Feller v. Petty

• Docket Number: 18-cv-03460-KS
• Decision Date: 29 August 2024
• Citation: Feller v. Petty, 18-cv-03460-KS (C.D. Cal. Aug 29, 2024)
• Parties: PAUL FELLER, et al., Plaintiffs, v. ROBERT PETTY, et al., Defendants. AND RELATED COUNTERCLAIMS
• Court: U.S. District Court — Central District of California

1

PAUL FELLER, et al., Plaintiffs, v. ROBERT PETTY, et al., Defendants. AND RELATED COUNTERCLAIMS

No. 18-cv-03460-KS

United States District Court, C.D. California

August 29, 2024

AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW FOLLOWING BENCH TRIAL

KAREN L. STEVENSON CHIEF U.S. MAGISTRATE JUDGE

Pursuant to and consistent with the Court's Order of July 19 2024, granting in part and denying part Cross-Defendants' Motion to (1) Alter or Amend Findings of Fact and Conclusions of Law Following Bench Trial and (2) Alter or Amend Amended Judgment or Alternatively, for a New Trial (dkt. no 274), the Court issues these Amended Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52(a).^[1]

I

FINDINGS OF FACT

The Parties

1. Plaintiff Paul Feller is an individual who resides in Santa Barbara County California.

2. Plaintiff Cronus Equity, LLC (“Cronus”) is a Delaware limited liability company doing business in Santa Barbara County California.

3. Cronus is a consulting company founded and operated by Paul Feller.

4. Defendant and counterclaimant Robert Petty is an individual who resides in New Canaan Connecticut.

Sky Digital Media Inc.

5. Robert Petty immigrated to the United States from Australia.

6. Mr Petty obtained a degree in accounting from Swinburne Institute of Technology (Australia).

7. Mr Petty is a self-described digital entrepreneur and has been involved with computers and technology for 30 years since arriving in the United States.

8. Mr Petty founded RR Media, one of the founding technology groups involved in broadcasting video over Internet. He listed RR Media on NASDAQ in approximately 2002 and ran it as a public company for about six years.

9. In 2009, Mr. Petty formed Sky Media and was CEO and Chairman.

10. In 2009, Mr. Petty founded Sky Digital Media Inc. (“Sky”).

11. Mr Petty was founder, director and shareholder of Sky.

12. Mr Petty met Plaintiff Paul Feller in or around January 2015.

13. Sky entered into a consulting agreement with Paul Feller, whereby Mr. Feller was to be chairperson and CEO of Sky.

VOS Digital Group, Inc. (VOS)

14. In or around October 2015, Mr. Petty founded VOS Digital Group, Inc. (“VOS”).

15. Mr. Petty hired counsel who drafted the necessary paperwork for VOS and submitted the appropriate agency filings for VOS.

16. Mr. Petty registered VOS.

17. Mr. Petty personally paid the fees associated with the creation of VOS.

18. Mr. Petty was sole owner, president, director, and shareholder in VOS.

19. Mr. Petty opened a VOS company bank account at Chase Bank.

20. As sole shareholder of VOS, Mr. Petty owned 8,500,000 shares of common stock and 2 million shares of preferred stock in VOS.

21. Each share of preferred stock in VOS had super voting rights equal to 100 times that of a share of common stock.

22. Mr. Petty first came up with the idea to acquire the assets of News Look from Zipline Media, Inc. (“Zipline”).

23.VOS entered into an asset purchase agreement to acquire New Video Exchange from Zipline in exchange for 1 million shares of common stocks for a total price of $1.5 million to be paid in installments.

24.Mr. Petty negotiated the terms of the Zipline deal and then formed VOS to acquire Zipline.

25.The Zipline acquisition closed in mid to late October 2015.

26. Mr. Feller first heard of Zipline through Mr. Petty.

27. Mr. Feller first heard of VOS through Mr. Petty.

28. By the time Mr. Feller became involved with VOS, Mr. Petty had already signed the Zipline deal.

29. For the Zipline asset purchase, Mr. Feller and Mr. Petty discussed that each of them would initially raise $750,000 for a total of $1.5 million and then an additional $1.5 million of working capital.

30. Mr. Feller, through his company Cronus, agreed to be involved with VOS by raising capital in exchange for shares in VOS.

31. Mr. Feller, through Cronus, would raise capital for VOS on a best-efforts basis.

32. Mr. Feller and Mr. Petty had a 50/50 agreement on VOS.

Mr. Petty Appoints Mr. Feller to VOS Board of Directors

33. In October 2015, Mr. Petty, as sole director of VOS, appointed Mr. Feller to the Board of Directors to help raise capital.

34. During the period of October 2015 through December 2, 2015, the only persons serving on the VOS board of Directors were Mr. Feller and Mr. Petty.

35. At a VOS board meeting in December 2015 attended by Mr. Feller, Mr. Petty, and corporate counsel, stock was authorized to be issued to Cronus Equity, Mr. Feller's consulting company.

