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AVIATION LAW I FRAUD I BREACH OF FIDUCIARY DUTY I BUSINESS LITIGATION: De Facto Director of Aviation Corporation Breaches Fiduciary Duties and Usurps Corporate Opportunity

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AVIATION LAW I FRAUD I BREACH OF FIDUCIARY DUTY I BUSINESS LITIGATION De Facto Director of Aviation Corporation Breaches Fiduciary Duties and Usurps Corporate Opportunity

AVIATION LAW I FRAUD I BREACH OF FIDUCIARY DUTY I BUSINESS LITIGATION: De Facto Director of Aviation Corporation Breaches Fiduciary Duties and Usurps Corporate Opportunity

AVIATION LAW I FRAUD I BREACH OF FIDUCIARY DUTY I BUSINESS LITIGATION I Usurped Meaning I Corporate Breach I Director Fiduciary: De Facto Director of Aviation Corporation Breaches Fiduciary Duties and Usurps Corporate Opportunity

March 19, 2021

On January 31, 2008, a petition was filed for an involuntary chapter 7 bankruptcy case for debtor, Jet Network, LLC (the “Jet Network Bankruptcy Case”). Jet Network, LLC founded in 2001, was an aviation entity in the business of brokering and assisting customers in obtaining private air transportation in exchange for a fee. In early 2005 the aviation entity expanded its practices and began to offer customers a “Flight Card Program” in which customers entered into written contracts with Jet Network LLC to prepay private jet travel hours.

Shortly after launching the Flight Card Program, some of the owners at Jet Network formed a new aviation entity, Jet First, Inc and they were engaged in a similar business of chartering, maintaining and operating private aircrafts for hire. The idea was to have synergy between these two companies in which Jet Nework provided marketing services to attract customers, while Jet First provided the chartered fleet, services and operations.

Towards the end of 2005 Jet First acquired assets and operations from a bankrupt aviation corporation with offices in Nevada and California. Shortly thereafter an individual (“Fraudulent Investor”) whom was an owner in both aforementioned aviation entities, purchased his own Gulfstream IV Jet from Citibank and placed the Gulfstream with Jet First for chartering services.

During this time the Fraudulent Investor operated as the de facto director and officer of the two aviation entities and began to diverge funds owed to the two aviation entities to Merrill Lynch with the intention to fund a new personal business venture.  In a mere nine-month period the Fraudulent Investor improperly diverged $1,422,384.42 of funds through numerous fraudulent transfers. The aviation entities were soon unable to pay their debts and found themselves in a financial crisis. Given that revenues were never paid to the aviation entities, and funds were wrongfully diverted to a third party, in lieu of collecting on his note, the Fraudulent Investor acquired a super majority equity ownership interest in both Jet First and Jet Network.

Ultimately the Fraudulent Investor was sued on numerous counts in an adversary proceeding, counts included: Usurpation of Corporate Opportunity; Breach of Fiduciary Duty and Fraudulent Transfer.

In re JET NETWORK, LLC, Debtor (BK Case No: 08-11165-BKC-RAM; ADV. NO. 10-02701-RAM) ALAN GOLDBERG, Chapter 7 Trustee for the estate of Jet Network, LLC, Trustee, vs. MERRILL LYNCH & CO., INC., THOMAS JAMES SEGRAVE, SEGRAVE AVIATION, INC. a/k/a SEGRAVE AVIATION Defendants.

In this case, the Fraudulent Investor, faced allegations of fraud because he utilized his equity interest in both aviation entities for his personal benefit and to the detriment of the entities.  Given his fraudulent and self-serving actions the fraudulent investor faced the aforementioned counts.

  • Usurped Meaning. What is usurpation of a corporate opportunity? Usurpation of a corporate opportunity is a cause of action that arises from a breach of the duty of loyalty in which an officer or director exploits an advantage or offer gained by virtue of their insider status which the corporation itself could have taken advantage of. Here the fraudulent investor exploited his status when he acted on behalf of the entity and elected not to accept the revenues and diverted those funds for personal gain. Had the fraudulent investor not held an equity ownership interest or executive position with those entities he would not have been in a position to divert funds.
  • Director Fiduciary. What is an Investor Breach of Fiduciary Duty? As discussed in previous blogs, breach of fiduciary duty occurs when an individual whom owes a fiduciary duty acts in the interest of themselves, rather than the best interest of the employer, principal or entity. A fiduciary owes many duties including the duty of loyalty, the duty of care and the duty to act in good faith. In light of the duties owed a fiduciary’s actions must be free of conflicts of interest and self-dealing. As a fiduciary, you can’t use the principal for your own personal advantage, which is exactly what the fraudulent investor did when he diverged entity funds to a third-party for personal gain.
  • Corporate Breach. What is a Fraudulent Transfer? A fraudulent transfer, also known as a fraudulent conveyance, is an unlawful attempt to avoid paying debt by transferring money to a third-party individual or entity.

Our previous articles discussing aviation law are linked below:

Articles discussing what types of damages available following an aviation accident are linked below:

For additional discussions on causes of action for Fraud and Breach of Fiduciary Duty please see links are included below:

For articles discussing Verdicts for Fraud, Constructive Fraud and Breach of Fiduciary Duty please see links are included below:

For articles discussing Damages for Fraud, Constructive Fraud and Breach of Fiduciary Duty please see links are included below:

Do you have questions regarding Fraud or Aviation law?

There are statute of limitations in fraud and aviation cases, thus viable claims must be brought within the permitted statutory period. If you have fallen victim to fraud or have questions regarding a potential breach of fiduciary duty case we encourage you to contact our offices at 619-432-5145 for a free consultation with one of our fraud attorneys and aviation lawyers.

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