United States District Court, E.D. Washington
Bankr. Case No. 09-06194-FPC11. Adv. Proc. No. 11-80109-FPC.
For Bruce P Kriegman, solely in his capacity as court appointed Chapter 11 Trustee for LLS America LLC, Plaintiff: Daniel J Gibbons, Shelley N Ripley, LEAD ATTORNEYS, Witherspoon Kelley, Spokane, WA; Thomas Dean Cochran, Witherspoon Kelley Davenport & Toole - SPO, Spokane, WA.
685937 BC LTD, Defendant, Pro se, Vancouver, BC.
Heidi Schulze, deceased, Defendant, Pro se.
Tyler Foerstner, Defendant, Pro se, Vancouver, BC, Canada.
For Gudrun Foerstner, Defendant: Dennis Patrick Hession, LEAD ATTORNEY, Murphy Bantz Bury PLLC, Spokane, WA.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
ROSANNA MALOUF PETERSON, Chief United States District Judge.
A bench trial was held on October 14, 2014. Thomas D. Cochran and Daniel J. Gibbons appeared on behalf of Plaintiff. Pro se Defendants Tyler Foerstner and 685937 BC Ltd. did not appear at trial. Defendant Heidi Schulze, also a pro se defendant, passed away before trial.
Dennis P. Hession appeared on behalf of Defendant Gudrun Foerstner. Mr. Hession explained, however, that his client had not authorized him to attend trial or participate in the proceedings on her behalf. The Court advised Mr. Hession that he was free to leave, and he departed.
Plaintiff informed the Court that settlement was pending with Defendant Martina Peiper. The Court granted Plaintiff's oral motion to transfer Defendant Peiper to the cause number reserved for defendants who had agreed to settle with Plaintiff.
Plaintiff confirmed on the record that all of the four remaining defendants, Gudrun Foerstner, Tyler Foerstner, Heidi Schulze, and the numbered entity 685937 BC Ltd., had received notice of the trial.
The Court heard witness testimony and, having reviewed the admitted exhibits and being fully informed, makes the following findings of fact and conclusions of law:
1. Ponzi Scheme and Insolvency
On July 1, 2013, the Bankruptcy Court issued its Report and Recommendation Re Plaintiff's Motion for Partial Summary Judgment on Common Issues (" Report and Recommendation") recommending that the District Court grant the Trustee's Amended Motion for Partial Summary Judgment on two " Common Issues": (1) Debtor operated a Ponzi scheme; and (2) Debtor was insolvent at the time of its transfers to Defendants. On August 19, 2013, this Court adopted the Bankruptcy Court's Report and Recommendation and entered an order granting the Trustee's Amended Motion for Partial Summary Judgment on the Common Issues (" Order Adopting Report and Recommendation"). See 2:11-cv-00357-RMP, ECF No. 92. Therefore, this Court has determined that Debtor operated a Ponzi scheme and was insolvent at the time of each of the transfers to Defendants.
All of the findings and conclusions set forth in the Report and Recommendation and the Order Adopting Report and Recommendation are incorporated by this reference and are the law of this case.
2. Omnibus Hearing for the Testimony of Charles B. Hall
On January 31, 2014, this Court entered its Order Granting Plaintiff's Motion for Omnibus Hearing. ECF No. 18. Pursuant to that Order, the courtappointed examiner, Charles B. Hall, testified at an Omnibus Hearing in open court commencing on February 25, 2014. His testimony consists of written direct examination testimony that was filed on or about February 17, 2014, and the oral testimony that he gave at the Omnibus Hearing. Mr. Hall was cross examined by several defense attorneys and by some pro se defendants. Mr. Hall's testimony at the Omnibus Hearing is part of the record in this adversary action.
FINDINGS OF FACT
1. Debtor is the Little Loan Shoppe group of companies, which was formed originally in 1997. PO-1 at 11.
2. Debtor operated a Ponzi scheme, whereby investors' loans sometimes were used to pay other investors' promised returns on investments. PO-1 at 16.
3. Over the course of its existence, Debtor acquired approximately $135.4 million in funds invested by individual lenders, usually documented by promissory notes promising interest in the range of 40% to 60% per annum. PO-1 at 7 n.2, 15.
4. Debtor accumulated payday loan bad debts of approximately $29 million, which were written off in 2009. PO-1 at 41.
5. Debtor was never profitable at any time during its existence, and at no time did it generate sufficient profits to pay the amounts due the lenders. PO-1 at 16, 53.
6. Indicia and characteristics of the Ponzi scheme present in this case include:
a. Proceeds received from new investors masked as profits from running a payday loan business; PO-1 at 16, 22;
b. Promise of a high rate of return, usually between 40% to as much as 60%, on the invested funds; PO-1 at 19;
c. Debtor paid commissions to third parties who solicited new lenders, typically 10% annually of the amount received from ...