Securities and Exchange Commission v. Nadel et al

Filing 1425

REPLY to Response to Motion re 1419 Verified MOTION for miscellaneous relief, specifically to Authorize The Receiver to Retain a $100,000 Earnest Money Deposit Due to the Purchaser's Failure to Close the Court-Approved Sale of Quest Assets and in Response to 1423 Archer's Response in Opposition filed by Burton W. Wiand. (Perez, Jared)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.

CASE NO.: 8:09-cv-0087-T-33CPT

ARTHUR NADEL,
SCOOP CAPITAL, LLC,
SCOOP MANAGEMENT, INC.
Defendants,
SCOOP REAL ESTATE, L.P.
VALHALLA INVESTMENT PARTNERS, L.P.,
VALHALLA MANAGEMENT, INC.
VICTORY IRA FUND, LTD,
VICTORY FUND, LTD,
VIKING IRA FUND, LLC,
VIKING FUND, LLC, AND
VIKING MANAGEMENT,
Relief Defendants.

/

RECEIVER’S REPLY IN SUPPORT OF (DOC. 1419) HIS MOTION
TO AUTHORIZE THE RETENTION OF $100,000 EARNEST MONEY DEPOSIT
AND IN RESPONSE TO (DOC. 1423) ARCHER’S RESPONSE IN OPPOSITION
Burton W. Wiand, as receiver (the “Receiver”) for Quest Energy Management
Group, Inc. (“Quest”) submits this reply in response to the opposition (Doc. 1423) (the
“Opposition”) filed by Archer Petroleum (“Archer”) to the Receiver’s Verified Motion to
Authorize the Retention of a $100,000 Earnest Money Deposit (Doc. 1419) (the “Deposit”
and the “Motion”). The Receiver is also filing a contemporaneous declaration (the “Wiand

Decl.”) to address the factual inaccuracies in the affidavit of Drew Hudson (Doc. 1423-6)
(the “Hudson Aff.”), who is the President of Archer. 1
INTRODUCTION
After several months of good-faith negotiations, and just two-days prior to the Court’s
entry of an order (Doc. 1407) (the “Order”) approving the sale of the Quest Assets (as
defined in the Motion), Archer purported to cancel the Asset Purchase Agreement (“APA”)
by reneging on its deal with the Receiver and demanding a refund of the Deposit. In the
Opposition, Archer offers no clarification regarding its reasons for the attempted cancellation
of the transaction, and instead, simply reiterates that it took the Receiver an “unreasonable”
amount of time to seek approval of the sale with the Court. Without elaborating on how this
purported “delay” prejudiced Archer in any way or had a material effect on Archer’s ability
to close the deal, Archer instead argues that because the entirety of the APA was contingent
upon the Court entering an order approving the transaction, then Archer was free to seek its
Deposit back at any time prior to that point. Archer’s interpretation of the APA does not
comport with its terms, and Archer offers no authority entitling it to the return of the Deposit.
First, Archer’s argument ignores that the Deposit is for the Receivership’s benefit and
its contemplated purpose was to prevent Archer from doing exactly what it is now trying to
do: escape the terms of the deal it agreed to without providing adequate security to the
Receiver. If the Court were to accept Archer’s interpretation of the contingencies, it would
lead to absurd results that would render earnest-money deposits meaningless. Second, the
1

Cf. Lightsey v. Potter, 268 F. App’x 849, 852 (11th Cir. 2008) (“The district court did not
err in considering the declaration attached to the … reply brief.”); Bennett v. Publix
Supermarkets, Inc., 2012 WL 2358301, at *1 (M.D. Fla. June 20, 2012).

2

APA in no way contemplates that time “is of the essence,” and as a result, Archer’s purported
cancellation was ineffective. In any event, Archer has done nothing in its Opposition to
demonstrate that it was prejudiced by any delay. Simply put, Archer breached the terms of
the APA, and the Receiver is entitled to retain the Deposit.
ARGUMENT
I.

THE COURT’S ORDER APPROVING THE SALE WAS A CONDITION
PRECEDENT TO CLOSING; ARCHER HAD NO RIGHT TO TERMINATE
THE TRANSACTION OR SEEK THE RETURN OF THE DEPOSIT PRIOR
TO THE ENTRY OF THE ORDER.
Archer contends that it was not obligated to perform under the APA until the Court

entered its Order approving the transaction. While the Receiver concedes that Archer would
not be required to close the sale without the Court’s approval, Archer was nevertheless
required to pay the Deposit prior to entry of the Order, and the Deposit was only refundable
if the Court specifically refused to approve the transaction. Archer was not free to demand
the return of the Deposit prior to the Court’s entry of the Order because its purported
cancellation was ineffective, as a matter of law. Otherwise, the requirement of a Deposit
would be superfluous. Both the terms of the APA and relevant law support this conclusion.
A.

The Parties’ Actions Demonstrate That The Terms Of The APA Were
Applicable And In-Force Prior To The Court’s Order.

