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GemCap Lending I, LLC v. Pertle

United States District Court, D. Kansas

December 16, 2019

GEMCAP LENDING I, LLC, Plaintiff,
v.
WILLIAM SHANE PERTLE; MINDY J. MONTGOMERY; BANCCENTRAL NATIONAL ASSOCIATION, a national association; MARTIN MCNEIL; VAN OSDOL, PC, a Missouri professional corporation; JONATHAN W. DAVIS; CHRISTOPHER TUCKER; and DOES 1-25, inclusive, Defendants.

          MEMORANDUM AND ORDER

          CARLOS MURGUIA United States District Judge

         This matter is before the court on the motion to dismiss brought by two defendants, law firm Van Osdol, PC, and its employee attorney Jonathan W. Davis. (Doc. 126.) The lawsuit was initiated by California-based commercial lender GemCap Lending I, LLC (“GemCap”), and was initially filed in California superior court, removed to federal court in that district, then transferred, in part, to this court. Also in this court is a companion case, [1] the receivership proceeding of GemCap's Kansas borrowers, a cattle ranch and farm operation known as Pertl Ranch, LLC; Pertl Ranch Feeders, LLC; and Outlaw Farms & Trucking, LLC (collectively “Pertl”). This court recently recounted the background of the subject loan transactions in a memorandum and order filed in the receivership proceedings at Docket No. 226. Additional factual background will be added here, as necessary, taken from GemCap's first amended complaint (“the complaint”) in the present matter. (Doc. 1-1.)

         Background

         In summary, GemCap, which specializes in loans to financially-distressed companies, loaned Pertl over $14 million dollars in 2017, allegedly in reliance on fraudulent misrepresentations about Pertl's true financial condition made by all defendants, acting in collusion. The loans were secured by Pertl's real and personal property, including livestock, and personal guaranties of Pertl family members. Following a series of forbearance agreements in 2018 provided by GemCap, again based on alleged misrepresentations, Pertl has now defaulted on these loans. GemCap has since discovered that Pertl also continued to borrow significant sums of money from a local bank, defendant BancCentral National Association (“BancCentral”). BancCentral now claims competing security interests in some of the same collateral GemCap believes it had previously secured. GemCap alleges that BancCentral has wrongfully extracted monies from Pertl bank accounts and misrepresented and withheld important information from GemCap related to Pertl collateral, and other financial transactions. Other defendants relevant to the present analysis include Pertl's chief financial officer, Christopher Tucker, and the ranch's owner, William Shane Pertl (“Shane”). Pertl's present Receiver, James Cullen, who, at the behest of GemCap, previously acted as its chief restructuring officer, also has a relevant role.

         Throughout the pertinent time period, Pertl received legal advice from Kansas attorney Jonathan W. Davis, who was employed by Van Osdol, PC, a Missouri-based law firm with a Kansas office. GemCap has named Van Osdol as a defendant, based on the doctrine of respondeat superior, which imposes vicarious liability on an employer for the conduct of its employee. (Doc. 146, at 6.) The complaint contains no separate allegations of wrongful conduct on the part of the firm. GemCap makes general allegations against Davis and Van Osdol (collectively “Davis”), including that Shane always consulted with Davis before Pertl made any commitments, that Davis was often a party to conference calls, that Davis was closely involved in Pertl's day-to-day operations, and that Davis advised Pertl on who to pay and how much. This conduct convinced GemCap that, “for all intents and purposes, ” Davis served as a Pertl officer, and his conduct “bled into” Pertl's fraudulent dealings with GemCap. (Doc. 1-1, at ¶¶ 45-47, 49.) GemCap's more specific allegations against Davis focus on three transactions: 1) the cash flow forecast; 2) the Cargill cattle sale; and 3) the preparation of the information memorandum.[2]

         The cash flow forecast

         As part of the amended forbearance agreement in October 2018, Pertl agreed to liquidate certain inventory and to provide Cullen with a cash flow forecast. Pertl told GemCap that it intended to sell cattle over the next thirteen weeks, the proceeds from which would enable Pertl to get the feedlot operation up and running, as well as to pay back some of the over-advances on GemCap's credit line. As the cattle were part of GemCap's collateral, Cullen requested that Pertl inform him of all pending cattle sales, and to provide him with all related paperwork. While preparing the cash flow forecast, Shane Pertl and Christopher Tucker asked Davis to review the draft. According to GemCap, Davis then instructed Shane and Tucker to remove all references to projected cattle and hay sales because those sales would “immediately place the Borrower in default under the forbearance.” (Doc. 1-1, at ¶ 49.)

         The cattle sale

         Pertl alleged that it sold over $500, 000 worth of cattle to Cargill in October 2018, but failed to produce any documented verification to Cullen or GemCap. Shane showed Cullen a text message from a “Lisa White, ” purportedly of Cargill, noting that the sale had gone through. Shane also put a call through to White, put Cullen on the line and had her verify the authenticity of the sale to him. Cullen was still suspicious but, according to GemCap, was reassured by Davis who confirmed the details of the sale and explained that Cargill traditionally did not provide documentation (that is, weight or scale tickets) for its livestock transactions. (Doc. 1-1, at ¶ 40.) Davis also corroborated that Cargill was typically slow in issuing payment.

         GemCap alleges that, the following month, November 2018, Shane admitted under oath that the whole Cargill cattle-sale story was a fabrication, and that Lisa White was a cell phone app invention. (Doc. 1-7, at 85-88.) According to GemCap, Shane admitted further that he had sold $3.5 million's worth of calves and cows during this time period, but never removed them from Pertl's official inventory and never paid over any of the proceeds to GemCap. (Doc. 1-7, at 77.) GemCap believes that Davis helped Shane carry out this deception, based on his integral role in all Pertl decision-making, and based on his comments to Cullen about Cargill.

         The information memorandum

         At around the same time, Cullen drafted an information memorandum for Pertl to provide to GemCap as a condition of the forbearance agreement. Cullen worked with Shane, Davis and Tucker to set forth an accurate picture of Pertl's assets. Before sending the memorandum to GemCap, Cullen sent copies to Shane, Davis and Tucker. Davis confirmed, in writing, that the information in the memorandum was accurate. However, in hindsight, GemCap later realized that the memorandum was inaccurate because it included the fabricated sale to Cargill. (Doc. 1-1, at ¶ 41.)

         The claims in the complaint

         According to GemCap, these allegations form the basis for five claims against Davis and Van Osdol, as set forth in GemCap's twelve-count complaint. In Count I, GemCap alleges that all defendants colluded and conspired in an elaborate scheme to defraud GemCap, in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq. Count IV alleges that Davis and Van Osdol, along with Shane, Tucker and the Does, committed fraud when they made representations to GemCap about Pertl's inventory base, assets, projected sales and the Cargill sale. In Count V, GemCap alleges that Davis, Shane and Tucker were negligent when they misrepresented Pertl's financial status, leading GemCap to believe, mistakenly, that Pertl would be able to fulfill its obligations. Count VI alleges professional negligence against Davis and the Does for issuing legal opinions misrepresenting Pertl's financial status in order to induce GemCap to loan Pertl money. And, finally, in Count XII, GemCap sets forth a claim under California's Business and Professions Code section 17200 ...


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