Advisors v. Pence

• Decision Date: 14 January 2011
• Docket Number: No. 1:07–cv–00995–LJM–TAB.,1:07–cv–00995–LJM–TAB.
• Citation: 763 F.Supp.2d 1046
• Parties: MERIDIAN FINANCIAL ADVISORS, LTD. d/b/a the Meridian Group, Plaintiff,v.Joseph A. PENCE, Scott Hall, Navicomm LLC, Navicomm, Ltd., Icoe Ltd., T3A LLC, RFE LLC, the Perisos Group LLC, Defendants.
• Court: U.S. District Court — Southern District of Indiana

763 F.Supp.2d 1046

MERIDIAN FINANCIAL ADVISORS, LTD. d/b/a the Meridian Group, Plaintiff,

v.Joseph A. PENCE, Scott Hall, Navicomm LLC, Navicomm, Ltd., Icoe Ltd., T3A LLC, RFE LLC, the Perisos Group LLC, Defendants.

No. 1:07–cv–00995–LJM–TAB.

United States District Court, S.D. Indiana, Indianapolis Division.

Jan. 14, 2011.Order Denying Reconsideration March 15, 2011.

C. Kent May, Gregg Heinemann, Jr., John H. Williams, Jr., Kathleen A. Gallagher, Sandy B. Garfinkel, Eckert Seamans Cherin & Mellott, LLC, George William Bills, Jr., Law Office of G. William Bills, Jr., Pittsburgh, PA, Craig Morris McKee, Wilkinson Goeller Modesitt Wilkinson & Drummy, Terre Haute, IN, for Plaintiff.Carol Nemeth Joven, Ronald J. Waicukauski, Price Waicukauski & Riley, Jana K. Strain, Geiger Conrad & Head, LLP, Indianapolis, IN, for Defendants.Scott Hall, Bedford, TX, pro se.

ORDER ON DEFENDANT JOSEPH A. PENCE'S MOTION FOR SUMMARY JUDGMENT

LARRY J. McKINNEY, District Judge.

Pending before the Court is Defendant's, Joseph A. Pence (“Pence”), Motion for Summary Judgment (Dkt. No. 425). Pence asks this Court to grant summary judgment in his favor as to the allegations raised by Plaintiff's, Meridian Financial Advisors, Ltd. d/b/a the Meridian Group (“Meridian”), Third Amended Complaint (Dkt. No. 117). The Court has reviewed the parties' submissions, and, for the following reasons, Pence's Motion for Summary Judgment (Dkt. No. 425) is GRANTED in part and DENIED in part.

I. BACKGROUND

This case is one of a number of related cases ¹ arising from the collapse of OCMC, Inc. (“OCMC”),² a Carmel, Indiana based company specializing in the processing of telecommunications services. Dkt. No. 144 ¶¶ 29–30. OCMC was involved with a number of services within the telecommunications industry, including those at issue in this case, the “Adult Chat Business” ³ and the “Fat Finger Business.” ⁴ During the time period material to this case, Pence served as President and CEO of OCMC and was a member of OCMC's Board of Directors (“Board”). Id. at ¶ 2. Together with Brad Benge (“Benge”),⁵ OCMC's Vice–President and Assistant Secretary, and Ann Bernard (“Bernard”),⁶ OCMC's Secretary and General Counsel, Pence oversaw the daily operations of OCMC, including its various business relationships. Id. at ¶¶ 3–4, 31, 33. To maintain its customer relationships and promote its products and services, OCMC employed a number of sales personnel, including Robert Treash (“Treash”), Graham Cohen (“Cohen”), and Dan Rohn (“Rohn”) (collectively, the “Employee Defendants”). ⁷ Dkt. No. 424–14 at 101–03. Throughout the relevant period, OCMC funded its day-to-day operations through a line of credit provided by PNC Bank, National Association (“PNC Bank”), secured on OCMC's accounts receivable. See, e.g., Dkt. No. 424–5 at 19.

The other remaining individual defendant in this case, Martin Scott Hall (“Hall”), is a former OCMC employee. Dkt. No. 447–2 at 7–8. In 1999, Hall left OCMC and, following some time with another telecommunications company, went into business for himself. Id. Hall is the principal of a number of limited liability companies at issue in this case, including Navicomm, LLC and Navicomm, Ltd. (collectively “Navicomm”); ICOE, Ltd. (“ICOE”); RFE, LLC; T3A LLC; and the Perisos Group, LLC (collectively, the “Hall Entities”). Id. at 8. Following the collapse of OCMC, the Employee Defendants went to work for Hall at ICOE. See Dkt. No. 424–12 at 100; Dkt. No. 447–3 at 1.

In late 2003, OCMC personnel entered negotiations with Hall to have one of his companies purchase OCMC's Adult Chat Business. See generally Dkt. No. 447–4 at 1–3. As a result of these negotiations, Hall set up Navicomm. Dkt. No. 447–3 at 10. It was agreed that Navicomm would purchase the billing rights to the Adult Chat Business from OCMC, but OCMC would continue to provide accounting, information technology, and other support services. See Dkt. No. 144 ¶ 48. When the Adult Chat Business appeared on an end customer's telephone bill, Navicomm would be listed as the billing party. See id. at ¶ 46; Dkt. No. 447–4 at 5. According to Pence and other witnesses in this action, the Board had expressed concern with having OCMC's name associated with the Adult Chat Business. See, e.g., Dkt. No. 447–4 at 2–3; Dkt. No. 424–10 at 3–4. However, no formal Board resolution was passed directing Pence or any other OCMC employee to divest OCMC of the Adult Chat Business. Dkt. No. 447–1 ¶ 4.

