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Morgan Stanley High Yield Securities Inc. v. Jecklin

United States District Court, D. Nevada

April 30, 2018

HANS JECKLIN, et al., Defendants.



         I. Introduction

         Before the Court are Defendants' Motions for Summary Judgment, and Plaintiffs' Motion for Summary Judgment. ECF Nos. 231, 236, 239, and 321. For the reasons stated below, the motions are GRANTED in part and DENIED in part.

         II. Background

         The Morgan Stanley Plaintiffs bring this case alleging that Seven Circle Gaming Corporation (“SCGC”) (not a defendant) violated a Note Purchase Agreement (“NPA”) when it failed to purchase notes and warrants from Morgan Stanley in the amount of $29, 678, 269 on August 31, 2000. Plaintiff alleges that SCGC was a shell corporation and that the Defendants orchestrated and profited from the agreement between SCGC and the Morgan Stanley entities. Plaintiffs allege that following the default on the obligation, the Defendants funneled SCGC assets out of the United States to Switzerland. Plaintiffs won a judgment against Seven Circle Gaming Corporation (“SCGC”) on December 18, 2003 in the United States District Court for the Southern District of New York, and now seek to pierce the corporate veil to enforce the judgment against the Defendants in this case.

         The original Complaint in this matter was filed on November 29, 2005. ECF No. 1. The case was reassigned to this Court on October 20, 2016. ECF No. 431. The Court held a hearing on pending motions, including the instant motions for summary judgment on March 30, 2017. The Court took the motions for summary judgment under submission and denied without prejudice the remaining motions pending resolution of summary judgment. ECF No. 441.

         Plaintiffs have asserted three counts:

Count I - Declaratory Judgment of Alter-Ego Liability Against All Defendants: Pursuant to 28 U.S.C. § 2201(a) that all Defendants were alto egos of SCGC and the 7Circle Entities, as a matter of law.
Count II - Alternatively, Declaratory Judgment of Agency Liability Against Defendants Swiss Parents: Pursuant to 28 U.S.C. § 2201(a) that an agent/principal relationship existed between SCGC and the 7Circle Entitles, and, on the other hand, defendants SLG and JPC, as a matter of law.
Count III - Fraudulent Conveyance against all defendants: Plaintiffs seek declaratory judgment pursuant to N.R.S. § 112.180(1) and Del. Code. Ann. Tit. 6, § 1304(a) voiding the aforementioned transfers of funds and enjoining any further conveyance by the individual Defendants.

         Plaintiffs seek an order on all counts permitting and enabling Morgan Stanley to execute the full amount of the SDNY Judgment against defendants, plus post-judgment interest. Plaintiffs seek an order on all counts for costs and attorney's fees.

         III. Legal Standard

         Summary Judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); accord Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). When considering the propriety of summary judgment, the court views all facts and draws all inferences in the light most favorable to the nonmoving party. Gonzalez v. City of Anaheim, 747 F.3d 789, 793 (9th Cir. 2014). If the movant has carried its burden, the non-moving party “must do more than simply show that there is some metaphysical doubt as to the material facts…Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Scott v. Harris, 550 U.S. 372, 380 (2007).

         IV. Facts

         The Court has reviewed the facts presented in the motions and responses, as well as the tables of disputed facts presented by Defendant Haeberling and the “Jecklin Defendants” (Hans and Christiane Jecklin, Swiss Leisure Group AG, and JPC Holdings AG).

         A. Jurisdictional Facts

         The Court finds the following jurisdictional facts to be undisputed:

         SCGC's principal and only place of business was in Nevada from 1996 until its dissolution in 2003, the period in which all relevant acts occurred. SCGC's sole corporate purpose was to facilitate building a $340 million hotel/casino in Nevada - the Resort at Summerlin (“the Resort”) - which employed approximately 1800 Nevada residents. The Resort at Summerlin was developed and built by a limited partnership, The Resort at Summerlin, L.P., (“RASLP”) in which SCGC owned an approximately 70% interest. The general partner of RASLP, The Resort at Summerlin, Inc. (“RAS”), was a wholly-owned subsidiary of SCGC and owned a 1% interest in RASLP. SCGC and its key officers and directors were engaged in gaming activities in Nevada and held Nevada gaming licenses from 1997 to at least 2002. SCGC wholly-owned and held at least six Nevada corporations, all of which operated exclusively in Nevada. SCGC maintained all of its bank accounts at local branches of banks in Nevada.

