UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

Transcription

1 THE HONORABLE KAREN A. OVERSTREET Chapter UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 0 In Re: COURT REPORTING INSTITUTE, INC., Debtor. BANKRUPTCY ESTATE OF COURT REPORTING INSTITUTE, INC., by and rough Michael B. McCarty, Bankruptcy Trustee, vs. Plaintiff, ALEN JANISCH, a single man; and KAI MOLDSKRED and JOYCE MOLDSKRED, husband and wife, and e marital community comprised ereof, Defendants. NO. 0-0 Adversary No. 0-0 MOTION FOR RECONSIDERATION 0 COME NOW e Defendants Kai & Joyce Moldskred by and rough eir attorney of record, Jeffrey B. Wells, and moves e court for reconsideration of e judgment entered against em in e amount of $,000 on July, 00. Motions for reconsideration are not favored. However, e Order on Partial Summary Judgment entered by e court on July, 00 does not address e assertions of e Defendants Moldskred at ey have a valid defense against e allegation of fraudulent transfer under e MOTION FOR RECONSIDERATION - LOGAN BUILDING 00 UNION STREET SEATTLE, WA 0- (0) -00 Fax (0) -00

2 0 0 provisions of USC (c). That section states:... a transferee or obligee of such a transfer or obligation at takes for value and in good fai has a lien on or may retain any interest transferred or may enforce any obligation incurred, as e case may be, to e extent at such transferee or obligee gave value to e debtor in exchange for such transfer or obligation. There is no question at e Debtor, Court Reporting Institute, Inc., initially received e benefit of e loans from Kai Moldskred. It is also uncontradicted in Kai Moldskred s declaration at he was proceeding in good fai, believed e Debtor to be solvent during e repayment period, and applied e payments to e outstanding loans as ey were made. Kai Moldskred in his declaration stated: During is repayment period, it is my belief at e Debtor was solvent. As far as I know, all rents, utilities, sales tax, payroll taxes and payrolls were current rough August of 00. I was given an audited financial reports for e year ending December, 00 which indicated at e retained earning of CRI was a $,000. Furermore, I was informed by Alen Janisch at CRI had a net income of approximately $00,000 for e first quarter of 00. I was aware at a buyer for CRI had offered $. million in January 00 but e Department of Education and e Washington State Workforce and Training would not approve any transfer.. The cause of CRI s demise was a critical newspaper report form e Seattle Times in late March, 00 which resulted in a sharp decrease in students in e summer of 00. It was is decrease in students which lead to e closing and ultimate bankruptcy of CRI. The central question, erefore, is e effect of e agreement of May, in which e debt of Court Reporting Institute, Inc was released by Kai Moldskred and taken over by Alan Janisch individually. But for is agreement, e payments by Court Reporting Institute, Inc to Kai Moldskred and his wife would not be fraudulent. The fact at e agreement makes e payments fraudulent as e court has found, does not in and of itself dispose of e question as to wheer or not Defendant Kai Moldskred can take advantage of USC (c). This section is a safe harbor for transferees of oerwise fraudulent transfers. Does e May, release mean at Kai and Joyce Moldskred have not given value to e debtor, Court Reporting Institute, Inc? The answer must be no because e funds loaned to e MOTION FOR RECONSIDERATION - LOGAN BUILDING 00 UNION STREET SEATTLE, WA 0- (0) -00 Fax (0) -00

