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Morgan Stanley High Yield Securities Inc. v. Jecklin

United States District Court, D. Nevada

March 31, 2019

MORGAN STANLEY HIGH YIELD SECURITIES INC., et al., Plaintiffs,
v.
HANS JECKLIN, CHRISTIANE JECKLIN, GEORGE HAEBERLING, JOHN TIPTON, SWISS LEISURE GROUP AG, AND JPC HOLDING AG, Defendants.

          ORDER FINDINGS OF FACT AND CONCLUSIONS OF LAW AFTER COURT TRIAL

          RICHARD F. BOULWARE, II, UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         This case is a veil-piercing action in which Plaintiffs seeks to enforce a judgment against Defendants that was entered against Seven Circle Gaming Corporation on December 18, 2003 in the United States District Court for the Southern District of New York. The Court held an eight-day bench trial in this case from April 30, 2018 through May 10, 2018. The Court rules in favor of Plaintiffs and against Defendant Hans Jacklin based on the following findings of fact and conclusions of law.

         II. PROCEDURAL BACKGROUND

         Plaintiffs filed the original Complaint on November 29, 2005. ECF No. 1. Plaintiffs asserted three counts: (1) Declaratory Judgment of Alter Ego Liability Against All Defendants, (2) Declaratory Judgment of Agency Liability Against Defendants Swiss Parents, and (3) Fraudulent Conveyance Against All Defendants. Id. The case was reassigned to this Court on October 20, 2016. ECF No. 431.

         On March 31, 2017, the Court denied Plaintiffs' motion for summary judgment. ECF No. 443. The Court granted in part and denied in part Defendants' motion for summary judgment. Id. The Court dismissed two fraudulent transfer claims against Defendants Hans Jecklin and Christine Jecklin; all fraudulent transfer claims against Defendant John Tipton except the two transfers dated March 8, 2002 and July 16, 2002; and all fraudulent transfer claims against Defendant George Haeberling. ECF No. 545. Plaintiffs proceeded on the remaining fraudulent transfer claims as well as their theories of alter ego and agency liability. Id.

         Following the bench trial that took place from April 30, 2018 to May 10, 2018, the Court took the matter under submission.

         III. JURISDICTION AND VENUE

         This Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332, as the parties are citizens of different states and the amount in controversy exceeds $75, 000. Venue is proper because the incident from which this dispute arose occurred within Clark County, Nevada.

         IV. FINDINGS OF FACT

         Federal Rule of Civil Procedure 52(a)(1) requires the Court to “find the facts specially and state its conclusions of law separately.” Fed.R.Civ.P. 52(a)(1). The court must make findings sufficient to indicate the factual basis for its ultimate conclusion. Kelley v. Everglades Drainage District, 319 U.S. 415, 422 (1943). The findings must be “explicit enough to give the appellate court a clear understanding of the basis of the trial court's decision, and to enable it to determine the ground on which the trial court reached its decision.” United States v. Alpine Land & Reservoir Co., 697 F.2d 851, 856 (9th Cir.), cert. denied, 464 U.S. 863 (1983) (citations omitted).

         Accordingly, following the bench trial and having reviewed all of the evidence and observed all of the witnesses, the Court makes the following findings of fact in this case.

         A. The Parties

         1. Plaintiff Morgan Stanley High Yield Securities Inc. (“MSHYS”) was, during the relevant time period, a corporation organized under the laws of Maryland.

         2. The other six Plaintiffs-Morgan Stanley High Income Advantage Trust (“HIAT”), Morgan Stanley High Income Advantage Trust II (“HIAT II”), Morgan Stanley High Income Advantage Trust III (“HIAT III”), Morgan Stanley Diversified Income Trust, Morgan Stanley Variable Investment Series (“MSVIS”), and Morgan Stanley Select Dimensions Investment Series (“MSSDIS”) (collectively with MSHYS, the “Plaintiff Funds” or “Funds”)-were unincorporated business trusts organized under the laws of Massachusetts.

