Case Doc 72 Filed 12/03/18 Entered 12/03/18 16:29:46 Desc Main Document Page 1 of 12

Transcription

1 Document Page 1 of 12 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division In re: Sharon Road Properties, LLC, CASE NO CHAPTER 7 DEBTOR. MOTION TO APPROVE SETTLEMENT Joseph W. Grier, III, the duly-appointed trustee (the Trustee ) in the above-captioned bankruptcy case (this Case ), through counsel, hereby presents this Motion to Approve Settlement (this Motion ) and, in support hereof, respectfully represents as follows: INTRODUCTION 1. This Case arises in the aftermath of a Ponzi scheme (the Ponzi Scheme ) orchestrated by the late Richard C. Siskey ( Rick Siskey ). The Trustee has reached an agreement in principle that resolves many issues resulting from the Ponzi Scheme (the Settlement ) with: Rick Siskey s widow, Diane M. Siskey ( Diane Siskey ); Jenna Marie Negrelli ( Negrelli ); F. Lane Williamson (the Administrator ), the Administrator CTA of the Estate of Richard C. Siskey (the Siskey Estate ); Siskey Industries, LLC; Stone Street Partners, LLC f/k/a Siskey Capital, LLC ( Stone Street ); Dawn E. King ( King ); Paul G. Porter ( Porter ); and Metropolitan Life Insurance Company, MSI Financial Services, Inc. (f/k/a MetLife Securities, Inc. n/k/a MML Investors Services, LLC), Massachusetts Mutual Life Insurance Company, and Brighthouse Life Insurance Company (collectively, MetLife ).

2 Document Page 2 of 12 PROCEDURAL BACKGROUND AND JURISDICTION 2. On January 27, 2017, an involuntary bankruptcy petition pursuant to chapter 7 of the United States Bankruptcy Code, 11 U.S.C. 101 et seq. (the Code ), was filed against TSI Holdings, LLC ( TSI ), initiating case number (the Ponzi Scheme Case ). On February 2, 2017, the Court held an emergency hearing on the petitioning creditors emergency motion to appoint an interim trustee for TSI. On February 8, 2017, the Court entered an Order appointing the Trustee as the chapter 7 trustee for TSI. An Order For Relief was entered on February 22, Similar involuntary petitions, emergency motions, orders for relief, and orders appointing the Trustee were filed and entered against WSC Holdings, LLC ( WSC ) and SouthPark Partners, LLC ( SPP, and, collectively with TSI and WSC, the Ponzi Debtors ) in case numbers and , respectively. 4. On March 9, 2017 (the Petition Date ), a similar involuntary petition, emergency motion, order for relief, and order appointing the Trustee were filed and entered against Sharon Road Properties, LLC ( SRP ), another entity controlled by Rick Siskey, initiating this Case. 5. Although this Case was initially jointly administered with the Ponzi Scheme Case, the Trustee eventually formed the belief that SRP was a legitimate business enterprise that existed independently from the Ponzi Scheme. The Court agreed and entered an Order finding and concluding that SRP is not part of a Ponzi scheme. See Ponzi Scheme Case D.E. 177, at On July 27, 2018, the Court entered an Order terminating the joint administration of this Case with the Ponzi Scheme Case, based in part on the fact that SRP is not part of a Ponzi Scheme. See Ponzi Scheme Case D.E. 312, at

3 Document Page 3 of This Court has jurisdiction over this Motion pursuant to 28 U.S.C This is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(A), (B), and (O). Venue properly lies in this judicial district pursuant to 28 U.S.C. 1409(a). The predicates for the relief requested in this Motion are 105 of the Code and Rule 9019 of the Federal Rules of Bankruptcy Procedure (each a Bankruptcy Rule and, collectively, the Bankruptcy Rules ). FACTUAL BACKGROUND THE PONZI SCHEME 8. Based on the Ponzi Debtors records, and other evidence, the Trustee and his professionals are of the opinion that TSI, WSC, and SPP were each operated as part of the Ponzi Scheme. However, not all of Rick Siskey s investment ventures were part of the Ponzi Scheme or otherwise operated fraudulently. For example, as previously determined by this Court, SRP is a legitimate business enterprise that existed independently from the Ponzi Scheme. THE CLAIMS REPORT 9. On November 1, 2017, the Trustee filed the Trustee s First Omnibus Report of Claims, Objections to Claims, and Recommendations Regarding Claims as to TSI Holdings, LLC, WSC Holdings, LLC, SouthPark Partners, LLC, and Sharon Road Properties, LLC (Ponzi Scheme Case D.E. 112) (the Claims Report ). 1 Given the number of claimants affected and number of nuanced legal issues implicated, the Claims Report resulted in five (5) hearings 2 and 1 Duplicates of the Claims Report s substantive text were filed in the WSC s bankruptcy case, SPP s bankruptcy case, and this Case. The only difference in the various versions of the Claims Report is the Exhibit A attached thereto, which proposes treatment of claims submitted specifically against the debtor-entity in the corresponding bankruptcy case. For purposes of this Motion, the various versions will be referred to collectively as the Claims Report. 2 The Claims Report hearings were held on December 11, 2017, January 8, 2018, January 24, 2018, February 5, 2018, and March 12,

