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United States v. Kight

United States District Court, N.D. Georgia, Atlanta Division

October 16, 2017

UNITED STATES OF AMERICA,
v.
BENNETT L. KIGHT, Defendant.

          OPINION AND ORDER

          WILLIAM S. DUFFEY, JR., UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the Government's Motion to Disqualify Defense Counsel [45] (the “Motion”). Also before the Court is Defendant Bennett L. Kight's (“Defendant” or “Kight”) Unopposed Request for Oral Argument on the Government's Motion to Disqualify Defense Counsel [55].[1]

         I. INTRODUCTION

         The Government moves to disqualify Barry J. Armstrong and his law firm, Dentons U.S. LLP (“the Firm”) from representing Kight in this criminal action, on the grounds that Armstrong represented Kight and William Lankford in a state court civil action (the “Civil Action”) that was substantially related to the charges brought against Kight in this case. Both parties represent that they will call Lankford to testify about matters central to this prosecution and which the Government argues are substantially related to the matters about which Armstrong represented Lankford and Kight in the Civil Action-a representation for which Lankford refuses to waive his attorney client privilege or confidential information privilege.

         The Government claims specifically that the transaction at issue in this case was at issue in the Civil Action and thus the cases are substantially related and disqualification is required. Kight contends the transaction at issue in this case was not at issue in the Civil Action, that it was not discussed with Lankford and thus these two cases and the issues in them are not substantially related. To understand the relationship between the issues in this prosecution and in the Civil Action, the Court first evaluates the complex network of entities and transactions in which Kight and Lankford were involved as co-trustees of certain estate assets and the litigation in state court that arose from Kight's position as a co-trustee.

         II. BACKGROUND

         From 1991 to 2004, Frances Bunzl and Kight were co-trustees of three trusts created for the benefit of certain members of the Bunzl family[2] (the “Bunzl Trusts”). (Civil Action, Petition for Approval of Interim Accounting [54.3] at 6-7). Kight, besides serving as co-trustee with Frances Bunzl, also served as the Bunzl family's attorney and managed other Bunzl family assets that are not held in the Bunzl Trusts.

         In December 2004, Frances Bunzl resigned as co-trustee and Lankford was appointed to serve with Kight as co-trustee of the Bunzl Trusts. (Id. at 7). Lankford also provided accounting and tax services to the Bunzl family, and, with Kight, managed other Bunzl family assets.

         A. The 2005 Bunzl Asset Reorganization

         In July 2005, Kight and Lankford “undertook significant family planning involving the [Bunzl] Trusts and members of the Bunzl family” (the “2005 Bunzl Asset Reorganization”). (Id.). This plan “relied upon the creation and utilization of a series of family limited liability companies for the purpose of diversifying the holdings of all of the parties and entities . . . .” (Id. at 8). Two of these new “family limited liability companies” were Capital Piedmont Investment Company I, LLC (“CPIC I”) and Capital Piedmont Investment Company II, LLC (“CPIC II”). CPIC I and CPIC II were funded through a series of transactions in which Frances Bunzl contributed approximately $30 million of her own assets. One asset she contributed was her interest in WBT Properties Management Limited Co. (“WBT Properties”). The contribution was not directly to CPIC I and CPIC II. A new entity, Park Place Investments (“Park Place”) first was created and it was this entity to which Frances Bunzl transferred her interest in WBT Properties and the other assets comprising the $30 million she committed to fund CPIC I and CPIC II. ([48.7]; [34.3]). Park Place thereafter contributed $14 million to CPIC I and $14.5 million to CPIC II. Capital Holdings WHB, LLC (“WHB”), which was owned by the Bunzl Trusts, contributed $10 million to CPIC I and $10 million to CPIC II. As a result, CPIC I received $24 million and CPIC II received $24.5 million in assets from Frances Bunzl and the Bunzl Trusts.

         Kight also contributed to CPIC I and CPIC II, but not in cash or other property. Kight's contribution consisted of notes payable to the entities. Kight executed a note in the amount of $1 million to CPIC I and a note in the amount of $500, 000 to CPIC II. Those who provided funding to CPIC I and CPIC II received, in return, controlling (“Class A”) units and non-controlling (“Class B”) units. The owners of Class A units were entitled to receive the first 15% of the post-contribution gains realized from the sale of properties in each company, provided there was sufficient cash flow to fund the payments. ([34.3]). Park Place, WHB and Kight all received Class A and Class B units in CPIC I and CPIC II.

