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Entanglement
A Hillsborough County jury awarded $2.3 million to Tampa auto dealer Ernest B. Haire III over a dispute with convicted corporate raider Paul Bilzerian and his wife, Terri Steffen.
By David R. Corder
Associate Editor
About four years ago Ernest B. Haire III needed $1 million. A business reversal forced the Tampa auto dealer to back a loan he guaranteed. This happened around the same time ValueCar Inc. experienced such severe cash flow problems that it sought protection from creditors in late July 2000 under Chapter 11 of the U.S. Bankruptcy Code. Haire was a principal investor in the now-liquidated Bradenton-based chain of used car dealerships.
Instead of tapping into conventional credit lines, Haire secured a short-term, $ million personal loan through his married friends and neighbors, Terri Steffen and Paul Bilzerian, as grantors of Overseas Holdings Limited Partnership. Over the years, their families developed friendships. Steffen and Bilzerian trusted Haire enough to administer their children's trust fund. Haire was comfortable enough with the loan agreement that he pledged as collateral the securities he owned in publicly traded Cimetrix Inc., a Salt Lake City-based maker of motion-control software.
Within a month, however, Haire came to regret the deal. Before he could repay the couple, the Securities and Exchange Commission quickened the pace in the decade-long civil litigation against Bilzerian over the securities violations that sent him years earlier to federal prison. Bilzerian became one of the nation's most famous corporate raiders during the 1980s because of his hostile takeover of the Singer Co.
In August 2000, a federal judge in the U.S. District Court, District of Columbia, found Bilzerian in contempt for refusing to disgorge $62 million in ill-gotten corporate profits and prejudgment interest. He claimed he didn't have the money. Four months later, the judge appointed a receiver to oversee the couple's assets. The Cimetrix stock Haire pledged as security for the Overseas Holdings loan became entangled in the SEC's disgorgement action against Bilzerian.
Then in January 2001 the federal judge jailed Bilzerian on the contempt charge. It took almost a year for Bilzerian and Steffen to negotiate his release. As part of the deal, the couple assigned Haire's Cimetrix stock to the receiver.
Unsuccessful with his pleas in the federal court, Haire sued Overseas Holdings. The lawsuit filed in May 2002 in Hillsborough County circuit court became intertwined with the SEC's protracted disgorgement litigation against Bilzerian.
In his effort to regain control of the Cimetrix stock, Haire recently convinced a six-member jury that Overseas Holdings owed him damages. On June 21 the Hillsborough jury awarded him $2.3 million on charges Overseas Holdings negligently and fraudulently misrepresented terms of the $1 million loan.
Intertwined interests
Overseas Holdings is a complicated limited partnership owned by the Paul A. Bilzerian and Terri L. Steffen Family Trust of 1995, Hillsborough court records state. Bilzerian and Steffen formed the trust under the self-governed laws of the Cook Islands in the South Pacific Ocean. This limited partnership controlled much of Steffen and Bilzerian's wealth, including 3 million shares of Cimetrix stock. It also maintained a close corporate affiliation with Bicoastal Holding Co., a Bilzerian-controlled entity that also owned Cimetrix stock.
Up until mid-May, Overseas Holdings also owned Steffen Manor. That's the 31,000-square-foot mansion Bilzerian built for his wife in the gated Avila community in north Hillsborough. The couple sold the lakefront property on May 10, as part of the SEC's disgorgement litigation, to the Guerrini Family Limited Partnership. The Tampa-based Guerrini partnership is managed by Jacques Chrysochoos, a disbarred securities dealer who brokered securities for Haire. The mansion's nearly $2.6 million sale attracted considerable public attention because the county lists the property's just market value at almost $6.2 million and taxable value at almost $3.9 million. It was listed for sale at $7.1 million.
Because of her husband's legal problems, Steffen maintained public control over Overseas Holdings as its president. That's why Haire first contacted her about borrowing the $1 million in July 2000, when he experienced what court records describe only as a "business reversal." The court records make no mention about Haire's investment in ValueCar.
