Universitas Educ., LLC v. Nova Grp., Inc.
| Decision Date | 20 November 2013 |
| Docket Number | No. 11 Civ. 1590 (LTS) (HBP),No. 11 Civ. 8726 (LTS) (HBP),11 Civ. 1590 (LTS) (HBP),11 Civ. 8726 (LTS) (HBP) |
| Parties | UNIVERSITAS EDUCATION, LLC, Petitioner, v. NOVA GROUP, INC., as trustee, sponsor and fiduciary of THE CHARTER OAK TRUST WELFARE BENEFIT PLAN, Respondent. |
| Court | U.S. District Court — Southern District of New York |
Following the entry of judgment in its favor in the above captioned-actions, Universitas Education, LLC ("Petitioner") petitioned this Court for an order to show cause as to why United Services Automobile Association ("USAA") should not be required to turn over to Petitioner the USAA insurance proceeds claimed in connection with any property owned at any point in time by Moonstone Partners, LLC ("Moonstone"), Daniel E. Carpenter, or Molly Carpenter (together with Moonstone, the "Moonstone Respondents"), or any nominee or related party of any of them. The Court issued the order to show cause, which included temporary restraining orders, and scheduled a hearing on the turnover application. USAA does not oppose Petitioner's application, although its attorneys have made appearances (docket entry nos. 227and 228). The Moonstone Respondents have entered appearances and oppose the petition for an order to show cause.
The Court has jurisdiction of the action pursuant to 28 U.S.C. §§ 1331, 1332(a)(1) and 1441, and under Federal Rule of Civil Procedure 69.
The Court held a bench trial on May 9, 2013. The Court has considered carefully all of the submissions and arguments of the parties, the documentary evidence, including transcripts of deposition testimony, and the courtroom testimony. In accordance with Federal Rule of Civil Procedure 52(a), this Opinion constitutes the Court's findings of fact and conclusions of law. To the extent any finding of fact includes conclusions of law it is deemed a conclusion of law, and vice versa. For the following reasons, the Petition is granted in part.
This case is part of a lengthy and ongoing dispute over the disposition of the $30 million in proceeds of two life insurance policies obtained by the late Sash A. Spencer, who was the Chief Executive Officer of Holding Capital Group, Inc. Mr. Spencer placed the two life insurance policies into the Charter Oak Trust Welfare Benefit Plan ("Charter Oak Trust") which was "established to provide for the acquisition of and investment in various types of insurance policies to provide a welfare benefit fund or estate planning benefits," pursuant to a Funding Obligation Agreement and Power of Attorney. (Ex. E at 1.) Mr. Spencer named Petitioner the sole, irrevocable beneficiary of a Charter Oak Trust death benefit comprising the proceeds payable under two life insurance policies, whose face values totaled $30 million (the "Life Insurance Proceeds"). (Ex. 28 at ¶16.) Mr. Spencer died in June 2008, and Petitioner made a valid and timely claim to the Life Insurance Proceeds. (Ex. 18 at 3-4.)
Nova Group, Inc. ("Nova") and the Charter Oak Trust Welfare Benefit Plan ("Charter Oak Trust") are two of the hundreds of business entities organized and controlled, directly or indirectly, by respondent Mr. Carpenter. Wayne H. Bursey was, at relevant times,President of Nova and trustee of the Charter Oak Trust. Ms. Carpenter is married to Mr. Carpenter, and Mr. Bursey is Ms. Carpenter's brother-in-law. (May 9 Tr. at 26:14-21 and 58:8-13.) Nova is the corporate trustee of the Charter Oak Trust. (Ex. 31 at ¶5.) After Petitioner made its death beneficiary claim, Mr. Bursey sought payment from the insurer, acknowledging in writing that Nova had "a fiduciary responsibility and legal obligation to carry out Mr. Spencer's wishes as he intended in a timely fashion to pay those death proceeds to a charity that he established prior to his death." (Ex. 18 at pg. 2.) The insurer paid Charter Oak Trust $30.67 million in Life Insurance Proceeds, including interest, and Mr. Bursey signed for the deposit as trustee. (Ex. 1.) In May 2009, after receiving payment of the Life Insurance Proceeds, Nova denied Petitioner's death benefit claim. Petitioner challenged the denial through a demand for arbitration filed on June 17, 2010; a binding arbitration award against Nova, upon which judgment has been entered by this Court, was issued on January 24, 2011 in the amount of $26,525,535.98. (Ex. 18.) The arbitration award explicitly reduced the benefit amount payable to Petitioner from the $30 million in insurance proceeds to account for fees and expenses of $4.02 million, that the arbitrator found had been appropriately charged by Grist Mill Capital, LLC ("Grist Mill"), another Carpenter affiliate, against the benefits payable to the Petitioner in connection with Grist Mill's role in funding the policy premiums. (Ex. 18 at pg. 9.) To date, No payment has been made to Petitioner to satisfy the arbitration award.
