# Halperin v. Moreno (In re Green Field Energy Servs., Inc.)

> United States Bankruptcy Court, D. Delaware · September 12, 2018 · 594 B.R. 239

URL: https://www.frixlaw.com/law-library/cases/8501801

## Case

- **Full name:** IN RE: GREEN FIELD ENERGY SERVICES, INC., Debtors. Alan Halperin, as Trustee of the GFES Liquidation Trust v. Michel B. Moreno MOR MGH Holdings, LLC Frac Rentals, LLC Turbine Generation Services, LLC Aerodynamic, LLC Casafin II, LLC
- **Court:** United States Bankruptcy Court, D. Delaware
- **Decided:** September 12, 2018
- **Citations:** 594 B.R. 239
- **Precedential status:** Published
- **Opinion:** Opinion of the court
- **Cited by:** 5 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8501801

## How later opinions describe it (automated extraction)

- finding that an individual’s management and ownership of transferee entities did not mean he was the beneficiary of transfers because there was no evidence that he personally received transfers or had access to them
- finding the trustee’s argument insufficient by itself to prove the defendant “received an actual benefit from the . . . transfers”

## Opinion text

OPINION AND FINDINGS OF FACT AND CONCLUSIONS OF LAW
KEVIN GROSS, U.S.B.J.
I. INTRODUCTION 1
This Opinion follows the trial in the adversary proceeding on March 19-23, 2018, and May 1-2, 2018. The parties are plaintiff Alan Halperin, as Trustee of the GFES Liquidation Trust ("Trustee" or "Plaintiff"), and defendants Michel B. Moreno ("Moreno"), MOR MGH Holdings, LLC ("MGH Holdings"), Frac Rentals, LLC
*247 ("Frac Rentals"), Aerodynamic, LLC ("Aerodynamic"), Casafin II, LLC ("Casafin"), and Turbine Generation Services, LLC ("TGS" and together with Moreno, MGH Holdings, Frac Rentals, Aerodynamic, and Casafin, "Defendants"). At trial, the Court heard live testimony from Moreno, Ted McIntyre ("McIntyre"), former officer and director Enrique Fontova ("Fontova"), former director Charles Kilgore ("Kilgore"), and the experts presented by both parties, Christopher J. Kearns ("Kearns") (for the Trustee) and Rodney W. Sowards ("Sowards") (for Defendants). The Court also considered extensive stipulated facts, and reviewed prior deposition testimony from both live witnesses and witnesses who were outside the district and had not volunteered to testify at trial. 2
The Trustee filed this adversary proceeding on April 6, 2015, following confirmation of the plan of liquidation of debtors Green Field Energy Services, Inc., et al. (the "Debtor" or "Green Field"). Before its bankruptcy in 2013 and ultimate liquidation in 2014, Debtor was an oil services business. It differentiated itself by using frac pressure pumps powered by aero-derivative turbine engines. The use of this technology allowed Green Field to operate and compete on a smaller footprint with more fuel flexibility, including natural gas or field gas, as opposed to diesel fuel traditionally used by competitors.
Within months of closing on a high-yield bond offering in 2011, and in the midst of Green Field's ramp up, the demand for frac services declined, causing liquidity problems and creating the need for Debtor to find alternative sources of capital. Moreno's search for capital led him to General Electric Company and its affiliate GE Oil & Gas, LLC ("GEOG" and, collectively with General Electric Company, "GE"), which expressed interest in an even newer start-up joint venture under which Moreno or Green Field would produce turbine-powered power generator units (instead of turbine-powered frac pumps) to be leased to the same producers targeted by Debtor for its traditional oil services.
The Trustee's Complaint 3 originally pleaded 35 counts in four broad categories: (1) Counts 1-10 related to the transfer of the so-called power generation business ("PowerGen" or "power generation") opportunity; (2) Counts 11-14 related to the two share purchase agreements; (3) Counts 15-26 related to various alleged preferential and/or fraudulent transfers; and (4) Counts 27-35 sought disallowance and/or subordination of various administrative claims and proofs of claim filed by Moreno and/or entities he controls.
The Trustee has settled and dismissed Causes of Action ("Count") 9, and 10, against all Director Defendants. The Trustee also settled Counts 11 and 33 as against one of Debtor's former shareholders-Moody, Moreno and Rucks, LLC ("MMR"), which was dismissed from this proceeding. The Trustee also voluntarily withdrew Counts 4, 5, 13, 15, 16, 17, 18, 20, 22, 25, and 26.
On January 24, 2018, the Court entered a Memorandum Opinion and Order on the *248 parties' cross motions for partial summary judgment (D.I 463, 464) (the "SJ Opinion"), resolving Counts 19, 23, 24, 30, 31, 34, and 35. As a result of the Court's partial ruling in the SJ Opinion, the Trustee voluntarily withdrew Count 21.
By two subsequent orders on both parties' motions to reconsider and to amend (Memorandum Order Denying Motion to Reconsider, D.I. 473; Memorandum Order re Motion to Amend, D.I. 476), the Court clarified its SJ Opinion concerning the share purchase agreement theories under Counts 11 and 12, and the Court narrowed issues for trial on Moreno's alleged "transfer beneficiary" liability which the Trustee asserts under 11 U.S.C. § 550 (a)(1) in Counts 19, 23 and 24.
Accordingly, the issues presented for trial included:
1) Counts 1, 2, 3, 6 and 7 - fraudulent transfer, breach of fiduciary duty and corporate waste claims against Moreno and TGS related to the alleged transfer or waiver of the power generation business; 4
2) Counts 11, 12 and 14 - breach of contract, breach of fiduciary duty and tortious interference claims against MGH Holdings and Moreno related to the alleged breaches of the two SPA contracts between Debtor and MGH Holdings; and
3) Counts 19, 23 and 24 - Moreno's personal liability for any avoidable transfers under the "transfer beneficiary" theory of 11 U.S.C. § 550 (a)(1).
II. BASIS FOR JURISDICTION
The Trustee and Defendants have agreed that counts 1, 2, 19, 23 and 24 are statutorily "core" claims within the meaning of 28 U.S.C. § 157 (b)(2). They have also agreed that counts 3, 6, 7 and 14 are "non-core" claims. See D.I. 288. The Trustee and Defendants dispute whether Counts 11 and 12 are core claims. MGH Holdings has not filed a claim in Green Field's bankruptcy case. Therefore, the Court finds that the Trustee's claims against MGH Holdings for pre-petition breaches of two pre-petition contracts are not "core" claims under 28 U.S.C. § 157 (b)(2).
The Trustee consents to the Court's entry of final orders or judgments in connection with this adversary proceeding. The Trustee also asserts that the Court has statutory and constitutional authority to enter final orders or judgments with respect to the core claims at issue in this case. 28 U.S. C. § 157(b)(2) ; In re Millennium Lab Holdings II, LLC , 575 B.R. 252 , 261-62 (Bankr. D. Del. 2017) (holding that Stern v. Marshall, 564 U.S. 462 , 131 S.Ct. 2594 , 180 L.Ed.2d 475 (2011), does not prevent a bankruptcy judge from entering final orders in statutorily core proceedings).
Defendants do not consent to the Court's entry of final orders or judgments *249 with respect to the non-core claims in this adversary proceeding. Defendants have not consented to the Court's constitutional authority to enter final judgment in this matter. They have expressly reserved such rights since Defendants' initial filings in this proceeding. The Court will enter judgment on the core claims and will issue proposed findings of fact and conclusions of law for the non-core claims.
The Court finds that it has both statutory and constitutional authority to enter final orders or judgments with respect to the statutorily core claims at issue in this case. 28 U.S.C. § 157 (b)(2) ; Burtch v. Seaport Capital, LLC (In re Direct Response Media, Inc. ), 466 B.R. 626 , 644 (Bankr. D. Del. 2012) (adopting the "narrow interpretation" of Stern v. Marshall , 564 U.S. 462 , 131 S.Ct. 2594 , 180 L.Ed.2d 475 (2011), holding that Stern "only removed a non-Article III court's authority to finally adjudicate one type of core matter, a debtor's state law counterclaim asserted under § 157(b)(2)(C)"). With respect to the non-core claims, these Findings of Fact and Conclusions of Law will constitute proposed findings of fact and conclusions of law under 28 U.S.C. § 157 (c)(1) and Federal Rule of Bankruptcy Procedure 9033(a).
III. FINDINGS OF FACT
A. Background
Moreno served as Chief Executive Officer for Dynamic Industries for approximately 10 years, until 2007, when he sold his majority interest to a third-party investor. Trial Tr. 489-92. When he first acquired Dynamic Industries, it performed offshore welding and maintenance on offshore rigs. Id. The business evolved into a full-service fabrication, integration and maintenance business that built, installed and commissioned large-scaled floating production storage and off-loading units all over the world. Id. Thereafter, Moreno transitioned out of his management of Dynamic and formed MMR with two business partners and invested in various businesses in the energy industry. Stipulation No. 11. 5 One such investment was Hub City Industries, L.L.C ("Hub City").
B. Formation of Green Field
1. Hub City to Green Field
Hub City was a traditional oil and gas well-related service company that was originally formed in 1969. Stipulation Nos. 28-31. Such traditional services included cementing, coiled tubing, pressure pumping, acidizing, nitrogen and other pumping services. Stipulation No. 30. Prior to Moreno's involvement with Hub City, the company had begun working with inventor McIntyre on a new technology that would utilize used turbine engines to power various pumping technologies. Trial Tr. 1517:16 - 1519:24. In December 2010, Hub City began offering hydraulic fracturing services to its customer base. Stipulation No. 31.
Moreno first began investing in Hub City with two of his partners through MMR in 2005 or 2006, when McIntyre first began developing his turbine-powered frac pump. Trial Tr. 1517:16 - 1519:24. At the time, Moreno was still working with Dynamic Industries and had no direct involvement in Hub City's operations or management. Trial Tr. 507-08. Also during this period, McIntyre, an expert in unconventional applications for aero derivative turbine engines, was working with Hub *250 City on an application of the aero derivative turbines to power Hub City's newer pressure pumping operations. Trial Tr. at 503-05. McIntyre later obtained a trademark on his pressure pumping technology under the mark "Frac Stack Pack." 6 He also sought but was denied a patent on the use of turbine engines to power and control frac pumps. Trial Tr. 1552:6-11.
A recapitalization and buyout of Hub City's members began in May 2011 and in September 2011, Hub City changed its name to Green Field Energy Services, LLC. Stip. Facts ¶ 32. Upon conversion to a Delaware corporation in October 2011, the LLC changed its name to Green Field Energy Services, Inc. Stip. Facts ¶ 36. The recapitalization and buyout resulted in MOR MGH Holdings, LLC ("MOR MGH") owning 88.9% of Green Field's common stock and MMR, an entity owned 33.3% by Moreno, owning 11.1% of Green Field's common stock. Stip. Facts ¶¶ 32- 33; PX 142 at p. 5.
Moreno became the Chairman of the Board of Directors of Green Field and Chief Executive Officer in October 2011 and remained Chairman and CEO until Green Field's liquidation. Stip. Facts ¶ 37. Fontova became the President of Green Field and a director in October 2011 and remained in those positions until approximately October 2013. Stip. Facts ¶ 39. Earl Blackwell ("Blackwell") was Chief Financial Officer of Green Field from 2009 until Green Field's liquidation. Stip. Facts ¶ 40. Kilgore and Mark Knight ("Knight") also became directors of Green Field in October 2011 and remained directors until October 2013. Stip. Facts ¶¶ 41, 42.
2. Partnership with McIntyre and TPT
McIntyre is the President and Chief Operating Officer of Marine Turbine Technologies, LLC ("Marine Turbine"), as well as the manager of TPT. Trial Tr. 1497:3-24. TPT is a 50-50 joint venture between Green Field and McIntyre, which McIntyre holds through another entity, MTT Properties, LLC ("MTT Properties"). Trial Tr. 1498:2-10. Marine Turbine was incorporated in 1990 and is owned solely by McIntyre through MTT Properties. Trial Tr. 1497:19 - 1498:10.
As it relates to Green Field and the frac pump business, McIntyre's work began as early as 2004 when a company contacted Marine Turbine about producing a frac pump with a turbine engine on top. Trial Tr. 1500:2-12; McIntyre Depo. Tr. 9:9 - 10:5. This led to McIntyre starting to develop his frac pump in 2006 and 2007 within a new entity called Turbine Stimulation Technologies ("TST"), which, at the time, was jointly owned by McIntyre and the previous owners of Hub City. Trial Tr. 1507:22 - 1508:21; McIntyre Depo. Tr. 9:9 - 11:4.
McIntyre simultaneously entered into a Capital Contribution/Assignment Agreement, dated September 22, 2011, pursuant to which MTT Properties assigned to TPT its right, title, and interest in and to the "Invention." PX 102. An Amended and Restated Assignment Agreement executed less than a month later on October 17, 2011, modified the assignment to make it more inclusive and expansive by adding MTT Manufacturing, LLC, another entity owned by McIntyre. JX 7. The Amended and Restated Assignment Agreement assigned to MTT Properties all rights, title and interest in and to the Invention as well *251 as an additional assignment of all rights, title and interest in and to any Intellectual Property relating to the Frac Stack Pack Technology. JX 7; Trial Tr. 1555:18- 1556:18.
