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Sky Cable LLC v. Coley

United States District Court, W.D. Virginia, Harrisonburg Division

July 18, 2016

SKY CABLE, LLC, et al., Plaintiffs,
v.
RANDY COLEY, et al., Defendants.

          MEMORANDUM OPINION

          Michael F. Urbanski United States District Judge.

         This case is proceeding in the post-judgment phase of litigation. On January 23, 2014, the court entered judgment in favor of DIRECTV, LLC against defendants Randy Coley and East Coast Cablevision, LLC (collectively, the "Coley defendants"), jointly and severally, in die amount of $2, 393, 000, representing 2, 393 violations of 47 U.S.C. § 605(a) at the statutory minimum rate of $1, 000 per violation, with interest. 47 U.S.C. § 605(e)(3)(C)(i)(II). The court subsequently ordered awards of attorney's fees and costs and monetary sanctions against the Coley defendants. They have paid nothing to date.

         DIRECTV asks the court to reverse-pierce the corporate veil and declare that Randy Coley is the alter ego of his three limited liability companies, such that the assets held by those LLCs are subject to the judgment in this case. In furtherance of that effort, DIRECTV has filed a Motion for Supplemental Proceeding to Determine Whether Assets Controlled by Judgment Debtor Randy Coley are Subject to the Judgment (ECF No. 271). DIRECTV also asks the court to appoint a receiver to prevent fraud during the judgment execution process (ECF No. 292).

         The facts of this case are egregious and warrant die extraordinary relief sought by DIRECTV. Justice requires a finding that Randy Coley is the alter ego of his sham corporate entities. Additionally, given Coley's history of deception and efforts to evade judgment, a receivership is appropriate in this case. Thus, the court will reverse-pierce the corporate veil and set this matter down for further proceedings concerning appointment of a receiver.

         I. PROCEDURAL HISTORY

         This case concerns the Coley defendants' receipt and unauthorized distribution of DIRECTV satellite programming at Massanutten Resort in violation of 47 U.S.C § 605. The underlying facts have been detailed in numerous opinions issued by the court over the course of this five year litigation and need not be repeated here. Suffice it to say that for over a decade, the Coley defendants collected programming revenue from more than 2, 000 subscriber units at Massanutten Resort while reporting to DIRECTV the provision of service to only 168 units, pocketing approximately $38, 000 in unauthorized subscriber fees on a monthly basis. The court entered summary judgment in DIRECTV's favor against the Coley defendants on the § 605 claim. ECF Nos. 203, 204. DIRECTV elected statutory rather than actual damages at the minimum amount of $1, 000 per violation for the two years prior to the filing of DIRECTV's crossclaim. See ECF Nos. 213, 214, 219, 220. DIRECTV thereafter agreed to voluntarily dismiss all remaining claims against the Coley defendants and against Randy Coley's wife, Kimberli Coley, leaving no factual issues to be resolved by a jury. ECF Nos. 225, 226. Accordingly, the court entered judgment against the Coley defendants, jointly and severally, in the amount of $2, 393, 000, and dismissed the case. ECF Nos. 219, 220, 224. The clerk taxed costs against the Coley defendants in the amount of $3, 052.99 at DIRECTV's request, ECF No. 234, and the court awarded DIRECTV $236, 013.85 in attorney's fees and costs, adopting the recommendation of the United States Magistrate Judge without objection, ECF Nos. 235, 236.

         A. Related interpleader action

         The filing of the instant case gave rise to two related interpleader cases, which were later consolidated into Case No. 5:llcv00123. In this action, Great Eastern Resort Management, Inc. (GERM)[1] and various Massanutten homeowners associations sought a determination of rights to monies owed for DIRECTV programming provided for a period of time beginning in 2011, after the instant case was filed and the Coley defendants' underreporting scheme was exposed.

         Following entry of judgment in the underlying case, plaintiffs in the interpleader action moved for partial judgment on the pleadings against the Coley defendants and to compel arbitration. Case No. 5:11cv123, ECF No. 69. The motion concerned the Coley defendants' refusal to perform under a January 3, 2012 settlement agreement entered into between the parties in connection with the Chapter 11 bankruptcy proceedings of defendant East Coast Cablevision, LLC. The Coley defendants had agreed to convey to GERM whatever interests they had in certain cable television infrastructure at Massanutten Resort and to arbitrate the amount to be paid for that infrastructure. In exchange, East Coast Cablevision obtained a dismissal of its bankruptcy and resumed use of the company's remaining assets. This agreement was negotiated and drafted by counsel and recited at a January 3, 2012 hearing before the bankruptcy court, at which Randy Coley was present. Based on the representations by the parties as to the terms of the settlement, the bankruptcy court approved the joint settlement agreement, granted the plaintiffs' motion for relief from the automatic stay, and ultimately dismissed East Coast Cablevision's bankruptcy.

