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Schoonover v. Hallwood Financial Ltd.

United States District Court, W.D. Louisiana, Shreveport Division

July 20, 2018

STEVEN L. SCHOONOVER
v.
HALLWOOD FINANCIAL LTD., ET AL.

          HAYES MAGISTRATE JUDGE

          MEMORANDUM RULING

          S. MAURICE HICKS, JR., CHIEF JUDGE

         Before the Court is a bankruptcy appeal filed by Appellant, Steven L. Schoonover (“Schoonover”), appealing the bankruptcy court's Judgment on Partial Findings and Judgment in favor of Appellees, Hallwood Financial Limited (“HFL”) and Hallwood Modular Buildings, LLC (“HMB” and collectively, the “Hallwood”), dismissing his claims of detrimental reliance and promissory estoppel, breach of contract, and unjust enrichment. See Record Document 1. Schoonover argues only that the bankruptcy court erred in dismissing his detrimental reliance claim. See Record Document 9. For the reasons contained in the instant Memorandum Ruling, the bankruptcy court's ruling is AFFIRMED.

         FACTUAL AND PROCEDURAL BACKGROUND

         From late 2011 through mid-2013, Hallwood loaned or guaranteed loans of millions of dollars to MB Industries, LLC (“MBI”). See Record Document 3 at 15-16, 182; Record Document 4 at 51. MBI's obligations to repay its loans to Hallwood are secured by security interests to Hallwood in all of MBI's accounts, inventory, equipment, goods, general intangibles and other collateral. See Record Document 3 at 180. However, after MBI continued to suffer financial difficulties in mid-2013, Hallwood refused to lend any more money to MBI. See id. at 16, 180-82; Record Document 4 at 50-51.

         As a result, Frederick Gossen (“Gossen”), the CEO and manager of MBI began searching for new financing to keep MBI afloat. See Record Document 3 at 12, 16. He found Schoonover, who was a successful businessman in the telecommunications industry. See Record Document 4 at 145-147. In 1982, Schoonover had started Fibrebond Corporation, where he served as president and CEO. See id. Fifteen years after starting Fibrebond, Schoonover founded CellXion, Inc., another telecommunications company that was also involved in manufacturing concrete shelters. See id. Schoonover served as CEO of CellXion from 1997 until 2007. See id. While at Fibrebond and CellXion, Schoonover negotiated numerous contracts and had lawyers draft contracts, which he reviewed. See id. Prior to his business career, Schoonover practiced law in Texas in the late 1970s and early 1980s. See id.

         In August or September of 2013, Gossen and Schoonover began discussions on a business arrangement involving MBI, including possible loans from Schoonover to MBI and Schoonover's possible acquisition of equity in MBI. See Record Document 3 at 16-20. Schoonover learned from MBI that the Hallwood entities were large creditors of MBI and held security interests in MBI's assets, including inventory, equipment, and accounts receivable. See Record Document 5 at 5-7. On the morning of October 21, 2013, Schoonover sent Gossen an email stating that he wanted Gossen to approach MBI's trade creditors, another MBI creditor, David Dooley, MBI's salesmen, and Hallwood in order to negotiate specific reductions on their claims against MBI. See Record Document 2-16 at 5. He told Gossen: “you have to lead the charge by telling them that I have made no binding offer but if they will agree to the terms I have lined out I will submit a binding offer.” Id.

         As to Hallwood, in this email, Schoonover directed Gossen to:

[a]pproach Tony [Gumbiner of Hallwood] and tell him I haven't made a binding offer but I believe a deal could be cut to pay them $5 million over 5 years with no interest and one million becoming due each year . . . if the million is not paid by year end then that portion of the million that is not paid starts accruing interest at 6% until it is paid and each year a new one million is due until the 5 million plus interest is paid.

Id. Gossen forwarded this email to Gert Lessing (“Lessing”), the President of HFL and President and Co-CEO of HMB. See Record Document 2-16 at 4. In transmitting that email, Gossen also told Lessing that MBI needed an immediate $1 million cash infusion “today to get projects on schedule . . . and to cover payroll this week.” Id.

         On the same October morning, Lessing responded to Schoonover's message with the reply (which he repeated twice at Schoonover's and Gossen's request) that “[s]ubject to reaching a definitive agreement with Mr. Steve Schoonover, ” the Hallwood entities considered Schoonover's emailed proposal to be an acceptable framework under which Hallwood would accept $5 million as payment for all monies due from MBI. Id. Gossen then forwarded one of these Lessing emails to Schoonover's lawyer, John McKnight (“McKnight”), with the following message:

Our short term objective is to get an agreement in place that will provide Steve security on [MBI's] receivables that are currently secured to Hallwood, in order for Steve to advance funds. Moreover, [Lessing's] email will encompass the larger scope of the transaction that will need to be papered per Steve's direction.

