Watkins Dev., LLC v. Hosemann

• Decision Date: 28 June 2016
• Docket Number: No. 2014–CA–01657–COA.,2014–CA–01657–COA.
• Citation: 214 So.3d 1101
• Parties: WATKINS DEVELOPMENT, LLC and David Watkins, Sr., Appellants v. C. Delbert HOSEMANN, Jr., in his Official Capacity as Mississippi Secretary Of State, Appellee.
• Court: Mississippi Court of Appeals

214 So.3d 1101

WATKINS DEVELOPMENT, LLC and David Watkins, Sr., Appellants

v.C. Delbert HOSEMANN, Jr., in his Official Capacity as Mississippi Secretary Of State, Appellee.

No. 2014–CA–01657–COA.

Court of Appeals of Mississippi.

June 28, 2016.

Rehearing Denied Oct. 11, 2016.

J. Brad Pigott, Jackson, attorney for appellants.

Office of the Attorney General by Douglas T. Miracle, Cheryn Netz Baker, Jessica Leigh Long, Alison O'Neal McMinn, attorneys for appellee.

Before LEE, C.J., CARLTON and FAIR, JJ.

CARLTON, J., for the Court:

¶ 1. This appeal arises from an administrative proceeding brought by the Mississippi Secretary of State, in its regulatory capacity, against Watkins Development LLC and David Watkins Sr. (collectively, "Watkins" unless the context requires otherwise).¹ In April 2012, Watkins defaulted on the payment of a loan of taxable revenue bond proceeds issued to Retro Metro LLC by the Mississippi Business Finance Corporation ("MBFC")² to be used to revitalize the Belk building at Metrocenter Mall in Jackson, Mississippi. See Miss.Code Ann. § 75–71–501 (Rev.2009). Pursuant to its statutory authority to enforce and regulate the Mississippi Securities Act and the sale of securities in Mississippi, the Secretary of State issued a Notice of Intent to Impose Administrative Penalty and Order Restitution and Disgorgement of Profit ("Notice of Intent") to Watkins.³ The Notice of Intent was initially issued on July 30, 2013, and amended on October 23, 2013.⁴

¶ 2. Watkins requested an administrative hearing in response to the Notice of Intent, and the administrative hearing was held on October 29–30, 2013. David Watkins testified at the hearing and was represented by counsel. The hearing officer ultimately found that Watkins engaged in four violations of the Mississippi Securities Act. The Secretary of State adopted the findings and conclusions of the hearing officer, with some modifications, and the Secretary of State then issued a Final Order setting forth Watkins's violations of the Mississippi Securities Act and the penalties and remedies thus imposed. Watkins appealed to the chancery court for judicial review of the administrative regulatory enforcement action and the findings and remedies imposed by the Secretary of State. By order dated November 19, 2014, the chancellor affirmed in part the Secretary of State's Final Order, by affirming only three of the findings of violations of the Mississippi Securities Act.

The chancellor set aside the Secretary of State's finding that Watkins violated the Mississippi Securities Act by failing to disclose in the Private Placement Memorandum ("PPM"), Loan Agreement, and bond documents the February 21, 2011 Development Agreement ("Development Agreement"), which contained Retro Metro's financial obligation to Watkins Development. The chancellor held that this finding exceeded the authority of the Secretary of State.

¶ 3. Watkins now appeals to this Court. Upon review, we affirm the chancellor in part and reverse and render in part, and in so doing, we reinstate the Secretary of State's Final Order. We find that substantial and competent evidence in the record supports the Secretary of State's findings that Watkins committed four violations of the Mississippi Securities Act, as well as the penalties/remedies imposed as a result of these four violations.⁵ We hold that these findings were not arbitrary or capricious, nor did the findings violate a statutory or constitutional right. We further find that the Secretary of State possessed statutory authority to render these findings and to impose the respective remedies. See Miss.Code Ann. § 75–71–609 (Rev.2009) (limited judicial review); Miss.Code Ann. § 75–71–604 (administrative enforcement authority of Secretary of State).

FACTS

¶ 4. The record reflects that in early 2010, Watkins Development, a private limited liability company, began work as the master planner for Meridian, Mississippi, to redevelop areas of Meridian. While serving in this capacity, David Watkins discovered that the Meridian police station was substandard and that immediate action had to be taken to address this need.