         Thereafter, the Coley defendants refused to comply with their obligations under the agreement, alleging one of the signatories to that agreement, Kimberli Coley, never assented to its terms-notwithstanding the fact the bankruptcy court had expressly found that: "On January 3, 2012, the Massanutten Parties, the Debtor, by and through its Debtor Designee, Randy P. Coley, Resort Cable, LLC, and Kimberli Coley reached an agreement resolving numerous issues related to certain Cable Service Infrastructure at the Massanutten Resort." See Case No. 5:11cv123, ECF No. 58-3, at 2-3 (emphasis added).

         The Coley defendants' actions forced the Massanutten plaintiffs to turn to the court for relief. Plaintiffs accused the Coley defendants of "playing fast and loose with the federal judiciary." Case No. 5:11cv1123, ECF No. 70, at 3. That appears to be accurate.

         The Coley defendants elected not to file a written response to plaintiffs' motion for partial judgment on the pleadings and to compel arbitration. The court entered a show cause order directing Randy Coley to appear on behalf of himself and the Coley defendants at a hearing on July 25, 2014. Case No. 5:11cv123, ECF No. 79. At that hearing, Coley (and his counsel) agreed to and endorsed, on behalf of himself and the Coley defendants, a Consent Judgment Order that gave effect to the terms of the parties' January 3, 2012 settlement agreement and required the Coley defendants to execute and deliver within sixty days the instruments necessary to convey their interest in the cable infrastructure to GERM. The Coley defendants further agreed to and endorsed a separate Consent Order granting plaintiffs' motion to compel arbitration. Case No. 5:11cv123, ECF Nos. 82, 84.

         Coley's signature did nothing to secure his compliance with his obligations under those orders, however. Coley inexplicably refused, numerous times, to properly execute and deliver to counsel for GERM the necessary conveyance documents, notwithstanding the fact that those documents had been approved by the Coley defendants' counsel. Additionally, Coley resisted efforts to commence arbitration by refusing to execute the arbitration engagement agreement and pay the Coley defendants' share of the retainer. GERM was again forced to turn to the court for assistance.

         Following a hearing on December 10, 2014, the court held Randy Coley in contempt and awarded $8, 571.95 in sanctions against the Coley defendants. Pursuant to Rule 70 of the Federal Rules of Civil Procedure, the court divested the Coley defendants' interest in the cable infrastructure and vested title in GERM. Case No. 5:11cv123, ECF No. 103.

         Coley's recalcitrance continued following the withdrawal of his counsel from both the interpleader action and the underlying case. Acting on a written directive from Coley to cease representation, counsel for the Coley defendants moved to withdraw from the related actions on December 23, 2014. A hearing was held on January 9, 2015 and, the same day, the court entered an order granting the motion to withdraw and directing the defendant limited liability companies to secure counsel on or before January 16, 2015. Case No. 5:11cv123, ECF No. 110. No counsel ever entered an appearance for any of the Coley defendants in the interpleader action.

         In a memorandum opinion and order entered February 25, 2015, the court vacated the Consent Order compelling arbitration and entered summary judgment in favor of DIRECTV, dismissing with prejudice any claim by the Coley defendants to the interpleaded funds. Case No. 5:11cv123, ECF Nos. 115, 116.

         B. Post-judgment proceedings

         Unfortunately, Coley's obstructionist tactics did not end with the dismissal of the interpleader action. The underlying case was by then pending in the post-judgment phase of proceedings when Coley failed to secure counsel for his LLCs by the court's deadline of January 16, 2015. See ECF No. 241.

         Coley also failed to timely respond to discovery requests issued to the Coley defendants in December 2014 in aid of judgment execution pursuant to Federal Rule of Civil Procedure 69(a)(2). Attempts by DIRECTV to confer with Randy Coley on this discovery issue were futile, and on January 28, 2015, DIRECTV filed a motion to compel. ECF No. 243. The court granted the motion and, by order entered February 26, 2015, required the Coley defendants to respond by March 26th to the discovery requests and to DIRECTV's fee request filed pursuant to Rule 37(a)(5). ECF No. 244. The Coley defendants filed no response whatsoever.