4 Document Page 4 of 12 nine (9) orders (collectively, the Claims Order ). 3 In general, the Claims Report adopts the Net Investment Method for treating claims against the Ponzi Debtors. 10. Notwithstanding the foregoing, the Claims Order concluded that, because SRP was not part of the Ponzi Scheme, the allowance of claims and equity interests against SRP would be treated the same as any ordinary chapter 7 debtor. See Ponzi Scheme Case D.E. 177, at 3 4. Accordingly, investors claims were allowed based upon their relative percentage equity interests in SRP. See id. at The Claims Report did not resolve and the Trustee agreed to hold open for final determination the claims made against SRP that could not be classified as equity interests in SRP, but rather reflected true unsecured claims against SRP. The first of the unresolved claims is the claim made by the U.S. Securities and Exchange Commission ( SEC ) for monetary remedies that may be imposed for potential violations of federal securities laws (the SEC Claim ). 4 The remaining unresolved claims are those made by Stone Street, King, and Porter (collectively, the Stone Street Claimants ) in the aggregate amount of $26,383, for damages incurred as a result of the Ponzi Scheme (the Stone Street Claims ). 5 SALE OF SRP S ASSETS 12. On the Petition Date, SRP owned a 32.55% interest (the BPS Interest ) in Bissell Porter Siskey, LLC, which in turn owns a commercial building located at 4521 Sharon Road, Charlotte, North Carolina (the Office Building ). Other than the BPS Interest, the Trustee has 3 See Ponzi Scheme Case D.E. 134, D.E. 69 (in the WSC case), D.E. 67 (in the SPP case), D.E. 61 (in this Case), Ponzi Scheme Case D.E. 138, Ponzi Scheme Case D.E. 152, Ponzi Scheme Case D.E. 176, Ponzi Scheme Case D.E. 177, and Ponzi Scheme Case D.E See Proof of Claim No. 34. See Proof of Claim No. 41, 42, and 43. The Trustee filed an objection to the Stone Street Claims, recommending that the Court disallow those claims in their entirety. Thereafter, the Stone Street Claimants and the Trustee agreed to continue resolution of the allowance of the Stone Street Claims indefinitely off-docket. 4

5 Document Page 5 of 12 identified no tangible assets to administer on behalf of SRP s bankruptcy estate. Since the Petition Date, the Trustee has collected, and has maintained as property of the estate, SRP s share of disbursements from BPS, which disbursements represent rental income generated by the Office Building. 13. On March 23, 2018, the Trustee filed a motion pursuant to 363 of the Code to sell the BPS Interest. See Ponzi Scheme Case D.E On May 15, 2018, the Court entered an Order authorizing the Trustee to sell the BPS Interest pursuant to certain sale procedures. See Ponzi Scheme Case D.E On July 26, 2018, the Court entered an Order confirming the sale of the BPS Interest. See Ponzi Scheme Case D.E Thereafter, the Trustee closed on the sale of the BPS Interest, which generated $3,300, for SRP s bankruptcy estate (the Sale Proceeds ). INABILITY TO DISTRIBUTE FUNDS 14. To date, the Trustee has been unable to distribute the Sale Proceeds. Considering that the Claims Order treats the investors in SRP as equity interest holders and not unsecured creditors, the SEC Claim and the Stone Street Claims potentially deserve absolute priority over the investors interests. Given the potential priority of payment on account of the SEC Claim and the Stone Street Claims, the unresolved nature of the claims, and certain outstanding discovery disputes between the parties, the Trustee has been unable to distribute the Sale Proceeds to holders of allowed equity interests in this Case. 15. Through the comprehensive Settlement (described further below), the Stone Street Claimants have agreed to forfeit the Stone Street Claims, which thereby enables the Trustee to distribute the Sale Proceeds and complete administration of this Case. The Settlement comprises a multitude of each settling party s particular and essential requirements including MetLife s 5