When Moreno took over Hub City (now Green Field) in 2011, there were discussions about Green Field simply purchasing McIntyre's entire Marine Turbine business. Trial Tr. 1510:11 - 1512:22. However, Moreno and McIntyre could not agree on a value for McIntyre's unrelated intellectual property portfolio, which included firefighting, boats, motor vehicles and power generation. Id. Thus, as a compromise, they formed TPT as a joint venture. Trial Tr. 1510:11 - 1512:22, 127:14 - 128:11, 511-13. TPT was thus formed in September of 2011, with McIntyre being appointed as the manager. JX 6. In exchange for Green Field's agreement to fund TPT's overhead and expenses (JX 6, Trial Tr. 1523:11-20), McIntyre agreed to contribute his Frac Stack Pack technology and assign all interests in the Frac Stack Pack technology to TPT. JX 7, JX 8; Trial Tr. 1510:11 - 1512:22, 127:14 - 128:11. The contribution and assignment agreements to TPT in September of 2011 are specific. They are limited to McIntyre's Frac Stack Pack pressure pumping invention. There is no mention in those documents of power generation or any other technology developed by McIntyre or his company, Marine Turbine.
Contemporaneously with the formation of TPT, and McIntyre's assignment of the Frac Stack Pack technology into TPT, TPT granted Green Field a 5-year license to use the Frack Stack Pack pressure pumping technology. PX 103, Trial Tr. 511-13. At the end of the 5-year license term, McIntyre would have been allowed to sell his pressure pumping technology in the open market. Id.
In addition to holding the intellectual property, TPT was the entity that manufactured and built the frac pumps for Green Field. McIntyre testified at trial that TPT exclusively built frac pumps for Green Field and that Green Field received an exclusive and perpetual license to the fracking technology. Trial Tr. 1509:23-1510:10, 1511:6-21. Pursuant to the TPT Operating Agreement, TPT was the sole manufacturer of Green Field's turbine powered fracking pumps and Green Field was TPT's sole customer, sole source of revenue and sole source of funding for TPT's operations. Stip. Facts ¶¶ 54-56; JX 6; McIntyre Dep. 56:14-18. Moreno acknowledged that "Green Field was funding TPT. TPT had no way to fund itself. Green Field was responsible for every employee at TPT. Their rent, their overhead, everything." Trial Tr. 906:23-907:2.
Green Field also provided employees to assist TPT, including Green Field project managers, such as David Kinnaird, who created "schedules, procurement, to help the supply chain, because the way that arrangement worked was Green Field was actually paying all the expenses associated with the building out of the equipment." Trial Tr. 1294:12-24, 1566:1-20; PX 243. As Fontova testified, Green Field "would procure the equipment, and then it would be assembled at TPT, primarily with TPT employees, but we had Green Field, some technicians, some schedulers and some project managers helping." Trial Tr. 1295:4-10.
Moreno repeatedly testified at trial that he treated TPT and Green Field as one company. Trial Tr. 123:14-25; 125:11-126:9; 184:13-185:5. Indeed, because of Green Field's control over TPT, Green Field was considered the primary beneficiary of the TPT venture, and TPT met the definition of a "variable interest entity," such that Green Field consolidated TPT's operating *252 results with Green Field's in its financial statements. PX 226 at p. 57 (MORE_00036699); PX 142 at p. 65 (GFES014956).
3. The Green Field Start-Up
When Moreno began Green Field, the company was doing very little pressure pumping. Trial Tr. 1290-91. The initial plan in 2011 was to maintain these profitable "legacy services" and build a fleet to expand the company's pressure pumping horse power capabilities. Id. At the time of Moreno's takeover in 2011, Hub City had about a 24,000 horsepower pumping capacity- i.e., less than the capacity of one full frac spread. Trial Tr. 1293.
A full frac spread includes more than just pressure pumps. Trial Tr. 1291:20 - 1293:13, 1520:3-17. A complete frac spread includes trailers, man camps, water trucks, wireline, blenders, data vans, Sandkings and other equipment. Id. Depending on the formation where the fracking is being done, a spread may require approximately 35,000 horsepower as well, which could require anywhere from 20 to 30 pumps. Id.
The business plan was to build six to seven frac spreads over time. Trial Tr. 537-38; 1292-94. At the time, the rough cost to build each spread was between $35 and $50 million. Trial Tr. 1292-95, 1520:14-17. To raise this capital, Moreno and his management team searched for an "anchor" customer. Trial Tr. 533-37. After five years of serving Green Field's equipment in the field, the company's goal was to begin selling the equipment directly to other servicing companies. Trial Tr. 537-38. However, to finance its early start-up operations during the period from May 2011 through September 2011, Green Field borrowed $53 million under a bridge loan (the "Bridge Loan") from Jefferies & Company. Stipulation No. 60. Green Field intended the Bridge Loan to finance working capital needs, fund the manufacture of the first operational fleet of Frac Stack Pack pressure pumps, sustain Green Field to an eventual note issuance, and to refinance its obligations under a then-existing credit agreement with JP Morgan. Id.
Within months of entering into the market, Green Field entered into a "Contract for High Pressure Fracturing Services" (the "Shell Contract") with SWEPI, LP, the successor to Shell Western Exploration and Production, Inc. (collectively with its affiliates and subsidiaries, "Shell"). Stipulation No. 61. At all relevant times, Shell remained Green Field's most significant customer, representing up to 79% of all its revenues. Id. The Shell Contract committed $600 million in future revenue to Green Field, which became part of Green Field's business plan. Trial Tr. 542-43. In the Shell Contract, Green Field agreed to furnish certain fracking spreads at Shell drilling sites and service such sites at a discounted rate. In return, Shell agreed to provide up to an aggregate amount of $100 million in senior secured term loans (the "Prepayment Funding"). Stipulation No. 62.
On November 15, 2011, Green Field engaged in a bond issuance (the "Bond Issuance") and raised an additional $250 million through high interest secured notes from public markets. Stipulation No. 63. The Bond Issuance was memorialized on November 15, 2011, by an indenture (the "Indenture") between Green Field and Wilmington Trust, National Association, as trustee and collateral agent (the "Indenture Trustee"). Id.
The funds from the Bond Issuance were used primarily to repay both the Bridge Loan with Jeffries and the initial $42.5 million of Prepayment Funding due under the Shell Contract. The remainder amount was made available for the manufacturing of McIntyre's Frac Stack Pack pressure *253 pumps and general operating cash needs. Stipulation No. 64. In other words, the $250 million proceeds from the Bond Issuance was not enough to fully fund Green Field's business plan. 7
Shortly after the Bond Issuance, the oil and gas industry experienced a significant decline in natural gas prices, which in turn impacted the fracking industry. Stip. Facts ¶ 65. The decline in the oil and gas industry negatively impacted Green Field's operating results in 2012. Thus, Green Field sought additional financing from Shell in April 2012. Id. Green Field and Shell agreed to revise the structure of the Shell Contract, replacing the interest free Prepayment Funding with a $30 million revolving senior credit facility for up to an aggregate amount of $100 million (the "Shell Senior Credit Facility"). Id. Due to a limitation on debt set forth in Section 4.08 of the Indenture, the Shell Senior Credit Facility was limited to additional debt of no more than $30 million. Id.
In May 2012, Green Field fully drew the $30 million from the Shell Senior Credit Facility, but this proved still insufficient to satisfy their cash requirements. Stip. Facts ¶ 66. Shell therefore agreed to amend the Shell Senior Credit Facility and agreed to provide the remaining $70 million in funding (the "Shell Amended Senior Credit Facility"). Id. The Shell Contract, as amended, provided that the $100 million Shell loaned to Green Field was to be paid back according to a payment schedule requiring monthly $2 million payments until November 2013 (at which point they increased to $4 million and then $7.5 million in May 2014). JX 5 at MORE_00571025-26. Green Field defaulted on those payments in June, July, and August 2013 and reported those defaults in its quarterly report for the period ended June 30, 2013. PX 174 at pp. 8, 30; Stip. Facts ¶¶ 79, 83.
In order to obtain the additional borrowing under the Shell Amended Senior Credit Facility, Moreno approached the bondholders with a consent solicitation (the "Consent Solicitation") that proposed to modify Section 4.08 of the to permit a "one-time incurrence of up to $95.0 million in senior term loans secured by a first priority security interest in all of the company's motor vehicles and equipment under a credit agreement with one of [Green Field's] key customers, [Shell]...." Stip. Facts ¶ 67. As consideration for the bondholder consent, on October 24, 2012, MOR MGH and MMR (the Green Field shareholders) agreed to provide additional equity investments into Green Field under a share purchase agreement (the "2012 SPA"). Stip. Facts ¶ 68.
Section 2.01(a) of the 2012 SPA established that MOR MGH and MMR would purchase $10 million of Green Field preferred stock at execution, and up to an additional $15 million on a quarterly basis. Stip. Facts ¶ 69. The formula in the 2012 SPA required the quarterly increments to bridge the gap between actual cash on hand at quarter's end and $10 million (e.g., if cash on hand at quarter's end equaled $9 million, the required purchase by MOR MGH and MMR would be $1 million). Id.
*254 C. Moreno and the Various "Moreno Entities"
Before further discussing Moreno's search for new capital to help Green Field during the 2012 downturn, the Court must address the various entities either owned and/or controlled by Moreno. The Trustee alleges that Moreno and a "web of affiliated companies under his control ... engaged in a concerted campaign" to strip Green Field of valuable assets. Second Amended Complaint ¶ 1. Moreno acted as manager for several entities that played various roles in Green Field's business, but the evidence does not support the Trustee's allegations of a "concerted campaign" against Green Field or its creditors. On the whole, the Court finds that the following entities were formed, or otherwise managed by Moreno, and often supported by Moreno voluntarily pledging his personal assets.
1. The Grantor Retained Annuity Trusts and Related Holding Companies
Moreno began forming grantor retained annuity trusts ("GRATs") in 2009, as part of an estate planning measure following the 2008 financial crisis. Trial Tr. 494. Moreno and his wife each is a settlor of his or her respective GRAT, neither one is a beneficiary of the GRATs, and neither one is trustee of the GRATs. Trial Tr. 496-99. Each GRAT is "seeded" with assets, whether it is cash or stock in a privately held company. Id. The assets are valued by a third-party at the time of contribution. Id. The primary purpose for the GRAT structure is to leave the beneficiary with the anticipated increased value of the contributed assets, but without the tax burden on the growth. Trial Tr. 498. In general, the trusts take on the obligation to repay the settlors their seed capital through annuity payments over a defined period of time, 10-15 years typically. Id. Sometimes the trusts lack the liquidity to make the required annuity payments. Id. Moreno testified that the annuity repayment is flexible-the payments may be deferred if the trusts are short on cash; the trusts may also give loans to the settlors (as they did in some instances) against future annuity payments, if cash is available. Id. While Moreno is a manager for some of the GRATs, he testified that he was not involved in the day-to-day finances of the GRATs, instead relying upon his family office accounting staff to ensure regulatory and accounting compliance. Trial Tr. 829:12-23.
In 2011, Moreno and his wife formed two new GRATs called the MBM 2011 MGH Grantor Retained Annuity Trust and the TCM 2011 MGH Grantor Retained Annuity Trust (collectively the "MGH GRATs"). Stipulation No. 9. As with the other GRATs, their daughter was (and still is) the sole beneficiary of the MGH GRATs. Trial Tr. 496.
The sole asset of the MGH GRAT was an equal share of a newly formed company called MGH Holdings. Stipulation No. 9; PX 96, PX 97. MGH Holdings was established as a special purpose limited liability company registered in the state of Delaware. Stipulation No. 6. Its sole asset was stock in Green Field. As of October 17, 2011, MGH Holdings owned 88.9% of Green Field's common stock. Stipulation No. 7. At all relevant times, Moreno was a manager of MGH Holdings. Stipulation No. 8.
Also in 2011, Moreno and his wife established two other GRATS called the MBM 2011 DOH Grantor Retained Annuity Trust and the TCM 2011 DOH Grantor Retained Annuity Trust (collectively the "DOH GRATs"). PX 98, PX 99. The terms of the DOH GRATs are substantially the *255 same as those of the MGH GRATs. Trial Tr. 68.
The schedule of annuity payments listed in the DOH GRAT agreements were tied to the value of Dynamic Offshore Holdings. Trial Tr. 495; PX 98, 99. That entity is not related to Dynamic Industries. Trial Tr. 495. After selling his interest in Dynamic Industries, Moreno started an offshore exploration business called Dynamic Offshore Holdings, but that entity had no affiliation to Dynamic Industries or its construction and fabrications businesses. Id.
The sole asset of each DOH GRAT was an equal share of an entity called MOR DOH Holdings, LLC ("DOH Holdings"). Trial Tr. 68. DOH Holdings eventually came to own three different entities that did business with Green Field-Frac Rentals, Shale Support Services and TGS. This structure is relevant to the "ultimate beneficiary" analysis discussed below.
Moreno's family office maintained separate records for the GRATs and their assets. In this regard, Moreno's accounting staff never treated obligations of MGH Holdings as an obligation of DOH Holdings, or vice-versa. Trial Tr. 92:13-21. Before forming TGS in May of 2013, from time to time, Moreno borrowed against his future annuity payments due from the DOH GRATs. PX 158; Trial Tr. 76:3-80:1; Trial Tr. CONFIDENTIAL Mar. 20, 2018 at 1-2:22. Such borrowing transactions were memorialized by notes issued in favor of DOH Holdings. Id. In May, 2013, at the request of GE, DOH Holdings transferred its interests in those notes and other non-TGS entities to a separate entity called MOR 2013 Holdings, LLC. Id. This transaction left DOH Holdings owning nothing but TGS. Id.
2. Moody Moreno and Rucks, LLC
MMR is one of the two primary owners of Green Field. Its membership interests are owned by TMC Investment, L.L.C. (33.3% equity interest), Elle Investments, L.L.C. (33.3% equity interest), and Rucks Family Limited Partnership (33.3% equity interest). Stipulation No. 11. At all relevant times, MMR owned 11.1% of the Green Field common stock. Stipulation No. 10. While the Trustee initially asserted claims against MMR under the 2012 SPA, those claims were settled well before trial for $100,000. Stipulation No. 12.
