J. Stephen Smith, Chapter 7 Tr. for the Bankr. Edelta Invs. & Dev., LLC v. Gary Wilburn, Rick Taylor, Jane Sears, & DJJ&J Enters., LLC (In re Delta Invs. & Dev., LLC)

Decision Date08 January 2019
Docket NumberCASE NO. 12-01160-NPO,ADV. PROC. NO. 17-00067-NPO
PartiesIN RE: DELTA INVESTMENTS & DEVELOPMENT, LLC, DEBTOR. J. STEPHEN SMITH, CHAPTER 7 TRUSTEE FOR THE BANKRUPTCY ESTATE OF DELTA INVESTMENTS & DEVELOPMENT, LLC PLAINTIFF v. GARY WILBURN, RICK TAYLOR, JANE SEARS, AND DJJ&J ENTERPRISES, LLC DEFENDANTS
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Mississippi

The Order of the Court is set forth below. The docket reflects the date entered.

CHAPTER 7

(I) MEMORANDUM OPINION AND ORDER ON COUNT IV: VIOLATION OF THE AUTOMATIC STAY AND (II) PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW ON: (A) COUNT I: PIERCING THE VEIL AND (B) COUNT II: BREACH OF DUTY-OFFICERS AND DIRECTORS

This matter came before the Court for trial on November 28-29, 2018 (the "Trial"), on the Complaint (the "Complaint") (Adv. Dkt. 1)1 filed by J. Stephen Smith (the "Trustee") in hiscapacity as the chapter 7 trustee for the bankruptcy estate of Delta Investments & Development, LLC ("Delta") and the Answer and Affirmative Defenses (the "Answer") (Adv. Dkt. 36) filed by Gary Wilburn ("Wilburn"), Rick Taylor ("Taylor"), Jane Sears ("Jane Sears"), and DJJ&J Enterprises, Inc. ("DJJ&J") (collectively, the "Defendants") in the Adversary. The Trustee filed the Plaintiff's Trial Brief (Adv. Dkt. 51) on November 23, 2018; the Defendants chose not to file a pre-Trial brief. The Revised Pretrial Order (the "PTO") (Adv. Dkt. 53) was entered on November 28, 2018.

At Trial, the Trustee was represented by Lawrence Deas and William Liston; the Defendants were represented by Penny B. Lawson and Harry P. Long. Five witnesses testified at Trial, including Taylor, Wilburn, Doug Sears ("Doug Sears"), the Trustee, and David Porter ("Porter"). By stipulation, 25 joint exhibits were admitted into evidence at Trial;2 the Trustee introduced 19 exhibits; and the Defendants introduced 21 exhibits.3 At the end of Trial, the Court invited the parties to submit letter briefs addressing the Barton doctrine. See Barton v. Barbour, 104 U.S. 126 (1881). Neither party filed a post-Trial brief.

Introduction

This Adversary flows from the shared dream of three life-long friends to own and operate a casino. In their quest to purchase the Horizon Hotel and Casino in Vicksburg, Mississippi, at a bargain price, they were undeterred by legal barriers and delayed financing. To overcome these obstacles, they enlisted the help of others they knew from their operation of bingo and sweepstakes parlors in Alabama to form two corporations, one to operate the casino and the other to managethe hotel. Despite their machinations, the project was beset by bad luck from the start. Ultimately, Great Southern Investment Group, Inc. ("Great Southern"), the owner of the hotel, abandoned the project entirely, and Delta, the owner of the casino, filed bankruptcy. This Adversary is just one of many lawsuits arising out of the multiple subterfuges of the Defendants and others. Here, the Trustee asserts claims against the former shareholders of Great Southern and DJJ&J who he alleges drained the coffers of Great Southern's bank account.

Jurisdiction

This Court has jurisdiction over the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334. Notice of the Trial was proper under the circumstances. This Adversary includes one core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O), and two non-core proceedings. The constitutional authority of the Court to enter a final judgment in the two non-core proceedings has been challenged by the Defendants and is addressed in more detail below.

Facts4

To provide context to the Trustee's claims in the Adversary, some background information is necessary regarding Mississippi's gaming statutes and regulations and the location and design of the hotel and gaming facilities in question.

Riverboat Gaming in Mississippi

In 1990, the Mississippi Legislature legalized dockside gaming, subject to local referenda, along the Mississippi River and coastal counties. MISS. CODE ANN. § 97-33-25. To protect the public from "rigged" or otherwise unfair gaming and to ensure public trust in the gaming industry,the Mississippi Legislature also enacted the Mississippi Gaming Act, MISS. CODE ANN. § 75-76-1 et seq., modeled after Nevada's gambling control laws.

The Mississippi Gaming Act bestows upon the Mississippi Gaming Commission (the "Commission") responsibility for maintaining public confidence in the gaming industry as well as protecting the public's welfare.5 MISS. CODE ANN. § 75-76-3(3), -27. The Mississippi Gaming Act requires the owner of a casino to obtain a license, MISS. CODE ANN. § 75-76-55, and grants the Commission the "absolute power and authority" to issue, deny, limit, condition, restrict, and revoke the license. MISS. CODE ANN. § 75-76-29(3).

