Gatz v. Ponsoldt

• Decision Date: 07 July 2003
• Docket Number: No. 4:02CV3113.,4:02CV3113.
• Parties: Edward E. GATZ and Donald D. Graham, individually and on behalf of those similarly situated, and Edward E. Gatz and Donald D. Graham, derivatively on behalf of Regency Affiliates, Inc., Plaintiffs, v. William R. PONSOLDT, Sr.; Statesman Group, Inc.; William R. Ponsoldt, Jr.; Marc H. Baldinger; Stephanie Carey; Martin J. Craffey; Royalty Holdings, L.L.C.; Royalty Management, Inc.; Laurence Levy; and Regency Affiliates, Inc., Defendants.
• Court: U.S. District Court — District of Nebraska

271 F.Supp.2d 1143

Edward E. GATZ and Donald D. Graham, individually and on behalf of those similarly situated, and Edward E. Gatz and Donald D. Graham, derivatively on behalf of Regency Affiliates, Inc., Plaintiffs, v. William R. PONSOLDT, Sr.; Statesman Group, Inc.; William R. Ponsoldt, Jr.; Marc H. Baldinger; Stephanie Carey; Martin J. Craffey; Royalty Holdings, L.L.C.; Royalty Management, Inc.; Laurence Levy; and Regency Affiliates, Inc., Defendants.

No. 4:02CV3113.

United States District Court, D. Nebraska.

July 7, 2003.

COPYRIGHT MATERIAL OMITTED

Trenten P. Bausch, Nicole T. Bock, Thomas H. Dahlk, Michael S. Degan, L. Steven Grasz, Angela M. Lisec, Daniel A. Morris, Joy A. Nesbitt, Blackwell, Sanders Law Firm, Omaha, NE, for Plaintiffs' Counsel.

Rodney M. Confer, Thomas E. Jeffers, Jeanelle R. Lust, Kevin R. McManaman, Joseph A. Wilkins, Knudsen, Berkheimer Law Firm, Lincoln, NE, Alan J. Mackiewicz, Omaha, NE, Jeremy T. Fitzpatrick, Richard P. Jeffries, Bartholomew L. McLeay, Suzanne M. Shehan, Kutak Rock, LLP, Omaha, NE, William G. Dittrick, Patrick J. Ickes, Gerald P. Laughlin, Baird, Holm Law Firm, Omaha, NE, for Defense Counsel.

MEMORANDUM AND ORDER

KOPF, District Judge.

This is a derivative class-action RICO¹ suit brought by shareholders of Regency Affiliates, Inc., ("Regency") against Regency's former executive officer, director, and controlling stockholder who allegedly implemented a fraudulent scheme to carry out self-dealing transactions; against former Regency directors for breaching their fiduciary duties and duties of loyalty in failing to prevent the fraudulent actions; against Regency's new chief executive officer; and against the owner of approximately 38.45% of Regency's common stock — which was purportedly purchased at an unreasonable price — and the holder of a promissory note now convertible into approximately 21.55% of additional shares of Regency common stock. (Filing 157, Amended Complaint ¶ 1.) The plaintiffs seek money damages and declaratory and injunctive relief to prevent furtherance of the defendants' alleged unlawful scheme to dilute the cash value and voting power of the shares owned by the class and to seize control of Regency's interest in a limited partnership that owns real estate valued at over $170 million. (Id. ¶¶ 2-3.)

I. BACKGROUND

A. The Plaintiffs and Defendants

Plaintiffs Edward Gatz and Donald Graham live in Omaha, Nebraska, and are the owners of 61,370 and 1,064 respective shares of Regency common stock. Defendant William R. Ponsoldt, Sr. ("Ponsoldt Sr."), is a Florida resident who "dominated the affairs of Regency" until October 28, 2002, and who became Chairman of the Board of Regency in 1996, and CEO and President in 1997.

Defendant Statesman Group, Inc. ("Statesman"), is a Bahamian corporation with its principal place of business in Nassau, the Bahamas. Statesman is dominated and controlled by Ponsoldt Sr. and until October 16, 2002, Statesman claimed ownership of 38.9% of the outstanding shares of Regency common stock and 50% of the outstanding shares of Regency Series C Preferred Stock. (Id. ¶¶ 6-7.) Statesman was formed for the purpose of investing in the United States and elsewhere on behalf of the Statesman Trust, an irrevocable trust settled by Ponsoldt Sr. in the Bahamas. Statesman has never been registered as a foreign corporation doing business in Nebraska; has never maintained an office in Nebraska; has never sent any employees or agents to Nebraska; and has not held any bank accounts, real estate, or personal property in Nebraska. (Filing 189, Ex. N, Decl. Statesman Group, Inc. ¶¶ 4-5.)

Defendant William R. Ponsoldt, Jr., ("Ponsoldt Jr.") is Ponsoldt Sr.'s son and he resides in Florida. Ponsoldt Jr. was appointed to the Regency Board of Directors by Statesman and served on the Board from July 1993 to October 28, 2002. Defendant Marc H. Baldinger ("Baldinger") resides in Florida and served on Regency's Board of Directors from August 1999 to October 28, 2002. Since 2001, Baldinger has served as Regency's Chief Financial Officer. Defendant Stephanie Carey ("Carey") is a resident of the Bahamas who served on the Regency Board of Directors from July 1993 until October 28, 2002. Defendant Martin J. Craffey ("Craffey") resides in New York and served on the Regency Board of Directors from July 1993 to October 16, 2002. During these Board members' terms, they "participated in regular communications with officers of Regency located in Nebraska" and were "paid director fees from Regency bank accounts located in Nebraska." (Id. ¶ 7.)

