KAREN K. BROWN, Bankruptcy Judge
Before the Court is the complaint of George D. Gordon to determine the ownership of shares of Nutraceutical Development Corporation (NDC). This Court has jurisdiction under 28 U.S.C. § 1334 and 157. This is a core proceeding. By order dated May 17,2010, the Court held that Gordon is estopped to re-litigate the decision of the Eighth Judicial District Court for the State of Nevada which held that what is known by the parties as" Share Certificate No. 2" is a forgery and void. Accordingly, this Court proceeded to trial to determine the extent of whether Gordon had any other ownership interest as he alleged in his complaint in NDC. Following a review of the evidence and observing the witnesses, the Court finds that Gordon owns no NDC stock. All NDC stock at issue here is owned by the trustee and David Summers (Summers).
FINDINGS OF FACT
George D. Gordon, Sr. is a resident of Conroe, Texas, and is a licensed attorney in Texas who represented NDC regarding some patent litigation. Endovasc, Inc. (Endovasc) is a Nevada corporation and the Chapter 7 debtor in this proceeding. Debtor, Endovasc is the parent corporation of NDC a Nevada corporation. The Chapter 7 Trustee is David J. Askanase. Summers is an early investor in Endovasc and former president of both Endovasc and NDC. Diane Dottavio (Dottavio) is a board member who later attempted to replace Summers as President of Endovasc and NDC.
On August 10, 2005, Summers filed Summers, et al. v. NDC, et al., as Case No. A-508327, in the Eighth Judicial District Court for the State of Nevada. The named defendants were: (1) NDC; (2) M. Dwight Cantrell, individually and in his corporate capacity; (3) Diane Dottavio, individually and in her corporate capacity; (4) Melissa Rogers, individually and in her corporate capacity; and (5) Barbara J. Richardson, individually and in her corporate capacity. The Nevada case was set for trial in February 2008.
On February 3, 2008, debtor, Endovasc filed its voluntary petition in Houston. Dottavio signed the petition and later the schedules and statement of financial affairs, as president of Endovasc. On February 8, 2008, the Nevada Defendants (including Dottavio), through their joint attorney, filed a "Suggestion of Bankruptcy" in the Nevada case. The defendants represented to the Nevada court that "...on February 3, 2008, a Voluntary Petition was filed by
However, when Dottavio subsequently filed and signed schedules under penalty of perjury in the Endovasc bankruptcy, she never included shares in NDC as property of the Endovasc estate. Consequently, the Nevada Court took note of this omission and the Court reinstated the scheduled trial.
On February 17, 2009, a non-jury bench trial began in Nevada. During trial, Dottavio, claiming to be President of both NDC and Endovasc, testified that on February 8, 2008, the date Endovasc filed bankruptcy, Endovasc was the parent corporation of NDC.
During the Nevada trial, Gordon testified that his only claim to ownership of NDC came from "Share Certificate No. 2" which represented 75,000,000 shares. In addition, Gordon testified that he had no personal knowledge of any shares issued by NDC other than NDC "Share Certificate No.2."
After trial, the Nevada Judge issued detailed "Findings Of Fact And Conclusions Of Law." The judge found fully in favor of Summers and the other plaintiffs in the Nevada case.
HOUSTON ADVERSARY TRIAL
Now in this Court Gordon has produced new documents, not offered to the Court in Nevada. Gordon has produced a Promissory Note And Security Agreement (the "75MNote"), showing a date of May 5,2006, which purports to provide Gordon with a security interest in NDC "Share Certificate No. 2." Gordon testified that he prepared the 75M Note, and that it was signed by Dottavio, as President of the Debtor, and by Kim Mittag.
Now for the first time Gordon has further produced an "Irrevocable Stock Power," showing a date of May5,2006, with purports to provide Gordon with authority to transfer "Share Certificate No. 2"(the "75M Stock Power"). The "Share Certificate No. 2" referenced in the 75M Note is the same share certificate found by the Nevada Court to be a forgery and void.
Now Gordon has further produced another Promissory Note And Security Agreement(the "48M Note"), also showing a date of May 5,2006, which purports to provide Gordon with a security interest in NDC "Share Certificate No. 109." Gordon testified that he himself prepared the 48MNote, and that it was signed by Dottavio, as the President of Debtor, and by Mittag. The 48M Note produced by Gordon refers to NDC "Share Certificate No. 3." Gordon testified that he never undertook any effort to determine the value of "Share Certificate No. 109" before agreeing to accept it as security for a debt in excess of $250,000. Defendants point out that when testifying on February 17, 2009 in Nevada, Gordon professed no knowledge of any share certificate other than Share Certificate No. 2.
Gordon has further produced both a "Stock Power" and an "Irrevocable Stock Power," both claiming a date of May 5, 2006, and both purporting to provide Gordon with authority to transfer "Share Certificate No. 109" (the "48M Stock Power"). Gordon testified that he has never exercised his alleged $48M Stock Power.
