Securities and Exchange Commission v. Nadel et al

Filing 1427

ORDER: The Receiver's Verified Motion to Authorize the Receiver to Retain a $100,000 Earnest Money Deposit (Doc. # 1419) is DENIED. The Receiver is directed to immediately return to Archer its $100,000 earnest money deposit and, when that has been completed, file a notice with this Court confirming that it has done so. Signed by Judge Virginia M. Hernandez Covington on 11/26/2019. (SGM)

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

Case No. 8:09-cv-87-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, LLC,
Relief Defendants.
______________________________/
ORDER
This matter comes before the Court pursuant to the
Receiver’s

Verified

Motion

to

Authorize

the

Receiver

to

Retain a $100,000 Earnest Money Deposit (Doc. # 1419), filed
on October 3, 2019. Archer Petroleum responded in opposition
on October 25, 2019. (Doc. # 1423). The Receiver filed a reply
on November 4, 2019. (Doc. # 1425). For the reasons given
below, the Motion is denied.

1

I.

Background
The story of how Quest Energy Management Group, Inc.

came to be involved in this receivership case is a long one.
For now it is sufficient to say that Quest was connected with
the

operators

of

a

fraudulent

scheme,

and

when

those

connections were unearthed, Burton W. Wiand (the “Receiver”)
was appointed as receiver for Quest to manage, martial, and
liquidate its assets for the benefit of the scheme’s creditors
and victims. Since May of 2013, the Receiver has managed and
operated Quest, a Texas oil and gas company, and “has long
sought to sell Quest to monetize its assets for the Quest
Estate and eventual distribution to creditors.” (Doc. # 1024;
Doc. # 1403 at 2, 3).
On July 24, 2019, the Receiver filed a motion requesting
this Court’s approval of a private sale of nearly all of
Quest’s assets to Archer Petroleum, Ltd. for $1 million. (Doc.
# 1403). At that point, Archer had already paid a $100,000
earnest money deposit to the Receiver, which is currently
being held in escrow. (Id. at 6; Doc. # 1419 at 2; Doc. #
1423 at 5).
On July 26, 2019, the Receiver published a notice of the
pending sale in a Texas newspaper, as required by 28 U.S.C.

2

§ 2001(b). (Doc. # 1404). And on August 8, 2019, the Receiver
notified the Court that 10 days had elapsed without the
Receiver obtaining a bona fide offer, as that term is defined
by statute. (Doc. # 1405).
On August 7, 2019, Archer demanded the return of its
earnest money deposit in writing and informed the Receiver
that it was cancelling the transaction. (Doc. # 1423-7). Two
days

later,

but

before

the

Court

was

informed

of

the

cancellation, this Court issued its Order approving the sale
of Quest. (Doc. # 1407).
A.

The Asset Purchase Agreement

The

parties’

transaction

was

governed

by

an

Asset

Purchase Agreement (the “APA”), which the parties executed on
or about May 8, 2019. (Doc. # 1419 at 4; Doc. # 1423 at 5).
The APA provided that it would become effective “as of thirty
days after [this Court] issues its final order approving the
sale

described

herein.”

(Doc.

#

1419-1

at

1).

Under

“Contingencies,” the APA stated as follows:
This Agreement is contingent upon (1) compliance
with the publication procedures required by 28
U.S.C. § 2001(b), and (2) the non-receipt 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

3

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] . . . and (2) Buyer’s quiet
enjoyment of all assets assigned to and assumed by
Buyer (collectively, the “Contingencies”).
(Id. at 2) (emphases added).
Importantly, the APA has a discrete section entitled
“Earnest Money Deposit,” in which Archer promised to pay
$100,000 as an earnest money deposit into an escrow account
that would be applied at closing to the purchase price. (Id.).
Under the “Earnest Money Deposit” section, the APA further
provides that:
(a)

Buyer hereby acknowledges and agrees that the
Earnest Money Deposit becomes nonrefundable on the
date the Court enters an Order . . . approving the
sale of the Assets to Buyer.

(b)

In the event that Seller cannot satisfy the
Contingencies within thirty (30) days from the date
of the issuance of the Order (the “Contingencies
Period”) or is otherwise unable to conclude the
transaction contemplated hereunder, Seller shall
return the Earnest Money Deposit to Buyer within
fifteen (15) business days following the expiration
of the Contingencies Period.

