In re: STONE PINE INVESTMENT BANKING, LLC,
- Summarized by Jaden Banks , Nyemaster Goode P.C.
- 1 year 2 weeks ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- Nos. 21-1423, 21-1431, 21-1439; D.C Case No. 20-cv-01372 (10th Circuit, Dec 19,2023) Published
- Tag(s):
-
- Ruling:
- The Tenth Circuit Court of Appeals affirmed the determination by the Bankruptcy Court for the District of Colorado that equitable tolling applied to certain fraudulent transfer claims brought by the Chapter 7 Trustee, where the transferees actively concealed the fraudulent nature of the transfers and engaged in a pattern of delay with the express purpose of letting the applicable state limitations period expire.
- Procedural context:
- In January 2006, American Realty Trust, Inc. (ART) obtained a judgment against Matisse Capital Partners for attorney fees related to ART's breach of contract claims against Matisse, Paul Bagley, and Jack Takacs in the amount of $1.4 million, however ART proved unable to collect and its post judgment discovery was returned. In July 2006, ART sued Matisse, Mr. Bagley and Mr. Takacs, and Stone Pine Investment Banking (SPIB) in Texas state court for claims based on fraudulent transfer and enforcement of discovery orders and attorney fees relating to its January judgment. The Texas state court limited ART's claims and after a jury found SPIB was the alter ego of Matisse, without reaching the issue of whether any fraudulent transfers occurred the Texas state court entered judgment against SPIB in the amount of federal judgment plus interest. ART appealed the claim restriction and the appeal proceeded through Texas state appellate litigation.
Shortly after the Texas state court entered its judgment, SPIB's principals consulted bankruptcy counsel but decided to hold off to avoid letting ART start over with its fraudulent transfer claims. In June 2010, the Principals informed SPIB's bankruptcy counsel that they had delayed because the four year limitation period had run on several transactions during the appeal process. In October 2010, SPIB filed for Chapter 7. Two years later the Chapter 7 Trustee initiated an adversary proceeding against the Principals and eighteen other corporate entities affiliated with the Debtor seeking to avoid certain allegedly fraudulent transfers that occurred during the federal litigation. The Bankruptcy Court held trial on the Trustee's claims in 2018 and entered its findings of fact and conclusions of law in 2020. The Bankruptcy Court found in favor of the Trustee and the Debtor and Principals appealed to the District Court, which affirmed. The Debtor and Principals then appealed to the Tenth Circuit which also affirmed the Bankruptcy Court application of equitable tolling to preserve the Trustee's fraudulent avoidance claims and the Bankruptcy Court's determination that transfers of business opportunities or pipeline deals comprised property subject to the Colorado Uniform Fraudulent Transfer Act and section 544 of the Bankruptcy Code.
- Facts:
- In 1994, Paul Bagley formed Stone Pine Capital, LLC and at around the same time, he and his wife, created Princeton Partners, as a general partnership. Mr. Bagley conducted investment banking and asset management activities through "Stone Pine Companies", a collective of businesses using a common letterhead, office, business cards, and domain name. In 1997 and 1998, Stone Pine Companies reorganized into three new entities: the debtor, Stone Pine Investment Banking (SPIB), Stone Pine Asset Management (SPAM), and Stone Pine Administrative Services (SPAS). SPIB engaged in investment banking, SPAM developed private equity management opportunity with Hamilton Lane, and SPAS provided administrative accounting and recording services for Stone Pine entities. As time passed and the businesses developed so that SPIB was owned by Princeton Partners, Jack Tekacs, and Donald Jackson, while Mr. Bagley served as its sole manager; SPAS was owned by Donald Jackson; and SPAM became HLPEF/SP Management, a business holding interest in funds created by Hamilton Lane and owned by Mr. Bagley.
In the late 1990s, Stone Pine Companies engaged Jack Tekacs to work on and develop new business opportunities. Through that work, SPIB and Tekacs formed a subsidiary of SPIB, Matisse Capital Partners, which provided financial consulting services. In April 2000, Matisse entered into a consulting agreement with American Realty Trust, Inc (ART), under which ART paid Matisse for its consulting services, Mr. Bagley became ART's chief executive officer and chairman of its board, and Mr. Takacs became a managing director of ART. ART quickly encountered financial difficulty, and Mr. Takacs and Mr. Bagley, without the knowledge of ART's board, negotiated a letter of intent with an investment fund that precluded forbearance agreements already in process with ART's lenders. After learning about the letter of intent, ART's board removed Mr. Bagley from his role, terminated the consulting agreement, and filed suit.
In June 2000, ART sued Matisse and Mr. Bagley and Mr. Takacs in Texas state court. The Defendants removed the case to federal district court and filed counterclaims against ART. After extensive litigation, the district court found in favor of ART on its breach of contract and breach of fiduciary duty claims and awarded ART $1.4 million in attorney fees. Less than two weeks after entry of the judgment, ART attempted to collect its judgment only to find that Matisse closed its bank accounts. Thereafter, post judgment discovery and correspondence with Matisse's registered agent, Mr. Jackson, were returned by the post office.
