Pettie v. Kevin Ringo & Shechem Indus., Inc. (In re White)
| Decision Date | 15 May 2018 |
| Docket Number | ADVERSARY PROCEEDING NO. 15-5421-WLH,CASE NO. 14-65320-WLH |
| Parties | IN RE: ROCKY RENE WHITE, Debtor. JASON L. PETTIE, CHAPTER 7 TRUSTEE FOR THE ESTATE OF ROCKY RENE WHITE, Plaintiff, v. KEVIN RINGO AND SHECHEM INDUSTRIES, INC., Defendants. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia |
IT IS ORDERED as set forth below:
THIS MATTER is before the Court on the Complaint by the Trustee alleging the transfer of Debtor's business interest to Kevin Ringo ("Mr. Ringo") was in violation of the Georgia Uniform Fraudulent Transfers Act ("UFTA"),1 which the Plaintiff asserts pursuant to 11 U.S.C. § 544. The Court has jurisdiction over this proceeding under 28 U.S.C. §§ 157 and 1334, and Plaintiff and Mr. Ringo have admitted this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H).
The facts in this case have been set out in the Court's prior orders denying Mr. Ringo's Motion for Summary Judgment (Docket No. 89) ("Summary Judgment Order"), granting Shechem's Motions for Summary Judgment (Docket Nos. 66 and 86), and denying Mr. Ringo's Renewed Motion for Summary Judgment (Doc. No. 117). The Court also previously held a trial and issued an order on the complaint to bar Debtor's discharge under section 727 of the Bankruptcy Code in a related adversary proceeding (Case No. 14-5331, Docket No. 204) ("Trial Order").
Debtor Rocky White ("Debtor") filed his voluntary petition under Chapter 7 of the Bankruptcy Code on August 5, 2014. Plaintiff Jason Pettie, as Chapter 7 trustee for the estate of Debtor, filed this adversary proceeding on October 30, 2015 against Shechem Industries, Inc. ("Shechem")2 and Mr. Ringo. In the Complaint, Plaintiff sought to avoid Debtor's transfer of his interest in certain business entities to Mr. Ringo. Mr. Ringo filed two motions for summary judgment, both of which the Court denied. The Court held a trial on the Complaint as to Mr. Ringoon February 6-9, 2018, at which the Court heard testimony and received evidence. At the conclusion, the Plaintiff Trustee asked the Court to avoid the transfer of the interest to Mr. Ringo, but the Trustee clarified he was not seeking a monetary judgment.
Debtor was involved in the development of a technology to treat wastewater, which is referred to by the parties as the NJUN System. In 2001, the limited liability companies NJUN, L.L.C. and NJUN Technologies, L.L.C. ("NJUN Companies") were formed in Georgia for the purpose of developing the NJUN System and bringing it to market. Debtor was an original member of the NJUN Companies with Tom Limbach, Ed Breedlove, Keith Breedlove, and Larry Bradford owning the balance. According to the operating agreement for NJUN, L.L.C. dated February 12, 2002, the Debtor held 37% of NJUN, L.L.C. through his company NJUN Holding, L.L.C. of which he owned 100%. Mr. Limbach, Mr. Bradford, and the Breedloves owned the balance of NJUN, L.L.C. A similar ownership structure was in place for NJUN Technologies.
Around 2003, Mr. Ringo and Guy Abernathy ("Mr. Abernathy"), who were civil engineers and surveyors, and acquaintances of the Debtor and of the other members of the NJUN Companies, agreed to pay business loans of the Debtor to Brand Bank in return for receiving approximately 2.5% interest each in NJUN Holding. In 2005, NJUN Holding agreed to pay $1.5 million to NJUN, L.L.C. over a period of no longer than three years in order to obtain a 51% interest in NJUN, L.L.C. and gain control of NJUN, L.L.C. The percentage membership interests were modified, though, upon NJUN Holding's payment of $350,000 of this sum, together with $150,000 already contributed. Mr. Ringo and Mr. Abernathy contributed all or a portion of the funds paid for the increased interest and obtained a greater interest in NJUN Holding. The balance of $1 million does not appear to have been paid.
As part of this transaction, the operating agreement of NJUN, L.L.C. was modified to provide that NJUN Holding, L.L.C. owned 51% of NJUN, L.L.C. A unanimous written consent of the members of NJUN, L.L.C. provided that the majority of members needed for purposes of voting would mean the majority of percentage interests (as opposed to the majority of separate members) and required that any additional dilution of the members' interests would require the unanimous approval of all members of NJUN, L.L.C. This unanimous written consent of the members of NJUN, L.L.C. also provided that the member holding the majority of the percentage interest of NJUN, L.L.C. "shall have an exclusive, irrevocable, transferrable license and right to appoint marketing and distribution partners and to sublicense marketing and distribution rights to the company's intellectual property, technology and products, on a territory-by-territory or case-by-case basis." The unanimous written consent also made clear that the sale or transfer of interests in any subsidiaries would not constitute a dilution of the members of NJUN, L.L.C. This unanimous written consent was signed by the Debtor as the managing member of NJUN Holding, L.L.C., and also by Keith Breedlove, Ed Breedlove, Thomas Limbach, and Larry Bradford (on behalf of his company, NJUN Development, L.L.C.). Thereafter, NJUN Holding was the managing member of NJUN, L.L.C., and the Debtor was the managing member of NJUN Holding.