CONCLUSIONS OF LAW
With regards to Gordon's contention that he should be able to re-litigate the issues resolved by the Nevada Court, the doctrine of full faith and credit requires this Court to give judgments from the Eighth Judicial District Court for the State of Nevada the same preclusive effect that such judgments would enjoy in the State of Nevada.
The issue presented in this adversary proceeding is whether Share Certificate No. 2, upon which Gordon's claim to ownership rests, represents a valid and enforceable ownership interest in NDC. In the Nevada case, the Court expressly ruled that" Share Certificate No. 2" was not authentic, a forgery, invalid, and void." Accordingly, the issue decided in the Nevada case is identical to the issue presented in this matter. The judgment rendered in the Nevada case was on the merits and has become final. Gordon has a substantive legal relationship with the Nevada defendants. He maintains he derived his security interest in NDC stock from the same stock certificate and the same defendants directly involved in the Nevada litigation.
To the extent that Gordon newly relies on other stock certificates for his claim to ownership of NDC stock, he has failed in his burden of proof to show that these instruments are legitimate documents issued by authorized legitimate corporate officers of NDC. The Court finds that Gordon lacks credibility.
Moreover, even though Gordon claims Dottavio transferred NDC stock to him in 2006, Dottavio also filed quarterly Forms 10-Q in December 31,2006 and March 31,2007 which certified to the Securities and Exchange Commission that Endovasc was the 100% owner of NDC on those dates.
Debtor is the valid holder of NDC "Share Certificate No. 109," which represents 48,000,000 shares of NDC stock. The 75M Note, 75M Stock Power, 48M Note, and 48M Stock Power, are not authentic, appear to have been created subsequent to Debtor's initiation of this proceeding, and do not constitute valid or enforceable agreements. Gordon holds no stock derived from the invalid NDC "Share Certificate No. 2." Gordon holds no stock derived from NDC "Share Certificate No. 109." Debtor is and has been at all times the rightful holder of 48,000,000 shares of NDC stock, as represented by NDC "Share Certificate No. 109;" The Promissory Note and Security Agreements, and each of them, dated May 5,2006, are invalid and unenforceable; The Stock Powers, and each of them, dated May 5, 2006, are invalid and unenforceable; and Gordon holds no right to Debtor's shares in NDC. Accordingly, "Share Certificate No. 109," and the stock ownership represented by it, remains an asset of the Debtor. Gordon is not listed by Debtor as a secured creditor, and Gordon has not filed a Proof of Claim in this proceeding.
FINDINGS OF FACT and CONCLUSIONS OF LAW
This matter having come for Trial on February 17, 2009, Plaintiffs
FINDINGS OF FACT
1. Plaintiff's David P. Summers (hereinafter "Summers") and James D. Davidson (hereinafter "Davidson") (collectively referred to herein as "Plaintiffs") are inventors of patented technology which uses nicotine to build muscle mass as more particularly described in US. Patent Serial Number 60/400,649 (the "Patented Technology").
2. Summers and Davidson assigned the Patented Technology to Endovase, Inc., a Nevada corporation ("Endovasc"), on or about February 5, 2003.
3. Nutraceutical Development Corporation (hereinafter "NDC") was incorporated in Nevada on December 3, 2002.
4. Pursuant to NDC's Articles of" Incorporation, NDC was authorized to issue 75,000,000 shares.
5. On or about June 27, 2003, Endovasc assigned the Patented Technology to NDC, which is the sole owner of the Patented Technology today.
6. On or about July 1, 2003, NDC entered into an exclusive licensing agreement "the Licensing Agreement") with Western Holdings, LLC d/b/a Basic Research (hereinafter 'Western Holdings") in order for Western Holdings to market the Patented Technology.
7. Pursuant to records kept by the Nevada Agency & Trust Co. (hereinafter `NATCO"), NDC's resident agent and transfer agent, NDC's original August 7, 2003, issue of stock included 10,710,000 shares to Summers and 13,500,000 shares to Davidson. NDC's original August 7, 2003, issue of stock to Endovasc was for 48,000,000 shares. All of the authorized 75,000,000 NDC shares were issued on or about August 7, 2003, and a number of other stockholders own the remaining shares.
8. Pursuant to NDC's Initial List of Officers, Directors and Resident Agent, filed with the Nevada Secretary of State on or about December 3, 2002, Summers was the only director and officer of NDC, and thus the only person authorized to sign filings for NDC with the Nevada Secretary of State.