         The Note Purchase Agreement was a contract for the sale of debt instruments in the form of Senior Subordinated Payment in Kind (“PIK”) Notes, which were held by seven Morgan Stanley investment funds, and were managed and advised by Morgan Stanley Investment Advisors. Morgan Stanley Investment Advisors is located in New York City. The NPA was negotiated by Matt Shulkin on behalf of Plaintiffs. Shulkin was based in New York City. Peter Avelar of Morgan Stanley signed the NPA on behalf of Plaintiffs. He was located in NYC in the same office as Shulkin.

         Defendant Tipton negotiated and signed the NPA on behalf of SCGC. From the time Mr. Shulkin began working at Morgan Stanley until the Resort filed for bankruptcy, Defendant Tipton met with Mr. Shulkin at least once a year. These meetings included more than three in-person meetings in New York over the course of several years. Except for one meeting in Nevada, all of Mr. Tipton's meetings with Mr. Shulkin took place in New York City, most often at Mr. Shulkin's office. Mr. Shulkin, based in New York City, initiated contact with SCGC regarding SCGC purchasing Morgan Stanley's notes. Mr. Tipton hired Salomon Smith Barney (“SSB”) in New York City to serve as a broker to facilitate the sale and purchase of the securities subject to the NPA. Morgan Stanley's legal counsel at the time of the negotiation and drafting of the NPA was Mayer Brown & Platt, in the person of Nazim Zilkha. During that time Mr. Zilkha was located in New York City. Mr. Avelar signed the NPA on behalf of Morgan Stanley while in New York City. Plaintiffs filed a lawsuit against SCGC for the breach of the NPA in New York.

         B. General Undisputed Facts

         The Court finds the following facts to be undisputed:

         1. The Parties and Relevant Entities

         During the relevant period, Plaintiffs were seven (7) investment funds (the “Plaintiff Funds”) owned by members of the investing public (including, inter alia, pension funds, individual investors and retirement plans) that were governed by a number of specific “investment objectives, policies and restrictions” (collectively, “Investment Objectives”), which their boards of trustees or directors were responsible for implementing. To manage their day-to-day affairs, the Plaintiff Funds, by vote of their shareholders and boards of directors/trustees, entered into a management agreement with an investment advisor and administrator, Morgan Stanley Investment Advisors (“MSIA”), on an annual basis.

         At all times MSIA reported to each Plaintiff's board of directors/trustees and shareholders, and had no authority to depart from Plaintiff's Investment Objectives. MSIA was at all relevant times a wholly-owned subsidiary of Morgan Stanley & Co., a publicly-traded corporation. As manager, MSIA acted as Plaintiffs' investment advisor and administrator to, among other things, pursue investments, manage the Plaintiff Funds' portfolios to ensure they fulfilled the objectives of each Plaintiff Fund, and file annual reports on behalf of each Plaintiff Fund. At no relevant time did any of Morgan Stanley & Co., MSIA, their affiliates or subsidiaries own shares in any of the Plaintiff Funds.

         SCGC, during the relevant period (1998 to 2003), was a Delaware company operating in Las Vegas, Nevada. SCGC was majority-owned by Defendant SLG, a Swiss company based in Zurich, and its minority shareholders included Defendants George Haeberling and John Tipton. SCGC's board members included Defendants Hans Jecklin, Christiane Jecklin, George Haeberling and John Tipton. For portions of the relevant period, Tipton was SCGC's CEO, president, CFO, secretary, treasurer and general counsel.