3 0 0 debtor remained wi e debtor even after e agreement. The court has stated at documents carry consequences and e agreement of May, resulted in Court Reporting Institute, Inc not having a legal obligation to repay e money it had received from Kai Moldskred. That is e same situation presented to e Nin Circuit in Frontier Bank vs Brown, F. d 0 ( Cir. 00). The corporation gave a security interest to Frontier Bank even ough e corporation had no direct obligation to Frontier Bank. In e Jeffrey Bigelow case (In re Bigelow Design Group, F. d ( Cir. )) which was cited by e Nin Circuit Court in Frontier Bank, e same situation occurred as in e present case. The obligation was to share holders. The corporation, debtor, received e funds and e payments were from e debtor corporation to e creditor in at case, First American Bank. The fact at e transferor had no legal obligation to e transferee does not invalidate e value received by e transferor, debtor. The question erefore becomes wheer e subsequent transfer to Alen Janisch of e legal obligation to repay Kai Moldskred his loans to Court Reporting Institute, Inc make a difference. In oer words, under e Jeffrey Bigelow case, supra, had Alen Janisch originally signed for e loans of monies which were paid over to Court Reporting Institute, Inc e subsequent payments by Court Reporting Institute, Inc to Kai Moldskred would be fully protected under e provisions of USC (c). Is is defense not be available when ere is subsequent transfer to e shareholder of e legal obligation to pay all of e parties? A review of e statute itself is instructive. There is no provision in USC (c) which states at e transfers have to be simultaneously. The Jeffrey Bigelow case involved a series of payments by e corporation to First American Bank over a period of time. There appears to be no requirement of a simultaneous exchange of value. Furermore, e provisions of USC (c) speak to e value given to e debtor by e transferee. There is no inquiry as to wheer ere was a legal obligation or e timing of e transaction but raer wheer money was given to e transferor. There is no question at e entire series of loans were given to Court Reporting Institute, Inc. USC (c) provides e statutory foundation for e court s MOTION FOR RECONSIDERATION - LOGAN BUILDING 00 UNION STREET SEATTLE, WA 0- (0) -00 Fax (0) -00

4 0 0 statement in Frontier Bank v Brown, F. d 0, 0 ( Cir. 00), at, We reject is formalistic view. Alough Debtor was not a party to e October loan, it clearly received a benefit from at loan. The key is e money. Did e transferee give e money? This is e focal point of USC (c). The final question is wheer e subsequent agreement of May, prevents a finding at Kai and Joyce Moldskred acted in good fai. In oer words, were e actions of Kai Moldskred in an attempt to defraud creditors. In order for e summary judgment to stand e court has to find at e answer to is question of fact is yes. It is respectfully submitted at ere is no such evidence, especially on a summary judgment motion where any inferences from e evidence are to be construed in favor of Kai and Joyce Moldskred. There is noing insidious about Alen Janisch being e obligee. He was previously obligated as a guarantor. Likewise ere is noing inherently insidious about Kai Moldskred receiving payments from Court Reporting Institute, Inc. Kai Moldskred had no control over who wrote out e checks nor does e record indicate at Kai Moldskred had any knowledge of wheer e payments by e corporation were recorded on e corporate books as draws by Alen Janisch. Such payments, properly recorded, would not be inherently improper. All of e transactions between Kai Moldskred and Court Reporting Institute, Inc were not intended to nor did ey result in any net loss to debtor s estate. This was e finding of e examination done by William Hanlin, a CPA and Certified Fraud Examiner. This was also e cornerstone upon which e court in Frontier Bank v Brown, F. d 0, 00 ( Cir. 00), found at e bank had operated in good fai and was entitled to keep e payments received under USC (c). The court stated: There is no evidence in e record at Frontier s receipt of e security interest was an attempt to defraud Debtor s creditors. Raer, e transactions were simply a means for Debtor to obtain a loan at it would oerwise not be able to receive. The transactions were not intended to, nor did ey result in, any net loss to Debtor s estate. Therefore, Frontier acted in good fai in receiving e security interest. MOTION FOR RECONSIDERATION - LOGAN BUILDING 00 UNION STREET SEATTLE, WA 0- (0) -00 Fax (0) -00

5 0 Because ere was no net loss to Debtor s estate because of ese payments, e granting of a judgment against Kai and Joyce Moldskred will result is an unintended windfall to Debtor s estate. The provisions of USC (c) are designed to prevent such an inequitable result. Value was clearly given to e debtor by Kai and Joyce Moldskred. At a minimum, e question of good fai is a material question of fact which requires a trial. Because e present judgment as entered, does not, nor can it answer at question, e court should reconsider its decision and render a ruling only after a trial. st DATED is day of July, 00. /s/ Jeffrey B. Wells Jeffrey B. Wells, WSBA # Attorney for Defendants 0 MOTION FOR RECONSIDERATION - LOGAN BUILDING 00 UNION STREET SEATTLE, WA 0- (0) -00 Fax (0) -00