Lincoln Nat. Life Ins. Co. v. Silver, 86 C 7175.
| Decision Date | 29 September 1995 |
| Docket Number | No. 86 C 7175.,86 C 7175. |
| Citation | 966 F.Supp. 587 |
| Parties | The LINCOLN NATIONAL LIFE INSURANCE COMPANY, an Indiana Corporation, in its individual capacity and as assignee of the Santa Fe Private Equity Fund II, L.P., a New Mexico limited partnership, Plaintiff, v. A. David SILVER, and ADS Partners, L.P., a New Mexico limited partnership, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Michael J. Koenigsknecht, Gardner, Carton & Douglas, Chicago, IL, for plaintiff.
A. David Silver, Santa Fe, NM, pro se.
This dispute regarding Defendant A. David Silver's alleged mismanagement of two venture capital funds came before the Court for bench trial on August 16-20, 23-27, and September 30, 1993. The Court heard closing arguments on October 22, 1993. The parties have each submitted a memorandum of proposed findings of fact and conclusions of law. In addition, the parties have briefed to the Court the Defendants' Motion for a Directed Verdict. After first summarizing the case and then deciding several outstanding motions, the Court makes its findings of fact and conclusions of law pursuant to Fed. R.Civ.P. 52(a).
The Court has jurisdiction over this action under Section 1331 of the Judicial Code, 28 U.S.C. § 1331, Section 22 of the Securities Act of 1933, 15 U.S.C. § 77v, Section 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa, Section 1965 of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1965, and supplemental jurisdiction over Plaintiff's state law claims under 28 U.S.C. § 1367.
This case arises out of Defendant Silver's improper management of two venture capital funds, the Santa Fe Private Equity Fund ("SFPEF I") and the Sante Fe Private Equity Fund II ("SFPEF II"), each of which were limited partnerships run by a venture capital fund controlled by Silver, ADS Associates, Ltd. ("ADSA"), which controlled SFPEF I, and ADS Partners, Ltd. ("ADSP"), which controlled SFPEF II. SFPEF I was predominantly a computer industry fund. Its portfolio companies included Pathfinder Computer Centers ("Path-finder"), Avant-Garde, which later merged with Family Achievement Software Company ("FASCO"), and Cipherlink Corporation ("Cipherlink"). Each of these three companies experienced severe cash problems and were on the verge of failing when Silver organized SFPEF II, which he touted as a health care fund. Plaintiff, the Lincoln National Life Insurance Company ("Lincoln"), was among SFPEF II's limited partners.
Although SFPEF II was supposed to be a health care fund, and despite the fact that several of that fund's limited partners had declined to invest in SFPEF I, Silver invested more than seventy percent of the SFPEF II's first capital call in computer companies that were part of SFPEF I's portfolio, including the failing Pathfinder, Avant-Garde/FASCO, and Cipherlink. When the SFPEF II limited partners learned of the nature of the fund's investments, they requested Silver to refrain from continuing to invest in SFPEF I portfolio companies. He nevertheless persisted. The limited partners of the two funds removed Silver's management companies as their general partners on February 10, 1987 and had a receiver appointed for the Funds. In April 1988, the receiver for SFPEF II assigned to Lincoln all of SFPEF II's claims in this case.
Lincoln's Second Amended Complaint, the pleading on which this action is now based, contains twenty-three counts which make claims against several individuals and entities, all of which save Silver and ADS Partners, Ltd. ("ADSP"), the managing general partner of SFPEF II, have been dismissed from this case. The following Counts were tried to the Court.
In Counts VIII, IX and X, Lincoln, in its individual capacity, claims that Silver violated sections 1962(a), 1962(b), and 1962(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), Pub.L. 91-452, Title IX, § 901(a), 84 Stat. 941 (1970) ().
In Counts XI, XII, and XIII, Lincoln repeats its RICO claims as assignee of SFPEF II, claiming that Silver violated 18 U.S.C. §§ 1962(a), 1962(b), 1962(c).
In Counts VI and VII respectively, Lincoln individually and as SFPEF II's assignee claims that Silver and ADSP breached fiduciary duties owed under N.M. Stat. Ann. §§ 54-2-9 and 54-1-21(A) (1978).
In Count III, Lincoln, individually, claims that Silver and ADSP violated section 10(b) of the Securities Exchange Act of 1934, ch. 404, 48 Stat. 881 (1934) ().
