The trustees for Arkansas Teacher Retirement System decided this week to wait for a federal judge to rule on whether to dismiss a British company's claim against the system for more than $2.7 million.
The British company, Tetronics Ltd, has offered to settle its claim with the teacher retirement system for a payment of $667,142.96, said Hanna Howard, an attorney for the Gill Ragon Owen law firm which represents the system.
In April 2022, Tetronics filed a lawsuit in the U.S. District Court in the Eastern District of Arkansas against Pinnacle Mountain Holding Company IV, in which the teacher retirement system is the only member, for $2.7 million, Howard told the system's board of trustees on Monday.
The teacher retirement system invested in the BlueOak Arkansas electronic waste recycling facility in Osceola through the Pinnacle Mountain Holding Company IV, and the facility eventually stopped operations after "a catastrophic fire system failure meltdown," Howard said. The fire occurred in 2015.
Tetronics was a vendor used by BlueOak, she said.
ATRS Board Chairman Danny Knight said that "This is a significant amount of money, but it nowhere near what we put in that mess up there."
Through a series of promissory notes and capital contributions made to multiple entities, the system invested approximately $19.7 million in the Blue Oak project, system Interim Executive Director Rod Graves said Tuesday
While the system received approximately $5.4 million in income from the project, and saw the repayment of the various investments and loans related to the Blue Oak project, it still lost approximately $14.3 million, he said.
Tetronics is in the process of liquidation and formerly was in the business of supplying engineering and design services and equipment related to plasma recovery systems, according to the complaint it filed in April 2022 against Pinnacle Mountain Holding Company IV. The complaint states that Blue Oak entered into a contract dated March 17, 2014, by which Tetronics was to supply equipment and services related to a plasma recovery system to Blue Oak.
Following separate unrelated proceedings of Tetronics against BlueOak, Tetronics now has a judgment against BlueOak and it's trying to collect on that judgment by pursuing BlueOak's investors, Howard said Monday
Tetronics has asked a federal judge in its lawsuit against Pinnacle Mountain Holding Company IV to set aside three different funds transfers from BlueOak to the teacher retirement system totaling more than $2.7 million "basically in an effort to collect on their judgment directly from us," she said.
Tetronics brought its claims under the Arkansas Uniform Voidable Transfers Act, Howard said.
She said the three transfers at issue were for $2.12 million on April 24, 2018, $10,500 on June 1, 2018, and $667,142.96 on Dec. 28, 2020.
"So the vast majority of these funds were actually a repayment of the promissory note that Pinnacle had with Blue Oak," she said.
"In the federal case, we have moved for summary judgement," Howard said.
"If we are successful on summary judgment, it will completely dismiss all of Tetronics' claims," she said.
Tetronics has offered to settle the lawsuit in the amount of the last payment of $667,142.96, she said.
At this juncture, a proposed settlement would have to be approved by the system's board of trustees and also by the Arkansas Claims Commission, Howard said.
The system trustees' options include approving the proposed settlement and seeking the approval of the claims commission's approval for proposed settlement; waiting and allowing the federal judge to rule on the motion for summary judgment and "revisit a settlement as necessary"; rejecting the proposed settlement and waiting for the federal judge to rule on the motion for summary judgment; or moving toward a bench trial probably later this year, she said.
Knight, who is the board's chairman, asked whether the Gill, Ragon and Owen law firm has a recommendation for the board of trustees.
In response, Howard said "we don't see a downside to waiting on Judge [Kristine] Baker to rule.
"We are confident," she said. "We feel very good about our motion for summary judgment."
Knight said he agreed with the law firm's recommendation.
Without any dissenting votes, the system's trustees on Monday approved a motion by trustee Jason Brady to wait for the federal judge to rule on the motion for summary judgement to dismiss Tetronics' claims.
Cole Riddell, an attorney representing Tetronics, said Wednesday in a written statement that Tetronics filed an arbitration action against BlueOak on January 17, 2018, ultimately resulting in a $7 million-plus judgment against BlueOak in favor of Tetronics. U.S. District Judge Susan Webber Wright issued that judgment in September of 2020, according to court records.
"Shortly after the arbitration action was filed, BlueOak issued multiple fraudulent payments to Pinnacle Mountain Holding Company IV LLC ("Pinnacle"), both during the arbitration action and after the multi-million dollar judgment was awarded," he said.
These payments were then transferred to the Arkansas Teacher Retirement System, Pinnacle's sole member, said Riddell, an an attorney for the Haltom & Doan law firm in Texarkana, Tex
"Given the facts of this case, Tetronics is confident these fraudulent payments are voidable under the Arkansas Uniform Voidable Transactions Act."
Derrick Rose, a spokesman for the Arkansas Development Finance Authority, said Wednesday that the Arkansas Development Finance Authority, as as agent for the Arkansas Venture Capital Investment Trust (AVCIT), invested $3 million in Blue Oak and wrote off a $3 million loss.
The investment trust received a liquidation distribution of $121,700 for a net loss of $2,878,300, he said.
Tetronics is seeking money from the Arkansas Development Finance Authority, and the attorney general's office is handling the claim, Rose said.
In April 2022, Tetronics a filed a claim with the Arkansas Claims Commission against the Arkansas Teacher Retirement System and the Arkansas Development Finance Authority seeking a total of at least $2,797,698.52.
The teacher retirement system is the state government's largest retirement system with more than $20 billion in investments and more than 100,000 working and retired members.