         During the relevant period, Defendant SLG was majority-owned by another Swiss company based in Zurich, Defendant JPC. Defendants Hans Jecklin, Christiane Jecklin and Haeberling were members of SLG's board of directors. Haeberling resigned from SLG's board in March of 2002. Also during the relevant period, Hans and Christiane Jecklin owned 75% and 25% of JPC, respectively. Hans Jecklin, Christiane Jecklin and Haeberling were also on JPC's board of directors. Haeberling resigned from JPC as well in March 2002.

         In 1992, SCGC formed a subsidiary, Seven Circle Resorts, Inc. (“SCR”). SCGC transferred its principal place of business from Easton, Maryland to Denver, Colorado, and hired a number of Denver-based executives to run SCR and SCGC, including Tipton as general counsel. At that time, Hans Jecklin also added Haeberling and Tipton to SCGC's board of directors.

         While SCGC was increasing its board membership, it also adopted expanded by-laws, which, inter alia, provided for the following:

Number of Directors. “The board of directors, by resolution, may increase or decrease the number of directors from time to time. * * * [E]ach director shall be elected at each annual meeting of stockholders and shall hold such office until the next annual meeting of stockholders and until his successor shall be elected and shall qualify. No. decrease in the number of directors shall have the effect of shortening the term of any incumbent director.” (Article III § 1.)
Place of Board of Meetings. “The regular or special meetings of the board of directors or any committee designated by the board shall be held at the principal office of [SCGC] or at any other place * * * that a majority of the board of directors * * * may designate from time to time by resolution.” (Article IV § 1.)
Notice of Special Board Meetings. “[W]ritten notice of each special meeting of the board of directors * * * shall be given to each director * * * not less than one (1) day prior to the time fixed for the meeting.” (Article IV § 4.)
Informal Action by Directors. “[A]ny action required * * * to be taken at any meeting of the board of directors * * * may be taken without a meeting if all members of the board * * * consent to the action in writing, and the written consents are filed with the minutes of proceedings of the board[.]” (Article IV § 9.)
Compensation of Officers. “The compensation of * * * employees of [SCGC] may be fixed by the board of directors * * * or by an officer to whom that function has been delegated by the board.” (Article V § 4.)
President. “The president shall be the chief executive officer of [SCGC] and shall have general supervision of the business of [SCGC].” (Article V § 7.)
Delegation of Officers' Duties. “Whenever an officer is absent, or whenever, for any reason, the board of directors may deem it desirable, the board may delegate the powers and duties of an officer to any other officer or officers or to any director or directors.” (Article V § 11.)

         2. The Resort Project

         SCGC was formed and incorporated in Delaware in 1988, with a principal place of business in Easton, Maryland. In 1996, Hans Jecklin sought to develop a resort and casino in the Summerlin area of Las Vegas, Nevada. The Howard Hughes Company (“Howard Hughes”) owned six (6) parcels that were zoned for gaming in the Summerlin Community (the “Gaming Parcels”). The Gaming Parcels were among the “few remaining pieces of property exempted from certain legislation (Senate Bill 208) passed by the Nevada legislature to restrict the development of local resort casinos/hotels.”

         In August 1996, SCGC's subsidiary, RASLP, purchased one (1) of the six (6) Gaming Parcels, a fifty-five (55) acre property known as “RAS1” with fresh funds from SCGC. On the same day, RASLP and Howard Hughes entered into a royalty agreement (“Royalty Agreement”), whereby RASLP agreed to pay Howard Hughes an annual royalty fee of $1, 000, 000 in exchange for, inter alia, the right to purchase the remaining five (5) Gaming Parcels in the event that Howard Hughes determined to make the Gaming Parcels available for development (“Rights of First Offer”).

         SCGC's wholly-owned subsidiary, RAS raised capital through a public offering to fund construction of the Resort. Specifically, in December 1997, after obtaining the requisite gaming licenses from the Nevada Gaming Control Board to build the Resort, RAS raised $200 million by issuing to the public $100 million in secured first mortgage notes (“First Mortgage Notes”) and $100 million in unsecured senior subordinated notes (“Senior Subordinated Notes”). RAS thereafter entered into a credit agreement (“Credit Agreement”) with the First Mortgage Note holders and an indenture agreement (“Indenture Agreement”) with the Senior Subordinated Note holders to govern the terms of repayment. In early 1998, Plaintiffs purchased approximately $40 million of the Senior Subordinated Notes, which are the subject of the August 2000 NPA. In an entirely unrelated transaction, MS Senior Funding Inc. (“MS Senior Funding”), which was not affiliated with the Plaintiff Funds, purchased First Mortgage Notes.

