Robinson v. Hotchkiss
| Decision Date | 29 April 2022 |
| Docket Number | 83250-COA |
| Parties | Ronald J. ROBINSON, Appellant, v. Steven A. HOTCHKISS; Anthony White; Robin Suntheimer; Troy Suntheimer; Stephens Ghesquiere; Jackie Stone ; Gayle Chany; Kendall Smith; Gabriele Lavermicocca; and Robert Kaiser, Respondents. |
| Court | Nevada Court of Appeals |
Law Offices of Michael F. Bohn, Ltd.
The Law Offices of David Liebrader, APC
Robinson was the CEO of Virtual Communications Corporation (VCC), a Nevada corporation.1 In 2013 and 2014, VCC raised capital by issuing promissory notes to individual investors from numerous states, including Steven Hotchkiss.2 To incentivize the purchase of the notes, the promissory notes came with a personal guaranty signed by Robinson. The personal guaranty "unconditionally" guaranteed investors like Hotchkiss a return on their investment. VCC also mentioned the personal guaranty in its marketing materials and used a PowerPoint presentation to explicitly show that Robinson's net worth was over 17 million dollars to demonstrate that Robinson was capable of honoring the personal guaranty. To obtain investors, VCC contracted with a company called Retire Happy. Retire Happy, in exchange for soliciting potential investors on behalf of VCC, would take a small percentage of the money from each principal amount secured for VCC.
Hotchkiss, a note purchaser from Nebraska, received a call from Retire Happy about VCC's offering of promissory notes. An employee of Retire Happy described the notes and explained that VCC needed startup capital to get its new technological invention to market. If Hotchkiss provided the capital, the representative explained, he would receive a promissory note upon which VCC agreed to pay interest-only payments before returning his principal investment later. Hotchkiss's experience was typical of the many other people that provided money to VCC in exchange for a promissory note.
The promissory notes were generally for an 18-month duration, during which time VCC would pay nine percent annual interest to the noteholder. Upon the completion of the note's duration, VCC pledged to return the investors’ principal investment in the promissory note. The notes also came with penalty provisions; if VCC defaulted, for example, the note required VCC to pay a five-percent non-compounding penalty as well as the accrued interest and any attorney fees. Hotchkiss agreed to invest $75,000 in exchange for a promissory note.
From there, Hotchkiss dealt with another third-party, Provident Trust Group (Provident), to create a self-directed individual retirement account (IRA) to hold the promissory note and transfer the money to VCC. Provident facilitated the transactions between the plaintiffs and VCC by accepting the transfer of the plaintiffs’ funds into the IRA account and then transferring the funds to VCC and receiving a promissory note in return to hold for the benefit of Waldo. Provident's agreement with Hotchkiss and the other noteholders made it clear that Provident was only a passive intermediary. Provident did not direct, reallocate, or otherwise manage funds of noteholders; it simply performed the transaction between VCC and the noteholders in the amounts the noteholders directed.
Pursuant to the notes, VCC made the interest-only payments through January 2015. In February 2015, VCC defaulted on the notes. In September 2017, Hotchkiss filed his complaint against Robinson. His suit alleged breach of contract on Robinson's personal guaranty and violations of Nevada securities laws. The suit named other parties, including VCC itself and Vernon Rodriguez, VCC's CFO.
Prior to trial, VCC filed Chapter 11 reorganization bankruptcy.3 As a result, Hotchkiss's lawsuit against VCC was stayed in accordance with the bankruptcy code. The bankruptcy court confirmed VCC's bankruptcy prior to trial in this matter. As a part of its bankruptcy, VCC issued a "pro rata share" of stock to the noteholder creditors. For example, Hotchkiss received 15,000 shares of VCC stock. According to VCC's Chapter 11 bankruptcy plan, its issuance of these shares represented full and final satisfaction of VCC's debt on the promissory notes. However, the same plan listed the noteholders’ interest, including Hotchkiss's, as an "impaired" interest under the bankruptcy code.
