Chesterton Capital LLC v. Holley et al
District Judge Leo T. Sorokin: FINDINGS OF FACT AND CONCLUSIONS OF LAW entered. (Simeone, Maria)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
BYRON L. HOLLEY, JOHN C. LOUDON, )
and LEGACY POINT CAPITAL LLC,
JOHN C. LOUDON and LEGACY POINT )
Third Party Plaintiffs,
Third Party Defendant.
CHESTERTON CAPITAL, LLC,
Civil No. 16-10848-LTS
FINDINGS OF FACT AND CONCLUSIONS OF LAW
December 8, 2017
Before the Court are the claims remaining in this action following resolution of pretrial
motions and the Court’s Order of Default against Defendant Byron Holley (“Holley”) (Doc. No.
182). These claims include (1) Plaintiff Chesterton Capital LLC’s (“Chesterton”) claims against
Defendants John Loudon (“Loudon”) and Legacy Point Capital LLC (“Legacy Point Capital”)
for fraud and violation of Mass. Gen. Laws Ch. 93A (“Chapter 93A”) 1; (2) Loudon and Legacy
Point Capital’s counterclaims against Chesterton for fraud and negligence; (3) Loudon and
Legacy Point Capital’s third party claims against Anne Brensley (“Brensley”) for fraud and
negligence; and (4) Brensley’s cross-claims against Loudon and Holley for fraud and violation of
Chapter 93A. Following a bench trial on these claims, the Court “find[s] facts specially and
state[s] its conclusions of law separately” herein as required by Federal Rule of Civil Procedure
52(a). Further, the Court awards damages on these claims as well as on Chesterton’s claims
against Holley as explained herein.
FINDINGS OF FACT
Loudon, Holley, and Legacy Point Capital
The Defendants in this case are Loudon, Holley, and Legacy Point Capital, a limited
liability company that Loudon and Holley jointly own and manage.
Defendant Loudon is a sophisticated businessman and an accountant by trade. After
graduating from Western New England University, Loudon worked for Coopers & Lybrand in
Springfield, Massachusetts for three years as an associate, preparing tax returns and conducting
due diligence on projects. He subsequently worked at his mother’s law practice for a year and a
half, as a controller of a mechanical company in the Atlanta, Georgia area for four and a half
years, and as Chief Financial Officer for a master plan community in Hawaii for five years. In
2003, he returned to Atlanta and began working on real estate deals for individual clients. He
Counsel for Legacy Point Capital conceded at the Final Pretrial Conference that Legacy Point Capital was
responsible for a judgment entered against Holley because Holley undertook the actions at issue in this case in
furtherance of, and in the course of his position as Managing Member of, Legacy Point Capital. The Court
accordingly enters judgment against Legacy Point Capital on Chesterton’s claims. However, in an abundance of
caution, the Court here separately assesses the merits of Chesterton’s claims against Legacy Point Capital.
remains in this line of work. Loudon has passed the Certified Public Accountant exam but has
not pursued the designation further. In his career, Loudon has participated in at least a dozen
deals, in connection with which he has at various times retained counsel, negotiated contracts,
and supervised other people.
In or around 2009, Loudon met Defendant Holley through a mutual friend in Atlanta.
Holley is an investment professional residing in Lexington, Kentucky. Until around 2007,
Holley had been the manager of the Lexington branch of A.G. Edwards & Sons, a brokerage
firm that during the financial crisis of 2007-2008 merged into Wachovia and eventually was
acquired by Wells Fargo & Co. Holley had been employed by A.G. Edwards for approximately
ten years. Loudon understood: that Holley had been registered with the Financial Industry
Regulatory Authority (FINRA) as a broker and with the Securities and Exchange Commission
(SEC) as an investment adviser; that a number of investors had brought complaints through
FINRA against Holley related to representations that he had made about investments; and that
Holley no longer retained these registrations. Loudon discussed these FINRA disputes with
Holley in the course of becoming business partners in 2009. In 2010, Holley and Loudon
founded Silverstone Capital, through which they unsuccessfully sought to finance film projects.
Also around this time, Loudon loaned Holley $45,000. Loudon received no security for this
loan. Loudon understood from Holley that Holley needed the funds for personal expenses and
that Holley had “lost everything” in his divorce.
In March 2012, Holley and Loudon formed Legacy Point Capital, an investment banking
and advisory firm. Loudon fronted approximately $100,000 of his own funds and obtained a
$10,000 loan from a friend to pay for start-up costs and temporary office space. Holley did not
contribute any assets toward the founding of Legacy Point Capital. Nonetheless, Holley drew
monthly allowances from Legacy Point Capital.
From Legacy Point Capital’s inception in 2012, Holley and Loudon have been its sole
members and shareholders. They hold equal ownership interests in the business. Legacy Point
Capital holds itself out as having raised over a billion dollars, based broadly on Loudon and
Holley’s combined deal experiences. However, Legacy Point Capital has generated its modest
income mostly through the sale of life insurance policies. It has never reported a profit. While
Legacy Point Capital has at times engaged individuals for marketing and information technology
services, it has never had employees. Despite generating revenue, it has never filed any income
tax returns or produced K-1s to Loudon and Holley.
Together in August 2012, Loudon and Holley formed Legacy Point Entertainment LLC
(“Legacy Point Entertainment”) with the specific purpose of financing film projects. They are
the sole members and equal shareholders of that entity as well. While Loudon and Holley at
times transacted business under the name Legacy Point Entertainment, Loudon and Legacy Point
Capital acknowledged at trial that Legacy Point Entertainment acted on behalf of, and in
furtherance of the business of, Legacy Point Capital in the course of the events giving rise to the
lawsuit before the Court.
The “Get It While You Can” Project
In 2012, film producers Robert Katz and Ron Terry (the “Producers”) engaged Legacy
Point Capital to obtain financing for the production of a film about the legendary singer Janis
Joplin, which was to have been titled “Get It While You Can.” Legacy Point Capital agreed to
raise $10 million of equity funding for the $20 million film budget. In order to raise the funds,
Legacy Point Capital prepared marketing materials describing the investment opportunity and
details about the planned film. On or around June 30, 2012, Legacy Point Capital entered into a
Feature Film Letter of Intent with the Producers. Doc. No. 165, ¶ 6-8.
As an initial step, Loudon and Holley sought the help of someone with experience in the
film industry who could act as a financial advisor and conduct diligence on the film project.
Holley located Third Party Defendant Brensley from an internet search. Brensley was at that
time Managing Member of Boston Financial Trust Advisors (“BFT”). She agreed to act as a
broker in Legacy Point Capital’s search for investors. 2 At no time was Brensley a member of
Legacy Point Capital or a partner of Holley or Loudon.
Between August and October 2012, the parties failed to locate investors to provide any of
the $10 million of equity funding for the film. GIWYC soon faced pre-production costs and
certain immediate expenditures required for the film project to remain viable. GIWYC engaged
Legacy Point Capital and Brensley to secure $1.2 million in interim financing, for which Legacy
Point Capital and Brensley would be entitled to a $60,000 broker fee. In September 2012,
Brensley approached John P. Walsh, the sole principal and owner of Chesterton, about providing
a $1.2 million bridge loan to the film project. Walsh, the president of a chain of beauty spas,
founded Chesterton in 2008 to make investments and loans to real estate developers and other
Walsh spoke with the Producers about the project by early October 2012. The Producers
reported that they had raised $10 million in equity for the film and that they were pursuing
investors interested in providing an additional $10 million. They offered as collateral for a loan
In August 2012, Legacy Point Capital, BFT, and the Producers, under the entity named “Get It While You Can
LLC” (herein, “GIWYC”), entered into a Co-Financing Services Agreement, under which Legacy Point Capital and
BFT were entitled to (1) “[a]n amount equal to five and one half percent (5.5%) of the Financing raised” by Legacy
Point Capital and BFT and (2) “5% of [GIWYC’s] ‘Net Proceeds’ from the Picture in perpetuity […] multiplied by
the same percentage as [Legacy Point Capital and BFT’s] portion of the Financing[.]” Ex. 13. No payments were
ever made pursuant to the Co-Financing Services Agreement.
from Chesterton primarily tax credits from the state of Georgia and an assignment and copyright
mortgage of the screenplay. To Walsh, the collateral was of insufficient value to cover the loan
principal and accrued interest for the proposed bridge loan. Thus, Walsh told the Producers that
Chesterton would require a personal guaranty of the loan. He specified that the guarantors
should have personal assets of at least two to three times the loan’s value. The Producers told
Walsh that they could not meet his financial requirements for guarantying the loan. From
Chesterton’s perspective, the proposed loan deal was over.
