Fryar Law Firm Announces: Jury Awards $19 Million to Investors in Houston Space Teleport

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Jury Awards $19 Million to Investors in Houston Space Teleport

Business Litigation

Reinventing Business Litigation

"In the end, all the lawyers and dollars poured into the defense could not prevent our clients from receiving justice,” lead counsel, Eric Fryar.

A Harris County jury awarded a group of Texas and Canadian investors approximately $19 million in actual and punitive damages against Canadian stock promoter Robert Kubbernus based on findings of fraud and violations of the Texas Securities Act. The verdict was handed down by a twelve-person jury and accepted by the court in Cause No. 2010-09675; Jo Ann Schermerhorn, et al v. CenturyLink, Inc. and Robert Kubbernus, et al., in the 113th Judicial District Court, Harris County, Texas.

According to testimony, the case arose out of an effort in the late 1990s by local businessmen and NASA engineers to make Houston the national leader in satellite communications. Skyport International was formed in the late 1990s by Houston businessmen Chuck Stack and Bill McCrary. Stack, who had no training or background in satellite communications, stumbled onto the cutting edge of telecommunications technology in the mid-1980’s while trading in commodities. Mr. Stack, who was deposed in the litigation, testified that he found himself with a container of cutting edge satellite equipment after a successful commodities trade with a German company: "Because of the cash flow and the Europeans not wanting to release their dollars, they offered us a container of satellite equipment on which they told us we could triple our money. It was UWE, Underwater Electric. We took the deal and brought it into Houston… I ran an ad in Houston Business Journal. A man called me from Mustang and said that they would like to run data from their facility in Edinburg, Texas. So I jumped at the deal even though I didn’t know anything about satellite equipment or programming controllers. The instructions were in German and French. But I did it, and went to Edinburg, took three days off, sat down under a tree, started trying to figure it out from the pictures. Had a friend at NASA and I would call and ask him for advice. I hired a crane operator to come and drop the poles, and eventually did it. I think it took me a week, but I did it.”

As stated in trial, Mr. Stack, it turned out, had a natural talent for communications technology. In an effort to learn as much about the new technology as possible, Stack befriended local NASA legends George Metcalf, the NASA communications officer who was famous for hanging up on President Kennedy who had called NASA at a tense moment during John Glenn’s Mercury 3 mission (http://archive.cincinnati.com/article/20120219/NEWS/302200019/After-50-years-Glenn-s-flight-still-stirs-US-spirit), and John Llewellyn, the NASA engineer credited with discovering how to navigate the crippled Apollo 13 spacecraft around the moon (http://www.gonzalesinquirer.com/obituaries/article_db9eaad2-a561-11e1-a1f0-0019bb2963f4.html). Stack, and his stepfather Bill McCrary teamed up with Metcalf, Llewellyn, and other local businessmen and investors to launch SkyPort International, which would design, build, and operate the most technologically sophisticated and secure satellite teleport in the world, located in Houston, Texas. Their primary target market was the local energy industry, which at the time was forced to use older and less secure teleport facilities on the east and west coasts. After completing their design work and securing a 99-year lease at Ellington Field, Skyport attracted the attention of telecommunications giant CenturyLink as its lead investor. SkyPort broke ground at Ellington in March 2003 and was up and running with two forty-meter satellite dishes by early 2004. Despite rapid growth and prestigious industry awards, including “Teleport of the Year,” Skyport was still in the red by mid-2005 when CenturyLink decided to pull the plug and sell its interest in the company. At about the same time Skyport went into bankruptcy in late November 2005. Canadian stock promoter and “turnaround expert,” Robert Kubbernus, appeared in Houston, and presented himself to Skyport and CenturyTel as intent on saving the company.

