United States District Court, D. Connecticut
PA REALTY GROUP, LLC, in capacity As Successor Agent under those Certain 12% Series A Senior Secured Convertible Promissory Notes, Plaintiff,
H. LEE HORNBECK, in capacity as Agent, Defendants.
MEMORANDUM OF DECISION ON CROSS-MOTIONS FOR PARTIAL
SUMMARY JUDGMENT [DKT. 33, 39]
Vanessa L. Bryant United States District Judge.
case involves a dispute over the rightful Agent for the
holders (the “Note Holders” or "Series
Holders") of the Stratex Oil and Gas Holding, Inc.
(“Stratex”) 12% Series A Senior Secured
Convertible Promissory Note (the “Notes” or
“Series A Notes”). Before the Court are the
parties' cross-motions for summary judgment. Plaintiff
filed a Motion for Partial Summary Judgment requesting the
Court rule on Count One of the First Amended Complaint and
Count One of Defendant's Counterclaim, which both seek
declaratory judgment under 28 U.S.C. § 2201 regarding
Defendant's role as Agent to Series A Note Holders. [Dkt.
33 (Pl.'s Mot. Summ. J.) at 1]. Defendant opposes this
motion and further submitted a Motion for Summary Judgment
seeking “judgment in his favor on the complaint and on
his counterclaim.” [Dkt. 39-1 (Def.'s Mem. Mot.
Summ. J.) at 9]. However, Defendant only addresses the issue
of revocation and does not address Plaintiff's Counts Two
through Four: unjust enrichment, accounting, and the
imposition of a constructive trust. The Court thus construes
his motion as one for partial summary judgment as well. For
the foregoing reasons, the Court GRANTS Defendant's
Motion for Summary Judgment and DENIES Plaintiff's
Partial Motion for Summary Judgment.
is a publicly traded energy company. [Dkt. 33-2 (Pl.'s L.
R. 56(a)(1) Stmt.) ¶ 1; Dkt. 37 (Def.'s L. R.
56(a)(2) Stmt.) ¶ 1]. Defendant H. Lee Hornbeck
(“Defendant” or “Hornbeck”) is an
individual holder of Notes in the original principal amount
of $105, 000 and was appointed in February 2014 as the Agent
for the Note Holders. See [Dkt. 40 (Def.'s L. R.
56(a)(1) Stmt.) ¶¶ 4, 7, 9; 44-1 (Pl.'s L. R.
56(a)(2) Stmt.) ¶¶ 4, 7, 9]. Plaintiff PA Realty
Group, LLC (“Plaintiff” or “PA
Realty”) is a limited liability company that purchased
Notes in the original principal amount of $250, 000, and it
purports to be the current Agent for the Note Holders after
having organized Defendant's removal as Agent.
See [Dkt. 40 ¶¶ 1, 9-10; Dkt. 44-1
¶¶ 1, 9-10; 33-3 (Apr. 17, 2016 Letter) at 6 of
PDF]. PA Realty is a limited liability company formed on
April 13, 2016, under Connecticut law whose sole member is PA
Realty Group, LLC (“Pennsylvania LLC”), a limited
liability company formed in 2008 under Pennsylvania law.
[Dkt. 40 ¶ 2; Dkt. 44-1 ¶ 2]. Yakov Plotnikov is
the managing member of the Pennsylvania LLC and the only
person authorized to speak on behalf of Plaintiff. [Dkt. 40
¶ 2; Dkt. 44-1 ¶ 2].
January 2014, Stratex issued a private placement memorandum
(“PPM”) summarizing its offer of up to $10
million worth of Units consisting of the Notes and Series A
Warrants convertible into common stock of the Company. [Dkt.
40 ¶ 4; Dkt. 44-1 ¶ 4]. The PPM included a
Subscription Agreement containing the statement that by
signing the Subscription Agreement each Note Holder
represented and warranted that the Unit, including the Notes,
are restricted securities and that each “is acquiring
the Unit(s) subscribed solely for the Subscriber's own
beneficial account, for investment purposes, and not with
view to, or for resale in connection with, any distribution
of the Units.” [Dkt. 10-2 (Mot. TRO Ex. 2, Funk Aff.
and Exs.) at 87 of PDF].
