Takacs v. David E. Lewis, for Stone Pine Inv. Banking, LLC (In re Stone Pine Inv. Banking, LLC)

635 B.R. 379

IN RE: STONE PINE INVESTMENT BANKING, LLC, Debtor.

Jack Takacs, Appellant,

v.David E. Lewis, as Chapter 7 Trustee for Stone Pine Investment Banking, LLC, Appellee.

Civil Action No. 20-cv-1372-WJM

C/w Civil Action Nos. 20-cv-1395-WJM, 20-cv-1723-WJM, 20-cv-1724-WJM

Bankruptcy No. 10-37635-KHT

Adv. Pro. No. 12-01680-KHT

United States District Court, D. Colorado.

Signed November 17, 2021

Mitchell Madden, Mitchell Madden, Law Offices of, Dennis Matthew Holmgren, Holmgren Johnson Mitchell Madden, LLP, Dallas, TX, Timothy Michael Swanson, Moye White LLP, Denver, CO, for Appellee David E. Lewis.

David R. Fine, K&L Gates LLP, Harrisburg, PA, Jeffrey Thomas Kucera, K&L Gates LLP, Miami, FL, for Appellant Jack Takacs.

ORDER AFFIRMING DECISION OF BANKRUPTCY COURT

William J. Martinez, United States District Judge

This matter comes before the Court on four bankruptcy appeals brought by Appellant Jack Takacs ("Takacs") and by Paul Bagley, Donald Jackson, HLPEF/SP Management, LLC, Princeton Partners, and American National Security Management, LP ("ANSM") (collectively, "Appellants"), as well as cross-appeals filed by David E. Lewis, as Chapter 7 Trustee for Stone Pine Investment Banking, LLC (the "Trustee").

Also before the Court are the Motion of Defendant/Appellant Jack Takacs to Strike Appellee's Cross-Appeal from Bankruptcy Court's June 5, 2020 Order ("Motion to Strike Cross-Appeal") (ECF No. 15) and the Appellants’ Motion to Strike Appellee's Appendix Entry ("Motion to Strike Appendix Entry") (ECF No. 46).

For the reasons explained below, this Court affirms the Bankruptcy Court's rulings, denies as moot the Motion to Strike Cross-Appeal, and grants the Motion to Strike Appendix Entry.

I. STANDARD OF REVIEW

In reviewing a bankruptcy court's decision, the district court functions as an appellate court and is authorized to affirm, reverse, modify, or remand the Bankruptcy Court's rulings. 28 U.S.C. § 158(a) ; Fed. R. Bankr. P. 8013. As the appellate court, the district court has discretion to affirm "on any ground adequately supported by the record, so long as the parties have had a fair opportunity to address that ground." Maldonado v. City of Altus , 433 F.3d 1294, 1302–03 (10th Cir. 2006) (internal citation and quotation marks omitted).

"In reviewing a bankruptcy court decision we apply the same standards of review as those governing appellate review in other cases." In re Perma Pac. Properties , 983 F.2d 964, 966 (10th Cir. 1992) (citation omitted). A bankruptcy court's legal conclusions are reviewed de novo , and factual findings are reviewed for clear error. In re Warren , 512 F.3d 1241, 1248 (10th Cir. 2008). On mixed questions of law and fact, the Court reviews de novo any question that primarily involves the consideration of legal principles and applies the clearly erroneous standard if the mixed question is primarily a factual inquiry. In re Wes Dor, Inc. , 996 F.2d 237, 241 (10th Cir. 1993).

II. BACKGROUND

A. Factual History

1. Stone Pine Companies

In 1994, Bagley formed Stone Pine Capital, LLC. (Appellants’ App'x at 1259.) He and his business partners conducted investment banking and asset management activities through entities collectively referred to as the "Stone Pine Companies." (Id. ) The entities used common letterhead identifying their common practice, as well as common business cards, and the domain name: thestonepinecompanies.com. (Id. )

In 1997 and 1998, the Stone Pine Companies were reorganized into three entities: Stone Pine Investment Banking ("SPIB"), which is the successor in interest to Stone Pine Capital, LLC; Stone Pine Asset Management ("SPAM"), which later changed its name to HLPEF/SP Management; and Stone Pine Administrative Services, which later became Stone Pine Accounting Services ("SPAS"). (Id. )

From 2000 until 2006, the various Stone Pine entities used a common office address, the same telephone number, and a joint receptionist. (Id. at 1261.)