4

(Id.).
The APA states that it is governed by Texas law and that
this Court will resolve “all disputes and matters whatsoever
arising

under,

in

connection

with,

or

incident

to

this

Agreement[.]” (Id. at 6).
The Receiver now seeks to retain the $100,000 earnest
money

deposit

paid

by

Archer.

(Doc.

#

1419).

Archer,

naturally, wants the money returned. (Doc. # 1423). The Court
has reviewed the Receiver’s Motion, Archer’s response in
opposition, the Receiver’s reply, and the Motion is now ripe
for adjudication.
II.

Legal Authority
A federal court sitting in diversity must apply the forum

state’s choice of law rules. Klaxon Co. v. Stentor Elec. Mfg.
Co.,

313

“Florida

U.S.
courts

487,
are

496

(1941).

obligated

It
to

is

well-settled

enforce

that

choice-of-law

provisions unless a showing is made that the law of the chosen
forum contravenes strong public policy or that the clause is
otherwise unreasonable or unjust.” Gilman + Ciocia, Inc. v.
Wetherald, 885 So. 2d 900, 902 (Fla. 4th DCA 2004). No such
showing has been made. Accordingly, this Court will apply
Texas law, as contemplated in the APA, to the facts here.

5

Under

Texas

contract

law,

unambiguous

contracts

are

construed as a matter of law. Plains Expl. & Prod. Co. v.
Torch Energy Advisors Inc., 473 S.W.3d 296, 305 (Tex. 2015).
A contract is not ambiguous if its language can be given a
definite or certain meaning. Id. But if the contract is
subject

to

two

or

more

reasonable

interpretations,

the

contract is ambiguous. Id.
“In construing a written contract, [a court’s] primary
objective is to ascertain the parties’ true intentions as
expressed in the language they chose.” Id. The parties’ intent
must be taken from the agreement itself, and the agreement
must be enforced as written. Jacobson v. DP Partners Ltd.
P’ship, 245 S.W.3d 102, 106 (Tex. App. 2008). Courts consider
the entire contract, giving effect to all of its provisions
so that none are rendered meaningless. Plains Expl., 473
S.W.3d at 305; see also Coker v. Coker, 650 S.W.2d 391, 394
(Tex.

1983)

(explaining

that

courts

should

favor

an

interpretation that “affords some consequence to each part of
the [agreement]

so

that

none

of

the

provisions

will

be

rendered meaningless”). Courts also give words their plain,
common, or generally accepted meaning, unless the contract
shows that the parties used the words in a different sense.
Plains Expl., 473 S.W.3d at 305.

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III. Analysis
The APA provides that the Earnest Money Deposit “becomes
nonrefundable on the date the Court enters an Order . . .
approving the sale[.]” (Doc. # 1419-1 at 2). The obvious
implication of this language is that the parties intended
that the deposit be refundable until that event occurred. See
Huntley v. Enon Ltd. P’ship, 197 S.W.3d 844, 852 (Tex. App.
2006)(holding that where the clear and unambiguous terms of
the

contract

nonrefundable
condition

indicated
only

never

upon

that

earnest

assumption

occurred,

paying

of

a

party

money
loan,
was

became
and

that

entitled

to

refund). The APA is not ambiguous on this point – the only
reasonable interpretation of this language is that the escrow
deposit was refundable at any point until the date this Court
entered its Order. See Plains Expl., 473 S.W.3d at 305.
Here, Archer demanded a refund of its earnest money on
August 7, 2019 — two days before this Court entered its Order
approving the sale of Quest on August 9, 2019. Thus, under
the plain terms of the APA, Archer is entitled to a refund of
its entire $100,000 earnest money deposit.
The

Receiver

argues

that

the

deposit

“was

only

refundable if the Court specifically refused to approve the
transaction” or if the Receiver failed to close within 30

