A federal bankruptcy judge has ruled in favor of Stopol Inc. and its Stopol Auctions LLC unit in a lawsuit related to the 2005 Chapter 11 bankruptcy of housewares molder Cornerstone Products Inc.
Durant, Okla.-based Cornerstone in November 2006 sued Stopol of Solon, Ohio, for $1.4 million several months after Stopol handled the auction of Cornerstone assets.
Cornerstone alleged that Stopol made about $1 million in secret profit from their relationship, and that Stopol bought some Cornerstone equipment from creditors and resold it through transactions that it kept secret from Cornerstone and the U.S. Bankruptcy Court in Sherman, Texas.
Judge Brenda Rhoades dismissed the lawsuit Sept. 30, ruling Stopol ``did not engage in fraud and did not breach [its] fiduciary duty to Cornerstone or the bankruptcy estate.''
Rhoades did order Stopol to pay $6,500 to Sundance General LLC, the liquidation company formed by Reggie Sullivan, Cornerstone's founder, chairman and chief executive officer.
Stopol owed that amount on about $3.5 million in Cornerstone machinery that it bought by agreement with Sullivan prior to the Feb. 8, 2006 auction.
``Stopol has maintained all along that Cornerstone's claims were false and unwarranted and now we have a judge's ruling to confirm it. Being publicly vindicated in a court of law further supports our reputation as an honest and upstanding company,'' Stopol Chief Executive Officer Neil Kruschke Jr. said in an Oct. 27 news release.
Sundance and Sullivan are appealing the ruling. Calls to their lawyer, Frank Wright of Dallas, were not returned.
Stopol marketing director Bryan Kokish said in an Oct. 29 telephone interview that Stopol is not worried about the appeal. ``Judge Rhoades has never had a case overturned on appeal since she's been on the bench,'' Kokish said. Rhoades was appointed in 2003.
In the news release, Stopol lawyer Marvin Karp of Cleveland noted that the judge's ruling found that Cornerstone had encouraged Stopol's direct purchase of nine machines before the auction and that ``the purchases made by Stopol were `inherently fair' to Cornerstone.''
In her ruling, Rhoades said Stopol did not have any offers in hand with respect to the machines it bought before the auction.
``Sundance may not now complain, with the full benefit of hindsight, that the price Mr. Sullivan agreed to accept for Cornerstone's property was too low. Moreover, in light of the casual way in which Reggie Sullivan and Neal Kruschke did business, as well as Sullivan's knowledge that Stopol intended to purchase some of Cornerstone's property, the court does not find any intentional fraud by Stopol or any other grounds for an award of exemplary damages,'' Rhoades wrote.
According to Stopol, the auction was a huge success, attracting more than 250 bidders and generating $1 million for Cornerstone.