A federal bankruptcy judge on Tuesday denied a motion to dismiss a complaint that alleges U.S. Transportation Secretary Anthony Foxx performed little to no work in a past job at a defunct Charlotte bus manufacturer.
Judge Craig Whitley also denied a motion from Foxx to strike “impertinent and scandalous matter” from the complaint, referring to the allegations that he did no work at DesignLine. But at a hearing Tuesday Whitley cautioned that at this stage of the case he was not “ascribing fault” or indicating whom the evidence favors.
Last August, the trustee liquidating DesignLine filed suit against Foxx seeking the return of the pay he received as deputy general counsel from 2009 to 2013. The complaint said company documents showed little to no work by the former Charlotte mayor who joined President Barack Obama’s cabinet in July 2013.
In a response filed in April, however, Foxx says records provided by trustee Elaine Rudisill contradict those claims. These records show “activities and actions” by Foxx as deputy general counsel, as well as interactions with the company’s outside law firms, the filing says.
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As part of the bankruptcy proceedings, Rudisill has been filing “adversarial proceedings” against various defendants, including Foxx, in an attempt to recover more money for the bankruptcy estate.
In addition to the motion to dismiss, Whitley also ruled Tuesday on other pre-trial motions, including demands to divulge documents by both sides and a request that Foxx’s deposition not be videotaped.
In his ruling, Whitley admonished attorneys on both sides to work together to provide requested materials. Attorneys for Foxx want more emails from the defunct company’s servers, while the trustee wants personal emails Foxx sent pertaining to company business.
“We expect all parties to cooperate,” the judge said.
Whitley also ruled that it was permissible to videotape Foxx’s deposition, but he ordered attorneys for the trustee to avoid asking questions about his current job as transportation secretary or his political future unless they were related to DesignLine.
A group led by retired Air Force Gen. Buster Glosson and his son, Brad, bought DesignLine in 2006 and moved it to Charlotte from New Zealand. After struggling financially for years, the company filed for bankruptcy in 2013, costing investors millions and leading to layoffs for a workforce that once reached 250.
The central issue in the Foxx case is the amount of work he performed during his DesignLine tenure. In a filing last week, Rudisill said the company “received very little, if any, value from Foxx, let alone reasonably equivalent value.”
The filing included emails between Foxx and top executives at the company showing frustration with his responsiveness.
“You purport to serve as this company’s General Counsel, and yet I cannot get an answer to a simple question from you without several emails and/or phone calls spread out over weeks or months,” then-DesignLine CEO Joe Smith wrote in an email to Foxx in August 2012. The message was also sent by registered mail, according to a court filing.
In an April 2011 email to Foxx, Smith’s predecessor, Brad Glosson, wrote: “Partner, you and I are friends from way back; however, I cannot help you if you do not return calls from the Chairman of the Board. Let’s not make the simple mistakes at a time when the Board is asking me to review and comment on the value add/necessity of all overhead.”
Foxx responded minutes later: “I will call...just running...will call within the hour.”
In the hearing Tuesday, however, Foxx’s attorney, Ross Fulton, recounted emails detailing numerous instances where Foxx did work on behalf of the company, including meeting with top executives, interacting with outside counsel and reaching out to other cities interested in DesignLine buses.
It was not simply a 9 to 5 job, Fulton said, citing the emails.
“People reached out to him after hours and on weekend,” he said. Those emails have not been filed with the court, but likely will be filed later, after Whitley denied a motion to seal certain exhibits.
In a filing last week, Foxx also listed other instances of his work for the company, including “numerous e-mail exchanges with Congressman Mel Watt regarding mass transportation issues for the benefit and on behalf (of DesignLine).” He also worked on various litigation issues involving the company and arranged meetings with mayors in Columbia, S.C., and Honolulu, to discuss the proposed sale of DesignLine buses.
One point of contention that appeared to be resolved at the hearing was the amount of money that Foxx made while working for DesignLine. The trustee’s original complaint said he received about $421,000, but Foxx said in a filing in April that records indicate a gross salary of $309,760 over a 3 1/2- year period.
Michael Barrie, an attorney for the trustee, said the original figure was based on certain electronic records, but further investigation showed that his salary was actually around the lower figure. Whitley ordered that the correct figure be filed with the court.
With the motion to dismiss denied, the case could eventually proceed to a bench trial in bankruptcy court. Whitley, however, urged both sides to discuss a possible settlement. Court filings suggest Foxx would testify if a trial were held.