7

days of the entry of the Court’s Order. (Doc. # 1419 at 5;
Doc. # 1425 at 3). If this is what the Receiver contemplated,
he should have ensured that the APA said so. But it does not.
The APA does not state that the deposit is nonrefundable
“unless

and

until

the

Court

refuses

to

approve

the

transaction.” Instead, it expressly states that the deposit
“becomes nonrefundable on the date the Court enters an Order
. . . approving the sale of the Assets to Buyer.” (Doc. #
1419-1 at 2). And while the Court acknowledges that the APA
provides that the Receiver would return the earnest money
deposit if it was “unable to satisfy the Contingencies within
thirty (30) days” of the Court’s Order, this is a separate
provision

from

that

governing

what

makes

the

deposit

“nonrefundable.”
The Receiver contends that the APA does not allow, or
even contemplate, that Archer may cancel the agreement based
upon its subjective determination that the Receiver required
too much time to obtain the Court’s approval of the sale.
(Doc. # 1419 at 2, 11-12). Archer does not dispute that this
was indeed its reason for cancelling the transaction, but
argues that this Court entering its Order approving the sale
was a condition precedent to the APA becoming effective. (Doc.
# 1423 at 7-9). The Court agrees.

8

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). Texas
courts have construed contingent provisions in contracts as
conditions precedent, typically in the context of buyers
obtaining financing. See Knox v. Townes, 470 S.W.2d 290, 292
(Tex. Civ. App. 1971) (“Parties to a contract may agree that
it shall not become effective or binding until or unless some
specified

contingency

has

been

met.

Such

a

stipulation

creates a condition precedent, and no liability or obligation
can arise on the part of the promisor, and there can be no
breach of the contract by him, until the condition occurs or
is performed.” (citations omitted)); see also Watkins v.
Williamson, 869 S.W.2d 383, 385 (Tex. App. 1993) (concluding
that buyers did not obtain financing that was satisfactory to
them and thus the condition precedent was never met).
Here, under the plain terms of the APA, the parties
clearly intended that the APA was “contingent” on the Receiver
obtaining Court approval of the sale and that the APA would
not even become “effective” until 30 days after the Court
issued such Order. (Doc. # 1419-1 at 1, 2).
It is true that Archer’s unilateral cancellation of the
agreement was not one of the scenarios explicitly envisioned

9

by the APA. But this does not change the clear directive that
the escrow deposit was refundable up until this Court entered
its Order. See SAS Inst., Inc. v. Breitenfeld, 167 S.W.3d
840, 841 (Tex. 2005) (“The intent of a contract is not changed
simply because the circumstances do not precisely match the
scenarios

anticipated

by

the

contract.”).

Similarly,

the

Receiver argues that it alone had the “exclusive right” to
unilaterally terminate the contract, but the Court notes that
the APA gave the Receiver that “exclusive right” only “upon
receipt of a Bona Fide Offer,” and did not include similar
language

with

respect

to

the

additional

or

further

contingency of a Court order approving the transaction. (Doc.
# 1419-1 at 2).
Reading the APA’s provisions regarding its effective
date, contingencies, and the refundability of the earnest
money deposit together, and attempting to give effect to all
provisions of the agreement, it is clear that Archer had the
option

of

requesting

a

refund

of

the

money

and

had

no

obligation to perform under the contract until the condition
precedent – here, the Court’s approval of the sale – had taken
place. See Huntley, 197 S.W.3d at 852; see also Moayedi v.
Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1, 7 (Tex. 2014)
(explaining that courts must “examine and consider the entire

10

writing in an effort to harmonize and give effect to all the
provisions of the contract so that none will be rendered
meaningless” (emphases omitted)).
Pursuant to the APA, Archer is entitled to a refund of
its $100,000 earnest money deposit. The Receiver is directed
to

return

the

$100,000

earnest

money

deposit

to

Archer

forthwith and file a notice with this Court confirming that
it has done so.
Accordingly, it is now
ORDERED, ADJUDGED, and DECREED:
(1)

The Receiver’s Verified Motion to Authorize the Receiver
to Retain a $100,000 Earnest Money Deposit (Doc. # 1419)
is DENIED.

(2)

The Receiver is directed to immediately return to Archer
its $100,000 earnest money deposit and, when that has
been completed, file a notice with this Court confirming
that it has done so.
DONE and ORDERED in Chambers in Tampa, Florida, this

26th day of November, 2019.

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