Beruflich Dokumente
Kultur Dokumente
,
'",
NO.
and in che =ight. ;::E ~.AXPH...~R.!-'..A, INC. and HAMILTON-TAFT & CO.
I
t.;;==u.gh at. leas~ :ebruary 9, 1989, and as Shareholder of
I .
PARTIes
ser:ir.g him dt: his ~rincipal place of business, located dt: 200
C=e5cen~ Courc, Suite 1300, ~allas, Texas 75201.
Detendan~, :OHN ROBER.7:S, JR. ("ROBERTS"), is an
irlcivicual residing ':'n Dallas County, ':'exas, wit.h his principal
,
PLAINTIFPS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Page 2
C.=escen':. Cour~1 Sui~e 13i'5 1 Dallas, Dallas Count.y, Texas 75201,
T2xas 75205>.
has :;'0 deSl';:1dt.ed agent: on ...... hom service of cit.at.ion may be made
Texas I and ~:-'d':. note is now due and payable in Dallas, Da.llas
::: ':.= ·.... ne['. c.:..:.e :::-::;s d ::::a=:. 0f the ::a5 is c = :.he causes c:: act. ien
:n addition, P-ADID is a
(t: \ t~E subsequenr. :ailure ':.0 exerc:'se in good fait.h and ·.... l:.~ due
indi v idual res iding in Dallas Count:y I Texas I a.nd may be served
ccr;o=at.icn duly fo~ed and existing under t.he laws of t.he Stace
i.s d c:::-::orat.ion duly for:ned and exist:.inq under ehe ~aws of t.he
Stat.e at Calif:rnla. HA~ILTON-TAFT, at: 0.1:" t.imes mdt-erial
e:e!'::: =::lance wi 'th res pec t: 'Co which ·,..,as due, in part:, in Texas;
,
PLAINTIFPS' ORIGINAL PETITION, APPLICATION FOR
Tf~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Page 5
, •• w ......--
Texas prav ided cha e the c i ca. cion and peei tion are fa rvarded to
Albert: L. ~~ay, 567 Golden Ga'Ce Avenue, San Franc isca, Cali farnia
duly fo~ed and existing under the laws of che State of Delaware.
VISION has cbtained a Cert.~ficate or Au~hority fram the Secretary
:::':'s cause. Despite the fact: thac it. was noc licensed t.o do
a: ~:'1 :.i..'Tles rna 'ter ial herein, has ango:iged :':1. bus iness in Texas,
..... _:: cause. The causes of acticn asserted arose f=om or are
._-._-- ..
". '
-._-----
cited =y serving the ~ Secret.ary of State of Texas provided that
"' 1.00 t " t.r.e as 5 et.s 0 f. t.he who 11 y-owned corpora toe subs idiary which
,
PLAINTIFFS' ORIGINAL PETITION, APPLICATION FOR
TI:MPORARY RESTRAINING ORDER, ex PARTE, APPLICATION
FOR TEMPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TROST Page 9
as sis t:ance ROBERTS acqu i red de f aCl:O vat. ing and dis position
ot P~~ILTON-TAFT by MAXP~~.
I
for each company and replace them with COSTELLO and LITCHFIELD.
20. f{A..\!ILTON-TAFT is a payroll s erv ices company whic h
busi~ess, all for t.he benefit of the interests of ROBERTS and all
¢sa
22. As a consequence of the "lao-cing" of HAMILTON-rUT at
Ci
was chen in default. Had ROBERTS repaid the amounc which ~as due
and owing, ~PHAR.MA would ha.ve been in the pes i tion to sa tis £y
~art.:es :0 ene another and the fact.s associated with the c=eacion
of cha various indebtednesses which had, as of that time, ?laced
represent to the Cour1: in chat lawsuie was (a) the nat'.Jre and
enti-ties, (b) the nature and extent to which the ac~:ons and
~~?HA~~,
for
, and (c) the fact that the management. of ~~PHARMA
MAX p H.A.R1wf~ •
J
.
26. In late December, 1988, ROBERTS represent.ed to c:he
"ouc
De fendant:s, and obtained a Temporary Restraining Order
sa tis f ied t.hrough payment. via t.he Dallas, Texas, law fir:n of
Gardere & Wynne usi~ a t.rust. fund check, the sources of ·,.rhich
held.
involved in a bankrupt.cy.
from Janua"ry, 1988, t.hrough at. leas~ February .10, 1989; ~nd,
fur~her I t.o the ext.ent. that. ROBERTS has wrong full y acquired the
Rca::R~S.
DETA1UD FACTUAL BACXGROUND
,
PLAJNTIFFS' ORIGINAL PETITION, APPLICATION POR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
POR TEMPORARY AND PERM.AHENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTRUCTIVE TRUST Page 18
payroll periods, which said sums HAMILTON-TAfT then holds in
until the time of payment and have the use of the interest earned
ex;:e!' :enced in the proper't.y and casual r.y area, CIGNA dec iced co
result
,
of discussions about. t.he operations of HAMILTON-TUT,
of ~~~ILTCN-TAFT.
~ransact.ion.
,
PLAINTIFPS' ORIGINAL PETITION, APPLICATION POR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PERXANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Page 20
40. Neither ROBERTS nor VISION were involved in any fashion
with MAXPHARHA from the time of first: contact: with BARTLETT
init.iated.
the acqu is it. io not HAMILTON -TAFT. ROBERTS did not have an
,
National Bank of Washing~an;
once it had been acquired, which said funds HAOlD would t:hen
utilize with respect to a convention projec~ in which he was
At. the time of t.he assignment., PRASAD was t.he Chief Execut.ive
acquire HAMILTON-TAFT. 1
its
. ,
rl9ht to purchase KAMILTON-TAFT.
was the president: for C&H Trucking Company, was att:empt:ing t.o
Trucking Company.
p~!L:aN-TAFT stock.
Jdnuar/, 1988, ROBERTS for 'the first: time proposed 'to HAMILTON-
opera~ing expenses.
49. On or about January 29, 1988, ~PH.ARl'f.A entered into a
,
PLAlNTIPFS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEMPORARY AND PERM.ANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Page 25
conc=olled encities and individuals, including without limitatic
COST::LLQ, had effectively purchased and acquired control 0
t~ which is as follows:
- ~ Pres ident: and CEO. Likewise, PRASAD was also the President
J
Based upon information and belief, PRASAD has still not. made
,
PLAINTIFFS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TEXPORARY AND PERKAlfENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTROCTlVE TROST Page 27
~
cash was taken from the HAMILTON-TAFT client tax truSt funds
J
PLAINTIFFS' ORIGINAL PETITION, APPLICATION FOR
~~ORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR TE.KPORARY AND PER.M.AHENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTRUCTIVE TROST Page 29
h. _11/88-12/88: $411,000.00 representing 'transfers
to M.AXPRARMA for operating expenses. The fallowing
o~era~ing expenses:
i. 11/9 - 535,000.00;
51, sup ra, were all uns ec ured fund t ra ns f ers made from the
LAWSUITS
53. On September 13, 1988, ~FH.AR.."!.A, INC. brought suit in
default;
a. Tha t ROBERTS and VIS ION had breached t.heir : iduc iary
d u -c y not ~ a dis pro po r t: ion ate 1 y pro fit f ra m the
rnjunct:ion.
54' . On J anua.ry 19, 1989, a hear ing was he ld on the reques t:
with t.he Counterclaim filed, at. the conclusion of which the Court:
J
P~NTIPFS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
POR TEMPORARY AND PERMANENT INJUNCTION, AND
APPLICATION POR IMPOSITION OF CONSTRUCTIVE TRUST Page 33
ent.ered an Ord-er that. the request: of VISION and ROBERTS for
respect:
,
P~NTIFFS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RESTRAINING ORDER, EX PARTE, APPLICATION
FOR nKPORARY AND PERMANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OF CONSTRUCTIVE TRUST Page 34
security int:eresT:. and lien upon all the shares of Common
HAMILTON-TAFT s~ock;
expenses;
the same as the claim assert.ed and t:he relief requested in the
,
PLAINTIFFS' ORIGINAL PETITION, APPLICATION FOR
TEMPORARY RES~NING ORDER, ~X PARTE, APPLICATION
FOR nMPORARY AND PER.MANENT INJUNCTION, AND
APPLICATION FOR IMPOSITION OP CONSTRUCTIVE TRUST Page 35
pending MONTAGUE SUIT and that I by virtue of the foregoing I the
Couney case.