Notes Holders were to complete and submit to Stratex a
Subscription Agreement and purchase the Notes. See
generally, id. at 82-98. The Note submitted into
evidence provides that it is “one of a series of duly
authorized and issued promissory notes” designated as
Series A Notes with an aggregate principal face value up to a
maximum amount of $10, 000, 000. Id. at 125 of PDF.
Pursuant to the Note, the principal matured two years after
the closing on the Minimum ($2, 000, 000) occurs and that the
principal will be paid in one lump-sum payment on the
Maturity Date, while the interest rate is 12% per annum to be
paid quarterly in arrears. Id. 20-21, 125 of PDF. The
Note provides that payments made by the Company shall be made
to all Note Holders at the same time. Id. at 126 of
six months from the Original Issue Date, the Note Holder had
“the right, at the Note Holder's option, to convert
all or any portion of the Principal Amount hereof and any
accrued but unpaid interest thereon into shares of common
stock, par value $.01 per share, ” of Stratex.
Id. at 127 of PDF. This conversion would in function
lead to the reduction of the principal amount and/or accrued
interest of the Notes in exchange for certificates of common
stock. Id. at 127 of PDF. Upon any partial
conversion of a Note, Stratex was required to issue a
“new promissory note containing the same date and
provisions” of the original note “for the
principal balance of this Note and interest which shall not
have been converted or paid.” Id. at 128 of
PDF. There is no evidence on the record that any Note was
converted for Stratex stock.
Notes were secured by a Security Agreement, under which
Stratex pledged a first perfected security interest in its
assets to secure payment of the Notes and reiterated many of
the pertinent provisions of the Notes. Id. at 186,
et. seq., of PDF. Stratex was charged in the Note to
maintain the Note Register at its principal office in
Houston, Texas, reflecting the principal amount of the Notes
held by each Note Holder. Id. at 137 of PDF. In the
Note, Stratex agreed to execute the Security Agreement in
favor of the Agent for the benefit of the Note Holders.
Id. at 125 of PDF.
Notes appoint and the Security Agreement contemplate the
appointment of an Agent expressly and irrevocably authorized
to act on behalf of the Note Holders “to act or refrain
from acting” on matters designated to the Agent;
“[t]o distribute promptly to the Series Holders, if
required by the terms of the Notes, all written information,
requests, notices, payments, prepayments, documents and other
items received from the Company”; and to deliver to
Stratex any requests, demands, approvals, notices, or
consents of the Note Holders. Id. at 131, 179 of
PDF. The Note and the Security Agreement authorizes the Agent
to exercise on behalf of each Note Holder “all rights
and remedies of the Series Holders upon the occurrence of any
Event of Default and/or default specified in this Note or
applicable laws.” Id. at 130 of PDF; see
Id. at 179 (wherein the Security Agreement appoints the
Agent “for purposes of exercising any and all rights
and remedies of the Secured Parties hereunder”). The
Security Agreement identifies Hornbeck as Agent to the
Secured Parties (i.e. Series A Note Holders). [Dkt. 40 ¶
6; Dkt. 44-1 ¶ 6; Dkt. 10-2 at 170 of PDF].
Security Agreement, by which the Agent must abide,
also includes provisions about the methods for terminating
the Agent. Under the Appointment of Agent clause, the
“appointment shall continue until revoked in writing by
a Majority in Interest, at which time a Majority in Interest
shall appoint a new Agent.” Id.
“Majority in Interest” is defined as “at
any time of determination, the majority in interest (based on
then-outstanding principal amounts of Notes at the time of
determination) of Secured Parties.” Id. at 158
of PDF. The Agent may also resign, pursuant to Annex B to the
Security Agreement, “at any time by giving 30 days'
prior written notice (as provided in the Agreement) to the
Company and the Secured Parties.” Id. at 180
of PDF. “Such resignation shall take effect upon the
appointment of a successor Agent” so long as either (1)
the Secured Parties appoint a successor agent after notice of
resignation, or (2) if a successor appointment is not made
within 30 days “the Agent shall then appoint a
successor Agent who shall serve as Agent until such time. . .
