Paulson v. Go Global, Inc. (In re Go Global, Inc., et al.)

Summarized by Margreta Morgulas , Okin Hollander LLC
12 years 1 month ago

Citation:

Paulson v. Go Global, Inc. (In re Go Global, Inc.), 2014 Bankr. LEXIS 121 (B.A.P. 9th Cir. Jan. 13, 2014)

Tag(s):

Ruling:

In an opinion marked "not suitable for publication," the Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals ("BAP 9th Cir.") affirmed the decision of the United States Bankruptcy Court for the District of Nevada ("Bankruptcy Court"), in which the Bankruptcy Court: 1. Permitted the "deemed" amendment of the Appellees' First Amended Complaint to include state law claims that had not previously been included in the First Amended Complaint (but that had been briefed extensively in connection with pre- and post-trial proceedings and had been included in a District Court action that was dismissed upon Appellees agreeing that the Bankruptcy Court had jurisdiction to enter a final order on all the relief sought) under Rules 15(b)(2) and 54(c) of the Federal Rules of Civil Procedure upon a finding that there was "no prejudice" to the Appellants (who did not object to the admission of the evidence underlying such claims throughout the trial process) associated with such deemed amendment and the entry of relief on such amended claims; 2. Found that Appellant Paulson had breached his fiduciary duties (under Nevada law) to two Nevada LLCs that he caused to be merged into two other entities and despite Appellant's compliance with the Nevada statute pertaining to mergers because the actions were taken as part of a larger takeover scheme with respect to significant assets of the Debtors and therefore, while the actions may have generally been permissible under the operating agreements they were not taken in "utmost good faith" as also required under applicable state law; 3. Held that Appellant Paulson breached his fiduciary duties (under Nevada law) owing to the primary debtor (Go Global) when he caused the dissolution of an entity despite having complied with the Nevada statute pertaining to dissolutions; 4. Refused Appellants request to hold a separate hearing with respect to the punitive damages sought by Appellees as required by Nevada state law on a finding that all parties had waived their rights to a seperate hearing by their respective conduct; 5. Refused to grant relief to Appellants with respect to the alleged ownership of certain real estate ostensibly owned by the Debtors upon a finding that the Appellants had failed to meet their burden of proof in this regard; and 6. Did not require Appellant to admit into evidence, or designate under Bankr. Local R. 7032, certain portions of deposition testimony that Appellants relied upon in their case in chief upon a finding by the Bankruptcy Court that the fact at issue was admissible because it could be inferred from the testimony at trial.

Procedural context:

The Bankruptcy Court entered findings of fact and conclusions of law in 2 consolidated adversary proceedings ("Paulson Adversary Proceedings") brought by Hugo Paulson ("Paulson" or "Appellant") against his former business partner, Carlos Huerta, which had participated in several development projects with Appellant. Huerta, his wife, and 2 related entities filed for chapter 11 protection (collectively, the jointly-administered "Debtors") as a result of the Appellant's prepetition actions with respect to certain of the projects and entities that they had jointly pursued. Appellant's adversary proceedings sought damages in connection with one investment project known as HC Waterstone ("Waterstone Action"), and sought a finding of non-dischargeability of any debt due to Appellant from Debtors in the Waterstone Action should be excepted from discharge under Bankruptcy Code sections 523(a)(2)(A), (4) and (6). Subsequently, Huerta and Go Global (two of the Debtors) filed an adversary proceeding against Paulson and certain entities with which he was affiliated, seeking monetary recovery for transfers that were allegedly avoidable either as preferences or fraudulent transfers. In the Appellants answer and counterclaims, they sought declaratory relief that certain parcels of real property on the basis that they had been purchased with the Appellants' funds and, therefore, were not property of the Debtors' estates.

Facts:

Prepetition Debtor Huerta, primarily through Go Global, was a developer of real estate. Appellants Paulson and several related entities had invested with Huerta on real estate development projects and certain financing projects for third party developers. Huerta and Paulson had a falling out and thereafter, the Bankruptcy Court found that Paulson devised and put into effect a plan to strip Huerta and related entities of assets through a series of mergers and dissolutions that he and his advisors designed and carried out without the participation of Huerta. As a result of Paulson's efforts, Huerta and certain related entities that were involved in the projects at issue filed for chapter 11 protection. Thereafter, the aforementioned lawsuits were pursued in the Bankruptcy Court and a judgment was entered in favor of Appellees in an amount exceeding $5.5 million. Subsequently, Paulson and related entities filed for chapter 11 protection and the instant appeal ensued.

Judge(s):

Judges Jury, Kirscher and Kurtz

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