         DIRECTV then filed a motion for sanctions and finding of contempt on April 6, 2015. ECF No. 245. The court issued a show cause order, directing Randy Coley to appear at a hearing on May 15, 2015 and show cause why he should not be held in contempt of court. ECF No. 249. Coley appeared pro se at the May 15th hearing, insisting he had not received the discovery requests, the motion to compel, or the court's February 26, 2015 order. The court took DIRECTV's motion for sanctions under advisement and ordered Coley: 1) to respond to DIRECTV's discovery requests on or before June 1, 2015; 2) to notify the court whom he retained as counsel on or before June 1, 2015; and 3) to appear before the magistrate judge for a sworn deposition on June 16, 2015 and bring with him all books or financial records related to Its Thundertime, LLC and any properties owned or held by Its Thundertime, LLC, as well as all information concerning assets held by Randy Coley personally and by East Coast Cablevision, LLC and related entities. ECF No. 254.

         Coley did retain counsel, respond to the discovery requests, and appear at the June 16, 2015 deposition, to which he claims to have brought "a full trailer load of documents." ECF No. 264, at 5. Coley thereafter took the position that DIRECTV's motion for sanctions was moot, as he had fulfilled all of his obligations to DIRECTV and the court. ECF No. 264. DIRECTV saw things differently. It argued Coley's June 16, 2015 deposition testimony contradicted his previous sworn testimony and discovery responses, that Coley could not answer basic questions about the flow of money between his entities and himself, and that certain documents he produced related to Its Thundertime, LLC were fraudulent and back-dated. DIRECTV stated that in a forthcoming motion, it would ask the court to reverse-pierce the corporate veil given Coley's abuse of the corporate form. DIRECTV indicated it no longer sought assistance from the court in securing the Coley defendants' participation in the post-trial discovery process but renewed its motion for monetary sanctions against the Coley defendants for their previous failures to comply with court; orders. ECF No. 265. The court granted DIRECTV's motion and awarded sanctions against the Coley defendants in the amount of $5, 285. ECF Nos. 268, 269.

         As promised, DIRECTV filed a motion for a supplemental proceeding to determine whether assets controlled by Randy Coley are subject to the judgment in this case. DIRECTV seeks a declaration that Coley is the alter ego of his single-member LLCs, namely Its Thundertime, LLC, East Coast Sales, LLC, and South Raleigh Air, LLC. A hearing was held on November 19, 2015, at which Randy Coley appeared in person and by counsel. DIRECTV filed a supplemental request to appoint a receiver. Both motions are currently pending before the court.

         The Coley defendants owe DIRECTV more than $2.6 million. As Randy Coley allegedly holds no assets[2] in his own name, the focus of these post-judgment proceedings is on his limited liability companies.

         II. THE CORPORATE ENTITIES

         A. Coley's limited liability companies

         1. Its Thundertime, LLC

         According to an operating agreement (and amendment thereto) produced by Coley in discovery in 2012, Its Thundertime, LLC, a Delaware limited liability company, was formed on April 10, 2008. Randy Coley is its sole member. Jamnback Decl., ECF No. 272-2, at Ex. 13.

         According to an operating agreement produced by Coley in response to post-judgment discovery requests in 2015, Its Thundertime, LLC has two members-Randy Coley and Kimberli Coley. Jamnback Decl., ECF No. 272-2, at Ex. 11. This discrepancy is discussed infra in greater detail.

         In any event, Coley described this corporate entity in his September 2012 deposition as "a real estate holding company." Jamnback Decl., ECF No. 272-1, at Ex. 3, p. 51. Evidence presented by DIRECTV indicates Its Thundertime owns a total of 19 properties, including Coley's primary residence and vacation home, with a total combined assessed value of $5, 232, 151. Id. at Ex. 4; see also id. at Ex. 3, pp. 73, 75, 98. The profit from the rents collected from these properties goes to Its Thundertime, according to Coley's June 16, 2015 testimony. Id. at Ex. 1, pp. 31-32.

