Wortley v. Chrispus Venture Capital, LLC (In re Global Energies, LLC)

Citation:
Wortley v. Chrispus Venture Capital, LLC (In re Global Energies, LLC), Case No. 13-11666 (11th Cir. Aug. 15, 2014) (unpublished) (per curiam).
Tag(s):
Ruling:
The Eleventh Circuit held that the bankruptcy court abused its discretion and applied the incorrect legal standard in denying Joseph G. Wortley’s (“Wortley”) Rule 60(b)(2) motion to set aside an order denying his motion to dismiss an involuntary chapter 11 case with prejudice and remanded the case with instruction to the bankruptcy court to grant the Rule 60(b)(2) motion and vacate its order approving the sale of Global Energies, LLC’s (“Global”) assets to Chrispus Venture Capital, LLC (“Chrispus”). The Eleventh Circuit also directed the bankruptcy court to conduct hearings to impose sanctions against Wortley’s former business partners, Chrispus, and Chrispus’ bankruptcy counsel for withholding email communications essential to Wortley’s ability to provide evidentiary support for dismissing the involuntary bankruptcy case as a bad faith filing and his business partners’ false deposition testimony with respect to their plan and intentions for filing the involuntary petition. The Eleventh Circuit further instructed the bankruptcy court to take all actions necessary to vacate the sanctions imposed against Wortley and compensate him for all damages.
Procedural context:
Appeal from the United States District Court for the Southern District of Florida reversing and remanding with instruction, reviewed de novo.
Facts:
Wortley, James Juranitch (“Juranitch”), and Richard Tarrant (“Tarrant”) owned membership interests in Global prior to the commencement of the involuntary bankruptcy. Wortley and Juranitch owned their interests individually, and Tarrant owned his interest in Global through Chrispus, an entity in which Tarrant owned a 93 percent membership interest. As a result of business disagreements, Juranitich and Tarrant developed a plan to oust Wortley by having Chrispus file an involuntary petition against Global, which was documented in email communications between Juranitch, Tarrant, and Chrispus’ bankruptcy counsel, Chad Pugatch (“Pugatch”) between June 17-19, 2010 (the “June Emails”). Chrispus filed an involuntary petition under chapter 11 against Global on July 1, 2010, and Wortley did not initially oppose the involuntary petition, as he did not suspect collusion between Juranitch and Tarrant until Chrispus expressed interest in purchasing Global’s assets. Wortley attempted to dismiss the bankruptcy petition as a bad faith filing under Section 1112 of the Bankruptcy Code, but ultimately withdrew the motion, as Wortley was unable to support his allegations with anything more than circumstantial evidence. Juranitch, Tarrant, and Chrispus did not produce any of the June Emails evidencing their plan to file the involuntary petition and motivations for taking such an action, nor did they assert that such communications were privileged or list them in a privilege log to provide Wortley notice of the June Emails’ existence. During depositions Juranitch and Tarrant testified that they had not colluded or discussed the filing of the involuntary petition by Chrispus. Pugatch, counsel for Chrispus, although he had been copied on the June Emails, lent further credence to Juranitch’s and Tarrant’s testimony during arguments made at an evidentiary hearing on the motion to dismiss and indicated that all responsive documents had been produced to Wortley, even though the June Emails were directly responsive to several of Wortley’s requests for production. A year later, Wortley renewed his motion to dismiss the bankruptcy based on some other email communications between Juranitch and Tarrant expressing an intention to do business without Wortley, but Wortley was still not aware of the June Emails. The Bankruptcy Court denied the motion to dismiss with prejudice. Sometime hereafter, in March 2012, the June Emails were produced, not by Pugatch, but by state court counsel to Wortley in connection with related state court litigation. Based on the June Emails, Wortley filed a Rule 60(b) motion, which was also denied by the bankruptcy court because Wortley failed to present a new issue which had not been addressed by the court, as Wortley had suspected bad faith or collusion between Juranitch and Tarrant. The district court affirmed the bankruptcy court’s denial of the Rule 60(b) motion. The Eleventh Circuit held that the bankruptcy court’s inquiry as to whether Wortley’s Rule 60(b)(2) motion presented a new issues was improper. Rather, the Eleventh Circuit concluded that Wortley was entitled to relief under Rule 60(b)(2) because (1) the new evidence was discovered after the judgment was entered, (2) Wortley acted diligently in discovering the evidence, notwithstanding Pugatch’s obstruction of Wortley’s efforts to obtain evidentiary support for his motion to dismiss by failing to produce the June Emails or assert a claim of privilege and failure to correct or remedy the Juranitch’s or Tarrant’s false deposition testimony, (3) the evidence was not cumulative, as it provided direct evidence of Juranitch’s and Tarrant’s plan and intention to file the involuntary bankruptcy petition against Global in bad faith, (4) the evidence was material, and (5) the evidence was likely to produce a different result, as the bankruptcy court could have and should have dismissed Chrispus’ involuntary petition for cause based on the June Emails
Judge(s):
Fay, Circuit Judge, and Hodges and Huck, District Judges.

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