A. Petitioner's Business Dealings and Theft In the mid-1970s petitioners joined the Bay Hill Club and Lodge (Bay Hill Club), a private golf resort located in Bay Hill, Florida. In 1975 petitioners became acquainted with Arnold Palmer, a professional golfer. Petitioner and Mr. Palmer became friends and golfing partners. In 1977 Mr. Palmer introduced petitioner to Mark McCormack, Mr. Palmer's business partner and agent. Mr. McCormack was the founder and chairman of International Management Group (IMG), an international management company that represents professional athletes and other celebrities.
Petitioner's friendship with Messrs. Palmer and McCormack developed into a business relationship over the years. Beginning in 1979, petitioner was involved with Arnold Palmer's automobile dealerships. In 1988, 1989, and 1990 petitioner and Messrs. Palmer and McCormack were each one-third shareholders in five subchapter S corporations that were in the business of selling automobiles: Arnold Palmer Motors, Inc., Arnold Palmer Ford Lincoln Mercury, Inc., Fairway Ford, Inc., PMO Motors of Kentucky, Inc., and Nugget Motors of California, Inc. (collectively, Arnold Palmer dealerships). Petitioner managed the daily operations of these dealerships. Messrs. Palmer and McCormack were not involved in day-to-day operations.
Petitioner began siphoning money from Arnold Palmer Motors, Inc., as early as October 1985. When one dealership ran short on cash, petitioner transferred money from another dealership to cover the shortfall. Rather than transferring funds directly between dealership accounts, petitioner routed transfers through his personal bank account. Petitioner routinely kept some of the transferred funds in his own account instead of transferring them to the appropriate dealership. Messrs. Palmer and McCormack did not authorize petitioner to take money from the dealerships. On October 15, 1985, petitioner signed a demand promissory note (October 1985 promissory note) in favor of Arnold Palmer Motors, Inc., reflecting the amounts he had taken from the dealership. Petitioner updated the promissory note from time to time. An attachment to the October 1985 promissory note reflects that as of December 31, 1986, petitioner had taken at least $287,000 from the dealership.
In the spring of 1989 an Arnold Palmer dealership in South Carolina lost its financing source, Ford Motor Credit Co. (Ford Motor Credit). Petitioner accepted responsibility for the financial troubles of the dealership and promised Messrs. Palmer and McCormack that he would reimburse them for any money that had been lost. Petitioner also informed Messrs. Palmer and McCormack that he had borrowed approximately $2 million from the dealerships. Upon learning of petitioner's misappropriations, IMG audited the dealerships' records to determine the extent of petitioner's theft. The IMG audit discovered that petitioner had in fact taken more than $6 million from the dealerships. On April 30, 1989, petitioner executed an indemnity and security agreement in favor of Messrs. Palmer and McCormack which granted a security interest in all of his assets to Messrs. Palmer and McCormack. On May 31, 1989, petitioner executed a demand promissory note in favor of Fairway Ford, Inc. (Fairway Ford note), in the amount of $6,056,862 in repayment of the amount he had taken from the dealerships.
Glen Blackburn, a former certified public accountant (C.P.A.) for the Arnold Palmer dealerships, testified at trial. However, there is no evidence as to the specific years in which any payments were made on the Fairway Ford note or any specific amounts of such payments, only that they occurred in the "early 90's". Mr. Blackburn's testimony was not substantiated by any documentation regarding the dates or amounts of transfers of funds from petitioners to Messrs. Palmer and McCormack. While petitioners transferred their Isleworth home, discussed in further detail below, to Messrs. Palmer and McCormack for a purchase price of $4 million, the record is unclear as to whether any money actually changed hands as part of the transfer of the Isleworth home, and the exchange was not substantiated by any documentation. Petitioner was removed from any ownership interests in the Arnold Palmer dealerships in 1990. Mrs. O'Neal subsequently returned to work to support the family in 1992.
After the South Carolina dealership lost financing, petitioner and Messrs. Palmer and McCormack executed a promissory note on July 2, 1990,2 in favor of Ford Motor Credit in the amount of $10.4 million (July 1990 promissory note) inorder to personally guarantee further credit from Ford Motor Credit. The proceeds of the promissory note were directly invested in Arnold Palmer Ford Lincoln Mercury, Inc., and treated as a contribution to capital. Petitioner and Messrs. Palmer and McCormack were each allotted one-third of the total contribution. Petitioner never made any payments toward the $10.4 million loan from Ford Motor Credit, and Messrs. Palmer and McCormack ended up making equal payments toward the loan. Ford Motor Credit looked to Messrs. Palmer and McCormack for guaranties first and would not have entered into the agreement to provide credit if Messrs. Palmer and McCormack had not signed the July 1990 promissory note.
On August 1, 1992, petitioner and Messrs. Palmer and McCormack executed an amended and restated note in favor of Pittsburgh National Bank in the amount of $10,230,362 (August 1992 promissory note). The note was an amendment and restatement of four loans previously made to petitioner and Messrs. Palmer and McCormack in 1989. These four loans were used to capitalize Arnold Palmer Motors, Inc., and Fairway Ford, Inc., and treated as a shareholders' contribution to capital. Each shareholder was allotted one-third of the total contribution. Petitioner never made any payments toward the loans from Pittsburgh National Bank, and Messrs. Palmer and McCormack paid off the loans.
C. Petitioners' Properties In 1989 petitioners owned property known as the Bay Hill Farm that was located across the street from the Bay Hill Club subdivision in Bay Hill, Florida. Petitioners kept various farm animals at the Bay Hill Farm, including a horse ridden by one of their daughters, goats, a miniature horse named Smurf, and two llamas named Leroy and Lollipop. Petitioner's personal assistant worked in an office located at the Bay Hill Farm. On August 21, 1989, petitioners sold the Bay Hill Farm to Mr. Palmer for $1 million. Consideration for the property consisted of $500,000 to be rendered at closing and forgiveness of $500,000 owed by petitioner to Mr. Palmer "on a certain Judgment Note". Petitioners continued to keep their animals at the Bay Hill Farm after the sale to Mr. Palmer in 1989. Additionally, two individuals who worked for petitioner resided at the farm for some time. Mr. Palmer filed suit against petitioners in 1994 to evict the two individuals and the farm animals from the Bay Hill Farm.
From 1987 to 1989 petitioners constructed a 28,000-square-foot home at 9766 Green Island Cove in the Isleworth subdivision in Windermere, Florida. Petitioners paid Thomas Coudriet $1.4 million to build the house, which was modeled on the clubhouse at the Augusta National Golf Club. Some of the checks petitioners used to pay Mr. Coudriet were from the checking account belonging to Arnold Palmer Motors, Inc. In the summer of 1989 petitioners owed Mr. Coudriet between $300,000 and $400,000 to complete construction of the Isleworth house. Petitioner asked Mr. Palmer for a loan to finish construction on the house, and Mr. Palmer lent petitioners $1 million in August 1989 to finance the remaining construction costs. It is unclear to the Court whether Mr. Palmer's August 1989 $1 million loan to petitioners was related to his purchase of the Bay Hill Farm from petitioners for $1 million in August 1989.
