Murphy & King, Prof'l Corp. v. Blackjet, Inc.

• Decision Date: 26 May 2016
• Docket Number: Case No. 13-80280-CIV-HURLEY
• Parties: MURPHY & KING, PROFESSIONAL CORPORATION, a Massachusetts Professional Corporation, Plaintiff, v. BLACKJET, INC., a Delaware Corporation, successor by merger to GREEN JETS, INC., a Florida Corporation, Defendant. BLACKJET TECHNOLOGY, INC., Third-Party Impleader Defendant.
• Court: U.S. District Court — Southern District of Florida

MURPHY & KING, PROFESSIONAL CORPORATION, a MassachusettsProfessional Corporation, Plaintiff, v. BLACKJET, INC., a Delaware Corporation, successor by merger to GREEN JETS, INC.,a Florida Corporation, Defendant.BLACKJET TECHNOLOGY, INC., Third-Party Impleader Defendant.

Case No. 13-80280-CIV-HURLEY

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

May 26, 2016

MEMORANDUM OPINION

THIS CAUSE involves postjudgment proceedings supplementary initiated by plaintiff, Murphy & King, a Professional Association ("Murphy & King") against the third-party impleader defendant, BlackJet Technology Inc. ("BlackJet Technology") in effort to collect on a final judgment previously entered against the defendant and original judgment debtor, BlackJet, Inc. ("BlackJet").

I. Procedural History

On January 27, 2014, this Court entered a Final Judgment in the amount of $376,981.51 ("Judgment") against BlackJet, Inc. ("BlackJet") [DE 37]. This liability arose out of an unpaid bill for legal services rendered by the Plaintiff law firm, Murphy & King, to the BlackJet's corporate predecessor, Green Jets, Inc., in certain intellectual property litigation originally filed in the Eastern District of Virginia and later transferred to the Southern District of Florida. Patent Licensing and Investment Co., LLC v. Green Jets, Inc., Case No. 11-80689-CIV-MARRA (S.D. Fla.). On May 9, 2012, that lawsuit was dismissed without prejudice for lack of subject matter jurisdiction on the basis of a covenant not to sue [Case No. 11-60689-CIV-MARRA; DE 103].

In the instant lawsuit, BlackJet (as successor by merger to Green Jets) initially contested its liability for the Murphy & King legal bill on the ground that the parties had earlier reached "general agreement" that Green Jets would pay a "greatly reduced" fee for Murphy & King's legal services, and only then when it had cash flow from operations, as opposed to investor funding, a contingency which BlackJet claimed never occurred [DE 25]. BlackJet did not file any response in opposition to Plaintiff's motion for summary judgment in this suit, however, and in January, 2014, the Court ultimately entered final summary judgment on the merits in favor of Murphy & King for the full amount claimed [DE 35].

On April 9, 2015, a Writ of Execution was issued in favor of Murphy & King in an effort to collect on the Judgment [DE 53]. The Writ of Execution remains unsatisfied and is valid and outstanding.

On May 26, 2015, Murphy & King was granted leave to initiate proceedings supplementary in aid of execution and to implead a third party, BlackJet Technology, Inc. ("BlackJet Technology"), in an effort to collect on its judgment [DE 57]. Accordingly, on October 26, 2015, Murphy & King filed its Impleader Complaint against BlackJet Technology, asserting its liability on the underlying Judgment as the "mere continuation" of BlackJet, the original judgment debtor, or alternatively, as the successor by de facto merger to BlackJet [DE 68].

BlackJet Technology moved to dismiss the Impleader Complaint for lack of subject matter jurisdiction, contending that Florida law governing proceedings supplementary does not permit a request for relief against a third party based on anything other than fraudulent transfer,¹ a theory not advanced in this case [DE 90]. The Court denied the motion, observing that the Florida statute governing proceedings supplementary permits, but does not require, a judgment creditor to allege fraudulent transfer in order to implead a third party defendant. See Sanchez v. Renda Broadcasting Corp., 127 So.3d 627 (Fla. 5^th DCA 2013) (lessor's allegations that lessee entered into a lease when it had no assets to pay rent, and that its sole shareholder used an undercapitalized shell company for his personal benefit were a proper basis for use of proceedings supplementary impleading lessee's sole shareholder, even without allegations of fraudulent transfer, since allegations related to improper conduct by lessee and shareholder); Ocala Breeders' Sales Co. v. Hialeah, Inc., 735 So.2d 542, 543-44 (Fla. 3d DCA 1999) (reversing order denying judgment creditor's request to use proceedings supplementary to implead parent corporation and pierce corporate veil, where judgment debtor was subsidiary corporation that had no assets or bank account and had never been capitalized, finding that judgment debtor was "mere instrumentality" of parent corporation and that it fraudulently misled judgment creditor by entering into lease even though it had no ability to fulfill its obligations under that contract). Compare Rashdan v. Sheikh, 706 So.2d 357 (Fla. 4^th DCA 1998) (reversing judgment entered against impleaded defendant due to "absence of any allegations or evidence of fraud, fraudulent transfer or other improper conduct on the part of either [the impleaded defendant] or his professional association [the judgment debtor"] (emphasis added)).

