In the Skyport Litigation, Fryar Law Firm represented minority shareholders in a Houston satellite communications company, called Skyport Global Communications (now TrustComm, Inc.).
Eric Fryar was lead trial lawyer for the plaintiffs. The jury returned a verdict for Fryar Law Firm's clients in the gross amount of over $42 million. As reported in the National Law Journal and the Texas Lawyer, this verdict was one of the largest in the United States in 2015 (42nd out of the top 100) and the largest fraud verdict in Texas (8th largest verdict in Texas over all).
The Skyport case began as a classic bankruptcy squeeze-out, which is one of the most insidious squeeze-out tactics. In most such cases, the majority shareholder is also a significant creditor. He puts the company into bankruptcy and “reorganizes” it based on his own debt investments to emerge the sole shareholder. Usually, all the creditors get paid, but the minority shareholders get nothing. Once the company is in bankruptcy, the shareholders lose their ability to bring derivative claims, and the plan that squeezes out the minority shareholders' ownership is approved by a federal court, which usually extinguishes all claims.
In Skyport, a Canadian stock promoter named Robert Kubbernus got the opportunity to purchase control of a Houston satellite company named Skyport, which had been an indirect subsidiary of CenturyLink. Kubbernus raised an initial $7 million dollars from investors to finance the purchase and then approximately another $10 million to fund the company. In 2008, Kubbernus put Skyport into bankruptcy and emerged the sole shareholder. Unlike the usual situation, Kubbernus was not a creditor; however, he had never transferred any ownership to his investors on the company’s books and was able to (falsely) present himself as the sole shareholder. The next thing the shareholders knew, the plan was confirmed, and they had nothing for their $17 million invested.
We filed suit in state court in Houston in early 2010 on behalf of 63 shareholders for shareholder oppression and other claims. The defendants immediately removed the case to the bankruptcy court, claiming that the confirmation of the bankruptcy plan wiped out our clients’ claims. We spent three years battling in bankruptcy court and were able to convince the bankruptcy court that we had a viable shareholder oppression claims, which were not extinguished by the bankruptcy, and which we could prove based on Kubbernus’ pre-bankruptcy conduct (which the court had not implicitly approved).
After the bankruptcy court sent the case back to state court, and while we were conducting discovery and preparing for trial, the Texas Supreme Court struck down the shareholder oppression doctrine in Ritchie v. Rupe. This unfortunate development forced us to pivot and recast the case solely as a securities fraud claim. Kubbernus had testified under oath in the original bankruptcy that the plaintiffs were never shareholders nor entitled to be. That testimony became powerful proof that all of the investment materials that our clients received from Kubbernus were necessarily fraudulent, because they represented that the investors would be shareholders. Our clients would not be entitled to a buy-out, but could get damages in the amount of their original investment--which, under the circumstances, was still an excellent remedy.
We were finally able to get the case to trial in July 2015. Defendant Kubbernus completely changed his story from his testimony during the bankruptcy squeeze-out. The jury did not buy it, and we were able to establish a case of fraud against Robert Kubbernus.
|About the author: Houston Business Lawyer Eric Fryar is a published author and recognized expert in the field of shareholder oppression and the rights of small business owners. Eric has devoted his practice almost exclusively to the protection of shareholder rights over the last 25 years. Learn more|
“I invested over $3.5 million into Robert Kubbernus’ Skyport acquisition based on the representation that I would be the largest shareholder in the company, only to learn during the bankruptcy that I owned nothing. The other defrauded investors and I engaged the Fryar Law Firm to seek justice. Eric Fryar showed incredible loyalty to his clients, tenacity, and determination in fighting for our rights over five long years. During a three week trial, Eric proved himself an outstanding trial lawyer and withstood everything that the opposition could throw at us, achieving one of the largest verdicts in the country during 2015."
Adrien Poulliot Skyport Client
This post represents our opinion regarding the relevant shareholder oppression and minority ownership rights law. However, not everyone agrees with us, and the law is changing quickly in this area. This page may not be up to date. Be sure to consult with qualified counsel before relying on any information of this page. See Terms and Conditions.