3. Turbine Powered Technology, LLC
TPT is a Louisiana limited liability company established on September 22, 2011 by its members, Green Field and MTT Properties, LLC ("MTT Properties"). Stipulation No. 24. Green Field and MTT Properties each owned 50% of TPT. Stipulation No. 26. TPT is not a named defendant in this action. Stipulation No. 27.
As discussed above, TPT was formed to hold McIntyre's Frac Stack Pack intellectual property so that it could be licensed to Green Field for use in its pressure pumping and other traditional well services. Trial Tr. 127:14-128:11. Initially, Moreno considered acquiring McIntyre's entire business and intellectual property portfolio, but the parties could not agree on a valuation for McIntyre's other intellectual property- i.e., the inventions beyond the Frac Stack Pack technology. Id. Thus, the parties reached a compromise to "co-own the manufacturing component of the startup" through TPT. Id.
4. The Preference Defendants
In its SJ Opinion on the parties cross motions for partial summary judgment, the Court discussed Aerodynamic, Casafin and Frac Rentals (collectively, the "Preference Defendants"). See Memo Op., D.I. 463 at 14-17. The issues surrounding the Preference Defendants were largely undisputed, *256 and the Court has resolved most of them through summary judgment.
Aerodynamic and Casafin were special purpose entities established or otherwise utilized to assist Green Field in its aggressive plan to scale up the company's operations to remote areas where there was little or no infrastructure or large commercial airports. See Memo Op., D.I. 463 at 14-17, Trial Tr. 549-50, Blackwell Depo. at 156:12 - 157:22, 159:2-24.
Frac Rentals was established to rent additional equipment to Green Field because the company was unable to raise additional capital or borrow additional funds under the existing Indenture. Trial Tr. 552, Blackwell Depo. 142:13-20. Debtor's CFO testified that it was fairly commonplace in the industry to rent peripheral equipment with short-term utility. Blackwell Depo. 168:6-9. In Green Field's business judgment, ownership and maintenance of such peripheral equipment was "a capital investment, and it [was] really better to let somebody else provide that capital and just pay a day rate on using the equipment." Blackwell Depo. at 168:13-18.
Frac Rentals was established and funded by its owners-initially 80% owned by DOH Holdings, and 20% by a third-party investor Michael J. Smith-with Moreno acting as manager for the entity. Memo Op., D.I. 463 at 16; Blackwell Depo. 143:22-144:3, 170:9-13.
While Michel Moreno served as the Manager for the entity, it was operated by his brother, Jesus Moreno and a group of experienced operators of fracking related equipment. Id. In the Court's SJ Order (D.I. 464), the Court entered summary judgment on the following counts, in the following amounts:
• Count 19 - Frac Rentals: $69,137.97;
• Count 23 - Aerodynamic: $110,000.00; and
• Count 24 - Casafin: $466,414.94.
However, it was undisputed that all three Preference Defendants are no longer in business, have sold or otherwise disposed of their respective assets, and cannot satisfy a judgment. At trial, Moreno's stated that he received no salaries or distributions from any of the Preference Defendants, Trial Tr. 552-553. Also all money that Green Field paid to the Preference Defendants was generally used to satisfy the Preference Defendants' own expenses and obligations, such as fuel, maintenance, pilot fees, and the like. Trial Tr. 551-53.
5. Turbine Generation Services, LLC
The last entity alleged to fall within a "web of affiliated companies" is TGS. The undisputed evidence demonstrates that TGS was formed as a subsidiary of DOH Holdings in March of 2013. Moreno testified that he created TGS as a place-holder for a potential joint venture with GE, "not knowing where it was going to land" given his ongoing and fluid negotiations with GE. Trial Tr. 293-295, 312:6-14; JX 27, PX 136, PX 152. Moreno further testified, without being controverted by other witnesses or evidence introduced by the Trustee, that the formation of TGS was GE's mandate. GE was concerned about Green Field's finances. JX 30, Trial Tr. 291-93. Moreno testified that he did not have control over the process when it came to negotiations with GE over the direction of its power generation investment. Trial Tr. 588:4-7, 697:24-368:7, 782:3-19. Thus, at GE's insistence, Moreno formed TGS outside of Green Field. PX 157, Trial Tr. 785-87. 8
*257 Moreno's credible testimony on this point was entirely consistent with all other evidence showing Moreno's ongoing discussions with GE over this period of time, as well as Moreno's disclosures to bondholders, as discussed in detail below. The Court finds that, consistent with the other entities set up by Moreno to support Green Field's operations, Moreno established TGS for legitimate business reasons aimed to support Green Field, not to harm Green Field or create an unfair opportunity for Moreno.
D. The Decline of the Fracking Market and Transition to Power Generation
1. PowerGen
By the fall of 2012, Green Field was suffering significant losses and began looking for opportunities, investments or lines of business, to help prop it up. Trial Tr. 1416:22- 1417:15. As Moreno testified, one of the characteristics of drilling for oil is that the oil fields are sometimes in remote locations that do not have accessible power or a power grid. Trial Tr. 171:17-25; 191:10-15. For companies to drill in these remote locations, they must either connect to the power grid or bring in portable power. Trial Tr. 172:1-9. Because connecting to the power grid could be extremely expensive, portable power is used by the industry to a substantial degree. Trial Tr. 172:7-13.
As of November 2012, Moreno believed there was a market for power generation and that Green Field could participate in that market. Trial Tr. 188:15-189:4. McIntyre testified at trial that the power generation idea arose because Moreno realized that lack of electricity was a barrier for fracking companies. Trial Tr. 1530:11- 1531:12. Specifically, Moreno's understanding of the power generation market arose from discussions with potential Green Field fracking customers, including SandRidge Exploration and Production, LLC ("SandRidge"). Trial Tr. 558:6-8; PX 121 at p. 24. On a call with Green Field bondholders on November 21, 2012, Moreno touted to bondholders the exciting business opportunity provided to Green Field by the PowerGen business. He explained that there was a "big need for power" at well sites in North America and that operators had "to use portable power, 1-meg machine, 350kw machines and they go through the traditional suppliers, like Aggreko and Caterpillar. They're mostly diesel-driven units of portable power so there's a tremendous demand for power." PX 121 at p. 24. Moreno described the "significant" demand in the market, stating that "the demand for power is very nearly similar to what it was for fracing a year and a half ago" and emphasized that the demand was coming from existing customers. PX 121 p. 24. Moreno also told bondholders that given the tight margin profiles for fracking at the time, the power generation business could be "a great hedge and balance for us." PX 121 at p. 25. Moreno explained that PowerGen had a "dramatically better" margin profile. PX 121 at p. 25.
On the call with Green Field bondholders on November 21, 2012, Moreno also touted to bondholders the commitments it already had for PowerGen, including from Apache and Sandridge. PX 121 pp. 3, 20; Trial Tr. 158:6-17, 178:13-179:4, 182:11-183:6. At the time of the November 21, 2012 bondholder call, TPT was actively building a prototype power generation unit *258 for SandRidge, which was completed in December 2012 and paid for by Green Field. Trial Tr. 178:2-8, 213:13-24, 222:20-223:8, 1452:24-1453:11, 1531:16- 1532:11; PX 243. At trial, Moreno testified that SandRidge became a customer of Green Field for purposes of a power generation pilot program. Trial Tr. 219:24-221:20. He testified that if the pilot program with SandRidge was successful "it could morph into them starting to buy equipment from Green Field" rather than others. Trial Tr. 219:24-221:20.
Furthermore, Moreno's trial testimony and the November 21, 2012 bondholder call make clear that Green Field was taking the same dual fuel system, developed for Green Field's fracking operations, and applying it to PowerGen units. Trial Tr. 158:18-159:6; PX 121 at pp. 24-25. The turbine engine, adapted to accommodate multiple fuel sources, and thus able to run on both diesel and natural gas, including natural gas from the well-site, as used in Green Field's fracking operations, was technology translatable directly from fracking to power generation. PX 121 at pp. 24-25; Trial Tr. 198:22-202:4. Moreno explained to the bondholders in November 2012 the simplicity of transitioning Green Field's technology to power generation. PX 121 at pp. 24-25; see also PX 121 p. 20 ("[I]t's the turbine and the ability to use multiple fuel sources that makes this really work.").
2. 2012 SPA Obligations
Pursuant to the 2012 SPA, on October 24, 2012, the day of its execution, MOR MGH and MMR were required to purchase $10 million of Green Field's preferred stock, and they did in fact make that purchase. D.I. 219, at ¶ 56. The obligations to make additional purchases of preferred stock arose thereafter on a quarterly basis as determined by the formula that required purchase in an amount "equal to the amount by which $10,000,000.00 exceeds the Cash or, if applicable, cash equivalents of the company ... as of the last Business Day of such fiscal quarter." PX 119. On February 13, 2013, while Green Field's was transitioning into the power generation market and negotiating with GE, the payment for the fourth quarter of 2012 became due. PX 132; Trial Tr. 381:3-382:20. Blackwell sent a notice to Moreno, Moody, and Rucks that the payment for the fourth quarter of 2012 was due. PX 132; Trial Tr. 381:3-382:20. These payments were, in fact, made by MOR MGH and MMR. Trial Tr. 381:17-382:23; D.I. 219 at ¶ 58; Blackwell Dep. 31:13-32:18.
On May 2, 2013, Blackwell again sent notice to Messrs. Moreno, Moody, and Rucks in connection with the payment due following the close of Q1 2013. PX 147. MOR MGH was responsible for $3,968,606 and MMR was responsible for $496,020. Stip. Facts ¶ 71. Payment was requested on or before May 15, 2013. PX 147. As explained below, on May 13, 2013, Moreno orchestrated Green Field's waiver of the PowerGen Business in favor of himself personally and Moreno caused TGS to enter into the $25M loan with GE. On May 15, 2013, two days after the Waiver, Moreno caused MOR MGH and MMR to breach their obligations under the 2012 SPA for the first quarter of 2013. Stip. Facts ¶¶ 71, 72. Moreno caused MOR MGH's breach despite the fact that Moreno was the CEO of Green Field, had a fiduciary obligation to Green Field, and MOR MGH's only asset was its stock ownership in Green Field. Trial Tr. 847:9-21.
On August 19, 2013, pursuant to the 2012 SPA, MOR MGH was responsible for funding $1,993,317 to Green Field and MMR was responsible for funding $249,138 to Green Field for the second *259 quarter of 2013. Stip. Facts ¶ 73. Again, neither MOR MGH nor MMR made those payments. Stip. Facts ¶ 74.
During the bankruptcy proceedings, Moreno's financial consultant, Mesirow Financial, prepared a document summarizing the transactions between Moreno and other entities he controlled and Green Field. Trial Tr. Conf. 3/20 at 5:16-6:8; JX 3. The chart lists approximately $48 million in turbine sales ($23M) and deposits ($25M) that involved both TGS and Green Field. JX 3; DX 221; Trial Tr. 844:11-846:10. Putting aside Moreno's characterization of those transactions as purported contributions to Green Field, 9 of the $85M borrowed, $37M was either used by Moreno for his personal interest (i.e. $10M to purchase his Dallas house) or was otherwise unaccounted for. Trial Tr. 844:20-846:10; JX 3; DX 221. Accordingly, Moreno had additional funds on hand that would have allowed him to permit MOR MGH to satisfy its obligations under the 2012 SPA or the 2013 SPA (discussed and defined below). Moreno conceded at trial that "[i]t would have been beneficial for Green Field to have every dollar it could find." Trial Tr. 469:17-19. He also acknowledged that the absence of cash "is absolutely the kiss of death" to a company. Trial Tr. 478:12-17. Despite these acknowledgments, he chose to cause MOR MGH to fail to provide necessary cash to Green Field, even though he had funds on hand.
For the payments due for each of the first two quarters of 2013 under the 2012 SPA, Blackwell, at the direction of Moreno, informed Moreno's fellow members in MMR, Moody and Rucks, that Moreno was intending to make the payments, even though Moreno ultimately did not make them. Blackwell Dep. 42:11-44:16, 55:7-12; PX 148. Moreno was aware that if he did not cause MOR MGH to make the payments, and he did not contribute his one-third share of MMR's obligations, then his partners in MMR would likewise not arrange for the remaining two-thirds of MMR's obligations to be fulfilled. Trial Tr. 388:2-392:14; PX 148; PX 149. Blackwell, who was responsible for sending the notices to the Green Field shareholders and was responsible for the company's finances, testified that Rucks and Moody informed him that they would not pay their funding obligations unless Moreno paid his. Blackwell Dep. 55:13-17.
In total, MOR MGH's breaches of the 2012 SPA totaled $5,961,923. MMR's breaches totaled $645,158. Both are exclusive of pre-judgment interest.
3. Goldman Sachs Loans and the 2013 SPA
Moreno personally borrowed funds from Goldman Sachs in May and July of 2013, totaling $40 million. Trial Tr. 396:19-397:9. The first tranche for $25 million was dated May 15, 2013, i.e. two days after the Waiver Date. PX 156. The specified purpose of *260 the personal loan was to make an "equity investment in Green Field which shall be used as working capital to fulfill equipment orders and to make and [sp] equity investment in Turbine Generation Services, L.L.C." PX 156 at GS0002950. The second tranche for $15 million was dated July 5, 2013. Trial Tr. 417:5-20; PX 166. Moreno put none of this money into Green Field.
