In an unusual ruling, the U.S. Court of Appeals for the Eleventh Circuit reversed a four-year-old bankruptcy sale, finding both U.S. Bankruptcy Judge Raymond Ray and prominent Fort Lauderdale bankruptcy attorney Chad Pugatch acted improperly.
The unanimous unsigned opinion Friday returned the case to Ray to reverse an entire bankruptcy of Deerfield Beach-based Global Energies LLC. The opinion reversed both U.S. District Judge Kathleen Williams in Miami and Ray in Fort Lauderdale.
The panel said Pugatch knowingly provided false testimony in a deposition. The Florida Bar said it is not investigating Pugatch at this time.
Pugatch strongly denies wrongdoing and says he will fight to clear his name, filing a motion for a rehearing.
“I have practiced in this town for 37 years and I have a stellar reputation,” said Pugatch of Rice Pugatch Robinson & Schiller. “I have never and would never hide evidence from a court and I have never and would never commit perjury.”
Lawyers involved in the case said emails provided by former Rothstein Rosenfeldt Adler attorney Steven Lippman were crucial in reversing the case. He briefly worked for Pugatch before beginning his three-year prison sentence for helping his Ponzi-scheming boss, Scott Rothstein, make illegal campaign contributions.
The case involved the 2010 Chapter 11 bankruptcy of Global Energies, a company that planned to convert waste into energy and was in the research and development phase when the three partners’ relationship began deteriorating. The company was started by Joseph Wortley, Richard Tarrant and James Juranitch. Tarrant was the 2006 Republican nominee for U.S. senate in Vermont but lost the election to Democrat Bernie Sanders.
The partners filed an involuntary Chapter 11 bankruptcy petition in late 2010 and a trustee was appointed. The assets of the company were ultimately sold to Tarrant and his company, Chrispus Venture Capital LLC, in exchange for his paying all the creditor claims and bankruptcy court costs, according to Pugatch.
Wortley fought the petition in bankruptcy court and by filing a lawsuit in Palm Beach Circuit Court. The lawsuit is pending.
Wortley alleged that Juranitch and Tarrant were conspiring against him to wrest control of the company and that the bankruptcy petition was filed in bad faith.
Offering only circumstantial evidence, Wortley lost in trial before Ray and appealed. U.S. District Judge Kathleen Williams ruled against him in late 2013.
Then, in late 2012, emails were suddenly produced “appearing to show both that Juranitch and Tarrant colluded in filing for involuntary bankruptcy and that they had testified falsely about that plan in their earlier deposition,” according to the ruling from the 11th Circuit.
Pugatch acknowledges Lippman produced the emails but says he directed Lippman to do so.
“Steve Lippman was my partner at the time, Steve Lippman was working on the case with me,” said Pugatch. “They were produced under my supervision.”
Still, Ray refused to reverse the bankruptcy, saying the emails and Wortley’s evidence of bad faith “doesn’t change anything” and that “the bankruptcy is done. Wortley had his day in court.”
Williams affirmed Ray’s decision, saying evidence did not warrant vacating the bankruptcy sale. Wortley appealed again to the 11th Circuit.
The Court ruled that Ray applied the wrong standard in deciding not to vacate the bankruptcy.
“By applying the wrong standard…the bankruptcy court abused its discretion,” stated the ruling, adding that “the court committed clear errors of judgment.”
Wortley had specifically requested emails from June 2010 and then asked about the alleged collusion in depositions of Juranitch and Tarrant, states the ruling.
“Both men denied any plan to file a bankruptcy petition in bad faith, sworn denials that now appear to be blatantly false,” it adds.
All the more troubling, states the opinion, is that “Pugatch, a sworn officer of the court, actively obstructed Wortley’s efforts to obtain evidence of the plan to file for involuntary bankruptcy.”
The opinion goes on to state that Pugatch and his associate “falsely responded to Wortley’s November 20101 discovery request by saying that ‘all non-privileged documents responsive to Wortley’s request’ had been produced. Clearly some significant non-privileged and responsive documents had been withheld.”
Pugatch also did not speak up at Tarrant’s deposition where Tarrant falsely testified that he had no conversations with Juranitch about filing an involuntary bankruptcy petition. That violates Florida Bar rules requiring lawyers to disclose material facts in order to avoid criminal or fraudulent acts, states the ruling.
The appellate court remanded the case back to Ray, ordering him to vacate his order approving the sale of Global’s assets. Ray should hold whatever hearings are necessary to ensure that Chrispus, Juranitch, Tarrant and Pugatch “do not profit from their misconduct and abuse of the bankruptcy process,” states the ruling.
The Court also ordered Ray to vacate sanctions imposed against Wortley and compensate him for damages, attorney fees and costs.
Fort Lauderdale appellate lawyer Bruce Rogow, who argued the appeal for Wortley, said, “I think it is unusually direct and forceful ruling and reflects a commitment to insuring that bankruptcy courts be alert to possible misuse of the bankruptcy process. And it reflects a strong message to the Bar about the importance of compliance with discovery rules and the obligation of candor to the court.”
Rob Hauser of The Pankauski Law Firm in West Palm Beach, who wrote Wortley’s appeal, said he was happy with the ruling.
“It was a lot of work to get where we are now,” he said. “Mr. Wortley did not do well in the bankruptcy court. Finally, he got a sympathetic ear from the Court of Appeals.”
However, Pugatch blasted the appellate ruling and said he is filing a motion for a rehearing.
“The Eleventh Circuit went beyond the issues in the appeal and focused on something they picked up in that docket to not give ourselves the opportunity to defend ourselves or give all the facts,” he said. “They are drawing conclusions about what happened from a record that was not created for that purpose.”
Pugatch said it is rare for a bankruptcy sale to be reversed several years later and wasn’t sure how it could be accomplished.
“We welcome the change to vindicate ourselves,” he said. “We have done nothing wrong.”