Jeffrey Prosser, one-time owner and CEO of Innovative Telephone, has lost two more rounds in the federal courts, and two additional judges have been recruited to help handle the ever-growing number of disputes in the case.
In another victory for Prosser’s creditors, David Sharp, the one-time, Prosser-appointed president of the phone company, has withdrawn his suit against the court-appointed Title 11 trustee in the case, Stan Springel. Sharp had claimed he was inappropriately fired from the job by Springel and that, as a result, the trustee owed him a substantial sum of money. (The exact number is not immediately available.)
One of Prosser’s two recent losses came in the U.S. District Court for the Virgin Islands when Judge Curtis Gómez excused one set of defendants from a pending civil suit filed earlier by Prosser.
Prosser had filed an action under the federal Racketeer Influenced and Corrupt Organization Act (RICO). In it, he charged that his creditors and their allies had taken inappropriate actions against him and his corporations as part of a scheme to take money from rural and insular telephone companies, such as his own, to transfer to the rural electric companies. Both sets of utilities are associated with, and secure loans from, National Rural Utilities Cooperative Finance Corporation (CFC). A unit of the latter organization had lent Prosser and his firms more than half a billion dollars, and is now using the bankruptcy courts in an effort to recover some of it.
The National Rural Electric Cooperative Association (NREC), headquartered in Arlington, Va., was one of the organizations listed in the RICO action. NREC filed a motion with the court saying it had nothing to do with the dispute, and on Sept. 30 Gómez agreed.
At the same time, the St. Thomas judge assigned the rest of the RICO case to another federal judge, John E. Jones, III, from the middle district of Pennsylvania.
Prosser’s other setback came at the hands of U.S. Bankruptcy Court Judge Judith Fitzgerald, who is handling the bulk of the related disputes. Prosser, in one of his rare procedural victories, had secured a decision some weeks ago from Gómez on a different matter, and he subsequently asked the bankruptcy court to suspend all of its activities as a result.
This gets complicated. Fitzgerald had ruled about a year ago that Prosser could not be regarded as automatically eligible to enter the various sub-disputes in the bankruptcy cases. He had, to use the legal term, to establish standing in each case. Gómez, who is the appeals judge in V.I. bankruptcy cases, ruled that Fitzgerald was wrong on this specific point, and that Prosser did have automatic standing in the cases.
Prosser then went back to the bankruptcy judge and asked that all proceedings in the long-extended bankruptcy case be stayed (i.e., suspended) until the full significance of the judge’s ruling could be worked out. On Sept. 17, Fitzgerald ruled that since Prosser had, in fact, participated in each and every case since (and despite) her earlier ruling, Prosser had received full due process, and the requested stay was not appropriate. Prosser promptly appealed to Gómez.
Meanwhile, the U.S. chief bankruptcy judge in Delaware, who flies to the islands once a month to hear bankruptcy cases, has been assigned the many clawback cases filed by Springel. The cases are against people and institutions which, according to Springel, collected money inappropriately paid them by Prosser’s holding company, Innovative Communication Corp. Springel’s contention is that the funds — totaling tens of millions of dollars — were for Prosser’s personal benefit, and not for the benefit of ICC.
The judge new to the case is Mary F. Walrath. At her next session Thursday, she will conduct status hearings on the earliest of the clawback cases. It is not clear from the legal record whether she will handle the cases at her St. Thomas location, where she will be sitting in the morning, or at her St. Croix courtroom, where she will be in the afternoon.
A status hearing is a meeting of all the lawyers in a specific case. They gather in open court and the judge makes sure that everyone knows what happens next.