On June 28, 2013, Green Field and MOR MGH executed a new share purchase agreement (the "2013 SPA," together with the 2012 SPA, the "SPAs"). Stip. Facts ¶ 75; PX 162. The 2013 SPA was a condition of Goldman Sachs loaning the second tranche of $15 million to Moreno personally and it required Moreno to purchase additional preferred stock in Green Field and then pledge that stock to Goldman Sachs as security for the personal loan. Trial Tr. 397:20-398:3; PX 160. Goldman Sachs required that Moreno provide a written certification once the stock had been purchased. Trial Tr. 400:12-402:19; PX 165.
MOR MGH did not buy the $10 million of Green Field preferred stock as required by the 2013 SPA. Stip. Facts ¶ 78. Despite not purchasing the required preferred stock under the 2013 SPA, Moreno provided a written certification to Goldman Sachs that the stock had in fact been purchased. Trial Tr. 403:11-404:20; PX 165. The certification detailed the specific accounts into which the money was allegedly deposited. PX 165. Moreno signed the certification on behalf of both Green Field and MOR MGH. Trial Tr. 404:17-20. The certification was false. Instead of funding his 2013 SPA obligation, Moreno admitted at trial that he used the $10 million to purchase his residential home in Dallas. Trial Tr. 411:24-420:12; PX 168. The Court observes that Moreno initially denied that he used the proceeds to purchase a home. Trial Tr. 411:18-23. However, when confronted with a document from his estate planning professionals (PX 168), he then admitted it. Trial Tr. 411:24-420:12; PX 168. Moreno also testified that the loan documents allowed him to use the loan proceeds to purchase personal real estate. Trial Tr. 416:4-417:2. The loan agreement, however, expressly precluded such use. Trial Tr. 417:5-418:21; PX 166 at GS0003763 ("The Borrowers will not, directly or indirectly, use any part of such proceeds for the purpose of (a) purchasing, improving, or otherwise investing in residential real estate, whether a primary residence of the Borrowers or otherwise."). The Court finds that Moreno knowingly and intentionally lied to Goldman Sachs and intentionally diverted $10M earmarked for Green Field to his own personal use.
Moreno testified that the payment was not accounted for properly and that he sent the money from MOR DOH who sent it to TGS who sent it to Green Field. Trial Tr. 403:11-405:23. However, the capital contribution chart shows the payments from TGS to Green Field and none of those monies are the $10 million owed under the 2013 SPA; those monies were deposits for TPT or turbine engine purchases. In October 2013, when Moreno's (and Green Field's) attorney Slavich inquired as to whether Moreno had caused Green Field to receive the $10 million due under the 2013 SPA, Moreno told Slavich that MOR DOH, not Green Field, received the money. PX 183. Blackwell also testified that Green Field never received the $10 million due under the 2013 SPA. 10 Trial Tr.
*261 408:4-410:18; Blackwell Dep. at 68:3-15, 74:5-75:15; PX 187.
4. Deterioration of Green Field and SPA Defaults
Green Field failed to make its $2 million monthly payments to Shell under the Shell Contract, as amended, for each of June, July, and August 2013, a default totaling $6 million. Stip. Facts ¶ 79. Moreno testified that had the SPAs been fulfilled, Green Field would have been able to make the required interest payments under the Shell Contract. Trial Tr. 469:20-470:3. Green Field's failure to satisfy the requirements of the 2012 SPA forced Moreno to notify the Indenture Trustee of the defaults and publicly acknowledge the same in the Q2 2013 Quarterly Report. Stip. Facts ¶ 83. Moreno signed the letter to Wilmington Trust, the Indenture Trustee, notifying it that the 2012 SPA had been breached. Trial Tr. 431:21-433:16; PX 171. That letter also stated that "the Company has failed to sell shares of preferred stock or make arrangements for another form of capital contribution ." PX 171 (emphasis added). Moreno also signed the Quarterly Report, dated August 20, 2013, which stated that "[t]he Company's shareholders did not purchase, and the company did not issue, preferred stock to its shareholders when payment for such shares of preferred stock was due on May 15, 2013 and August 13, 2013, nor did the company make arrangements for another form of capital contribution." 435:17-437:8; PX 174 at p. 8. Moreno also notified Green Field's accountants, Ernst & Young, of the defaults on August 19, 2013. PX 173; Blackwell Dep. 51:25-52:19.
These public notifications triggered a cross-default under the Shell Amended Senior Credit Facility. Stip. Facts ¶ 83. Green Field's Corporate Family Rating, Probability of Default Rating and Senior Secured Notes Due 2016 rating were all downgraded. Id. Moody's Investor Services categorized the downgrades as follows: Corporate Family Rating, downgraded to Ca from Caa2; Probability of Default Rating, downgraded to Ca-PD/LD from Caa2-PD; and Senior Secured Notes Due 2016, downgraded to C (LGD 5 / 72%) from Caa2 (LGD 4 / 60%). Id. Shell issued a notice of default to Green Field on October 8, 2013. Stip. Facts ¶ 84. On September 6, 2013, Moreno admitted to the bondholders that he failed to make the equity commitments under the 2012 SPA because he was spending his personal capital on PowerGen, which at that point was owned entirely by TGS and outside of Green Field. Trial Tr. 440:1-441:14; PX 177 at p. 5. Moreno acknowledged his responsibility for the SPA obligations and promised to cure the defaults that quarter. Trial Tr. 445:10-446:7; PX 177 at p. 5 ("I do plan on (inaudible) that default this quarter ... certainly I'll be in a position to cure this default in this quarter.").
As a result of the defaults under the SPAs, GE terminated its negotiations with Green Field (as discussed below). On September 13, 2013, Edoardo Padeletti ("Padeletti") responded to an internal GE email chain circulating a news article announcing Green Field's defaults and said: "We are working internally and with Moreno lawyers to understand properly the potential implications and (in a worst case scenario) how this could impact our JV." JX 50. Then, one week later, on September 20, 2013, GE circulated an email directing GE employees to "stop any work that is proceeding with regards to Project Cayenne." PX 215. Padeletti confirmed in his deposition that the Shell defaults contributed to GE's failure to consummate the joint venture for the PowerGen business. Padeletti Dep. 109:23-110:6, 118:8-23.
*262 Green Field filed a voluntary petition for Chapter 11 bankruptcy relief on October 27, 2013. Stip. Facts ¶ 4.
E. GE Negotiations
In the fall of 2012, while Moreno was discussing the power generation business with the Green Field bondholders and TPT was building the prototype unit, Moreno was looking to generate capital for Green Field and had discussions with several capital sources, ultimately beginning negotiations with GE. Trial Tr. 212:20-213:12.
In October 2012, Green Field entered into a nondisclosure agreement with GE Energy Financial Services for the exchange of proprietary information, including both the fracking and power generation technology. PX 120; Trial Tr. 251:22-253:18. Green Field then entered into a second nondisclosure agreement with the Aero Energy and Oil & Gas businesses of GE in December 2012 which also involved the fracking and power generation technology. PX 127.
Moreno testified that from the outset of his discussions with GE he sought a $100 million investment from GE for Green Field's fracking business, and when GE showed interest in power generation, he sought $200, with $100 million to go to fracking and $100 million for power generation. Trial Tr. 257:3-259:5. Moreno testified that he originally sought to have the power generation investment go directly into Green Field. Trial Tr. 259:6-10. Fontova testified that manufacturing of the PowerGen units would be done by TPT (the manufacturing business), and that the intent was to run the leasing business through Green Field. Trial Tr. 1452:9-20.
By March and April 2013, Green Field and Moreno were negotiating a joint venture for the leasing of PowerGen units. Moreno testified that the opportunity got passed around to various divisions of GE and GE repeatedly went back and forth about investing in power generation and fracking versus power generation only and whether the investment would be made directly into Green Field. Trial Tr. 684:6-685:9; 685:19-686:19. GE was concerned about Green Field's pre-existing senior debt as well as exposure to the environmental concerns with fracking. Trial Tr. 259:11-260:17. 11
F. GE Was Interested in the Multi-Fuel Technology
GE indicated that it was interested in Green Field's power generation units because of the advantages of Green Field's multi-fuel technology originally developed for Green Field's fracking equipment and now deployed with its power generation units. On January 7, 2013, Green Field issued a press release announcing that it had signed a "global supplier agreement with GE Oil & Gas to deliver low-cost, cleaner burning power generation solutions to the oil and gas industry." PX 129; Trial Tr. 214:24-215:9. The press release also stated that Green Field would provide "its proprietary technology, including its bi-fuel capability developed for use on its Turbine Frac Pumps." PX 129. The press release stated that Green Field had "secured commitments with two customers to conduct pilot programs to test power generation of oil and gas equipment utilizing natural gas produced on site in the field." PX 129. These two commitments were for SandRidge and Apache. PX 129.
*263 In an executive summary circulated to GE from Green Field on March 20, 2013, Green Field described the power generation concept and specifically noted Green Field's "proprietary fuel control technology." JX 28 at GFES042781-82. The executive summary also provided that "[i]n addition to the advantages of less capital cost, greater ease in transport and fewer emissions, Green Field's turbine driven Power Generation units are capable of running on 'Field Gas'. This ability to run on Field Gas provides a significant savings to the end user in operating cost." JX 28 at GFES042785.
Moreno testified that he agreed with the statements written in the executive summary at the time. Trial Tr. 269:10-11; 269:20-21. Moreno also testified that GE was interested in the dual fuel technology that was developed for Green Field's hydraulic fracturing operations and paid for by Green Field. Trial Tr. 271:10-20. McIntyre similarly testified at trial that GE expressed interest in putting together a power generation rental fleet "[b]ecause no one at the time offered generators that could be dispatched into remote areas that could run on well gas, everything was diesel driven, liquid fuel." Trial Tr. 1536:13-22. Hosford testified at his deposition that one of the benefits of the Green Field engines was that "you could burn different fuels and you can switch fuels on the fly." Hosford Dep. 76:1-9.
As Moreno stated on a conference call with Green Field bondholders on April 19, 2013, GE and Green Field were working toward a joint venture and GE was interested in Green Field's dual fuel technology as it applied to power generation, which Moreno described as "fairly unique and even-and folks can't duplicate very quickly without our support." PX 143 at p. 7; Trial Tr. 264:18-265:22.
G. The PowerGen Opportunity
On May 13, 2013, the shareholders and board of directors of Green Field executed the Consent Solicitation. Stipulation No. 91, JX 61. That same day, GE advanced $25 million to TGS in exchange for the Senior Secured Note (the "GEOG Note") executed by TGS as borrower, and Moreno, as guarantor, in favor of GEOG, as lender. Stipulation No. 93, JX 49. The GEOG Note contained two critical attachments, which are discussed below. First, Annex A to the GEOG Note is a list of engines and equipment to be purchased from Green Field. Second, Annex B is a Term Sheet titled Project Cayenne, Summary of Principal Terms (the "Term Sheet"). JX 49.
The Trustee alleges that this date of May 13, 2013, was critical. Central to the fraudulent transfer, breach of fiduciary duty and corporate waste theories asserted in the Second Amended Complaint is the allegation that the so-called PowerGen business idea belonged to Green Field and was transferred to TGS as a result of the Consent Solicitation on May 13, 2013. To understand the merits of this highly critical issue, the Court must first consider the circumstances surrounding how the PowerGen business idea came to be, and what really happened on May 13, 2013.
1. Early Contact with Private Equity Groups and Bondholders
The reduction in fracking demand in addition to increased operating costs in 2012 challenged Green Field's early business plan to expand its frac spread fleet at the pace originally designed. While the company was performing according to plan from an operational perspective, the reduced margins and demand put a strain on the company's liquidity, preventing Green Field from continuing its planned capital expenditure outlays. JX 15, Trial Tr. 588.
*264 During a bondholder call on November 21, 2012, Moreno advised bondholders that he and Green Field were doing two things to improve liquidity-raise more equity where ever possible, and reduce capital expenditures until Green Field had more customers in place. Id. As Moreno testified at trial, Green Field suddenly had "a huge hole in [its] business plan." Trial Tr. 589-90. Because Moreno still believed in the company and its technology, he was motivated to go back into the marketplace and find more money to survive the economic downturn. Id.
Moreno started meeting with prospective investors in the fall of 2012 to help fill Green Field's capital needs. Trial Tr. 562-65. He started with his contacts at Jeffries-the firm that helped underwrite the Bond Issuance-in hopes that his contacts could connect him to private equity groups interested in investing in Green Field. Id. These contacts led to meetings with Goldman Sachs Private Equity, Cerberus Capital, Emigrant Bank, Solace Capital, BP Capital and at least a dozen other potential investors. Id. , Trial Tr. 1355:13 - 1356:9. Many of these firms were already existing bondholders. Trial Tr. 562-65, 567-70, 912-915, 943-945, PX 143, DX 47 at pg. 4. In all, Moreno testified that he met with "dozens of private equity sources," none of whom was interested in funding Green Field. Trial Tr. 567:9-12. The few investors that expressed interest in investing were only interested in investing alongside a larger strategic investor, like GE. Trial Tr. 1355:13 - 1356:9.
While Moreno's capital search began as an effort to find investments for Green Field's pressure pumping operations, he remained open to the possibility of expanding into a new power generation business-as long as the new venture helped Green Field's core business plan. Trial Tr. 567-68, 560-62. On this point, Moreno testified that a power generator business would constitute a whole new business line for Green Field, and that he did not want to start a new business line or business venture while he already had his hands full with the Green Field start-up. Trial Tr. 560-62, 578:1-22. Moreno began warming to the idea of starting a power generator business after he sold an interest in one of his unrelated businesses to the founder of SandRidge in 2012, during which transaction the principal of SandRidge indicated willingness for SandRidge to participate in a pilot program for turbine powered generators. Trial. Tr. 557- 58.
