Attorneys for energy magnate Harry Sargeant III, who lost a $28.8 million lawsuit in Palm Beach Circuit Court involving wartime fuel sales in Iraq, appeared before a federal appellate court to keep the Venezuelan state oil company at bay.
Sargeant, as owner of an asphalt refinery in Texas and a fuel and asphalt supplier, has been avoiding paying a $47 million arbitration award won by PDVSA Petroleo S.A., the Venezuelan energy company.
In 2012, a federal judge in Corpus Christi, Texas, ruled Sargeant orchestrated a fraudulent transfer of the refinery to avoid PDVSA going after its assets. Refinery owner Trigeant Ltd. had a market value of $27.6 million to $30 million, but Sargeant essentially sold it to himself for a credit bid of $22.5 million, the same amount owed to the bank.
U.S. District Judge Nelva Gonzales Ramos also found it would be too speculative to determine what the refinery would have sold for at auction had Sargeant not been involved. She refused to award money damages to PDVSA and instead set aside the transfer of title.
The ruling required BTB Refining LLC, which Sargeant created with longtime business associate Mustafa Abu Naba’a, to return the title to Trigeant, the PDVSA debtor.
No one was happy with the ruling, and both sides appealed to the U.S. Court of Appeals for the Fifth Circuit. The case was argued Tuesday in New Orleans.
PDVSA claims the judge erred by not ordering the property to be liquidated to collect money damages. BTB and Trigeant maintain their transfer was legitimate.
Mark Mitchell of Gardere Wynne Sewell in Austin, attorney for Sargeant’s companies, offered as guidance a U.S. Supreme Court decision on fair market value in determining the amount of debt settled by a foreclosure sale.
In BFP v. Resolution Trust, Mitchell said a California court concluded the only legitimate evidence for value is the foreclosure sale price.
“To do otherwise would put into chaos the state law systems of foreclosures, which bring finality and certainty of title,” Mitchell said. Ramos, by deciding a foreclosure sale value was speculative, “subjects all of these state law foreclosures to collateral attack.”
The court noted BTB’s bid was at the low end of the range of values. Mitchell agreed but noted Ramos found the sale price was within the range of fair market value even if the sale were collusive.
Mitchell’s argument relied heavily on the premise that there was no collusion on the foreclosure sale. He claimed Sargeant’s insider knowledge was irrelevant and proper public notice was given.
PDVSA attorney Joseph D. Pizzuro of the Curtis firm in New York said Sargeant’s 2007 agreement with American Capital was to buy the refinery at the credit bid price if the bank would foreclose. The bank gave notice of foreclosure the next day—even though Trigeant had not missed a payment—and Sargeant formed BTB the following month as the buying vehicle.
The foreclosure sale took place New Year’s Day 2008, because as the trial court noted, “BTB believed there would be less chance of other bidders on that day.”
Circuit Judge James Graves Jr. said Ramos put the parties back to their original position and any future foreclosure would be with the full knowledge of everyone.
Graves acknowledged Ramos’ order concluded there would be no penalty if there was fraud, “but I’m not sure the penalty ought to be $23 million, which is what you’re insisting. Isn’t the effect of what she did to wind the clock back to the day before the foreclosure?”
Pizzuro said it was impossible to wind the clock back because there is no way to predict an alternate outcome for the 2008 foreclosure.
Graves questioned the difference between Sargeant and the bank taking the refinery. “I’m still troubled by you defining a transaction like this because of the motives of Sargeant as definitionally fraudulent when he did no more than what AmCap itself could have done,” the judge said.
Pizzuro said the difference was AmCap had a legitimate lien, but he questioned Sargeant’s motives under the Texas Uniform Fraudulent Transfer Act.
“Under TUFTA, a transfer of an asset with the actual intent to hinder, delay or defraud a creditor is a fraudulent transfer which should be voided,” Pizzuro said. “So, yes your honors, we put very much stock in what Harry had in mind, what his motives were.”
The other members of the panel were Circuit Judges Carolyn King and Leslie Southwick.
In 2011, Mohammad Al-Saleh, a member of the Jordanian royal family, won a $28.8 million award in a Palm Beach Circuit trial where the jury found he was wrongfully cut out of profits from a company where he, Sargeant and Abu-Naba’a were partners. The company supplied fuel to U.S. troops in Iraq.
The judgment was upheld on appeal an a collections suit began. Last week, the Fourth District Court of Appeal ruled Al-Saleh couldn’t collect through Florida courts because Sargeant’s and Abu-Naba’a's assets were overseas.