USA v. David Foley Doc 49 filed 01 Apr 15.pdf

8/9/2019 USA v. David Foley Doc 49 filed 01 Apr 15.pdf

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RIORDAN & HORGANDENNIS P. RIORDAN ATTORNEYS AT LAW E-MAIL: [email protected]

DONALD M. HOR GAN 5 23 OCTAVIA STREET

SA N FRANCISCO, CA 94102

T ELEPHONE (415) 431-3472

F AX (415) 552-2703

April 1, 2015

Re: United States v. David Foley Nos. 14-10055; 14-10056

(Before: M. Margaret McKeown, Mary H. Murguia,

Michelle T. Friedland, Circuit Judges)

Your Honors,

We write in response to the panel’s memorandum disposition of March 25in United States v. David Foley (No. 14-10055). By this letter, we do not seek to

challenge the panel’s denial of Mr. Foley’s appeal; a letter obviously would not be

the proper vehicle for doing so. We rather raise a personal and professional

concern. In footnote one of that disposition, the panel criticized undersigned

counsel for “flatly misconstru[ing] the record” in making a statement in

Appellant’s Reply Brief, and cautioned counsel “against making such blatant

misrepresentations in the future.” In that context, the panel cited F.R.A.P 46 (c),

which authorizes “discipline [of] an attorney who practices before it for conduct

unbecoming a member of the bar….”

Both undersigned counsel are deeply shaken by the panel’s comments. Both

of us practice regularly in the Ninth Circuit; indeed, we practice more before this

Court than before any other court. Mr. Riordan has been practicing in front of this

Court for thirty-five years. Mr. Sampsell-Jones clerked at the Ninth Circuit over a

decade ago, and has been practicing in this Court ever since. Our ability to

effectively advocate for our clients before this Court is wholly dependent on the

confidence its judges have in our representations to it. In no previous case has this

Court indicated that either of us intentionally misrepresented the record, as this

panel apparently has concluded we did in this matter. We assure the panel that we

certainly did not intend to mislead it, and respectfully would ask that the panel

reconsider, for the reasons stated below, its conclusion that we have done so.

Case: 14-10055, 04/01/2015, ID: 9480720, DktEntry: 49-1, Page 1 of 6

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A. The Statement at Issue

Mr. Foley’s appellate claim rested on the contention that he had not entered

a guilty plea admitting that he defrauded a company named GVR. He thus argued

that he should not have been sentenced based on loss to GVR. In the course of advancing that claim, undersigned counsel cited in Mr. Foley’s Opening the

following language from the plea agreement: “I agreed and conspired to continue

to manufacture and sell game packs to Daddona at a time I knew I was no longer

associated with [UltraCade] or its successor-in-interest.” (Appellant’s Opening

Brief, at page 8) In Mr. Foley’s Reply brief, undersigned counsel contended:

No reader would interpret the plea agreement as being

about a scheme to defraud GVR. That is because the plea

agreement describes no such scheme. Indeed, GVR is not

even mentioned in sub-paragraphs 2.a and 2.b, the

portions of the plea agreement containing the factual

basis of the mail fraud count.

Reply Brief, at 2.

Our assertion that the term “GVR” did not appear in the cited paragraphs is

literally true. In footnote one of its disposition order, however, the panel relies on

the language quoted in Mr. Foley’s Opening Brief-- “the company and its

successor-in-interest ” to conclude that our contention that GVR had not beenmentioned in sub-paragraphs 2.a and 2.b “flatly misconstrue[d]” the record. The

panel assumed—understandably, based on the somewhat simplified version of the

facts presented by the parties in their appellate briefing—that the term “successor-

in-interest” clearly and indisputably referred to GVR—thus its conclusion that we

had blatantly misrepresented the record.

Our understanding, however, was and is that “successor-in-interest” referred

to a different corporate entity, and we now seek to explain the legal basis for our

understanding.

B. The Underlying ABC Transaction

The criminal case against Mr. Foley, as well as parallel civil litigation, arose

out of a business deal between him and GVR. GVR sought to acquire assets from

Mr. Foley’s company, but the purchase was not accomplished through a simple


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corporate sale. Rather, it was accomplished through a somewhat complicated

series of transactions including an assignment for the benefit of creditors,

commonly known as an “ABC” transaction. The ABC transaction relied on

intermediate entity, which served as successor to Mr. Foley’s company.

ABC transactions are an alternative to bankruptcy, and in California, they

are governed generally by Cal. Code of Civil Procedure §§ 493.010-.060 and §§

1800-02. In an ABC transaction, an insolvent or troubled corporation assigns all of

its assets to an assignee. The assignee acts as a fiduciary for the benefit of

creditors. It may operate the business or sell the business’s assets, distributing

proceeds to creditors.

Under the relevant California statutes, the debtor corporation is generally

referred to as the “assignor,” and the receiving intermediary is referred to as the

“assignee.” See, e.g ., Cal. Civil Code § 1800(b). After the assignment, the

assignee is the assignor’s successor-in-interest. “The Assignee is the Debtor’s

successor-in-interest, and is the Debtor’s legal representative.” ABA Business

Law Section, The ABCs of Assignments for the Benefit of Creditors (Spring 2008).

In general, the word “assignee” and the phrase “successor-in-interest” are used

interchangeably in California law. See, e.g ., Cal. Code of Civil Procedure § 749.5;

JSM Tuscany v. Superior Court , 193 Cal. App. 4th 1222, 1240 n.20 (2011).