DIveSTMENT OF HAMILTON-TAn STOCX
TO CR ACQOISITIONS, INC.
aTTELL (the sec retary for ROBERTS) I who is also the Reg ist.ered
details of ·.... h:cn are not. ~resent.ly f'..llly i<nown, t.he ceri:ificat:.es
S u bSl" d'a
.l ry of E·Jl"ng
.... 01"1 , ::::lnd
g has been provl'ding subscantial
. ~ . -. -1-----'-- .. 4
financial sypporc and sustenance co ROBERTS (i.e., Nkeeping
ROBERTS a1 i ve ") for a period 0 fat. leas T;. t.wo (2) man t:.hs prior co
Rosenberg;
b. VISION, CR ACQUISITIONS, ~JL~ILTON-TAFT, ~p~~,
operations of HAMILTON-TAFT:
~~erations of ~~~!LTON-TAFT;
TAFT r had been wi th the company for more than ten (10) years,
as c: Januar/, 198B.
would pay any penalties which ar~se from the failure to properly
fir:n and (C) was suffering from drug problems attendant. t.o
honored.
ROBERTS
Standing of
Cor:Joration Name Affiliation Cornoration
Standing of
Corcoration Name Affiliation Cor;Joration
HT Holdings, Inc. Registered ActiV'e -
Agenc Good Standing
KV Holdings, Inc. Reqistered Active -
Agent: Good Standing
Standing of
C =:: ::-:: c rat i c n Name Af:':'liation Comara cion
~.AX:~V.A, INC. Registered Activ'e -
Agent In goad standing
HRC Consultant.s, Inc. President Inactive as of.
1/09/89 due to
non-payment of
franchise tax
PRASAD
Standing of
Cc:-::oration Name Aff:'liation Coroorat.ion
P.S.P. Investment
Co., Inc. President Active I
good st.anding
i2. On Februa ~
AS INJUNCTION MONITOR
16, 1989 ,
,
BARTLETT adv is ed ARMSTRONG tha t
BAR.'!'LETT •.... ould be willing to serve as a Court-appointed monitor
concerning the operations of HAMILTON-TAET in accordance with the
III.
COUNT ONE
cor,s equence 0 f the means and manner in which the conduc,: 0 f t.he
th':'s sui t, ~PHA.R."!A· ~as the parent. corporation and sole owner 0 f
aut.l l..:led scheme and artifice to dis s ipa te and ....,as te the capi tal
h is alter ego, caused MAXPH.A.RM.A to loan VIS ION the tot.al amount.
indebt.edness.
Note was nOT: been paid; and on infonnation and belief, despite
the fac:. that HAD I 0 was in default under the terms of the Note,
thereon from March 23, 1988, remains due and oWing, although
as ar~i~ulated hereinabove.
caused the indebtedness due and owing on the FIRST ROSENBErtG NOTE
to be discharged in such a fashion as to result in the 2,059,000
relieved from any requirement:, to have t.his sui t brought for the
less t~an fair markel: value, breaches 0 f f iduc iary duties, and
·.Talueless.
specificity.
COUNT TWO
including 72.
94. Due to t~e incorporation cf ~~PHARMA in Tennessee, and
parent corporation.
upon them as preser ibed by Tenne!!see Cede A1lnota ted S48 -18-30 1,
~P?'-AJU4'..A but did not: exercise t:-tei..~ cuties in good faith; nor
shareho Ider or 0 f': icers had a rna ter ial financial interest:. The
duties included, but. are not limited to, the dut.y to act in good
CHRISTIANA, ROBERTS, and HAD! 0_ -were not'. disc losed or knoown t.o t.he
COUNT THREE
Consoiracy
COUNT FOUR
Fraud
including 106.
c::::1cea led their actions, thereby inducing and caus ing the
the C-:::.l!'~.
or::er ta cons ider the sale, lease, exchange or ot.her dispas i tion
C::ce Annot.at.ed.
comrr PIVE
Plaintiffs' Entitlement to Injunctive Relief
~13. Pursuant to Tex.R.Civ.P. 58, ~~TRONG incorporates and
incl.uding 112.
114. Plaintiffs would show t.hat Defendants have entered into
the :allowing:
ACCOUNT for any purpose other ~han the payment of client tax
matters, including without limitation in re~pect thereto the
Pe~anent Injunction;
Plaincif:s;
the Cour'C.
8. Costs of suit;
be justly entitled.
Respec~fully submitted.
I~~~\ill.l--
By:
~~
DAVID N. EVERETT
Bar Card No. 06745:00
JOHN C. BUSH
Bar Card No. 034962~O
3300 NCNB Plaza
901 Main Street
Oallas, Texas 75202-]714
(214) 939-4400
STATE OF TEXAS S
S
COUNTY OF DALLAS §
duly sworn on his oath deposed and said that he is over the age
this Petition are within his personal knowledge and are true and
correct. ·1
" ,
/ ."
,/ I , I
/ ~ ."~ , '-- -6' .. ...t::".
eONNIE C. ARMSTRONG.
//
~y C~mmis5ion Expires:
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CASE SUMMARY
PROCEDURAL POSTURE:
OVERVlEW:
OUTCOME:
CORE TERMS:
LexisNexislRI Headnotes
COUNSEL:
JUDGES:
OPINION BY:
OPINION:
In re HAMILTON TAFT & COMPANY, Debtor. FREDERICK S. WYLE, Trustee of Hamilton Taft & Company, Plaintiff, VS.
HOWARD, WElL, LABOUISSE, FRIEDRICHS INCORPORATED, a Louisiana corporation; HOWARD WElL FINANCIAL
CORPORATION, a Louisiana corporation; and LEGG MASON, INC., a Maryland corporation, Defendants.
176 B.R. 895; 1995 Bankr. LEXIS 45; 32 Collier Bankr. Cas. 2d (MB) 1727; 26 Bankr. Ct. Dec. 665; 32 Oil & Gas Rep. 1727
CASE SUMMARY
PROCEDURAL POSTURE: Chapte~ II bankruptcy trustee brought an aC1:ion to recover, a! a fraudulent conveyance, transfer! mad" by
defendant pursuant t.o a reverse repurchase agreement used to facilitate Co leverag~d buy cut under 11 U.S_C.S, § 546{e:.
OVERVlew; Chapter 11 ban~rup[cy tru~~ee brought an aCLion to recover. es c fraudulent conveyance [ransf~r~ mad~ by defendant
j
pursuan~ (~ C reverse r~purcha5~ cgreement used to tacjli~ate leveraged bUyou!. The ~ourt held that the Ban~rup[cy Cede ICodel,
l' U.S.C.S. § 546lel, prevented t.ruste~ trom recm,oerin9 such transfers. ThE: transaction in which debt.or sold a trea'!;ury bill to
defendant u!te~ agreeing LO repurchase the bi11 came within the broad definition of settlement payment under ~ht Cooe, 11 U.S.C.S.§
546(e!, defining settj.ernent payment as an}' transfer of cash or secu=it.ies c:ompletinQ G securitie.s tI"ansactlon. Fur-t.hern,ore, even
:if defendant knew that transactiofl was pert of C: leverogeri buyout~ the transact:ion could not. be recovered c!: g fraudulent
transfer because th~ (Dd~, § ~46(e)f barred recover, of settlement payments more [han one year pre-petition irrespective of
':Jefendant"'s mental sr,atf"!. The co~rt a150 hf!ld that the Cod~, 11 U.S.C.S. §544(bl , deprived trustee of ~tanjing :;0 assert ~ clainl for
aiding end cbetting a fraudulent transfer.
OUTCOMe: The Bankruptcy Code barred trustee's fraudulent transfer action. The transaction ~here debto~ sold defendant a treasury
bill after ilgceeln9 Co repurchasl:' th~ bill came wit.hit; the Bankrupr.q.' Cooe'!; definit.1on of sett]em~nt pa}"ment. Even If d~fendant
Knew that ~n~ ~ransactio" wa~ ~art of Q ie~eraged buyout, no reccvery was possible b~cause the Bankruptcy Cede barred se~tlemenl
pa~~ent recovery one year po~:-petition.
CORE TERMS: repo, settlement payment, stockbroker, commodity, broker, aiding and abetting, shareholder, transferred,
settlement, fraudulent conveyance, summary judgment, handling, fraudulent transfer, stock, forward contract, clearing,
merchant, reverse repurchase agreement, repurchase agreement, present action, prepetition, undisputed. repurchase. buy.
dealer, chain, legislative history, cause of action, insolvent, defraud
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
HN2 See the Bankruptcr Code. 11 U.S.C.S, § 546 (e) .
