Rodney Tow v. Organo Gold Intl, Inc., et al

Case Type:
Business
Case Status:
Affirmed
Citation:
. 18-20394 (5th Circuit, Jul 11,2019) Not Published
Tag(s):
Ruling:
A chapter 7 trustee was not deprived of standing to sue defendants for misappropriation of trade secrets, even though the trustee's court-approved sale agreement with a third-party buyer purported to transfer that right to the buyer. Court of Appeals held that argument was a matter of contract interpretation and, in any event, had been waived by the defendants at trial. All other rulings were affirmed, including the trial court's admission of expert testimony, post-trial assessment of liability against co-defendants for fraudulent transfers, and calculation of pre-judgment interest.
Procedural context:
Two of the three defendants appealed a verdict, following a jury trial in the S.D. Tex, finding three defendants liable for (1) misappropriation of a trade secret; (2) tortious interference with the contracts between debtor AmeriSciences and its distributors; (3) breach of fiduciary duty; (4) aiding and abetting a breach of fiduciary duty; (5) defalcation in a fiduciary duty ; (6) unjust enrichment through receipt of the distributor list; (7) fraudulent transfer of the distributor list and software; and (8) fraudulent transfer of the distributor list and software. After post-trial motions, the district court amended the judgment to include interest and hold all defendants liable for (7) and (8) [the fraudulent transfers].
Facts:
Chapter 7 Debtor AmeriSciences was a multi-level marketing (“MLM”) company that sold nutritional supplements through a network of distributors, many of whom were associated with the medical profession. The company was founded by president and CEO Barry Cocheu, chairman Louis Gallardo, and executive vice president Steve Redman. AmeriSciences’s primary source of sales stemmed from its network of distributors, who served as both customers and sellers for the company. The network of distributors was an invaluable asset, essentially the “lifeblood” of the company. By 2011, the AmeriSciences's principals (Cocheu and Gallardo) began discussions with defendant-appellant Holton Buggs about an acquisition by Buggs's company Organo. Buggs was also Gallardo’s neighbor and met Cocheu in 2009. Ultimately, Cocheu and Gallardo arranged for AmeriScience to transfer its distributor list and software to Organo for no consideration. Instead, by the summer of 201, Buggs made sure that Organo began compensating Cocheu and Gallardo directly. AmeriSciences ceased conducting business as an MLM by the summer of 2012, despite seeking to revamp its business under a retail model. AmeriSciences’s bankruptcy commenced on October 4, 2012 as a Chapter 11 proceeding with Thomas Grace appointed as the trustee. After the matter was converted to a Chapter 7 proceeding, Rodney Tow succeeded Grace as the trustee. On May 9, 2013, a substantial portion of AmeriSciences’s assets were sold to Supplement Research and Development, L.L.C. (“SRD”). Tow then commenced a lawsuit against 20 defendants, including Cocheu, Gallardo, Buggs, Redman and 16 of AmeriSciences's top distributors. All settled before trial except Cocheu, Gallardo and Buggs. After a jury trial, the trial court awarded damages in excess of $3.4 million based on misappropriation, tortious interference, breach of fiduciary duty and fraudulent transfer.
Judge(s):
HAYNES, GRAVES, and DUNCAN,

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