In re Cogswell

Decision Date17 September 2020
Docket NumberCase No. 8:18-bk-05445-MGW
Citation622 B.R. 109
Parties IN RE: Donald W. COGSWELL, Debtor.
CourtU.S. Bankruptcy Court — Middle District of Florida

Christopher D. Smith, Esq., Christopher D. Smith, P.A., Counsel for the Debtor.

Eric S. Olson, Esq., Kelley Geraghty Price, Esq., Cohen & Grigsby, P.C., Counsel for Spot Link, LLC.

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON SPOT LINK, LLC'S AMENDED MOTION FOR STAY RELIEF

Michael G. Williamson, United States Bankruptcy Judge

This case tests the limits of the old maxim "possession is nine-tenths of the law." In 2015, the Sarasota County Sheriff's Office seized forty-three items of personal property from the Debtor's home. Included among those items were various pieces of computer equipment: desktop computers, laptop computers, hard drives, monitors, power cords, flash drives, and a floppy disk. Spot Link, LLC, the Debtor's former employer, claims it owns most of the forty-three items (primarily the computers and hard drives) seized from the Debtor's home.

Under Florida law, possession of personal property creates a rebuttable presumption that a person in possession of property owns it. Thus, the burden is on Spot Link to prove that it owns the property and that the Debtor's possession of the property was not as owner. With one exception, Spot Link failed to overcome the presumption that the Debtor owned the forty-three items of property he possessed.

I. FINDINGS OF FACT

In early 2010, the Debtor began working for Spot Link. Founded by Phil and Marte Grande, Spot Link produced a radio show known as Phil's Gang.1 The radio show was designed to drive users to Spot Link's website, where listeners had an opportunity to buy a monthly membership subscription that gave subscribers access to daily classes on using stock charts for investing or to buy software products that supposedly helped listeners decide when to buy or sell particular stocks.2

The company operated out of an office in Sarasota.3 The office included a production area (or a studio) where Phil's Gang was produced.4 Because it produced a radio show, Spot Link owned a variety of sound studio equipment, including microphones and a mixing board.5 Spot Link also owned a dozen or so computers, which were located at its office in Sarasota.6

Spot Link hired the Debtor, who was living in Las Vegas at the time, to develop web-based software and applications that would enable users to track, monitor, and facilitate securities (and other) trading.7 Spot Link provided the Debtor with an office at its Sarasota location.

In his office, the Debtor had a computer tower under his desk, a couple monitors on the desk, and a laptop.8 Spot Link also set up a studio at the Debtor's home so he could do a radio show from home on Saturday mornings rather than have to drive into the office.9

For several years, the Grandes and the Debtor appeared to have a productive working relationship. Mr. Grande testified that he trained the Debtor and treated him like a son.10 And the company, by all accounts, was doing well: by 2013, Spot Link was doing roughly $1.2 million in net sales.11

In 2013, the Grandes sold a majority interest in Spot Link to the Debtor and his business partner.12 After the sale closed, the Debtor became Spot Link's CEO.13 As part of becoming Spot Link's CEO, the Debtor signed an employment agreement and non-compete agreement.14 Under his employment agreement, the Debtor agreed to return all company-owned property to Spot Link in the event Spot Link terminated him.15

Between October 2013 and April 2015, when the Debtor was Spot Link's CEO, he charged business expenses to his personal American Express card.16 To get reimbursed for those expenses, the Debtor would submit his credit card statements to Spot Link's CPA, Lora Burgess of Kerkering, Barberio & Co., and identify for her which charges were for business expenses. 17

Spot Link would then pay American Express directly for any business expenses charged to the Debtor's credit card.18

At the end of each month, Kerkering Barberio prepared the company's financials.19 To do so, Ms. Burgess would reconcile the credit cards and bank accounts.20 She would also prepare a general ledger of all financial transactions for the month.21 Any business expenses that the company reimbursed the Debtor for would be included on the reconciliation report and general ledger.

During the year and a half that the Debtor was CEO, Spot Link reimbursed the Debtor (by making direct payments to his American Express card) for more than $500,000 in business expenses.22 Most of those expenses were for charges for radio stations.23 But the expenses also appeared to include two Western Digital hard drives, which were purchased on October 29, 2014, and a Dell Alienware computer, which was purchased on January 14, 2015.24 The Western Digital hard drive and Alienware computer purchases were included on the company's reconciliation reports and general ledger.25

Sometime in early 2015, it appears the Debtor and the Grandes had a falling out. According to Mr. Grande, the Debtor was destroying the company.26 Whereas the company had been doing roughly $1.2 million in net sales when the Grandes owned it, Mr. Grande claimed it was losing a million dollars a year under the Debtor's stewardship.27

In February 2015, the Grandes, who by then had regained a majority interest in Spot Link, voted to remove the Debtor as managing member of the company and elected themselves to take his place.28 Things only got worse after that.

Sometime in late February or early March 2015, the Grandes accused the Debtor of using company money to pay for personal expenses.29 On March 20, 2015, roughly two months after the Debtor bought the Alienware computer, Spot Link requested that Bank of America reverse more than $60,000 in payments that had been made to the Debtor's American Express card. Bank of America ultimately reversed $64,155.11 in payments.30

But it didn't stop at reversing the payments.

Spot Link also sought to press charges against the Debtor. Based on Spot Link's complaint, an arrest warrant was later issued for the Debtor, and he was eventually charged with second and third degree grand theft.31 While the charges were based primarily on Spot Link's complaint that the Debtor used company money to pay for personal expenses,32 the grand theft charges were apparently also based, at least in part, on allegations that the Debtor had stolen Spot Link's source code for its web-based software applications.33

As a result, the Sarasota County Sheriff's Office went to the Debtor's home twice to execute search warrants.34 The first time, the Sheriff seized all the computers at the Debtor's house, leaving the Debtor without a computer.35 So the Debtor borrowed a laptop from a friend, Mary Acosta.36 Coincidentally, Ms. Acosta happens to be Mrs. Grande's sister. When the Sheriff's deputies came back a second time looking for a Dell XPS computer, which was not at the Debtor's house, they ended up seizing Ms. Acosta's laptop.37

In all, the Sheriff seized forty-three items—including desktop and laptop computers; hard drives; computer monitors; iPads; iPhones; flash drives and a floppy disk; sound studio equipment (i.e., a mixing board and microphone); and miscellaneous personal items (i.e., photos, copies of contracts, a check stub, and credit card statements).38 The Sheriff's Office took pictures of the items that were seized and assigned each item a bar code.39

Although the Debtor denied the grand theft charges, he ultimately entered into a pre-trial diversion program.40 Under the terms of the pre-trial diversion program, the charges against the Debtor would be dropped so long as the Debtor complied with various conditions.41 One of those conditions was that the Debtor had to relinquish his property claim to the Allen & Heath editing/mixing board, microphone #3, and two Acer monitors seized from his home.42 None of the other forty-three items seized from his home were included as a condition of the pretrial diversion program.43 On July 22, 2016, the State Attorney dropped the charges against the Debtor because he completed the pre-trial diversion program.44

But that didn't end things between the parties. Civil litigation between the parties continued to ensue in state court through at least November 2016, during which the Debtor and the Grandes became embroiled in a discovery dispute.45 To resolve that dispute, the state court ordered (1) the Sheriff to release the mixing board (Barcode #89031425), microphone (Barcode #89031426), and three Acer monitors (Barcode ## 89031430, 89031432 & 89031448) to Spot Link; and (2) that three of the computers seized by the Sheriff—including the Alienware computer (Barcode #89031431) and Ms. Acosta's laptop (Barcode #89032374)—be imaged.46 It is unclear whatever came of the imaging of the computers or that litigation.

All we know is that a year and a half later, the Debtor filed for chapter 7 bankruptcy. On his bankruptcy schedules, the Debtor scheduled five computers: one computer that was at his house and four computers that were still in the Sheriff's possession.47 The Debtor didn't schedule any of the remaining items in the Sheriff's possession because he says he didn't think they had any material value.48

After the Debtor filed for bankruptcy, Spot Link moved for relief from the automatic stay so that it could recover the items seized by the Sheriff.49 In its stay relief motion, Spot Link alleged that it owned the items seized by the Sheriff even though they were in the Debtor's possession.50 Whether Spot Link is entitled to stay relief therefore turns on whether it owns the items seized by the Sheriff.

The Court tried the ownership issue over two days. At trial, the parties agreed that seventeen of the forty-three seized items were no longer in dispute,51 leaving twenty-six items in dispute.52 This Court must now determine who owns the remaining twenty-six items of personal property held...

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