±
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
HN3 Congress enacted Bankruptcy Code, 11 U,S.C.S. § 546 (e). to protect thl;< nau.on' 5 financial markets from the instability caused by
± the reversal of settled securitles transact lOriS .
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
HN4 Repos and Reverse Repos are securities transactions covered by Bankruptcy Code. 11 U.S.C.S § 546 (e) .
!
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
HN51n a Repo arrangement, the dealer sell~ specified 5ecuritle~ to =
purchaser, but also agrees to repurchase the securi~ies
+ later at the original price, plus an agreed upon additional amount usually representing interest on the original pu~chase
~ price. A Reverse Repo basically is the reverse: the dealer buys securIties and agrees to resell the securities to the seller
in the future. Reverse Repos can function as a loan. The seller receives cash for the securities, but must repurchase the
securities in the future at the same price. Thus. the securities sold to the dealer can be viewed as being colla~eral far a
loan.
Bankruptcy LaW> Case Administration> Examiners. Officers & Trustees> Limitations on Trustee's Power
HN6 Whether a transaction is a Repo or Reverse Repo covered under BanJ:ruptcy Code, 11 U.S.C.S. § 546 Ie l, is HI be governed by an
± objective test.
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
HN7 Severa 1 courts have also held tha t Bankruptcy Code, 11 V.S.C_S. § 546 (e ~, cover~ unusual as well as rou tine securities
± t ransa C"tions.
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Umitations on Trustee's Power
HNBThe Bankruptcy Code, 11 U.S.C.S.&546(e), does not caver only Repcs and Reverse Repos; it covers all types of secu::-ities
± transactions. The Bankruptcy Code, 11 U.S.C.S. § 546 (e), includes ;: transfer of securities that completes any securities
t ransa etion.
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
Bankruptcy Law> Liquidations> Clearing Banks, Commodity Brokers & Stockbrokers
HN9 See the BanKruptcy Code, 11 U.S.C.S. § 741 (8) .
±
Bankruptcy Law> Case Administration> Examiners. Officers & Trustees> Limitations on Trustee's Power
HN20A settlemen~ payment clearly includes a transfer of securities that completes a securities trans3ctlOr..
±
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
HN21Settlement payment includes any transfer of cash or securities toward completion of a securities transaction.
±
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
HN12 See the Sankruptq Code. 11 U.S.C.S. § 546 (f1 .
±
Bankruptcy Law> Case Administration> Commencement> General Overview
HN13 See the Eankruptcy Code, 11 U.S.C.S. § 101 (4Ill.
±
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Limitations on Trustee's Power
HN14Thf' Bankruptcy Code ICode), 11U.S.C.S §546(f), wa!O int.ended to supplement rather than narrow Code, 11U.S.C,S.§546Ie), and a
± defendont thc;!. qualifies under Code, 11U.S,C.S.§546(el, as i":. 5toc~.broker need not quality under Cede, 11U.S,C.S.G546(fl. as a
repc participant.
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Fraudulent Transfers> Constructively Fraudulent
Transfers
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Fraudulent Transfers> Elements
Bankruptcy Law> Case Administration> Examiners, Officers & Trustees> Fraudulent Transfers'> Intent
HU15Thf' Bankruptcy Code, 11 U_S.C.S, § 546 (e}, cont.ains c; limite~ el".cep~ion fo:- cases lnvolv.lnr;Y actual fraUd. Ttl", st.atute does nDt
.., b"r actious brOl:aht under the Bankruptcy Code, 11 U.S.C.S, § 548 (a) {i I, which allows", trustee tu recover c transfer mad(; wi thH,
~, Dne year before the petitlon :late with actual intent to hInder, delaj'. or defraud cre::iitc's. The Ban!;ruptq' Code, 11 U.S.C.S. §
546 (e), does ba::::- actions brought under the Bankruptcy Code, "U.S.C S. § 544 (using state fraudulent com/eyance statutes) ttl
reccve:- transfers made mere that; cn(! year prepetitiClJ ...itr, actucl int~nt tt: hinde:, delay, Dr :Jt'fraud cn:dirors.
COUNSEL: [-1] J. Michael Kelly, Esq., COOLEY GODWARD CASTRO, San Francisco, CA, OF COUNSEL.
Thomas K. Potter, Ill. Esq., JONES, WALKER, WAECHTER, POITEVENT, CARRERE & DENEGRE, New Orleans, LA,
Counsel for Defendants, Howard, Weil, LaBouisse, Friedrichs Incorporated; Howard WeiI Financial Corporation; and Legg
Mason, Inc.
L.J. Chris Martiniak, Esq., FELDMAN, WALDMAN & KLINE, San Francisco, CA, Counsel for Plaintiff, Frederick S. Wyle,
Trustee.
The principal question in this case is whether section 546(e) of the Bankruptcy Code bars a trustee from recovering as a
fraudulent conveyance transfers made by a stockbroker pursuant to a reverse repurchase agreement used to facilitate a
leveraged buyout. I conclude that there are no genuine issues of material fact and that section 546(e) bars trustee's action,
and therefore grant summary judgment for defendant.
FACTS
The material facts are not in dispute. On December 3D, 1987, MaxPhanna, Inc. paid Connecticut General Corporation
(CIGNA) $ 500,000 for an option entitling it to purchase stock of Debtor Hamilton Taft & Company [....2] (Debtor) from
CIGNA for $ 4,100,000. MaxPharma could exercise the option only through January 29,1988. The $ 500,000 option price
was applicable to the purchase price, but was otherwise non-refundable. MaxPharma was unable to find a lender willing to
arrange financing through a "stock loan," whereby Debtor's stock would be used as collateral to secure the loan. Defendant
Howard, Weil, Labouisse, Friedrichs Incorporated (Defendant) informed MaxPharma that it did not make "stock loans," but
could lend money with a treasury hill as security by performing a reverse repurchase transaction.
On January 28, 1988, Debtor wired $ 5.0 million to Defendant. On January 29, 1988, Defendant used approximately $ 4.9
million of those funds to purchase for Debtor a gO-day T-Bill having a face value of $ 5.0 million. On the same day, Debtor
sold the T-Bill back to Defendant for $ 4.1 million, subject to a reverse repurchase agreement, under which Debtor agreed to
repurchase the T-Sill in 90 days for the sale price plus interest.
What happened to the $ 4.1 million is contested by the parties. Debtor's chapter 11 trustee (Trustee) contends that the $ 4.1
million was transferred directly to MaxPharrna immediately [**3] upon sale of the T-Bill. Defendant claims that it credited
Debtor's account for $ 4.1 million, and that those funds were subsequently wired to MaxPharma. For the purpose of the
present motion, I accept Trustee's version of the facts. It is undisputed that Debtor transferred the funds to MaxPharma at
the request of Debtor and that MaxPharma used $ 3.6 million to purchase Debtor's stock from CIGNA.
When the 90-day repurchase agreement matured, Debtor rolled over its obligation into new T-Bills and later into T-Notes. In
January 1989, Debtor directed Defendant to sell the T-Notes and apply the proceeds to satisfy uebtor's obligation under the
reverse repurchase agreement.
Creditors filed an involuntary chapter 11 petition against Debtor on March 20, 1992. Trustee was appointed on March 26.
1992. An order for relief was entered on May 31,1992. Trustee filed the present action on March 26, 1993. ~e
contends that the transaction involving Debtor. Defendant, and MaxPharrna was in substance a leveraged buyout (LBO), in
which MaxPharma used Debtor's funds to_purchase CIGNA's stock in Debtor. Trustee further contends that the transaction
rendered Debtor insolvent-and that the LBO therefore r4] constituted a fraudulent conveyance. In the present action,
Trustee seeks to recover, pursuant to California Civil Code sections 3439.04 and 3439.05 and Bankruptcy Code section
544, the value of the $ 5.0 million T-Bill transferred from Debtor to Defendant on January 29, 1988, or the $ 4.1 million
proceeds of the sale of that T-Bill that were transferred from Defendant to MaxPharma the same [*'898] day. n1 Trustee and
Defendant filed cross motions for summary judgment.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n1 Trustee previously filed a similar action against CIGNA. That action was settled by the parties before trial.
