Nashville at law: 1 December 2008

Trustee in alleged Ponzi case sues investors, Woodland-in-Waverly neighbors feud again, and record label is caught up in country star's litigation

Email | Print By E. Thomas Wood

Nashville attorney Sam Crocker, trustee in the involuntary bankruptcy of alleged $20 million Ponzi scheme Hanover Corp., has filed suit against 63 individuals who received payments from the company before its meltdown in 2006. The adversary proceedings in Nashville's U.S. Bankruptcy Court seek approximately $2.1 million in refunds.

Bankruptcy trustees are required by law to recover funds from any party that obtained them from the debtor in voidable transactions. Crocker explained last week that the new Hanover lawsuits are targeting only the amounts noteholders received in excess of amounts invested. "They got something for nothing," Crocker said.

Some of the defendants had formerly lost money on Mobile Billboards of America, a Ponzi scheme prosecuted by the Securities and Exchange Commission in 2004. Daryl Bornstein, who had been a salesman for Mobile Billboards, went to work for Hanover and attracted several of his former clients by offering to include the amounts of their prior losses in their Hanover investments.

"In other words, Hanover agreed to repay loans that it never received, and had no obligation to pay," one of the lawsuits states.

In a 2007 deposition, Sherrard & Roe attorney Steve Hurd asked Hanover founder Terry Kretz about the arrangements made for Bornstein's clients:

Q.: Why would Hanover issue a note representing money Hanover did not receive?

A.: Based – at that time, it was a formula that made sense for us at that time based on return. The whole premise of Hanover Corporation was to help people who had lost money in the market in general. You know, our whole thing was about a regeneration of funds for folks. That was our premise. And then alongside of that is – we're believers in Jesus Christ and religious people, and our thing was to fund the Kingdom of God, and that is where we stand with it.

Crocker reached a settlement in October with Madison's Cornerstone Church, where Hanover founder Terry Kretz and several other parties involved with the company are or were parishioners. Crocker had sued Cornerstone last year after learning that Hanover had given the church some $176,000 over the years. The church agreed to pay $50,000 to settle the matter.

Kretz has filed personal bankruptcy, giving him automatic protection from civil legal action, but Bankruptcy Court Judge George Paine ruled earlier this year that the protection should be stripped. The judge concurred with a group of investors who claimed that Hanover was a "fraudulent Ponzi scheme."

Here are some other civil legal cases of note for the period of November 21 – 25:

Davidson County Circuit Court:

Richard A. Demonbreun v. Metropolitan Nashville Board of Zoning Appeals. Petition for review filed November 21. Demonbreun owns a historic home at 746 Benton Ave. where he has operated a bed-and-breakfast and at times hosted social and business events for several years. After neighbors expressed opposition to the hosting of events, Metro's Board of Zoning Appeals voted on November 20 to deny a permit for Demonbreun to host an upcoming rehearsal dinner and other scheduled events. He is now asking the court to declare the denial unconstitutional as a violation of his due-process rights.

Demonbreun, who has a law license, filed this petition on his own behalf.

Davidson County Chancery Court:

Capitol Records Nashville v. Christopher N. Cagle, Mark Hybner Publishing Inc. and Mark J. Hybner. Interpleader lawsuit filed November 21. Let the court sort things out, Capitol says. Country performer Cagle and his former manager, Hybner, have been locked in legal combat since 2004, when Cagle sued to get out of management and publishing contracts signed in 1999. Hybner got a $737,000 judgment in 2006, and the Tennessee Court of Appeals upheld most of that ruling last July. But the appellate court did reject the lower court's order that Cagle should write exactly 76.52 more songs for Hybner, finding it "repugnant to equity" that the contract made Hybner the sole judge of whether a song was acceptable.

Hybner's attorney, Paige Waldrop Mills of Bass, Berry & Sims, sent Capitol a demand letter this month seeking $35,600 in royalties generated by Cagle's 2005 album Anywhere But Here that the record label had withheld, with the consent of both parties, pending resolution of the litigation. Mills argued that the lawsuit is essentially over and that Hybner has prevailed, but Capitol, represented by Gerald D. Neenan of Neal & Harwell, asserts that "the lawsuit is still ongoing." It wants to pay the money into the court and let the court decide on disbursement.