Holley, Loudon, and Brensley had been aware that Chesterton would require a personal
guaranty for its loan but initially had believed that the Producers would provide it. Katz
informed Holley otherwise and on October 7, 2012 urged by email, “Since you’re [sic] position
in the film is solidified via this interim investment and it will be paid off BEFORE the picture
goes into production, you should have no issue with guaranteeing it.” Ex. 18. Loudon and
Holley initially responded that they did not consider providing a guaranty to be in their best
Brensley next initiated a conference call between Walsh and Loudon and Holley. Walsh
testified at trial that Loudon and Holley expressed their confidence in the film and pointed to the
success of a biopic of the singer Johnny Cash, stressing that, whereas Cash appealed mainly to
American fans, Joplin captivated audiences both in and outside of the United States. Loudon and
Holley also told Walsh that they were in discussions with two potential investors about providing
the remaining $10 million of equity financing. Walsh commented that, since they were so
confident of the film’s success, Loudon and Holley should be willing to personally guaranty a
loan. He also conveyed to them that he typically requires guarantors to have a net worth of at
least two to three times the loan’s value. 3 Loudon and Holley told Walsh that they would discuss
the guaranty and get back to him.
In subsequent conversation with Loudon and Holley, Brensley emphasized favorable
findings from her due diligence of the film. 4 Loudon and Holley agreed that they would
personally guaranty a $1.2 million loan from Chesterton. Walsh instructed Brensley to have
Loudon and Holley provide personal financial statements and attestations about any claims
against them for his diligence purposes.
Communications with Chesterton
Attorney William Moriarty represented Chesterton in negotiations of the deal documents.
Brensley acted as an intermediary between Moriarty and GIWYC’s attorney, Richard Garzilli.
All communications that Loudon and Holley had with Chesterton flowed through Brensley. Two
concurrent exchanges that occurred between October 9 and October 11, 2012 are relevant to the
claims in this case. First, the parties traded drafts of the deal documents memorializing the
transaction, including the guaranty that Holley and Loudon ultimately signed. At the same time,
Holley and Loudon compiled and sent Chesterton personal financial information as proof of their
ability to perform under the guaranty.
Signing of Guaranty
Attorney Moriarty drafted the documents that became the Production Loan Deal
Memorandum (the “Deal Memo”), the Secured Promissory Note (the “Note”), and the Personal
Loudon denied at trial having been notified of any amount of combined personal assets that Chesterton required as
assurance for a loan guaranty. However, the Court credits Walsh’s testimony that he did in fact communicate to
both the Producers and the Defendants his conditions for agreeing to invest in the film project, especially in light of
testimony from Moriarty and Brensley corroborating Walsh’s approach that a guaranty should be supported by
personal assets of two to three times the loan amount. See also infra n.8.
At trial, Loudon alleged that, in this conversation, Brensley also represented to Loudon and Holley that she would
assume 50% responsibility for repayment of the guaranty in the event of default. The Court rejects Loudon’s
professed understanding of Brensley’s position in the transaction. He has offered no evidence supporting a finding
that Brensley agreed specifically to assume 50% of the guaranty obligation, and his testimony was incredible.
Guaranty of Payment (the “Guaranty”). On October 9 at 6:05 p.m., Moriarty circulated “final
versions of the documents for signature” in PDF format to Garzilli and Brensley. Ex. 19.
Brensley forwarded these documents to Loudon and Holley at 7:14 p.m., noting: “The personal
guaranty definitely needs to be changed in some parts, but I leave it to you guys to let me know
what those changes will be….” Ex. 20. She followed this email with another at 8:16 p.m. asking
Loudon and Holley to confirm receipt of the documents. Id.
Holley and Loudon objected to the terms of the Guaranty, under which Chesterton would
retain the loan collateral upon seeking repayment from them following a default. To this end,
Brensley and Garzilli attempted to negotiate a side letter agreement (the “Side Letter”) between
GIWYC and Legacy Point Entertainment, “[i]n consideration for Legacy Point Entertainment
[…] entering the Personal Guaranty of Payment[,]” under which Legacy Point Entertainment
would have assumed Chesterton’s rights to the collateral in the event that Chesterton exercised
its rights under the Guaranty. Ex. 88.
Moriarty and Garzilli subsequently spoke about certain changes to the documents.
Following that conversation, Moriarty emailed Garzilli and Brensley at 5:34 p.m. on October 10
with updated documents, noting “no change” with respect to the Guaranty. Ex. 27. At 6:40 p.m.
on the evening of October 10, Brensley circulated to Loudon and Holley the updated versions of
the Deal Memo and the Guaranty in PDF format and noted that the Producers were signing the
Side Letter. Ex. 31. At 6:44 p.m., Brensley emailed them again, writing:
I just wanted to quickly acknowledge our agreement today that I will be taking on an
obligation to participate in the repayment to John Walsh upon default. It is my intention
to enter into an express agreement with you both collectively that will state that intent no
later than Friday, October 12, 2012.
Meanwhile, Loudon and Holley asked Brensley to propose additional language to the
Guaranty that would grant them rights to the loan collateral in the event that Chesterton
exercised its rights under the Guaranty. Brensley converted the PDF version of Moriarty’s draft
Guaranty into a Word version and created a new draft reflecting Loudon and Holley’s
preferences. She added to Section 2 (“Rights of Lender in Event of Default”) language that she
borrowed from Garzilli’s draft of the Side Letter:
In the event that Lender exercises the Guaranty for repayment of the Loan, Guarantor
shall assume all of the rights of Lender under the Deal Memo, the Security Agreement
and Copyright Mortgage, dated as of October 9, 2012 and the Security Agreement for
Tax Credits, dated as of October 9, 2012, including any rights of indemnification under
such Agreement that Lender may have.
Ex. 33. She also changed the party name from Legacy Point Capital to Legacy Point
Entertainment. In this revised guaranty (the “Loudon Guaranty”), Brensley inadvertently deleted
a line from Section 1 of Moriarty’s original draft. She retained the form of the signature pages
from the initial draft, such that one page held signature blocks for Holley and Loudon and the
next page held corresponding notary blocks. Brensley sent the Loudon Guaranty in Word format
to Loudon and Holley at 7:49 p.m. on October 10. Id. Holley and Loudon signed and returned
the Loudon Guaranty but did not have it notarized. Ex. 35.
At 8:05 that evening, Katz sent Garzilli, Brensley, and Moriarty signed copies of the Deal
Memo, the Note, and the Side Letter, as well as documents related to the security for the loan.
Ex. 88. Brensley then proposed the signed Loudon Guaranty to Moriarty, Walsh, and Walsh’s
son, John Walsh, Jr., by email at 9:56 p.m., noting:
VERY IMPORTANT, you will notice in section 2 that there is added wording borrowed
from the separate letter between the Producers and the Guarantors. The Guarantors did
not want to cause any waves and it was explained to them that John was going to
acknowledge that very letter and had actually reviewed it all ready [sic], but they felt
more comfortable having the language in the letter as well as in the Personal Guaranty.
IF this is an issue for some reason, please let us know and they will sign without the
Chesterton rejected Loudon and Holley’s bid for rights to the collateral in the event that
Chesterton called on the guaranty. Walsh further indicated to Brensley that Chesterton would
not enter the deal if GIWYC and Legacy Point Entertainment executed the Side Letter. 5
Moriarty informed Brensley by phone that Chesterton would not countersign the Loudon
Guaranty. He instructed Brensley by email on October 11 at 12:11 p.m., “Please have the
Guaranty re-executed in the Guaranty’s original form without the additional language.” Ex. 37.
