Network of Neighbors, the online charity founded by Edgartown residents SQire Rushnell and Louise DuArt, has filed an objection to the bankruptcy of Danielle and Scott Pendergraft, now pending in U.S. Bankruptcy court. Network of Neighbors alleges that the Pendergrafts committed fraud, embezzlement, and breach of their fiduciary duty as directors of Network of Neighbors.
From 2009 to the spring of this year, when the Pendergrafts lived in Edgartown, they were under the constraints of Chapter 13 bankruptcy. In 2009, a Texas bankruptcy judge ordered a payment plan for the Pendergrafts to pay their creditors $378,000 over four years, and the court held some authority over their expenditures.
While they lived in Edgartown, the Pendergrafts rented a $4 million home on South Water Street, joined the Edgartown Yacht Club, and threw lavish parties. On August 1 of this year, the Pendergrafts successfully petititoned the court to convert their Chapter 13 filing to a Chapter 7 bankruptcy. In most cases, a Chapter 7 bankruptcy, if allowed, liquidates all assets and discharges all debts. That case is still pending.
The objection filed by attorneys Bruse Loyd and Michael Ridulfo on behalf of Mr. Rushnell and his wife, is essentially a lawsuit within bankruptcy court. It alleges the Pendergrafts owe Network of Neighbors $40,000, plus attorneys fees, and asks the judge not to discharge that debt in the bankruptcy.
“Network of Neighbors charitable efforts were completely undermined and destroyed by (the Pendergrafts),” the attorneys wrote in their objection to the bankruptcy filed October 22.
“Mrs. Pendergraft represented to Mr. Rushnell and Ms. DuArt that she was the director of Holiday Public Relations & Events,” the attorneys wrote. “She represented to Mr. Rushnell and Ms. DuArt that Holiday had annual revenues in the millions of dollars and that she had raised over a billion dollars for Holiday’s clients.
“What was unknown to Mr. Rushnell and Ms. DuArt at the time, was that Mrs. Pendergraft was a felon, convicted of financial crimes in the United States District Court of the Southern District of Texas in 1997 and sentenced to 33 months in federal prison.”
The objection alleges the Pendergrafts befriended Mr. Rushnell and his wife, and gained their trust and confidence. Based on their false representations, the objection says, the Pendergrafts were invited to join the Network of Neighbors board of directors, and Mr. Pendergraft was elected treasurer.
The lawsuit alleges the Pendergrafts, “in violation of their fiduciary duties to Network of Neighbors, intentionally transferred in excess of $40,000 to Holiday. These transfers were not authorized and served no legitimate business purpose.”
The court ordered the Pendergrafts to provide attorneys with documents relating to the case, and to appear at a hearing on December 20 with their response to the objection.
Lawsuit vs. lawsuit
Separately, the lawsuit filed earlier this year by Holiday Public Relations & Events against Mr. Rushnell and his wife, is progressing through U.S. District Court in Houston. The Pendergrafts allege Mr. Rushnell and Ms. DuArt failed to pay $43,000 for public relations work Ms. Pendergraft and others did for Network of Neighbors.
The Holiday contract with Mr. Rushnell and Ms. DuArt includes a clause about arbitration.
“Any dispute arising in connection with this agreement or the breach, cancellation or validity of this agreement, shall be settled by final and binding arbitration conducted in Houston, Texas before a panel of three arbitrators,” the contract states.
On October 19, Mr. Loyd filed a motion to compel the Pendergrafts to enter arbitration, which was opposed by their lawyer, David Kuntz. Federal Judge Lynn Hughes granted that motion, which orders the two parties to enter arbitration.
According to the terms of the contract offered by Ms. Pendergraft, the two parties must split the cost of the three arbitrators, and the prevailing party is entitled to recover attorneys’ fees and costs from the unsuccessful party.
Judge Hughes ordered the two parties to report on the status of arbitration on November 26.
Ms. Pendergraft did not appear at a small claims hearing in Edgartown District Court on July 11. The court ruled her in default and issued a civil arrest warrant, ordering her to appear and respond to the small claims action.
Tisbury Printers sued Danielle Pendergraft and her firm, Holiday, for $3,400, charged for services ordered by Ms. Pendergraft, according to owner Chris Decker.
Ms. Pendergraft did not respond to a request for comment.
The attorney who represented her in a previous case, Kristen Schuler Scammon, suggested in writing to the court that the Pendergrafts are in bankruptcy proceedings and asked that the court delay a decision.
The court ruled, however, that the document offered by the defense attorney referred to the 2009 bankruptcy judgment that would not apply to any debts incurred after that judgement. Ms. Scammon did not appear at the hearing. She did not respond to an e-mail or a phone message requesting comment.
The court ruled against Ms. Pendergraft and Holiday by default, awarding the entire amount to Tisbury Printers.
Mr. Decker anticipates collecting the judgment will be difficult. “Going into it, I kind of suspected the well is dry,” he said. “I just have real satisfaction that the court went my way.”
He was also critical of Ms. Pendergraft’s claims that any legal action should be against Holiday Public Relations & Events, a corporate entity owned by the Pendergraft 2007 Irrevocable Childrens Trust, and that Ms. Pendergraft is neither an employee or a director of the company.
“I don’t hide behind a virtual entity that no one knows who it is or where it is,” Mr. Decker said. “People know how to find me at my physical address.”
During the same July 11 small claims session, Ms. Pendergraft was supposed to appear at a payment hearing to explain why she has not paid a small claims judgment issued on May 29. In that case, the court awarded Kathleen Forsythe, owner of Forsythe Design, $7,000 for web site design services. Because Ms. Pendergraft did not appear for the payment hearing, the court ordered a civil arrest warrant for Ms. Pendergraft. Unlike a criminal arrest warrant, a civil arrest warrant is not recorded in police computer systems used to alert law enforcement. It will not result in her arrest if she is stopped for a traffic check or arrested for an unrelated offense.
Police, former neighbors, and people pursuing claims against the Pendergrafts say they have not seen the couple at the Edgartown house where they lived since 2009.
The Holiday web site, once an elaborate multi-level presentation touting a global public relations and event planning firm, is now a one-page web site asking visitors to, “Watch for the launch of our new site!”
The couple told a bankruptcy trustee their residence is now a condominium in Houston owned by Danielle Pendergraft’s mother.