In late 2005, OCMC approached Hall about the possibility of purchasing the billing rights to some of OCMC's Fat Finger Business. Dkt. No. 447–7 at 6–7. Following Pence's advice, Hall engaged Thermo Credit, LLC to factor the Fat Finger Business and determine the value of the transfer. See Dkt. No. 144 ¶ 56. Hall then agreed that ICOE would purchase the billing rights to the Fat Finger Business for approximately $425,000. Dkt. No. 447–7 at 5, 7. There was no formal Board resolution authorizing the transfer of the Fat Finger Business. Dkt. No. 447–1 ¶ 5. At some point prior to being transferred to the Hall Entities, both the Adult Chat and Fat Finger Businesses had been listed as accounts receivable in documents submitted to PNC Bank. See Dkt. No. 424–3 at 189–90, 290–92.

In October 2005, Pence, Benge, and Bernard (the “Officers”) formed BT & M Investments, LLC (“BT & M”),⁸ with themselves as the sole members and managers. Dkt. No. 114 ¶ 43; Dkt. No. 458–2 at 5–6. The parties disagree about the nature and purpose of BT & M. Pence contends that BT & M was formed as an investment company for the Officers to meet the capital call from PNC Bank.⁹ Dkt. No. 458–2 at 5–6. Pence admits that the Officers later performed “consulting work” as BT & M for Hall and the Hall Entities. Id. at 5. However, Pence contends that any work performed by BT & M for Hall was outside the scope of OCMC's business and instead relied on general knowledge about the telecommunications industry possessed by the Officers. Dkt. No. 426–2 at 8–9, 14, 17–19. Meridian, on the other hand, asserts that BT & M was formed “to receive payments from [the Hall Entities] to further disguise the nature of the transactions between [the Hall Entities] and OCMC employees.” Dkt. No. 440 at 4. BT & M paid the capital call on the Officers' behalf after receiving a loan from one of the Hall Entities. Dkt. No. 447–17 at 116.

In early 2006, PNC Bank became concerned about the financial status of OCMC. OCMC's Chief Financial Officer, Lester Li (“Li”), along with other members of OCMC's accounting department, had raised concerns about the propriety of the Adult Chat and Fat Finger Transfers. Dkt. No. 424–2 at 209–11. In particular, Li expressed concerns that the Officers and the Employee Defendants may have had some sort of ownership or management relationship with the Hall Entities. Id. at 198–200; see also Dkt. No. 424–3 at 234–42. Soon after bringing his concerns to the Board, Li was terminated and replaced as CFO by Jeff Good of Milestone Advisors. See Dkt. No. 424–1 at 24; Dkt. No. 424–11 at 5–6.

OCMC's financial situation continued to deteriorate. On May 11, 2006, PNC Bank filed suit in this Court seeking the appointment of a Receiver for OCMC. See Dkt. No. 9, PNC Bank, Nat'l Assoc. v. OCMC, Inc., No. 06–CV–755 (S.D.Ind. May 11, 2006). Following a hearing, the Court granted PNC Bank's request and appointed Meridian as Receiver for OCMC. See Dkt. No. 15, PNC Bank, Nat'l Assoc. v. OCMC, Inc., No. 06–CV–755 (S.D.Ind. May 12, 2006). As the court-appointed Receiver, Meridian was given all the powers of OCMC's Board, including the power to initiate litigation on OCMC's behalf. Id.

PNC Bank sent Margaret Good (“Ms. Good”) ¹⁰ from Meridian to OCMC to investigate the situation. Dkt. No. 424–1 at 207–09. Ms. Good arrived at OCMC just before Meridian was appointed as Receiver. Id. Under Ms. Good's direction, numerous pieces of computer equipment ¹¹ were taken by Meridian's Michael Von Lehman (“Von Lehman”) from OCMC's premises to PNC Bank's office in Pittsburgh, Pennsylvania for inspection. Dkt. No. 424–8 at 10. Meridian contends that a number of employees, including Pence, deleted emails and other computer documents detailing improper conduct just before leaving OCMC's premises. See, e.g., Dkt. 424–1 at 161–66. Apart from those employees later engaged as consultants by Meridian, OCMC's employees were all terminated. See Dkt. No. 15, PNC Bank, Nat'l Assoc. v. OCMC, Inc., No. 06–CV–755 (S.D.Ind. May 12, 2006) (requiring the termination of all OCMC employees).

On July 31, 2007, pursuant to its powers as Receiver, Meridian filed suit in this Court against numerous parties for their conduct in connection with the collapse of OCMC. Dkt. Nos. 1, 117. This suit was consolidated for discovery only with PNC Bank's case ¹² against Pence pursuant to an Order of this Court. See Dkt. No. 343. Following extensive discovery and a number of various motions, some defendants settled, leaving only Pence, Hall, and the Hall Entities ¹³ as the remaining defendants. On April 5, 2010, Pence filed the current Motion for Summary Judgment, requesting that the Court grant judgment in his favor on all of Meridian's claims against him. Dkt. No. 425.

The Court adds additional facts below as necessary.

II. STANDARD

As stated by the Supreme Court, summary judgment is not a disfavored procedural shortcut, but rather is an integral part of the federal rules as a whole, which are designed to secure the just, speedy, and inexpensive determination of every action. See Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). See also United Ass'n of Black Landscapers v. City of Milwaukee, 916 F.2d 1261, 1267–68 (7th Cir.1990). Motions for summary judgment are governed by Federal Rule of Civil Procedure 56(c), which provides in relevant part:

The judgment sought should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no...