At the time, Moreno knew that Green Field lacked the intellectual property rights and know-how to develop power generators from its turbine stock. Trial Tr. 559-6. Moreno testified that there was no effective way to negotiate a deal involving power generators without giving McIntyre some economic benefit. Trial Tr. 205:15-206:15, 227:11-228:4. However, Moreno believed that McIntyre would be willing to contribute his know-how to a future venture, and Moreno further viewed a potential power generator business as "a catalyst to help [Moreno] raise money for Green Field." Trial Tr. 523, 559-60. Moreno testified that he stopped meeting with potential investors in Green Field only after he received a communication from GE that Jeff Immelt, then CEO of GE, had approved a substantial investment into a future joint venture with Green Field. JX 25, DX 109, 260, Trial Tr. 574-75, 681.
2. Negotiations with GE 12
Moreno was ultimately unsuccessful in attracting new investments in Green Field.
*265 Trial Tr. 1355:13 - 1356:9, 1358:1-22. However, one of the many private equity groups that Moreno contacted during this process-Cerberus Capital-led him down a different path. Through the course of meeting with potential investors, Moreno met Bob Nardelli ("Nardelli"), who was then serving on the investment committee for Cerberus Capital. Trial Tr. 564-66. Moreno testified that his initial meetings with Cerberus Capital were intended to raise $100 million of new capital for Green Field, which Moreno hoped to use to complete Green Field's business plan of building additional frac spreads. Trial Tr. 568:6-24. Although Cerberus Capital was not interested in investing in Green Field, Nardelli connected Moreno with Nardelli's former colleagues at GE. Trial Tr. 566:7-13, 569:20-570:11.
Moreno's initial discussions with GE began in September 2012, initially with an effort to get GE to infuse capital on Green Field's balance sheet through its fracking business. Trial Tr. 250:6-18. Over time, however, those discussions changed. Moreno testified that he did not initially pitch the idea of a power generator business. Trial Tr. 257:17-258:17. In October 2012, the parties executed a non-disclosure agreement containing a very broad definition of "well services." PX 120. While the Trustee highlighted the inclusion of "power generation" in the definition of "well services," Moreno testified that, at the time, Green Field was not in the business of power generation or many other enumerated items in the definition of well services. Tr. 252-53. Moreno testified that the early discussions with GE centered on GE's interest in extending the life of GE's retired turbine engines for uses like frac pumps or power generators, as McIntyre had done with the retired Honeywell engines deployed in Green Field's operations. DX 264, 266, Trial Tr. 255:8-256:24, Tr. 260:22-262:22, 937:24-938:11. As late as March 30, 2013-several months into the negotiations-representatives of GE acknowledged that GE's primary interests involved: (a) getting working knowledge of the above ground oilfield services business; (b) developing a power offering that is cost competitive in the power-to-lift space; and (c) creating optionality for GE in buying out any partnership with Moreno or Green Field. DX 264. For GE, a partnership with Green Field and McIntyre offered the opportunity for GE to expedite the process of putting its used turbine engines back into the market for secondary uses. DX 264, DX 266, Trial Tr. 265:23-266:15, Trial Tr. 937:24-938:11.
On December 21, 2012, Green Field signed a Memorandum of Understanding with GE under which the parties contemplated a supply agreement. Green Field would start using GE components to build future products. DX 181, Trial Tr. 606-09. After that date, discussions with GE evolved. Trial Tr. 621-26.
On January 7, 2013, Green Field announced a pilot program with SandRidge, an oilfield operator, where SandRidge would start using turbine power generator units to be built by Green Field. PX 129, Trial Tr. 219-20. Moreno testified that, before that announcement, SandRidge had *266 never ordered any services from Green Field. Trial Tr. 219:9-220:24. Moreno, Fontova, and McIntyre also testified throughout trial that Green Field had no manufacturing capacity on its own-TPT, led by McIntyre, did all manufacturing for Green Field. Trial Tr. 1346:15-24, 1353:16-22, 1511:6 - 1512:9.
On February 1, 2013, Moreno exchanged e-mails with Lee Cooper at GE discussing deal points for "a GE financing plan for Greenfield," which included a $100 million equipment financing line backed by customer orders and guaranteed by Moreno. DX 183, Trial Tr. 611- 24. Under this proposal, Green Field would commit to ordering GE parts, and GE would consider converting its debt to equity in the future. Id.
Ten days later, on February 11, 2013, GE directed Moreno to meet with Josh Loftus as "the right guy to speak with" about a "line of credit for both frac packages and power packages." DX 258, Trial Tr. 661-65. The e-mail asked for a face-to-face meeting with Moreno to discuss partnership options as well. Id. On February 16, 2015- i.e., the day after Moreno met with GE representatives-GE circulated an internal e-mail recapping the meeting with Moreno. (DX 257, Trial Tr. 632-39). According to GE's internal e-mail, the PowerGen leasing concept would be "a substantial third arm of Green Field (along with the Manufacturing arm and existing Ops arm)." Id. Moreno testified that the "Manufacturing arm" meant TPT, and the "Ops arm" meant Green Field. Id. He came away from the meeting with GE with an impression that GE would invest in Green Field and allow Green Field to control the PowerGen leasing company. Id.
One week later, on February 23, 2013, GE sent Moreno a list of terms based on their meeting from February 15, 2013. DX 258, Trial Tr. 665-68. Moreno responded to the e-mail by thanking the GE representative and indicating that the details could be worked out that same week. Id. The reason for the urgency was that Moreno understood that GE's investment committee meeting would be convening on March 8, 2013, and that this prospective investment would be presented to GE's CEO, Jeff Immelt, for his approval. Trial Tr. 665-66. Moreno's meetings with various GE representatives, including Mike Hosford, a representative of GEOG, and Lee Cooper, a member of GE's investment committee, had left Moreno with the impression that Jeff Immelt was likely to approve an investment of $100 million into Green Field. Id.
In anticipation of the March 8 presentation to Jeff Immelt, Moreno formed TGS on March 7, 2013. PX 136. The initial member of TGS was DOH Holdings. PX 136, Trial Tr. 293-95. Moreno testified that he placed it under DOH Holdings "as a placeholder, not knowing where it was going to land." Trial Tr. 312:6-14.
Immelt ultimately did approve a $100 million investment through a joint venture with Green Field "on the spot" during the March 8 review. DX 109, Trial Tr. 674-79. Immelt instructed GE to "get [Moreno] $25M by end of the week to help both sides of the business." DX 197, Hosford Depo Tr. 95:1-25, 97:23 - 98:15. 13 Having been informed of Immelt's approval, Moreno immediately stopped discussions with private equity investors in reliance on Immelt's approval and instructions. Id. On March 13, 2013, Mike Hosford at GEOG sent Moreno and others in Green Field's *267 management an invitation to a conference call on March 15, 2013, to discuss "what [Green Field] will bring to the NewCo and also what GE is thinking." DX 260, Trial Tr. 679-81. Moreno insisted at that meeting and following that meeting that whatever funds GE was willing to invest in the joint venture had to be used to complete Green Field's overall business plan. Id. On March 17, 2013, following Moreno's calls and communications with GE representatives, Moreno changed the name of TGS to Green Field Power Generation Services, LLC. JX 27. 14
During the course of negotiations with GE, Moreno had a dinner meeting with Immelt on March 25, 2013. Trail Tr. 689-98. In preparing Immelt for the dinner meeting, a GE representative told Immelt about Green Field's pressure pumping business and Moreno's newest exploration of the power generation business through a potential joint venture with GE. JX 30. According to this e-mail, and as confirmed by Moreno at trial, Moreno was seeking a total of $200 million from GE-$100 million each for Green Field's business plan and for the new PowerGen start-up. JX 30, Trial Tr. 689-98. At the time, GE was receptive to both.
However, on March 26, 2013, two weeks after Immelt's initial approval of the investment, GE sent around an internal e-mail demonstrating their own struggle to execute on Immelt's initial demands. DX 262, Trial Tr. 698-701. Moreno had the impression from the amount of time GE was investing in him, a relatively small entrepreneur, that it demonstrated GE's commitment to him and the potential partnership. Trial Tr. 698-701.
Three days later, consistent with GE's prior briefing to Immelt, Moreno continued to request that GE invest $100 million directly into Green Field, separate and apart from the $100 million already authorized for the PowerGen business venture. DX 264, Trial Tr. 701-14. GE's internal e-mails summarized Moreno's request and indicated a willingness to provide the additional funding, if for no other reason than to prevent Moreno from seeking the additional funding from private equity investors. Id. Of course, as Moreno testified, he stopped meeting with private equity groups in early March when GE advised him that Immelt had approved the investment. Trial Tr. 719-20. GE's internal e-mails indicate that, even within GE, certain representatives were growing concerned about misleading Moreno "regarding the size of our investment." DX 264, Trial Tr. 719-20.
On April 3, 2013, Moreno flew to Schenectady, New York to meet with Colleen Calhoun, one of his primary points of contact at GE, and others to discuss deal points for the joint venture. Trial Tr. 720-21. The next day, on April 4, 2013, Calhoun sent Moreno a detailed e-mail with the deal points discussed in Schenectady. JX 31, Trial Tr. 313-23, 727:7-14. Those deal points included a total $200 million capital infusion into Green Field, but required that the PowerGen entity be held outside of Green Field. Id. Moreno testified that the $200 million investment would have solved Green Field's liquidity problems, but GE changed its mind within weeks of Calhoun's e-mail. Trial Tr. 723-27.
Later the same day, on April 4, 2013, Calhoun e-mailed Beth Comstock at GE to report that she had "an outline of a deal," with $50 million going "out the door" first, followed by three additional installments of *268 $50 million each "based on milestones." DX 265, Trial Tr. 740. She advised her colleagues at GE that the GE team would be meeting in Houston to "get aligned" and that the next few days would be critical. Id.
The next day, on April 5, 2013, Calhoun raised an issue with Moreno concerning the ownership of the PowerGen intellectual property. JX 32, Trial Tr. 728-31. Specifically, GE recognized that McIntyre controlled the intellectual property surrounding the PowerGen business, and Moreno discussed with Calhoun how to treat McIntyre in a manner that would entice him to cooperate with GE and Green Field on their potential joint venture. JX 32, Trial Tr. 732:15-733:9.
Ted is the sole owners of MTT .... and so, you know, [PowerGen] is Ted's baby. And I'm trying to use the potential opportunity to benefit Green Field and the joint-owned company TPT that Ted and I had, or Green Field and Ted had... I needed Ted to be a partner. I couldn't force it. You know, I couldn't just mandate it.
Trial Tr. 732:15-733:9.
In the midst of this uncertainty over how Green Field could contribute McIntyre's intellectual property into the potential joint venture, Moreno flew to Houston on April 8 and 9, 2013, to meet again with GE's executive team. DX 266, Trial Tr. 745-49. On April 10, 2013, Calhoun e-mailed her superiors at GE with the "big points" discussed during the meetings with Moreno. Id. The outline of the deal continued to contemplate a $200 million investment, but Calhoun's internal e-mail recognized the uncertainty for the form of investment, the approval process and timeline for investments, and the business unit at GE that would own the investment. Id. Throughout these meetings, Moreno continued to insist that the money invested by GE needed to be used to pay for Green Field's pressure pumping equipment expansion. Id.
One week later, the uncertainty over which GE unit would own the venture bubbled to the surface. DX 268. On April 17, 2013, John Flannery-now the CEO of GE, but then the Senior Vice President of Corporate Business Development-e-mailed Calhoun to warn her that he was "not having much luck yet finding a 'sponsor' " for the power generation joint venture business. Id. Flannery indicated that GE "really need[ed] someone to show more interest" than Flannery was seeing at the time "to warrant taking any financial risk on this." DX 268. Moreno was unaware of this struggle within GE. Trial Tr. 751:9 - 752:16, 753:8 - 754:4.
That same day, on April 17, 2013, Calhoun sent additional e-mails internally to her colleagues at GE, recognizing that "we've done a 180 degree turn in the last 5 days," and that she did not know how to interact with Moreno given GE's sudden change in position. DX 268, Trial Tr. 754-55. She suggested that "[a]t the very least[,] we need to get him the $25MM loan and help him unwind what we've been discussing." Id. Another five days later, on April 22, 2013, internal e-mails within GE show that Calhoun was still trying to find a business unit to take ownership of the PowerGen business venture. DX 270, Trial Tr. 760.
Then, on April 23, 2013, Calhoun provided an update to her GE colleagues, recognizing that GE was still only "50/50 on doing the deal." DX 111, Trial Tr. 755-60. The update recognized that John Flannery was convening a meeting of potential business unit sponsors on April 24, 2013, and that there remained a chance that GE would not approve the contemplated $200 million investment. Id. Calhoun lobbied her colleagues to remain supportive of a *269 smaller $25 million loan if the larger investment did not get approved, explaining that "we've put Mike in a tough spot financially as he has waited for GE." Id.
Flannery held his meeting on April 24, 2013, and contemporaneous e-mails characterized those meetings as being "like an episode of 24." Id. Apparently, a faction within GE had agreed to invest in PowerGen, but conditioned on the money not being used toward Green Field's existing business. DX 271, Trial Tr. 764-65. While, GE was internally opposed to its money being used toward Green Field's pressure pumping business, Moreno was apparently unaware of this internal debate and continued to assume that the joint venture would support Green Field's business. Id.
One week later, on May 1, 2013, showing his frustration with the lack of movement by GE, Mike Hosford at GEOG sent an e-mail to Lee Cooper and Beth Comstock at GE to detail his perspective of the six-month history between Moreno and GE. DX 197, Trial Tr. 769-77, Hosford Depo Tr. 94:2-16. The e-mail details how GE continued to change its position with Moreno, and had moved from what was supposed to be a partnership relationship into "more of a transaction feel only." Id.