The APA, by its express terms, is contingent upon the Court’s entry of an order
approving the contemplated sale (among other things).

The question is whether that

contingency applies to the enforceability of the APA as a whole or whether it applies to the
parties’ specific obligations within the APA—namely, the obligation to close the transaction.
When read in conjunction with the other terms in the APA, the Court-approval contingency

3

should not be construed so narrowly as to vitiate the entire APA until the Court entered its
Order. “A condition precedent is an event that must happen or be performed before a right
can accrue to enforce an obligation.” Centex Corp. v. Dalton, 840 S.W.2d 952, 956 (Tex.
1992) 2 (citations omitted); see also RESTATEMENT (SECOND) OF CONTRACTS § 224
(1981) (“A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due.”). “A condition
precedent may be either a condition to the formation of a contract or to an obligation to
perform an existing agreement. Conditions may, therefore, relate either to the formation of
contracts or to liability under them.” Hohenberg Bros. Co. v. George E. Gibbons & Co., 537
S.W.2d 1, 3 (Tex. 1976) (citations omitted). If there is a condition precedent to the formation
of a contract, then no binding contract will arise until the specified condition has occurred or
been performed. On the other hand, if a term is a condition precedent to performance, the
lack of performance does not preclude the formation of a binding contract. See id.
When the provisions of the APA are read as a whole, it is clear that the parties
accepted that the terms of the contract were in force and applicable, even prior to the
occurrence of the contingencies. In other words, the contingencies applied to the parties’
obligations to perform under the contract, not to the contract’s enforceability as a whole. For
example, the APA provides that Archer was to deliver the Deposit “within three (3) days of
the execution of this Agreement by both parties hereto.” (See APA ¶ 4). Archer assented to
the terms of the APA not only by executing it, but further, by actually delivering the Deposit.
If the parties were to construe the condition precedent of Court approval as being applicable
2

The APA contains a Texas choice of law provision. See APA ¶ 19.

4

to enforceability of the contract, then logically, Archer would not have been obligated to
even deliver the Deposit in the first place until the Court entered its Order. But the parties’
performance suggests otherwise—by delivering the Deposit, Archer agreed that the terms of
the APA were in force at the time. The other terms of the APA further support such a
conclusion. Indeed, paragraph 20 of the APA provides:
20. Remedy. In the event that Seller receives a Bona Fide Offer or the Court
does not approve of the sale of the Assets, i.e., if the Contingencies are not
satisfied on or before the Closing Date, Buyer acknowledges and agrees that
its sole and exclusive remedy is to seek return of the Deposit from Seller.
Seller's sole and exclusive remedy for any breach of this contract by Buyer is
to keep the Deposit. Seller shall have no specific performance remedy. This
Agreement, when duly executed by the Parties, constitutes the express
waiver in writing of any other remedy, whether legal or equitable, that may
be available to the Buyer.
APA ¶ 20 (underline in original; italic emphasis added). Here, the parties agreed to certain
rights and waivers when the APA “is duly executed by the parties.” If the APA was not
effective until the Court’s approval of the transaction, then again, this provision would be
rendered meaningless. This was not and is not the parties’ intent.
B.

Archer Was Not Entitled To Terminate The APA At Its Option Prior To
The Court Entering An Order Approving The Transaction.

Archer further argues that because the sale was contingent upon Court approval, then
Archer was free to walk away from the deal at any point prior to the entry of the Court’s
Order. Archer bases its argument on the statement in the APA that “the Earnest Money
Deposit becomes nonrefundable on the date the Court enters an Order … approving the sale
of the Assets to Buyer.” (See APA, ¶ 4(a)). While Archer would like to isolate this
provision from the rest of the APA to afford the company an unfettered ability to terminate,
when read in conjunction with the other terms of the agreement, it is clear that Archer was

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not provided this right. See Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983) (each part of
contract should be given full effect and the court should “examine and consider the entire
writing in an effort to harmonize and give effect to all the provisions of the contract so that
none will be rendered meaningless); Guardian Tr. Co. v. Bauereisen, 121 S.W.2d 579, 583
(Tex. 1938) (“No one phrase, sentence or section [of a contract] should be isolated from its
setting and considered apart from the other provisions.”).
The APA contains a specifically-designated “Contingencies” paragraph, describing
the conditions precedent agreed-to by the parties. 3 The paragraph in its whole is as follows:
2. Contingencies. This Agreement is contingent upon (1) compliance with
the publication procedures required by 28 U.S.C. § 200l(b), and (2) the nonreceipt by Seller of a bona fide offer, under conditions prescribed by the
Court, as described in 28 U.S.C. § 2001(b) (a “Bona Fide Offer”). Buyer
understands and acknowledges that 28 U.S.C. § 2001(b) prohibits the Court’s
approval and confirmation of the transaction contemplated by this Agreement
if Seller receives a Bona Fide Offer. As such, upon receipt of a Bona Fide
Offer, Seller shall have the exclusive right to terminate this Agreement,
and Buyer’s sole and exclusive remedy for such termination is limited to the
return of its Deposit, as set forth below. If the Seller does not receive a Bona
Fide Offer after compliance with the publication procedures required by 28
U.S.C. § 2001 (b), this Agreement is further contingent upon Seller obtaining
an Order in substantially the form as Exhibit “B” attached hereto (the
“Order”) approving: (1) the sale of the Assets described in Exhibit “A” to
Buyer free and clear of all liens, claims, encumbrances, and restrictions as
provided for in the order of the United States District Court approving this
transaction and (2) Buyer’s quiet enjoyment of all assets assigned to and
assumed by Buyer (collectively, the “Contingencies”).
See APA ¶ 2 (emphasis added). Notably, the above paragraph is the only express provision
in the APA that permits Archer to terminate the transaction. Specifically, the APA allows
Archer to terminate the transaction only “upon receipt” of a Bona Fide Offer; it does not state
3