February 20, 2014, a UCC financing statement was filed
listing Hornbeck as a Secured Party. [Dkt. 10-2 at 182 of
PDF]. The document does not bear his signature, although
there does not appear to be a signature requirement.
Plotnikov contends that this filing perfected Hornbeck's
security interest. [Dkt. 10-3 at 2 of PDF].
filed a Form 8-K on April 10, 2014, indicating that as of
this date Stratex raised $9, 987, 650 in gross proceeds
“in connection with the private offering of the Notes
and Warrants.” Id. at 127 of PDF; see
Dkt. 10-2 at 2 of PDF (“In that Offering, Stratex
raised $9, 987, 650”); Dkt. 10-3 at 3 of PDF (wherein
Plotnikov declared, “Based on my review of public
documents available at the Securities and Exchange
Commission, I understand that Stratex raised $9, 987, 650
from the Note Holders.”)]. The Form 8-K states that
“all outstanding principal under the Notes is due
payable on February 11, 2016.” [Dkt. 10-3 at 127 of
November 16, 2015, Hornbeck sent Series A Note Holders a
letter regarding Stratex's default on Series A and Series
B Notes. See Id. at 80 of PDF. The letter indicates
Stratex defaulted on payment of interest and explains the
company was in “extremely poor financial
position” with “no cash and very few assets of
value to repay this note.” Id. The letter also
states that Hornbeck and the Agent for Series B Notes
“sent notice of default and demand for payment”
in addition to “a notice of the sale of assets if we
the agents decide this is the best approach to get payments
to the Noteholders.” Id. Hornbeck notified the
Note Holders that “[i]n order to save these assets, pay
existing expenses, legal and accounting fees and determine if
it is feasible to try and recover a net $4 to $5 million in
the tax loss carryforward and whatever we can from the
producing wells the agents are levering a $500 per $100, 000
call on all Noteholders.” Id. “These
funds should immediately be sent by wire transfer to the
Washburn Law Firm attorney's trust account. . . .”
Id. at 80-81 of PDF.
April 17, 2016, Hornbeck received an email from Richard Gora,
PA Realty's attorney, notifying him of the following:
“YOUR APPOINTMENT AS AGENT OF THE NOTES HAS BEEN
REVOKED IN WRITING BY A MAJORITY IN INTEREST OF THE HOLDERS
OF THE NOTES. TO BE CLEAR, YOU HAVE BEEN REMOVED AS AGENT,
AND YOU NO LONGER HAVE ANY AUTHORITY AS AGENT UNDER THE
NOTES.” [Dkt. 10-4 (Mot. TRO Ex.4, Gora Decl. and Exs.)
at 7 of PDF]. The email does not include a note register or
disclose the Note Holders who voted for his termination. The
email also demands an accounting of all Stratex assets in his
possession, including a Chevy Tahoe under his counsel's
name, any funds called from the Note Holders, and documents
and communications relating to the Notes and Stratex.
Id. Plotnikov admits that he was involved with the
voting process. [Dkt. 40 ¶ 15; Dkt. 44-1 ¶ 15; Dkt.
40-2 (Def.'s L. R. 56(a)(1) Stmt. Ex. 1, Plotnikov Dep.)
into evidence are various signed Note Holders' Forms of
Vote for Agent Removal, voting for Hornbeck's removal.
See [Dkt. 10-3 at 85-120 of PDF. These Note Holders
have also submitted declarations stating under penalty of
perjury that they are Note Holders; that they are holders of
a specified principal balance amount of Notes; that their
Form of Vote for Agent Removal is true and accurate and bears
their signature; that they intended to remove Hornbeck as
Agent; and that they intended to replace him with PA Realty
as Successor Agent. See generally, [Dkt. 33-4 (Mot.
Summ. J. Ex. E, Note Holder Decls.)]. Plaintiff also
submitted a chart of Note Holders, their loan amounts, and
monthly accrued interest, dated September 30, 2015.
See [Dkt. 33-3 (Mot. Summ. J. Ex. ...