         2. East Coast Sales, LLC[3]

         In his 2012 deposition, Randy Coley described East Coast Sales as "a trailer company." Jamnback Decl., ECF No. 272-1, at Ex. 3, p. 89. Coley recently testified that East Coast Sales was formed around 2005, id. at Ex. 1, p. 11, is a separate entity from Its Thundertime, id. at Ex. 1, p. 13, and "was originally set up as a property management many years ago. It was just a way that we did property management. And later on we started selling trailers and it became a trailer business, " Id. at Ex. 1, p. 10. Corporate documents produced by Coley indicate East Coast Sales is a Delaware limited liability company formed in 2008. Coley Decl., ECF No. 277-1, at Ex. 7. These documents suggest both Randy and Kimberli Coley are members of East Coast Sales, contradicting Coley's prior testimony about Kimberli's involvement in the business. Id.; see discussion infra.

         In his 2015 testimony, Coley described this LLC's primary business as selling trailers and its secondary business as "[m]anagement for rental properties." Jamnback Decl., ECF No. 272-1, at Ex. 1, p. 11; see Coley Decl., ECF No. 277-1, at Ex. 9 (business records for East Coast Sales). Coley explained that East Coast Sales acts as "a primary management company" that "oversee[s] certain properties with Its Thundertime"-specifically, rental properties owned by Its Thundertime, for which East Coast collects rental income. Jamnback Decl., ECF No. 272-1, at Ex. 1, pp. 12, 80, 118. When asked why East Coast Sales needed to oversee properties held by Its Thundertime, Coley responded, nonsensically:

Its Thundertime was located in Delaware. We didn't have an office, per se, in Delaware. We do have a registered agent there. And we wanted-it was beneficial to us-prior to creating Its Thundertime, that's where the rental income came to. It always came to us in that fashion prior to it being a business, prior to Its Thundertime being a business.
The original thought was-of East Coast Sales was selling real estate; buy, sell rental real estate. That was the original plan. It's not-actually still not called East Coast Trailer Sales, it's just called East Coast Sales.

Id. at Ex. 1, pp. 12-13.

         3. South Raleigh Air, ULC

         According to Coley, South Raleigh Air "manages and collects rent money from the properties that East Coast Sales does not." Id. at Ex. 1, p. 29; see Coley Decl., ECF No. 277-1, at ¶ 32. Randy Coley testified that this is the oldest of his LLCs, created after Coley and his wife bought 4 airport hangers in Raleigh. Jamnback Decl., ECF No. 272-1, at Ex. 1, pp. 29-30. These properties-as well as the single family home in Wilson, North Carolina where Coley grew up-are owned by Its Thundertime but managed by South Raleigh Air. Id. at Ex. 1, pp. 31-32, 115. South Raleigh Air collects rent on these properties, pays the operating expenses, and then the profit is paid to Its Thundertime. Id.

         B. Kimberli Coley's membership interest

         In a rather surprising turn of events, Kimberli Coley's membership interest in the above-referenced LLCs has become a point of contention in these post-judgment proceedings. Throughout the underlying litigation, Randy and Kimberli Coley adamantly maintained that Kimberli Coley had no involvement whatsoever in her husband's cable business or in his business ventures generally. For example, in a brief in support of her motion to dismiss for lack of personal jurisdiction, Kimberli Coley represented that she "is not and has never been involved as an owner, member, stockholder, director, officer, partner, agent, or employee of any entities associated with her husband's work. (EC Coley Dec. ¶ 4) (EL Coley Dec. ¶ 15)." ECF No. 76, at 3; see also K. Coley Aff., ECF No. 77, at ¶ 4. In his 2012 deposition, Randy Coley testified that Kimberli Coley "hadn't worked a day in her life as far as [he has] known her . . . She's a homemaker. She takes care of two boys." Jamnback Decl., ECF No. 272-1, at Ex. 3, p. 139. He explained:

I don't think my wife has ever seen a bill. As long as I've known her for nineteen years, and we've been married for nineteen years, my wife has never paid die first bill. Not a light bill. Not a phone bill. She ain't paid a mortgage payment. She ain't paid a water bill. She doesn't work. She never worked. Mr. Jamnback, my wife's beyond reproach. Do you understand what I'm saying? And going to tell you why. She donates every day, every hour of her time to die community. She ain't worked since I've known her.

Id. at Ex. 3, p. 80.