Brensley communicated Chesterton’s position to Loudon and Holley and relayed that
they needed to sign the original version of the Guaranty. 6 At 12:20 p.m. that day, Loudon
emailed Holley and explained:
Byron, we have to do our Personal Guarantee over with a Notary. I’ve modified and
place [sic] you on a page and me on another.
I’ll have done today and sent back to Anne.
Ex. 89. Immediately after sending that email, Loudon sent Holley a Word version of the
Guaranty from which he had removed the collaterals rights from Section 2 of the Loudon
Guaranty. Ex. 90. This new version (herein, the “Chesterton Guaranty”) was substantially
identical to Moriarty’s original version, with three exceptions. First, like the Loudon Guaranty,
Despite not producing a countersigned version of the Side Letter at trial, Loudon testified that he and Holley
executed the Side Letter and understood the Side Letter to have gone into effect. He further insisted that Brensley
had never told them that Walsh opposed the Side Letter. However, the Court credits the testimony from Brensley
and Walsh and finds that the Defendants were aware that Walsh would not recognize the Side Letter as part of the
loan transaction. The Court further finds that the Side Letter was never executed.
Loudon testified at trial that he did not remember Brensley telling Loudon and Holley that Chesterton rejected the
new language, but that there was “probably a call or conversation” on the morning of October 11 about the Guaranty
signatures needing to be notarized. The Court rejects Loudon’s testimony as incredible.
the Chesterton Guaranty referenced Legacy Point Entertainment rather than Legacy Point
Capital. Second, the Chesterton Guaranty omitted the same line from Section 1 that the Loudon
Guaranty inadvertently had omitted (confirming that Loudon modified the only Word version of
the Guaranty in his possession—the Loudon Guaranty—rather than inadvertently selecting the
original draft to modify as he testified at trial). Third, Loudon had modified the signature pages
to the Chesterton Guaranty so that Holley’s signature block and corresponding notary block
appeared on one page, while Loudon’s signature block and notary block appeared on the next.
Id. Holley replied at 12:52 p.m., “Ok. Will do shortly.” Ex. 91.
Holley signed and notarized the Chesterton Guaranty and transmitted it to Brensley
through a personal financial advisor at 2:35 p.m. Ex. 49. Brensley forwarded Holley’s signature
to the Chesterton Guaranty to Walsh at 2:57 p.m. Id. Walsh in turn forwarded it to Moriarty,
who notified Brensley at 3:52 p.m. that the notarization was illegible. Ex. 44. Brensley alerted
Holley, who at 5:11 p.m. returned his signature page with the notary’s seal highlighted. Ex. 94.
Meanwhile, Loudon signed and notarized the Chesterton Guaranty signature page and sent it to
Brensley at 3:35 p.m. Ex. 50. Brensley forwarded Loudon’s page to Moriarty at 4:25 p.m. Id.
Moriarty and Walsh then confirmed that Chesterton would proceed with the loan.
Personal Financial Representations
While the parties coordinated the transaction documents, Loudon and Holley compiled
documentation for Walsh of their financial ability to provide the Guaranty. For his part, Loudon
provided a personal financial statement to Brensley at 6:22 p.m. on October 10. His statement
showed a total net worth of $626,279. Ex. 28. Brensley sent the statement to Walsh and
Moriarty at 6:27 p.m. Id. At 6:28 p.m., she forwarded to Walsh and Moriarty an attestation from
Loudon reading, “This email is to attest that I have no liens, encumbrances, bankruptcy or
criminal actions against me.” Ex. 29.
Earlier that afternoon at 1:14 p.m., Holley emailed to Brensley a “financial statement
letter” that purported to summarize his assets as of that date. The letter stated:
Below is a synopsis of my current assets:
Securities portfolio, apporixmately [sic] $3 million
Personal assets, approximately $100 thousand
Residential assets, approximately $400 thousand
Liabilities, approximately $40, [sic] thousand.
Ex. 25. Brensley forwarded this letter to Walsh, who replied that he would need to see a more
detailed report of Holley’s assets. Later that afternoon, at 4:54 p.m., Holley emailed Brensley an
“account screenshot” bearing the Wells Fargo Advisors LLC corporate logo and boilerplate
disclosures. Ex. 26. The screenshot purported to be page 1 of 7 of an account statement with
line-item cash and securities amounts. It represented that Holley’s account held total securities
of $2,964,598.33 and a total account value of $3,029,724.12. At 5:57 p.m., Holley provided to
Brensley an “attestment” that stated, “Per our conversation, I have never declared bankruptcy,
don’t have any personal liens, or any criminal or civil lawsuits.” Ex. 28. Brensley forwarded the
attestation and account screenshot to Walsh at 6:14 p.m. Id.
Holley’s account screenshot bore no resemblance to his actual financial situation.
Moreover, Loudon knew or should have known that a truthful depiction of Holley’s assets would
not assure Chesterton that Holley and Loudon could repay Chesterton’s loan in the event that
GIWYC defaulted. By October 2012, Loudon was well aware that Holley had no substantial
assets or other sources of income. Holley by then had divulged that his divorce from his ex-wife
had left him essentially broke. The business partnership was not profitable. Holley had neither
repaid any amounts of the $45,000 personal loan from Loudon nor contributed his own assets to
their business. Nonetheless, Loudon claims that he did nothing to inquire into the financial
statement that Holley submitted or the reason for Walsh’s acceptance thereof.
Chesterton disbursed the loan funds to GIWYC on October 13, 2012 by wire payment of
$1.2 million to Brensley, who acted as escrow agent and distributed the funds to GIWYC and
Legacy Point Capital. Chesterton did this only after receiving agreement in writing to the
Chesterton Guaranty form and the financial statements from Loudon and Holley.
In February 2013, Holley and Loudon (both on behalf of Legacy Point Capital) entered
into a Venture Agreement with Brensley’s new company, BFT Advisors, LLC. The Venture
Agreement envisioned cooperation between the parties “to finance an on-going slate of feature
films and/or structure the financing for entertainment projects secured through the joint efforts of
the Parties and to direct all film related projects that either party anticipates participation in, into
the collaboration.” Ex. 59. However, the parties undertook no subsequent film financing deals
together under the Venture Agreement. Additionally, at no time following the close of the
Chesterton loan did Brensley, Loudon, or Holley pursue the “express agreement” for Brensley to
participate in any obligation to repay the Chesterton loan that Brensley’s October 10, 2012 email
The Deal Memo provided for GIWYC to repay the loan’s principal and interest premium
no later than April 9, 2013. Ex. 88. However, GIWYC exercised its right under Deal Memo
Section 6.1 to extend the due date for an additional 180 days, subject to an additional 2.5%
interest premium on the loan’s outstanding principal for every 30-day period of extension (the
“First Extension”). During the First Extension, GIWYC encountered trouble with retaining the
rights to Joplin’s music. Chesterton reluctantly loaned an additional $500,000 to GIWYC in July
2013 in an effort to secure the music rights for filming. This loan had a repayment date of
October 15, 2013. Katz personally guaranteed this loan. Brensley facilitated the loan, received a
broker fee of $25,000 from Chesterton, and again served as escrow agent upon disbursement.
Loudon and Holley declined to participate in the follow-on loan. Ex. 63.
In October 2013, when the First Extension expired, GIWYC had not repaid Chesterton.
Walsh asked Brensley, as the broker, to send notices of default to the principals of GIWYC and
Legacy Point Capital. Ex. 100. Chesterton subsequently extended the deadline on both the $1.2
million bridge loan and the $500,000 follow-on loan until December 15, 2013 (the “Second
Extension”). When the loans had not been repaid on December 15, Moriarty mailed formal
notices of GIWYC’s default to Loudon and Holley on January 2, 2014. Ex. 65. Notably, in
response neither Loudon nor Holley asserted any right to the collateral for the underlying loan
nor suggested that Brensley bore an obligation to share in the repayment of the Guaranty.
