Credit Managers Association of Southern California v. Federal Company

629 F. Supp. 175 (1985)

From our private database of 46,300+ case briefs, written and edited by humans—never with AI.

Credit Managers Association of Southern California v. Federal Company

United States District Court for the Central District of California
629 F. Supp. 175 (1985)

Facts

Crescent Food Company (Crescent) distributed food in California. The Federal Company (defendant) owned Crescent until May 1982, when Federal sold Crescent to the Teeple-Reizer Acquisition Company (TRAC), an entity comprised of Crescent’s top management, in a leveraged buyout (LBO). Two senior Crescent executives contributed $85,000 to TRAC. TRAC paid for Crescent with cash and a promissory note from TRAC and Crescent. Crescent also paid off a $7.25 million loan from Federal, which Crescent funded with a loan from the General Electric Credit Corporation (GECC). GECC made the loan based on its valuation of Crescent’s expected cash flows and assets. In November, GECC loaned Crescent an additional $2.5 million. After the LBO, Crescent suffered several setbacks: (1) suppliers extended less credit, requiring Crescent to pay its bills sooner; (2) Crescent had to match competitors who gave customers more time to pay; (3) Crescent workers went on strike; and (4) some Crescent customers went out of business. In October 1983, Crescent assigned its assets for the benefit of its creditors, which was a California alternative to bankruptcy, to the Credit Managers Association of Southern California (CM) (plaintiff). CM sued Federal, alleging, among other things, that (1) the LBO was a fraudulent conveyance because it left Crescent with unreasonably small capital and (2) Crescent’s note payments to Federal were unlawful shareholder distributions. Federal responded that the LBO did not undercapitalize Crescent, primarily citing GECC’s favorable projections, GECC’s November loan, and the fact that TRAC’s principals invested their own money. Federal attributed Crescent’s inability to meet GECC’s projections on the strike and other post-LBO setbacks. CM countered with an expert witness who attacked GECC’s sales forecast and questioned Crescent’s ability to obtain additional post-LBO loans if necessary. Federal also argued that CM did not have standing to pursue an unlawful-distribution claim because it was not a Crescent creditor.

Rule of Law

Issue

Holding and Reasoning (Rafeedie, J.)

What to do next…

  1. Unlock this case brief with a free (no-commitment) trial membership of Quimbee.

    You’ll be in good company: Quimbee is one of the most widely used and trusted sites for law students, serving more than 815,000 law students since 2011. Some law schools even subscribe directly to Quimbee for all their law students.

  2. Learn more about Quimbee’s unique (and proven) approach to achieving great grades at law school.

    Quimbee is a company hell-bent on one thing: helping you get an “A” in every course you take in law school, so you can graduate at the top of your class and get a high-paying law job. We’re not just a study aid for law students; we’re the study aid for law students.

Here's why 815,000 law students have relied on our case briefs:

  • Written by law professors and practitioners, not other law students. 46,300 briefs, keyed to 988 casebooks. Top-notch customer support.
  • The right amount of information, includes the facts, issues, rule of law, holding and reasoning, and any concurrences and dissents.
  • Access in your classes, works on your mobile and tablet. Massive library of related video lessons and high quality multiple-choice questions.
  • Easy to use, uniform format for every case brief. Written in plain English, not in legalese. Our briefs summarize and simplify; they don’t just repeat the court’s language.

Access this case brief for FREE

With a 7-day free trial membership
Here's why 815,000 law students have relied on our case briefs:
  • Reliable - written by law professors and practitioners, not other law students
  • The right length and amount of information - includes the facts, issue, rule of law, holding and reasoning, and any concurrences and dissents
  • Access in your class - works on your mobile and tablet
  • 46,300 briefs - keyed to 988 casebooks
  • Uniform format for every case brief
  • Written in plain English - not in legalese and not just repeating the court's language
  • Massive library of related video lessons - and practice questions
  • Top-notch customer support

Access this case brief for FREE

With a 7-day free trial membership