By late 2000, SPIB had the following ownership: Princeton Partners, a general partnership owned by Bagley and his wife, owned 40%; Takacs owned 40%; and Jackson owned 20%. (Id. at 1260.) Bagley was SPIB's sole manager. (Id. )

2. Takacs and Matisse Capital Partners

Takacs was hired to work on transactions and to originate new business opportunities for one or more of the Stone Pine entities. (Id. ) He used business cards identifying himself as a Managing Director of the "Stone Pine Companies." (Id. )

Matisse Capital Partners ("Matisse") was formed as a wholly-owned subsidiary to provide restructuring services to companies. (Id. ) Takacs was Matisse's initial manager, and Jackson served as Matisse's Chief Financial Officer. (Id. )

In 1998, Matisse and Pacific USA Holdings entered into an agreement whereby Takacs, acting on behalf of Matisse, provided financial consulting and advising services to Pacific USA. (Id. ) Pacific USA paid Matisse for those services, and, in turn, it transferred the payments to SPIB. (Id. )

3. Matisse's Agreement with American Realty Trust, Inc.

On April 13, 2000, Matisse entered into a Financial Consulting Agreement with American Realty Trust, Inc. ("ART"), whereby ART agreed to pay Matisse $200,000 per month and Bagley agreed to be named as Chief Executive Officer and Chairman of the Board of ART's Board of Directors. (Id. ) Takacs was named as a Managing Director – Strategic Development for ART. (Id. )

However, shortly after Matisse and ART signed the Financial Consulting Agreement, two executives of ART's management company (Gene Phillips and Cal Rossi) were indicted on securities fraud charges. (Id. ) The publicity surrounding their indictment caused ART's stock price to drop, which led ART's lenders to make margin calls. (Id. ) In response, Phillip's son led an effort to obtain forbearance agreements from ART's lenders. (Id. )

Nonetheless, Bagley, assisted by Takacs, negotiated a letter of intent with a large institutional investment fund containing a no-shop clause that precluded forbearance agreements. (Id. ) Bagley concealed this letter of intent from ART until after it was executed. (Id. ) When the rest of ART's board of directors learned of the letter of intent, it terminated Bagley from his CEO and board chair positions and terminated the Financial Consulting Agreement with Matisse. (Id. )

4. ART Lawsuit

On June 26, 2000, ART sued Matisse, Bagley, and Takacs in Texas state court for breach of the Financial Consulting Agreement and breach of their fiduciary duties. (Id. at 1261.) The case was removed to federal court and, in August 2002, a jury found: (1) in favor of ART on its breach of contract claims against Matisse, Bagley, and Takacs; (2) in favor of ART on its breach of fiduciary duty claims against Matisse and Bagley; and (3) against Matisse on its breach of contract counterclaim. (Id. ) However, the jury awarded no damages.

In September 2002, the United States District Court for the Northern District of Texas entered judgment notwithstanding verdict in favor of Matisse, Bagley, and Takacs, and awarded Matisse a judgment against ART for $4.4 million, plus prejudgment interest of $624,821.91. (Id. )

On December 17, 2003, the United States Court of Appeals for the Fifth Circuit affirmed the district court's holding that Bagley and Takacs could not be individually liable for breach of contract, but it reversed the district court's entry of judgment in favor of Matisse and against ART on the breach of contract claims and the breach of fiduciary claims. (Id. at 1263.) The Fifth Circuit then remanded the case for entry of judgment in favor of ART on its breach of contract and fiduciary duty claims, with no damages to be awarded on these claims, but with directions to the district court to consider ART's entitlement to attorneys’ fees. See Am. Realty Tr., Inc. v. Matisse Cap. Partners LLC , 91 F. App'x 904 (5th Cir. 2003).

On January 13, 2005, the district court entered judgment in favor of ART in the amount of $1,389,226.52 for ART's attorneys’ fees and costs, with post-judgment interest on the total amount at the rate of 2.82% (the "ART Federal Judgment"). See Am. Realty Tr., Inc. v. Matisse Cap. Partners LLC , 2005 WL 81705 (N.D. Tex. Jan. 13, 2005).

5. Efforts to Collect on ART Federal Judgment & Texas State Court Case

Matisse's bank account was closed within two weeks of the ART Federal Judgment. (Appellants’ App'x at 1264.) In June 2005, Jackson sent Bagley an e-mail stating that they would deliberately not file Matisse's required annual report and allow the Colorado Secretary of State to administratively dissolve Matisse. (Id. ) Bagley responded, "Absolutely! There hasn't been a peep out of [Gene Phillips of ART] so far." (Id. at 1265.)

ART unsuccessfully attempted to collect on the ART Federal Judgment in 2005 and 2006. (Id. at 1275.) On July 26, 2006, ART sued Bagley, Takacs, Matisse, Stone Pine Capital, Stone Pine Financial, and SPIB in Texas state court in Dallas County, asserting claims of: (1) fraudulent transfer; (2) common business enterprise and conspiracy; and (3) constructive trust. (Id. ) ART also sought to enforce its post-judgment discovery, turnover, and attorneys’ fees. (Id. at 1275–76.)

On July 31, 2009, the jury determined that SPIB was the alter ego of Matisse. (Id. at 1280.) On November 11, 2009, the Texas state court entered judgment in favor of ART and against SPIB for $1,389,226.52 plus interest, the amount of the ART Federal Judgment. (Id. )

Less than one week later, on November 17, 2009, Bagley reached out to a Colorado bankruptcy attorney and informed that attorney that SPIB had only four creditors: ART, SPIB's counsel in the Texas state action, SPAS, and Bagley. (Id. ) Because Jackson and Bagley determined that immediately filing for bankruptcy could "let [ART] start over with fraudulent transfer claims out of SPIB," they decided to "get as much mileage as possible out of [the pending appeal in the Texas state action] and as a result to hold off on the bankruptcy." (Id. )

By May 19, 2010,...