.
While Allied claims that it currently has sufficient assets to satisfy U.S. Steel’s
judgment or to secure a full supersedeas bond, the Court finds that Allied’s financial status is
likely to deteriorate significantly during the time that an appeal is pending in this case.
1.
101.
Allied’s current ability to secure a bond.
In September and November 2015, Allied sold hundreds of pieces of its
equipment. Tr. 120:16-19 (J. Ramun). Those equipment auctions generated over $7 million in
net proceeds and were used to pay off Allied’s secured debt with JP Morgan Chase. Exs. 2, 39,
40; Anness Dep. 18:4-19:12.
102.
Allied’s business plan going forward includes selling additional assets to generate
revenue. Tr. 48:22-49:3, 120:20-23 (J. Ramun).
103.
Allied concedes that it has sufficient additional assets that it could sell in order to
post the bond or to pay the judgment in the event that Allied’s appeal is unsuccessful. Tr.
119:18-22, 120:3-9 (J. Ramun); Allied Memorandum at 7-8, 11 (“In sum, if and when U.S. Steel
is permitted to execute on the judgment, there will be adequate resources available to pay the
judgment amount.”); Ex. 4 ¶¶ 7-9. Allied’s accountant agrees that Allied currently has sufficient
assets to satisfy the judgment. Anness Dep. 15:4-7.
104.
Allied has refused to liquidate those assets to pay for the bond, asserting that
“[t]he damage would be horrific.” Tr. 120:3-9 (J. Ramun). Yet, Allied is signaling a willingness
to sell assets to pay the Allied Professionals and other creditors. [Doc. No. 365 at n. 3.]
22
2.
Allied’s deteriorating financial condition.
(a)
105.
No current contracts.
At the hearing, it was established that Allied has no contracts in progress where it
is actually performing work. Tr. 122:9-11 (J. Ramun); Anness Dep. 72:5-18.
106.
Allied is not currently performing any work for U.S. Steel, and the parties’ 2010
Dismantling Services Agreement expired at the end of December 2015. Tr. 121:6-15 (J. Ramun).
107.
Moreover, it is likely that Allied’s operations will be further “diminished” as
Allied goes forward. Tr. 48:1-14, 124:22-125:9 (J. Ramun).
108.
Allied’s manufacturing facility is still not complete. Tr. 68:11-16 (J. Ramun).
109.
In addition, Allied Gator does not have any pending orders for Gator attachments,
and its business is “slower than normal.” Tr. 122:12-23 (J. Ramun).
(b)
110.
Losing money.
Allied and the affiliated Allied Entities do not currently exhibit signs that they are
financially healthy companies.
111.
First, Allied concedes that the Allied Entities collectively have very little cash on
hand—only $1,009 as of September 30, 2015—and owe their creditors (outside of U.S. Steel)
between $2.6 million and $2.7 million. Anness Dep. 10:10-12, 56:25-57:3; Tr. 123:11-13 (J.
Ramun).
112.
Second, Allied’s current cash flow is negative. Mr. Anness produced a cash-flow
analysis for Allied, which allegedly demonstrated a “burn rate,” or a loss of cash, of
approximately $105,000 per month. Ex. 9; Anness Dep. 33:22-34:6. Thus, even under Allied’s
own best estimate, it is losing money.
113.
Furthermore, there are reasons to believe that Allied has presented an overly
optimistic picture of its financial condition. Mr. Anness’ estimate includes income resulting from
23
the one-time disposition of assets, deferred contract revenue, and other sources of income that
are not representative of ordinary operating income. Tr. 210:21-212:1 (J. Falconi); Anness Dep.
36:3-6 (admitting that the cash-flow analysis includes income from at least one auction); id. at
73:19-79:3 (admitting that Allied’s accounting of its working capital and cash flows are affected
by numerous sums that are not tied to actual operating income).
114.
To produce a more meaningful assessment of Allied’s cash flows related to actual
operating income, Mr. Falconi used a standard accounting metric called EBITDA (earnings
before interest, taxes, depreciation, and amortization). Ex. 12 at 18-19; Tr. 212:2-214:9 (J.
Falconi). Focusing on Allied’s income from actual operations demonstrates that, even when
considering all income generated by all the Allied Entities, the Allied Entities collectively lose
over $200,000 per month. Id.
115.