¶ 5. That same year, relative to this case, Watkins Development and David Watkins Sr. also began working on a project to renovate the Belk building at Metrocenter Mall in Jackson. David Watkins testified at the administrative hearing that the mayor of Jackson at that time asked him to help with the project, including the renovation of the Belk building at Metrocenter. David Watkins testified that he purchased the Belk building, with the understanding that at the conclusion of the renovation, the City of Jackson would lease space in the building.⁶

¶ 6. In August 2010, David Watkins filed the certification of formation to form Retro Metro, a limited liability company, with the Secretary of State for the purposes of revitalizing the Belk building.⁷ The record reflects that David Watkins served as the manager of Retro Metro. On December 6, 2010, David Watkins began to arrange for financing to fund the project of renovating the Belk building. In so doing, he sought a loan on behalf of Retro Metro to be obtained through revenue bond proceeds issued by MBFC. See Miss.Code Ann. § 57–10–401(d), (g) (discussing bonds and eligible companies). The documents in the record and the transcript from the administrative hearing reflect that David Watkins testified that he recruited investment banking firm Duncan Williams to buy the bond. David Watkins and Retro Metro's counsel, along with Keith Parsons, bond counsel herein, began developing a formal PPM for the financing in 2010.⁸ The record shows that Parsons emailed David Watkins and his attorney on February 3, 2011, seeking suggested changes to and approval of the PPM language.See Miss.Code Ann. § 57–10–405 (functions of the MBFC). The record shows that David Watkins failed to correct any inaccurate information in the PPM language and that he failed to disclose any additional significant financial information relevant to the bond.

¶ 7. Meanwhile, while arranging for this financing to fund the project, Watkins Development entered into a Development Agreement on February 21, 2011, with Retro Metro. The record reflects that Watkins served as the agent executing the Development Agreement on behalf of Watkins Development and that he also served as the agent/member executing the Development Agreement on behalf of Retro Metro. The Development Agreement provided for Watkins Development to be paid a flat fee of $500,000, although with no specified date of payment, and to be paid a mobilization fee of twenty-five percent of "project cost," which amount was due at closing. Project costs included $2.5 million in construction costs, plus overhead costs, which included rents for office space, wages, and compensation of employees of Watkins Development. The record reflects that the financial liability from Retro Metro to Watkins Development amounted to a minimum of $1,125,000. The record shows that David Watkins testified at the administrative hearing that pursuant to the February 21, 2011 Development Agreement, he believed that Retro Metro's financial liability to Watkins Development would vest on the day of closing on the loan of the bond proceeds. However, the record shows that he failed to disclose the existence of the Development Agreement, or Retro Metro's resulting financial liability, in the PPM, the Loan Agreement, or other bond documents.

¶ 8. With respect to the loan and loan documents in this case, the record reflects that Watkins applied with MBFC to receive a loan from bond tax revenue proceeds.⁹ As a result of the PPM dated April 5, 2011, MBFC, as a conduit issuer,¹⁰ issued Taxable Revenue Bonds, Series 2011, to Retro Metro on April 12, 2011, in the principal amount of $5,195,000.¹¹ MBFC is authorized by statute to approve loans of bond proceeds to private businesses and to approve the issuance of bonds for such.

¶ 9. As part of the bond offering, and as required by the MBFC, Watkins executed a Loan Agreement on April 1, 2011. In section 2.2(k) of the Loan Agreement, Watkins provided: "Other than any agreements which have been delivered to the Issuer and the Trustee or the Purchaser, the Company [Retro Metro] is not a party to any indenture, agreement or other instrument materially and adversely affecting its business, properties, assets, liabilities, operations, income or condition, whether financial or otherwise." Watkins, as manager of Retro Metro, also executed a bond purchase contract stating, "The Company [Retro Metro] will not take or omit to take, as may be applicable, any action which would, in any way, cause the proceeds of the Series 2011 Bonds to be applied in a manner contrary to the requirements of the Indenture, the Loan Agreement and the Series 2011 Note." See Miss.Code Ann. § 57–10–401(b) (approved costs); Miss.Code Ann. § 57–10–401(i) (defining finance agreement).

¶ 10. The record reflects that the April 5, 2011 PPM provides no mention of the Development Agreement. As stated, David Watkins executed a Loan Agreement as part of the bond offering. Bond attorney Keith Parsons testified at the administrative hearing that had David Watkins disclosed the Development Agreement, as required by the Loan Agreement, and had David Watkins disclosed the way that Watkins Development would later requisition payments, then "there would have been no bond issued because I ... would have not given an opinion and we would have called the deal off." In his findings of fact, the Secretary of State¹² found that David Watkins was an experienced bond attorney that had participated in more than 700 bond issues over a twenty-year period. The Secretary of State also found that David Watkins was responsible for the accuracy of the contents of the PPM and that he possessed ample opportunity to provide revisions or corrections to the PPM.

¶ 11. The record shows that on April 12, 2011, the bond closing date, David Watkins executed a...