Chesterton then extended the repayment deadline one last time, to June 1, 2014 (the “Third
Despite the follow-on loan and the numerous deadline extensions, neither GIWYC nor
Legacy Point Capital raised any of the $10 million required to produce the film. GIWYC
defaulted on the loans on June 1, 2014. Moriarty mailed Holley and Loudon another formal
notice of default and demand for payment on June 24, 2014. Ex. 68. Again, neither Loudon nor
Holley asserted any right to the collateral or claimed that Brensley bore an obligation to share in
Chesterton sued GIWYC on the Deal Memo in state court and recovered a judgment
against GIWYC of $5,208,972.87. GIWYC has no funds with which to pay this judgment. In
separate litigation, Chesterton also obtained a judgment against Katz under his guaranty of the
Holding an uncollectable judgment against GIWYC, Chesterton brought suit on the
Guaranty in state court, alleging that Loudon and Holley breached that agreement as well as the
attendant covenant of good faith and fair dealing. Loudon and Holley answered and asserted
counterclaims for breach of the covenant of good faith and fair dealing, fraud inducing them to
enter the Guaranty, and violation of Chapter 93A. Loudon and Holley also filed a third party
complaint against Brensley for breach of contract, indemnification, breach of fiduciary duty,
negligence, and fraud. In their third party complaint, Loudon and Holley attached the Chesterton
Guaranty as the version of the Guaranty that they had entered into with Chesterton. In response
to the third party complaint, Brensley asserted claims of fraud and violation of Chapter 93A
against Loudon and Holley. That suit is pending in the Suffolk Superior Court Department of
the Massachusetts Trial Court. Doc. No. 1 at 9. At some point several months into those
proceedings, Holley and Loudon backtracked on their asserted Guaranty version and claimed
that Brensley switched the Guaranty version that Chesterton received without their knowledge.
In an order on a summary judgment motion issued in January 2, 2017, the Superior Court found
that Loudon and Holley were “bound by the admissions and allegations contained in their answer
and third-party complaint where the defendants admit executing the [Chesterton Guaranty].”
Doc. No. 122-6 at 8.
Based on information produced during discovery in the state court litigation—
specifically, information showing that the financial representations and account statement
submitted by Holley were fraudulent—Chesterton separately brought this action in federal court
alleging that Defendants engaged in unfair and/or deceptive acts and practices in violation of
Chapter 93A and made misrepresentations of material fact about their financial wherewithal in
order to induce Chesterton to invest in the GIWYC project. Consistent with the counterclaims
and third party claims in the state court litigation, Loudon and Legacy asserted claims against
Chesterton and Brensley pertaining to Brensley’s role in the GIWYC project on January 2, 2017.
Notwithstanding the estoppel in state court, Loudon and Legacy Point Capital again took the
position that Brensley had switched the version of the Guaranty that Loudon and Holley had
signed, Doc. No. 40 at 4, and pressed this position continually. Brensley brought cross-claims
against Loudon and Holley.
Prior to trial in this action, the Court granted summary judgment for Brensley on Loudon
and Legacy Point Capital’s third party claims for fraud based on their Guaranty-switching
theory, breach of fiduciary duty, breach of contract, and indemnification. The Court also entered
judgment for Chesterton on Loudon and Legacy Point Capital’s claims asserting vicarious
liability for Brensley’s alleged Guaranty-switching and breach of fiduciary duty. At trial, the
Court allowed Loudon and Legacy Point Capital’s motion for dismissal of their own Chapter
93A claims against Chesterton and Brensley.
Despite proceeding with separate counsel in the federal case, Loudon and Holley
continue to work together, most recently on an ongoing real estate development project in
Lexington. Loudon testified at trial that he only continues to work with Holley for purposes of
meeting obligations incurred in the course of that project. He also testified that he makes
frequent attempts to contact Holley, but that Holley does not communicate with Loudon.
The Court next makes specific findings as to certain factual questions presented in the
course of this action and raised at trial.
Signing of the Chesterton Guaranty
Throughout this action, Loudon knowingly offered several false explanations as to how
the Chesterton Guaranty came to bear his signature. In an affidavit attached to Defendants’
Motion to Dismiss Chesterton’s claims, Loudon first alleged that Chesterton affixed his Loudon
Guaranty signature page to the Chesterton Guaranty:
After agreeing to [Loudon’s proposed] terms, Chesterton had me sign the last page of the
guarantee, but then separated the last page of the guarantee and attached it to a separate
guarantee which omitted the term which gave me and Mr. Holley the right to the
collateral if GIWYC went into the default and he [sic] had to expend funds to cure the
Doc. No. 27-2 at 2.
Loudon subsequently blamed Brensley for fraudulently switching the Guaranty versions
after he signed the Loudon Guaranty. Loudon and Legacy Point Capital’s Answer and
Counterclaims allege that “Brensley then substituted the original guaranty prepared by
Chesterton’s attorney, William Moriarty, without the provision for exchange of the GIWYC
collateral for performance of the guaranty” and that “Mr. Loudon did not sign the guaranty
which Plaintiff is suing on.” Doc. No. 38 at ¶ 24. Loudon made this same allegation against
Brensley in a deposition in the state court litigation:
There’s no way that we would have signed a personal guaranty without the language in
No. 2. There’s no way, no fathomable way that I would obligate myself to pay for a debt
and not have the underlying collateral to that in paying off that debt.
Doc. No. 161-1 at 126.
The Court outright rejects any allegations by Defendants that they did not execute the
Chesterton Guaranty or that any Guaranty-switching occurred. Loudon and Holley attached to
their state court third party complaint the signed Chesterton Guaranty and identified it as the
version of the Guaranty that they executed. Ex. 74. On this basis, the Court found Defendants to
be estopped from arguing that they did not sign and submit the Chesterton Guaranty. The Court
accordingly granted Brensley summary judgment on Loudon and Legacy Point Capital’s third
party claim that she switched the Guaranty versions. Doc. No. 164 at 7. Furthermore, Holley’s
personal financial advisor produced the physical version of the Guaranty that Holley had directed
her to scan and send to Brensley. That version matched the same Chesterton Guaranty that
Loudon and Holley admitted in state court to having executed. Ex. 85. Loudon alternatively
theorized, in his answer to Brensley’s Motion for Summary Judgment, that Brensley had “tricked
[Loudon] into signing something other than what was intended.” Doc. No. 127 at 3. In its Order
on Summary Judgment, the Court found that Loudon and Legacy Point Capital had failed to
offer any factual support for this theory. Doc. No. 164 at 7-8.
Defendant Holley produced no emails in state or federal court litigation, although he did
use both Gmail and Legacy Point Capital email accounts during the events giving rise to this
litigation. Leading up to trial, the Court ordered a forensic examination of Holley’s Toshiba
laptop computer in light of Holley’s failure to meet his discovery obligations. On October 12,
2017, the forensic examiner produced a number of responsive files on Holley’s computer that
had not been produced during discovery, including certain emails from October 11, 2012
between Loudon and Holley pertaining to the execution of the Guaranty. Exs. 89-91. None of
the Defendants had produced these emails in discovery in either the state or federal case.
Despite being either a sender or recipient of each of these emails concerning a critical, disputed
issue, Loudon claims that he revisited his computer and located these emails only after the
forensic examination revealed their existence. Loudon belatedly produced these files during the
week of trial.
The October 11, 2012 emails confirm Brensley’s explanation of the Chesterton Guaranty,
which has not changed throughout this litigation. The emails show, consistent with Brensley’s
credible and honest testimony, that Loudon edited the Word version of the Loudon Guaranty that
Brensley had previously circulated; that Loudon created the Chesterton Guaranty by removing
the rejected language while retaining name changes and the accidental line omission; that
Loudon altered the signature blocks so that he and Holley could have the Guaranty notarized
from separate locations; that Loudon shared this Chesterton Guaranty with Holley for completing
and submitting; and that Loudon also submitted a signature page to this Chesterton Guaranty, not
the Loudon Guaranty. Id.