6 Document Page 6 of 12 requirement that it receive a release from SRP, the Trustee s requirement that the Stone Street Claims be withdrawn in this Case, and the Stone Street Claimants requirement that, in exchange for any release that is requested by MetLife, the Stone Street Claimants receive substantially the same release from MetLife. Each principal, individual component of the Settlement is essential to the whole, and no principal, individual component of the Settlement can be removed or otherwise modified without having a ripple effect that risks the entire Settlement unraveling. Therefore, in order for the Trustee to favorably resolve the Stone Street Claims through the Settlement, the Trustee must release his claims against MetLife (and others). PROPOSED SETTLEMENT 16. After several days of mediation and subsequent detailed, arm s-length settlement discussions over the course of several weeks, a tentative Settlement was reached by the Trustee, the Administrator, Diane Siskey, Negrelli, the Stone Street Claimants, and MetLife. If approved by the Court, the Settlement would resolve a litany of complex disputes by and among the aforementioned parties arising out of the Ponzi Scheme. The terms of the Settlement are more particularly described in the Motion for (I) Authority to Enter into Settlement and (II) Bar Order filed in the Ponzi Scheme Case contemporaneously with the filing of this Motion and the settlement agreement attached thereto as Exhibit A (the Settlement Agreement ). 17. Specifically concerning SRP, the Settlement provides that, in exchange for various releases (including a release from the SRP bankruptcy estate), cash consideration, and other consideration, the Stone Street Claimants have agreed to withdraw the Stone Street Claims in this Case, which total $26,383, The Settlement is also contingent upon the SEC withdrawing the SEC Claim in this Case. In effect, the Settlement clears a path for the Trustee to distribute the Sale Proceeds and otherwise close this Case. 6

7 Document Page 7 of 12 RELIEF REQUESTED 18. Through this Motion, the Trustee seeks entry of an Order: (a) approving the portions of the Settlement directly affecting SRP s bankruptcy estate as being fair, equitable, reasonable, and in the best interests of SRP s bankruptcy estate; and (b) authorizing the Trustee to take any and all actions necessary to carry out the terms of the Settlement without further confirmation by the Court, including the Trustee s execution of the Settlement Agreement. 19. In the opinion of the Trustee, an exclusive list of the Settlement terms that would materially affect SRP s bankruptcy estate is as follows: (a) the Trustee (on behalf of SRP s bankruptcy estate) agrees to release Diane Siskey, Negrelli, MetLife, the Stone Street Claimants, and others 6 in exchange for the withdrawal of the Stone Street Claims; and (b) the SEC withdrawing the SEC s claim in this Case. BASIS FOR RELIEF REQUESTED 20. Pursuant to 105 of the Code, the Court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Code]. 11 U.S.C. 105(a). 21. Pursuant to Bankruptcy Rule 9019, the Court may upon a motion by a trustee, notice to creditors and the Bankruptcy Administrator, and a hearing approve a compromise or settlement. FED. R. BANKR. P. 9019(a). 22. In bankruptcy proceedings, compromises are favored in order to minimize litigation and expedite the administration of the bankruptcy estate. In re Energy Future Holding Corp., 527 B.R. 157, 163 (Bankr. D. Del. 2015). In order to approve a settlement, a 6 In exchange for the Stone Street Claimants willingness to withdraw the Stone Street Claims, the Stone Street Claimants not only demanded a release from the Trustee (on behalf of SRP s bankruptcy estate), but also releases from the other settling parties. Those other settling parties, in turn, similarly demanded releases from the Trustee (on behalf of SRP s bankruptcy estate) in exchange for releasing the Stone Street Claimants. 7

