Langdale Capital Assets, Inc. v. Woodard (In re Berkman)

517 B.R. 288

In re: Craig L. Berkman, Debtor.

Langdale Capital Assets, Inc., et al., Plaintiffs

v.Susan K. Woodard, et al., Defendants.

In re: Synectic Asset Management, Inc., Debtor.

Susan K. Woodard, et al., Plaintiffs

v.Langdale Capital Assets, Inc., et al. Defendants.

Case No. 8:09–bk–05169–CED

Adv. Pro. No. 8:13–ap–336–CED

Case No. 8:09–bk–05172–CED

Adv. Pro. No. 8:13–ap–469–CED

United States Bankruptcy Court, M.D. Florida, Tampa Division.

Signed September 29, 2014

Kevin W. Barrett, Rodney A. Smith, Bailey & Glasser, LLP, Charleston, WV, Roberta A. Colton, Tampa, FL, for Defendants Synectic Ventures I, LLC, Synectic Ventures II, LLC, Synectic Ventures III, LLC.

Jake C. Blanchard, Blanchard Law, PA, Largo, FL, William P. Langdale, III, Langdale Valloton, LLP, Valdosta, GA, Scott A. Underwood, Fowler White Boggs PA, Tampa, FL, for Plaintiffs JLD Properties, LLC, Langdale Capital Assets, Inc., Ferrell Scruggs, Jr., Patrick Robinson.

William C. Elliott, Elliott & Associates, PA, Gulf Breeze, FL, for Defendant Charles F. Faddis.

Lara Roeske Fernandez, Trenam, Kemker, et al, Tampa, FL, for Defendants Synectic Ventures I, LLC, Synectic Ventures II, LLC, Synectic Ventures III, LLC and Susan K. Woodard.

Paige A. Greenlee, C. Read Sawczyn, Sivyer Barlow & Watson P.A., Tampa, FL, for Defendant Alco Holdings, LLC.

Stephanie C. Lieb, Trenam, Kemker, Tampa, FL, for Defendant Susan K. Woodard.

Chapter 7

ORDER GRANTING MOTIONS FOR SUMMARY JUDGMENT FILED BY THE TRUSTEE, THE SYNECTIC FUNDS, AND ALCO AND DENYING MOTIONS FILED BY LANGDALE PLAINTIFFS AND THE INVESTMENT GROUP

Caryl E. Delano, United States Bankruptcy Judge

The primary question presented in these two related adversary proceedings is whether a Chapter 7 debtor's payments to the Chapter 7 trustee in settlement of disputed claims may be avoided as fraudulent transfers under the Florida Uniform Fraudulent Transfer Act (“FUFTA”) by creditors who claim the payments are traceable to funds that the debtor fraudulently obtained from them. Because the Court finds that the Chapter 7 Trustee accepted the payments in good faith and for reasonably equivalent value, the Court concludes that the payments are not subject to avoidance under FUFTA or on other equitable grounds and will grant summary judgment in favor of the Chapter 7 Trustee and the parties to whom she distributed the settlement payments.

I. Facts

A. The History of the Synectic Funds' Claims

The facts are not in dispute. The Debtor, Craig Berkman (“Berkman”), is a law school graduate and a well-known political figure in Oregon, having previously run for governor of that state. Berkman formed a number of venture capital investment firms for the purported purpose of investing in start-up companies in the Oregon area, including Synectic Ventures I, LLC, Synectic Ventures II, LLC, and Synectic Ventures III, LLC (collectively, the “Synectic Funds”). Berkman conducted business through a management company, Synectic Asset Management Company, Inc. (“SAM”). As it turned out, the monies invested in the Synectic Funds were not used to develop start-up companies. Instead, Berkman diverted monies from the Synectic Funds and others in the process of running an elaborate Ponzi scheme.

In November 2005, Berkman, aware that creditors were about to take action against him, moved to Florida where he purchased a home for almost $4,000,000.00. In December 2005, he got married.¹ On December 20, 2005, the Synectic Funds filed a lawsuit in Oregon against Berkman and others. After being served with the complaint in that lawsuit, Berkman transferred title to his Florida home to himself and his wife as tenants by the entireties. In June 2008, the Oregon jury returned a verdict in favor of the Synectic Funds and against Berkman, SAM, and the other defendants. Shortly after the jury returned its verdict, Berkman transferred over 600,000 shares of stock he owned in EVI Corporation to himself and his wife as tenants by the entireties. He also transferred nearly all the money he held in bank accounts to a bank account held as tenants by the entireties with his wife. In November 2008, judgment was entered against Berkman and SAM, jointly and severally, in favor of the Synectic Funds for compensatory damages of approximately $15 million and punitive damages against Berkmanfor $10 million and SAM for $4.7 million. In the meantime, Berkman continued to conduct business, forming new venture capital funds that he managed through SAM.