This means that the Allied Entities are likely to continue to lose money, further
diminishing future assets. Tr. 214:10-16 (J. Falconi).
116.
Furthermore, both parties’ accountants agreed that, if one does not consider the
one-time sale of income-generating assets, Allied lost approximately $7 million between March
and September 2015, before taxes. Ex. 1; Anness Dep. 67:6-69:11; Tr. 214:17-24 (J. Falconi).
117.
Finally, Allied’s accountant admitted that Allied currently cannot generate income
from any source other than the sale of its assets. Anness Dep. 82:6-12. And Allied’s two recent
auctions to pay off its defaulted line of credit resulted in the loss of 40% of it its incomegenerating fleet of equipment, reducing its ability to generate future revenue. Tr. 206:9-21 (J.
Falconi).
24
118.
Third, the Allied Entities do not have sufficient working capital, even when
considering all their resources combined. See generally, Ex. 12 at 14-16; Tr. 206:22-210:20 (J.
Falconi).6
119.
In addition, Allied can no longer draw working capital from its line of credit. As
discussed below, Allied lost its line of credit with JP Morgan Chase and has not replaced it with
another line of credit. Anness Dep. 58:3-21.
(c)
120.
JP Morgan default and loss of letter of credit.
Prior to the equipment auctions Allied held in September and November of 2015,
JP Morgan Chase had declared multiple events of default relating to its loans to Allied. Exs. 31,
32; Tr. 126:15-128:17 (J. Ramun).
121.
The primary reason for the September and November equipment auctions was to
pay off loans that Allied owed to JP Morgan Chase. Tr. 125:14-21 (J. Ramun). Specifically,
Allied paid off a JP Morgan Chase term loan and letter of credit. Tr. 130:8-11 (J. Ramun).
122.
Allied has been unable to replace the JP Morgan Chase line of credit. Tr. 130:12-
14 (J. Ramun).
123.
A line of credit is an essential aspect of a business like Allied’s, where the use of
credit allows the company sufficient resources to carry out projects that generate cash, which is
then used to pay down credit, as well as operate and grow the business. Ex. 12 at 13-14; Tr.
204:16-206:8 (J. Falconi). Loss of a line of credit is a red flag as to whether the company can
continue to operate as a going concern, and can signal uncertainty about a company’s future. Id.
6
Allied claims that Allied Gator is an operational company with an active inventory, but Allied has not offered any
evidence to contradict the evidence that Allied Gator’s inventory is slow-moving, such as proof of sales, work in
progress, or other financial analyses. Tr. 122:12-23 (J. Ramun).
25
(d)
124.
Business plan.
Allied’s business plan going forward includes processing and selling scrap, as
well as selling other assets. Tr. 48:22-49:3, 120:20-23 (J. Ramun).
125.
Allied has not produced any sufficient business plan, recovery plan, or scaling
plan that would indicate a viable plan to continue operating as a going concern. Tr. 215:3-9 (J.
Falconi).
3.
126.
Conclusions regarding Allied’s financial condition.
Based on Allied’s lack of contracts, continuing loss of cash, negligible, if any,
working capital, and lack of credit, Mr. Falconi reached a conclusion to a reasonable degree of
accounting certainty that it is very questionable whether Allied can continue as a going concern.
Tr. 215:18-216:4 (J. Falconi). The Court agrees.
127.
Mr. Falconi also concluded that the value of Allied’s assets is likely to decrease
going into the future. Tr. 216:5-9 (J. Falconi). The Court agrees.
128.
In contrast, Allied’s accountant expressed no analysis or opinion regarding Allied
or any of the other Allied Entities as a going concern. Anness Dep. 13:17-20, 55:24-56:12. He
offered no evaluation of Allied’s ability to generate additional revenue. Anness Dep. 57:4-16,
59:7-13. Nor has Allied produced audited financial statements. (Plus the financial statements that
were provided by Allied were stamped “PRELIMINARY DRAFT SUBJECT TO REVISION.”)
Anness Dep. 49:25-50:2; Ex. 1.
129.
While Allied asserts that it currently has sufficient assets to satisfy the judgment,
the Court concludes that it is unlikely to maintain its current financial status into the future and
during the appeal of this matter. Accordingly, the Court finds that U.S. Steel’s ability to recover
on the judgment is likely to be hampered by a stay of execution if Allied does not post a full
bond.
26
E.
Allied’s Related Arguments.