In Count I, Lincoln, individually, claims that Silver and ADSP violated section 12(2) of the Securities Act of 1933, ch. 38, 48 Stat. 74 (1993) ().
In Count IV, Lincoln, individually, claims that Silver and ADSP violated section 5/12 of the Illinois Securities Law of 1953 (codified as amended at S.H.A. 815 ILCS 5/1-19 (1993)).
In Count XXI, Lincoln, individually, claims that Silver engaged in common law fraud.
At the close of the Plaintiff's case, the Defendants moved for a directed verdict. The motion is denied, for the reasons indicated in the Court's findings of fact and conclusions of law.
Silver moves, pursuant to Rules 59 and 60 of the Federal Rules of Civil Procedure, to reopen the evidence in this case so that the Court may consider a Pledge Agreement which is already, in fact, in evidence. The motion is denied. The proffered evidence is already part of the record. In addition, Silver's arguments accusing witness William Enloe and Plaintiff's counsel of wrongdoing are hereby ordered stricken.
The parties have each requested sanctions against the other. These requests are denied.
Both parties were well represented at trial. Lincoln had the services of very capable counsel who represented their client in a thorough and professional way. Silver, a non-lawyer, represented himself pro se. He demonstrated remarkable skill in capably representing himself, with the assistance of his wife, despite the fact that, as the Court's findings of fact show, he had a weak case.
At trial, the Court heard testimony from A. David Silver, Ivan Berk, Steven Rork Verne Spangenberg, Kyle Lefkoff, Richard Azimov, Eric Lesin, Thomas Measday, William Byrne, and Richard Dumler. In addition, the parties submitted portions of the deposition testimony of Silver, Jesse Acker (taken on two different occasions), James Ray, W. Hardee Mills, Gary Stoefen, Phillip DeWald, and William Enloe. The Court has reviewed the memoranda and arguments of counsel, the testimony of the witnesses, the depositions of absent witnesses, the exhibits and stipulations received into evidence, the trial transcript, and detailed notes taken by the Court at trial. In listening to the testimony at trial, the Court took care to appraise each witness's credibility and to determine the weight to be accorded the witness's testimony. In so doing, the Court considered the witnesses' intelligence, ability, and opportunity to observe; their age, memory and manner while testifying; any interest, bias, or prejudice they may have had; and the reasonableness of their testimony in light of all the evidence presented in the case. The Court recorded its impressions of the witnesses in its notes.
In reaching its conclusion in this case, the Court has sought to draw reasonable inferences from the evidence, and has considered the parties' legal arguments. In the opinion of the Court, the evidence submitted at trial requires judgment for Plaintiff. The Court now makes its findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a).
The Lincoln National Corporation is the parent company of the Plaintiff in this case, The Lincoln National Life Insurance Company ("Lincoln"), and of Lincoln National Investment Management Company ("LNIMC"), which acted as Lincoln's agent through its then Vice President, Ivan Berk. Lincoln is an Indiana Corporation having its principal place of business in Fort Wayne, Indiana.
Defendant A. David Silver ("Silver") is a venture capitalist who managed SFPEF I and SFPEF II through two limited partnerships formed under New Mexico law, ADS Associates, L.P. ("ADSA"), which was the managing general partner of SFPEF I, and ADS Partners, L.P. ("ADSP"), which was the managing general partner of SFPEF II. Silver resides in New Mexico. At all relevant times, the principal place of business for Silver, ADSA, ADSP, SFPEF I, and SFPEF II was 524 Camino del Monte Sol, Santa Fe, New Mexico.
SFPEF I, or "Fund I", was organized as a limited partnership pursuant to the laws of the State of New Mexico in August of 1983. ADSA was SFPEF I's sole general partner until February 10, 1987, when it was removed by the limited partners. SFPEF II, or "Fund II", was organized as a limited partnership pursuant to the laws of the State of New Mexico in August of 1985. ADSP was the sole general partner of SFPEF II until February 10, 1987, when it was removed by the limited partners.
In February 1987, after ADSA and ADSP were removed as general partners, the First Judicial District Court for the County of Santa Fe, New Mexico appointed John Clark ("Clark") to serve as the receiver for both funds.
Lincoln filed this suit in September 1986 against Silver, ADSP, and other Defendants who have since been dismissed. Thereafter, several of the Silver-related entities went into bankruptcy.
In May 1987, Clark filed for SFPEF I a bankruptcy petition pursuant to Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Mexico. In ...
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