Hosford contemporaneously sent a copy of his e-mail to Moreno to show Moreno that there were some factions within GE still fighting for him. Id. While Comstock and Cooper defended GE by suggesting that Hosford was unaware of the lack of support in some key areas, Comstock acknowledged to Cooper that GE's behavior over the past six months was "embarrassing" and that she was "not sure [Hosford] is wrong" in his characterization. Id. Hosford concluded his e-mail by suggesting that GE should advance $25 million to Moreno immediately, with some going to the PowerGen joint venture and some going to Green Field to "allow him to complete at least frac spread 5." Id.
3. The GE Term Sheet and Related Transactions
As GE continued to struggle internally, Green Field was under time pressure. By May 17, 2013, Green Field needed to make a $17 million semi-annual interest payment under the Bond Indenture. Trial Tr. 799:7-12. As of May 2, 2013- i.e., weeks before the semi-annual bond interest payment was due-Green Field did not have the liquidity to honor the semi-annual interest payment. PX 147, Trial Tr. 386:15 - 387:18. Under the circumstances, GE represented Green Field's best chance for avoiding an immediate default under the Indenture. Trial Tr. 1358:1-22.
Moreno fought hard to get cash from GE to help Green Field. While his discussions with GE had led him to believe that GE would fund its investment through Green Field by March or April of 2013, GE was slow to move on Immelt's orders to get Moreno money. Instead, Moreno was able to procure a short-term $25 million loan under the GEOG Note, which Moreno personally guaranteed. JX 49, Tr. 804-08. On May 13, 2013, Moreno and TGS executed a senior secured loan with GE for $25 million, which included the Project Cayenne Term Sheet as an attachment to the note. JX 49.
Moreno continued fighting to get concessions from GE in the Term Sheet annexed to the GEOG Note. First, Moreno negotiated to ensure that TPT would be the contract manufacturer for TGS. JX 49, Tr. 804-08. The term ultimately led to the execution, on June 21, 2013, of the Agreement for the Manufacture and Sale of Turbine Powered Generators (the "Tri-Party Agreement"), which was executed by Green Field, TPT and TGS. Stipulation No. 94.
*270 Moreno also negotiated for the inclusion of a provision in the Term Sheet to ensure that TPT earned a 25% mark-up on all equipment manufactured for TGS. JX 49, Tr. 804-08. Requiring TGS to order units from TPT benefited Green Field in two critical ways: (1) it gave half of the profit directly to Green Field, through its 50% ownership of TPT; and (2) it allowed TPT to operate profitably so that Green Field would not have to fund its operations and overhead costs, saving Green Field substantial costs. Id. Moreno also fought to ensure that Green Field bondholders could exercise options to buy into the joint venture. Id.
While GE wavered on whether to allow an investment in Green Field directly, the Term Sheet contemplated the use of GE's initial $50 million investment to: (a) buy Green Field's unused engine inventory; and (b) build additional power pumping equipment to be leased to Green Field. JX 49, Trial Tr. 939-42.
Upon executing the GEOG Note, GE funded the $25 million loan to TGS. JX 49. Moreno characterized this transaction as "an elegant solution that GE signed off that said, yes, we understand that the timing of building this inventory at TGS is maybe a little sooner than necessary, but we see the value of going ahead and allowing you to buy the inventory, which would indirectly create some liquidity for Green Field." JX 3, Trial Tr., Mar. 20, 2018 at 9:17 - 11:13, 15:10 - 16:3. According to Moreno, Green Field could not have sold the turbine engines to just anyone for these values. Trial Tr., Mar. 20, 2018 at 11:4-20. GE provided a crucial joint venture partner to be a customer for TPT's manufacturing end-user product, which did not exist before GE advanced money to TGS. Id.
On May 14, 2013, TGS used nearly $20 million of those loan proceeds to purchase unused turbine inventory from Green Field. JX 3. Green Field had purchased those turbines from Honeywell at approximately $135,000.00 each. Trial Tr. 1582-83. There was no application or use for the turbines at the time, because Green Field lacked the liquidity to continue its capex expansion on its frac spread fleet. Id. Yet, despite the lack of a market or use for Green Field turbine inventory, Moreno negotiated with GE to purchase the engines from Green Field at approximately $500,000.00 per unit, totaling nearly $20 million, and constituting an almost 300% mark-up. Id.
While the Trustee's expert considered this transaction "fair value" because neither GE nor Powermeister, LP (discussed below) "cried foul," Trial Tr. 1086, 1758, 1085, the Court is not persuaded by that evaluation. Powermeister is the investment arm of Mt. Vernon, a bondholder with an existing investment in Green Field. A substantial mark-up that benefitted Green Field would give Powermeister no reason to "cry foul." Further, the circumstances leading up to GE's willingness to provide a $25 million short-term loan demonstrates that the use of these funds was anything but "fair value." This was an accommodation by GE, because GE had placed Moreno in a difficult position. DX 111, Trial Tr. 755-60. The Court agrees with Soward, Defendants' expert, that this transaction meets the definition of "extraordinary consideration," at least as it relates to the turbines. Trial Tr. 1764.
Further, the cash received from the inventory sales gave Green Field the liquidity it needed to satisfy its interest payment obligations due under the Indenture. Trial Tr. 1385. The loan proceeds from the GEOG Note also allowed TGS to reimburse Green Field over $1 million for the time Green Field's employees spent trying to develop the PowerGen business within *271 Green Field before it became clear to Green Field that GE would not invest directly in Green Field. JX 1; Padaletti Depo. Tr. 97:13 - 98:6. The Court finds that this payment provided additional consideration to Green Field, which would not have been possible but for Moreno's continuous negotiations with GE and extensive efforts to find capital to save Green Field.
H. Transparency with Bondholders and Board Members
Through the Second Amended Complaint and at trial, the Trustee questioned Moreno's openness and truthfulness. Based on the extensive record presented by Defendants, the Court finds that although there were areas of testimony that were not open and truthful, Moreno was credible concerning his communications with bondholders and Green Field's Board members.
1. The Board of Directors
The Court considers the circumstances surrounding the execution of the Consent Solicitation. Specifically, the Trustee alleges that Green Field's board of directors failed to inform themselves. Second Amended Complaint ¶ 31. Having considered the evidence presented at trial, including the extensive e-mails, notes, deposition testimony and live testimony, the Court agrees that the other members of the board were informed of Green Field's business and the circumstances necessary to make decisions, they acted prudently and independently.
Green Field's board was initially comprised of four individuals: Moreno, Fontova, Kilgore and Goodson. Stipulation Nos. 37, 39, 41, 42, 43 & 44. The board later added Mark Knight. Stipulation No. 42. Collectively, the board was an engaged group of successful businessmen, each with his own experience, opinions and ego. Trial Tr. 1593:6-12.
While Fontova had worked at Dynamic Industries prior to joining Moreno at Green Field, he had decades of experience in senior management of large, public companies in the energy industry such as Shell and its affiliates. Trial Tr. 1278:2-1279:22. Fontova worked for other businesses not controlled by Moreno both before and after joining Green Field. Id. During his time working at Dynamic Industries and Green Field, Fontova felt free to disagree with Moreno and never felt as though he might be fired for disagreeing with Moreno. Trial Tr. 1284:18-1285:6.
Kilgore was appointed based on his past experience serving on the board of Dynamic Industries for 10 years, during which period the company saw a large expansion in its business and the ultimate successful sale of ownership to a private investment group. Trial Tr. 526-27, 1589:15-23. Moreno came to know Kilgore in the time before Moreno acquired Dynamic Industries and asked Kilgore to join the board of Dynamic Industries based on Kilgore's experience in the offshore market. Trial Tr. 1589:7-14. Kilgore is independently successful having founded and operated his supply boat business that delivers equipment to oil rigs and platforms in the Gulf of Mexico. Trial Tr. 1586:7-1587:17. Kilgore did not rely on Moreno for employment, nor did he rely on any of Moreno's businesses to support his own businesses. Trial Tr. 1589:24 - 1590:4. Kilgore was never paid to serve on the board of Dynamic or Green Field; he served voluntarily but took the appointments seriously. Trial Tr. 1591:1-14.
Goodson was the CEO of PetroQuest Energy, a publicly held oil and gas company focused on exploration and production. Trial Tr. 1591:17-19, 525. Moreno had known Goodson for 15-20 years prior to his *272 joining the Green Field board. Trial Tr. 525. Goodson resigned from the Green Field board in May of 2012 to avoid any potential conflicts when his company began considering Green Field as a vendor for PetroQuest. Stipulation No. 44, Trial Tr. 525. Mark Knight was added to the board when Goodson resigned. Trial Tr. 528-29. Knight had a good reputation in the community and industry, and he was the CEO of his family company, Knight Oil Tools, which was one of the largest private companies in the industry. Trial Tr. 528-29, 1592:12-1593:5, 1591:20-22, 1592:4-11. He was also well-regarded for his involvement in the Lafayette, Louisiana community, which involved service on many boards and philanthropic endeavors. Trial Tr. 1592:12-1593:5. As with Kilgore, Knight was not compensated for his service Green Field's board. Trial Tr. 528. Rather, the board members were added to help Green Field grow as a young start-up. Id.
Once formed, the board met regularly to discuss Green Field matters. Fontova Depo. Tr. 15:1-13. While minutes were prepared to memorialize discussions, the meetings generally covered a broader array of topics than the agenda and minutes reflected. Fontova Depo. Tr. 15:1-13, Trial Tr. 1364:11-1366:3. The initial board meeting, in 2011, was held in person, but subsequent meetings were convened by phone, typically once per quarter. Trial Tr. 1593:13-1594:4. The meetings generally required a degree of formality, as all board members would receive an agenda in advance of the call, along with associated materials (e-mailed or shipped packages). Trial Tr. 1594:5-1595:1.
The Court finds that the board was apprised of the developments and the value of any potential PowerGen business opportunity. Both Kilgore and Fontova testified that they were well-aware of the many twists and turns that negotiations with GE had taken, and Fontova knew first-hand that GE would not allow a joint venture to be held within Green Field. Trial Tr. 1326:5219, 1598:4-1601:17. Kilgore was kept apprised of the developments through regular phone calls and meetings with Moreno and, on occasion, Fontova. Trial Tr. 532, 1596:1-25. Knight was told about Moreno's ongoing discussions with GE and had warned the other board members that GE was very difficult to work with and was not to be trusted. Trial Tr. 1599:14-1601:17, Knight Depo. Tr. 47:12-48:15, 49:1-50:6, Trial Tr. 1363:16-1364:8.
The board also understood that Green Field lacked the financial wherewithal to start a new line of business, particularly if GE was unwilling to invest in Green Field directly. JX 74, Trial Tr. 1616:6-1619:6. Thus, during the April 2013 board meeting and in prior meetings, the board discussed Green Field's need for new capital and GE emerging as Green Field's most likely (if not only) source. JX 74, Trial Tr. 1616:6-1619:6, 1489:19-1491:19. Because Moreno's discussions with GE remained fluid, no formal resolution was presented to the board and the board members did not believe any action was required because Green Field was not being asked to give anything away. Trial Tr. 1603:4-1605:25, 1607. However, the board members agreed that they would sign a consent if such a consent became necessary. Trial Tr. 1603:4-1605:25.
By May 13, 2013, GE was ready to advance money through a $25 million short-term convertible loan to TGS. As Moreno had negotiated with GE, the funds would be used to purchase Green Field's inventory, and Green Field would use those proceeds to make the semi- annual interest payment under the Indenture and resolve its short-term liquidity problems. Trial Tr. CONFIDENTIAL Mar. 20, 2018 at 11:4-20, Trial Tr. 1606:12 - 1608:12.
*273 Further, under the Term Sheet, TPT would execute a manufacturing agreement with TGS to begin building power generator units for TGS to lease to new customers. JX 49, Trial Tr. 1606:12 - 1608:12.
To assist in the transaction and satisfy a condition being imposed by GE's Padoletti, Green Field's corporate counsel at Latham & Watkins prepared the Consent Solicitation and circulated it through the company's CFO, Blackwell, who normally circulated materials to board members. Trial Tr. 1604:18-1605:25. The board members did not hold another meeting to deliberate execution of the Consent Solicitation. Id. Moreno executed it on behalf of himself and as manager for the two shareholders. Id. Fontova and Kilgore executed the Consent Solicitation without meeting, and Knight was not in his office on May 13, 2013, but executed the Consent Solicitation remotely. Trial Tr. Knight Depo. Tr. 51:18-53:14.
As such, the board signed the Consent Solicitation without meeting together and without receiving a fairness opinion. Despite this, the board members have all stated that the Consent Solicitation was a good move for Green Field. Short notice for the Consent Solicitation and the absence of a formal meeting or fairness opinion to deliberate the Consent Solicitation's terms casts some doubt on whether the board was adequately informed. The Court finds, however, that the record demonstrates that the Board was kept informed of Moreno's ongoing GE negotiations, had access to and considered adequate and accurate information in deciding whether to execute the Consent Solicitation and fully understood what Green Field would receive in exchange for its execution of the Consent Solicitation.
2. Bondholder Communications
Under the Indenture, Green Field began holding quarterly bondholder conference calls in 2012 to discuss the company's quarterly financials and operations. Stipulation Nos. 88, 89. Those calls were held on June 5, 2012, August 22, 2012, November 21, 2012, April 19, 2013, May 22, 2013 and September 6, 2013. Stipulation No. 89. Each of those conference calls was transcribed. Stipulation No. 90, PX 111, PX 197, PX 217, PX 121, PX 143, PX 157, PX 177.
During these conference calls, Moreno typically gave a high-level update on business development, then the company's CFO, Blackwell, would give an update on the financial performance, followed by Fontova's update on the company's operations. PX 111, PX 197, PX 217, PX 121, PX 143, PX 157, PX 177; Trial Tr. 1298:21-1299:24. The call transcriptions clearly show that Fontova advised bondholders as to how the market reduction in 2012 impacted the company's margins and resulting ability to continue its planned operational expansion. PX 121, PX 143, Trial Tr. 1300, 1303:6-22, 1306-08.