         3. At all relevant times, the Plaintiff Funds were all investment funds owned by members of the investing public.

         4. Defendant JPC Holding AG, formerly known as Tivolino Holding AG, (“JPC”) is a Swiss corporation with its principal place of business located at Bahnhofstrasse 1, 8808 Pfäffikon, Zurich, Switzerland.

         5. Defendant Swiss Leisure Group AG, formerly known as Swiss Casinos Holding AG, (“SLG”) is a Swiss corporation with its principal place of business located at Bahnhofstrasse 1, 8808 Pfäffikon, Zurich, Switzerland.

         6. Defendants Hans Jecklin and Christiane Jecklin are Swiss citizens, residing at Lindenstrasse 6, 8832 Wollerau, Switzerland.

         7. Defendant George Haeberling is a Swiss citizen, residing in 6300 Zug, Switzerland.

         8. Defendant John Tipton is a United States citizen, residing at 11633 La Mirago Place, Las Vegas, Nevada 89138.

         B. The Relationships Between Defendants and the Various Corporate Entities

         9. JPC was formed in 1975. Hans and Christiane Jecklin own 75% and 25% of JPC, respectively. Hans Jecklin was a director and board president between 1975 and 2009. Christiane Jecklin was a director between 1980 and 2009. Haeberling was a director between 1992 and 2002.

         10. SLG is a holding company for JPC's gaming activities. Until 2001, JPC owned 100% of SLG. Hans Jecklin was a director between 1997 and 2002 and board president between 1998 and 2002. Christiane Jecklin was a director between 1998 and 2002. Haeberling was a director between 1998 and 2002.

         11. Seven Circle Gaming Company (“SCGC”) is not a party to this case but is a judgment debtor to Plaintiffs. SCGC was formed in 1988 in Delaware and its principal place of business was in Delaware. It was formerly known as Swiss Casinos of America, Inc., and before that as Tivolino Holding (US), Inc. From 1997, SCGC operated in Las Vegas, Nevada.

         12. SCGC was majority-owned by Defendant SLG. SLG's ownership of SCGC ranged from 82% in February 1997 to 98.8% in September 2001. Haeberling was a 1% shareholder at all relevant times. Tipton was a 3% shareholder between 1994 and 2000. The Jecklins did not own any shares of SCGC individually, but together owned 100% of JPC, which owned 100% of SLG, which owned a majority of SCGC.

         13. The following Defendants were board members or officers of SCGC at some point. Hans Jecklin was a director from 1988 to 2006 and was the president, secretary, and treasurer from 2004 to 2006. Hans Jecklin was SCGC's sole officer from 2004 onwards. Christiane Jecklin was a director from 2000 to 2004. Haeberling was a director from 2000 to 2001. Tipton was a director from 1994 to 2004, president from 1999 to 2004, CEO from 2001 to 2002, CFO from 1994 to 2000, secretary and treasurer from 2000 to 2001, and general counsel from 1994 to 2004.

         14. SCGC owned The Resort at Summerlin, Inc. (“RAS Inc.”), The Resort at Summerlin, L.P. (“RAS”), Seven Circle Resorts Inc. (“SCR”), Seven Circle Real Estate Company (“SCRE”), and twelve other wholly-owned subsidiaries. Hans Jecklin, Christiane Jecklin, Haeberling, and Tipton served as board members and officers of these subsidiaries at different points during the relevant time period as well. These positions will be described in more detail as necessary.

         C. SCGC's Formation and Operations

         15. Hans Jecklin founded JPC in 1975. SLG became the holding company for all of JPC's gaming activities. By the early 2000s, SLG was Switzerland's largest casino operator. During the 1980s and 1990s, SLG invested in other gaming activities in Europe, including in the Netherlands and Great Britain.

         16. With the intention of investing in gaming activities in the United States, SLG created SCGC and incorporated it under the laws of Delaware in November 1988.

         17. SLG initially owned 82% of SCGC and various minority shareholders owned the other 18%.

         18. To fund SCGC, SLG contributed $50, 000 in equity and loaned SCGC an additional $200, 000.

         19. Hans Jecklin then applied for and was granted a visa from the Immigration and Naturalization Services (“INS”) to work in Maryland and reside there with Christiane Jecklin and their children.