         Kight and Lankford also formed Capital Piedmont Management Company LLC (“Management LLC”) to manage the newly created Park Place, CPIC I and CPIC II.[3] Kight and Lankford owned and controlled Management LLC in their individual capacities. As part of the Bunzl Asset Reorganization, Management LLC acquired from Park Place and WHB all of their Class A units in CPIC I and CPIC II.[4] Kight and Lankford were supposed to pay 10% of the purchase price for the Class A units in cash. The cash payment was deferred until the fair market value appraisal was available.[5] In return for the Class A units acquired, Management LLC gave to Park Place and WHB promissory notes based on the fair market value of the Class A units transferred. As a result, Management LLC-and its owners, Kight and Lankford-initially, and perhaps ultimately, obtained operational control of CPIC I and CPIC II, an economic interest in CPIC I and CPIC II, [6] and the right to participate in the first 15% of the profits generated by CPIC I and CPIC II, in exchange for their promissory notes.[7]

         The chart in Attachment 1 summarizes the 2005 Bunzl Asset Reorganization.

         B. Transactions Involving the Glen Arden Property

         On January 10, 2006, some months after the Bunzl Asset Reorganization, Kight told Lankford that he would “like to get [his] notes for [his] investments in the CPIC entities paid off” and he sent Lankford a draft of a purchase agreement for a residence on Glen Arden Place in Atlanta (the “Glen Arden Property”). ([45.2] at 2). The Glen Arden Property was Kight's residence and, according to the property records, Kight's wife, Judith, was the record owner of the Glen Arden Property.

         Kight told Lankford that one of the Bunzl entities would pay him $2 million for the Glen Arden Property, and Kight “would use all of that plus to pay off [Kight's] CPIC notes and interest and the Glen Arden [Property] mortgage.” (Id.). Lankford said he was “in agreement with moving forward.” (Id.).

         On January 26, 2006, Kight formulated the Glen Arden Property transaction at issue in this case. Kight purported to sell the Glen Arden Property for $2 million to Capital Holdings GAP 400 LLC (“Capital Holdings GAP”), a new Bunzl entity Kight had created and for which Lankford was a manager. Kight represented in the transaction documents that the Glen Arden Property was owned by an entity named SCT Holdings 400 GAP LLC (“400 GAP LLC”), and that another entity, SCT Holdings LLC (“SCT Holdings”) owned 100% of the membership of 400 GAP LLC. ([34.4]; [45.4]). Kight structured the Glen Arden Property transaction by having Capital Holdings GAP enter into an agreement with SCT Holdings to purchase SCT Holding's 100% member interest in 400 GAP LLC. (Id.). This purchase arrangement was embodied in transaction documents drafted by Kight. Lankford signed the purchase agreement on behalf of Capital Holdings GAP.[8] (Id.). To conclude the purchase, Kight sent two wire transfers, totaling approximately $2 million, from WBT Properties, [9] to Kight's firm's escrow account. ([45.4]). Kight used these funds to pay off the mortgage on his Glen Arden residence, and to repay his promissory notes to CPIC I and CPIC II. ([45.2], [45.5]). There is no recorded deed transferring the Glen Arden Property from Judith Kight to 400 GAP LLC.

         The chart in Attachment 2 summarizes the 2006 Glen Arden Property transaction.

         About two years later, Kight dissolved 400 GAP LLC and Capital Holdings GAP. ([45.6]). The following year, in 2009, Kight and his son, Robert Kight, formed a new company, Sussex Park LLC (“Sussex Park”). ([45.7], [45.8]). Kight pledged the Glen Arden Property to Sussex Park as his capital contribution to it. Kight did not disclose to Robert Kight the 2006 sale of the property to Capital Holdings GAP. Kight represented that Judith Kight was still the record owner of the Glen Arden Property. ([45.8]; Superseding Indictment [15]).

