Opinion ID: 2340356
Heading Depth: 1
Heading Rank: 5

Heading: H20, Inc.

Text: In the early 1980s, Stewart began farming garlic in Empire, Nevada. Stewart's food-processing company, Empire Foods, LLC, received a loan from a bank in 1999. Shortly thereafter. Empire Foods filed for Chapter 11 bankruptcy due to a decline in the garlic market. Stewart had Weddell, his business associate at the time, negotiate with the bank to reduce the loan. Instead of the bank taking the garlic inventory and the accounts receivable that were the original collateral to the loan, Weddell was able to extinguish nearly half of Stewart's debt. In exchange for his successful negotiation with the bank, Weddell received a 15-percent interest in High Rock Holding from Stewart. According to Weddell, Stewart also promised him that he would receive $2.5 million in compensation if and when the funds became available. Stewart denies that he made such a promise. The alleged promise of $2.5 million was not memorialized on paper; nor were there any witnesses to the statements between Stewart and Weddell at the time the promise was purportedly made. Apparently, in May 2004, Stewart gave Weddell a check for $2.5 million, with which Weddell ultimately purchased 100 percent of the stock (10,000 shares) in H20, Inc. Shortly thereafter, Weddell assigned his alleged interest in H20 to White Paper, LLC, an entity owned and operated by Stewart. In June 2007, Weddell transferred any and all interest that he had in the shares of H20 stock to Stewart. Subsequently, a dispute arose as to whether the $2.5 million used to purchase the H20 stock belonged to Weddell or Stewart and, thus, whether the stock was purchased for the benefit of Weddell or Stewart. The district court held that Weddell had never acquired an interest in the stock of H20 and was acting merely as Stewart's agent when he purchased the shares. The district could found that the June 2007 transfer would have transferred any interest that Weddell might have had in H20 to Stewart. The district court also found that Stewart was the source of virtually all monies and assets transferred into H20. The court further found that the business activities between Stewart and Weddell were simply strategic and did not constitute fraud.