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Ritchie Capital Mgmt., LLC v. Stoebner

United States Court of Appeals, Eighth Circuit

March 10, 2015

Ritchie Capital Management, LLC, as administrative and collateral agent; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville Investments I, L.L.C.; Ritchie Capital Structure Arbitrage Trading, Ltd., Appellants
v.
John R. Stoebner, Trustee, Appellee, JPMorgan Chase Bank, N.A., Amicus Curiae, Douglas A. Kelley, as Chapter 11 Trustee; the Official Committee of Unsecured Creditors of Petters Company, Inc. and Petters Group Worldwide, LLC; National Association of Bankruptcy Trustees, Amici on Behalf of Appellee(s)

Submitted October 7, 2014

Appeal from United States District Court for the District of Minnesota - Minneapolis.

For Ritchie Capital Management, LLC, as administrative and collateral agent, Ritchie Special Credit Investments, Ltd., Rhone Holdings II, Ltd., Yorkville Investments I, L.L.C., Ritchie Capital Structure Arbitrage Trading, Ltd., Appellants: Thomas K. Cauley Jr., Michael J. La Mare, Brian A. McAleenan, Sidley & Austin, Chicago, IL; James M. Jorissen, Leonard & O'Brien, Minneapolis, MN.

For John R. Stoebner, Trustee, Appellee: Mark S. Enslin, Terrence J. Fleming, George Singer, Sandra S. Smalley-Fleming, Lindquist & Vennum, Minneapolis, MN.

For JPMorgan Chase Bank, N.A., Amicus Curiae: Kevin Martin Decker, Benjamin Everett Gurstelle, John R. McDonald, Briggs & Morgan Minneapolis, MN; Isaac Rethy, David J. Woll, Simpson & Thacher. New York, NY; James J. White. Ann Arbor, MI.

For Douglas A. Kelley, as Chapter 11 Trustee, Amicus on Behalf of Appellee(s): Steven E. Wolter, Kelley & Wolter, Minneapolis, MN.

For Official Committee of Unsecured Creditors, of Petters Company, Inc., Petters Group Worldwide, LLC, Amici on Behalf of Appellee(s): Connie A. Lahn, David Runck, Fafinski & Mark, Eden Prairie, MN.

For National Association of Bankruptcy Trustees, Amicus on Behalf of Appellee(s): Ronald R. Peterson, Jenner & Block, Chicago, IL.

Before RILEY, Chief Judge, WOLLMAN and BYE, Circuit Judges.

OPINION

Page 858

RILEY, Chief Judge.

This case marks yet another dispute stemming from Tom Petters's multi-billion dollar fraud. The bankruptcy trustee for Polaroid Corporation (Polaroid)--a Petters

Page 859

company--succeeded in the bankruptcy court[1] in avoiding as fraudulent the transfer of several Polaroid trademarks to the appellants--Ritchie Capital Management, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville Investments, I, L.L.C.; and Ritchie Capital Structure Arbitrage Trading, Ltd.[2] On appeal, the district court[3] affirmed the bankruptcy court's decision. Ritchie appeals, and having jurisdiction under 28 U.S.C. § 158(d)(1), we now affirm.

I. BACKGROUND

The specifics of Petters's Ponzi scheme[4] and the numerous resulting civil disputes have been described in detail in several of this court's other opinions. See, e.g., United States v. Petters, 663 F.3d 375, 379-80 (8th Cir. 2011); Ritchie Capital Mgmt., L.L.C. v. Jeffries, 653 F.3d 755, 758-60 (8th Cir. 2011); Ritchie Special Credit Invs., Ltd. v. U.S. Trustee, 620 F.3d 847, 850-51 (8th Cir. 2010). We recite only those facts most relevant to the instant appeal. Petters, through his company Petters Company, Inc. (PCI), purported to run a " diverting" business that purchased electronics in bulk and resold them at high profits to major retailers. The business was a sham, and the only influx of money came from loans or investments. Petters was convicted of multiple counts of mail fraud, wire fraud, and money laundering perpetrated through PCI and PGW and was sentenced to fifty years in prison.

In 2005, Petters, as PGW's sole board member, directed PGW to purchase Polaroid, becoming the 100% beneficial owner of Polaroid stock, and Petters became the sole member and " Chairman" of Polaroid's board of directors. Although a subsidiary of PGW, Polaroid operated as an independent, stand-alone corporation and engaged in legitimate business operations. On at least two occasions, Petters took several million dollars from Polaroid to satisfy PCI debts.

In late 2007 and early 2008, Petters's companies--including Polaroid--began to experience " major" financial difficulty. On January 31, 2008, a broker for PGW approached Ritchie about obtaining a loan. The next day, Ritchie loaned PGW $31 million to pay off Polaroid and PGW debts. The loan bore an 80% annual interest rate and was to be repaid within ninety days. Petters personally guaranteed the loan, but Ritchie was told the loan would also be " backed by the entire Polaroid corporation." The note stated, " [T]he parties shall endeavor, as soon as reasonably practicable, to secure this Note . . . by a pledge

Page 860

of 100% of the capital stock of . . . the Polaroid Corporation." Throughout February, Ritchie extended a number of additional loans, totaling $115 million, under the same terms.[5] On May 9, 2008, Ritchie lent PGW and PCI an additional $12 million to be repaid in three weeks and bearing 362.1% annual interest. Polaroid was not a signatory on any of the loans, and although the initial loan was used to repay a Polaroid debt, the proceeds of the loans did not go to Polaroid.

By September 1, 2008, all of the loans were past due, and Ritchie began demanding collateral to secure the overdue loans. On September 19, five days before Petters was raided by the Federal Bureau of Investigation (FBI), Petters executed a Trademark Security Agreement (TSA) giving Ritchie liens on several Polaroid ...


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