Even after the forensic examination unearthed these emails, Loudon persisted in asserting
that he was not responsible for the Chesterton Guaranty that he and Holley submitted. At trial,
Loudon retreated to the position that he inadvertently amended the signature blocks to the
original Guaranty draft rather than that he modified the Loudon Guaranty. When pressed by the
Court as to why he selected that version, Loudon replied: “I have no idea. It was a mistake. It
was a flat-out mistake.” 7 Loudon maintained throughout trial that he had not actually agreed to
the Chesterton Guaranty. Since trial, Loudon has re-asserted in an affidavit:
Loudon, [sic] signed the agreement believing that he would have access to the collateral
in the case of default as presented to him by Brensley and GIWYC multiple times in
emails via the acknowledgment of the Side Letter by GIWYC and Chesterton. Without
these representations, Loudon would have never signed the Personal Guarantee. Once
again, a mis-representation by Brensley.
The Court rejects as incredible the idea that Loudon selected and modified the original version by mistake.
Loudon first advanced this explanation at trial, and it is the latest in a series of shifting explanations. The evidence
establishes that Loudon received first a PDF version of the first draft of the Guaranty (which did not have the
language that Loudon claims he wanted regarding the collateral) and then a Word version, the so-called Loudon
Guaranty (which did have the language that he claims he wanted). Loudon had no other copies of the Guaranty. He
made no error in selecting a file. In order to send Holley the Word document that became the submitted Chesterton
Guaranty, Loudon necessarily selected the Word file and deleted the language that he now claims he wanted.
Selecting the PDF version would not have accomplished what he now claims he intended to do. Further, the omitted
line and the change in Legacy Point party name common to the Loudon Guaranty and Chesterton Guaranty confirm
that Loudon did not start with the original PDF version.
Doc. No. 205 at ¶8. Ultimately, Loudon’s myriad alternative theories are unavailing against the
clear documentary evidence, Brensley’s credible testimony, and his own shifting, incredible
Further, the Court finds that Loudon at all times knew that he signed the Chesterton
Guaranty rather than any other version of the Guaranty. The notice of default and demand for
payment that Moriarty sent to Loudon and Holley on June 24, 2014 (Ex. 68) excerpted Section 2
of the Chesterton Guaranty. Thus, Loudon was on notice that Chesterton understood Section 2
of the Guaranty to not provide Loudon and Holley rights to collateral. Nonetheless, Loudon
never contacted Moriarty to contest the version of Section 2 that Moriarty understood to govern
at the time of default. Finally, as Loudon admitted at trial, at no point following the default did
the Defendants take any steps to assert the rights to collateral that they allegedly thought that
they enjoyed under the Loudon Guaranty.
In short, Loudon and Holley acceded to Chesterton’s terms freely, voluntarily, and
knowingly. They proceeded accordingly, acting in conformity with their understanding, until in
the course of discovery, they realized that Brensley’s emails from before January 2013 were
unavailable. 8 They then concocted claims that Brensley deceived them and fraudulently
switched the form of Guaranty, theories which they advanced in this action and which the Court
Holley’s Financial Statements
Having defaulted in this action, Holley did not appear at the bench trial. Chesterton
presented video testimony from Holley’s deposition. In connection with this testimony,
As a result of a split from her associate in the BFT business in January 2013, Brensley relinquished the
bostonfinancialtrust.com domain name and lost access to her previous email account. The Court credits Brensley’s
testimony that she contemporaneously alerted Holley and Loudon of her loss of access to prior emails in the course
of working with them at that time.
Chesterton offered financial records obtained from Wells Fargo indicating that, on October 10,
2012, Holley held a mere $5,125.77 in a checking account (held jointly with his ex-wife) and
$101.34 in an IRA. Exs. 56-58.
In this action and in the state court litigation, Holley offered shifting testimony as to how
his account screenshot came to reflect assets in excess of $3 million. At a status conference on
May 8, 2017, his former counsel made a proffer that Holley would testify that he borrowed
money and used it to open the account, took the snapshot of the account, and then returned the
money and closed the account such that Wells Fargo would determine that the account was
opened by mistake and would therefore keep no record of it. Doc. No. 86 at 3-4. However, in
deposition testimony offered at trial, Holley claimed that he had called a former colleague at the
Lexington Wells Fargo branch; that he had several former colleagues at that office who were
willing to perform a favor for him, but that he does not remember the individual that he
contacted; and that the former colleague temporarily transferred funds into his account for a
portion of the day so that they would be reflected on Holley’s account statement until the Wells
Fargo employee reversed the transaction. Thus, regardless of its credibility, Holley’s own
explanation of the account screenshot admits to fraud.
Holley’s explanation is not credible. A Wells Fargo representative explained in
deposition testifimony that, contrary to Holley’s understanding, even a reversed transaction
would have generated a “cripple report.” Wells Fargo has no record of a cripple report for
Holley’s account. Further, the representative testified to being unfamiliar with the form of
account statement that Holley provided. Ex. 86.
The Court accordingly concludes that Holley doctored the account screenshot that he
submitted to Chesterton. Holley knowingly misrepresented his assets on his financial statement
in order to induce Walsh’s acceptance of his Guaranty and Chesterton’s making of the bridge
loan. Holley was aware of his financial constraints and acted in order to conceal the fact that he
did not have the financial wherewithal to guaranty the loan.
Further, when Chesterton sought to enforce Holley’s repayment obligation in state court
and brought related charges in federal court, Holley knowingly failed to produce documents that
he was duty-bound to produce. The forensic examination of Holley’s laptop revealed that files
entitled “accountscreenshot0001.pdf” and “accountscreenshot0001(2).pdf” were created on
October 10, 2012 and deleted from the computer on or about June 20, 2016. Doc. No. 162 at
¶¶13-14. The federal action was filed on May 9, 2016 and served on May 11, 2016. The Court
concludes that Holley affirmatively attempted to cover up his fabrication of the Wells Fargo
account statement in the course of this action.
Loudon’s Knowledge of Holley’s Misrepresentations
At trial, no party contested that Holley fraudulently misrepresented his financial
information to Chesterton. However, Loudon testified that he and Holley never discussed each
other’s financial situation, the statements that they submitted Chesterton, or the combined net
worth that they claimed to have. In her refreshingly candid testimony, Brensley acknowledged
that she never talked to either Holley or Loudon about the other’s statement because she felt that
it would be improper to do so. There is no direct evidence that Loudon knew what information
Holley submitted, and Loudon denies that Holley ever informed him of the content of Holley’s
The Court finds that Loudon knew or was at least on notice well before 2012 of Holley’s
financial situation and his general veracity. Loudon entered into a partnership with Holley
despite the latter’s inability to contribute any assets to their ventures. He was aware of Holley’s
prior FINRA disputes over misrepresentations to investors. He knew that Holley’s finances were
illiquid enough to require a loan from Loudon for personal expenses and reimbursements and
monthly allowances from Legacy Point Capital for business expenses.
Further, Loudon knew that in order to close the loan deal with Chesterton, he and Holley
needed to present a combined net worth that would assure Walsh of their ability to repay the
loan. Despite showing a net worth of only roughly half of the loan principal of $1.2 million,
Loudon testified at trial that he did not know whether his assets alone would have been
insufficient for Chesterton to accept the Guaranty. The Court credits neither this testimony nor
his testimony that he never consulted Holley about whether their assets together would satisfy
Walsh. 9 At the time that he executed the Guaranty, Loudon had substantial business experience.
He understood the obvious—that the security for the loan (an interest in the script and tax credits
generated from filming the movie) had little value if financing for the movie was unavailable.
He knew that the entire point of the Guaranty was to make Chesterton whole in the event that
GIWYC defaulted, which would only be possible if Loudon and Holley’s net worth substantially
exceeded the amounts payable on the $1.2 million loan.