8 Document Page 8 of 12 bankruptcy court must find that the settlement is fair, equitable, and does not fall below the lowest point in the range of reasonableness. Id.; Hinson v. Bank of America, N.A. (In re Broughton), 2017 WL , at *4 (E.D.N.C. Dec. 13, 2017). ARGUMENT 23. The Settlement is premised on the Trustee releasing SRP s claims against Diane Siskey, Diane Siskey s children, the Stone Street Claimants, and MetLife in exchange for the SEC and the Stone Street Claimants foregoing any additional pursuit of claims against SRP s bankruptcy estate. 24. In the opinion of the Trustee, a broad release of Diane Siskey and her children, the Stone Street Claimants, and MetLife is an extremely small price to pay to be able to distribute the Sale Proceeds and close this Case. The Court has previously held that SRP was not part of the Ponzi Scheme. Accordingly, the Trustee cannot articulate any claim to be made against Diane Siskey, her children, the Stone Street Claimants, or MetLife on behalf of SRP s bankruptcy estate relating to the Ponzi Scheme or otherwise. 25. The Settlement puts the Sale Proceeds in the hands of SRP s investors, facilitates a final resolution of this Case, and otherwise serves the best interests of SRP s bankruptcy estate. The Trustee, in the exercise of his discretion and business judgment, believes the Settlement to be fair, equitable, and reasonable. WHEREFORE, the Trustee respectfully prays that the Court will enter an Order: 1) GRANTING this Motion; 2) approving the portions of the Settlement directly affecting SRP s bankruptcy estate as being fair, equitable, reasonable, and in the best interests of SRP s bankruptcy estate; 3) authorizing the Trustee to take any and all actions necessary to carry out the terms of the Settlement without further confirmation by the Court, including executing the Settlement Agreement; and 8

9 Document Page 9 of 12 4) granting such other and further relief as may be just and proper. This is the 3d day of December, /s/ Michael L. Martinez Joseph W. Grier, III (N.C. Bar No 7764) Anna S. Gorman (N.C. Bar No 20987) Michael L. Martinez (N.C. Bar No ) Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, NC Phone: 704/ ; Fax: 704/ mmartinez@grierlaw.com Attorneys for Joseph W. Grier, III, Trustee 9

10 Document Page 10 of 12 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division In re: Sharon Road Properties, LLC, CASE NO CHAPTER 7 DEBTOR. NOTICE OF OPPORTUNITY FOR HEARING TAKE NOTICE that the Trustee in this case has filed a Motion to Approve Settlement (the Motion ) seeking Court approval of a settlement that clears a path for the Trustee to distribute the funds generated by the sale of the real property that was property of the estate and to otherwise close this case. Copies of the Motion are available from the undersigned or from the Bankruptcy Court s web site at: Your rights may be affected. You should read this Notice carefully and discuss it with your attorney, if you have one in this bankruptcy case. (If you do not have an attorney, you may wish to consult one.) If you do not want the Court to approve the proposed settlement, or if you want the Court to consider your views on the Motion, then on or before December 26, 2018, you or your attorney must do three (3) things: 1. File with the Court a written request for a hearing at: U.S. Bankruptcy Court 401 W. Trade St. Charlotte, NC If you mail your request to the Court for filing, you must mail it early enough so the Court will receive it on or before the date stated above. 2. On or before the date stated above for filing your written request for hearing, you must also mail, , or fax a copy of your written request for hearing to: Michael L. Martinez 101 N. Tryon Street, Suite 1240 Charlotte, NC Fax: 704/ mmartinez@grierlaw.com 3. If you request a hearing, you or your attorney must attend a hearing which would be held at 9:30 a.m. on January 8, 2019, in Bankruptcy Courtroom 1-4 in the United States

11 Document Page 11 of 12 Courthouse, 401 West Trade Street, Charlotte, North Carolina. No hearing will be held unless you request it. If you or your attorney do not take these steps, the Court may decide that you do not oppose the relief requested in the Motion and may enter an order approving the Motion. This, the 3d day of December, /s/ Michael L. Martinez Michael L. Martinez (N.C. State Bar No ) Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, NC Telephone: (704) Facsimile: (704) Attorneys for Joseph W. Grier, III, Trustee

12 Document Page 12 of 12 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division In re: Sharon Road Properties, LLC, CASE NO CHAPTER 7 DEBTOR. CERTIFICATE OF SERVICE The undersigned hereby certifies that copies of the foregoing Notice of Opportunity for Hearing were served on those parties requesting notice in this case via ECF, on any party for whom the Trustee has a valid electronic mail address by electronic mail, and by online publication. This, the 3d day of December, /s/ Michael L. Martinez Michael L. Martinez (N.C. State Bar No ) Grier Furr & Crisp, PA 101 North Tryon Street, Suite 1240 Charlotte, NC Telephone: (704) Facsimile: (704) mmartinez@grierlaw.com Attorneys for Joseph W. Grier, III, Trustee