130.
Allied contends that several other items “should be taken into consideration” as
the Court assesses Allied’s alternative security proposal. Allied Memorandum at 8.
131.
Specifically, Allied contends that the Court should consider the fact that U.S.
Steel has taken a $281,090.65 offset against its judgment.7 Allied Memorandum at 8; Ex. 21.
132.
Additionally, Allied also contends that the Court should consider Allied’s
allegation (which U.S. Steel denies) that U.S. Steel has improperly retained some scrap that
Allied left at Fairless Works. Allied Memorandum at 10; Tr. 145:21-24 (J. Ramun); Ex. 33.
133.
The Court concludes that neither of these “other items” or “claims” are properly
before the Court and do not affect the Court’s analysis with respect to Allied’s requested stay or
alternative security.8
III.
CONCLUSIONS OF LAW
A.
A Full Supersedeas Bond Is Required Absent Extraordinary Circumstances.
134.
Rule 62(d) provides that an appellant may obtain a stay of execution on a
judgment pending appeal by supersedeas bond. Fed. R. Civ. P. 62(d) (“If an appeal is taken, the
appellant may obtain a stay by supersedeas bond … .”).
135.
The two-fold purpose of Rule 62(d) is to balance both parties’ interests. As
district courts in this Circuit, including this Court, have recognized,
Rule 62(d) permits an appellant to obtain a stay “to avoid the risk of satisfying the
judgment only to find that restitution is impossible after reversal on appeal.”
However, to preserve this right, the appellant must forego the use of the bond
money during the appeal period.
7
But the Court notes that the October 22 Writ and November 2 Writ both reflect a credit in the full amount of the
$281,090.65 offset to U.S. Steel’s net judgment.
8
Allied also contends that the Court should consider Allied’s “claim as to Count VII of its Complaint, relating to
railcar and barge work,” but, as Allied recognizes, that claim is “pending” and “unliquidated.” Allied Memorandum
at 10.
27
For the appellee, Rule 62(d) effectively deprives him of his right to enforce a
valid judgment immediately. Consequently, the appellant is required to post the
bond to provide both insurance and compensation to the appellee. The
supersedeas bond protects the non-appealing party “from the risk of a later
uncollectible judgment” and also “provides compensation for those injuries which
can be said to be the natural and proximate result of the stay.” Therefore, Rule
62(d) establishes not only the appellant’s right to a stay, but also the appellee’s
right to have a bond posted.
Physicians Ins. Capital, LLC v. Praesidium Alliance Grp., LLC, No. 4:12-CV-1789, 2013 WL
5232817, at *2 (N.D. Ohio Sept. 16, 2013) (quoting Hamlin v. Charter Twp. of Flint, 181 F.R.D.
348, 351 (E.D. Mich. 1998)) (internal citations omitted).
136.
Although the Court may, in its discretion, approve a stay on other terms,
“[b]ecause of Rule 62(d)’s dual protective role, a full supersedeas bond should almost always be
required.” Id. at *1-2 (quoting Hamlin, 181 F.R.D. at 351); see also Arban v. West Pub. Corp.,
345 F.3d 390, 409 (6th Cir. 2003).9
137.
Furthermore, a full supersedeas bond “should only be excused where the appellant
has demonstrated the existence of extraordinary circumstances.” Johnson v. Connecticut Gen.
Life Ins. Co., No. 5:07-cv-167, 2008 WL 918459, at *1 (N.D. Ohio Apr. 1, 2008), quoting
Verhoff v. Time Warner Cable, Inc., No. 3:05-CV-7277, 2007 WL 4303743, at *4 (N.D. Ohio
Dec. 10, 2007) (collecting cases).
9
Allied relies on Arban for the proposition that when assurance can be obtained that the judgment creditor’s
interests can be protected without a bond, the requirement should be waived. Allied Memorandum at 3. But that
reads the case too broadly. In Alban, the Sixth Circuit affirmed the grant of a stay without bond because of “the vast
disparity between the amount of the judgment … and the annual revenue of the [judgment debtor.]” 345 F.3d at 409.
The same is not true here.
28
B.
Allied Has Not Established Extraordinary Circumstances Justifying A
Departure From The Full Bond Requirement.
138.
Allied has failed to establish extraordinary circumstances warranting a departure
from the general requirement that an appellant seeking to stay execution pending appeal must
provide a full supersedeas bond.