The Court finds that Loudon, a sophisticated businessman, did in fact confer with Holley
about their complementary financial statements rather than leave the math up to luck; that he
understood that his and Holley’s statements would suggest to Walsh that Chesterton’s loan was
backed by guarantors possessing assets of three times the loan value; and that he knew that
Holley’s actual finances could not possibly have assured Walsh of their qualifications as
Chesterton advanced the argument that the parties followed an accepted rule of thumb requiring a guarantor to
have assets of at least three times the amount of the guaranty; thus, under this theory Loudon and Holley’s combined
assets of $3.6 million (adding the $3 million securities represented by Holley to the $600,000 net worth reported by
Loudon) suggest coordination in presenting their personal financial statements. Brensley similarly testified that a
high risk project such as the one at issue here would have required a showing of “hard money” of at least twice the
guarantors. Three more reasons support the Court’s conclusions. First, Loudon and Holley were
partners in October 2012, as they had been for several years. The Court rejects the notion that
they failed to discuss either the Guaranty or the terms of their financial statements with each
other; rather, the Court finds that they discussed these topics. Second, the extensive evidence of
coordinated efforts by Loudon and Holley to recharacterize the Chesterton Guaranty as
illegitimate corroborates the Court’s finding as to Loudon’s knowledge at the time of the
misrepresentations. Third, the Court rejects as incredible Loudon’s testimony on this topic.
Brensley’s Role in the Transaction
The Court credits Brensley’s testimony in its entirety as honest and forthright and
concludes that she neither shaded nor exaggerated her testimony.
Based on the evidence before it, the Court finds that, contrary to Loudon and Legacy
Point Capital’s claim, at no point did Brensley hold herself out to be more than a broker for
transactions such as this one. Loudon and Legacy Point Capital offered no evidence indicating
that Brensley claimed to have more experience in film financing than that which she actually
had. Further, Brensley was not prohibited from advertising the fact that she had a law degree
simply by virtue of not being admitted to the bar or practicing as a lawyer.
The Court further finds that at no time was Brensley an agent of Chesterton. Loudon and
Legacy Point Capital alleged that the $25,000 broker fee that Chesterton paid Brensley on the
$500,000 loan reflect an agency relationship. They also pointed to Brensley’s service as a
disbursement agent in the transaction and her later circulation of the notices of default from
Chesterton. They further offered communications between Brensley and Walsh about
subsequent projects that the two discussed potentially working together on. These thin reeds do
not support a finding that Brensley worked as Chesterton’s agent. Rather, they are consistent
with Brensley’s testimony that she acted only as a broker in relation to the deals discussed at trial
and herein. The Court further credits Walsh’s straightforward testimony that Brensley has never
been an agent of Chesterton and that Brensley at all times during this transaction acted as a
At bottom, Loudon, Holley, and Legacy Point Capital wanted Chesterton’s loan to
GIWYC to proceed. They agreed to personally guaranty the loan, offered a fraudulent financial
statement from Holley to induce Chesterton’s acceptance of the Guaranty, and, in the end,
assented to Chesterton’s insistence that Chesterton, and not Loudon and Holley, would retain the
collateral upon a default by GIWYC. Then, when Chesterton sued, Loudon and Holley
advanced a Guaranty-switching defense that they knew to be false, and they supported that
defense by omitting from their document productions the obvious, relevant, and material emails
that exposed the defense as a lie. When pressed for documents, Holley vigorously resisted
producing these emails or his laptop. He ultimately produced his laptop with extensive damage,
which the Court concludes he inflicted intentionally in an effort to thwart discovery of the
emails. Loudon for his part advanced an ever-shifting “explanation” for both the Guaranty and
the failure to produce the emails. None of his explanations are credible. He knew about the
fraudulent financial statement from the outset, advanced the known-to-be-false defense that
Brensley switched the Guaranty versions, and lied about the defense as well as his failure to
produce the documents. I further find that Loudon and Holley coordinated the Guarantyswitching defense and the decisions not to produce the emails.
CONCLUSIONS OF LAW
For each claim in this action, the Court applies the familiar civil standard in determining
whether the party bringing the claim has established liability. Fishman Transducers, Inc. v. Paul,
684 F.3d 187, 192 (1st Cir. 2012) (“The ordinary rule in civil cases is proof by a preponderance
of the evidence[.]” (Citing Herman & MacLean v. Huddleston, 459 U.S. 375, 387 (1983))). The
Court enters judgment in favor of Chesterton on its claims and on the counterclaims against it;
for Brensley on Loudon and Legacy Point Capital’s third party claims against her; and for
Loudon on Brensley’s cross-claim against him.
Chesterton’s Claims Against Defendants
Chesterton seeks damages for fraudulent misrepresentation and for violation of Chapter
93A by Holley, Loudon and Legacy Point Capital. The Court already has entered an Order of
Default as to Defendant Holley on these claims (Doc. No. 182), which binds Legacy Point
Sitting in diversity, the Court looks to the substantive law of the forum state (here,
Massachusetts). Under Massachusetts law, to prevail on its claim for fraudulent
misrepresentation, Chesterton must establish that Loudon and Legacy Point Capital “made a
false representation of material fact with knowledge of its falsity for the purpose of inducing
[Chesterton] to act thereon, and that [Chesterton] reasonably relied upon the representation as
true and acted upon it to [its] damage.” Russell v. Cooley Dickinson Hosp., Inc., 437 Mass. 443,
458 (Mass. 2002).
Chesterton satisfies its burden of proof on its fraud claim. Here, neither Loudon nor
Legacy Point Capital disputes that Holley submitted to Chesterton financial statements that were
falsified. The misrepresentations in the financial statements were of material fact to Chesterton,
which requested the statements in order to confirm the very net worth that Holley grossly
overstated. Holley fabricated his statement in order to induce Chesterton to accept the Guaranty
and to make the loan, for which he and Loudon received a broker fee and secured potential
interests in the film’s profits. Chesterton reasonably relied upon the misrepresentation.
Loudon’s assets alone would have been inadequate to assure Chesterton of Loudon and Holley’s
ability to guaranty the loan. Without Holley’s statement, Chesterton would not have proceeded
with making the loan. Further, Chesterton was reasonable in expecting that an account statement
purporting to come from Wells Fargo contained truthful account information. Chesterton made
the loan because it believed that the guarantors had sufficient means, and Chesterton has not
been repaid upon default because the guarantors in fact had lied.
“Under Massachusetts law, corporate officers are personally liable for any tortious
activity in which they personally participate.” Frontier Mgmt. Co. v. Balboa Ins. Co., 658
F.Supp. 987, 991 (D.Mass. 1986). Loudon contends that he did not participate in, encourage, or
even have knowledge of Holley’s misstatement of Holley’s net worth, and that he thus should
not be responsible for Holley’s fraud. The Court has found otherwise—namely, that Loudon was
aware of Holley’s financial condition, conferred with Holley in advance of submitting financial
statements to Chesterton, knew of Holley’s misrepresentation on his statements, allowed
Chesterton to accept the Guaranty and make the loan despite the untruthful statements, and
coordinated with Holley to attempt to avoid liability under the Guaranty upon GIWYC’s default.
Further, “under Massachusetts law actionable misrepresentation may occur without the
speaker’s knowledge that the statement is false if the truth is reasonably susceptible of actual
knowledge, or otherwise expressed, if, through a modicum of diligence, accurate facts are
available to the speaker.” Acushnet Federal Credit Union v. Roderick, 26 Mass.App.Ct. 604,
605 (Mass. 1988). Even were the Court to credit Loudon’s defense that he had not been aware at
the time of either the content of Holley’s statements or Holley’s financial situation—which it
does not—Loudon would have willfully disregarded the truth or falsity of Holley’s statements by
not seeking to verify the information with Holley. See Massachusetts Continuing Legal
Education, Inc., Mass. Super. Ct. Civil Practice Jury Instructions, §20.1 Misrepresentation
In any event, Loudon knew that, although he and Holley provided separate financial
statements ahead of signing the Guaranty, the information that was relevant to Chesterton was
their combined net worth, which they provided for purposes of demonstrating joint ability to
guaranty the $1.2 million loan. Thus, Loudon’s omissions with respect to his and Holley’s
combined net worth constituted fraud in the same way that Holley’s affirmative
misrepresentation did. The Court accordingly enters judgment for Chesterton against Loudon as
to this claim.