36. The VOS Board of Directors authorized 4,250,000 shares of common stock and 1 million shares of preferred stock to be issued to Cronus Equity.

37. Mr. Feller testified that, despite the 50/50 agreement, Mr. Petty had no ownership share in VOS because no shares were issued to Mr. Petty by the board of directors.

38. Mr. Feller maintains that between October 2015 and December 2, 2015, VOS had no shareholders.

39. In 2015-2017, Mr. Feller was a VOS director and full time CEO of Sky Digital Media.

VOS Private Placement Memoranda

40. The Private Placement Memorandum (“PPM”) for the 2016 VOS capital raise listed the offering price for VOS Digital shares as $1.00 per share.

41. The PPM for the VOS share offering lists Mr. Petty or appointees as the owner of 4,250,00 shares and as owner of 1 million shares of preferred stock on August 2, 2016.

42. The value of the shares owned by Cronus at the time of Mr. Feller's bankruptcy was at least $525,000 based on a one dollar per share offering price.

43. At the time of the VOS capital raise, Mr. Feller was an equity holder of Cronus and a shareholder of VOS.

Feller/Cronus Consulting Agreement for VOS Capital Raise

44. Mr. Feller testified that he was engaged to raise capital for VOS pursuant to a written consulting agreement between VOS and Cronus.

45. In 2015 Mr. Petty was the sole director of VOS and did not sign the consulting agreement.

46. The Cronus/Feller consulting agreement was not disclosed in the August 2, 2016 PPM.

47. Mr. Feller gave potential investors the VOS PPM without disclosing to them that he, through Cronus, was getting an 8% cut of the capital raised.

48. In a deposition given in May 2018 in connection with a New York civil lawsuit, when asked about any written agreements between Cronus and Robert Petty relating to Zipline or VOS, Mr. Feller did not disclose that Mr. Feller personally and/or Cronus had any written consulting agreement with VOS.

49. In 2017, Mr. Feller resigned as CEO of Sky and resigned from the Sky Board of directors in February or March 2018.

50. In June 2020, Sky was acquired by ICARO Media Group, previously known as VOS.

51. All of the shareholders of Sky were merged into shareholders of ICARO.

52. As a result of the ICARO/Sky merger, Mr. Petty obtained stock in ICARO.

Feller/Cronus Seize Control of VOS Funds

53. The VOS PPM directed potential investors to wire their investment funds to Cronus Equity LLC.

54. Mr Feller deposited VOS investment proceeds from the sale of VOS shares into a Cronus bank account.

55. Mr. Petty did not agree to have VOS funds held by Cronus.

56. The proceeds from the sale of VOS shares to investors should have been deposited into an escrow account held and managed by VOS's counsel.

57. Dr. Christopher Virtue, an ICARO shareholder and investor, made a $200,000 investment in VOS and those funds were initially deposited in VOS's account at Chase Bank because the funds belonged to VOS.

58. A few days after the funds were deposited in VOS's bank account, Mr. Feller initiated a transfer of $175,000 from the VOS bank account into Cronus's account.

59. Mr. Feller did not recall whether or not he told Mr. Petty about the $175,000 transfer from the VOS bank account to Cronus at the time.

60. At the time Mr. Feller initiated the $175,000 transfer from VOS's bank account back to Cronus, Mr. Petty was still a member of the VOS board of directors and was President of VOS.

61. If Mr. Feller had not wired the $175,000 from the VOS bank account to Cronus, VOS would have had almost $200,000 in its account rather than the $12,000 balance reflected as the ending balance on VOS's Chase bank statement for February 1 through February 20, 2018.

62. In February 2018, Mr. Petty objected to the $175,000 transfer from VOS's Chase account to Cronus Equity.

63. Mr. Virtue later directed Mr. Feller to move the balance of Virtue's investment from VOS to Cronus's account for safekeeping.

64. The Cronus bank account was used to accept subscription money from VOS investors from approximately October 2015 until March 2018, when Mr. Petty was terminated as an officer of the company.

65. An email dated February 12, 2018, purporting to give Mr. Feller the authority to transfer $175,000 from Chris Virtue of the $200,000 Mr. Virtue invested in VOS was sent to the email address paul.feller@vosdmg.com.

66. Credible evidence established that the domain “vosdmg.com” was not created until March 28, 2018.

67. Mr. Feller signed a $50,000 secured promissory note from Cronus Equity LLC to VOS Digital Group, Inc. on October 12, 2015.

68. Mr. Feller signed the $50,000 promissory note on behalf of VOS Digital Inc. and was still a member of Cronus Equity LLC on October 12, 2015.

69. As of November 12, 2015, Mr. Feller did not disclose the terms of the promissory note to Mr. Petty.

70. The security agreement granted Cronus a security interest in all the assets of VOS. This was not disclosed to Mr. Petty at the time in November 2015.

71. Cronus wired $50,000 into a VOS account at Chase Bank on or about November 12, 2015 and the source of the $50,000 was an investor, George Shirey.

72. A December 1, 2015...