         In 1998, the Jecklins moved from Maryland to a home outside of Las Vegas, known as “Eagle Rock, ” to oversee development of the Resort.

         3. The Note Purchase Agreement

         In May 2000, John Tipton contacted Plaintiffs and offered to have SCGC or an affiliate purchase their notes at a discount of approximately $0.70 on the dollar. After some negotiation over the course of May and June 2000, Tipton and Plaintiffs agreed to a price for the notes of $0.74 on the dollar. Thereafter, Tipton drafted the NPA, according to which Plaintiffs' notes were to be purchased on July 31, 2000. Through several rounds of drafts, the buyer in the draft NPA was changed, initially from JPC to SLG, and subsequently, from SLG to SCGC.

         Just before the scheduled execution of the NPA by Plaintiffs and SCGC, SCGC requested that the closing be extended by one month. In consideration for the extension, SCGC offered to pay Plaintiffs an additional $0.02 on the dollar. Plaintiffs agreed to the extension, and on August 3, 2000, the parties signed the NPA, pursuant to which SCGC would purchase Plaintiffs' notes for $0.76 on the dollar, namely $29.7 million, on August 31, 2000.

         4. Default on the Note Purchase Agreement and Abandonment of the Resort Project

         On August 30, 2000, Wolfgang Gross, the Chief Financial Officer of Defendants SLG and JPC, sent a memorandum to Hans Jecklin recommending that “exit strategies” be reviewed. On August 31, 2000, Gross sent a further memorandum stating that SCGC and Swiss Casino Holdings AG had a combined total of approximately 1.8 million at their disposal, while “the entire financial need . . . of the resort is over $100 million.” He further recommended that funds not be used for repayment of debt principal in the United States, and that the “warning process” triggered by nonpayment would provide time to “define the necessary communications and exit strategies.” On September 1, 2000, SCGC informed SSB that it would not be funding the purchase. SSB returned the Notes to the Funds.

         Defendants' “business consultant, ” Dr. Ulrich Richard, produced an internal memorandum dated October 24, 2000, stating that Plaintiffs were owed the purchase price of approximately $30 million. In an earlier memo dated October 12-18, 2000, Defendant George Haeberling had recommended that Tipton “prepare” the transfer of the Jecklin's “private house, ” Eagle Rock, and cars to their sons.

         In a legal memo dated August 21, 2001, Haeberling warned of litigation risks. Specifically, he wrote the following:

“Within the framework of these proceedings, the plaintiffs want to expose everything that can be interpreted as culpable conduct by the officers. There are unfortunately more than enough suitable examples, such as the following: 4th Amendment to the credit agreement (Morgan Stanley / Hunter); Options with Howard Hughes for the five casino parcels: transfer of the rights from RAS to SCRE; Preference payments prior to the beginning of Chapter 11 (incl. lease payments to SCA); Other instances of preferential treatment of insiders (for example, lease contracts with Gustav); “improper” or “fraudulent” management prior to the beginning of Chapter 11;

         He further warned:

“Plaintiffs will aim their guns primarily at JT (due to his dual role as chief officer of the corporations involved and as “architect” and “foreman” of all of the sets of contracts) . . . the door will be opened for the plaintiffs' piercing of the corporate veil to reach SLG (formerly SCH) . . . The fact that, with increasing difficulty on the part of the resort, an increasing number of Swiss “top shots” were flown in, some of whom engaged in more than mere analysis or consulting will be played up and exploited . . . [John Tipton] will in effect facilitate the pricing of the corporate veil. Such piercing of the corporate veil cannot in any way be ruled out at this point in time.”