- - - - - . - - - - - - End Footnotes- - - - - - - - - - - - - •
DISCUSSION
HNl+"Summary judgment is properly granted when there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law." Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau. Inc.. 690 F.2d 1240.1250
(9th Cir. 1982), cert. denied, 459 U.S. 1227. 75 L. Ed. 2d 468. 103 S. Ct. 1234 (1983). [....5]
II
Defendant contends that Trustee's action is barred under section 546(e) of the Bankruptcy Code. That section provides:
HNZ.notwithstanding sections 544, 545, 547, 548(a}(2), and 548(b) of this title, the trustee may not avoid a
transfer that is a margin payment, as defined in section 101(34),741(5), or 761(15) of this title, or settlement
payment, as defined in section 101(35) or 741(8) of this title, made by or to a commodity broker, forward contract
merchant. stockbroker, finanCial fnstitution, or securities clearing agency, that is made before the commencement
of the case, except under section 548(a)(1) of this title.
11 U.S.C. § 546(e). HN3'tCongress enacted section 546(e) "to protect the nation's financial markets from the instability
caused by the reversal of settled securities transactions." Kaiser Steel Resources. Inc. v. Jacobs. 110 BankL 514, 522 (D.
Colo. 1990). affd, 913 F.2d 846 (10th CiL 1990) (citation omitted). Trustee does not contest many of the elements of the
section 546(e) defense: that Defendant is a stockbroker, that the [**6] T-Bill transferred was a security, and that the present
action is brought under section 544. Trustee contends that section 546(e) does not apply. however, because: (i) the
transaction was not a true repurchase agreement (Repo). (ii) the transfer of the T-Bill to Defendant was not a "settlement
payment," (iii) the present transaction is governed by section 546(f}. and (iv) section 546(e) should not be applied to LBOs.
Defendant characterizes its transaction with Debtor as a reverse repurchase agreement (Reverse Repo). HN~The Ninth
Circuit has held that Repos and Reverse Repos are securities transactions covered by section 546(e). In re Comark. 971
F.2d 322. 325 (9th Cir. 1992) (Comark I); In re Comark. 145 Bankr. 47, 52-53 (Bankr. 9th Cir. 1992) (Comar\< II). HNS'tThe
Ninth Circuit has described the characteristics of Repos and Reverse Repos as follows.
In a Repo arrangement, the dealer sells specified securities to a purchaser, but also agrees to repurchase the
securities later at the original price, plus an agreed upon additional amount usually representing interest on the
original [**7] purchase price. A Reverse Repo basically is the reverse: the dealer buys securities and agrees to
resell the securities to the seller in the future. Reverse Repos can function as a loan. The seller receives cash for
the securities, 'but must repurchase the securities in the future at the same price. Thus. the securities "sold" to the
dealer can be viewed as being collateral for a loan.
Trustee contends that the transaction between Defendant and Debtor was not a true Reverse Repo, but rather was a sham
used to conceaTthe fact that Debtor's funt~s were being used to fund an LBO. Trustee notes that Debtor used $ 5.0 rnlmon
cash-tobuya-T-=Biil,-the'r;Tmmedialely sold the T-Bill subject to the Reverse Repo, leaving itself essentially in the place it
started. Because there was no net borrowing of funds, which is the essential characteristic of a Reverse Repo, Trustee
argues, the transaction is not entitled to protection under section 546(e). This argument is unpersuasive.
[*899] First, the transaction constituted a Reverse Repo in the objective sense. [-8) Debtor sold a T-Bill to Defendant and
agreed to repurchase it again later for the sale price plus interest. HN6f:Whether a transaction is a Repo or Reverse Repo
covered under section 546(e) is to be governed by an objective test. See Comark II, 145 Bankr. at 53. Courts have noted
that there are several varieties of genuine Repo transactions. See Bevill, Bresler & Schulman Asset Management Corp. v.
Spencer Sav. & Loan Ass'n, 878 F.2d 742,746 (3rd Cir. 1989); Comark II, 145 Bankr. at 50 n.6. HN7+Several courts have
also held that section 546(e) covers unusual as well as routine securities transactions. See Comark I. 971 F.2d at 326;
Kaiser Steel Corp. V. Charles Schwab & Co.! Inc.! 913 F.2d 846.849 n.6 (10th Cir. 1990) (Kaiser I); In re Kaiser Steel Corp.!
952 F.2d 1230. 1238-40 (10th CiL 1990), cert. denied, 120 L. Ed. 2d 887,112 S. Ct. 3015 (1992) (Kaiser II).
Second, whether or not it was a conventional Reverse Repo, the transaction between Defendant and Debtor [-9] was
clearly a securities transaction. Section 546(e) HNBidoes not cover only Repos and Reverse Repos; it covers all types of
securities transactions. "Section 546(e) ... includes a transfer of securities that completes any securities transaction."
Comark 1/, 145 Bankr. at 52. The transaction between Debtor and Defendant in substance reduces to the following. Debtor
purchased a T-Bill from Defendant then sold it back to Defendant. Whatever else it was, this transaction was a transfer of
securities. See Kaiser II. 952 F.2d at 1239-40 (transfer of securities that is part of LBO is a securities transaction covered by
section 546(e».
Trustee argues that the transfers involving Defendant are not protected under section 546(e) because they do not constitute
settlement payments. "Settlement payment" is defined in section 741 (8) of the Bankruptcy Code.
HN9+"Settlement payment" means a preliminary settlement payment, a partial settlement payment, an interim
settlement payment, a settlement payment on account.. a final settlement payment, or any other similar payment
commonly used in L*10] the securities trade.
11 U.S.C. § 741(8). The Ninth Circuit has construed the term very broadly.
HN1C1'tWe now join with the Third and Tenth Circuits and broadly define the term settlement payment. A
settlement payment clearly includes a transfer of securities that completes a securities transaction.
Comark I. 971 F.2d at 326 (citation omitted). Accord Comark II. 145 Bankr. at 52.
~--- ~ ---
Trustee first.. argues that the initial transfer of the T-Bill to Defendant
-".,~. .
was not a,.- settlement
~ ~ - - ,._- --- .- payment
'" ,-'"
because
.-
-~ ~... '""
it did not
. ,.... ..
_-~ ~;_._~~
complete the Reverse Repo. ~his argument ,is whollY. une~~..!!.~~tve. The clear thrust of both Comark I and Comark II is that
HN11 "settlement payment" includes any tr~nsfer of cash or securities toward completion of a securities transaction. See
t
Comark I, 971 F.2d at 326; Comark II. 145 Bankr. at 52. To hold that section 546(e) does not apply to the initial transfer of
securities to a broker handling a Reverse Repo would eviscerate section 546(e) and frustrate Congress's intent in enacting
it, by leaving the broker open to suit [-11J for doing nothing more than handling a securities transaction for the debtor. n2
- - - - - - - - - - ~ - - - Footnotes - - - - - - - - - - - - - - -
n2 Trustee contends that Defendant's expert witness testmed that the initial transfer of the T-Bill to Defendant was not a
settlement payment. This argument fails for two reasons. First, the relevant historical facts are undisputed. The application
of section 546(e) to those facts is question of law, not a question of fact subject to expert testimony. See Comark l. 971 F.2d
at 324-25. Second, Trustee mischaracterizes the testimony of Defendant's expert, Dr. Marcia L. Stigum. Dr. Stigum's
testimony, taken as a whole, supports a finding that the initial transfer of the T-Bill was a settlement payment. Plaintiff failed
to submit affidavits controverting that testimony.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Trustee next ar~~ that the transfer to MaxPhanna of the $ 4.1 million proceeds of the sale of the T-Bill was not a
~~~.~~Y..m~!!.t~~~.Y§~ ~t,-e..p~y.mW~-'J9l rn~cte.!qJ:)~btor, the other party to the Reverse Repo. infS"argument is
frivolous. [-12].!!.l.s ["'gOO] ~ndisput~~t!l_a!!b~.BJ.n.d.~we[e transferred to Ma,xPharma at th~.,d_i[e~_oru~f Q~~~or. In directing
payment of the sale proceeds f()""MaxPharmai-Qebtor e~~rt~d dominion ()Y~f th~.f!Jnqs ~nd used th~m fqr,~.s. o~ pu.r~,q!;~,s.
Thus, from the viewpoint of Defendant, payment to MaxPharma constituted payment to Defendant, and fulfilled De/en'dant's
obligation under the first leg of ttie Reverse Repo. n3
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n3 Trustee's separate statement of undisputed facts asserts that Debtor's instructions to Defendant to transfer the proceeds
to MaxPharma were not property authorized by Debtors board and were therefore ultra vires. The facts asserted by Trustee
dearly establish that the instructions were made with at least apparent authority, and that Debtor implicitly ratified the
transaction after the fact. Moreover, Trustee raise no ultra vires argument in the memoranda filed in support of his motion for
summaI)' judgment or in opposition to Defendant's motion for summary judgment.
~ - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
HN12+notwithstanding sections 544, 545, 547, 548(a)(2), and 54B(b) of this title, the trustee may not avoid a
transfer that is a margin payment, as defined in section 741 (5) or 761 (15) of this title, or settlement payment, as
defined in section 741 (8) of this title, made by or to a repo participant, in connection with a repurchase agreement
and that is made before the commencement of the case, except under section 548(a)(1) of this title.
HN1~"repo participant" means an entity that, on any day during the period beginning 90 days before the date of
the filing of the petition, has an outstanding repurchase agreement with the debtor;
11 U.S.C. § 101(46).
Trustee argues that section 546(f) governs, because it is the more specific statute, expressly addressing Repo transactions.
Trustee argues that Defendant is not protected under section 546(f) , because any Reverse Repo transaction between [-14]
Defendant and Debtor closed more than 90 days prepetition, and Defendant is therefore not a "repo participant" under
section 101 (46).
Both the statutory language and legislative history indicate that section 546(f) was intended to address Repo transactions
not already covered by section 546(e) rather than to narrow the application of 546(e). Section 546(e) protects only a
"commodity broker, forward contract merchant, stockbroker, financial institution. or seculities clearing agency." Section
546(f) protects additional participants in certain Repo transactions. The legislative history to section 546(1) states in relevant
part:
the proposed amendments are intended to afford participants in the repo market the same treatment with respect
to the stay and avoidance provisions of the Code that Public Law 97-222 explicitly provided stockbrokers,
securities dearing agencies, commodity brokers and forward contract merchants in connection with securities
contracts, commodity contracts and forward contracts.
S. Rep. No. 65, 98th Cong., 1st Sess. 45, 49 (1983). The same legislalive history states dearly that section 546(e) continues
to protect stockbrokers engaged in Repo transactions. [**15]
These amendments are not intended, however, to affect the status of repos Involving securities or involving
commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for
similar treatment under other provisions of the Code, such as the provisions giving protection to stockbrokers,
securities clearing agencies, commodity brokers, and forward contract merchants for liquidation and setoff in
respect of securities contracts, commodity contracts or forward contracts.
Id. See also Comark II. 145 Bankr. at 52-53. In summary, section 546(f) HN1~twas intended to supplement rather than
narrow section 546(e), and a defendant that qualifies under 546(e) as a stockbroker need not qualify under section 546(f) as
a repo participant.
Trustee argues that 546(e) should not be interpreted to protect a stockbroker involved in a securities transaction that
implements an LBO, relying on Lippi v. City Bank, 955 F.2d 599 (9th Cir. 1992), Kendall v. Sorani. 151 Bankr. 1012 (Bankr.
N.D. Cal. 1993), and Wieboldt Stores Inc. v. Schottenstein, 131 Bankr. 655 (N.D. Ill. 1991). [-16] Trustee contends that
this LBO exception to section 546(e) applies with special force in the present case, because Defendant knew Debtor was
rendered insolvenl by the transaction. Trustee's argument is not supported by the authorities cited.
Trustee's reliance on Wieboldt is misplaced. That case held that section 546(e) did not preclUde a fraudulent conveyance
action against shareholders whose shares were purchased in an LBO. In the present action, Trustee seeks recovery not
from former shareholders, but from a stockbroker that transferred certain securities as a part of the LBO. The Wieboldt court
carefully noted that its holding did not leave the stockbroker handling the LBO open to suit. The court acknowledged that the
purpose of section 546(e) was to protect brokerage finns, and then stated:
in the instant case, however, requiring the [shareholders] to return to the Trustee payments they received ...
poses no significant threat to those in the clearance and settlement chain.
Wieboldt. 131 Bankr. at 664 (footnote omitted). The court also quoted with approval the following excerpt from the law
review article it had preViously cited [-17] in holding that section 546(e) does not protect selling shareholders,
"Neither the system of guarantees nor the solvency of participants in the chain is threatened by a legal order in
which payments to the shareholders by their brokers are subject to recovery by a trustee in bankruptcy. Thus,
while the flows of funds to and between financial intermediaries in the clearance and settlement chain must be
protected in order to insure the stability of those systems. funds flowing from the intermediaries to the
shareholders do not require protection, and section 546(e) should therefore not apply."
[d. at 664 n.11 (quoting Neil M. Garfinkel, Note, No Way Out: Section 546(e) Is No Escape for the Public Shareholder of a
Failed LBO, 1991 Colum. Bus. L. Rev. 51. 61-63).
The Tenth Circuit has held that there is no LBO exception to section 546(e). That court has applied section 546(e) to bar
recovery both from the brokerage handling the transfer of shares in an LBO, see Kaiser I, and from the selling shareholders,
see Kaiser II. The court noted that the plain language of section 546(e) covers LBOs as well as more conventional securities
transactions {-181 and reasoned flit would be an act of judicial legislation to establish such a limitation." Kaiser to 913 F.2d
at 850.
In short, only Wieboldt supports any LBO exception to section 546(e), but even that case does not permit an action against
the stockbroker handling the securities transactions involved in the LBO.
Trustee's reliance on Lippi and Kendall is equally misplaced. In each of those cases, the plaintiff sought recovery from the
bank that financed the LBO. In neither case did section 546(e) even arguably apply, and neither opinion mentions that
statute.
Finally, assuming arguendo that Defendant knew the Reverse Repo was part of an LBO and that the LBO rendered Debtor
insolvent, such knowledge does not bar application of section 546(e). Section 546(e) HNlstcontains a limned exception for
cases involving actual fraud. The statute does not bar actions brought under section 548(a)(1) of the Bankruptcy Code,
which allows a trustee to recover a transfer made within one year before the petition date with actual intent to hinder, delay,
or defraud creditors. Section 546(e) does bar actions brought under section 544 (using state fraudulent conveyance [-19]
statutes) to recover transfers made more than one year prepetition with actual intent to hinder, delay, or defraUd creditors.
Thus, it is clear Congress intended to prohibit recovery of "settlement payments" received by stockbrokers- mare than one
year prepetition, irrespective of the stockbroker's mental state. Because the transfers at issue here [-902) occurred more
than one year prepetition and Trustee's action is brought under section 544, Defendant's knOWledge about the LBO and its
effect on Debtor is irrelevant.
lit
Trustee asserts that even if his action to avoid the transfers to Defendant are barred by section 546(e), he may recover
damages from Defendant under state law on the theory that Defendant aided and abetted the fraudulent LBO. Trustee
argues that liability for damages for aiding and abetting a fraudulent transfer is not barred by section 546(e). Defendant
argues that Trustee's aiding and abetting theory fails because: (i) Trustee failed to plead it as a separate claim for relief; (ii)
no such cause of action exists under California law; (iii) Trustee lacks standing to assert such a cause of action; and Ov) any
such cause of action is barred by [**20] section 546(e). I determine that the Trustee lacks standing to assert the aiding and
abetting daim.
a debtor to
HNl GtCalifomia courts permit a creditor to recover civil damages from those who conspire to transfer property of
hinder, delay, or defraud creditors. See Taylorv. S & M Lamp Co., 190 Cal. Apo. 2d 700,706.12 Cal. Rptr. 323 (1961);
Hickson v. Thielman, 147 Cal. APD' 2d 11,15,304 P.2d 122 (1956). HN1JtAdebtor's bank~_to.:mJ~e,b.owever, is not
authorized to pursue every action that creditors of the debtor might pursue. Cf. In re Ozark Restaurant Eguipmenr-C-o~:-liic..
816 F.2d 1222~12i6~31r'{8th Cli-:),>cert.aeniea~-484U.S: 84B"n987):A1rustee's only authority to assert creditors state-law
causes of action related to fraudulent conveyances is found in section 544(b) of the Bankruptcy Code. n4 That section only
permits the trustee to avoid a fraudulent transfer.
HN1BtThe trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the
debtor that is voidable under applicable I~11 law by a creditor holding an unsecured claim that is allowable under
502 of this title or that is not allowable only under section 502(e) oflhis title.
11 U.S.C. § 544(b) (emphasis added). The Ninth Circuit has squarely held that HlVl9fa trustee's power to avoid fraudulent
transfers does not enable a trustee to recover damages for aiding and abetting a fraudulent transfer.