B. The Bankruptcies and the Global Settlement Agreement

On March 20, 2009, the Synectic Funds, represented by the law firm Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, P.A. (“Trenam Kemker”), filed involuntary bankruptcy petitions against Berkman and SAM, both of whom consented to orders for relief (the “Berkman Case” and the “SAM Case”). Susan Woodard was appointed as the Chapter 7 Trustee (the “Trustee”) in both cases. The Trustee retained Trenam Kemker as special counsel.

In the Berkman Case, the Trustee filed objections to Berkman's claimed exemptions, including his claims that assets such as the Florida home, bank account, and EVI Corporation stock were exempt as tenancy by the entireties property.² The Trustee also filed an adversary proceeding against Berkman seeking to avoid and recover his transfers of those assets.³ In addition, the Synectic Funds commenced two adversary proceedings against Berkman: one objecting to his discharge,⁴ and the other to except their debt from discharge.⁵

In the SAM case, the Trustee filed an adversary proceeding against Berkman and Ventures Trust Asset Management, a company owned by Berkman, to avoid the fraudulent transfers by SAM of various management agreements,⁶ and adversary proceedings against other Berkman entities, Synectic Asset Ventures, LLC, to avoid the fraudulent transfer of $295,000.00,⁷ and Synectic Ventures V, LLC, to avoid the transfer of $50,000.00.⁸

The Trustee and the Synectic Funds, on the on the one hand, and Berkman and SAM, on the other, negotiated the resolution of all issues between them (the “Global Settlement Agreement”). The Global Settlement Agreement called for Berkman to pay a total of $4,750,000.00 to the Trustee (in installments) in exchange for the Trustee's abatement, and eventual dismissal, of the pending litigation against Berkman and SAM and the Trustee's sale of other estate assets back to Berkman. The settlement funds were to be divided equally between the Berkman and SAM Cases. The Synectic Funds, in consideration of the receipt of their pro rata share of the Trustee's distributions to unsecured creditors (which would include Berkman's $4,750,000.00 settlement payment), agreed to dismiss their adversary proceedings so that the balance of the debt owed to them by Berkman would be discharged. The Synectic Funds also agreed to pay $97,270.00 and transfer shares of stock in and unrelated company, Well Partner, to one of Berkman's companies.

Relevant to the issues in these adversary proceedings is Section 4.2 of the Global Settlement Agreement. Section 4.2 provides that if Berkman defaulted in payments or failed to satisfy the requirements of Section 4.5, the Global Settlement Agreement is terminated and of no further effect. Section 4.5 of the Global Settlement Agreement required Berkman's attorney⁹ to

(i) certify that (a) the source of the Settlement Funds is compensation paid or to be paid to Mr. Berkman and is not from an investment fund which is managed for the benefit of third parties, and (b) the funding source has been given notice of the settlement approval objection/hearing process at least five business days in advance of the date of the hearing by the Bankruptcy Court, (ii) provide proof of such notice to the Bankruptcy Court confidentially and under seal, without access to such notice by the Trustee, and Petitioning Creditors [the Synectic Funds] or any other creditors, and (iii) seek and obtain a finding from the Bankruptcy Court that Mr. Berkman's fund-raising transaction that is the source of the Settlement Funds is a good faith transaction arising postpetition.¹⁰

In other words, rather than obtaining a certification from Berkman, who was known to have defrauded investors in the past, the Trustee required Berkman's attorney to conduct an independent investigation into the source of the funds. Section 4.5 contemplated that the identity of the funding source would remain confidential and not be disclosed to the Trustee or the Synectic Funds.

Pursuant to Fed. R. Bankr.P. 9019, the Trustee filed a motion with this Court asking for approval of the Global Settlement Agreement.¹¹ To satisfy the requirements of Section 4.5 of the Global Settlement Agreement, on May 21, 2011, Berkman's attorney wrote a letter to John B. Kern, Esq., a Georgia attorney, and obtained his initials and countersignature to the letter. The letter advised Mr. Kern of the upcoming hearing on the motion to approve the Global Settlement Agreement and confirmed a telephone conversation with Mr. Kern, in which Mr. Kern represented that Ventures Trust Management, LLC (“VTM”) was his client. The letter stated:

You indicated that [VTM] is the source of funds relative to payments that have been made under the Settlement Agreement. You advised that Mr. Berkman is serving as a consultant to [VTM], an entity in which he has no ownership. [VTM] established this consultation role with Mr. Berkman in the fall of 2010. [VTM] has delivered to Mr. Berkman consulting fees and/or has advanced funds for consulting fees to be paid based upon the progress of the various projects which are managed by [VTM]. These projects cover a variety of industries and include those with real, tangible structures and projects. You were very clear that none of the funds use[d] to pay any of the fees delivered to Mr. Berkman are derived from investors in [VTM] projects or from projects of funds that are managed by [VTM] for the benefit of third parties.¹²

Berkman's attorney filed a motion to file the letter under...