In exchange for the cash, Haire agreed to pay 12% interest and pledge his Cimetrix stock as collateral. Steffen also required him to change the holder of the securities from "street name" to Haire's name, a prerequisite for sale or transfer of the securities.
Prior to executing the agreement, court records state, Haire asked Steffen and Bilzerian whether any creditor could make a claim on the $1 million loan through Overseas Holdings. He claims they said no; that Overseas Holdings had a net worth in excess of $10 million. He then purportedly asked the couple whether any creditor could make a claim on the Overseas Holding's Cimetrix stock. He says the couple also replied no. Haire also claims the couple assured him that Bilzerian would continue in his role as president of Bicoastal Holding and in control of its Cimetrix stock.
Contempt of court
In response to Haire's lawsuit, Tampa attorney H. Stratton Smith on behalf of Overseas Holdings filed a motion in July 2002 to dismiss the complaint. He claimed G. Michael Nelson, Haire's attorney, failed to state a cause of action or plead sufficient enough facts to prove the defendant's actions caused Haire any harm.
In September, Circuit Judge Vivian C. Maye agreed with Smith and dismissed the complaint, with leave to amend it.
About a month later, Nelson amended the complaint to include breach of contract in addition to negligent and fraudulent misrepresentation.
By late December 2002, Nelson and Smith agreed to delay temporarily the proceedings. Nelson reported that the receiver in the SEC action against Bilzerian had filed a motion to show cause why Haire should not be held in contempt of the federal court proceedings. Washington, D.C.-based attorney Deborah R. Meshulam, the receiver, claimed Haire was in contempt of the federal proceedings because he filed the state court action against Overseas Holdings.
The state court action lingered in limbo until October 2003, when Maye scheduled the lawsuit for the dismissal docket. A few months later Nelson advised Maye that Haire had appealed an adverse decision on his federal contempt charge to the District of Columbia Court of Appeals. The court heard oral arguments on April 19, but the panel has yet to publish an opinion. So Maye moved the state court action to inactive status.
With Haire's federal appeal pending, Nelson pushed for a jury trial. Nelson and Smith met with Maye in April to schedule an attempt at mediation. Mediation failed; Maye confirmed June 21 as the trial date.
Both sides submitted identical trial exhibit lists. Each side submitted nearly the same list of witnesses, except for Nelson. He included Tampa attorney Geoffrey T. Hodges, who drafted the Steffen and Bilzerian family trust.
Meanwhile, Smith answered the amended complaint Nelson filed on behalf of Overseas Holdings. The answer acknowledged that Overseas Holdings had sold all of its real estate holdings in Hillsborough since the filing of the original complaint. It also acknowledged that Steffen owned all interest in Overseas Holdings. However, the answer denied all substantial allegations of negligent and fraudulent misrepresentation and breach of contract.
Overseas Holdings also listed five affirmative defenses. Among them, Smith argued Haire's decision to ratify the promissory note and stock-purchase agreement barred him from seeking rescission. It also accused Haire of seeking unjust enrichment.
Nelson responded with a second amended complaint alleging breach of contract, negligent misrepresentation and fraud in the inducement and rescission for mutual mistake. He also estimated the value of Haire's stock in Cimetrix at about $2.2 million.
The trial moved quickly, opening at 1:30 p.m., with Senior Judge John L. Gilbert presiding. Nelson rested the plaintiff's case at 3:05. Smith rested the defense 35 minutes later. The jury retired at 4:20 p.m., and Gilbert ordered a recess at 5:25 p.m. on word the jury reached a verdict in favor of Haire on all four counts.
Not final yet
Neither Bilzerian nor Steffen would comment about the trial outcome. However, Smith says the verdict does not become final until 10 days have elapsed. That period expires at 5 p.m. Friday, July 9, Smith says. He would not speculate on what that means for his clients. Nor did Haire or Nelson respond to a request for comment.