At the outset of trial, BlackJet Technology renewed its objections to the Court's subject matter jurisdiction under Section 56.29, Fla. Stat., and the Court again rejected the objections. In this case, just as in Sanchez and Ocala Breeders, Murphy & King alleged improper conduct by the judgment debtor (BlackJet) and a third party. It alleged that BlackJet orchestrated a premature default on a loan from a senior lender, Haysjet Holdings LLC - a holding company owned and controlled by an individual who also served as a director of BlackJet - in order to accomplish a transfer of BlackJet's assets to a reconstituted version of itself, "BlackJet Technology." The aim was to maintain BlackJet's private airline charter booking business as a going concern with the potential for future profits, while shedding its debt obligations to unsecured creditors, such as Murphy & King. The Court found these allegations sufficient to suggest "other improper conduct," thereby justifying the use of proceedings supplementary to implead a third-party defendant under §56.29, Fla. Stat. (2015).

Having considered the testimony presented at trial, the exhibits entered into evidence, deposition transcripts submitted by the parties, and the argument of the parties, and pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, the Court now makes the following findings of fact and conclusions of law.

II. FINDINGS OF FACT

1. On April 27, 2009, Haysjet Holdings, LLC ("Haysjet"), made a loan to BlackJet's predecessor, Green Jets Inc. ("Green Jets") in the amount of $500,000.00 (the "Loan"). The Loan was evidenced by a Loan and Security Agreement, as well as a UCC filing statement recorded on April 29, 2009.

2. Haysjet is owned, controlled and operated by Stephen Hays ("Hays"), who is the sole managing member of Haysjet.

3. At all material times, Hays was also a director of Green Jets and BlackJet, and is currently a director of BlackJet Technology.

4. Pursuant to the April 29, 2009 Loan and Security Agreement, Haysjet held a security interest in all of Green Jets' assets as collateral for the Loan (the "Assets").

5. On January 20, 2010, Haysjet and Green Jets entered into a Loan Modification Agreement ("First Modification"), under which (i) the loan amount was increased to $600,000.00, and (ii) Haysjet was given a 5% ownership interest in Green Jets in exchange for the increased credit.

6. On February 29, 2012, Haysjet and Green Jets entered into a second Loan Modification Agreement ("Second Modification"). The Second Modification extended the maturity date of the loan from December 31, 2010 to March 31, 2014. This document contains Haysjet's affirmation that "he (sic) will not place Borrower in default under any provision of the Loan for any reason prior to March 31, 2014," while further providing that the Second Modification "shall be null and void" in the event "new equity in the amount of not less than $1 million is not invested in Borrower by May 31, 2012" [Impleader Defendant's Exhibit No. 5].

7. Green Jets merged into BlackJet, Inc. in March 2013.

8. On March 19, 2013, Murphy & King filed the instant action against BlackJet, seeking compensation for legal services provided to its corporate predecessor, Green Jets, in connection with certain intellectual property litigation initiated in the Eastern District of Virginia and later transferred to the Southern District of Florida.

9. On August 7, 2013, Dean Rotchin, the President of BlackJet, sent an email to Hays stating "It appears as if there's no way to default until March 31, 2014." This email wascopied to Joe Grimes, BlackJet's Chief Financial Officer, and included a message directed to him: "Joe - are we sure we received the full $1M by May 31? If not, I think there's a door open."

10. On September 13, 2013, Rotchin sent another email to Hays asking for issuance of a default notice, "Can we have the default letter with next Thursday as the final date to have $500k? ASAP." Hays initially hesitated, stating, "Probably best I pass on this call unless you think good idea ... Bit of conflict."

11. However, on September 16, 2013, Hays, acting as managing member of Haysjet, sent a formal notice of default to BlackJet due to the stated "inability [of Borrower] to pay its debts as they became due and Borrower's potential insolvency," which Hays described as "Events of Default" under the Loan Agreement. The notice provided BlackJet with four days to cure by raising a minimum of $500,000 in new equity capital.

12. In deposition testimony introduced at trial, Hays testified that he had no knowledge of any specific debts BlackJet could not pay at the time he sent the default letter, and that the reference to BlackJet's financial issues in this notice was derived from his discussions with BlackJet board members, Rotchin and Grimes. Hays also testified that he had no knowledge of BlackJet's alleged failure to meet its capital contribution requirements, and did not default BlackJet on that basis.

13. On November 4, 2013, Haysjet filed a second UCC Financing...