- - - - - - - - - - - - - - Footn otes - - - - - - - - - - - - - - -
n4 Section 548 of the Bankruptcy Code creates a federal cause of action for recovery of a fraudulent conveyance. Trustee
cannot use section 548, however, because that statute only permits avoidance of transfers made within one year of the
petition date. It is undisputed that all transfers to Defendant occurred more than one year before the bankruptcy petition was
filed.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
The Act carefully speaks of conveyances of property as being "null and void," and authorizes suit by the trustee to
"reclaim and recover such property or collect its value." The actions legislated against are not "prohibited"; those
persons [~2] whose actions are rendered "null and void" are not made "liable"; and terms such as "damages"
are not used. The legislative theory is cancellation, not the creation of liability for the consequences of a wrongful
act.
Elliott v. Glushon. 390 F.2d 514, 516 (9th Cir. 1967) (footnote omitted).
In short. Trustee's only authority to bring slate-law claims of creditor's is section 544(b) , and section 544(b) does not
authorize Trustee to assert a claim for aiding and abetting a fraudulent transfer.
CONCLUSION
Bankruptcy Code section 546(e)-bars Trustee's fraudulent transfer action against Defendant Trustee lacks standing to sue
Defendant for aiding and abetting a fraudulent conveyance. Accordingly, I grant summary judgment in favor of Defendant.
Date: 1-18-95
Thomas E. Carlson
.n
Direct History
re Hamilton Taft &. Co., 176 B.R. 895, 32 Collier Bankr.Cas.2d 1727, 26 Bankr.Ct.Dec. 665
(Bankr.N.D.Cal. Jan 19, 1995) (NO. 91-3-1077-TC, 93-3-121-TC)
Affirmed by
H In re Hamilton Taft & Co., 196 B.R. 532 (N.D.Cal. Oct 12, 1995) (NO. C 95-1612-51)
Judgment Affirmed by
PIn re Hamilton Taft & Co., 114 F.3d 991, 30 Bankr.Ct.Dec. 1236, Bankr. L. Rep. P 77,405, 97 Cal. Daily
Op. Servo 4410, 97 Daily Journal D.A.R. 7369 (9th Cir.(Cal.) Jun 11, 1997) (NO. 95-17058)
Court Documents
Appellate Court Documents (U.S.A.)
I of 1 9/14/2006 10:5 J AM
K.eyClte KeSUll
.1.* * *: Discussed
In re Hamilton Taft & Co., 114 F.3d 991, 992+, 30 Bankr.Ct.Dec. 1236, 1236+, Bankr. L. Rep. P
77,405, 77405+, 97 Cal. Daily Op. Servo 4410,4410+,97 Daily Journal DAR. 7369, 7369+ (9th
Cir.(Cal.) Jun 11, 1997) (NO. 95-17058) " HN: 1,2,4 (B.R.)
** Cited
P 2. In re Gandy, 299 F.3d 489, 496, 48 Collier Bankr.Cas.2d 895, 895, Bankr. L. Rep. P 78,709, 78709
(5th Cir.(Tex.) Jul 22, 2002) (NO. 02-50185)
3. In re Mark Industries, Inc., 110 F.3d 69, 69 (9th Cir.(Cal.) Mar 20, 1997) (Table, text in WESTLAW,-NO.
95-55712)
P4. Forum Ins. CO. V. Devere Ltd., 151 F.Supp.2d 1145, 1149 (C.D.Cal. Jan 02, 2001) (NO. CV 97-9386
NM RCX) HN: 8 (B.R.)
P 5. In re Hechinger Investment Co. of Delaware, 274 B.R. 71, 98 (D.Del. Feb 20, 2002) (NO. 99-2283,
CIV.A.OO-840-RRM) " HN: 5 (B.R.)
H 6. In re National Forge Co., 344 B.R. 340, 371 (W.D.Pa. ]un 09, 2006) (NO. CIV.A. 04-21 ERIE) " HN:
1 (B.R.)
c 7. In re Lucas Dallas, Inc., 185 B.R. 801, B05, 34 Collier Bankr.Cas.2d 1095, 1095, 27 Bankr.Ct.Dec.
955, 955, 95 Daily Journal DAR. 12,382, 12382 (9th Cir.BAP (Cal.) Aug 17, 1995) (NO.
NC-94-2055-HVR, 93-4562 AN, NC-94-2116-HVR, 91-46079 IN) " HN: 8 (B.R.)
8. ]n re Sia, 2006 WL 2472995, *12 (Bankr.D.Hawai'j Aug 25, 2006) (NO. 98-04912, ADV. 00-00102)
10. s 6:12. Fraudulent conveyance attacks -- Cases, SECACQMERG 5 6:12, s 6:12+ (2006) HN: 1,5
(B.R.)
11. Bankruptcy Service Lawyers Edition s 31:254, s 31:254. Leveraged buyouts (2006) HN: 6 (B.R.)
12. Bankruptcy Service Lawyers Edition s 32:208, 5 32:208. Generally (2006) HN: 1,4,5 (B.R.)
13. Bankruptcy Service Lawyers Edition 5 32:210, s 32:210. Congressional intent (2006) HN: 1,5 (B.R.)
14, Bankruptcy Service Lawyers Edition s 32:213, s 32:213. What constitutes "settlement payment" --
Particular determinations -- Reverse repo's (2006) HN: 1,5 (B.R.)
c 15. CJS Conspiracy 5 49, s 49. Defrauding creditors (2006) HN: 7 (B.R.)
c 16. DERIVATIVES AND REHYPOTHECATION FAILURE: IT'S 3 :00 P.M., DO YOU KNOW WHERE YOUR
COLLATERAL IS?, 39 Ariz. L. Rev. 949, 1001 (1997)
I of 4 9/1412006 10:52 AM
t<..eYLlle KeSUIl
c 17. LEVERAGED BUYOUTS AND FRAUDULENT CONVEYANCES: YET ANOTHER Ln.JDATE, 7 J. Bankr. L. &
Prac. 315, 333 (1998) HN: 6 (B.R.)
c: 18. FORWARD CONTRACTS, BANKRUPTCY SAFE HARBORS AND THE ELECTRICITY INDUSTRY, 51 Wayne
L. Rev. 49, 106 (2005) HN: 3 (B.R.)
19. ACQUISITION FINANCING, 754 PU/Comm 385, 449 (1997) HN: 1,5 (B.R.)
20. ACQUISITION FINANCING, 739 PLI/Comm 367, 427 (1996) HN: 1,5 (B.R.)
21. SPECIAL BANKRUPTCY CODE PROTECTIONS FOR DERIVATIVE AND OTHER CAPITAL MARKET
TRANSACTIONS, 721 PU/Comm 95, 114 (1995) HN: 1,5,6 (B.R.)
22. SECURITIES, FORWARD AND COMMODITY CONTRACTS AND REPURCHASE AND SWAP AGREEMENTS
UNDER U.S. INSOLVENCY LAWS, 721 PLl/Comm 401, 410+ (1995) HN: 1,2,4 (B.R.)
Court Documents
Appellate Court Documents (U.S.A.)
Appellate Briefs
24. In re: PWS HOLDING CORPORATION, BRUNO'S, INC., Food Max of Mississippi, Inc., A.F. Stores, Inc.,
Br Air, Inc., Food Max of Georgia, Inc., Food Max of Tennessee, Inc., Food Max, Inc., Lakeshore Foods,
Inc., Bruno's Food Stores, Inc., Georgia Sales Company, and SSS Enterprise, Inc., Debtors, Wyatt R.
HASKELL, Appellant., 2001 WL 34095042, *34095042+ (Appellate Brief) (3rd Cir. Aug 28, 2001) Brief of
Appellant (NO. 01-1462) ** HN: 6 (B.R.)
25. In The Matter Of: Joe Alvin ANDREWS, Sr., Debtor. CADLE COMPANY, Appellant, v. WHATABURGER OF
ALICE, INC.; M. Louise Andrews; Kathy A. Reese; George P. Braun; Herbert E. Pounds, Jr.; Joe Alvin
Andrews, Jr.; Michael Boudloche; Joe Alvin Andrews, Sr., Appellees., 2001 WL 34353904, *34353904+
(Appellate Brief) (5th Cir. Nov 07, 2001) Appellant's Brief (NO. 01-40807) • • HN: 3 (B.R.)