Importantly, in all of Fontova's operational updates to bondholders, he never once mentioned PowerGen or attempted to give bondholders an update on Green Field's PowerGen business. Trial Tr. 1308:18-1309:5, 1314:24-1315:1. He explained that this was because Green Field never operated a PowerGen unit and, thus, there was never any update to give bondholders. Id. Of the hundreds of employees at Green Field, not a single employee was ever engaged in the PowerGen business; Green Field's operational efforts during this period were limited to "touching base with some of our customers to try and engage them and get feedback on their receptiveness about potentially PowerGen." Trial Tr. 1317:19-1318:4.
In addition to quarterly conference calls with all of Green Field's officers, Moreno *274 also made it a point to keep in touch with the bondholders. Before the April 2013 conference call, Moreno invited many of the bondholders to visit Green Field and TPT's respective facilities in Louisiana to see and hear first-hand how Green Field's operations were developing-an offer that 80% of the bondholders accepted. Trial Tr. 315:21-317:5. In addition to this invitation, Moreno kept his more active bondholders apprised individually between quarterly calls. Trial Tr. 627:23 - 628:6.
Moreno made frequent calls to Green Field's larger bondholders, including one in particular-Wayne Teetsel of Stonehill Capital ("Teetsel"), which held at least $30 million of the total $250 million bonds issued. Teetsel Depo. Tr. 205:13-25. The Teetsel calls were to him alone and not to all bondholders. The calls are important because Teetsel took contemporaneous handwritten notes of his conversations with Moreno, an undertaking that sheds light on the extent to which Moreno sought transparency with his investors. Teetsel Depo. Tr. 26:10-15, 43:11-14, 46:10-12, 126:2-13, 133:3-18, 174:15-22, 178:9-18. Based on the following history of bondholder communications, the Court finds that Moreno did not intend to mislead or defraud Green Field or its creditors.
As early as November 7, 2012, Moreno informed Teetsel that GE was interested in making an equity investment into Green Field so that Green Field could form a new leasing company to build and lease power generation units. DX 42, Trial Tr. 579-83. On November 15, 2012, Moreno updated Teetsel that GE was contemplating a contribution of its Compressed Natural Gas technology into the joint venture, and that Green Field would agree to convert its "manufacturing capacity" from construction of frac pump equipment to power generation equipment. DX 44, Trial Tr. 583-86. At the time, in mid-November 2012, GE was contemplating a $25 million cash and $50 million in-kind contribution into the joint venture. Id. The Court finds that this representation was accurate at the time.
One week later, on November 21, 2012, Green Field held its quarterly bondholder call. JX 15. According to Teetsel's contemporaneous handwritten call notes, Teetsel understood that Green Field's performance had been poor due, in part, to increased guar prices and lower energy prices. JX 15. Moreno advised bondholders that he was doing two things to increase liquidity. JX 15, Trial Tr. 588, Teetsel Depo. Tr. 134:4 - 135:17. First, he attempting an equity raise. Id. Second, he was pulling back capex spending until there were more customer contracts in place. Id. Operationally, Moreno advised bondholders that the company was performing as planned. Id. However, although Moreno had already told Teetsel and others about a potential GE investment in a new PowerGen leasing business venture, Teetsel knew that no such business existed. Teetsel Depo. Tr. 136:13-20.
Eight days after the bondholder conference call, on November 29, 2012, Moreno called Teetsel directly to provide an update on his capital raise efforts. DX 26, Trial Tr. 592-600. Moreno told Teetsel about the potential SandRidge pilot program and provided rough estimates of the capital costs and likely revenues realized from a potential leasing venture. Id. At the time, while Teetsel understood why Green Field was exploring the potential new PowerGen business venture, he believed that Green Field lacked the liquidity to expand into this new line of business. Teetsel Depo. Tr. 143:8-144:13. Teetsel knew that Moreno was only considering the PowerGen idea as a means to save Green Field. Id.
*275 On December 20, 2012, Moreno provided Teetsel with another update describing the imminent execution of a memorandum of understanding and supply agreement between Green Field and GE. DX 178, DX 181, Trial Tr. 603-09. Under this arrangement, Green Field and TPT would begin commercializing GE products for use in their existing pressure pumping business. Id. While discussions were progressing on the supply agreement terms, Moreno believed discussions with GE would progress more quickly if GE simply provided a line of credit to Green Field in exchange for Green Field's commitment to purchase GE products. DX 179, Trial Tr. 603-06. These discussions failed, however, because GE was only willing to extend $10 million of credit to Green Field and only with a standby letter of credit and personal guaranty from Moreno. Id. Thus, Moreno continued negotiations with GE as a joint venture and equity partner. Id.
One month later, on January 18, 2013, Moreno provided Teetsel with another update that GE had committed to infusing Green Field with $15 million, which would be used to fund TPT's efforts to commercialize McIntyre's dual fuel technology on GE's equipment. DX 30, Trial Tr. 608-11. Importantly, also during this conversation, Moreno advised Teetsel that he was expecting a $200 million term sheet from GE any day. Id.
As the negotiations with GE began to shift, Moreno kept Teetsel and the bondholder group apprised of those shifts. The first example of this appears in Teetsel's notes from a call on February 6, 2013. JX 22. In the days before Moreno's call with Teetsel, Moreno had been in discussions with GE about the form of the joint venture or equity investment. Trial Tr. 611-24. According to e-mails between Moreno and individuals at GE, and GE internal communications responding to Moreno's communications, GE had not yet decided how to partner with Moreno and Green Field. DX 183, Trial Tr. 611-24. By the time Moreno provided his update to Teetsel on February 6, 2013, Moreno advised Teetsel that any money coming from GE would come "with strings." JX 22, Trial Tr. 626-29. Specifically, the $100 million contemplated as of early February 2013 might have to go into a special purpose entity outside of Green Field, and that Green Field's only interest in the PowerGen business might be as the contract manufacturer. Id. Moreno told bondholders that this structure would still provide Green Field with much needed liquidity. Id.
Over the course of the next two weeks, Moreno was deeply engaged in discussions with GE over the form of GE's potential investment. On February 28, 2013, Moreno provided Teetsel with an update about the private equity firms with whom Moreno had met. DX 49. Moreno met with private equity firms until GE confirmed that Immelt had approved GE's investment into Green Field on March 8, 2013. Trial Tr. 668-74. On February 15, 2013, Moreno met with GE in Irving, Texas. DX 257, DX 258, Trial Tr. 661-65. On February 28, 2013, once Moreno was comfortable that GE would approve an investment with Green Field, Moreno provided Teetsel the full update. JX 49, Trial Tr. 668-74. At the time, Moreno anticipated that GE would invest $100 million by the end of March 2013. Id.
On March 12, 2013, days after Immelt approved an immediate investment of at least $25 million, Moreno provided Teetsel with an update. JX 25, Trial Tr. 681. According to Teetsel's notes, "GE [was] working on getting Mike $25 [million] in the interim to kick-start the construction of power gen units ... $25 [million] would come into Green Field as a deposit on the 1st $100 [million] order." JX 25.
*276 Nine days later, on March 21, 2013, Moreno provided Teetsel with another update. JX 25. According to Teetsel's notes, Immelt wanted the investment funded by the end of April. Id. Teetsel's notes also indicate that GE was willing to fund 100% of the capital for the joint venture, but "the JV must be an unrestricted subsidiary [of Green Field and] will require bondholder approval." Id. As Moreno warned Teetsel in February, GE's money comes "with strings." JX 22, Trial Tr. 262-26, 682-86. More specifically, in order for Green Field to benefit from GE's investments, the bondholders were going to have to consent to the creation of a new subsidiary of Green Field that was "unrestricted" - meaning that the new venture would not be subject to the $250 million bondholder debt. Id. While Green Field never formally solicited bondholder consent on this issue, the Court finds that such efforts would have proven futile for at least a couple of reasons. First, the bondholders had made clear to Moreno that they would only consent to a structure where the joint venture was a restricted subsidiary of Green Field. Teetsel Depo. Tr. 198:23 - 199:3. Additionally, GE could not get comfortable that its potential investment in a subsidiary of Green Field-restricted or unrestricted-would be sufficiently protected from Green Field's bondholders. Trial Tr. 588:4-7, 637:24 - 638:7, 782:3 - 19.
On March 25, 2013, i.e., the same day that Moreno dined with Immelt to discuss the future partnership-Teetsel's notes reflect that GE "seems to be" willing to invest in the power generation business "as a division of Green Field" and fund CapEx needs for both the PowerGen start-up and Green Field's existing pressure pumping business through "an upsized investment in the Power Gen JV." JX 29. Moreno advised Teetsel again that GE had committed to advance $25 million immediately, with the remainder of the investment to come by the end of April. JX 29, JX 30, Trial Tr. 686-89. Moreno's update to his largest bondholder remained true to GE's position at the time.
Moreno's next critical update to Teetsel was on April 5, 2013. JX 33. As discussed above, Moreno had made significant progress with GE prior to this date-e.g., Moreno flew to Schenectady, New York on April 3 to meet with Calhoun and her team, Calhoun e-mailed an outline of the deal points to Moreno, then raised the issue over who owned the PowerGen intellectual property, and started to convene "critical" meetings in Houston, Texas to "get aligned" on the various moving parts. JX 32, DX 265, Trial Tr. 728-31, 740. According to Teetsel's April 5 notes, GE was willing to contribute up to $200 million to the joint venture, and the joint venture would provide Green Field with $400 million of consistent revenue over the next three years, with 25% margins. JX 33, Trial Tr. 736-40. Moreno was still committed to using those revenues from the PowerGen joint venture to complete Green Field's frac spread construction. Id. Once again, Teetsel's notes, based on Moreno's disclosures to him, remain consistent with the transaction that GE was contemplating at the time. JX 32, DX 265, Trial Tr. 728-31, 740.
Five days later, on April 10, 2013, Moreno provided Teetsel with another update. DX 45. Teetsel's notes provide that Green Field had lined up two new customers for its frac services. DX 45, Trial Tr. 742-43. This demonstrates that Green Field had not pivoted from its core fracking business, even in the midst of Moreno's negotiations with GE. Id.
On April 18, 2013, Moreno updated Teetsel again. DX 45. According to Teetsel's notes, GE was still contemplating a $200 million investment, of which $25 million *277 would be made by the end of the month, and $100 million would be used to fund the construction of two frac spreads for Green Field. DX 45, Trial Tr. 744-46. Teetsel also noted Moreno's ongoing negotiations with GE to ensure that bondholders would receive warrants for non-voting shares in the joint venture with GE. Id. As discussed above, this term made it into the ultimate Term Sheet annexed to the GEOG Note. JX 49.
On May 14, 2013, Moreno provided another update to Teetsel. DX 35. According to Teetsel's notes from this call, Moreno advised Teetsel that he closed on the initial GE loan on the previous day, and that Moreno would be closing on a personal loan with Goldman Sachs the next day. DX 35, Trial Tr. 778-81. Moreno told Teetsel that the two loans would provide Green Field with up to $50 million in liquidity. Id. In other words, even though the PowerGen leasing company was being held outside of Green Field, Moreno assured Teetsel that he was able to help Green Field by keeping it outside. Id.
As discussed above, Green Field actually benefited from the GE loan. As soon as GE funded the loan, Moreno caused the vast majority of the funds to be transferred to Green Field to purchase Green Field's stale turbine inventory, at a substantial mark-up. JX 3; Trial Tr. 829:12- 23, 830:3 - 832:8. This transaction allowed Green Field to make its semi-annual interest payment to the Indenture Trustee-something that, but for Moreno's willingness to personally guarantee loans for non-debtor entities, Green Field would not otherwise have been able to do.
While Teetsel was the only bondholder to keep contemporaneous handwritten notes memorializing his phone conversations with Moreno, there is evidence that Teetsel was not the only bondholder with whom Moreno communicated during this period. Moreno testified that he communicated with many of his bondholders, and there is evidence to corroborate this testimony. Trial Tr. 782:10-19. For example, Jacob Rothman, a representative of another bondholder called Beach Point Capital, testified that Moreno had been updating him on his efforts to raise capital for Green Field, and that Rothman believed that Moreno might actually be able to raise the equity needed to keep Green Field in business. Rothman Depo. Tr. 80:19-81:21. Another bondholder, Mount Vernon Investments, actively negotiated with Moreno and ultimately made a qualified investment in TGS (through its affiliate Powermeister), knowing that the PowerGen leasing business would be held outside of Green Field and believing that a well-capitalized PowerGen business would benefit Green Field and, by extension, its bondholders. DX 137, DX 140, DX 141; Merrick Depo. Tr. 15:20-16:20, 86:9-87:16, 87:22-88:10. Moreno testified that he also worked closely with another bondholder, BP Capital, who considered but decided not to make a similar loan or qualified investment. Trial Tr. 564:6-565:16.
Considering the weight of evidence, the Court finds that Moreno was open and transparent with Green Field's creditors, and that the Trustee has not presented sufficient evidence-direct or circumstantial-to demonstrate that Moreno intended to defraud or otherwise harm Green Field or its creditors. On the contrary, the evidence suggests, and the Court finds, that Moreno was dealing with a very fluid situation during the course of his negotiations with GE, and as time ran out on Green Field's liquidity, Moreno did his best to keep Green Field's creditors apprised of how GE's ever-changing investment might impact Green Field and its ongoing business.