9. Defendants have produced a share certificate, which is dated December 5, 2002 the "2002 ceriincale") in a different form than the other share certificates; with a different numbering sequence than the other share certificates; and, without the legend/endorsement on all other share certificates. The 2002 certificate purports to show Endovasc as the owner of all of he 75,000,000 shares of NDC stock. The 2002 certificate purports to be signed he Summers (as NDC's President) and Cantrell (as NDC's Secretary/Treasurer), Summers testified that he did not sign the 2002 certificate. Cantrell testified through his deposition that he was legally blind and unable to read documents as of October 2002.
10. Royally payments from Western Holdings in an amount less than included in the Licensing Agreement were deposited into an NDC account in 2005. No specific evidence was presented regarding the receipt of royalty payments after 2005.
11. The 2005 gross income for NDC should have been reported as $522,569. The court finds based upon the testimony regarding the business conducted by NDC in 2005, that the deduction of development reimbursement costs,
12. Defendant NDC's corporate records appear to have been modified based upon the inconsistencies in the documentary evidence presented at trial.
13. NDC and the individual Defendants misrepresented to the Court in a filing of February 8, 2008 the ownership of the stock to be 100% in Endovasc based upon the 2002 certificate. At trial, representatives of NDC testified that Mr. Cordon was the 100% owner of the DC stock as of December 2006. At trial, NDC was unable to explain the inconsistencies between the representations.
14. If any findings of fact are properly conclusions of law, they shall be treated as if appropriately identified and designated.
II. CONCLUSIONS OF LAW
1. In 2002, Cantrell was not authorized to sign as NDC's Secretary or Treasurer.
2. Tlie Court finds that the 2002 certificate is not authentic and is a forgery,
3. Endovasc owns 48,000,000 shares of NDC,
4. Summers holds 10,710,000 shares of NDC stock totaling 4.28% of the stock ownership; and Davidson holds 7,100,000 shares of NDC stock totaling 9.4667% of the stock ownership.
5. No evidence was produced that the individual Defendants have been unjustly enriched by receiving royalty payments from Western Holdings which rightfully belong to Plaintiffs. Accordingly, the Court hereby finds that the Defendants have not been unjustly enriched to the detriment of the Plaintiffs.
6. The individual Defendants have wrongfully taken control of NDC, to the exclusion of Plaintiffs, without any justification or legal right to do so. Therefore, the Court finds that the individual Defendants have wrongfully assumed the control and ownership of NDC in breach of their duties to NDC and its shareholders.
7. No evidence was produced that the individual Defendants interfered with any prospective economic advantage with Western Holdings for the marketing of the Patented Technology.
8. The (Court finds that Defendant Dottavio owed a fiduciary duty to Summers and Davidson as well as NDC, Defendant Dottavio has also improperly excluded Summers, and Davidson, to their detriment, since Plaintiffs have essentially been wrongfully stripped of their Shares and shareholders rights, as well as the right to receive dividends or an increase of value of their shares due to the ongoing royalty payments from Western Holdings. Therefore, the Court finds that Defendant Dottavio has breached her fiduciary duties to Plaintiff's.
9. The Court hereby finds that the individual Defendants, as a result of the breach of fiduciary duty, must reimburse NDC, the unreasonable and unauthorized payment of development reimbursement costs, management expense, and professional fees in 2005.
10. The Court hereby declares that: (1) Summers is the sole director and officer of NDC; and, (2) the rightful shareholders are entitled to receive the benefits of their NDC shares.
11. To the extent the 2002 certificate Is characterized as a representation rather than a forgery, the individual Defendants made fraudulent representations on which Plaintiffs relied as plead in the Eighth Cause of Action.
12. The Court hereby finds that Defendant Dottavio and ostensible representatives of NDC, and each of them, acted intentionally and in concert to accomplish the unlawful objective of hamming the Plaintiffs and the other shareholders of NDC by creating the 2002 certificate and thereby depriving them of the benefits of their NDC shares.
13. The Court finds, by clear and convincing evidence, that Defendant Dottavio and ostensible representatives of NDC, knowingly and falsely created the 2002 certificate for the purpose of depriving the Plaintiffs and the other NDC shareholders of the benefits of their NDC shares. Defendant Dottavio and ostensible representatives of NDC intended that the Plaintiffs and other NDC shareholders would and did justifiably rely on the 2002 certificate to their detriment. Plaintiffs and the other NDC shareholders have been damaged as a result.
14. As a result of this tortious conduct, the court determines the appropriate measure of damages to be the expenses that have been excluded by the Court in paragraph 11 of the Findings of Fact and awards a proportionate share to the Plaintiff's as damages.
15. As a result of the intentional tortious conduct, the court finds by clear and convincing evidence that punitive damages arc appropriate against Defendant Dottavio.
16. If any conclusions of law are properly findings of fact, they shall be treated as if appropriately identified and designated.
NOW, THEREFORE, it is hereby ORDERED, ADJUDGED and DECREED as follows: Judgment is hereby rendered in favor of the Plaintiff and against Defendants
IT IS SO ORDERED.