United States District Court, E.D. Washington
In Re LLS AMERICA, LLC, Debtor.
THEODORE SCHULTZ, Defendants. BRUCE P. KRIEGMAN, solely in his capacity as court-appointed Chapter 11 Trustee for LLS America, LLC, Plaintiff, Bankr. Case Nos. 09-06194-FPC11, 11-80130-FPC11
AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW
ROSANNA MALOUF PETERSON, Chief District Judge.
This consolidated action was tried before the Court on September 2, 2014. Plaintiff, Bruce P. Kriegman, the court-appointed Chapter 11 Trustee for LLS America, LLC ("Trustee"), was represented by Richard L. Mount and Samuel C. Thilo of Witherspoon Kelley. The Court hereby amends its prior Findings of Fact and Conclusions of Law, ECF No. 118, to reflect the Court's finding that all transfers to and from Defendants were in Canadian currency.
Dillon Jackson and Adam Coady of Foster Pepper appeared telephonically on behalf of Defendants Geoff Toews, Rory and Cathy Bjarnason, and CLB Holdings (collectively, "Defendants"). Foster Pepper previously moved to withdraw as counsel for all Defendants because Defendant Toews had terminated them as his counsel and because Defendants Bjarnason and CLB Holdings had ceased all communication with Foster Pepper. ECF Nos. 56, 100. The Court denied Foster Pepper's motions. ECF Nos. 80, 112. At trial, Foster Pepper explained that it attended trial in order to comply with the Court's orders but that it lacked authority to represent Defendants. Defense counsel stated that it knew of no contact from Defendants. Defendants themselves were not present at trial.
Having heard witness testimony, having reviewed the admitted exhibits, and being fully informed, the Court 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. 55. Pursuant to that Order, the courtappointed examiner, Mr. 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, including those from Foster Pepper, 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 were sometimes 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, documented by promissory notes promising interest in the range of 40% to 60% per annum. PO-1 at 7 n.2, 15.
4. Defendants are lenders who received payments from Debtor.
5. Debtor accumulated payday loan bad debts of approximately $29 million, which were written off in 2009. PO-1 at 41.
6. Debtor was never profitable at any time during its existence and, thus, at no time did it generate sufficient profits to pay the amounts due the lenders. PO-1 at 16, 53.
7. Defendants Rory and Cathy Bjarnason and Geoff Toews made loans to Debtor. P-23; P-63.
8. All Defendants received multiple payments from Debtor. P-23; P-33; P-63.
9. Dozens of the payments that Defendants received were written on checks showing Debtor's Spokane address. P-24 at 13-98; P-34 at 1-20; P-64 at 143-389.
10. Debtor voided approximately 29, 000 of the post-dated checks that it had issued to lenders, including Defendants. PO-1 at 26; P-25; P-35; P-65.
11. Defendant Toews received promissory notes that were "rolled into" or renewed into other promissory notes. P-66 at 256-57, 259.
12. Defendants Bjarnason made a number of loans without receiving any promissory note or other written documentation in return. P-26 at 12; see also P-20 at 2.
13. All of the transfers that the Trustee seeks to avoid were made within the period of September 1997 to ...