In re Evergreen Sec., Ltd.

• Decision Date: 27 February 2007
• Docket Number: No. 6:01-bk-00533-ABB.,6:01-bk-00533-ABB.
• Citation: 363 B.R. 267
• Parties: In re EVERGREEN SECURITY, LTD., Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Florida

363 B.R. 267

In re EVERGREEN SECURITY, LTD., Debtor.

No. 6:01-bk-00533-ABB.

United States Bankruptcy Court, M.D. Florida, Orlando Division.

February 27, 2007.

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R. Scott Shuker, Gronek & Latham LLP, Orlando, FL, for Debtor.

ORDER

ARTHUR B. BRISKMAN, Bankruptcy Judge.

This matter came before the Court on the Motion for Recusal, Motion to Disqualify, Disclosure of All Ex Parte Communications and Revocation of all Prior Orders¹ ("Recusal Motion") filed by Mataeka, Ltd., Jon M. Knight, J. Anthony Huggins, Atlantic Portfolio Analytics & Management, Inc., a/k/a APAM, Inc., and International Portfolio Analytics, Inc. (collectively, the "Movants"). The Movants seek: (i) the recusal of the undersigned Judge in this bankruptcy case and in all other proceedings in which the Movants are parties; (ii) the disqualification of the law firm of Gronek & Latham, LLP² in this bankruptcy case and in all other proceedings in which the Movants are parties; (iii) the disclosure of alleged ex parte communications and filings in this case and in all other proceedings in which the Movants are parties; and (iv) the revocation of all Orders entered in this case and in all other proceedings in which the Movants are parties. Evergreen Security Ltd., through its President R.W. Cuthill, Jr., filed a response to the Motion.³

Evidentiary hearings were conducted on November 29, December 11, 2006, and January 29, 2007 at which counsel for Evergreen, counsel for the Movants, counsel for R.W. Cuthill, and Leigh R. Meininger, the Chapter 7 Trustee for three related involuntary cases, appeared. Jon M. Knight and J. Anthony Huggins were present on some of the hearing dates. The following Findings of Fact and Conclusions of Law are made after reviewing the pleadings and evidence, hearing live testimony and argument, and being otherwise fully advised in the premises.

FINDINGS OF FACT

Background

Evergreen Security Ltd. ("Evergreen"), a British Virgin Islands International Business Corporation, sold investment certificates to investors. It filed the above-captioned voluntary Chapter 11 bankruptcy case (the "Main Case") on January 23, 2001 ("Petition Date").⁴ Evergreen had less than $1 million in assets and owed debts of at least $214 million to investors on the Petition Date. More than 1,600 claims totaling $380,630,019.97 have been filed in this case. Virtually all of the claims are investor claims.

J.W. Cuthill, Jr. ("Cuthill") was appointed the Chapter 11 Trustee by Order entered on March 14, 2001⁵ and sole Director and President of Evergreen pursuant to Evergreen's confirmed plan.⁶ Cuthill instituted approximately 150 lawsuits in six countries, including numerous adversary proceedings, to recover monies for Evergreen's creditors.

Cuthill instituted Adversary Proceeding No. 6:02-ap-00110-ABB ("Kime AP") against Harold James Kime and First American Life & Health Insurance Corporation to recover fraudulent transfers. A Memorandum Opinion and Judgment were entered in favor of Cuthill on June 5, 2003 ("Kime Decision") finding Evergreen was a Ponzi scheme. The investors' funds were invested in highly volatile investments, which was contrary to Evergreen's representations the investments would be fully secured by American mortgage-backed securities. Evergreen used most of the funds received from new investors to pay prior investors. The collapse of the scheme led to Evergreen's filing for bankruptcy.⁷ The decision was appealed to the United States District Court for the Middle District of Florida, Orlando Division ("District Court") and the parties dismissed the appeal by stipulation before any briefs were filed.⁸

Cuthill instituted Adversary Proceeding No. 6:01-ap-00232-ABB (the "Mataeka AP") against Jon M. Knight ("Knight"), J. Anthony Huggins ("Huggins"), Mataeka, Ltd. ("Mataeka"), and Atlantic Portfolio Analytics & Management, Inc. ("APAM") seeking, among other things, the avoidance and recovery of fraudulent transfers pursuant to Sections 544(b) and 550 of the Bankruptcy Code and Florida state law provisions. The focus of the Mataeka AP was the 1997 transfer of $6,500,000.00 from Evergreen Trust to Mataeka and the subsequent transfers of the funds to Knight, Huggins, and others.⁹

An indictment for grand larceny in the first degree was filed against Huggins and Knight in New York in August 2002 (New York County Indictment Number 04368/02). The criminal charges arose from allegations Knight and Huggins stole approximately $6,500,000.00 from Evergreen Trust. Two criminal trials were conducted, which did not result in verdicts. Huggins and Knight pled guilty to lesser charges in two Plea Agreements in December 2004. They were both sentenced to probation and fined.¹⁰

