Haigler v. Dozier (In re Dozier Fin., Inc.)

• Citation: 587 B.R. 637
• Decision Date: 24 May 2018
• Docket Number: Adv. Pro. No. 17–80113–HB,C/A No. 14–04262–HB
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
• Parties: IN RE DOZIER FINANCIAL, INC., Debtor(s). Janet B. Haigler, Plaintiff(s), v. Michael Dozier, Sequence Financial Specialists, LLC, WebsterRogers, LLP, WebsterRogers Financial Advisors, LLC, Shilson, Goldberg, Cheung & Associates, Willcox Buyck and Williams, P.A., Defendant(s).

587 B.R. 637

IN RE DOZIER FINANCIAL, INC., Debtor(s).Janet B. Haigler, Plaintiff(s),

v.Michael Dozier, Sequence Financial Specialists, LLC, WebsterRogers, LLP, WebsterRogers Financial Advisors, LLC, Shilson, Goldberg, Cheung & Associates, Willcox Buyck and Williams, P.A., Defendant(s).

C/A No. 14–04262–HB

Adv. Pro. No. 17–80113–HB

United States Bankruptcy Court, D. South Carolina.

Signed May 24, 2018

Reid B. Smith, Bird and Smith, PA, Columbia, SC, for Debtor.

Richard R. Gleissner, Gleissner Law Firm, LLC, Columbia, SC, for Plaintiff.

Charles E. Ipock, Haynsworth Sinkler Boyd, PA, Florence, SC, Robert Yates Knowlton, Haynsworth Sinkler Boyd, P.A., Columbia, SC, Steven R. Kropski, David W. Overstreet, Joshua H. Umbarger, Earhart Overstreet, LLC, Donald Jay Davis, Jr., Christine K. Toporek, Young Clement Rivers, LLP, Charleston, SC, Frank Lyn McElroy, Forrext McElroy, PC, Houston, TX, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT SHILSON, GOLDBERG, CHEUNG & ASSOCIATES' MOTION TO DISMISS OR ALTERNATIVELY, MOTION TO TRANSFER VENUE

THIS MATTER came before the Court for hearing on May 17, 2018, for consideration of the Motion to Dismiss or, alternatively, Transfer Venue filed by Defendant Shilson, Goldberg, Cheung & Associates ("SGC").¹ Plaintiff Janet B. Haigler, Chapter 7 Trustee in the above captioned case ("Trustee"), objected.² Present at the hearing were Frank L. McElroy and David Overstreet, counsel for SGC, as well as Richard R. Gleissner, counsel for the Trustee. The Motion asserts the Trustee's Complaint against SGC should be dismissed pursuant to Fed. R. Civ. P. 12(b)(3)³ for improper venue, or alternatively venue should be transferred to another district. SGC also moves for dismissal pursuant to Fed. R. Civ. P. 12(b)(6).

I. JURISDICTION

This proceeding relates to the Chapter 7 bankruptcy case of Dozier Financial, Inc. ("Debtor") pending in this Court. The United States District Court for the District of South Carolina has jurisdiction under 28 U.S.C. § 1334(b). Pursuant to 28 U.S.C. § 157(a) and Local Civ. Rule 83.IX.01 (D.S.C.), the district court has referred this proceeding to the bankruptcy court. This proceeding involves claims for damages under non-bankruptcy law and is not a "core proceeding" within the meaning of 28 U.S.C. § 157(b)(2).⁴ Under 28 U.S.C. § 157(c), this Court has the authority to hear, but not to determine, a non-core proceeding unless all of the parties consent to this Court's determination under 28 U.S.C. § 157(c)(2).

II. TRUSTEE'S ALLEGATIONS ⁵

Trustee brings this action on behalf of the estate ("Estate Claims") and as a result of claims assigned to the estate that were personal to certain investors/creditors of Debtor ("Investor Claims"). All of the claims arise from actions relating to Defendants' involvement with the restructuring of Michael Dozier's business operations and selling of securities to third party investors to raise funds. Trustee seeks to recover the losses that resulted from the sale of such securities and alleges that all Defendants played a role in causing the losses.

Michael Dozier was the sole shareholder, director, and officer of Debtor and operated used car dealerships in South Carolina. In April 2009, Michael Dozier employed WebsterRogers, LLP and WebsterRogers Financial Advisors, LLC (collectively, "WebsterRogers") and Sequence Financial Specialists, LLC ("Sequence") to facilitate in the restructuring of his business and to raise capital to support the dealerships' operations. Throughout their involvement, Sequence and WebsterRogers marketed themselves and operated as a single firm providing accounting and investment advice services to Debtor.