In this case, the parties used an ABC transaction. Mr. Foley was the sole

owner of an entity called NexTune Corp., which sold video game products branded as UltraCade. GVR initially sought to purchase NexTune Corp., and the

parties reached a memorandum of understanding to that effect. But GVR

subsequently determined that it did not wish to assume NexTune Corp.’s

liabilities, so it proposed an ABC transaction rather than a straightforward

acquisition. The ABC transaction used a corporate restructuring company known

as Sherwood Partners LLC, which served as intermediary and assignee.

As the government described it in one of its submissions below: “Global

VR’s counsel subsequently proposed an ‘assignment for the benefit of creditors’(“ABC”) as a way for Global VR to acquire UltraCade. During an ABC, which is

similar to a prepackaged bankruptcy, assets are assigned to a third party, who then

sells them and distributes the funds to various creditors. The defendant decided to

go forward with the ABC and assigned UltraCade’s assets to Sherwood Partners.

Global VR was the only company that bid for UltraCade’s assets.” (Dkt. 186,

United States’ Post-Evidentiary Hearing Statement at 4.)


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More specifically, Sherwood created a separate entity named “NexTune

(assignment for the benefit of creditors) LLC.” NexTune Corp., Mr. Foley’s

entity, used a general assignment to assign assets to NexTune LLC, the Sherwood

entity. NexTune LLC then entered into an Asset Purchase Agreement with GVR.

Neither Mr. Foley nor NexTune Corp. were signatories to the Asset PurchaseAgreement.

The Asset Purchase Agreement was submitted below as Exhibit B to the

parties’ Joint Loss Submission at sentencing. It is attached to this letter. In the

Asset Purchase Agreement, NexTune LLC is referred to as the “Seller” and

“Assignee.” GVR is referred to as the “Buyer.” NexTune Corp., Mr. Foley’s

entity, is referred to as the “Assignor.”

NexTune Corp. and thus NexTune LLC, however, apparently did not hold

all of the assets that GVR sought to acquire. Thus, in a separate Technology Asset

Purchase Agreement, GVR acquired certain other assets from Mr. Foley directly,

in his individual capacity. The Technology Asset Purchase Agreement was

submitted below as Exhibit C to the parties’ Joint Loss Submission at sentencing.

In the proceedings below (as well as in the parallel civil litigation), the

parties disputed exactly which assets GVR ultimately acquired through these

transactions. The government’s position was that GVR purchased substantially all

of the technology and licenses that formerly belonged to UltraCade. Mr. Foley’s

position was that GVR had only a limited set of assets, and that he retainedownership of other relevant technology. But that dispute aside, the relevant point

here is that the primary assets were transferred through ABC transaction whereby

all NexTune Corp. assets were transferred initially to NexTune LLC (Sherwood),

which then engaged in an auction sale.

C. Misrepresentations

We do not believe that we misrepresented the record, and we certainly did

not do so intentionally. Our understanding, based on the law and factssummarized above, was that “successor-in-interest” most logically referred to

NexTune LLC, the Sherwood entity that served as assignee. We do understand

why the panel believed we had misconstrued the facts. Neither our briefing nor the

government’s briefing to the panel described in detail the complicated history of

the ABC transaction, because we did not believe that history was relevant to the

appeal.


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Admittedly, and in retrospect, the meaning of that phrase in the plea

agreement is less than pellucid. The phrase “successor-in-interest” is not defined

anywhere in the plea agreement. It is not mentioned in the indictment, nor was it

defined elsewhere in the trial court records. Read in context, it could be read to

refer to GVR. At the same time, GVR is mentioned by name later in the pleaagreement, so it is not clear why the agreement would mention GVR by name in

one paragraph but indirectly as “successor-in-interest” in an earlier paragraph.

Our core point in our briefing was simply that sub-paragraphs 2.a. and 2.b.

of the plea agreement described customers, not GVR, as the objects of and victims

of Mr. Foley’s misrepresentations. We quoted that language in full in our opening

brief, including the “successor-in-interest” mention. We had no intent to hide that

language.

We apologize for the misunderstanding. We readily confess that we did not

pay nearly the attention to the term “successor in interest” that we have since the

memorandum order was issued, and we should have been more precise. We have

the utmost respect for this Court and the judges on this panel. We take our ethical

obligations of candor to the Court seriously, and we would never knowingly

misrepresent the record. We hope that this letter explains the language used in

the reply brief, and we would ask that the panel consider omitting its reprimand

contained in footnote one.

Respectfully submitted,

DENNIS P. RIORDAN

RIORDAN & HORGAN

TED SAMPSELL-JONES

William Mitchell College of Law

/s/ Dennis P. Riordan

Attorneys for Appellant

David Foley


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CERTIFICATE OF SERVICE

When All Case Participants are Registered for the

Appellate CM/ECF System

I hereby certify that on April 1, 2015 I electronically filed the foregoing with theClerk of the Court for the United States Court of Appeals for the Ninth Circuit by

using the appellate CM/ECF system.

I certify that all participants in the case are registered CM/ECF users and that

service will be accomplished by the appellate CM/ECF system.

Signature: /s/ Jocilene Yue

Jocilene Yue

******************************************************************

CERTIFICATE OF SERVICE

When Not All Case Participants are Registered for the

Appellate CM/ECF System

I hereby certify that on , I electronically filed the foregoing with the

Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by

using the appellate CM/ECF system.

Participants in the case who are registered CM/ECF users will be served by the

appellate CM/ECF system.

I further certify that some of the participants in the case are not registered

CM/ECF users. I have mailed the foregoing document by First-Class Mail,

postage prepaid, or have dispatched it to a third party commercial carrier for

delivery within 3 calendar days to the following non-CM/ECF participants:

Signature:

Jocilene Yue


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USA v. David Foley Doc 49 filed 01 Apr 15.pdf

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