         5. Additional Memoranda and Minutes

         In a confidential memo dated October 12-18, 2000, Defendant George Haeberling included a section entitled “Boards (especially SOA, RAS, Inc.). Under “measures, ” he notes that he (Haeberling) would take over the Swiss representation on site at least until the Ch. 11 procedure is completed. The memo further reads as follows: “Framework conditions: . . . [George Haeberling] is on site 2 weeks per month; no important decisions without previous consultation with [Hans Jecklin] and “Hans Rihs”; [John Tipton] reports to [George Haeberling.].”

         December 12, 2000 minutes for Swiss Casino Holdings, AG (“SCH”) (another name for Defendant SLG), for a meeting at which, according to the minutes, Haeberling and the Jecklins were present, occurring two weeks after Haeberling “resigned from all of the other U.S. entities on whose boards he had been serving, ” in order “to avoid potential conflicts of interest, ” state that “Hans Jecklin proposed that a USA task force (“de facto board” be designated with Dr. Schweizer, Dr. Haberling [sic], Martin Egli (Swiss Partner), Christa Jecklin and himself, because he sees an urgent need for action for further decisions.” The same minutes dated December 12, 2000 for Swiss Casino Holdings AG state that Haeberling was present as a “delegate” and that Haeberling was tasked by the board with “investigating whether, and the extent to which, the funds arising from the land sale in the U.S. can be transferred to Switzerland.”

         6. Allegedly Fraudulent Transfers

         Defendants maintained two sets of board minutes for the same company, Seven Circle Real Estate Company, for a meeting on the same date at the same time and in the same place, February 4, 2001 at 6:00 p.m. in Zurich, Switzlerland. The first bears a time stamp from what appears to be a record of a fax, with the date February 8, 2001, and a telephone number beginning in 41, the dialing code for Switzlerland. The second set do not contain any indication of a date. The first document states that “the only item of business was a discussion of the potential to lend certain sums of money from the Corporation to either Hans Jecklin personally or to Tivolino, A.G. The amount to be lent was determined to be ten million dollars for a one-year period at an interest rate of twelve percent per anum, ” which would be secured by stock holdings. The second set of Board Minutes state that “the only item of business was a discussion of the repayment of those certain promissory notes between SCRE, SCA, and SCR, Inc., dated March 31, 2000, ” and describe how the loan was intended to ultimately repay UBS for funds that SLG had purportedly borrowed from UBS in connection with building the Resort. Both documents are signed by the Jecklins and note that “the director absent was John Tipton, ” who did not sign either. Tipton testified that he reviewed, edited, and approved these minutes.

         C. Disputed Facts

         The Court finds the following additional facts to be supported by disputed evidence:

         1. The Resort Project

         In 1998, the Jecklins moved from Maryland to a home outside of Las Vegas, known as “Eagle Rock, ” to oversee development of the Resort. SCGC, with certain of its subsidiaries, purchased the Jecklin's home with money that was intended for the Resort's construction costs. The Jecklins, also at SCGC's expense, made a number of renovations and additions to Eagle Rock, including extensive landscaping, installing customized marble European-style bathrooms, and building an expensive pool. In addition, SCGC purchased a private golf membership for Hans Jecklin's “personal golf use.”

         To attend to matters locally, the Jecklins hired, at the expense of SCGC's subsidiary, housekeeper Sofia Mejia. Mejia's responsibilities included “clean[ing] the house, ” picking up and dropping off the Jecklin family's dry cleaning, and stocking the kitchen. In addition, Mejia purchased and sent luxury items to the Jecklins' relatives on their behalf, including, for example, chocolates to a relative in British Columbia. At no time did Mejia ever provide any services to RAS or any of its affiliates. In 1999 the Jecklins sold “Southerly Farm, ” a 65-acre residence in Maryland purchased by SCGC, for approximately $2 million. The proceeds were transferred to an account “in Switzlerland.”

         In addition to the debt financing, RAS also received equity investments through SCGC, which eventually totaled approximately $144 million. SCGC funded those equity investments by borrowing $150 million from its Swiss parent, SLG, pursuant to a series of loan agreements because SCGC generated no revenue of its own. Under the loan agreements, SCGC was required to make monthly interest payments to SLG.

