Cruickshank v. Casey (In re Bos. Grand Prix, LLC)

• Citation: 624 B.R. 1
• Decision Date: 19 October 2020
• Docket Number: Case No. 16-12574-FJB,Adversary Proceeding No. 16-1200
• Parties: IN RE BOSTON GRAND PRIX, LLC, Debtor Gary W. Cruickshank, Chapter 7 Trustee of Boston Grand Prix, LLC, Plaintiff v. John Casey et al., Defendants
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

624 B.R. 1

IN RE BOSTON GRAND PRIX, LLC, Debtor

Gary W. Cruickshank, Chapter 7 Trustee of Boston Grand Prix, LLC, Plaintiff

v.John Casey et al., Defendants

Case No. 16-12574-FJB

Adversary Proceeding No. 16-1200

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

Signed October 19, 2020

Brook L. Ames, Leader Bank, N.A., Arlington, MA, Michael B. Feinman, Feinman Law Offices, Andover, MA, Jeffrey D. Ganz, Michael E. Pastore, Riemer & Braunstein LLP, Kara Thorvaldsen, Wilson Elser, Boston, MA, for Defendants.

Charles R. Bennett, Jr., Kathleen R. Cruickshank, Murphy & King, Professional Corporation, Boston, MA, for Plaintiff.

MEMORANDUM OF DECISION

Frank J. Bailey, United States Bankruptcy Judge Before the Court is the adversary complaint of Gary W. Cruickshank, as the chapter 7 trustee ("Plaintiff" or "Trustee") of Boston Grand Prix, LLC ("BGP" or the "Debtor"), against defendant John Casey ("Casey") and others to recover damages incurred as a result of Casey's diversion of assets of BGP to himself and persons and entities owned or controlled by him. The Court has previously disposed of the complaint as against all defendants except Casey. What remains are the following counts against Casey: Count I, under 11 U.S.C. § 548(a)(1)(A), for avoidance of actually fraudulent transfers to Casey or for his benefit; Count II, under 11 U.S.C. § 548(a)(1)(B), for avoidance of the same transfers as constructively fraudulent; Count III, under Massachusetts law, for breach of fiduciary duties of care, loyalty, and good faith; and Count V, also under Massachusetts law, to pierce the corporate veil (collectively, the "Remaining Counts").

Casey, who has throughout this adversary proceeding appeared pro se (when he has appeared at all), filed an answer in which he denied the operative allegations. The Court then issued a pretrial order under Fed. R. Civ. P. 16, made applicable hereto by Fed. R. Bankr. P. 7016 (the "Pretrial Order"). The Pretrial Order required that the parties file either jointly or separately a pretrial memorandum in which each party was obligated to (i) indicate whether the party consents to the entry of a final order by the bankruptcy court, (ii) identify and disclose (among other things) the witnesses he intended to call and the exhibits he intended to introduce, and (iii) state his objections to the admissibility of the exhibits of the opposite party. Despite many opportunities and notices, Casey failed to cooperate in the submission of a joint pretrial statement and failed to file a separate one of his own. The Trustee then moved in limine for an order under Fed. R. Civ. P. 16(f)(1)(C) precluding Casey at trial from (i) denying that he consented to the Court's entry of a final order, (ii) calling witnesses and introducing exhibits he had not disclosed, and (iii) objecting to the admission of the Trustee's exhibits. Rule 16(f)(1)(C) provides, in relevant part, that the court, "[o]n motion or on its own, may issue any just orders including those authorized by Rule 37(b)(2)(A)(ii)-(vii), if a party or its attorney ... (C) fails to obey a scheduling order or other pretrial order." Fed. R. Civ. P. 16(f)(1)(C). Casey filed no response, whereupon the Court, in order to prevent unfair advantage at trial, granted the motion with the following order:

(1) John Casey is hereby precluded from taking the position that he does not consent to this Court's entry of final judgment as to any part of the adversary proceeding that does not constitute a core proceeding, and, for having failed to indicate otherwise, he is deemed to have so consented;

(2) John Casey is hereby precluded from introducing evidence at trial, including both witnesses and exhibits; and

(3) John Casey is hereby precluded from objecting to the Trustee's introduction of evidence at trial as set forth by the Trustee in his pretrial memorandum, including his fact witnesses, the qualifications and testimony of his expert witnesses, and the Trustee's proposed exhibits.

The Court then conducted a trial on the Remaining Counts. The Trustee presented testimony from three witnesses and admitted twenty-six exhibits. Despite due notice, Casey failed to appear at the trial, either pro se or through counsel. The Trustee then submitted proposed findings and conclusions, and the Court heard closing arguments. Casey neither submitted proposed findings and conclusions nor appeared at the closing arguments. As required by Fed. R. Civ. P. 52(a)(1), made applicable by Fed. R. Bankr. P. 7052, the Court now enters the following findings of fact and conclusions of law.

