Kubbernus v. ECAL Partners, Ltd.
| Decision Date | 20 December 2018 |
| Docket Number | NO. 01-16-00174-CV,01-16-00174-CV |
| Citation | 574 S.W.3d 444 |
| Parties | Robert KUBBERNUS and Balaton Group, Inc., Appellants v. ECAL PARTNERS, LTD., Draco Capital, Inc., Robert Mendel, as Assignee of Edward Pascal, Robert Mendel, Robert Mendel, as Assignee of Stanley Beraznik, Robert Mendel, as Assignee of Don Bui, Robert Mendel, as Assignee of Ben Ariano, 3791068 Canada, Inc., Peter Taylor, Darshan Khurana, Matteo Novelli, Sequoia Aggressive Growth Fund, Ltd., as Assignee of Achim Glauner, Sequoia Aggressive Growth Fund, Ltd., as Assignee of Karl-Heinz Glauner, Sequoia Aggressive Growth Fund, Ltd., as Assignee of Christian Glauner, Sequoia Aggressive Growth Fund, Ltd., Sequoia Aggressive Growth Fund, Ltd., as Successor to Sequoia Diversified Growth Fund, Sequoia Aggressive Growth Fund, Ltd., as Assignee of Rig III, Ltd., Sequoia Aggressive Growth Fund, Ltd., as Assignee of Aran Asset Management, Sequoia Aggressive Growth Fund, Ltd., as Assignee of Semper Gestion, S.A., Eosphoros Asset Management, Inc., Ashwin Sairam, 99869 Canada, Inc., David Burtnik, Mary Hanemaayer, Marlene Tersigni, and George DeWolf, Appellees |
| Court | Texas Court of Appeals |
Jeremy Gaston, Hawash Meade Gaston Neese & Cicack LLP, 2118 Smith Street, Houston, TX 77010, for Appellants.
Eric Fryar, Christina Richardson, Fryar Law Firm, P.C., 912 Prairie St., 1st Fl., Houston, TX 77002, for Appellees.
Panel consists of Justices Jennings, Keyes, and Higley.
Appellants, Robert Kubbernus and Balaton Group, Inc. ("Balaton") (collectively, "appellants"), challenge the trial court’s judgment, entered after a jury trial, in favor of appellees, ECAL Partners, Ltd., Draco Capital, Inc., Robert Mendel, as assignee of Edward Pascal, Robert Mendel, Robert Mendel, as assignee of Stanley Beraznik, Robert Mendel, as assignee of Don Bui, Robert Mendel, as assignee of Ben Ariano, 3791068 Canada, Inc., Peter Taylor, Darshan Khurana, Matteo Novelli, Sequoia Aggressive Growth Fund, Ltd., as assignee of Achim Glauner, Sequoia Aggressive Growth Fund, Ltd., as assignee of Karl-Heinz Glauner, Sequoia Aggressive Growth Fund, Ltd., as assignee of Christian Glauner, Sequoia Aggressive Growth Fund, Ltd., Sequoia Aggressive Growth Fund, Ltd., as successor to Sequoia Diversified Growth Fund, Sequoia Aggressive Growth Fund, Ltd., as assignee of Rig III, Ltd., Sequoia Aggressive Growth Fund, Ltd., as assignee of Aran Asset Management, Sequoia Aggressive Growth Fund, Ltd., as assignee of Semper Gestion, S.A., Eosphoros Asset Management, Inc., Ashwin Sairam, 99869 Canada, Inc., David Burtnik, Mary Hanemaayer, Marlene Tersigni, and George DeWolf (collectively, "appellees"), in their suit against appellants for securities violations under the Texas Securities Act ("TSA"),1 breach of contract, breach of fiduciary duty, and fraud. In two issues, appellants contend that the evidence is insufficient to support the jury’s findings in favor of appellees on their claims for securities violations and attorney’s fees under the TSA;2 certain appellees cannot bring suit under the TSA; and certain appellees' securities-violations claims are barred by the TSA’s statute of repose.3
We affirm.
In their fifth amended petition, appellees alleged that SkyPort Global Communications, Inc. ("SkyPort"),4 a Texas-based satellite-technology company, was founded in the late 1990s "by a group of Houston-based business executives and NASA telecommunications experts for the purpose of developing a satellite-communications facility" in Houston, Texas. SkyPort was intended to be "the most advanced and secure satellite-communications facility in the United States" and designed to "provide highly secure telecommunications services to federal and state agencies, as well as to various commercial customers." In March 1999, SkyPort entered into a long-term lease at Ellington Air Force Base in Houston, Texas and began obtaining from the Federal Communications Commission ("FCC") the licenses that it would need to operate a teleport.5 During this time, SkyPort began raising "several million dollars from investors to finance its activities," estimating that it would need approximately $ 14 million to construct and equip its teleport.
In 2002, CenturyTel, Inc. ("CenturyTel"),6 a large telecommunications company interested in satellite technology, invested $ 8 million to fund the building of SkyPort’s teleport. As part of the deal, SkyPort was reorganized into SkyComm, a Delaware holding company with its principal office and activities in Houston, Texas. And SkyPort became a wholly-owned subsidiary of SkyComm, operating in Texas. In exchange for its investment, CenturyTel received SkyComm debentures, which could be converted into shares of SkyComm common stock.7 CenturyTel continued to fund SkyPort’s operation for several years.