The trial of the Mataeka AP commenced on June 8, 2005 and continued through June 9, June 16, June 17, October 31, November 7, and November 8, 2005. A Memorandum Opinion and Judgment (collectively, "the Mataeka Judgment") were entered on March 22, 2006 awarding judgment to Cuthill and against the defendants.¹¹ Knight and Huggins were found to be key players in the Evergreen Ponzi scheme and orchestrated the unlawful transfer of $6,500,000.00 from Evergreen Trust to themselves and various entities they controlled. Judgment was entered against Knight, Huggins, and Mataeka (found to be their alter ego), jointly and severally, in the amount of $4,889,053.90, plus prejudgment interest in the amount of $3,052,467.69, and against APAM in the amount of $2,500,000.00. The defendants appealed the judgment and the appeal is pending in the District Court.¹² Postjudgment interest is accruing.

Cuthill instituted Adversary Proceeding No. 03-00035-ABB against Knight, Huggins, APAM, and International Portfolio Analytics, Inc. ("IPAM") in 2003 seeking recovery of an alleged fraudulent transfer of approximately $213,000.00. The Mataeka AP defendants filed a motion to consolidate this adversary proceeding with the Mataeka AP, which was denied; their motion for reconsideration was denied. The undersigned is the presiding Judge in the Main Case, the Mataeka AP, and AP 03-00035.

Attorney Admissions and Appearances

The law firm of GrayRobinson, P.A. ("GrayRobinson") has represented the Mataeka AP defendants throughout the Mataeka AP. GrayRobinson filed a Motion to Appear Pro Hac Vice moving for the admission of attorney Peter R. Ginsberg ("Ginsberg") "for purposes of appearing as co-counsel on behalf of Jon M. Knight, defendant herein, in the above-styled case only."¹³ The Motion designates attorney Maureen A. Vitucci ("Vitucci") as the "person to whom the Court and counsel may readily communicate and upon whom papers may be served." It further states "the law firm of GrayRobinson ... acts as local counsel in this matter." Ginsberg is an attorney residing outside the State of Florida whose office is located in New York City. He is not licensed to practice law in Florida and is not admitted to practice in the District Court.

An Order was entered on April 7, 2005 granting the Motion and providing: "Peter R. Ginsberg is admitted pro hew vice to appear on behalf of Jon M. Knight in this adversary proceeding" and "Maureen A. Vitucci is local counsel and will be served all papers."¹⁴ Ginsberg and GrayRobinson attorneys Vitucci and Scott W. Spradley ("Spradley") have subsequently appeared in the Mataeka AP, AP No. 03-00035, the Main Case, and three related involuntary cases. The admission of Ginsberg pro hac vice was not sought in any other case pending before this Court. Ginsberg's appearances in all cases other than the Mataeka AP are unauthorized and in violation of the Local Rules of this Court and Florida Rules of Professional Conduct.

Cuthill and Evergreen have been represented by the law firm of Gronek & Latham, LLP ("G & L"), with R. Scott Shuker ("Shuker") as lead counsel, throughout the Evergreen bankruptcy and adversary proceedings. The law firm of Smith Hulsey & Busey represents Cuthill in the Recusal Motion proceedings.

Shuker, Spradley, and Vitucci are members of the Florida Bar, the District Court Bar, and the Bar of this Court. Each has a high level of expertise in bankruptcy matters. Shuker is a named partner with G & L. Spradley has been a partner with GrayRobinson for nine years. Vitucci is an associate attorney with GrayRobinson in its bankruptcy department and she formerly clerked for this Court. Ginsberg's primary practice area is criminal defense; he is not experienced in bankruptcy law.

Judgment Collection Actions

The Mataeka AP litigation between Cuthill and the Movants was extremely contentious and the level of acrimony escalated post-judgment. The Mataeka AP defendants did not seek a stay of the Mataeka Judgment pending appeal and Cuthill instituted garnishment proceedings and discovery in aid of execution of the Mataeka Judgment. Cuthill issued writs of garnishment to Ginsberg and GrayRobinson as garnishees. GrayRobinson was holding approximately $1,095,983.47 in its trust account in the name of "J.A. Huggins FBO Mataeka." GrayRobinson was directed to turnover the funds to Cuthill on June 22, 2006.¹⁵

Evergreen, through Cuthill, filed three involuntary Chapter 7 bankruptcy petitions against the debtors Knight, Huggins and APAM on June 28, 2006: In re Jon M. Knight, Case No. 6:06-bk-01547-ABB; In re J. Anthony Huggins, Case No. 6:06-bk-01546-ABB; In re Atlantic Portfolio Analytics & Management, Inc., Case No. 6:06-bk-01549-ABB. The undersigned is the presiding Judge in these three involuntary cases. Evergreen filed emergency motions in the Huggins and Knight involuntary cases seeking the appointment of an interim trustee. The involuntary debtors objected to the motions. A joint hearing on the emergency motions was conducted on July 12, 2006 and Evergreen's motions were granted. The United States Trustee appointed Leigh R. Meininger as the Interim Chapter 7 Trustee in the Huggins and Knight involuntary cases.

Shuker, at the...