Id. at 11. Two days later, while on vacation, Schoonover wrote: “[C]all Chris[, ] the lawyer who is sitting in for [McKnight]. He has talked with [Hallwood lawyer Alan Kailer] [and] they believe initial is 1M so that covers 500 & 500[, ] which would be good if they agree as it will give us more time to [n]egotiate total deal.” Id. at 16. Then, on the morning of October 24, Schoonover's lawyers with the Locke Lord firm in Dallas delivered to Alan Kailer (“Kailer”), Hallwood's lawyer, a proposed form of subordination agreement. See id. at 22-26. That document stated: “Borrower [MBI] wishes to obtain financing from Lender [Schoonover], and Lender has agreed to provide such financing to Borrower on condition that HFL subordinates to Lender any and all interest which HFL may presently have or may hereafter acquire in and to certain of Borrower's assets.” Id. at 22.

         At Schoonover's request, on the afternoon of October 24, 2013, Schoonover, Gossen, Lessing, Anthony Gumbiner (“Gumbiner”), a director of both HFL and HMB, and Joe Koenig, an officer for Hallwood, held a 10 minute conference call (the “October 24 conference call”). See Record Document 3 at 26-27, 185. Schoonover was on vacation, and it was the first time Schoonover and Gumbiner had ever spoken. See Record Document 5 at 25, 41. At the trial, Judge Norman heard testimony about this conference call from Schoonover, Lessing, Gumbiner and Gossen. In the Judgment on Partial Findings, the bankruptcy court found:

• “During this brief conference call, Schoonover and Gumbiner discussed an arrangement by which the Hallwood entities would accept a new $5 million promissory note in exchange for the total indebtedness owed to the Hallwood entities by MBI and its affiliates, subject to the requirement that such new $5 million note be made or guaranteed by a well-capitalized or viable entity to be created by Schoonover.” Record Document 1-1 at ¶ 33.
• “There was no further discussion during this call as to the meaning of a ‘well-capitalized' or ‘viable' entity which would be an obligor on this $5 million promissory note. . . . The parties never agreed on the precise meaning of a ‘viable' or ‘well-capitalized' entity in the context of this framework.” Id.
• “During this telephone conversation, the parties agreed to discuss further details of the arrangement upon Schoonover's return from vacation and that any such agreement would be formalized in writing and signed by the parties.” Id. at ¶ 34.
• “Schoonover offered for his lawyers to prepare the first draft of such documents and submit them to the Hallwood lawyers for review. Both sides wanted to review the documents promptly; in Schoonover's words, ‘the sooner the better.'” Id.
• “During the call, the parties also briefly discussed MBI's pressing cash needs. Schoonover requested that the Hallwood entities subordinate their security interest in MBI's accounts in favor of his proposed loan to MBI. On behalf of the Hallwood entities, Gumbiner agreed to subordinate up to $1 million of the Hallwood entities' security interests in MBI's accounts to any loans by Schoonover to MBI.” Id. at ¶ 35.
• “Various subjects were not discussed during the conference call. The parties did not discuss whether, in exchange for this $5 million note, HMB would also relinquish its Class C membership interest in MBI. The parties also did not discuss any period of time or parameters for due diligence activities in connection with this transaction, and the parties did not discuss any representations and warranties that would bind the parties in any such transaction.” Id. at ¶ 36.
• “Gumbiner, who is an English solicitor and investment banker with experience in transactions of this type, testified credibly that such proposals are invariably formalized in writing and inclusive of provisions such as representations and warranties by all parties, remedies on default, specification of the objects of the transaction and provisions relating to the performance of due diligence prior to a closing.” Id. at ¶ 37.

         Shortly after that conference call, Schoonover loaned $500, 000 to MBI. See Record Document 2-21 at 57.

         Over the next five months, Lessing and Kailer repeatedly asked Schoonover and his lawyer to deliver drafts of the promised definitive documents. See Record Document 2-19 at 123; Record Document 2-14 at 8. Schoonover did not deliver any drafts until late March 2014. See Record Document 2-20 at 57-144.

         Meanwhile, Schoonover and Lessing engaged in protracted negotiations over terms of the proposed deal. Just a few days after the October 24 conference call, after Lessing had confirmed that Hallwood would subordinate its security interest in MBI's accounts only up to $1 million, as specified in the framework for the proposed financing transaction that Schoonover and Hallwood discussed in the October 24 conference call (the “October 24 Framework”), Schoonover re-opened negotiations on that very point. By email to Lessing on October 30, Schoonover said:

In order to accomplish [paying $5 million to Hallwood] we need uncompromising access to receivables and the proceeds therefrom after the agreement is executed. We are allowing you to keep all other liens ...

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