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Golden v. Mentor Capital, Inc.

United States District Court, D. Utah

September 25, 2017

GENA GOLDEN, an individual, and SUSAN GOLDEN, an individual, Plaintiffs,
MENTOR CAPITAL, INC., a Delaware corporation, LABERTEW & ASSOCIATES, a Utah limited liability company, and MICHAEL L. LABERTEW, an individual, Defendants. MENTOR CAPITAL, INC., a Delaware corporation, Third-Party Plaintiff,
RICHARD GOLDEN, an individual, and SCOTT VAN RIXEL, an individual, Third-Party Defendants.


          Jill N. Parrish, United States District Judge.

         Before the court is Plaintiffs' Motion for Partial Summary Judgment (Dkt. No. 70) (the “Motion”). The court held oral argument on the Motion on January 31, 2017. Plaintiffs Gena and Susan Golden (the “Goldens”) seek summary judgment on Count I of the Second Amended Complaint against Defendant Mentor Capital, Inc. (“Mentor”) for violation of the Securities Act of 1933. Specifically, the Goldens argue that Mentor was not authorized to issue the shares it sold to them in March 2014 because it failed to comply with the Bankruptcy Court's Order Confirming Mentor's Plan of Reorganization and, consequently, those shares were invalidly issued and not exempt from the Securities Act's registration requirement. Mentor opposes the motion, arguing that genuine disputes of material fact preclude summary judgment.

         I. Undisputed Facts

         1. Mentor[1] filed for bankruptcy in the United States Bankruptcy Court for the Northern District of California (the “Bankruptcy Court”) in August 1998.

         2. Mentor filed its Third Amended Plan for Reorganization (the “Plan”) on September 30, 1999, and a supplement to that Plan on December 2, 1999.

         3. On January 11, 2000, the Bankruptcy Court confirmed the Plan (“Order Confirming Plan”) and incorporated it into the bankruptcy court's order.

         4. The Plan allowed Mentor to issue several classes of warrants to its creditors. The warrants were exercisable for shares of Mentor's common stock at various prices, depending on the class of warrant held.

         5. Section 6.4(a) of the Plan provides that “[t]o the extent provided in § 1145 of the [Bankruptcy] Code, the New Equity Securities [defined in the Plan to include the warrants] . . . and all securities issued in exchange therefor or on conversion thereof, shall be exempt from the registration requirements of the Securities Act of 1933, as amended . . . .”

         6. Section 1.1 of the Plan defines the “Effective Date” of the Plan as “the date on which [Mentor] files the amendment to its articles of incorporation required by §6.7 hereof.”

         7. Section 6.7 of the Plan provides:

6.7 Amendment of Articles of Incorporation: Not later than 120 days after Confirmation [May 10, 2000], [Mentor] shall file amendments to its articles of incorporation which provide for:
(a) Authorization of sufficient shares of its common stock to permit issuance of the New Common Stock, the shares issuable on exercise of all Warrants to be issued under this Plan, and such additional common stock as [Mentor] considers appropriate to have available for future transactions; and
(b) Prohibit the issuance of nonvoting equity securities.

         8. Section 6.8 of the Plan provides:

6.8 Validity of Corporate Actions: Pursuant to § 1400 of the California Corporations Code, Confirmation shall constitute due authorization required for the full validity, enforceability, and effectiveness of all transactions provided for in this Plan, notwithstanding any provisions of the California General Corporation Law which would otherwise require approval of such transactions by the Debtor's board of directors, shareholders, or otherwise. Confirmation shall constitute authorization for Debtor's Responsible Individual designated under B.L.R. 4002-1 to take all actions and execute, deliver and file all certificates, notices, and other documents as he deems necessary or appropriate to consummate the transactions provided for in this Plan, including certificates of amendment of the Debtor's Articles of Incorporation.

         9. There is no evidence that amended articles of incorporation were filed within the prescribed 120-day period. The office of the California Secretary of State has no record of such an amendment, there is no mention of an amendment in any document, and no testimony that such amendment was filed.

         10. On March 21, 2008, Mentor filed a Certificate of Amendment of Articles of Incorporation of Mentor Capital, Inc. (the “2008 Amendment”). The 2008 Amendment states that “[t]he total number of authorized common shares is unchanged at 400, 000, 000.”

         11. The only other amendment on file with the California Secretary of State is an amendment filed December 10, 2007. The filing record indicates that this amendment changed the name of the company from Main Street AC, Inc.

         12. Mr. Scott Van Rixel was the recipient of warrants that were issued to Mentor's creditors as contemplated under the Plan.

         13. In late February 2014, Mr. Richard Golden was looking for an investment opportunity for his wife, Plaintiff Gena Golden, and his daughter, Plaintiff Susan Golden.

         14. Mr. Van Rixel informed Mr. Golden of a potential investment opportunity to purchase Mentor stock.

         15. Mr. Van Rixel showed Mr. Golden a letter that Chester Billingsley, CEO of Mentor, had written to Mr. Va n Rixel representing that the shares in Mentor were unrestricted and freely tradeable.

         16. M r. Van Rixel offered to front the purchase price for the Goldens' purchase of the Mentor shares and indicated that Mr. Golden could then pay him back.

         17. The Goldens and Mr. Van Rixel sought to confirm with Mentor that the shares were unrestricted. Mr. Billingsley responded via e-mail that “The [shares] are unrestricted and fall under the exemption from registration afforded under Section 1145 [of the Bankruptcy Code].”

         18. Mr. Golden decided to commit funds on behalf of Gena and Susan to purchase the Mentor shares.

         19. Mr. Golden paid Mr. Van Rixel $146, 250.00 for 75, 000 shares of Mentor stock through the issuance of two checks, both dated March 20, 2014.

         20. M r . Va n Rixel e-mailed Mr. Billingsley, “I wanted to know if I was able to put the shares I committed to in different peoples [sic] names as I would like to use them as thank you's [sic] for peoples [sic] efforts in helping us make the decision to move forward with you.” Mr. Van Rixel was informed that he could put the shares in other people's names.

         21. On March 21, 2014, Mentor received a check for $204, 750.00, dated February 28, 2014, from Mr. Van Rixel. The check, which was drawn on the account of the Scott J. Van Rixel Family Trust, was for the purchase of 105, 000 shares of Mentor common stock at a price of $1.95 per share.

         22. On March 23, 2014, Mr. Van Rixel requested that Mentor issue 25, 000 shares in the name of “Gena Golden” and 50, 000 shares in the name of ...

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