Grayiel v. AIO Holdings, LLC

• Docket Number: Civil Action No. 3:15-CV-821-CHB
• Decision Date: 29 December 2022
• Citation: 648 F.Supp.3d 812
• Parties: George A. GRAYIEL, Plaintiff, v. AIO HOLDINGS, LLC, et al., Defendants.
• Court: U.S. District Court — Western District of Kentucky

648 F.Supp.3d 812

George A. GRAYIEL, Plaintiff, v.AIO HOLDINGS, LLC, et al., Defendants.

Civil Action No. 3:15-CV-821-CHB

United States District Court, W.D. Kentucky, Louisville Division

Signed December 29, 2022

Duvol M. Thompson, Elliot A. Magruder, Warren E. Gluck, Holland & Knight LLP, New York, NY, James M. Burd, Edward M. O'Brien, Wilson Elser Moskowitz Edelman & Dicker, LLP, Louisville, KY, Michael T. Boardman, Holland & Knight LLP, Los Angeles, CA, Richard A. Bixter, Jr., Holland & Knight LLP, Chicago, IL, for Plaintiff.

F. Larkin Fore, Fore Law PLLC, Louisville, KY, for DefendantsAIO Holdings, LLC, Gregory Anastas.

Bryan J. Dillon, Prospect, KY, for DefendantsSarinprapa Teema, Blue Light of Kentucky Limited Liability Company.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

CLARIA HORN BOOM, UNITED STATES DISTRICT COURT JUDGE

This matter is before the Court for disposition after a bench trial.The Court now issues its findings of fact and conclusions of law in accordance with Federal Rule of Civil Procedure 52(a)(1) and (c).For the reasons below, the CourtGRANTS JUDGMENT to PlaintiffGeorge A. Grayiel on the following claims: Count I (Actual Fraudulent Conveyance as to AIO), Count II (Actual Fraudulent Conveyance as to Teema and Second Blue Light), Count III (Constructive Fraudulent Conveyance as to AIO), Count V (Aiding and Abetting Fraud as to AIO, Anastas, and Teema), Count VI (Civil Conspiracy as to AIO, Anastas, and Teema), and Count VII (Common Law Fraud as to AIO and Anastas), and Count IX (Alter Ego/Veil Piercing as to AIO and Anastas).The Court will order additional briefing on the issue of damages.¹

This complex case arises from the fraudulent schemes of convicted con man Martin Twist and those working alongside him to evade creditors.Twist owned many entities, including Martin Twist Energy Company, LLC("MTEC"), Blue Flame Energy Company, LLC("Blue Flame"), Cherokee Drilling Company, LLC("Cherokee Drilling"), Cherokee Energy Company, LLC("Cherokee Energy"), Joerhea Realty, LLC("Joerhea") and Seca Energy, Inc.("Seca")(collectively, "Twist Entities"), which were all involved in a natural gas drilling operation in West Virginia.[R. 218, pp. 1-2, ¶ 3].Grayiel fell victim to Twist's scheme, investing most of his life's savings in the oil and gas wells owned by Twist and Twist Entities and receiving returns of only a fraction of his original investment.As outlined below, AIO, Anastas, and Teema were willing confederates in Twist's fraudulent schemes, helping Twist shield assets from creditors, like Grayiel.Grayiel first sought to recover his investment by suing Twist and the Twist Entities in the Circuit Court of Putnam County, West Virginia in 2008, which ultimately awarded Judgment in his favor.On November 6, 2015, after uncovering evidence of the fraudulent nature of Twist's enterprises, and the involvement of AIO, Anastas, and Teema, Grayiel brought this action.

I.FINDINGS OF FACT

Prior to trial, the parties stipulated to many of the underlying facts.Seeid. at 1-15.

Additionally, due to concerns that Grayiel's memory loss caused him to testify contrary to known facts, the parties filed a Stipulated Order,[R. 249], providing that Grayiel's prior Declaration,[R. 231-1], shall be made a part of the trial record and be a supplement to his trial testimony.[R. 249, p. 2, ¶ 3].²The Stipulated Order provides additional stipulated facts and attaches a sixty-eight-page exhibit of supporting documentation.[R. 249;R. 249-1].The Court references the parties' stipulations, as well as testimony and evidence produced at trial, in detailing its findings of fact.

a. Grayiel's Initial Investment and Loan

PlaintiffGeorge Grayiel is a retired postal worker who presently resides in Hurricane, West Virginia.[R. 218, p. 1, ¶¶ 1-2]; [R. 231-1, p. 1, ¶ 2]; [R. 261, 58:12-19].In 1999 or early 2000, Twist called Grayiel's home and asked if Grayiel wanted to invest in oil and gas wells.[R. 261, 59:14-16].Grayiel had saved a significant amount of his postal worker salary by living off one paycheck a month and saving the other.Id.at 59:21-24.From January 2000 through December 2001, Grayiel invested approximately $860,000 (the "Grayiel Investment"), the majority of his life savings, in the oil and gas wells owned by Twist and various Twist Entities.[R. 218, pp. 1-2, ¶ 3]; [R. 231-1, p. 2, ¶ 4].According to Grayiel, Twist promised the investors that they would be paid back their money "over and over again" and that the wells would last for fifty years.[R. 261, 60:4-6].