The Receiver interprets the parties’ use of the term “continency” to be in line with the
general understanding of a “condition precedent.”

6

that Archer can terminate the transaction “until” the receipt of a Bona Fide Offer. While the
APA does not similarly contain an express right to terminate relating to the Court’s approval
of the sale, this condition should be read similarly.

In other words, Archer’s right to

terminate the agreement would arise only if the Court specifically declined to enter an order
approving the sale. Archer’s ability to terminate does not exist “until” Court approval.
The fact that the APA states that the Deposit becomes “nonrefundable” upon the
Court entering an order approving the sale is not inapposite. Indeed, there are a number of
conditions in the APA which, if they occurred, permitted the Deposit to be “refunded” to
Archer (e.g., if a Bona Fide Offer was received or if the Court declined to approve of the
sale). However, these contingencies were for the benefit of both Archer and the Receiver, as
neither would be able to close the transaction if either of these contingencies occurred.
Archer—by attempting to terminate the agreement just two-days shy of the Court entering its
Order—cannot now take advantage of a contingency meant to benefit both parties as an
excuse for itself to breach. See Dorsett v. Cross, 106 S.W.3d 213, 220 (Tex. App. 2003) (“A
party to a contract may not set up his own breach to relieve himself of his contractual
obligations; nor may he set up his breach as the basis for rescission of the contract or as the
ground for his own recovery.”).
II.

ARCHER HAS NOT DEMONSTRATED THAT IT WAS PREJUDICED BY
THE AMOUNT OF TIME IT TOOK TO APPROVE THE SALE. 4
While Archer devotes a large portion of its Opposition to the amount of time it took

the Receiver to file the Motion, nowhere does Archer state how this purported delay—even if
4

The Receiver believes he has fully described in his Motion how the time it took for him to
seek the Court’s approval of the sale was reasonable and will not rehash those facts here.

7

“unreasonable”—had any material effect on the transaction as a whole or how Archer was
prejudiced in any way by the timing of events. Archer intimates (though does not expressly
state) that the reason for its attempted cancellation of the transaction was based on the fact
that Quest’s production declined in June 2019 (see Hudson Aff. ¶ 10), but as explained in the
Wiand Declaration, the decline was due to a clerical issue by the Texas Railroad
Commission, and the issue was quickly resolved. Normal production resumed the following
month. See Wiand Decl. ¶ 14 & Exs. C, D. Archer raised several other excuses in the
Hudson Affidavit, including that the Receiver was purportedly preoccupied by another
receivership and that Archer did not understand the nature of the claims against Quest’s
assets or the complexities of resolving them, but these pretexts are without merit. See
generally Wiand Decl. That Hudson may have come to view the transaction as a “bad-deal”
or even just more complicated than he expected does not excuse Archer’s performance. See
Grayson v. Grayson Armature Large Motor Div., Inc., No. 14-09-00748-CV, 2010 WL
2361432, at *5 (Tex. App. June 15, 2010) (“[A] party cannot escape contract liability by
claiming subjective impossibility; subjective impossibility neither prevents the formation of
the contract nor discharges a duty created by a contract.”); see also Wiand Decl. ¶ 15
(describing effect on Receivership of Archer’s conduct). Given these circumstances, Archer
is not entitled to a refund of the Deposit under principles of either law or equity.
CONCLUSION
For the reasons stated above and in the Receiver’s Motion, this Court should enter an
order permitting the Receiver to retain the $100,000 earnest-money deposit.

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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on November 4, 2019, I electronically filed the foregoing with
the Clerk of the Court by using the CM/ECF system. I have also served the foregoing by mail
and email on the following non-CM/ECF participants:
Edwin P. Krieger, Esq.
[e-mail]
WORMINGTON & BOLLINGER
212 E. Virginia Street
McKinney, Texas 75069
Phone: [phone]
Counsel for Archer Petroleum Ltd.

s/ Jared J. Perez
Jared J. Perez, FBN 0085192
[e-mail]
WIAND GUERRA KING P.A.
5505 W. Gray Street
Tampa, FL 33609
Tel: [phone]
Fax: [phone]
Attorney for the Receiver, Burton W. Wiand