         As a majority shareholder of RAS, SCGC, as well as its shareholders, directors and officers, were subject to regulation by the Nevada Gaming Commission and Nevada Gaming Control Board (collectively, “Nevada Gaming Authorities”). Specifically, the Nevada Gaming Authorities were required to “investigate any individual [and/or corporation] who ha[d] a material relationship to, or material involvement with, [RAS].” In view of the fact that Hans Jecklin, Christiane Jecklin, Haeberling and Tipton were materially involved in the development, construction and operation of the Resort, each petitioned for, and obtained, Nevada gaming licenses.

         A number of factors contributed to substantial construction delays of the Resort. Defendants hired Swiss advisors to advise SCGC and its subsidiaries, “transmit [Hans Jecklin's] decisions, ” and convey his objectives. Mr. Haeberling suggested in a communication to Sean McGuiness that Hans Jecklin “is in charge of all aspects of our U.S. business.”

         In February 1999, for example, Hans Jecklin, chairman of SCGC's board of directors, informed the board by memorandum that Hans Ziegler, his personal Swiss advisor, would act as his representative, would “transmit his decisions, ” and would attend all board and directors' meetings. Among the “agreed upon objectives for Hans Ziegler as Jecklin's representative, would be: “project budget and timetable, ” “financing, ” and “operating budget.”

         Beginning in June 1999, Haeberling and Gross began traveling regularly to Nevada. They helped to “oversee operations, ” and “streamline relations and reconcile problems.” In particular, they took part in meetings at which certain issues were to be “discussed and decided.” These included “milestones” for the completion of construction of the Resort, and implementation of an “urgent costcutting program, ” and “financial engineering for dramatic shortfall to be expected.”

         In mid-1999, Hans Jecklin added another Swiss advisor, Ernst Brugger, to SCGC's board to oversee construction of the Resort and assist Hans Jecklin in firing officers and removing directors that were not sufficiently solicitous of the Swiss point of view. For example, in late 1999, and without the required shareholder and board approval, Hans Jecklin and Brugger held a private meeting with McMullan and instructed him to fire Jim Fonseca and Quinton Boshoff from their positions at SCGC and its subsidiaries, without notification to or the authorization of SCGC's board of directors. After McMullan fired Boshoff and Fonseca, Hans Jecklin and Brugger summoned him to a meeting in Switzerland, where they advised McMullan that they had removed him, in addition to Boshoff and Fonseca, from SCGC's board of directors, and requested that he resign as president and CEO of SCGC, again, without the requisite authorization from SCGC's shareholders and board of directors.

         Following the termination of McMullan, Fonseca and Boshoff, Defendants inserted SLG's and JPC's CFO, Wolfgang Gross, as a senior authority of SCGC and its subsidiaries, whose decisions “should be considered as decisions made by Mr. Jecklin.” Gross had not been elected to any of those positions, did not report to any officers of SCGC or its subsidiaries, was not compensated by SCGC or any of its subsidiaries, and did not hold a Nevada gaming license. Gross was to spend “at least fifty percent of his time” on the project of building the Resort. Gross regularly attended the board meetings of SCGC and its subsidiaries and made financial decisions on their behalf.

         By 2000, the nominal officers of SCGC and its subsidiaries had been stripped of the authority to approve any and all payments; “[a]ny expense [of SCGC or any of its subsidiaries], small or large” was to be approved by Tipton, and one of Hans Jecklin, Gross or Brugger.

         In January 2000, Howard Hughes notified RAS that it was offering for sale a Gaming Parcel known as “RAS2” for approximately $30 million, which required RAS to exercise, or decline to exercise, one of its Rights of First Offer. Because RAS did not have the financial wherewithal to purchase RAS2, RAS assigned its Right of First Offer to SCGC with the understanding that “[a]ny interest retained by SCGC in [RAS2] development and any other economic benefit from [RAS2] [would] be shared [with RAS].” RAS retained the Rights of First Offer with respect to the four (4) remaining Gaming Parcels.