139.
Indeed, Allied’s proposed justifications for departing from the full supersedeas
bond requirement confirm that a full bond is required.
1.
140.
Allied’s purported ability to satisfy the judgment does not justify a
departure from the full bond requirement.
Allied contends that there is no need for a bond because it is so asset-rich that it
can easily satisfy U.S. Steel’s judgment in the event that U.S. Steel prevails on appeal. See Allied
Memorandum at 8, 9, 11; T. Anness October 9 Declaration ¶¶ 7-9. Specifically, Allied contends
that it has approximately $37.5 million in assets, including: machinery/equipment valued at
approximately $23.4 million, structural steel valued at approximately $7.1 million, and real
estate with an estimated tax valuation of just under $7 million.
141.
However, “[t]he requirement of a bond balances and protects the parties’ interests
and is not a mere formality that should be waived simply because [the judgment debtor] may
have the financial wherewithal to pay the judgment if [it does] not prevail on appeal … .”
Progressive Foods, LLC v. Dunkin’ Donuts Inc., No. 1:07-cv-3424, 2011 WL 1601335, at *3
(N.D. Ohio Apr. 27, 2011). Thus, courts in this District generally decline to waive the full
supersedeas bond requirement, even where a party clearly has the ability to pay. See, e.g., id.;
Mengelkamp v. Lake Metro. Housing Auth., No. 11-cv-2589, 2012 WL 6085084, at *2 (N.D.
Ohio Dec. 6, 2012) (rejecting defendant’s motion to waive the full bond requirement based on its
ability to pay from its insurance coverage, reasoning that a stay without full bond “may only be
granted in the most extraordinary of circumstances”). Indeed, numerous courts in this District
29
have held that even corporations with millions or billions of dollars in annual revenues cannot
escape the full bond requirement, even for much smaller judgments than the one at issue here.
See, e.g., Progressive Foods, 2011 WL 1601335, at *2-3 (requiring Dunkin’ Donuts to post a full
supersedeas bond for a $236,000 judgment despite its assets in excess of $40 million and $119
million in annual net income); Johnson, 2008 WL 918459, at *2 (requiring Cigna to provide a
full bond in the amount of $270,000 despite the court’s recognition that “Defendant Cigna will
likely have the ability to pay the judgment[]”); Verhoff, 2007 WL 4303743, at *3 (denying Time
Warner Cable’s request to waive the full bond of $300,000 when it earned over $2.1 billion in
the previous year). These cases demonstrate that even companies in significantly better financial
condition than Allied, whose ability to pay the judgment after an appeal is much more uncertain,
are not able to avoid the full bond requirement.
142.
The Sixth Circuit has held, in a case relied upon by Allied, that a district court did
not abuse its discretion in permitting less than the full supersedeas bond required under Rule
62(d) where a corporate judgment debtor had $2.5 billion in annual revenues and was facing a
$225,000 judgment. Arban, 345 F.3d at 409. Unlike the corporate judgment debtor in Arban,
however, Allied has a negative cash flow, no current contracts, no projected annual revenues,
almost no cash on hand, and no line of credit. In addition, Allied is facing a much more
significant judgment of over $10 million.
143.
Based on these authorities, Allied’s weak and deteriorating financial condition,
and Allied’s lack of substantial annual revenues, the Court concludes that Allied’s current ability
to pay the judgment does not warrant waiving the full supersedeas bond generally required under
Rule 62(d).
30
2.
144.
Allied’s limited cash assets do not justify a departure from the full
bond requirement.
Allied contends that the full bond requirement should be excused because it has
insufficient cash assets to pay for a bond. Allied Memorandum at 11.
145.
But, as noted above, Allied also contends that it has more than sufficient assets to
satisfy the full judgment. Indeed, as Mr. Ramun recognized, Allied could sell those assets to pay
for the full bond. Tr. 119:18-22, 120:3-9 (J. Ramun); Allied Memorandum at 7-8, 11 (“In sum, if
and when U.S. Steel is permitted to execute on the judgment, there will be adequate resources
available to pay the judgment amount.”); Ex. 4 ¶¶ 7-9; Anness Dep. 15:4-7.
146.
Allied has demonstrated a willingness to sell its assets to satisfy other creditors.