While the ART litigation proceeded, Mr. Takacs pursued further business opportunities for Matisse. Those opportunities led to the resuscitation of a dormant Stone Pine entity HLSP Investment Banking LLC (HLSP IB), to assist with the acquisition of Viventures Partners S.A. through a membership interest in Private Equity Management Group (PEMG). PEMG then entered into a consulting agreement with HLSP IB, Hamilton Lane, and SPAS, where Mr. Bagley would provide consulting services, PEMG would pay HLSP IB, and HLSP IB would transfer those payments to SPIB. In 2006, the parties negotiated an end to this arrangement and HLSP IB received $1.8 million as a discounted payout. Rather than transferring those funds to SPIB, as was the prior practice, HLSP IB transferred the $1.8 million to Princeton Partners and Mr. Jackson. Mr. Bagley and Mr. Jackson then agreed to deposit the funds into SPIB, before the funds were distributed to pay various debts.
In May 2005, Mr. Takacs signed a letter of intent addressed to a company called TechFund purportedly acting on behalf of HLSP Hamilton Lane/Stone Pine, apparently referring to HLSP IB. In June 2005, Mr. Takacs negotiated a deal with a Japanese investment firm called Nomura International PLC, through which Nomura would purchase a leveraged PE fund to be managed by a Stone Pine entity. Mr. Takacs also negotiated a deal with Moneda Asset Management, S.A, to establish a fund of funds targeting Chilean pension fund investors, through HLSP Holdings Corp. a renamed entity created out of a Puerto Rican corporation formerly formed by a Stone Pine attorney.
After negotiating the PEMG, TechFund, Nomura, and Moneda deals, Mr. Takacs also negotiated a deal with Fortune Management, Inc., in which Fortune proposed to acquire 100% of the shares of Hamilton Lane/Stone Pine Investment Banking HLSP. A draft letter of intent claimed HLSP had a pipeline of deals representing anticipated income of $10-15 million per year, including the TechFund, Nomura, and Moneda transactions. Pursuant to the Fortune deal, Mr. Bagley and Mr. Takacs entered into a consulting and employment agreement and HLSP Holding transferred almost all of its assets to a new Fortune subsidiary in exchange for 33,584,600 shares of Fortune stock worth $37.3 million.
In June 2006, ART sued Mr. Bagley and Mr. Takacs, Matisse, and various Stone Pine entities, including SPIB, in Texas state court based on claims of fraudulent transfer, common business enterprise and conspiracy, and constructive trust. The Texas state court limited ART’s fraudulent transfer claims to the transactions between the date of the original district court judgment, before subsequent appeal, and the date Matisse closed its bank accounts. In July 2009, the jury found for ART, determining that SPIB was the alter ego of Matisse, without reaching the fraudulent transfer issue at the Texas state court’s direction, and the Texas state court entered judgment against SPIB in the amount of the federal judgment plus interest, around $1.4 million. SPIB appealed the verdict and ART appealed the pretrial claim limitations which prevented the jury from reaching the issue of whether fraudulent transfers occurred.
Days after the entry of judgment in the Texas state case, Mr. Bagley began consulting Colorado bankruptcy counsel, but he and Mr. Jackson held off on an immediate bankruptcy filing after determining that they would try to get as much mileage as possible out of the Texas state appeal and would hold off on the bankruptcy filing to avoid letting ART start over with its fraudulent transfer claims. In May 2010, Mr. Bagley and Jackson closed SPIB’s bank accounts and in June 2010 they informed their bankruptcy counsel that the reason for their delay was that the four-year limitation period had run on several transactions as the appeal process proceeded. Then in October 2010, SPIB filed for relief under Chapter 7.
Two years later the Chapter 7 Trustee, pursuant to his avoidance powers, initiated an adversary proceeding against Mr. Bagley, Mr. Takacs, Mr. Jackson and eighteen other corporate entities under sections 544 and 548 and Colorado law. The Bankruptcy Court determined that the Fortune transfer, specifically the transfer of the Nomura, Moneda, and Techfund deals to HLSP Holding and then to Fortune and the PEMG payout concerned property of the Debtor. The Bankruptcy Court then determined that those transfers constituted fraudulent transfers under the Colorado Uniform Fraudulent Transfers Act, which requires fraudulent transfer claims be brought within 4 years after the transfer was made or, if later within one year after the transfer could reasonably been discovered. The Bankruptcy Court recognized that the whether the Trustee proceeded as a hypothetical creditor under section 544(a) or an actual creditor under section 544(b), the Trustee timely pursued its claim and even if untimely the court would find equitable tolling applicable. The Bankruptcy Court further recognized equitable tolling was appropriate because Mr. Bagley and Mr. Jackson refused discovery requests relating to the ART attorney fees, engaged in a scheme designed to delay and evade discovery of their wrongdoing until the expiration of the limitation period, and ART diligently pursued its claims in Texas state court, within the period of limitations.
- Judge(s):
- PHILLIPS, MURPHY, and ROSSMAN
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