         Upon obtaining the Right of First Offer for RAS2, SCGC formed a wholly-owned subsidiary, Seven Circle Real Estate Company (“SCRE”) for the sole purpose of purchasing RAS2. To pay for RAS2, SCRE borrowed from a number of sources, including $10 million from SCGC. To fund that loan, SCGC, in turn, borrowed $10 million from SLG. On January 18, 2000, SCRE purchased RAS2.

         2. The Note Purchase Agreement

         Hans Jecklin, with the assistance of his Swiss advisors, Tipton, and Gross, took “the lead in all the decision making [related] to [the] turnaround” of the Resort, though neither the SCGC board nor the RAS board had granted them such powers. The Resort continued to “drift[] towards collapse.” In an effort known as “Project Black Jack, ” SSB recommended a restructuring that included SCGC and its affiliates retiring as much debt as possible at a discount. Despite the fact that SCGC's debts substantially exceeded its assets, SCGC took SSB's advice and started to retire debt at a discount in early 2000.

         3. Default on the Note Purchase Agreement and Abandonment of the Resort Project

         RAS transferred $2.9 million in cash to SCGC's account so that SCGC could pay PDS Gaming Corporation (“PDS”), a company that leased gaming equipment to the Resort and in which the Jecklins had personally invested, the entire amount it was owed by RAS. In 2004, PDS hired Tipton as its general counsel. Days after RAS filed for bankruptcy on November 21, 2000, and upon learning of these payments, the creditors' committee, on behalf of debtor, and Wilmington Trust Company, on behalf of the First Mortgage Note holders, filed suit against SCGC, PDS, and others to recover the $2.9 million (“PDS Litigation”). In March 2002, the parties settled the PDS Litigation as part a larger settlement agreement.

         In mid-August 2000, SCGC hired SSB to act as its broker to purchase Plaintiffs' notes. Gross calculated that even with a successful restructuring of RAS's debt, which would include the purchase of Plaintiffs' notes on August 31, 2000, the Resort would still require an additional $108 million to continue operating.

         The Jecklins divested themselves of assets held in the United States. Among other things, they planned to direct Tipton to prepare the legal papers necessary to transfer certain of the Jecklins' private assets in the United States to their sons.

         Without regard to the governing by-laws and in contravention of other corporate formalities, SCGC and its operating entity, SCR, pared down their number of board members to include only the four individual Defendants. For example, on September 6, 2000, SCGC-as evidenced by a memorandum signed only by Hans Jecklin, as chairman of the sole shareholder, SCA, A.G.-elected Hans Jecklin, Tipton and Haeberling as directors of SCR to eliminate the only non-Defendant board member, Brugger. Similarly, on November 8, 2000, the Jecklins and Tipton appointed themselves SCGC's only board members, thereby eliminating non-Defendants Peter Meier (a director on the boards of SLG and JPC), Bud Hicks (a Nevada attorney), and Chris Brady (an unrelated Swiss businessman), again in violation of SCGC's by-laws.

         In October 2000, Hans Jecklin hired Ulrich Richard, another Swiss advisor, to act on his behalf in Las Vegas. In particular, Hans Jecklin tasked Richard with evaluating whether SCGC, and in turn, SLG, could recover any funds from RAS before the Resort filed for bankruptcy. For example, Richard, with the assistance of Haeberling, analyzed whether SCGC would be able to send $1, 875, 000 (funds set aside by SCGC for a down payment on the purchase of RAS2), “to Switzerland.” Richard, in reporting the results of this analysis, stated that: “if SCGC sends the remaining $1, 875, 000 to Switzerland, then it will immediately run out of [funds], ” which, in Richard's opinion, left the Jecklins “no other choice but to wait for two months or so to see whether [they could] actually sell [RAS2].” Richard was terminated. Haeberling was tasked by the board of SCH (now SLG) with continuing to “investigat[e] whether, and the extent to which, funds arising from the [RAS2] sale in the U.S. [could] be transferred to Switzerland.”

         4. Allegedly ...

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