Defendant Royalty Holdings, L.L.C. ("Royalty Holdings"), is a Delaware limited liability company with its principal place of business in New York.² Defendant Royalty Management, Inc. ("Royalty Management"), is the managing member of Royalty Holdings and is a Delaware corporation with its principal place of business in New York. Royalty Holdings and Royalty Management were formed in May and October 2002, respectively, for the purpose of participating in a transaction involving Regency, and neither entity has conducted any other business. Neither Royalty Management nor Royalty Holdings have been registered to do business in Nebraska; have never maintained an office in Nebraska; have never sent any employees or agents to Nebraska; and have never held any bank accounts, real estate, or personal property in Nebraska. (Filing 187, Ex. A., Aff. Laurence Levy.) Defendant Laurence Levy ("Levy"), a resident of New York, is the current Regency President, CEO, and Chairman of the Board, and is also Royalty Management's President and sole director and stockholder. (Filing 157, Amended Complaint ¶ 7.)

None of the individual defendants has ever resided in Nebraska, owned or rented property in Nebraska, had any personal property in Nebraska, maintained a bank account in Nebraska, or voted or filed a tax return in Nebraska. Defendant Levy has never been present or visited Nebraska; defendants Baldinger, Craffey, and Carey visited Nebraska once for an August 5, 1999, Regency shareholders meeting; defendant Ponsoldt Sr. visited Nebraska twice — once for the 1999 shareholders meeting and once to visit Larry Horbach, a former Regency director and interim chief financial officer; and Ponsoldt Jr. visited Nebraska once in December 2000 to procure documents from Horbach which are unrelated to the claims against Ponsoldt Jr. in this case. (Filing 187, Aff. Laurence Levy; Filing 189, Exs. M, R, S, T, U, Affs. of Individual Defendants.)

Defendant Regency Affiliates, Inc.,³ is a Delaware corporation. (Filing 157, Amended Complaint ¶ 7.) Regency maintained its principal place of business in Omaha, Nebraska, from 1987 to 1989, again from 1990 to 1993, and for a brief period in 1995. (Filing 270, Stipulation.) Because "Regency's executive offices, and principal place of business, were typically located near the residence of its current President," Regency's principal place of business moved from Nebraska to Illinois, Colorado, and California as Regency's president changed. (Filing 270, Stipulation.) When Ponsoldt Sr. became Regency's Chairman of the Board in 1996, Regency moved its principal place of business to Stuart, Florida, where Ponsoldt Sr. lived. (Filing 189, Ex. M, Decl. William Ponsoldt, Sr. ¶ 11 & 13; Filing 189, Ex. P, Aff. Larry J. Horbach ¶ 2(q); Filing 270, Stipulation.) In July 2002, Regency's executive offices and principal place of business moved to Jensen Beach, Florida, where Regency's corporate documents are now maintained. (Filing 189, Ex. M, Decl. William Ponsoldt, Sr. ¶ 22; Filing 270, Stipulation.)

From 1987 to 1989 and from 1992 to December 2000, Regency maintained its "administrative office" in Omaha, Nebraska, where accounting, bookkeeping, administrative and stock transfer, and bill-paying services were performed. (Filing 189, Ex. P, Aff. Larry J. Horbach ¶¶ 1-2; Filing 199, Ex. 1, Aff. Eunice Antosh; Filing 189, Ex. M, Decl. William Ponsoldt, Sr., ¶ 13; Filing 272, Aff. Larry J. Horbach; Filing 273, Aff. William R. Ponsoldt, Sr. ¶ 2.) This "administrative office" was operated by L.J. Horbach & Associates, which was a company independent of Regency that performed administrative services for other companies as well. Thus, Regency's "administrative office" was not owned or controlled by Regency; rather, it was contracted to perform certain administrative functions for Regency. (Filing 273, Aff. Marc H. Baldinger ¶ 2.)

From February 1994 to January 2001, Regency's administrative checking accounts were located in Omaha, Nebraska. It was from these Omaha accounts that members of Regency's Board of Directors — including defendants Ponsoldt Sr., Baldinger, Craffey, Carey, and Ponsoldt Jr. — received quarterly retainers and fees for attending out-of-state board meetings. These Nebraska accounts were primarily used for current accounts payable; in contrast, Regency used banks in Florida for its business operations. Regency's executive office directed that "[j]ust enough" money be wired to the Nebraska accounts on a monthly basis to cover accounts payable. (Filing 273, Aff. William R. Ponsoldt, Sr. ¶ 8, Aff. Martin J. Craffey ¶ 3, Aff. Stephanie Carey ¶ 4.)

Regency's 1999 annual stockholders meeting was held in Omaha, Nebraska. Regency's corporate secretary, who was located at the Omaha administrative office, received numerous telephone calls and facsimile communications from Regency's board members — including defendants Ponsoldt Sr., Baldinger, Craffey, Carey, and Ponsoldt Jr. — about matters such as financing for Regency, stocks, expense reports, board meetings, and "irrevocable stock and bond power for a Statesman stock certificate." (Filing 199, Ex. 1, Aff. Eunice Antosh; Filing 189, Ex. M, Decl. William Ponsoldt, Sr. ¶ 13.) However, Regency owned no real estate or property in Nebraska, and, from April 1990 to June 1996, Regency was not licensed to do business in Nebraska. (Filing 189, Ex. M, Decl. William...