Schmidt v. Nordlicht (In re Black ELK Energy Offshore Operations, LLC)

• Decision Date: 27 January 2023
• Docket Number: 15-34287,ADVERSARY 19-3370
• Parties: IN RE: BLACK ELK ENERGY OFFSHORE OPERATIONS, LLC, et al., Debtors. v. BARBARA NORDLICHT, AS LEGAL REPRESENTATIVE OF THE ESTATE OF JULES NORDLICHT, et al., Defendants. RICHARD SCHMIDT, Plaintiff,
• Court: U.S. Bankruptcy Court — Southern District of Texas

IN RE: BLACK ELK ENERGY OFFSHORE OPERATIONS, LLC, et al., Debtors.

RICHARD SCHMIDT, Plaintiff, v. BARBARA NORDLICHT, AS LEGAL REPRESENTATIVE OF THE ESTATE OF JULES NORDLICHT, et al., Defendants.

No. 15-34287

ADVERSARY No. 19-3370

United States Bankruptcy Court, S.D. Texas, Houston Division

January 27, 2023

CHAPTER 11

MEMORANDUM OPINION

Marvin Isgur United States Bankruptcy Judge

Richard Schmidt, the Trustee of the Black Elk Litigation Trust, moved for partial summary judgment. This opinion concerns the portion of the Trustee's motion seeking a determination that the knowledge of Mark Nordlicht, a principal of Platinum Partners and subagent of investors in Platinum Partners Black Elk Opportunities Fund LLC ("PPBEO"), is imputed to the PPBEO investor defendants. Because Nordlicht's knowledge is imputed to the defendants, the investors are precluded from asserting a good faith defense. The defendants^[1] will not retain the benefits of their agent's wrongful conduct. The Court grants partial summary judgment.

BACKGROUND

The parties agree that certain defendants^[2] invested in PPBEO. To invest, the defendants signed (i) Subscription Agreements and (ii) the LLC Agreement. (ECF Nos. 181 at 76; 219 at 25). Paragraph 18 of each Subscription Agreement states:

Power of Attorney. In connection with the Interests of Subscriber in the Company to be acquired pursuant to this Agreement, Subscriber hereby irrevocably constitutes and appoints the Managing Member the true and lawful attorney-in-fact of Subscriber in Subscriber's name place and stead to make, execute, acknowledge, deliver and file any of the following documents: (i) the LLC Agreement and all documents permitted to be executed thereunder; and (ii) to the extent consistent with the provisions of the LLC Agreement (a) all amendments and/or restatements of the LLC Agreement adopted in accordance with the provisions thereof, (b) all documents that may be required to effect the dissolution and termination of the Company pursuant to the LLC Agreement and the cancellation of the Certificate of Formation, and (c) otherwise to take any such further action as may be necessary in connection with any aspect of the operations of the Company by giving the Managing Member full power and authority to do and perform each and every act and thing whatever requisite and necessary to be done in and about the foregoing as fully as the undersigned might or could do if personally present, and by hereby ratifying and confirming all that the Managing Member shall lawfully do or cause to be done by virtue thereof. This foregoing power of attorney is coupled with an interest, is irrevocable and shall survive and be unaffected by any subsequent disability, or incapacity of Subscriber (or if Subscriber is a corporation, partnership trust, association, limited liability company or other legal entity, by the dissolution or termination thereof).

(ECF No. 181-17 at 5-6) (emphasis added). The Subscription Agreement defines "Managing Member" as PPBE Holdings LLC. (ECF No. 181-17 at 3). Paragraph 12.1 of the LLC Agreement states:

12.1.1 Each Member, by its execution hereof hereby makes constitutes and appoints the Managing Member as its true and lawful agent and attorney-in-fact, with full power of substitution and full power and authority in its name, place and stead, to make, execute, sign, acknowledge, swear to, record and file (i) this Agreement and any amendment to this Agreement, (ii) the original Certificate of Formation and all amendments thereto required or permitted by law or the provisions of this Agreement, (iii) all certificates and other instruments deemed advisable by the Managing Member to carry out the provisions of this Agreement and applicable law or to permit the Company to become or to continue as a limited liability company wherein the Members have limited liability in a jurisdiction where the Company may be doing business, (iv) all instruments that the Managing Member deems appropriate to reflect a change or modification of this Agreement or the Company in accordance with this Agreement, including without limitation the substitution of assignees as Members pursuant to Section 9.2 and amendments to this Agreement, (v) all conveyances and other instruments or papers deemed advisable by the Managing Member to effect the dissolution and termination of the Company, (vi) all fictitious or assumed name certificates required or permitted to be filed on behalf of the Company, and (vii) all other instruments or papers which may be required or permitted by law to be filed on behalf of the Company.