         While much of die focus in die underlying case was on Coley's cable business and die extent of Kimberli Coley's involvement with East Coast Cablevision, LLC, Randy Coley was asked specifically in his 2012 deposition whether his wife had any involvement in Its Thundertime, LLC and East Coast Sales, LLC. He testified that he was die sole member/manager of Its Thundertime, id. at Ex. 3, p. 50, and that his wife had no involvement with East Coast Sales, id. at Ex. 3, p. 90. Testifying on behalf of East Coast Cablevision, LLC in a Rule 30(b)(6) deposition, [4] Coley stated he was the sole member of both Its Thundertime and South Raleigh Air. Jamnback Decl., ECF No. 272-2, at Ex. 10, p. 167. Coley's deposition testimony was supported by Kimberli Coley's sworn interrogatory responses, in which she stated she had no interest in Its Thundertime, LLC, East Coast Sales, or any "joint ventures, partnerships, or other business enterprises." Jamnback Decl., ECF No. 272-1, at Ex. 5, ¶¶ 6, 8; Ex. 7, ¶ 20. In fact, while testifying under oath at a December 20, 2012 hearing before this court, Kimberli Coley was asked whether she has any ownership interest in Its Thundertime and she responded, "No, sir." Id. at Ex. 9, p. 16.

         The Coleys' assertions concerning Kimberli Goley's lack of involvement in her husband's business dealings ultimately served them well in the underlying litigation-DIRECTV voluntarily dismissed its claims against Kimberli Coley electing instead to pursue judgment against her husband and East Coast Cablevision on the § 605 claim. See ECF Nos. 220, 224, 225. Now in the post-judgment phase of proceedings, when his assets are at stake, Randy Coley's position on his wife's membership interest has changed drastically.

         Flatly contradicting his prior testimony, Coley testified at his June 16, 2015 deposition that his wife has been a co-member of Its Thundertime, LLC since "day one, " Jamnback Decl., ECF No. 272-1, at Ex. 1, p. 44; that he and his wife are both members of East Coast Sales, Id. at Ex. 1, p. 19; and that he is "not sure" whether his wife is a member of South Raleigh Air, Id. at Ex. 1, pp. 33-34. Not only is his wife a member of these LLCs, according to Coley's 2015 testimony, but she is an active participant in these companies, managing financial records of East Coast Sales, Id. at Ex. 1, p. 20, and taking meeting minutes and doing the filing and billing records for Its Thundertime, id. at Ex. 1, pp. 45, 48-51. Coley, in fact, stated: "She's more of a - she is more of a active participant in [Its Thundertime] than I am." Id. at Ex. 1, p. 45. He then qualified this testimony as follows:

Oh, she doesn't go to work; she helps manage and maintain the paperwork for Its Thundertime. She comes to my office where Its Thundertime records are held at, and she does filings, she does reconciliation, she's got this book she has that outlines money that comes in and all that stuff. But she doesn't go out and work. She doesn't go out and do anything. And she only spends several hours maybe a week. She'll come in there once a week.

Id. at Ex. 1, p. 46.

         When confronted with his prior 2012 deposition testimony, in which he stated he was the sole member of Its Thundertime, Coley explained:

I don't recall it. I don't recall it, but it looks accurate. But my wife has been-my wife has been-I don't consider her a member; I consider her as a wife-as my wife. She's been a-if you want to consider her a member-.
But I am the only one that actually does any work-work outside. She's - the only thing that she does is file paperwork. That's the only thing she does.

Id. at Ex. 1, p. 53. Pressed further on his prior testimony that Kimberli Coley played no role whatsoever in Its Thundertime, Coley testified on June 16, 2015:

I'm telling you my wife has always been a member since day one. And she doesn't have a full role in Its Thundertime. She doesn't work. She doesn't do any work. All she does is go to my office and file paperwork. She's not an employee.

Id. at Ex. 1, pp. 53-54. Coley insisted any discrepancy in his testimony must have been the result of confusion and continued to maintain that his wife "has a major role in Its Thundertime and East Coast Sales, " id. at Ex. 1, p. 59, and that "she has been a huge, huge part of these companies that we operate. Huge part. More than I have." Id. at Ex. 1, p. 56.

         In addition to his inconsistent testimony, Coley has produced contradictory operating agreements for Its Thundertime, LLC. The operating agreement and amendment he produced in discovery in 2012 state Its Thundertime is a single-member limited liability company. Jamnback Decl., ECF No. 272-2, at Ex. 13. The operating agreement he produced in 2015 post-judgment discovery-which has a different format than the previously-produced document[5]-states Its Thundertime has two members, Randy Coley and Kimberli Coley. Id. at Ex. 11. Coley testified at his June 2015 deposition that this recently-produced version is the effective operating agreement of Its Thundertime. Jamnback Decl., ECF No. 272-1, at Ex. 1, pp. 47-48; see ...


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