Legacy Point Capital has conceded that, during all events giving rise to this action,
Holley and Loudon acted as its Managing Members. “Persons who control a corporation may be
held liable along with the corporation for torts committed by them in connection with corporate
business.” Instant Image Print Shop, Inc. v. Lavigne, Keating, Halstead, Inc., 1998 WL 201424,
*3 (Mass.App.Div. 1998) (emphasis added). Legacy Point Capital therefore is liable on
Chesterton’s fraud claim as a result of both the Order of Default that the Court entered against
Holley and the Court’s finding of liability against Loudon.
In order to prevail on its Chapter 93A claim, Chesterton must prove the use or
employment by Loudon and Legacy Point Capital of an unfair method of competition or an
unfair or deceptive act or practice. Mass. Gen. Laws ch. 93A, § 11; Arthur D. Little, Inc. v.
Dooyang Corp., 147 F.3d 47, 56 (1st Cir.1998). Plaintiffs must also establish a loss of money or
property caused by the violative conduct. Mass. Gen. Laws ch. 93A, § 11; Arthur D. Little, 147
F.3d at 56.
In determining whether a practice violates Chapter 93A, the Massachusetts courts look to
“(1) whether the practice ... is within at least the penumbra of some common-law, statutory, or
other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or
unscrupulous; [and] (3) whether it causes substantial injury to consumers[.]” Mass. Eye & Ear
Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215, 243 (1st Cir.2005) (citing PMP Assocs.,
Inc. v. Globe Newspaper Co., 366 Mass. 593, 596 (1975)).
Chesterton predicates its Chapter 93A claim on common law fraud arising from the
misrepresentations discussed above. “When a claim that a defendant is liable under Chapter 93A
is based on a tort theory, it follows that an officer can be held individually liable if he personally
participated in unfair or deceptive conduct that violated Chapter 93A.” Alves v. Daly, No. CA
12-10935-MLW, 2013 WL 1330010, at *8 (D.Mass. 2013). For the same reasons that
Defendants Loudon and Legacy Point Capital are liable for fraud, the Court also enters judgment
for Chesterton on its Chapter 93A claim.
As a result of the Court’s finding of liability against Loudon and Legacy Point Capital for
fraud and violation of Chapter 93A, Chesterton is “entitled to all damages it had suffered as a
proximate result of … [the] misleading representations.” VMark Software, Inc. v. EMC Corp.,
37 Mass.App.Ct. 610, 619 (1994). “[T]hat other factors … might also have contributed to the
loss does not preclude recovery, so long as the reliance on the false representation was an
operating factor[.]” Reisman v. KPMG Peat Marwick LLP, 57 Mass.App.Ct. 100, 113-114
Chesterton seeks to recover amounts owed under the Deal Memo and Note on its $1.2
million bridge loan, as well as its $500,000 follow-on loan. Its requested damages break down
$1.2 Million Loan Principal and Non-Premium Interest
Loan made on October 10, 2012
Annual 17% interest (October 2012 through October 2017) $1,020,000
Additional interest 23 days to November 2, 2017
Premium Interest for First Extension (additional 2.5% of principal for every 30 days
from May 2013 through October 2013)
Total Amount Owed Directly on $1.2 Million Loan
$500,000 Loan (Principal Only)
The parties dispute whether Defendants are liable as to Chesterton’s losses on its
$500,000 follow-on loan. Chesterton asserts that, but for Defendants’ fraudulent inducement of
the initial loan, Chesterton would not have been required to make the follow-on loan to shore up
its chances of recovery on the initial loan. Loudon and Legacy Point Capital maintain that
Chesterton made the $500,000 follow-on loan independently, such that Chesterton’s losses on
that loan were not a proximate result of actions of Legacy Point Capital and Loudon.
Ross Systems Corporation, Sang (Lewis M.) v. Ross (Stanley E.), 1994 WL 89015 (Del.
Ch. February 15, 1994) is instructive. There, the plaintiff had made an initial investment in a
company based on misrepresentations by his co-owner of the company as to the research
underlying their venture. The plaintiff subsequently made additional loans to fund the
company’s operations even after discovering the defendant’s fraud and closing the company to
new business. The plaintiff claimed damages based on these additional loans, arguing that, had
the defendant been truthful, the plaintiff would have closed the company at the outset and
avoided his later loans. The court in Ross Systems concluded that (i) at the time of the fraud, the
defendant did not know and did not have reason to believe that his misrepresentations would
induce the plaintiff to continue to loan money throughout the company’s life span, even after
their business relationship deteriorated, and (ii) that the plaintiff had made the additional loans in
the face of known, substantial risks and after becoming aware of the fraud that had induced the
initial loan. Thus, the court found that the defendant’s misrepresentations were not a proximate
cause of the plaintiff’s losses on the additional loans to the company. Id. at *2-4.
Chesterton’s follow-on loan similarly resulted from intervening considerations.
Defendants did not know and could not have foreseen that their fraudulent procurement of
Chesterton’s $1.2 million bridge loan would cause Chesterton to lend additional amounts to
GIWYC without Defendants’ involvement. Loudon and Holley declined to facilitate the
$500,000 follow-on loan, and Chesterton did not look to them to guaranty it. Further, Chesterton
made the follow-on loan based on a business calculation on which Defendants’ fraud had no
bearing. The Court credits Walsh’s testimony that Chesterton loaned the additional $500,000 in
order to keep the GIWYC project viable and to preserve the possibility of recovering on the $1.2
million loan that the Defendants fraudulently induced. However, knowledge of Holley and
Loudon’s misrepresentation would not have made Chesterton more or less likely to make the
follow-on loan; the follow-on loan did not serve to bolster Holley and Loudon’s ability to
perform on Guaranty for the $1.2 million loan, and Holley and Loudon’s financial wherewithal
was not relevant to Chesterton’s likelihood of recovery on the $500,000 follow-on loan.
Moreover, Chesterton understood the risks of making the follow-on loan. Chesterton was
aware that the film project had not yet attracted equity investors and that GIWYC required
immediate expenditures to address pressing legal and business challenges. Chesterton obtained a
guaranty from Katz, whose financial situation was known to Chesterton. The follow-on loan
reflected only Chesterton’s assessment of the film project’s prospects and Katz’s financial
wherewithal. The follow-on loan therefore cannot be legally attributed to the Defendants.
The Court concludes that, but for Defendants’ fraud, Chesterton would not have made the
$1.2 million bridge loan. Thus, Chesterton is entitled to $2,412,855, representing the principal,
non-premium interest, and interest premiums payable on the $1.2 million loan.
Section 9(3) of Chapter 93A provides that “if the court finds for the petitioner, recovery
shall be in the amount of actual damages … or up to three but not less than two times such
amount if the court finds that the use or employment of the act or practice was a willful or
knowing violation of said section two....” As discussed above, the Court finds that Defendants’
deception with respect to the financial statements and the loan Guaranty was willful and
knowing. Based on Defendants’ willful misconduct, the Court finds that trebling damages is
appropriate. Consequently, the Court awards treble damages of $7,238,565, as well as attorney
fees and costs pursuant to Chapter 93A.
Loudon and Legacy Point Capital’s Claims Against Chesterton
Loudon and Legacy Point Capital’s counterclaims allege three counts of fraud and one
count of negligence against Chesterton.
Loudon and Legacy Point Capital first claim that Chesterton is vicariously liable for
misrepresentations that Brensley allegedly made about her professional qualifications. Second,
they assert that Chesterton is vicariously liable for alleged statements of intent that Brensley
made about participating in the obligation to repay the loan. Third, they claim that Brensley
misled them as to the likely consequences of a default on Chesterton’s loan by GIWYC.
By their own admission, Loudon and Legacy Point Capital base these claims of fraud
against Chesterton on an agency relationship between Chesterton and Brensley. The Court finds
no support whatsoever for such a relationship. The Court therefore enters judgment for
Chesterton on each of these counterclaims.
Loudon and Legacy Point Capital also claim that Chesterton was negligent in employing
Brensley. The Court reiterates that at no time did Chesterton engage Brensley as an employee,
agent, or otherwise. Accordingly, the Court enters judgment for Chesterton on this counterclaim
Loudon and Legacy Point Capital’s Claims Against Brensley
Loudon and Legacy Point Capital’s third party claims allege three counts of fraud and
one count of negligence against Brensley.
