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Primex Plastics Corp. v. Zamec

United States District Court, W.D. Wisconsin

July 25, 2016



          BARBARA B. CRABB District Judge.

         From early 2008 to the end of 2010, plaintiff Primex Plastics Corporation was a supplier of plastic to a company known as TriEnda, LLC. The two companies had a credit agreement, but TriEnda fell behind on its payments after its biggest customer stopped ordering new product and paying for product previously ordered. In the end, TriEnda failed to pay plaintiff approximately $2.7 million for goods plaintiff had supplied.

         Plaintiff attributes TriEnda’s failure to pay to its negotiation of a new loan taken out primarily on behalf of its largest stockholder, defendant Curtis Zamec, to allow him to redeem shares of stock held by the trust of his late wife. Plaintiff contends that the redemption violated §§ 242.04(1)(a) and 242.04(1)(b)2 of the Wisconsin Fraudulent Transfers Act and seeks to collect damages from defendant Zamec. Defendants deny that the redemption was fraudulent in any respect or that it was the cause of TriEnda’s inability to satisfy its debt to plaintiff.

         At trial, plaintiff failed to prove that defendant Zamec violated any provision of the two sections of Fraudulent Transfers Act on which plaintiff relied; in other words, plaintiff could not prove that he acted with actual intent to defraud plaintiff or any other creditor or that either he or TriEnda had engaged in a transfer without receiving a reasonably equivalent value in exchange at a time when they reasonably should have believed that TriEnda would incur debts beyond its ability to pay as they became due. Finally, plaintiff failed to prove causation, whereas defendants showed that TriEnda would have run out of funds to pay plaintiff no later than 13 months after the redemption, even if TriEnda had not negotiated a new loan in order to redeem shares from the Nancy L. Zamec Revocable Trust. I conclude therefore that defendants are entitled to judgment in their favor.


         Plaintiff Primex Plastics Corporation is a New Jersey corporation with its principal place of business in Indiana. It manufactures and sells a variety of plastic products, primarily to commercial customers.

         Until it was dissolved in December 2012, defendant TriEnda was a limited liability company with its principal place of business in Wisconsin. Defendant Curtis Zamec was TriEnda’s managing member and majority owner; he is a citizen of Illinois and is the trustee of all of the defendant trusts, including the Nancy L. Zamec Revocable Trust. That trust plays a part in this litigation but the remaining Zamec trusts were named as defendants only as a means of reaching property to which plaintiff might have a claim.

         Defendant Zamec acquired TriEnda in 2007, when his then-employer, Wilbert, Inc., decided to sell its TriEnda plastics division and concentrate on its custom parts business. He saw the purchase of TriEnda as an opportunity to take over the manufacturing of the plastic pallet top decks Wilbert had been supplying to Schoeller Arca Systems (SAS), a leading manufacturer of plastic pallets. Zamec and two other investors bought the TriEnda division for $20 million at the end of 2007. Zamec held 64% of the stock; the other two investors held 34% between them. At the time, TriEnda’s revenues were $66 million, with EBITDA (earnings before interest, taxes, depreciation and amortization) of $6 million.

         Under its new management, TriEnda manufactured single and twin sheet thermoformed plastic products, including a range of plastic shipping pallets. In 2008, shortly after it was formed, the company entered into a written credit agreement with plaintiff, under which plaintiff agreed to provide materials on 30-day, interest-free credit and TriEnda agreed to certain credit terms for any purchases made thereafter. About the same time, TriEnda signed an exclusive five-year strategic supply agreement to sell plastic pallet top decks to SAS. The agreement made SAS TriEnda’s dominant customer immediately, accounting for approximately two-thirds of the company’s sales in 2008 and 87% in 2009.

         SAS had its own five-year contract to sell plastic pallets to Intelligent Global Pooling Systems, the world’s largest plastic rental company, which rented pallets to large volume multinational shippers around the world, such as General Mills, Dole, Pepsico and S.C. Johnson. iGPS had raised at least $400 million in funding for its pallet production. (It was the first company to provide all-plastic pallets with embedded RFID radio-frequency identification tags). TriEnda and SAS estimated orders under their contract at 6 million sales of top decks each year, for an annual revenue of $155 million to $180 million.

         In 2008, TriEnda’s total revenue was $104 million, with EBITDA of $9.5 million. In 2009, it was $177 million, with $10.7 EBITDA.

         In May 2009, defendant Zamec’s wife, Nancy, died. Around that time, he began the process of liquidating the Nancy Zamec trust’s ownership interest in TriEnda through a redemption of shares, which would help him settle his wife’s estate.

         In October 2009, TriEnda hired William Blair & Company, an investment banking firm, to find a lender willing to finance the share redemption and refinance TriEnda’s preexisting corporate debt. The company had sales of 1.8 million top decks in 2008 and was projecting increases of the sales of its product to 5.3 million in 2009, 6.7 million in 2010, 6 million in 2011 and 2012 and 4.4 million in 2013, for total sales of more than 30 million top decks. At the time, TriEnda had a credit agreement with J P Morgan Chase Bank in the amount of $21.5 million, $13 million of which was in a revolver loan, that is, a loan that allowed the loan amount to be withdrawn, repaid and withdrawn again in any manner and any number of times. The remainder of the loan was a term loan of $8.5 million.

         William Blair sent a debt facility offering memorandum to several financial institutions, including Fifth Third Bank. From its review of the memorandum, Fifth Third understood that the purpose of the offering was to refinance TriEnda’s existing credit lines into a comprehensive financing arrangement and repurchase the majority of the ownership interest then held by the Nancy Zamec trust. As part of its pre-offer due diligence, Fifth Third met with TriEnda officials to evaluate the TriEnda-SAS contract and the TriEnda/SAS/iGPS supply chain.

         After completing its evaluation of the refinancing, Fifth Third Bank submitted an offer for a loan of $35 million, $14.75 million of which was to be used for the redemption of the Nancy Zamec trust units, with the remainder to be used to increase TriEnda’s working capital. Fifth Third Bank had reviewed the the company’s historic and projected performance figures and was satisfied that the redemption was not likely to be financially harmful to TriEnda.

         TriEnda chose the Fifth Third proposal after comparing it to other offers received by William Blair. Zamec signed a term sheet with Fifth Third Bank on December 2, 2009, after which bank undertook additional due diligence on the proposed transaction, reviewing financial reports, accounts receivables, inventory reports and accounts payables. In addition, it conducted a field examination, hired an appraiser and evaluated the projections and underlying assumptions and had its counsel conduct an independent review of the TriEnda-SAS agreement. Fifth Third was aware that the SAS contract represented 80-85% of TriEnda’s business. For this reason, it evaluated the contract and the supply chain to confirm that there was interest in maintaining the contract, as well as to examine the supplier relationship and iGPS’s ability to pay.

         As of November 2009, TriEnda owed, and was paying, plaintiff about $10 million for purchases of product made under their credit agreement. On December 11, 2009, after TriEnda had signed a term sheet outlining the terms of the refinancing by Fifth Third and while the bank was conducting due diligence, defendant Zamec and TriEnda received an email from the president of SAS, Robert Engle, saying that SAS was lowering its sales estimates for the first quarter of 2010. At the ...

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