12.1.2 Each Member by its respective execution hereof hereby authorizes and appoints the Managing Member as its true and lawful agent and attorney-in-fact, with full power of substitution and full power and discretionary authority to act in the Company's name, place and stead, to make the Company's investments and execute any trades ancillary to such investments.

(ECF No. 183-10 at 27-28) (emphasis added). The LLC Agreement also defines "Managing Member" as PPBE Holdings LLC. (ECF No. 183-10 at 7).

The defendants do not dispute the Trustee's allegations concerning the fraudulent transfers after the sale of substantially all of Black Elk Energy Offshore Operations, LLC's assets (the "Renaissance Sale"). Platinum Partners invested in Black Elk in 2009. (ECF No. 85 at 6). In 2013, Nordlicht and other Platinum principals created various Black Elk investment funds, including PPBEO. (ECF No. 85 at 7). The defendants invested in Black Elk Series E preferred equity through PPBEO. (ECF No. 85 at 7). By 2014, Platinum dominated and controlled Black Elk: Platinum was Black Elk's majority investor, and Platinum controlled Black Elk's (i) credit facility, (ii) senior secured notes, (iii) Series E preferred equity; (iv) board; and (v) chief financial officer. (ECF No. 85 at 7). Both Black Elk and Platinum were effectively insolvent in 2014. (ECF No. 85 at 7).

At Nordlicht's^[3] direction, Platinum schemed to use approximately $125,000,000.00 of the Renaissance Sale proceeds to redeem preferred equity instead of paying Black Elk's senior secured notes debt or substantially overdue trade creditors. (ECF No. 85 at 7-8, 48). By paying off preferred equity and retaining the notes, Platinum would also benefit through a priority position in Black Elk's anticipated bankruptcy. (ECF No. 85 at 8). Nordlicht was later convicted of securities fraud, conspiracy to commit securities fraud, and conspiracy to commit wire fraud for his role in the scheme to defraud Black Elk's bondholders. See United States v. Landesman, 17 F.4th 298, 303 (2d Cir. 2021), cert. denied sub nom. Nordlicht v. United States, 143 S.Ct. 86 (2022). The Court has already granted summary judgment that Black Elk transferred approximately $77,000,000.00 in an actual fraudulent transfer following the Renaissance Sale. (ECF No. 292 at 1). There is no denial that Nordlicht was intimately involved with Platinum and Black Elk's affairs and knew of Platinum's fraudulent designs with the Renaissance Sale. (ECF No. 181 at 78).

At the time of the Renaissance Sale and subsequent fraudulent transfers, Nordlicht was (i) the principal of PPBE Holdings LLC (PPBEO's Managing Member); and (ii) the managing member of PPBE Management LLC. (ECF Nos. 181 at 77; 208-2 at 15). Under PPBEO's Private Placement Memorandum, PPBE Holdings LLC delegated PPBEO's "investment management and certain other related responsibilities" to PPBE Management LLC. (ECF No. 208-2 at 15). Specifically, PPBE Management LLC assumed responsibility "for the purchase of the Notes, including all rights that arise pursuant thereto." (ECF No. 208-2 at 15). "Notes" are defined as "publicly traded secured notes and/or 144A secured notes newly issued by Black Elk Energy Offshore Operations, LLC or previously issued by Black Elk Energy Offshore Operations, LLC and currently held by PPVA Black Elk (Equity) LLC or other third party holders . . . ." (ECF No. 208-2 at 7).

In signing the Subscription Agreements, the defendants attested that they understood and agreed to abide by the terms in the Private Placement Memorandum. (ECF No. 181-17 at 3).

The defendants filed opposition briefs to the Trustee's motion. (ECF Nos. 211; 212). The Court heard oral argument on July 27, 2022 but delayed issuing a ruling pending a mediation between certain parties. (ECF No. 252). Mediation failed.

JURISDICTION

The Court has jurisdiction over this matter under 28 U.S.C. § 1334. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(H). Venue is proper in this District under 28 U.S.C. §§ 1408 and 1409.

LEGAL STANDARD

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A genuine dispute of material fact means that evidence is such that a reasonable fact finder "could return a verdict for the nonmoving party." Gorman v. Verizon Wireless Tex., L.L.C., 753 F.3d 165, 170 (5th Cir. 2014) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). It is the movant's burden to establish that no genuine issue of material fact exists. Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5th Cir. 2009) (citing Condrey v. SunTrust Bank of Ga., 429 F.3d 556, 562 (5th Cir. 2005)). A party asserting that a fact cannot be or is not genuinely disputed must support that assertion by citing to particular parts of materials in the record showing that the materials cited do not establish the absence or presence of a genuine dispute, or showing that an adverse party cannot produce admissible evidence to support that fact. Fed.R.Civ.P. 56(c)(1). If the movant establishes "the absence...