Court documents show that Mr. Kubbernus and his investment firm, Balaton Group, Inc., raised the $7 million in capital necessary to purchase CenturyLink’s stake in the company and to inject new working capital and bring the company out of bankruptcy, from individual investors mainly from Texas and Canada. Kubbernus promised the investors that they would own a majority stake in SkyPort through an investment vehicle established by Kubbernus, called ClearSky Investments, LP. However, when the deal finally closed in November 2006, majority control over Skyport was not transferred to ClearSky as promised, but to Kubbernus’s company Balaton. This switch was kept secret from investors. Kubbernus’s plan was to take SkyPort public in early 2008, but that plan collapsed as a result of the financial crisis at the time, and SkyPort had to be put back into bankruptcy protection in late 2008.

According to testimony, in the bankruptcy, Mr. Kubbernus presented Balaton as the majority shareholder and submitted a reorganization plan which would wipe out the interests of all the other shareholders and leave Kubbernus’s company as the sole owner of the Houston teleport. At the confirmation hearing in August 2009, Canadian businessman and telecommunications pioneer, Adrien Pouliot, appeared and contested Kubbernus’s reorganization plan. Mr. Pouliot argued that he had invested more than $3.8 million of the $7 million that Kubbernus had used to purchase Skyport and, therefore, he was the largest investor and should be permitted to present his own reorganization plan. Mr. Kubbernus then revealed for the first time that the ClearSky investors were not and never had been shareholders of Skyport and had no standing to oppose his plan. United States Bankruptcy Judge, Jeff Bohm, rejected Pouliot’s attempt to propose an alternative plan but specifically held that Pouliot and the other ClearSky investors would retain the ability to sue Mr. Kubbernus for fraud after the bankruptcy concluded (Cause No. 08-36737, Skyport Global Communications, Inc., United States Bankruptcy Court for the Southern District of Texas, Houston Division). In February 2010 the investors got together and sued Kubbernus and Balaton the 113th Judicial District Court, Harris County, Texas. The investors also sued CenturyLink for aiding the fraud based on CenturyLink’s agreement to transfer ownership to Balaton, rather than to ClearSky.

After an intense five-year fight by Kubbernus and his corporate ally, CenturyLink, the case finally came to trial before Judge Michael Landrum on July 7, 2015 in Houston. The jury rendered its verdict on July 23, finding that Kubbernus had committed fraud on the ClearSky partnership and its investors, awarding $6.1 million to the individual investors and an additional $7 million in punitive damages. Additionally, the jury found that Kubbernus’s entire takeover of Skyport was part of a fraudulent scheme and awarded a $5.9 million to investors who had purchased SkyPort stock after the takeover. CenturyLink was not found to have been complicit in the fraud. Plaintiffs’ counsel, Eric Fryar, stated, “My clients and I are very grateful for the jury’s verdict. After accounting for interest and attorneys’ fees, we expect the court to enter a final judgement of approximately $25 million.”

The plaintiffs were represented by Fryar Law Firm, P.C., an eight-person Houston-based boutique litigation firm that represents small business-owners and investors. According to Eric Fryar, “We are proud of the results we are able to achieve for small businessmen and investors through a disciplined, focused, agile, and smart approach to business litigation. To be sure, this case was unusual, and over the last five years the combined resources of the defendants and their mammoth law firms stretched us very thin, but they could not knock us out of the fight. In the end, all the lawyers and dollars poured into the defense could not prevent our clients from receiving justice.” The Fryar Law Firm team at trial included lead counsel Eric Fryar, associate counsel Christina Richardson, and legal assistants Barbara Bennett and Chad Culotta. Plaintiffs were also represented by New York solo practitioner, Samuel Goldman.

About Fryar Law Firm: Fryar Law Firm’s practice is devoted to protecting the rights of business owners and fighting for shareholders facing oppression, squeeze-outs, and violations of business owner’s rights. Our attorneys have helped thousands of business owners all over the country. We represent both majority and minority shareholders and discretely advise business owners how to avoid or prepare for litigation. We consult with other lawyers to find the strongest litigation strategy and legal theories. We fight for our clients in the courtroom and get results. We bring to our clients a solid record of achievement and the knowledge, skill, and tenacity to get the job done.

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Kimberly Smith
Ksmith Communications
+1 (713) 409-5329
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Karen Fryar
Fryar Law Firm
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