Grayiel did not invest in the natural gas assets directly but invested in subscription agreements which were to result in a partnership interest.[R. 218, p. 13, ¶ 110]; see also[JX2; JX3; JX4; JX5; JX6; JX7; JX8; JX9; JX13; JX14; JX15; JX16; JX17; JX18].Grayiel's ownership interests were not recorded in the county clerk's office where the wells were located.[R. 218, p. 13, ¶ 110].Grayiel had investments in the wells known as Hoff 1, Haynes 1, and Kesler 1, but does not recall investments in any of the other wells.Id. at 11, ¶ 98.In his testimony, Grayiel explained that the nature of Twist's scheme made it difficult to trace which specific wells he invested in, because Twist would "change[] that all the time.He would decide to drill a well and then decide to drill—and not do that one and do another one, so there were—there were names just—bunches of names of wells going around."[R. 261, 82:21-24].Grayiel testified that he only ever received about $20,000 in repayment of the approximately $860,000 Grayiel Investment.Id.at 60:6-7.

Also during this time, on May 10, 2001, Grayiel loaned Twist Entities MTEC and Seca $500,000 for which Grayiel took a Note and a security interest in various oil and natural gas assets.[R. 218, p. 11, ¶ 96]; [R. 261, 60:13-61:6]; [JX10 (Loan Agreement), JX11 (UCC Financing Statement)].Twist repaid the $500,000 loan to Grayiel on August 6, 2001, and the parties filed a release of Grayiel's security interest in the assets.[R. 218, p. 11, ¶ 97]; [R. 261, 60:22-24]; [JX12 (UCC-3 Termination of Financing)].Grayiel testified that he believed Twist repaid the loan to induce Grayiel to continue investing:

I didn't know at the time, but I think he paid me back because he thought I was going to continue to invest.I had learned later, you know, that that may be the reason he paid me back.He was afraid if he didn't pay me back, I would quit investing.

[R. 261, 60:25-61:6].

On November 17, 2008, Grayiel filed suit against Twist, a number of Twist Entities (such as Appalachian Energy Partners c/o Cherokee Energy), Drew Thomas, Tammy Twist Curry, and Todd Pilcher in the Circuit Court of Putnam County, West Virginia(the "Grayiel Litigation") related to his $860,000 Grayiel Investment. [JX38].Grayiel's Complaint attached a demand letter which Grayiel's counsel had sent to Twist about one year prior, on November 1, 2007.Id. at 146-47.The demand letter notified Twist that if he failed to return Grayiel's full investment plus applicable interest, Grayiel would "proceed with any and all necessary actions" to collect his investments and remedy his damages, including referral "to appropriate governmental authorities for investigation and possible prosecution of any and all civil and criminal remedies[.]"Id. at 147.

Several years later, on August 15, 2014, the West Virginia court entered Judgment in Grayiel's favor against the Twist Entities and later against the Estate of Martin Twist, in the amount of $2,671,880.84.[R. 218, p. 11, ¶ 94]; [JX82; JX85; JX86].

b. Twist's Prior Efforts to Evade Creditors

The Court heard testimony from Lonny Armstrong, a long-time employee of Twist.Armstrong began working for Twist in January 2000.[R. 265, 75:7-8].He explained that Twist "dubbed [him] vice president of Martin Twist Energy."Id.at 75:10-11.During his employment with Twist, Armstrong performed tasks such as opening bank accounts, forming companies, and talking to investors.Id.at 77:24-78:5.Armstrong was also involved in filing production reports for the wells with the Department of Environmental Protection.Id.at 78:12-17.Armstrong testified that he interacted with Twist "[b]asically every day ... when we were drilling, I would talk to him pretty well every day, and even when we weren't drilling, I'd talk to him in the office a lot."Id.at 77:19-23.The office where Armstrong worked housed about six or seven employees who cold-called potential investors for the oil and gas wells.Id.at 75:11-15.

Armstrong testified that Twist confided in him about various creditors' complaints, and instructed Armstrong to avoid speaking to investors and to skip payments to creditors that "weren't important."Id.at 78:22-79:2, 80:4-5.Specifically, Armstrong testified:

He always said that, you know, the investors were complaining and all that, and at one time he even—I'm not going to use the language, but he said, "F the investors."He said, "I don't owe them nothing."And that's the kind of attitude he had.All he wanted out of the investors was the money.

Id.at 79:12-17.

i. The Formation of Blue Flame

At some point, Twist asked Armstrong to start a new company in Armstrong's name.See id.at 75:22-23, 90:23-25("He didn't want his name on it or anything.").This appears to be the first instance of a recurring theme: Twist would evade creditors by moving assets into companies owned by people close to him, while Twist would retain absolute control over the operations and assets.Armstrong testified:

The purpose of Martin [Twist] to start it was to get away from the creditors from Cherokee Drilling, Martin Twist Energy, I guess, and try to start all new.And everything would be in my name and not his, so people wouldn't you know, go after him.And I would have first lien as far as doing a lot of things.

Id.at 76:14-18.When asked how Twist intended to use Blue Flame to start anew, Armstrong explained that,...