*278 3. Ownership of the PowerGen Idea
The Trustee sought to paint PowerGen as a natural extension of Green Field's Frac Stack Pack license. The Court is not so persuaded, and McIntyre, the inventor and expert in the field of aero-derivative turbine applications, himself disagreed with this proposition. McIntyre Depo. Tr. 32:23 - 34:15. As discussed above, the Frac Stack Pack invention was one of many applications of aero-derivative turbines that McIntyre developed and deployed. McIntyre had also developed fire suppression systems for the oil and gas industry as well as engines for boats and motor vehicles-none of which the Trustee contends to be a natural extension of the Frac Stack Pack technology.
As Moreno's search for capital led him into discussions with GE over a PowerGen business, Moreno involved McIntyre from the beginning. McIntyre Depo. Tr. 39:1-40:18, 49:22-51:17. Before that time, TPT was not engaged in manufacturing power generators-it only built TFPs for Green Field's pressure pumping business. McIntyre Depo. Tr. 61:12-64:1. Only after Moreno convinced his counterparts at SandRidge to run a pilot program for power generator units in January 2013 (PX 129; Trial Tr. 219:9-220:24) and after GE's engineers spent enough time with McIntyre's staff working on design specifications for the power generation units, did McIntyre use Marine Turbine assets and trade credit to build power generator units in February 2013. Trial Tr. 1530:11-1533:22; McIntyre Depo. 64:19-66:15. Construction was at TPT's facility, which McIntyre owned and which he had also used for Marine Turbine's business. Trial Tr. 1516:14-22.
While McIntyre's staff built TPUs for the SandRidge pilot in early 2013, neither Green Field nor TPT supplied any technology or know-how toward the construction. Trial Tr. 1533:10-1534:15. McIntyre only considered allowing his PowerGen opportunity to be manufactured through TPT instead of Marine Turbine because Moreno convinced him that "it was the right thing" to do, and because Moreno could bring an industry titan, like GE, to the table as a potential customer. Trial Tr. 1537:7-1538:23, 1541:25-1542:12.
I. Valuing the PowerGen Startup
1. The Parties' Expert Witnesses
In an effort to prove (and disprove) damages, the Trustee and Defendants each presented an expert witness to opine on the value of the PowerGen startup as of the time of the alleged transfer. The Trustee contends, and his expert Kearns, assumed that the date of the transfer and, thus, the critical date for valuation was May 13, 2013, the date Green Field's board of directors executed the consent, waiving the opportunity to participate in the leasing side of the PowerGen business and permitting Moreno to continue negotiations with GE through TGS. Trial Tr. 997:15-18. Defendants dispute that anything was actually transferred on that date or as a result of the Consent Solicitation, but their expert Sowards also provided his analysis of the potential value of the PowerGen startup as of May 13, 2013.
Both Kearns and Sowards were qualified as expert witnesses for purpose of evaluating the value of the PowerGen startup. Trial Tr. 1252:13-1254:25, 1674:15-1675:3, 1794:4-17, 1841:16-23.
2. Methodology and Areas of Disputes
Kearns testified that he used a "Venture Capital Approach" which involved five steps. Trial Tr. 1031. Because PowerGen did not have any operating history and, thus, no ability to consider past performance, step one was to determine the development stage of the company. Trial Tr.
*279 1031. Step two was to "evaluate potential range of outcomes ... and those outcomes can include a single, to a home run, to a strikeout." Trial Tr. 1051. Step three was to "probability weight" those potential outcomes. Step four was to determine the value of the enterprise. Trial Tr. 1051. Lastly, step five was to take the value and allocate it among the participants in the venture. Trial Tr. 1032.
Kearns did not create, conduct or rely upon his own financial projections or market analysis as a basis for determining the value of PowerGen common equity. Trial Tr. 1108. Rather, he relied entirely upon GE's financial projections and market studies (discussed infra ). Trial Tr. 1108. Fur t h e r, beyond relying on the documents produced in this case, Kearns acknowledged that he lacked direct personal knowledge to verify the assumptions for any of the financial projections. Trial Tr. 1164.
Kearns identified AICPA guidelines on the valuation of equity securities for privately held companies to describe the methodology he relied upon. PX 213. The methodology he used is known as the "Probability Weighted Equity Return Model" ("PWERM") methodology. Kearns directed the Court to Chapter 6 of the AICPA guidelines which describes "probability weighting analysis." Kearns noted that "in this case you have a range of potential outcomes, going from, as you will see, management's view to zero. And how from a valuation perspective those outcomes have to be weighted from a probability perspective to come to a value conclusion." (PX 213; Trial Tr. 1033-34). In general, Sowards, Defendants' expert, did not disagree with the general methodology described by Kearns and as outlined in the AICPA guidelines. Sowards did, however, have significant disagreement concerning the correct application of the methodology, as well as whether Kearns relied upon the appropriate data when applying the PWERM methodology. Trial Tr. 1742:21-1744:13, 1745:18-1746:2.
As a threshold matter, Sowards testified that there were actually a fair number of points on which he agreed with Kearns's methodology. Trial Tr. 1684:16-1685:24. Specifically, Sowards and Kearns agreed that, without seed capital of $100 million, there was no PowerGen business or opportunity to value. Trial Tr. 1685:1-6. Sowards also agreed that GE's financial model was useful to try to ascribe value to common equity for the PowerGen startup opportunity given its lack of operating history. Trial Tr. 1685:7-11. Sowards and Kearns also agreed on the discount rates applied for the premium and the delay period. Trial Tr. 1685:11-14. Lastly, they agreed that an EBITDA multiple of six to eight was reasonable for determining an enterprise value. Trial Tr. 1685:15-19.
The differences in the experts' valuation opinions centered around four principal "critiques," as presented by Sowards. First, Sowards testified that Scenario 4-not Scenario 3-is the appropriate "GE Model" that could be used as a "base case" for determining a value. DX 311, Slides 1-6; Trial Tr. 1687:10 - 1688:13, 1689:17 - 1730:5. Second, Sowards testified that the value ascribed to Green Field under the Tri-Party Agreement, which would not have existed but for Moreno's work to negotiate the Term Sheet with GE, should be taken into account. DX 311, Slides 7-9; Trial Tr. 1731:8 - 1742:20. Third, Sowards opined that Kearns' analysis failed to account for the risk that the $100 million capital infusion, which was necessary for the PowerGen startup, would not be obtained. DX 311, Slides 10-11; Trial Tr. 1742:21 - 1757:8. Finally, Sowards testified that Kearns' analysis failed to take into account the profit Green Field obtained *280 from TGS by selling its unused turbines. DX 311, Slides 12-13; Trial Tr. 1757:9-1765:17. While Kearns attributes $26.9 million in value to the PowerGen opportunity, Sowards explained that, if these four adjustments are taken into account, the value of PowerGen is less than $0. DX 311, Slides 14-15; Trial Tr. 1775:12-1787:3. Sowards further explained that if Kearns had used Scenario 4, instead of Scenario 3, and made none of the other three adjustments he describes, the valuation of the PowerGen opportunity using Kearns' methodology would be $6.8 million. Id. The effect of each of the adjustments described by Sowards on the value of the PowerGen common equity is demonstrated in DX 311. Each of the four points are addressed below.
3. Selection of a "Base Case" for Valuation-Use of Scenario 3 or Scenario 4
A significant amount of trial time was spent discussing the various "scenarios" of the "GE Sensitivity," which were GE's PowerGen financial models. Trial Tr. 971-1254 [Kearns]; Trial Tr. 1661-1842 [Sowards]; JX 39 [GE Sensitivity]. The GE Sensitivity was considered by GE Corporate in May, 2013 with regard to the PowerGen opportunity, and it consists of four "scenarios," containing different assumptions and inputs. By "sensitivity," the Court understood that GE made assumptions based on its own observations as well as those provided by Green Field's management, and made various different adjustments for utilization of power generation units, speed of deployment of the units, capital costs and the like. Trial Tr. 1052-53. On or about May 2, 2013, management for Green Field sent individuals at GE a detailed Microsoft Excel file with what purports to be management's financial projections, assuming $100 million equity from GE and "maximum production of units with available cash received from GE plus cash generated from operations." JX 36. GE then prepared its own model, which sensitized management's projections and considered GE's own different assumptions. JX 39, JX 40. The same models were forwarded to GEOG's representative, Padaletti, on May 15, 2013. JX 59. For purposes of the GE sensitivity analysis, Green Field's projections are in Scenarios 1 and 2, and GE's sensitized projections are in Scenarios 3 and 4. JX 39, JX 40.
Kearns did not conduct an independent financial analysis or projection of the PowerGen startup, but, instead, relied on the GE Sensitivity. Trial Tr. 1108. The first critique offered by Sowards was over Kearns's selection of Scenario 3 as the "base case" for determining value. DX 311, Slides 1-6. Kearns concluded that the Green Field management's projections, which were contained in Scenarios 1 and 2, were unreliable, and, thus, chose not to use the Green Field projections in his valuation analysis. Trial Tr. 988:7-14. Sowards agreed with Kearns that Green Field management projections were unreliable as a base case and should not be used in an analysis of the value of common equity of the PowerGen Opportunity. Trial Tr. 1730:12 - 1731:7.
Kearns and Sowards disagreed as to whether Scenario 3 or Scenario 4 provides the more reliable base case for valuation of the common stock of a PowerGen joint venture. For his base case, Kearns relied upon Scenario 3, describing it as the "GE PowerGen Sensitivity" in his trial testimony. Trial Tr. 1149-50; Kearns demonstrative Slides 24 and 25. Sowards contended that Scenario 3 is not GE's model because it does not contain all of the key assumptions made by GE during its analysis of the financial projections and that Scenario 4, which does contain all of GE's key assumptions, is therefore the most reliable *281 base case and should have been used for the financial analysis/determination of valuation and damages, if any. As described below, the Court agrees with Sowards' contention that Scenario 4 is the most reliable base case and should have been used for the financial analysis/determination of valuation and damages, if any.
In a document titled "Project Cayenne Financial Model Overview" (the "GE Model Overview"), dated May 21, 2013, GE described and compared the "Green Field Model" and the "GE Model." JX 40. This GE Model Overview is informative, as it describes the differences in the Scenarios in the GE Sensitivity. Kearns relied on the GE Model Overview in conducting his analysis. Trial Tr. 1147. He cited the same document as the basis for stating that the EBITDA he relied upon (which came from Scenario 3) was forecasted following GE's adjustments of "several key assumptions." Kearns acknowledged that on Slide 6 of the GE Model Overview, GE listed its "key assumptions" as compared against Green Field's model. Trial Tr. 1150. Kearns opined that GE "sensitized several key assumptions" and that following those adjustments, the GE PowerGen Sensitivity forecasted revenues of $87.3 million for 2015 and EBITDA of $48.3 million. Trial Tr. 1147:25-1149:24. These amounts come from Scenario 3. Trial Tr. 1163:1-18. Kearns also testified that the $48.3 million of EBITDA used in his analysis resulted from a GE analysis which contained GE's key assumptions. Trial Tr. 1147:25 - 1149:24.
Scenarios 1 and 2 of the GE Sensitivity Analysis, which are the Green Field management's models, projected the total number of power generation units to be manufactured and deployed as 265 units. JX 36; DX 311, slide 4; Trial Tr. 1156. In the GE Model Overview, GE described Green Field management's assumptions regarding the number of units to be manufactured and deployed (265 units) as follows: "Unit deployments based on capacity of TPT, not a bottom's up commercial schedule - only 40 MW under contract to date." JX 40, p. 2. On the same slide of the GE Model Overview, GE described Green Field management's model as "High Growth, high margin, high CAPEX model." JX 40, p. 2. Slide 6 of the GE Model Overview, which contains a bold heading of "GE MODEL," explains the following differences between the GE model and the Green Field management model scenarios:
• Similar construct with a few key differences
• Doubled Variable Cost assumptions to 10/12/6% of sales
• Increased fixed monthly cost to 500k and 6%
• Reduced Utilization to 65%
• Increased equipment costs to $630k for 1 MW unit
• Slower ramp in unit sales after 40 MW has been commercialized
• Balance Sheet capitalized with $100M from Day 1
JX 40, p. 6. Scenario 3 does not contain all of GE's key assumptions, as indicated on Slide 6 of the GE Model Overview. JX 40. Only Scenario 4 lines up with GE's own description of the "GE Model." Specifically, Scenario 3 contains a projected total number of units to be manufactured and deployed that remains at 265 units-the same as Green Field management projections in Scenarios 1 and 2. JX 36, DX 311 slide 4; Trial Tr. 1055, 1158-59, 1165. Scenario 4, which includes GE's assumption of the manufacture and leasing of 191 units, is significantly different. Only Scenario 4 contains the "slower ramp in unit sales" and increased equipment cost. JX 36, DX 311 slide 4. Scenario 4 also slows the rate of deployment of the units. JX 40 p. 7. These are key assumptions by GE that *282 were known or knowable as of May 13, 2013. Trial Tr. 1774:11-1775:11. Accordingly, Scenario 4 utilizes the same assumptions as those listed in the GE Model Overview and self-described by GE as the "GE Model." JX 40, Slides 6-7. As such, the Court finds that Scenario 4 is the more reliable and appropriate base case for an analysis of the value of PowerGen common equity.
As Sowards explained, the projected financial results using Scenario 3 as the base case for the valuation analysis rather than Scenario 4 are significantly different. JX 40, Slide 6-7; Trial Tr. 1723:4 - 1724:22, 1701:12-25, 1707:3-1708:2, 1713:2-1716:20. Scenario 3 generates EBITDA of $48.3 million in 2015 while Scenario 4 generates EBITDA of $29.9 million in 2015. JX 39, DX 311, Slide 6; Trial Tr. 1692:17-1697:13. Kearns agreed that if he had used Scenario 4 his valuati

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8501801. Public record. Not legal advice.