Shortly after the resolution of VCC's bankruptcy, the case proceeded to bench trial. Hotchkiss explained his experience with VCC and that he gave VCC $75,000 in exchange for a promissory note. When responding to Retire Happy's information about VCC, Hotchkiss noted the favorable nine percent interest rate and Robinson's personal guaranty were main selling points. After Hotchkiss's testimony, Robinson's assistant, Alisa Davis, testified and discredited Robinson's version of events. In particular, she stated she sent the pre-signed notes out and she did not take any actions without Robinson's directions, rebutting Robinson's claim that his signature was used without his knowledge or permission. Hotchkiss produced other evidence, including internal VCC emails and marketing materials, that tended to prove Robinson knew of and intended to personally guarantee the promissory notes.
After trial, the district court ordered the parties to submit closing arguments in writing. After considering the evidence elicited at trial and closing arguments, the district court found Robinson liable as both a control person under Nevada securities statutes and for breach of contract as the personal guarantor of the promissory note. The district court also determined Provident was not a necessary party and proceeded to find Robinson liable to Hotchkiss and the other noteholders. After finding Robinson liable, the district court requested additional briefing on damages. By this time, Robinson's co-defendant, Rodriguez, retained different counsel. Rodriguez submitted his brief on the issue of damages and Robinson joined that pleading and filed his own motion regarding damages. In his motion, Robinson reargued liability and challenged the propriety of the district court's order.
Unpersuaded by either Robinson's arguments or his joinder to Rodriguez's motion, the district court explained its award of damages against Robinson and Rodriguez:
Despite having the final issue of damages resolved, Rodriguez, through his new counsel, still had motions pending before the district court. Robinson, hoping to appeal the issue as soon as possible, moved for NRCP 54(b) certification. The district court granted that motion, and Robinson appeals from the district court's NRCP 54(b) certified order.
In this appeal, we consider several of Robinson's arguments. First, we answer whether the district court's judgment is flawed for failure to join a necessary party. Next, we address Robinson's claim that the VCC bankruptcy should completely offset his liability here. We conclude by briefly addressing Robinson's challenges to the district court's finding of liability under NRS 90.660, as well as his challenge to the amount of attorney fees awarded by the district court.
We first address Robinson's argument that the judgment against him is void for the district court's failure to join Provident as a necessary party. This issue arises under rules of procedure, and we review decisions of law, like those made under the Nevada Rules of Civil Procedure, de novo. See Power Co. v. Henry , 130 Nev. 182, 186, 321 P.3d 858, 860-61 (2014). Robinson argues that the judgment of the district court is fatally flawed because the district court failed to join Provident as a necessary party. In Robinson's view, Provident is a trustee subject to the rules generally applicable in trust-based litigation; for example, that the trustee—not the beneficiary—must bring claims for breach under the trust, or in this case, the promissory note. Robinson argues that the district court erred by failing to include Provident as necessary party. We disagree with Robinson's assertion that Provident was a trustee under the facts and circumstances of this case.
Self-directed IRA accounts create atypical scenarios. A self-directed IRA "is unique in that the owner or beneficiary of the IRA acts as the trustee for all intent [sic] and purposes." FBO David Sweet IRA v. Taylor , 4 F. Supp. 3d 1282, 1285 (M.D. Ala. 2014) [hereinafter Sweet ] (); see also Brady v. Park, 445 P.3d 395, 423 (Utah 2019) (following Sweet ). In these cases, the beneficiary may sue on a breach, on behalf of the IRA, as the proper plaintiff. Sweet , 4 F. Supp. 3d at 1285.
In this case, Provident is not a trustee. The IRA agreements at issue gave the noteholders, not Provident, the power to direct the investment of their assets. The noteholders elected to send money to VCC; Provident merely facilitated those transactions. There is no evidence that Provident reallocated or otherwise managed the noteholders’ funds without the express direction of the noteholders themselves. For all intents and purposes, the noteholders acted as trustees and were the managers of their own funds, as beneficiaries of the self-directed IRA, and are therefore permitted to sue on the breach as the proper plaintiffs.
Because the noteholders were permitted to proceed as the proper plaintiffs, as they were the beneficiaries on self-directed IRA accounts, we do not find error with the district court's decision to decline to...
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