26. THE CADLE COMPANY, Plaintiff-Appellant, v. WHATABURGER OF ALICE, INC.; M. Louise Andrews;
Kathy A. Reese; Herbert E. Pounds, Jr.; George P. BraLIn; and Joe Alvin Andrews, Jr.,
Defendants-Appellees., 1998 WL 34114582, *34114582+ (Appellate Brief) (5th Cir. Jul 09, 1998) Brief of
Appellant (NO. 98-50368) *: * HN: 6 (B.R.)
27. FORUM INSURANCE COMPANY, Plaintiff/Appellant, v. DEVERE LIMITED; Harrington Trust Limited, As
Trustee for the Ogaps Trust; Ephraim P. Kranitz; Thomas Comparet; Kranitz Comparet & Sarrow, P.c.;
Jerome Eglin; Ayk, Inc.; Otw Investments; and Jeja Investments, Defendants/Appellees., 2002 WL
32120536, *32120536+ (Appellate Brief) (9th Cir. Aug 20, 2002) Reply Brief of Appellant Forum
Insurance Company (NO. 02-55053) *-;: y
2B. FORUM INSURANCE COMPANY, Petitioner/Appellant, v. DEVERE LIMITED; Harrington Trust Limited, As
Trustee for the Ogaps Trust; Ephraim P. Kranitz; Thomas Comparet; Kranitz Comparet & Sarrow, P.c.;
Jerome Eglin; Ayk, Inc.; Otw Investments; and Jeja Investments, Defendants/Appellees., 2002 WL
32120535, *32120535+ (Appellate Brief) (9th Cir. Jul 20, 2002) Brief of Appellee Jerome Eglin (NO.
02-55053) "* *
*:
29. FORUfv1 INSURANCE COMPANY, Plaintiff/Appellant, v. DEVERE LIMITED; Harrington Trust Limited, As
Trustee for the Ogaps Trust; Ephraim P. Kranitz; Thomas Comparet; Kranitz Comparet & Sarrow, P.c.;
Jerome Eglin; Ayk, Inc.; otw Investments; and Jeja Investments, Defendants/Appellees., 2002 WL
32120534, *32120534+ (Appellate Brief) (9th Cir. Jun 11, 2002) Brief of Appellant Forum Insurance
Company (NO. 02-55053) ***
30. Robert B. BURNS, Plaintiff-Appellant, v. James BALDWIN, et aI., Defendants-Appellees., 2002 WL
32116680, *32116680+ (Appellate Brief) (9th Cir. May 30, 2002) Appellant's Opening Brief (NO.
02-55116) ,., • • HN: 6,7 (B.R.)
31. In re THRIFTY OIL CO., a California Corporation; Golden West Refining Company, a California
Corporation; Cluj Distribution Company, a California, Corporation; Benzin Supply Company, a California
Corporation; and Golden West Distribution Company, a California Corporation, Debtors, THRIFTY OIL CO.,
Appellant, v. BANK OF AMERICA NATIONAL TRUST & Savings Association, Appellee., 2000 WL 33981185,
*33981185+ (Appellate Brief) (9th Cir. Dec 18, 2000) Appellant's Reply Brief (NO. 00-56159) *" *
HN: 2,4 (B.R.)
32. In re: THRIFTY OIL CO., a California corporation; Golden West Refining Company, a California
corporation; ClUj Distribution Company, a California corporation; Benzin Supply Company, a corporation;
and Golden West Distribution Company, a California corporation, Debtors. THRIFTY OIL CO., Appellant, v.
BANK OF AMERICA NATIOI\lAL TRUST & SAVINGS ASSOCIATIOI\l, Appellee" 2000 WL 33978038,
*33978038+ (Appellate Brief) (9th Cir. Nov 15, 2000) Appellee's Brief (NO. 00-56159) "
2,4,5 (B.R.)
HN: * **
33. In re: THRIFTY OIL CO., a California corporation; Golden West Refining Company, a California
corporation; CLUJ Distribution Company, a California corporation; Benzin Supply Company, a corporation;
and Golden West Distribution Company, a California corporation, Debtors. THRIFTY OIL CO., Appellant, v.
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, Appellee., 2000 WL 34017800,
*34017800+ (Appellate Brief) (9th Cir. Nov 14, 2000) Appellee's Brief (NO. 00-56159) "
HN: 1,2,5 (B.R.)
* * "* *
34. IN RE HAMILTON TAFT & COMPANY, Debtor. Frederick S. Wyle, Trustee of Hamilton Taft & Company,
PlaintIff-Appellant v. HOWARD, Well, Labouisse, Friedrichs Incorporated, a Louisiana corporation, Howard
Weil Financial Corporation; and Legg Mason, Inc" a Maryland corporation, Defendants-Appellees., 1996
,,* * *
WL 33489913, *33489913+ (Appellate Brief) (9th Cir. Mar 21, 1996) Original Brief of
Defendant-Appellee Howard, ... (NO. 95-17058) HN: 4 (B.R.)
*
Motion, Memorandum and Affidavit) (D.Ariz. Mar 10, 2006) Motion for Summary Judgment on (1)
Contract ••• (NO. CIV-02-2099-PHX-RCB)
36. Robert B. BURNS, Plaintiff, v. James P. BALDWIN, et ai" Defendants., 2000 WL 34631826,
*34631826+ (Trial Motion, Memorandum and Affidavit) (CD.Cal. Sep 11, 2000) Plaintiff's
Memorandum of Points and Authorities .•. (NO. SACVOO-0249AHS, ANX) *: *
37. IN RE: 3DFX INTERACTIVE, INC., a California corporation, Debtor, Ein: 77-0390421 Carlyle Fortran
Trust, a Maryland real estate investment trust, Plaintiff, v. NVIDIA CORPORATION, a Delaware
corporation; Nvidia Us Investment Company, f/k/a Titan Acquisition Corp. No.2, a Delaware corporation;
3dfx Interactive, Inc., a California corporation, Jen-Hsun Huang, an individual; James C Gaither, an
indiVidual; A. Brooke Seawell, an individual; William J. Miller" 2005 WL 2868911, *2868911+ (Trial
Motion, Memorandum and Affidavit) (N.D.Cal. Oct 17, 2005) Opposition of Carlyle Fortran Trust to
3dfx ••. (NO. 05-00427JW) • •
38. In re: P.R.T.C., INC, Braunstein International Corporation, Debtors, Gregory A. Akers, Trustee, and
Harold S. Taxel, Trustee, Plaintiffs, v. David Troy Braunstein, Christina Braunstein, Braunstein De Mexico,
3 of 4 9/14/2006 10:52 AM
KeyCile Result http://creollcard,west!aw,com!K.eycne/Derault.Wl'!autoresponct= Y& ...
S.A. De C.V., BIC Technologies, Inc., Solution Technology Group, LLC, Solution Technology De Mexico,
Almacen De Computadoras, Rosenbaum & Diehl, a Professional Corporation, Keith A. Rosenbaum, Duckor,
Spradling, & Metzger, a Professional Corporation, and, 2002 WL 32955064, *32955064 (Trial Motion,
Memorandum and Affidavit) (S.D.Cal. Jan 02, 2002) Memorandum of Points and Authorit:ies in
Support a •• (1\10. OOCV2307-H, JFS) *: "*
39. In Re: ENRON CORP., et aI., Debtors. Enron Corp., Plaintiff, v. J.P. Morgan Securities, Inc., et al.,
Defendants. Enron Corp., Plaintiff, v. Mass Mutual Life Insurance Co., et aI., Defendants., 2005 WL
3038836, *3038836+ (Trial Motion, Memorandum and Affidavit) (S.D.N.Y. Aug 01, 2005) Memorandum
of Law in Support of Lehman's Motion ••• (NO. 01-16034, AJG) ** HN: 1,3 (B.R.)
40. GREAT AMERICAN UFE INSURANCE COMPANY, Plaintiff, v. Katharine Shaw Wallace THOMPSON,
**
Defendant., 2006 WL 1442021, *1442021 (Trial Motion, Memorandum and Affidavit) (S.D.Ohio Apr 25,
2006) Reply in Support of Plaintiff1s Emergency Motion ••• (NO. 104CV815)
41. In re: John SASSER, Debtor; In re Mayflower Transit, LLC, Plaintiff, v. John Sasser, Defendant., 2002
**
WL 32931587, *32931587 (Trial Motion, Memorandum and Affidavit) (Bankr.E.D.Cal. Jun 03, 2002) Reply
to Opposition of Chapter 7 Trustee1s ••• (NO. 02-10300A-11)
*'
VVEST
.~-----------------------------------------------------------x
In re Chapter 11
Case No. 01-16034 (AJG)
ENRON CORP., et al.,
Jointly Administered
Debtors.
