Anderson v. Meyers (In re Infinity Bus. Grp., Inc.)
| Decision Date | 15 October 2019 |
| Docket Number | C/A No. 10-06335-JW,Adv. Pro. No. 12-80208-JW |
| Citation | 612 B.R. 76 |
| Court | U.S. Bankruptcy Court — District of South Carolina |
| Parties | IN RE, INFINITY BUSINESS GROUP, INC., Debtor(s). Robert F. Anderson, as Chapter 7 Trustee, Plaintiff, v. Keith E. Meyers; Cordell L.L.C. ; The Cordell Group L.L.C.; Gibson Commons L.L.C.; Bryon K Sturgill; John F. Blevins ; Golden Ghost, Inc.; Haines H. Hargrett; Donald Brent Grafton; D. Larry Grafton; Grafton and Company, P.L.L.C.; Morgan Keegan & Company, Inc.; Law Offices of John F. Blevins, LLC; O. Bradshaw Cordell; Wade Cordell; Sturgill & Associates Inc.; Morgan Keegan & Associates, LLC, Defendants. |
Infinity Business Group, Inc., Lexington, SC, pro se.
Robert Frank Anderson, Columbia, SC, for Plaintiffs/Defendants/Trustee.
Robert F. Anderson, Clarence Davis, James M. Griffin, Griffin Davis, LLC, Columbia, SC, Robert W. Humphrey, II, Willoughby & Hoefer, P.A., Charleston, SC, for Plaintiffs/Trustee.
Margaret N. Fox, Griffin Davis LLC, Marilyn E. Gartley, Anderson & Associates, P.A., Mitchell M Willoughby, Willoughby & Hoefer, PA, Columbia, SC, for Plaintiffs.
Sturgill & Associates Inc., pro se.
Edward M. Woodward, Jr., Woodward, Cothran & Herndon, John Fisher Beach, Lyndey R. Zwingelberg, Adams and Reese LLP, Columbia, SC, John F. Blevins, Lexington, SC, Ralph Gleaton, Gleaton Law Firm, PC, Greenville, SC, Robert C. Byrd, Parker, Poe, Adams & Bernstein, LLP, Charleston, SC, Michael K. Freedman, Olga Greenberg, Steven Lawrence Polk, Yvonne Marianne Williams-Wass, Sutherland Asbill & Brennan LLP, Atlanta, GA, for Defendants.
Bryon K. Sturgill, pro se.
Donald Brent Grafton, pro se.
D. Larry Grafton, pro se.
John E. Waites, US Bankruptcy Judge Based on the Findings of Fact and Conclusions of Law set forth in the attached Order, the Court grants judgment in favor of Keith E. Meyers ("Meyers") and Morgan Keegan & Associates, LLC, ("Morgan Keegan") on the grounds that the Chapter 7 Trustee's remaining causes of action are barred because the Debtor, Infinity Business Group, Inc., was in pari delicto with Meyers and Morgan Keegan. Further, the Court finds that, regardless of the application of in pari delicto , the Trustee has not met his burden of proof to satisfy the elements of his remaining causes of action. The Trustee's post-trial oral motion to amend his complaint is denied.
This matter comes before the Court upon the Complaint filed by Robert F. Anderson, as Chapter 7 Trustee ("Trustee") in the above captioned adversary proceeding. After lengthy discovery and numerous motions and contested matters, the Court held a four-week trial to address the Trustee's remaining causes of action against Keith E. Meyers ("Meyers") and Morgan Keegan & Company, Inc. ("Morgan Keegan").
The adversary proceeding centers on the rise and eventual fall of Infinity Business Group, Inc. ("Debtor"), the business of which focused on the collection of non-sufficient funds checks ("NSF Checks") for third parties, using both electronic and manual collection methods. From its inception, Debtor's business and customer base grew rapidly and attracted numerous individual investors, most of whom were family and friends of Debtor's founders and key members. These investors purchased stock, territory licenses, or promissory notes as a means of investment. Throughout its existence and due to its rapid growth, Debtor's primary goal and that of its shareholders was to attract a purchaser of the company or pursue a merger or initial public offering, and therefore, multiply the value for investors. However, Debtor's rapid business growth and expansion also caused a constant need for cash, forcing Debtor into a perpetual cycle of fundraising.