In 2003, SkyPort completed its teleport and began providing services to customers in January 2004. In 2005, CenturyTel determined that it had erred in investing in "satellite technology," and it announced that it would be "abandon[ing] SkyPort." In July 2005, CenturyTel stopped funding SkyPort, and by November 2005, SkyComm and SkyPort were forced to file for bankruptcy protection. At this time, CenturyTel began looking for a buyer to purchase its SkyComm debentures ("CenturyTel’s debentures") and "tak[e] over [its] role as lead investor in SkyPort."
In late November 2005, Kubbernus, a purported "expert in finding and profiting from ‘undervalued’ and ‘deeply discounted’ companies," was introduced to CenturyTel. Kubbernus offered to raise money on behalf of SkyComm and SkyPort so that they could emerge from bankruptcy. Kubbernus also offered to infuse new equity capital into SkyComm and SkyPort and to arrange for the selling of CenturyTel’s debentures. Acting through Balaton, his Canadian investment-banking firm, Kubbernus planned to raise money from a group of investors to purchase CenturyTel’s debentures and 133 million to-be-issued shares of SkyComm common stock. The investor group would then convert the debentures that it had purchased from CenturyTel into shares of SkyComm common stock and "control super-majority ownership" in SkyComm and SkyPort. Kubbernus also intended to raise additional funding for SkyComm and SkyPort through "SkyComm private placements" and to take the company public within a year.
CenturyTel accepted Kubbernus’s proposal, and in December 2005, CenturyTel and SkyComm executed Letters of Intent with Balaton and Kubbernus’s investor group, whose members Kubbernus had not yet solicited or identified. Pursuant to the Letters of Intent, Kubbernus’s investor group would loan money to SkyComm and SkyPort so that they could emerge from bankruptcy, and the investor group would purchase CenturyTel’s debentures and the 133 million shares of SkyComm common stock.8
In February 2006, Kubbernus formed ClearSky Investments, Ltd. ("ClearSky"), a Delaware limited partnership, to serve as the investment vehicle to raise funds for the purchase of CenturyTel’s debentures and the 133 million shares of SkyComm common stock. Kubbernus controlled ClearSky through its general partner, ClearSky Management, Inc. ("ClearSky Management"), an entity wholly owned by Balaton and managed by Kubbernus. In connection with the solicitation of investors for ClearSky (the "ClearSky Investors"),9 Balaton prepared a Confidential Investment Memorandum and the ClearSky Limited Partnership Agreement. Both documents stated that ClearSky had been formed solely for the purpose of acquiring a controlling interest in SkyComm and SkyPort. And they provided that through the ClearSky Investors, Kubbernus intended for ClearSky to raise up to $ 10 million so that it could purchase CenturyTel’s debentures and the 133 million shares of SkyComm common stock (the "SkyPort transaction"). After CenturyTel’s debentures were purchased, ClearSky would then convert the debentures into 108 million shares of SkyComm common stock. And ClearSky would ultimately end up owning 80.73% of SkyComm and SkyPort.
On February 15, 2006, CenturyTel and Balaton executed a Debenture Purchase Agreement (the "DPA"), which provided that The Watershed Funds, Ltd. ("Watershed"), a Cayman Islands shell corporation that was never actually formed by Kubbernus, would purchase CenturyTel’s debentures for $ 3 million.10 According to appellees, Watershed was merely a placeholder under the DPA for ClearSky, which would acquire ownership of the debentures at closing of the SkyPort transaction, and its investors would actually fund the purchase of CenturyTel’s debentures.11 Contrary to what the ClearSky Investors were told, however, the DPA was later amended, shortly before the closing of the SkyPort transaction, to substitute Balaton for Watershed as the purchaser of CenturyTel’s debentures.
Also, on February 15, 2006, Balaton signed a DIP Credit Agreement with SkyPort, in which it agreed to provide SkyPort with $ 1.5 million, funds that would actually come from the ClearSky Investors. It also signed a Credit Agreement and a Securities Purchase Agreement (the "SPA") with SkyComm. Pursuant to the SPA, Balaton would receive 133 million shares in SkyComm common stock in exchange for $ 4 million. The SPA was conditioned upon the FCC approving the transfer of control of SkyComm and SkyPort and provided that Balaton could name additional purchasers of the shares of SkyComm common stock at a later date. On March 15, 2006, SkyComm and SkyPort emerged from bankruptcy.
As previously noted, appellees alleged that ClearSky was intended to serve as the sole investment vehicle for the purchase of CenturyTel’s debentures and the 133 million shares of SkyComm common stock. Through ClearSky, appellants sought to raise a minimum of $ 1 million and a maximum of $ 10 million from the ClearSky Investors. According to the Confidential Investment Memorandum, dated February 2006 and prepared by Balaton, ClearSky, pursuant to the DIP Credit Agreement...
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