Petitioner filed a complaint against Nova, as trustee, sponsor, and fiduciary of the Charter Oak Trust, in the Supreme Court of the State of New York, County of New York, to enforce the arbitration award. Separately, Nova commenced an action in the United States District Court for the District of Connecticut seeking to vacate the arbitration award. Nova removed Petitioner's state court action to this Court in March 2011, and the Connecticut action wastransferred to this Court and consolidated under this case caption in January 2012. This Court entered an Order confirming the arbitration award and dismissing Nova's action on June 5, 2012. On June 7, 2012, judgment was entered in favor of Petitioner upon the arbitration award in the amount of $30,181,880.30 (the "Judgment"), comprising the $26,525,535.98 arbitration award and prejudgment interest. (Docket entry no. 41.) On October 5, 2012, this Court granted Petitioner $268,810.01 in attorneys' fees in addition to the Judgment. (Docket entry no. 162.) To date, the Judgment has not been satisfied. Petitioner has engaged in wide-ranging discovery efforts in aid of execution of the Judgment, which have been met with vigorous opposition by Nova and its affiliates. In a Report and Recommendation issued in connection with these discovery and execution efforts, Magistrate Judge Pitman noted that Nova "has resisted all efforts to enforce the judgment and has failed to disclose the current location of the proceeds of the insurance policies." (Docket entry no. 176.)1 The Court adopted the Report and Recommendation, imposing sanctions on Nova and its former attorney, Jack E. Robinson. (Docket entry no. 295.)
Respondent Daniel E. Carpenter has founded and controlled hundreds of companies out of his offices at 100 Grist Mill Road in Simsbury, Connecticut. (See Tr. at 47:23-25, 48:1-5.) Some of these companies appear to have conducted a variety of businesses; among them was the management of welfare benefit and estate planning trusts, including the Charter Oak Trust; others are holding or shell entities. Nova, a Delaware corporation, was the trustee of the Charter Oak Trust. Mr. Carpenter was an officer of Nova; at times he signed official filings as "Chairman" or "Secretary." These signed documents, including tax returns, demonstrate that he was an officer of Nova from at least 2008 through 2011. (Exs. 7, 8, 9, and 10.) Mr. Bursey, as President of Nova and trustee for the Charter Oak Trust, was the only signatory on the Charter Oak Trust accounts. (Ex. 1 at 0008). In his testimony in connection with this matter, Mr. Carpenter nonetheless denied having any relationship with Nova (for example, he testified that he had signed tax returns and other documents indicating that he was "Chairman" and "Secretary" of Nova without reading them carefully). (See May 9 Tr. at 45:3-5.) The Court, heaving observed Mr. Carpenter's demeanor while testifying and having reviewed the evidence, finds this testimony incredible.
Mr. Carpenter also had control over the Charter Oak Trust, as demonstrated not only by his positions with Nova, but also by his actions on behalf of the trust itself. In May 2009, Mr. Carpenter wrote e-mails to representatives of Bank of America which indicated, first, that he was attempting to open an account for Charter Oak Trust and, later, that "we have already opened new accounts for the Charter Oak Trust with two major banks." (Ex. 12.) Mr. Carpenter acknowledged that he had sent the e-mail, saying "it definitely looks like Dan Carpenter," but he denied having been involved in setting up accounts for Charter Oak Trust. (May 9 Tr. at 56-57.) Again, the Court finds this testimony incredible, and finds that Mr. Carpenter directly controlled material aspects of the affairs of Nova and the Charter Oak Trust during the relevant period.
In order to retain the Life Insurance Proceeds for himself and/or his affiliated entities, Mr. Carpenter orchestrated a series of transfers of money through accounts of various entities that he controlled, withdrawing millions of dollars of the Life Insurance Proceeds from Charter Oak Trust and sending them to Grist Mill. Mr. Carpenter is the only individual with an ownership interest, membership interest, or beneficial interest, direct or indirect, in Grist Mill. (May 9 Tr. at 67:1-3.) Mr. Carpenter held Grist Mill through its two members Caroline Financial Group, Inc. ("Caroline Financial") and Grist Mill Holdings, LLC ("GM Holdings"), each of which is wholly owned by Mr. Carpenter. (May 9 Tr. at 25:2-4; Ex. 22 at 47:15-18 ().) Mr. Bursey, in addition to serving as trustee of the Charter Oak Trust and President of Nova, served as a "manager" at Grist Mill. (Ex. 14.) In testimony that again strained credulity, Mr. Carpenter proffered that Mr. Bursey was identified as a manager at Grist Mill in error. (May 9 Tr. at 59.) The Court finds that Mr. Bursey was a manager of Grist Mill. Mr. Bursey transferred the Life Insurance Proceeds funds from a Charter Oak Trust...
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