In its verdict, the jury rescinded the $1 million promissory note and stock-pledge agreement. It ordered the limited partnership to transfer to Haire all of the Cimetrix securities he assigned to Overseas Holdings as part of the stock-pledge agreement. That includes 600,942 shares of Cimetrix common stock and $372,000 in senior subordinated notes plus accrued interest on those notes since April 1, 2001. Shares of Cimetrix stock once traded for slightly more than $15 each in 1996 but now trade at just less than 70 cents a share.
Haire also doesn't have to repay the $1 million Overseas Holdings loaned to him. The jury authorized him to recover $1,652,591 - less the $1 million he already received - for a total recovery of $652,591.
But there's another obstacle Haire faces in his bid to recover the Cimetrix securities. Meshulam, the SEC's receiver, still maintains control over the securities. And it's uncertain whether she has any plans to relinquish that control.
Four days after the verdict, Nelson filed an affidavit saying that he invited Meshulam to intervene in the Hillsborough court action. "The receiver declined every request to intervene and participate in this action," he wrote.
In a memorandum of law in support of motion for entry of judgment, Nelson argued that Meshulam did not give Haire any consideration for the promissory note and stock-pledge agreement. He says that doesn't make her a bona fide third-party purchaser.
"The fraud by (the) defendant that induced Mr. Haire to sign the promissory note and stock-pledge agreement and led to the jury verdict in this case occurred five months before the receiver was appointed, so none of the claims made by Mr. Haire against defendant could have been brought against the receiver," he wrote. "The only reason why the receiver would have been named as a nominal defendant is because she was the assignee and present holder of the promissory note and stock-pledge agreement.
"The receiver's status as assignee made her a 'necessary party' to this action," Nelson adds. "A 'necessary party' is one who has an interest in a suit and ought to be made a party but who does not have to be joined before a final decision may be rendered."
Stock Woes
By David R. Corder
Associate Editor
The recent spike in the price of Rentech Inc. stock should have been good news for Ernest B. Haire III. Except the Tampa auto dealer apparently has no control over the 730,000 shares of Rentech stock he claims he acquired between November 2000 and July 2001. That's because he says the brokerage firm that handled those deals hasn't given him the stock certificates.
Haire, apparently dissatisfied with explanations why he hasn't received them, and his auto dealership, Ernie Haire Ford Inc., recently sued New York-based Shields & Co. on charges it failed to deliver the Rentech stock certificates. He claims breach of contract, negligence and breach of fiduciary duty.
Although it doesn't name him as a defendant, the complaint filed June 17 in the Hillsborough County Circuit Court mentions disbarred securities dealer Jacques Chrysochoos as a former Shields & Co. broker-agent who represented Haire and his company in various securities transactions. The lawsuit doesn't indicate whether Chrysochoos witnessed the Rentech transactions, however.
The plaintiffs retained Tampa attorney David Maney of Maney Damsker & Jones PA to plead the action. Maney was unavailable for comment, and Haire did not respond to a request for comment placed through the law firm. Nor did a representative from the brokerage respond to a request for comment.
The lawsuit claims Haire and his company purchased the 730,000 shares from William C. Morris, chairman of Dallas-based Dresser Engineering Co. Haire's attorney filed letters of agreement as evidence that Morris acknowledged receipt of the sale proceeds.
Haire and his company claim ownership in a Denver-based maker of gas-to-liquid technology.
Over the eight-month period, Haire and his company claim they paid from 70 cents to 80 cents a share for 730,000 shares valued then at about $570,250. At the close of markets on July 6, shares of Rentech fetched 98 cents a share on the American Stock Exchange. Shares once traded as high as $4 each in 2000 but now trade between 80 cents to $1 a share.
Over the past five years, the Denver company has yet to produce net profits. For the year ended Sept. 30, 2003, the company reported a net loss of $9.5 million, or 13 cents a share, on revenue of $8.5 million. For the six months ended March 31, the company reported a net loss of $3.6 million, or 4 cents a share, on revenue of $3.7 million.
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