JURISDICTION AND AUTHORITY

This is a proceeding to recover fraudulent transfers (Count I and II) and to liquidate prepetition rights of action against Casey (Counts III and V). All four counts fall within the jurisdiction given the district court in 28 U.S.C. § 1334(b) because they arise in a bankruptcy case, and Count I and II also for the further reason that they arise under the Bankruptcy Code. By standing order of reference, the district court for this district has referred the matter to the bankruptcy court pursuant to 28 U.S.C. § 157(a). Counts I and II are core proceedings within the meaning of 28 U.S.C. § 157(b)(1) and (b)(2)(H) (a proceeding to determine, avoid, or recover a fraudulent conveyances is a core proceeding); Counts III and V are not core proceedings. As to those counts that are core proceedings, the bankruptcy court has authority to enter final judgment under 28 U.S.C. § 157(b)(1). The Trustee has expressly assented to this Court's entry of final judgment as to any count that is not a core proceeding; and, by virtue of the Court's order on the Trustee's motion in limine and Casey's failure to comply with the Pretrial Order, Casey is deemed also to have so consented. The bankruptcy court accordingly has authority under 28 U.S.C. § 157(c)(2) to enter final judgment on the non-core counts.

FINDINGS OF FACT¹

History of the Debtor

1. On July 5, 2016 (the "Petition Date"), BGP filed a voluntary Chapter 7 petition commencing this case, and the Trustee was appointed.

2. According to its schedules, as of the Petition Date, the Debtor had incurred at least $11,139,908.48 in debt.

3. BGP was organized under the laws of the Commonwealth of Massachusetts on or about April 26, 2012. Mark Perrone ("Perrone") was the founder of BGP and its Chief Executive Officer until he resigned on or about December 28, 2015. Perrone became a consultant to BGP through his consulting company, Sportserve, Inc.

4. In or about May 2015, BGP entered into an agreement captioned IndyCar Series 2016-2020 Event Agreement with IndyCar, LLC ("IndyCar") under which BGP was permitted to organize and present an IndyCar Series event in the City of Boston for a period of five years. In 2016, BGP entered into a License Agreement with the City that provided, among other things, for BGP to operate an automobile race in the Boston for a minimum of five years. According to the Debtor's Executive Summary (the "Executive Summary"), prepared by Casey for presentation to potential investors, BGP intended to construct a racetrack on the South Boston waterfront area consisting of a 2.2 mile length that encircled the Boston Convention Center, with the race to be run on each Labor Day weekend. BGP sought to raise four million dollars through a private offering with the proceeds to fund the upfront costs associated with building a track and its ancillary expenses. The revenue generated from the event would come from sponsorships, hospitality sales, ticket sales, and other related income-producing events.

5. Revenue estimates in the Debtor's business plan were that BGP would raise nearly $15 million from ticket sales, sponsorships, and hospitality sales. Commencing in March of 2016, the Debtor sold approximately $1.6 million in tickets for the events to take place on Labor Day weekend of 2016.

6. For reasons not relevant to this adversary proceeding, the Debtor cancelled the IndyCar event scheduled for Labor Day weekend in September 2016. When BGP failed to return the proceeds of ticket sales and other amounts, the Massachusetts Attorney General sued BGP and Casey for the return of those proceeds. Casey caused BGP to refund approximately $400,000 in ticket sales, and nearly $1 million dollars was raised by the Attorney General from IndyCar, LLC and used to refund ticketholders.

John Casey and His Role at BGP

7. Casey holds an undergraduate degree in accounting and an MBA from Babson College.

8. He holds a Certified Public Accountant license and worked at an accounting firm until he began a career in banking and finance. He next become a senior financial manager for a medical device company. Casey moved on to start his own medical device company, which he eventually sold, and took an early retirement until he became involved with BGP.

9. Casey was the Chief Financial Officer of BGP from January 1, 2015 until June of 2016. He was one of two managing members of BGP and became the sole managing member after Perrone resigned on February 1, 2016.

10. From December 28, 2015 through June of 2016, Casey Summit, LLC ("Casey Summit"), an entity in which Casey is the sole manager and member, was designated as the Chief Executive Officer of BGP; however, Casey testified at deposition² that he considered himself and Casey Summit to be one and the same. Based on his testimony, after September 1, 2015, Casey was effectively both the CEO and the CFO of BGP until June of 2016.

11. Casey never produced a signed limited liability company operating agreement for BGP, despite due request. Moreover, Casey could not recall whether he had ever signed such an operating agreement for BGP.

BGP's Bank Accounts

12. BGP maintained three bank accounts: (i) a Citizens Bank account under the name of "Boston Grand Prix, LLC," with an account number ending 3239 (the "Citizens Account"); (ii) a Leader Bank account entitled "Boston Grand Prix, LLC/John Casey/Tickets," with an account number...