         20. In 1992, SCGC formed a wholly-owned subsidiary, Seven Circle Resorts, Inc. (“SCR”), which focused its efforts on developing and managing a casino in Colorado, managing a handful of casinos on Native American reservations, and pursuing possible gaming opportunities in Texas and Pennsylvania.

         21. In 1994, SCGC's board of directors elected Tipton, who was already a director of SCGC, as its Vice President, Chief Financial Officer, and General Counsel.

         22. Tipton held positions as President, CEO, CFO, Secretary, Treasurer, and General Counsel of SCR, and was an officer of SCR from 2000 through 2002.

         23. SCGC also adopted expanded by-laws in 1993, 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. Notice of special meetings may be either given personally, personally by telephone, or by sending a copy of the notice through the United States mail or by telegram, telex or telecopy, charges prepaid, to the address of each director appearing on the books of the Corporation. * * * Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such 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.)

         24. The board members and officers of SCGC were familiar with these bylaws.

         D. Development of the Resort at Summerlin

         25. In 1996, SCGC began the development of the Resort at Summerlin, a luxury spa resort and casino in Las Vegas, Nevada.

         26. In 1996, SCGC formed The Resort at Summerlin, Inc. (“RASI”), a wholly-owned subsidiary of SCGC, which was the General Partner of The Resort at Summerlin, L.P. (“RASLP”) (together with RASI, “RAS”), the entity responsible for the construction and management of the Las Vegas resort and casino that would be known as The Resort at Summerlin, and later the Regent Las Vegas (the “Resort”).

         27. Beginning at latest in June 1999 and continuing through at least May 2000, Hans Jecklin was a Director and Chairman of RASI.

         28. Tipton was an officer and Director at RASI from the late 1990s until the fall of 2000.

         29. The Resort at Summerlin was constructed in Summerlin, a master-planned community development just outside of Las Vegas.

         30. The Howard Hughes Company (“Howard Hughes”) owned six parcels that were zoned for gaming in Summerlin (the “Gaming Parcels”).

         31. The Gaming Parcels were among the few remaining pieces of property exempted from legislation passed by the Nevada legislature to restrict the development of local resort casinos/hotels.

         32. In August 1996, SCGC's subsidiary, RASLP, purchased one (1) of the six (6) Gaming Parcels, a fifty-five acre property known as “RAS1” with funds from SCGC.

         33. On the same day, RASLP and Howard Hughes entered into a 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 Gaming Parcels in the event that Howard Hughes determined to make the Gaming Parcels available for development (“Rights of First Offer”).

         34. Once RASLP had purchased RAS1, RAS raised $200 million in capital through a public offering, in addition to $144 million in funding from SCGC to fund construction of the Resort.

         35. Specifically, in December 1997, after obtaining the requisite gaming licenses from the Nevada Gaming Commission, RAS raised $200 million by, inter alia, issuing $100 million in unsecured senior subordinated notes (“Senior Subordinated Notes”).

         36. In early 1998, Plaintiffs purchased approximately $40 million of the Senior Subordinated Notes, which later became the subject of the August 2000 Note Purchase Agreement.

         37. Specifically, with respect to the Senior Subordinated Notes, HIAT purchased $1, 200, 255, HIAT II purchased $1, 801, 980, HIAT III purchased $599, 595, Morgan Stanley Flexible Income Trust purchased $3, 904, 290, MSVIS purchased $7, 210, 050, Morgan Stanley Select Dimension Investment Series purchased $299, 265, and Morgan Stanley High Yield Services Inc. purchased $24, 035, 920.

         38. In addition to the public debt financing, RAS also received investments through SCGC totaling approximately $144 million, which SCGC funded by borrowing $150 million from SLG.

         39. SCGC borrowed money from SLG to fund investments in RAS because SCGC generated no significant revenue of its own.

         40. SLG classified its investment in SCGC as a series of loans.

         41. SCGC made some initial interest payments, but stopped paying interest to SLG in May 1999 because it did not have the funds to continue making interest payments.

         42. As of March 31, 2000, SCGC's Consolidating Balance Sheet showed that its assets were approximately $44.7 million and ...


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