Loudon and Legacy Point Capital’s Third Party Complaint alleges that Brensley is
directly liable for the same fraud claims for which they alleged that Chesterton was vicariously
liable. First, they allege that Brensley misrepresented her professional background and
qualifications to induce them to engage her for film financing projects. The Court finds that
Loudon and Legacy Point Capital have failed to present any evidence that Brensley gave them
any description of her experience beyond that which was truthful. Loudon and Legacy Point
Capital thus have failed to meet their burden as to this claim.
Second, Loudon and Legacy Point Capital allege that Brensley induced Loudon to sign
the Guaranty by falsely representing that she would assume 50% of any repayment obligation
thereunder. They offered no evidence supporting a finding that Brensley agreed specifically to
assume 50% liability other than Brensley’s email of October 10 at 6:44 p.m. in which she
acknowledges that they had agreed that she would “be taking on an obligation to participate in
the repayment to John Walsh upon default.” Ex. 32. The Court finds this email ambiguous and
unsupported by any subsequent agreement. Brensley conceded at trial that she intended in her
email to signal to Holley and Loudon her desire to participate in the film fundraising on equal
footing with them. The Court credits Brensley’s testimony that she sought only greater
ownership in the deal. The Court does not find credible Loudon’s unfounded contention that
Brensley agreed to assume a 50% guaranty repayment obligation, especially in light of Loudon
and Holley’s inaction on this subject following Brensley’s email and their later receipt of the
notices of default. Accordingly, Loudon and Legacy Point Capital have not met their burden on
this claim, either.
Third, Defendants allege that Brensley fraudulently induced Loudon to sign the Guaranty
through false statements about the likelihood of default and Chesterton’s likely recourse.
Loudon testified that Brensley told him and Holley not to worry about the potential repayment
obligation under the Guaranty because Chesterton would solely avail itself of the collateral for
the loan and not call upon the Guaranty. He testified that because Brensley had been in the
middle of the transaction and had done the diligence on the film project, her assurances induced
him to sign the Guaranty. Brensley testified that she never provided this assurance. The Court
credits Brensley’s testimony, rejects Loudon’s testimony as incredible, and finds that Loudon
and Legacy Point Capital have failed to establish their claim by a preponderance of the evidence.
Finally, Loudon and Legacy Point Capital allege that Brensley was negligent in her
business dealings with them. “Before liability for negligence can be imposed, there must first be
a legal duty owed by the defendant to the plaintiff, and a breach of that duty proximately
resulting in the injury.” Dos Santos v. Coleta, 465 Mass. 148, 154 (2013) (quoting Davis v.
Westwood Group, 420 Mass. 739, 742–43 (1995)).
Loudon and Legacy Point Capital contend that Brensley “[a]s both a partner and joint
venture [sic]” owed them a “duty to exercise due care and sound business judgment when
conducting business with them as part of their joint venture.” Doc. No. 40 at 6-7. Loudon and
Legacy Point Capital have failed to establish that Brensley was either their partner or a joint
venturer with respect to the loan. However, Brensley may have owed them a duty relevant to
their negligence claim by acting as their agent. See Wilson v. James L. Cooney Ins. Agency, 66
Mass.App.Ct. 156, 161 (2006) (noting that an agent “undeniably had certain duties to” a
principal, including “us[ing] due care in the implementation of the agency … and in carrying out
instructions of the principal-client.” (citing Bicknell, Inc. v. Havlin, 1193 Mass.App.Ct. 497, 500
Regardless, Loudon and Legacy Point Capital otherwise fail to establish any conduct by
Brensley constituting a breach for purposes of negligence. The Court has rejected their
assertions that Brensley induced Loudon to execute the Guaranty or that she switched Guaranty
signature pages or otherwise misled Loudon as to the Guaranty version that he signed. Their
claim that Brensley was negligent in suggesting that Loudon personally guaranty a personal
Guaranty for a $1.2 million loan in exchange for a mere $15,000 broker fee is particularly
disingenuous in light of the potential future share of film profits that drove Loudon and Holley to
fraud. The Court enters judgment for Brensley accordingly.
Brensley’s Cross-Claims Against Loudon and Holley
Brensley asserts cross-claims for fraud and violation of Chapter 93A against Loudon and
Brensley alleges that Holley and Loudon made misrepresentations to her on which she
relied to her detriment in introducing Holley and Loudon to Chesterton. At trial, Brensley did
not advance her claims that Loudon and Holley failed to disclose Holley’s “FINRA issues and
his past dealings with clients and misrepresentations” or that they overstated Holley’s prudence
and sophistication as an investment manager. Doc. No. 88 at ¶¶28-32. The Court thus only
considers her entitlement to damages based on the forged Wells Fargo account snapshot that
Holley provided to Brensley.
As damages, Brensley seeks only her state court attorney fees. Whatever the merits of
her claim, the state court attorney fees are not a consequence of the fraud that she alleges in her
cross-claim. Thus, judgment must enter against her.
Brensley alleges numerous deceptive acts or practices by Loudon and Holley. However,
at trial Brensley did not advance her allegations that Loudon and Holley engaged her to pursue a
“suspicious funding source,” that they induced her to enter a fraudulent “standby letter of credit
deal,” that they failed to disclose to her that they were involved in a lawsuit regarding a
fraudulent letter of credit deal, and that they “knowingly introduced projects that were suspicious
and fraudulent, but represented them as strong projects to induce [Brensley] to find financing for
the projects.” Doc. No. 88 at ¶¶34-37 and 39. The Court evaluates her claims that Loudon and
Holley expressed to Brensley that they were going to try to get out of their current obligations
with Chesterton, stated that they did not know about the defaults on Chesterton’s $1.2 million
loan, and misstated their obligations as guarantors. Id. at ¶¶36 and 38-39.
Brensley has not met her burden of proof as to her Chapter 93A claim. Even if Brensley
established by a preponderance of the evidence that Holley and Loudon deceptively sought to
shirk or recharacterize their Guaranty obligations, she has not demonstrated that she suffered a
loss of money or property as a result of these deceptive acts. The most that she alleges is that
she, Loudon, and Holley “possibly los[t] an investment of $1,200,000” as a result of Holley and
Loudon’s avoidance of their obligations to Chesterton. Id. at ¶¶36. However, Brensley has
already received her broker fee on Chesterton’s bridge loan, and she has not explained how she,
Loudon, and Holley were to receive an investment stake in the amount of that loan. The Court
accordingly enters judgment for Loudon on this claim.
Assessment of Damages Payable by Holley
Finally, the Court assesses damages arising out of Holley’s default on Chesterton’s
claims against him. Because Holley and Loudon acted jointly and on behalf of Legacy Point
Capital, Holley is jointly and severally liable for the same damages award that the Court enters
for Loudon and Legacy Point Capital on Chesterton’s fraud and Chapter 93A claims.
For the foregoing reasons, the Court determines that Chesterton has met its burden to
establish fraud and violation of Chapter 93A by Loudon and Legacy Point Capital; that Loudon
and Legacy Point Capital have failed to establish that Brensley acted as Chesterton’s agent for
purposes of their claims against Chesterton; that Loudon and Legacy Point Capital have not met
their burden to establish fraud and negligence by Brensley; and that Brensley has not met her
burden to establish fraud and violation of Chapter 93A against her by Loudon and Holley.
Holley, Loudon, and Legacy Point Capital are jointly and severally liable for damages to
Chesterton of $7,238,565 million. Chesterton shall submit a proposed form of judgment within
seven days encompassing all claims, along with their calculation of attorney fees and costs
pursuant to their Chapter 93A claims. Chesterton’s Motion for Sanctions (Doc. No. 161)
remains under advisement pending the results of the forensic examination of Loudon’s laptop
Within seven days, Chesterton shall provide a status report regarding the forensic
examination of Loudon’s laptop computer.
/s/ Leo T. Sorokin
Leo T. Sorokin
United States District Judge
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