Dispute over deleted emails flares up in Xyience bankrutpcy

Everybody agrees that William Bullard gets a lot of mileage out of his BlackBerry.

But a dispute about how many messages the prominent Las Vegas businessman, who lists chief executive officer of Gordon Biersch Brewing Co. and chairman of Meadows Bank among his current activities, should have saved going back four years has ensnared him in the Xyience bankruptcy, now churning toward its fourth anniversary.

The trustee in the case has asked for unspecified sanctions against Bullard for not producing emails and documents as it tries to piece together a larger case that could be the last hope for creditors and shareholders to receive any money. At the time the case was filed as a Chapter 11 in January 2008, the company had piled up more than $42 million in debt but so far has recovered less than
$2 million, not enough to get past the legal and administrative expenses.

However, Bullard’s attorney Gregory Garmin contended, “We have produced everything we have and they just don’t like what’s there.”

The assets of Xyience, the maker of the energy drink Xenergy, were purchased out of bankruptcy in 2008 and ultimately wound up under the ownership of an entity controlled by the Fertitta family to maintain the close marketing ties to its Ultimate Fighting Championship martial arts league. As such, Xyience products on the shelves have no current connection to the bankruptcy.

But in the court proceedings, now a Chapter 7 liquidation, Chicago-based trustee David Herzog contends that the $12 million that Fertitta entities loaned Xyience in 2007 as it faltered financially came with such heavy-handed terms that it scared off potential buyers. As such, he will try to recoup damages that could lead to “potentially significant recoveries,” as described in court papers, at a trial now scheduled to start next spring.

Garmin, also representing the different Fertitta interests, has outlined a case where all transactions were done on normal terms. The $12 million, he noted, was approved by other creditors and shareholders at the time.

When Xyience was sold out of bankruptcy in 2008, Manchester Consolidated Corp. of Toronto paid $200,000 in cash and assumed Fertitta loans that had grown to $14.8 million. A year later, Manchester defaulted, opening the way for the Fertittas to take over.

Bullard, also an executive with Fertitta Enterprises, which holds nongaming businesses, became a target of the trustee because of his alleged obstinacy in handing over documents and emails concerning Xyience and his attempts to flesh out his case. The documents eventually were produced but Herzog still wants penalties for not coming as quickly as he thinks they should have.

Some of the Bullard emails have been erased, according to court papers, although some were found in the computer records of recipients. “It is inconceivable that a businessman with Mr. Bullard’s experience did not have a document retention policy,” said Chicago attorney Jonathan Backman, who is working with Herzog, at a Sept. 30 hearing.

But in contending Bullard was within bounds, Garmin noted, “It would be nice if everyone in the world saved every email they sent, but they are not required to.”

On a broader front, he added, going after Bullard was a sign that Herzog had “thrown in the towel” on the main case and was now fabricating other disputes “in an outrageous attempt to justify his continued consumption of trust resources down a never ending black hole.”

Much of Herzog and Backman’s work to date has involved the standard bankruptcy work of gaining repayment of money they received from the company 90 days before filing Chapter 11. On Friday, for example, the court formally approved a settlement with Professional Bull Riders, accepting $20,000 as payment in full on a $100,000 claim.

To date, Backman said that $1.5 million has been recouped through these types of legal actions.

Contact reporter Tim O’Reiley at toreiley@reviewjournal .com or 702-387-5290.