         In December 2010, Kight caused a deed to be prepared purporting to show a transaction occurring on July 28, 2005, before the transfer of the property to Capital Holdings GAP, in which the Glen Arden Property was deeded by its record owner, Judith Kight, to Glen Arden Place LLC (not 400 GAP LLC or Capital Holdings GAP), a company owned and controlled by Kight. Glen Arden Place LLC was not involved in the 2006 sale of the property to Capital Holdings GAP. (Id.).

         On March 21, 2011, Kight caused the deed transferring ownership of the Glen Arden Property from Judith Kight to Glen Arden Place LLC to be recorded and returned to him by United States Mail. The Superseding Indictment alleges that when Kight drafted the deed showing the transfer from Judith Kight on July 28, 2005, he knew that the deed would be used by Robert Kight to obtain a mortgage on the Glen Arden Property, and that the mortgage lender would rely on publicly-recorded deeds, including the backdated deed, to approve Robert Kight's mortgage application. (Superseding Indictment ¶¶ 12, 14-17). Robert Kight ultimately moved into the Glen Arden Property.

         The chart in Attachment 3 summarizes the later Glen Arden Property transactions.

         C. The Civil Action

         In 2012, the Bunzl family began questioning Kight's and Lankford's administration of the Bunzl Trusts and stewardship of other Bunzl assets. On February 8, 2013, Kight and Lankford, represented by the Gaslowitz Frankel law firm, filed a Petition for Approval of Interim Accounting in the Superior Court of Fulton County. (Civil Action Petition [54.3]).[10] In their Petition, Kight and Lankford asserted that they provided the trust beneficiaries with accountings for the Bunzl Trusts for 2004, 2005, 2010 and 2011, and they sought approval of their Interim Accounting, a finding that their administration of the Bunzl Trusts was proper, and they requested to be relieved of any liability based on their administration of the Bunzl Trusts. (Id. at 9, 12).

         On March 13, 2013, Frances Bunzl and the beneficiaries of the Bunzl Trusts (together, the “Bunzl Family”) filed their Response, Counterclaim and Third Party Complaint (“Counterclaim”) in the Civil Action. ([54.4]). The Bunzl Family brought claims against Kight and Lankford for, among others, breach of fiduciary duty, fraud, and state law RICO violations, based on their alleged mismanagement of, and self-dealing in, Bunzl assets, including those belonging to the Bunzl Trusts. The Bunzl Family alleged that Kight and Lankford formed various limited liability companies, including those involved in the 2005 Bunzl Asset Reorganization and the Glen Arden Property transactions, to conceal their theft of Bunzl assets and Kight's self-dealing. (See Counterclaim at 31, 35-36). The Bunzl Family alleged:

. Kight and Lankford “have caused to be created over 100 entities relating to the Bunzl Trusts and other Bunzl assets in which [the Bunzl Family] have an interest. (Counterclaim at 18).
. Kight and Lankford “concealed their activities by failing to provide [the Bunzl Family] with any accountings concerning the Bunzl Trusts [and other Bunzl Family assets] for the years 1991 . . . [through] 2011.” (Id.).
. These entities Kight and Lankford caused to be formed (“Bunzl Entities”) include:
. Capital Holdings GAP;
. CPIC I;
. CPIC II;
. Management LLC;
. Glen Arden Place LLC;
. Park Place;
. 400 Gap LLC; .SCT Holdings; .Sussex Park; and .WBT Properties (Id. at 30-36).
. Kight and Lankford “formed a significant number of the Bunzl Entities without [the Bunzl Family's] informed consent, and to this day, [the Bunzl Family] are not certain of the assets that each entity owns and the purpose of most of the entities.” (Id. at 36).
. Kight and Lankford “formed numerous entities to conceal their actions, breaches of trust, breach of fiduciary duties, self-dealing, conversion of Bunzl assets to their ownership, [and] theft of Bunzl assets.” (Id.); . “Kight, with the knowledge, cooperation and/or complicity of [ ] Lankford, caused the Bunzl Trusts or Bunzl Entities to acquire numerous parcels of residential real property in Georgia and North Carolina.” (Id. at 55).
. “Kight, with the knowledge, cooperation and/or complicity of [ ] Lankford, has used assets of the Bunzl Trusts, Bunzl Entities, [and the Bunzl Family] to purchase and/or maintain properties, from which [ ] Kight, his family, and his associates have received personal benefit and to which they have unlawfully ...

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