See supra ¶¶ 101-1014. Indeed, Mr. Anness and Mr. Ramun testified that selling assets for the
benefit of Allied and its creditors is part of Allied’s business plan going forward. Tr. 48:22-49:3,
120:20-23 (J. Ramun). Thus, it appears that, if it chose to, Allied could post the full bond by
voluntarily liquidating assets not needed for its business operations.
147.
District Courts in this Circuit, however, have rejected similar claims of
“extraordinary circumstances.” See, e.g., Valley Nat’l Gas, Inc. v. Marihugh, No. 07-11675,
2008 WL 4601032, at *2 (E.D. Mich. Oct. 14, 2008) (requiring full supersedeas bond over an
objection that it would “severely impact the firm’s financing[,]” reasoning that “the fact that [a
party] may need to finance the award or that it may be subject to unrecoverable finance charges
and interest does not constitute ‘extraordinary circumstances’”).
148.
The Court concludes that Allied’s claimed lack of cash assets does not warrant a
departure from the full bond requirement.
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3.
149.
Allied’s bankruptcy concerns do not justify a departure from the full
bond requirement.
Allied contends that it may go bankrupt if judgment execution proceeds. Allied
Memorandum at 12.
150.
But if Allied has “such diminished assets that allowing judgment to proceed or
requiring bond to grant a stay would cause [it] to go into bankruptcy, this is exactly the type of
injury against which a supersedeas bond is designed to protect—the possibility that a judgment
may later be uncollectible.” Physicians Insurance, 2013 WL 5232817, at *3 (quoting Bank v.
Byrd, No. 10-2004, 2012 WL 5384162, at *3 (W.D. Tenn. Nov. 1, 2012); see also Infocision
Mgt. Corp. v. Found. for Moral Law, Inc., No. 5:08CV1342, 2012 WL 369454, *4 (N.D. Ohio
Feb. 3, 2012) (“Precisely because Defendant ‘has minimal reserves,’ Plaintiff (i.e., the prevailing
party) needs protection from the possibility that, while the appeal is pending, Defendant’s
financial resources become even more diminished or, for that matter, non-existent.”); Valley
Nat’l Gas, 2008 WL 4601032, at *2.
151.
Thus, if Allied’s financial status is so diminished that requiring the bond would
force it into bankruptcy, that is precisely the injury against which a supersedeas bond is designed
to protect—the possibility that after an appeal, the judgment would no longer be collectible.
152.
The Court concludes that Allied has failed to establish the extraordinary
circumstances that would justify a departure from the full supersedeas bond requirement. Rather,
the Court concludes that requiring Allied to provide a full supersedeas bond appropriately
balances the parties’ interests by placing the risk that Allied’s financial state may deteriorate onto
Allied, the judgment debtor and the appellant, rather than onto U.S. Steel. As set forth above,
“Rule 62(d) establishes not only the appellant’s right to a stay, but also the appellee[’]s right to
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have a bond posted.” Physicians Ins., 2013 WL 5232817, at *2 (quoting Hamlin, 181 F.R.D. at
351).
C.
Even If Allied Had Established Extraordinary Circumstances Justifying
Departure From The Full Bond Requirement, Its Proposed Alternative
Security Is Inadequate To Secure U. S. Steel’s Judgment.
153.
Because Allied has not established extraordinary circumstances justifying a
departure from the full bond requirement, the Court need not consider Allied’s proposed
alternative security.
154.
But even if the Court were to consider Allied’s proposed alternative security, it
would be inadequate to secure U.S. Steel’s judgment.
155.
Allied cites several out-of-Circuit authorities for the proposition that a party in
financial distress may provide alternative security in lieu of the full supersedeas bond generally
required by Rule 62(d). Allied Memorandum at 5-6 (citing Miami Int’l Realty Co. v. Paynter,
807 F.2d 871 (10th Cir. 1986); Poplar Grove Planting & Refining Co. v. Bache Halsey Stuart,
Inc., 600 F.2d 1189 (5th Cir. 1979); and Alexander v. Chesapeake, Potomac, and Tidewater
Books, Inc., 190 F.R.D. 190 (E.D. Va. 1999)). These and other similar authorities make clear,
however, that courts generally consider alternative security only when: (a) a party is currently
unable to satisfy the judgment or to obtain a full supersedeas bond; and (b) the alternative
security would preserve the status quo that exists at the time execution is stayed. See, e.g.,
Poplar Grove, 600 F.2d at 1191 (if “posting of a full bond would impose an undue financial
burden, the court [could] … fashion some other arrangement for substitute security through an
appropriate restraint on the judgment debtor’s financial dealings, which would furnish equal
protection to the judgment creditor.”).
