Destroying documents that might have proved important regarding the financial demise of the energy drink marketer Xyience has prompted a U.S. Bankruptcy Court judge to sanction an executive and two nongaming entities tied to Las Vegas' Fertitta family.
In a ruling issued late Friday, Judge Lloyd King found that William Bullard did nothing to preserve documents that may have detailed how the Fertitta interests first bailed out Xyience four years ago, then gained control of it. Bullard is chief executive officer of Gordon Biersch Brewing Co. and an officer of Fertitta Enterprises.
Xyience sells drinks in a close alliance with the Fertitta-owned Ultimate Fighting Champtionship mixed martial arts league, but the Chapter 11 case of the previous corporate owner continues. The Fertitta family is best known locally for heading Station Casinos.
"Defendants have produced many pages of documents ... but that does not excuse the willful, bad faith conduct" outlined earlier in the ruling, Judge King wrote. "That conduct has harmed, delayed and increased the cost (of the case) ... and will not be tolerated."
King said he would later look at what financial penalty, if any, should be imposed beyond the extra costs incurred by the trustee and his attorney in the Xyience case.
Jonathan Backman, the Bloomington, Ill., attorney representing the trustee, said he would try to negotiate a figure with Gregory Garman, who represents Bullard and the Fertitta entities.
"I hope we can work something out and not trouble the judge with any more pleadings," he said, referring to the pile of papers already filed in the action.
Garman did not return calls seeking comment.
Backman is assembling a larger case built around the allegation that when the Fertitta interests loaned Xyience $12 million four years ago as it ran short of cash, it was part of a "loan to own" deal. Under this theory, the terms were so stringent that they almost ensured a default, paving the way for a takeover after Xyience filed Chapter 11 in early 2008.
Unless he can win a sizable judgment or settlement, Backman concedes that Xyience creditors probably will receive nothing.
Garman, however, has said that the Fertitta interests had thrown a lifeline because they wanted to see Xyience succeed, in part because of its UFC marketing ties. Later, a Canadian company that bought the assets out of bankruptcy defaulted and turned ownership over to the Fertitta interests.
A trial is scheduled for April.
Bullard realized in 2007 that the deal probably would wind up in court, according to King. Nevertheless, he still allowed paper or electronic documents tied to the deal to disappear.
In addition to Bullard, King extended the sanctions to Fertitta Enterprises and Zyen, another Fertitta-controlled company.
Contact reporter Tim O'Reiley at email@example.com or 702-387-5290.