WebsterRogers and Sequence provided Michael Dozier with advice to create a business model that involved the formation of several business entities, including Debtor. Debtor's business primarily involved servicing financing contracts for Michael Dozier's used car dealerships. WebsterRogers and Sequence also recommended Michael Dozier begin selling securities to investors to raise funds. Sequence agreed to act as the placement agent for any private offering of any securities, as an underwriter in any public offering of securities, and as a broker in soliciting investments in Debtor.

In July 2009, Michael Dozier engaged Willcox Buyck and Williams, P.A. ("WBW"), a law firm located in South Carolina, to provide legal services, including advice related to the restructuring of his business and the securities transactions. WBW assisted with the formation of the various entities that formed Michael Dozier's business model, including Debtor and the car dealerships. WBW also assisted with enabling Debtor to secure capital through security offerings, including the drafting of offerings for the solicitation of investments from third parties. Sequence and WebsterRogers were also engaged to seek additional financing necessary for implementing the business model it had previously developed and to consult with WBW regarding the issuance of a private placement memorandum to raise capital. WebsterRogers also specifically agreed to determine and evaluate the tax and generally accepted accounting principles and reporting options for the businesses.

Despite hiring professionals, Michael Dozier used the business' accounts to improperly pay for personal obligations and excessive compensation from the inception of Debtor and the other related entities. The Defendants were aware that Michael Dozier was improperly appropriating assets of the businesses for his personal benefit.⁶

Sequence, WebsterRogers, and WBW generated the financial reports for the Debtor, which included the company ledgers for the car dealerships and Debtor, profit and loss statements, balance sheets, income statements, and cash flow statements. These Defendants knew these financial reports would be used by Debtor in acquiring capital through the sale of securities. These financial reports were deficient, false, and misleading because they, through improper accounting methods: improperly allocated assets, liabilities, and costs; significantly overestimated the accounts receivable owed to the Debtor from the related entities; and significantly underestimated the amounts payable by the Debtor. As a result, the financial statements made it appear that Debtor had a positive net worth when the business was actually operating at or near a net loss.

When confronted with numerous red flags concerning the accuracy of Debtor's financial statements, Sequence and WebsterRogers did not abide by the standards of due diligence governing the conduct of brokers, underwriters, and investment advisers. Sequence and its employees also assisted Michael Dozier in his concealment of Debtor's financial condition from Debtor and the investors.

The financial statements were used to market the securities to be purchased by the investors. The investors were first solicited to invest in Debtor in September 2009 through a Private Placement Memorandum ("2009 PPM"), which was drafted by WBW. Prior to approval of these materials and their distribution to investors, Sequence and WebsterRogers did not conduct independent investigations into the capital requirements of Michael Dozier's business. Overall, in offering and selling these investments, Defendants⁷ made false and misleading disclosures and omitted material facts relating to the risks of investing in the Debtor, the Debtor's financial performance, and how the Debtor would use the investment proceeds. The 2009 PPM also made a selling point to investors that independent underwriters, brokers, accountants, and attorneys had performed due diligence and, thus, acted as gatekeepers against possible misdeeds by Debtor or Michael Dozier. However, the investors' funds were improperly used for liabilities and operating costs of the car dealerships, personal obligations of Michael Dozier, and improper distributions to him. Defendants knew the 2009 PPM included these misrepresentations and omissions regarding Debtor's business and the investment risks associated therewith.

In October 2009, Michael Dozier began selling securities to the public that he believed were exempt offerings under federal and state securities laws. Sequence and WebsterRogers did not conduct independent investigations to ensure that Michael Dozier did not sell stock to unaccredited investors, which would destroy any safe harbor registration exemption for the securities issued under the 2009 PPM.

In December 2009, WBW was made aware that proceeds of the 2009 offering were not being used in accordance with the escrow terms provided in the 2009 PPM and that the offering was improperly handled by Michael Dozier, which could raise securities liability. WBW had a duty to advise the Debtor and investors to address this transactional risk.

In March 2010, Sequence, WebsterRogers, and WBW compiled an addendum to the 2009 PPM to be sent to prior and new, prospective investors ("2010 Executive Summary"). The 2010 Executive Summary attached unaudited financial reports for the Debtor that were prepared by Sequence and WebsterRogers. These financial reports included the same material misrepresentations in the prior financial reports and 2009 PPM. Despite this, WBW, Sequence, and WebsterRogers approved the 2010 Executive Summary and enclosed information to be used by Michael Dozier in future solicitations from investors.

Upon the recommendation of WebsterRogers and Sequence, SGC was retained by the Debtor in late 2010 or early 2011. SGC is an accounting firm located in Houston, Texas, with extensive experience with used car dealerships and their related finance companies. Debtor and SGC entered into an Engagement Agreement dated January 3, 2011, which includes the following forum selection clause ("FSC"):

This engagement letter shall be governed by the laws of the State of Texas. Any suit, action or proceeding arising out of or relating to this engagement letter shall only be brought in the State

...