As one of the consequences of its need for cash, Debtor often delayed the turnover of the portion of checks collected on behalf of and owed to its customers and frequently used those funds to support its expansion and on boarding of more customers. In addition, during most of its operations, Debtor used an accounting practice which incorrectly stated the composition and collectability of its accounts receivable, which at any single point in time created the appearance that Debtor was in a better financial position than it was.
In 2009, as a result of the discovery of a $2 million deficit in customers' funds (also known as merchant accounts), Debtor began to lose customers, and the discovery led certain shareholders to attempt to oust some of Debtor's founding managers and key long-term members of its Board of Directors. The attempt to oust management resulted in costly litigation that ultimately settled with certain managers and directors agreeing to leave their positions in exchange for releases and cash payments from Debtor. New directors were selected, and despite new leadership, Debtor continued to lose business and was in constant need of additional funding.
Within one year of the initial ouster of three key managers, the Board of Directors removed two other officers, one being Debtor's founder and CEO Bryon Sturgill, that the new Board deemed responsible for the improper accounting practice. Ultimately, due to its financial struggles, Debtor filed for relief under chapter 7 of the Bankruptcy Code.
Two years later, the Trustee commenced the present adversary proceeding on behalf of Debtor against certain key managers (former officers and Board members) of Debtor and several third-party Defendants who provided services to Debtor for their alleged involvement with the improper accounting practice. As the primary focus of this proceeding, the Trustee alleges that the Defendant managers and Defendants Meyers and Morgan Keegan colluded to create the accounting practice to conceal Debtor's true financial state, which ultimately led to the company's demise. Prior to trial, many of the individual Defendants defaulted, confessed judgment or entered into settlements with the Trustee. The trial addressed the liability of Morgan Keegan, a brokerage and investment banking firm, which had contracted with Debtor on two occasions to provide services relating to capital raises for Debtor, and its employee, Keith Meyers. After receiving an extensive presentation of evidence, including testimony from an 18-day trial and the admission of several hundred exhibits and several deposition transcripts for consideration,1 the Court makes the following findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52, which is made applicable to this proceeding by Fed. R. Bankr. P. 7052.2
1. In the early 2000s, Bryon Sturgill ("Sturgill") was the primary owner of
FARS, Inc. ("FARS"), which specialized in the electronic collection of NSF Checks for third party merchants.
2. In 2003, after receiving a postcard from Sturgill seeking marketing assistance, Wade Cordell and others formed FARS Marketing, Inc. ("FARS Marketing") for the purpose of marketing the services of FARS to potential customers.
3. On May 8, 2003, Debtor, led by Sturgill, was incorporated under the laws of Nevada.
4. To consolidate the operations of FARS and FARS Marketing with Debtor, on June 10, 2004, Debtor's Board of Directors resolved for Debtor to initiate the purchase of all capital stock of FARS and FARS Marketing, and on September 15, 2004, Debtor, FARS, and FARS Marketing entered into a Share Purchase Agreement, whereby Debtor completed the purchase of FARS and FARS Marketing, and issued stock to the former shareholders of FARS and FARS Marketing ("2004 Merger").4
5. Debtor was an established payment processing company offering payment, risk management, and fraud detection services related to checks received by various clients, including banks, schools, and direct merchants.
6. One of the focuses of Debtor's business was the collection of checks that had insufficient funds when first presented for collection ("NSF Checks"), with Debtor obtaining its revenues from check recovery service charges permitted under state laws for the collection of NSF Checks and under its agreements with its customers ("Service Charge").5 Debtor offered its clients two separate programs for collecting NSF Checks: the Guaranteed Program and the Non-Guaranteed Program. Under the Guaranteed Program, Debtor would become the owner of the NSF Check by paying to the customer the amount that the NSF Check was written for, also known as face value. Upon any collection, Debtor would receive both the face value and the applicable Service Charge. Under the Non-Guaranteed Program, the ownership of the NSF Check remained with the customer with Debtor having a contractual right to the Service Charge upon collection. Therefore, under the Non-Guaranteed Program, upon the collection of an NSF Check, Debtor retained the Service Charge and delivered the remaining portion of the face value of the NSF Check to its customer.
7. In addition, it appears Debtor had two wholly-owned subsidiaries, Infinity Collections, Inc., which focused on the manual collection of NSF Checks,6 and Infinity Business Assurances, Inc., which focused on collections related to the insurance industry.
8. Throughout its operations, Debtor was managed by a Board of Directors and several key officers, including the following individuals who are relevant to this matter:
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