In 2007, the Debtor formed NJUN-NJUN, L.L.C. to hold his membership interest in NJUN Holding, L.L.C., which remained the managing member of NJUN, L.L.C. and a member of NJUN Technologies, L.L.C. NJUN-NJUN, L.L.C. was not listed on any stock market. The Debtor retained a 100% interest in NJUN-NJUN. But, by this time, Mr. Ringo and Mr. Abernathy together held a 44.1% interest in NJUN Holding, while NJUN-NJUN held the remaining 55.9% interest in NJUN Holding.
In 2008 and 2009, the real estate market in Atlanta and around the country declined severely, and the country went into a major recession. This recession impacted the NJUN Companies as it did any other company involved in products used in real estate development. At the time of the recession, no sales of the NJUN System had occurred. By the fall of 2008, NJUN, L.L.C. was in receipt of demands for payment of patent fees. NJUN, L.L.C., through Larry Bradford and others, began to obtain loans from third parties. Several outside parties loaned NJUN, L.L.C. money, including Reid Hailey, Keith Lockhart, and Ed Stamper. The company also owed money for attorney's fees and architecture fees. Altogether, by 2009, NJUN, L.L.C. owed over $1 million on these various items. Additionally, the company did not have funds to buy additional equipment that the Debtor believed was necessary.
In April 2009, the existing members of NJUN, L.L.C. contemplated how best to move forward with the company. The Debtor explored possible sales and other alternatives. During April and May 2009, the Debtor documented his discussions with Mr. Ringo, Mr. Limbach, and Mr. Breedlove in a memo he titled "seeking direction." In it, he explored ways forward with the company, recognizing that some participants were interested in being active while others were interested in a more passive role. Debtor stated that Mr. Ringo expressed his interest in moving forward with the company only in a way that allowed him to be completely in control of all or some portion of the business. This proposal was reiterated in "Oversight Board" minutes in the same time period. Mr. Ringo testified he wanted complete control of the portion of the business in which he was involved.
He first sought to assert some control in July 2009. Mr. Ringo incorporated NJUN One, L.L.C. NJUN Holding, L.L.C., then allegedly assigned to NJUN One, L.L.C. the exclusive rights to manufacture, promote, sell, install, and collect all monitoring and sales fees and conduct allbusiness-related activities for NJUN Systems for the entire state of Georgia. The Debtor and Mr. Ringo contend that such assignment was consistent with the 2005 amendment to the NJUN, L.L.C. operating agreement.
About the same time, Mr. Ringo began negotiating with Shechem for Shechem's involvement in the NJUN System. On December 22, 2009, Shechem and NJUN One, L.L.C. entered into a contract that granted Shechem rights to install NJUN Systems throughout the State of Georgia for a fee of $600,000. The payment of this fee actually began in September 2009. Shechem never met with the Debtor or talked directly with him. Rather, Mr. Ringo represented to Shechem that he spoke for the Debtor. Shechem's owners were part of a faith-based group with Mr. Ringo. The Debtor was not of that faith or part of that group, and Mr. Ringo believed and understood that the other members of this faith-based group would not do business with the NJUN Companies unless he had control of the companies.
In the meantime, the loans from the outside investors had not been repaid. As a result, NJUN, L.L.C. began entering into forbearance agreements and repayment arrangements with the outside investors in late 2009. As no other existing member of NJUN, L.L.C. appeared to be in a position to contribute additional funds, the Debtor and Mr. Ringo moved towards Mr. Ringo asserting full control over the Debtor's interest in NJUN, L.L.C. Mr. Ringo had a substantial investment in the NJUN Companies already (at least $500,000), which he desired to protect. At the same time, his civil engineering business had drastically declined due to the recession, and he saw the opportunities between Shechem and the NJUN Companies as a potential source of work for his civil engineering firm and of income for himself (and others).
Both Mr. Ringo and the Debtor testified that "control" of NJUN Holding and therefor NJUN, L.L.C. was transferred in late 2009 or early 2010 and they believed the membership interestin NJUN-NJUN was transferred at the same time, although the documentation of the transfer did not occur until October 2010. A document entitled "Appointment of...
To continue reading
Request your trial