Before issuing a license, the Commission must find that the financing of the operation is adequate and from a suitable source. MISS. CODE ANN. § 75-76-67. To that end, the Mississippi Gaming Act requires that any corporation applying for a gaming license provide information that includes the financial structure and nature of the business to be operated and the terms and conditions of all outstanding indebtedness. MISS. CODE ANN. § 75-76-209. Also, as part of the licensing process, the Mississippi Gaming Act requires the Commission to investigate the "suitability" of individuals who have significant influence over the proposed gaming operation. MISS. CODE ANN. § 75-76-63. Generally, the officers and directors of any corporation that applies for a state gaming license must be licensed individually and shareholders who are actively and directly engaged in the administration or supervision of gaming, or who have any other significant involvement with the licensee, must be found suitable and may be required to be licensed. MISS. CODE ANN. § 75-76-211. This finding of suitability is comparable to licensing, and both require submission of detailed personal financial information followed by an investigation.

A primary objective of the Mississippi Gaming Act's suitability investigation is to uncover any criminal connections, particularly any connections to organized crime. Accordingly, the Mississippi Gaming Act expressly prohibits the Commission from finding suitable any person who has been convicted of a felony in any court of Mississippi, another state, or the United States; a crime in another state which would be a felony in Mississippi; or a misdemeanor involving gambling, sale of alcoholic beverages to minors, prostitution, or procuring individuals to engage in prostitution. MISS. CODE ANN. § 75-76-67(3).

Hotel and Casino: Harrah's and Horizon

In 1993, Harrah's Vicksburg Corporation ("Harrah's"), a Nevada corporation, acquired property located in the City of Vicksburg on the Yazoo Diversion Canal (near the Mississippi River) to construct a hotel and casino, which it named Harrah's Vicksburg Hotel and Casino. Harrah's constructed a cofferdam in the Yazoo Diversion Canal in which to float the Star of Vicksburg, a vessel resembling a paddle-wheel riverboat.6 Harrah's also built a 117-room hotel located on the other side of the flood wall directly across from the riverboat. Harrah's Vicksburg Hotel was connected by a walkway over Levee Street to a building that contained three restaurants for hotel and casino patrons. That building was connected to the riverboat casino by a gangplank. Access to Harrah's Vicksburg Casino thus required patrons to enter and walk through Harrah'sVicksburg Hotel. On October 23, 2008, Harrah's conveyed the Harrah's Vicksburg Hotel and Casino to Columbia Properties Vicksburg, LLC ("Columbia"). Columbia renamed the property the Horizon Hotel and Casino.7

Project Investors, Hotel Investors & Casino Investors

In early 2010, Stephen Haynes ("Haynes") contacted Taylor about forming a group of investors to buy the Horizon Hotel and Casino. Haynes and Taylor were partners in a sweepstakes business in Alabama. (Jt. Ex. 25 at 20).8 Eventually, Taylor assembled an investment group that included himself, Haynes, Doug Sears (the spouse of Jane Sears), Wilburn, Bob Mosley ("Mosley"), Michael Caldwell ("Caldwell"), and Michael Sullivan ("Sullivan") (collectively, the "Project Investors") to pursue the purchase of the Horizon Hotel and Casino (the "Casino Project"). (Stip. #6, 7). Taylor, Wilburn, and Doug Sears are life-long friends who had joint business interests in sweepstakes and bingo parlors in Alabama. (Trial at 1:14:44-1:15:05) (Nov. 28, 2018).9 Jane Sears became involved in the Casino Project through her husband, Doug Sears. (Trial at 2:17:26-2:17:48) (Nov. 28, 2018). Taylor knew Mosely because he had purchased promotional and bingo software from his companies. (Jt. Ex. 23 at 37-38; Jt. Ex. 25 at 22). Mosley is Caldwell's father-in-law. (Jt. Ex. 25 at 35-36). Sullivan was a lobbyist in Alabama with important contacts in the gaming industry. (Id. at 23).

The Project Investors initially agreed that Taylor, Jane Sears, Wilburn, and Caldwell would each contribute twenty percent (20%) of the needed funds and own twenty percent (20%) of the investment. (Stip. #8). Of the remaining twenty percent (20%), they agreed to divide fifteen percent (15%) between Haynes and Sullivan, and to leave five percent (5%) unassigned. (Stip. #9). Mosley had an informal arrangement with Caldwell to share his twenty percent (20%) interest in the Casino Project. (Jt. Ex. 25 at 35, 38). The Project Investors never formed a legal entity and never entered into a formal written agreement delineating their interests in the Casino Project. (Jt. Ex. 21 at 49-50).

Negotiations to purchase the Horizon Hotel and Casino began in June 2010. The Project Investors intended to contribute money towards the purchase in amounts consistent with the percentages to which they had previously agreed except that Haynes would contribute eight percent (8%) of the needed funds and own fifteen percent (15%) of the investment, with seven...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT