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National Lampoon Inc. v. Durham

United States District Court, S.D. Indiana, Indianapolis Division

July 10, 2017

TIM DURHAM and DOES 1 through 50 inclusive, Defendants. TIM DURHAM Counterclaimant,
NATIONAL LAMPOON, INC., Intervenor Defendant.



         On February 28, 2013, Plaintiff, National Lampoon, Inc., filed a five-count Complaint[1] against Tim Durham, its former Chief Executive Officer, and the law firm that represented him in his criminal case, Brown Tompkins Lory & Mastrian, [2] arising out of a $1, 000, 000 transfer from National Lampoon's business checking account into John Tompkins' law firm account. In its First Amended Complaint, National Lampoon brings claims for: (1) embezzlement, (2) breach of fiduciary duty, (3) conversion, (4) fraudulent conveyance, and (5) unjust enrichment. Durham filed a counterclaim against National Lampoon seeking back-pay and a declaration regarding his stock ownership in, and loans to, National Lampoon.

         Durham now moves for summary judgment on all claims alleged in the First Amended Complaint and his two counterclaims. National Lampoon moves for summary judgment on Durham's counterclaims. For the reasons that follow, National Lampoon's motion is GRANTED and Durham's motion is DENIED.

         I. Judicial Notice

         Before addressing the facts relevant to the present motions, the court must first address National Lampoon's request for the court to take judicial notice of public civil court filings and other public records, including forms filed with the Securities and Exchange Commission (“SEC”). (See generally Filing No. 158, National Lampoon's Appendix of Exhibits).

         Pursuant to Rule 201(b) of the Federal Rules of Evidence, a court may take judicial notice of an adjudicative fact that is both “not subject to reasonable dispute” and either: (1) “generally known within the trial court's territorial jurisdiction;” or (2) capable of accurate and ready determination “from sources whose accuracy cannot reasonably be questioned.” The documents at issue are public records and documents “whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b). The court will therefore consider National Lampoon's exhibits for purposes of the parties' motions for summary judgment. General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1081 (7th Cir. 1997) (recognizing court may take judicial notice of the contents of court records); Opoka v. INS, 94 F.3d 392, 394 (7th Cir. 1996) (recognizing that proceedings in other courts, both inside and outside the federal system, may be judicially noticed); In re Guidant Corp. v. Sec. Litig., 536 F.Supp.2d 913, 921 (S.D. Ind. 2008), aff'd sub nom. Fannon v. Guidant Corp., 583 F.3d 995 (7th Cir. 2009) (recognizing court may take judicial notice of SEC filings at the 12(b)(6) stage); Grimes v. Navigant Consulting, Inc., 185 F.Supp.2d 906, 913 (N.D. Ill. 2002) (recognizing court may take judicial notice of published stock quotes).

         II. Background

         Following his criminal indictment for securities fraud in December 2008, Daniel Laikin resigned as CEO of National Lampoon and, on December 18, 2008, Durham replaced him as the new CEO. (Filing No. 158-1, Securities and Exchange Commission (“SEC”) Form 8-K; see also Filing No. 98, Trustee's Motion to Intervene at 3). Durham alleges National Lampoon's Board of Directors agreed to pay him a base salary of $250, 000. National Lampoon disputes this allegation. (SEC Form 8-K) (“Mr. Durham is serving [as CEO] without compensation.”).

         At the time he was CEO of National Lampoon, Durham owned Fair Finance Company, a financial services business located in Akron, Ohio. United States v. Durham, et al., No. 1:11-cr-42-JMS-DML, Filing No. 217, Superseding Indictment ¶¶ 1-2. On February 8, 2010, creditor-investors filed an involuntary Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Northern District of Ohio against Fair Finance[3] following an FBI raid on its Akron, Ohio offices and on the Indianapolis offices of Durham's other company, Obsidian Enterprises, Inc. (See Filing No. 158-7, Trustee's Memorandum in Support of Motion to Approve Compromise with National Lampoon, Inc. (“Trustee's Motion to Approve”) ¶ 9; Filing No. 98, Trustee's Motion to Intervene at 1-2)). The Trustee of that bankruptcy, Brian Bash, has since intervened in this case. (Filing No. 103, Order granting Motion to Intervene).

         On March 14, 2011, Durham was indicted and arrested for securities fraud, wire fraud, and conspiring to commit fraud for essentially engaging in a Ponzi scheme at the expense of Fair Finance investors. (Filing No. 9, Superseding Indictment; see also Filing No. 158-6, Trustee's Complaint to Avoid Fraudulent Transfers Against National Lampoon ¶ 2). Durham's criminal defense attorney at the time was Mr. Tompkins. (Filing No. 73, Compl. ¶ 13). From April 2011 through January 2012, Durham was under house arrest at his home in Indiana. (Filing No. 77, Answer ¶ 12).

         On June 13, 2011, the Trustee filed an adversary proceeding against National Lampoon in the Central District of California to recover over $9, 000, 000 in fraudulent transfers allegedly made to National Lampoon[4] through Durham's and Laikin's loans and investments. (Filing No. 158-6, Trustee's Complaint to Avoid Fraudulent Transfers). In the Trustee's litigation against National Lampoon, the Trustee alleged that the purported loans and investments from Durham had historically been the principal source of funds used for operations and working capital at National Lampoon. (Id. ¶ 45). Therefore, the Trustee sought to recover any and all money Durham ever loaned[5] or invested in National Lampoon. (Id. ¶¶ 55, 65, 77).

         In the midst of all this, on July 21, 2011, National Lampoon and Warner Brothers entered into a Settlement Agreement and Release that, among other things, resolved a dispute between the parties concerning Warner's distribution of the National Lampoon Vacation motion pictures and Warner's accounting methods, calculations, and allocations, and provided National Lampoon with an advance in the amount of $2, 705, 448, recoupable from National Lampoon's share of the Vacation motion pictures. The Settlement Agreement was signed by Durham purportedly on behalf of National Lampoon. (Filing No. 161-1, Affidavit of Cora Victoriano ¶ 6).

         On July 28, 2011, immediately after the settlement money from Warner Brothers was deposited into National Lampoon's business checking account, Durham instructed Comerica Bank to transfer $1, 000, 000 out of National Lampoon's business checking account (account number 1894202959) into Mr. Tompkins' law firm account (account number 8003157). The wire transfer was not authorized in accordance with National Lampoon's corporate bylaws. (Id. ¶ 7). Durham claims National Lampoon authorized him to take $545, 000 as partial payment of his accrued and unpaid salary. (See Filing No. 160-3, 2011 Form 1099-MISC).

         In January 2012, Durham resigned as CEO of National Lampoon. (Answer ¶ 22).

         On June 20, 2012, Durham was found guilty on all counts in his criminal trial. (United States v. Durham, et al., No. 1:11-cr-42-JMS-DML, Filing No. 354, Jury Verdict). He was sentenced to fifty (50) years in prison and ordered to pay $208, 830, 082.27 in restitution to the investment certificate holders of Fair Finance, and to cooperate with the Trustee. (Id., Filing No. 456, Amended Judgment).

         Since Durham's incarceration, the Trustee has obtained judgments aggregating in excess of $136, 000, 000 against Durham in other actions (other than an action brought by Thomas McKibben[6], et al.) in the Northern District of Ohio, including, on June 4, 2012, a judgment in the amount of $152, 452.75; on May 28, 2013, a judgment in the amount of $134, 837, 533.14; and on November 22, 2013, a judgment in the amount of $1, 151, 953.39, plus post-petition interest on all judgments. (Filing No. 158-3, Trustee's Motion to Approve Assignment Agreement and Compromise of Claims Against Timothy Durham at 3).

         On September 7, 2014, Durham fully executed an Assignment Agreement and compromise of claims with the Chapter 7 Trustee, which transferred and conveyed virtually all of Durham's assets to the Trustee. (Filing No. 158-4, Notice of Execution of Assignment Agreement). However, with respect to the pending action, the Assignment states:

[A]ssignor shall continue to litigate that action and defend the claims against him and assert his claims, cross-claims and counterclaims and shall retain ownership of such claims, cross claims and counterclaims subject to Assignor's current and continuing assignment of any and all proceeds of claims asserted in the National Lampoon Litigation to the Trustee, including any and all receivables due ...

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