156.
Allied has cited no cases demonstrating that these authorities state the law of this
Circuit or this District. Even if Allied’s authorities applied here, however, granting Allied’s
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proposed alternative security would not be consistent with these authorities because doing so
would not preserve the current status quo: Allied’s admitted ability to satisfy the judgment in
full.
1.
157.
Allied currently has the ability to satisfy the judgment but its rapidly
deteriorating financial state and its post-verdict behavior raise serious
doubts that anything but a full supersedeas bond would preserve the
status quo.
In light of Allied’s admissions about the value of its assets, its current ability to
satisfy U.S. Steel’s judgment, its precarious financial condition going forward, its granting of a
security interest to the Allied Professionals, its accounting and business practice of migrating
value from Allied to AIS, and its post-verdict transfers of assets, a supersedeas bond in the full
amount of the judgment is the only way to preserve the status quo pending appeal.
(a)
158.
Allied’s current ability to satisfy the judgment or to obtain a
bond confirms the need for a full supersedeas bond.
Allied admits that it presently possesses significant assets that would allow U.S.
Steel to collect on the judgment if execution were not stayed. Those assets include, for example,
Allied’s real estate, the structural steel, and Allied’s machinery and equipment (most of which
Allied has not offered as part of its proposed alternative security).
159.
The Court concludes that, based on Allied’s representations about its assets, it
could satisfy the judgment in full if execution were allowed to proceed today.
160.
The Court concludes that, based on Allied’s representations about its assets,
Allied is capable of obtaining a bond, although the Court recognizes that Allied may need to
liquidate some of its assets in order to do so.
34
(b)
161.
Allied’s deteriorating financial condition confirms the need for
a full supersedeas bond.
Allied’s current financial condition leads the Court to question its ability to
continue operating as a going concern even absent U.S. Steel’s execution on the judgment debt.
Allied currently has no contracts for work, almost no cash on hand, and no operating line of
credit, and it is losing hundreds of thousands of dollars each month.
162.
Allied’s weakened financial state is only underscored by its recent equipment
auctions, in which it sold millions of dollars in equipment to satisfy some of its outstanding
debts. And Allied has admitted that it will continue selling assets for the benefit of Allied and its
creditors as a part of its business plan going forward.
163.
In sum, the Court finds it unlikely that Allied will maintain its current financial
state while the appeal is pending, regardless of U.S. Steel’s execution on the judgment. To the
contrary, the Court finds that it is likely that Allied’s financial state will continue to deteriorate,
perhaps significantly, while the appeal is pending.
164.
In light of Allied’s deteriorating financial condition, the Court concludes that
Allied’s proposed alternative security would not secure U.S. Steel’s judgment. Allied appears to
recognize as much when it states that, in the event of an Allied bankruptcy, “U.S. Steel would
arguably be in a worse position as U.S. Steel would lose its judgment lien priority and it would
become but one in a pool of other trade creditors.” Allied Memorandum at 12. Again, this is
precisely the type of injury from which a supersedeas bond is meant to protect the appellee.
Namely, “the bond secures the prevailing party against any loss sustained as a result of being
forced to forgo execution on a judgment during the course of an ineffectual appeal.” See, e.g.,
Hall v. Consol. Freightways Corp. of Del., 142 F. App’x 875, 879 (6th Cir. 2005) (internal
citation omitted).
35
(c)
165.
Allied’s Post-Judgment Asset Transfers Confirm The Need For
A Full Supersedeas Bond.
In denying a stay of execution pending appeal in another case, this Court looked
to the judgment debtor’s behavior as failing to “engender in the Court any hope that the
[judgment debtors] would, without some exterior pressure, feel any need to protect sufficient
funds to pay a judgment should they not prevail on appeal.” Physicians Ins., 2013 WL 5232817,
at *3. Similarly, Allied’s post-verdict and post-judgment conduct in this case does not engender
confidence that its proposed alternative security would adequately protect U.S. Steel’s ability to
collect on the judgment following an appeal.
166.
In addition to the post-trial equipment sales, Allied has engaged in other post-
judgment asset transfers that concern the Court and suggest that Allied may be engaging in
attempts to shield its assets from execution.
167.
Specifically, the Court concludes that Allied’s transfer of $8 million in equipment
from Allied to Allied Gator in exchange for a $6.5 million intercompany receivable confirms that
the proposed alternative security will not secure U.S. Steel’s judgment. The Court concludes that
Allied Gator is unlikely to pay Allied Erecting and Dismantling the intercompany payable.
Moreover, the Court notes that the intercompany asset transfer occurred five days after the
Court’s Judgment Entry and may reflect an intent to shield assets from judgment execution.
168.
In addition, the Court concludes that Allied’s ongoing transfers of its valuable
scrap to AIS in exchange for significant intercompany debt also suggest an attempt to shield
Allied’s assets from execution.
169.
Finally, Allied’s creation of an ever-increasing security interest in all its assets for
the Allied Professionals suggests an intent to frustrate U.S. Steel’s collection efforts in favor of
Allied’s long-time professionals. That this security interest, which was the first one granted in
36
the Allied Professionals’ 30-year history of representing Allied, was created in the short window
between the jury’s verdict and the judgment entry speaks volumes.
170.
In light of these post-verdict and post-judgment asset transfers, the Court
concludes that Allied’s proposed alternative security would not adequately secure U.S. Steel’s
judgment.
2.
171.
Allied’s alternative security proposal is inadequate at any rate.
Even if the Court were to find alternative security appropriate in this case, which
it does not, Allied’s proposed alternative security is inadequate, and not in line with the
alternative security accepted in the cases Allied cites.
172.
As discussed above, there are significant reasons to doubt Allied’s valuation of its
proposed alternative security, and the Court has found that the value of the alternative security is
much closer to $4 million than to Allied’s valuation of $15 million. See supra Section II.B.6 at
¶¶ 69-70.
173.
For example, in the out-of-Circuit alternative security cases Allied has cited, the
Court required the judgment debtor to provide nearly twice the value of the judgment debt in
alternative security. See, e.g., LPP Mortgage Ltd. v. J. Gardner and J. Gardner Co., No. 02-cv1331, 2005 WL 2078339, at *2 (D. Or. Aug. 16, 2005). Similarly, in C. Albert Sauter Company,
Inc. v. Richard S. Sauter Company, Inc., the district court required the judgment debtors to place
into escrow all outstanding shares of the company. 368 F. Supp. 501, 520-21 (E.D. Pa. 1973).
174.
It is also noteworthy that the proposed alternative security was rejected by the
sureties that Allied approached in its attempts to obtain a supersedeas bond. The fact that three
independent, third party sureties have rejected as collateral for the bond the very assets Allied is
now offering to U.S. Steel as alternative security is strong evidence that the alternative security is
inadequate and should be rejected. If independent third parties did not feel sufficiently secure in
37
providing a bond in the exact same amount as the judgment based on the same collateral (in fact,
greater collateral), this is evidence that Allied’s proposal is an inappropriate attempt to shift onto
U.S. Steel the risk that Allied’s assets will be insufficient to secure the judgment after an appeal.
This Court has rejected similar efforts to “place the entire burden” of a stay on a prevailing party,
stating: “Rule 62(d) establishes not only the appellant’s right to a stay, but also the appellee[’]s
right to have a bond posted.” Physicians Ins., 2013 WL 5232817, at *2 (quoting Hamlin, 181
F.R.D. at 351).
175.
The Court concludes that Allied’s proposed alternative security, realistically
valued at less than half of the judgment debt, is not in line with previously approved alternative
security and rejects it on that basis as well.
IV.
CONCLUSION
For the foregoing reasons, Allied’s Motion for Stay of Execution and Approval of
Alternative Security [Doc. No. 318] is DENIED. In order to seek a stay of execution of the
Amended Judgment Entry, Allied must submit a supersedeas bond in the full amount of the
Judgment Entry. In accordance with Fed. R. Civ. P. 62(d), any stay will take effect only if and
when the Court approves the bond.
Until such time, U.S. Steel may continue to execute upon the Amended Judgment Entry.
Accordingly, simultaneous with the entry of these Findings of Fact and Conclusions of Law, the
Court is signing and entering U.S. Steel’s October 22 Writ and November 2 Writ [Doc. Nos.
325, 334].
IT IS SO ORDERED.
Dated: March 21, 2016
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE
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