------------------------------------------------------------- x
ENRON CORP., Adv. No. 03-93383 (AjG)
Plaintiff,
v.
Defendants.
------------------------------------------------._--_.------- x
MEMORANDUM OF LAW OF INTERNATIONAL SWAPS AND DERIVATIVES
ASSOCIAnON, INC., SECURITIES INDUSTRY ASSOCIATION, AND TIlE BOND
MARKET ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF DISMISSAL OF
ADVERSARY PROCEEDING
TABLE OF CONTENTS
Page
TABLE OF AUTHORITffiS ii
PRELIl\1IN'ARY STATEMENT _ 1
STATEMENT OF INTEREST 3
CONCLUSION 27
TABLE OF AUTHORITIES
CASES
Page(s)
Bessette v. Avco Financial Services. Inc., 230 F.3d 439 (lst Cir. 2000) 25
Bevill. Bresler & Schulman Asset Management Corp. v. Spencer Savings & Loan
Ass'n, 878 F.2d 742 (3d Crr. 1989) 7,8,9, 17
Century Glove. Inc. v. Iselin (In re Century Glove), 151 B.R. 327 (Bankr. D. Del.
1993) 25
Cox v. Zale Delaware, Inc., 239 F.3d 910 (7th CiT. 2001) 25
In re Hamilton Taft & Co., 176 B.R. 895 (Bankr. N.D. Cal.), aff'd, 196 B.R. 532
(N.D. Cal. 1995), affd, 114 F.3d 991 (9th Cir. 1997) 17, 18
In re Hechinger Investment Co. of Delaware, 274 B.R. 71 CD. Del. 2002) 16, 17, 24-25, 26
In re Olympic Natural Gas Co., 294 F.3d 737 (5th CiT. 2002) 14
Kaiser Steel Corp. v. Charles Schwab & Co., 913 F.2d 846 (lOth Cir. 1990) 7, 17, 18
Kaiser Steel Corp. v. Pearl Brewing Co., 952 F.2d 1230 (lOth Crr. 1991) 17
MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996) 25
Penn Terra Ltd. v. Department of Environmental Resources, 733 F.2d 267 (3d
Cir. 1984) 25
Pereira v. First North American National Bank, 223 B.R. 28 (N.D. Ga. 1998) 25
ii
PertusD v. Ford Motor Credit Co., 233 F.3d 417 (6th Cir. 2000) 25-26
Thrifty Oil Co. v. Bank of America National Trust & Savings Ass'n, 322 F.3d
1039 (9th Crr. 2003) 9, 10
Chicago Rd. Options Exchange, SEC No-Action Letter, Fed. Sec. L. Rep.'
79,665 (Feb. 22, 1991) 20, 21
Goldman. Sachs & Co., SEC No-Action Letter, 2003 WL 22358822 (Oct. 9,
2003) 20
Goldman, Sachs & Co., SEC No-Action Letter, 1999 wr,-I2440I8 (Dec. 20,
1999) 20
STATUTES
7 U.S.C. § Ia(4) 15
11 U.S.C. § IOl(5IA) 14
11 U.S.C. § 547 5
11 U.S.C. § 548 5
11 U.S.C. § 548(a)(1)(A) 13
11 U.S.C. § 550 5
11 U.S.C. § 741(8) 17
11 U.S.C. § 761(8) _ 15
15 U.S.C. § 78 et seq 6, 22
III
1982 Amendments to Bankruptcy Code, Pub. L. No. 97-222, 96 Stat. 235 7, l3
1990 Bankruptcy: Swap Agreements and Forward Contracts, Pub. L. No. 101-
311,104 Stat. 267 11
LEGISLATIVE MATERIALS
Financial Contract Netting Improvement Act of 2001, H.R. 11, 107tll Congo
(2001) 22
:MISCELLANEOUS
iv
William J. Perlstein (WP 1073)
Craig Goldblatt (CG 6793)
Jonathan E. Paikin (JP 7599)
Caroline Rogus (CR 6931)
WILMER CUTLER PICKERING
HALE AND DORR LLP
2445 M Street, N.W.
Washington, DC 20037
Telephone: (202) 663-6000
Facsimile: (202) 663-6363
~---~---------------------------------~---~----------------~~x
In re Chapter 11
Case No. 01..16034 (AJG)
ENRON CORP., et ala,
Jointly Administered
Debtors.
..-------
~------~---------------------------------------~---~- x
ENRON CORP.,
Plaintiff, Adv. Pro. No. 03-93373 (AJG)
v.
UBSAG
and
Defendants.
------------------------------------------------------------- x
MEMORANDUM OF LAW OF INTERNATIONAL SWAPS AND DERIVATIVES
ASSOCIAnON, INC., SECURITIES INDUSTRY ASSOCIAnON, AND THE BOND
MARKET ASSOCIATION AS AMICI CURIAE IN SUPPORT OF DEFENDANTS'
MOTION FOR SUMMARY JUDGMENT
T ABLE OF CONTENTS
Page
TABLE OF AUTHORITIES ii
PRELI1vIIN"ARy STATEMENT _ 1
STATEMENT OF INTEREST 2
CONCLUSION 27
TABLE OF AUTHORITIES
CASES
Page(s)
Bessette v. Avco Financial Sen;icest Inc., 230 F.3d 439 (lst Cir. 2000) _ 25
Bevill. Bresler & Schulman Asset Management Corp. v. Spencer Savings & Loan
Ass'n, 878 F.2d 742 (3d Cir. 1989) 7,8, 16
Century Glove, Inc. v. Iselin (111 re Century Glove)~ 151 B.R. 327 (Bania. D. Del.
1993) 25
Cox v. Zale Delaware, Inc., 239 F.3d 910 (7th Cir. 2001) 25
In re Hamilton Taft & Co., 176 B.R. 895 (Bankr. N.D. Cal.), affd, 196 B.R. 532
(N.D. Cal. 1995), aff'd, 114 F.3d 991 (9th Cir. 1997) 15, 18
In re Hechinger Investment Co. of Delaware, 274 B.R. 71 (D. Del. 2002) 16-17.24, 25,26
In re Olympic Natural Gas Co., 294 F.3d 737 (5th CiT. 2002) 14
Kaiser Steel Corp. v. Charles Schwab & Co., 913 F.ld 846 (lOth CiT. 1990) 6, 16, 17
Kaiser Steel Corp. v. Pearl Brewing Co., 952 F.2d 1230 (lOth Cir. 1991) 16
MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996) 25
Penn Terra lJd. v. Department of Environmental Resources, 733 F.2d 267 (3d
Cir. 1984) 24
Pereira v. First North American National Bank, 223 B.R. 28 (N.D. Ga. 1998) 25
11
PertuSD v. Ford Nlotor Credit Co., 233 F.3d 417 (6th Cir. 2000} 25
Thrifty Oil Co. v. Bank of America NatiolUll Trust & Savings Ass 'n, 322 F.3d
1039 (9th Cir. 2003) 9
Chicago Bd. Options Exchange. SEC No-Action Letter, Fed. Sec. L. Rep. i
79,665 (Feb. 22, 1991) 20
Goldman, Sachs & Co., SEC No-Action Letter, 2003 WL 22358822 (Oct. 9,
2003) 20
Goldman, Sachs & Co., SEC No-Action Letter. 1999 WL 1244018 (Dec. 20,
1999) 20
STATUTES
7 U.S.C. § la(4) 14
11 U.S.C. § IGI(5IA) 13
11 U.S.C. § 547 5
11 U.S.C. § 548 5, 13
11 U.S.C. § 550 5
11 U.S.C. § 741(8) 16
11 U.S.C. § 761(8) 14
15 U.S.C. § 78 et seq 6, 21
iii
•
FELDMAN, WALDMAN & KLINE
A Professional Corporation
2 ;ATRICIA S. MAR
L.J. CHRIS MARTINIAK
3 2700 Russ Building
235 Montgomery street
4 San Francisco, CA 94104
Telephone: (415) 981-1300
5
Attorneys for Trustee
6 Frederick S. Wyle
7
9
NORTHERN DISTRICT OF CALIfORNIA
10
In re ) BANKRUPTCY NO. 91-31077 LK
)
HAMILTON TAFT & COMPANY, Chapter 11
i' Debtor.
)
)
)
12
---~-------------)
)
1]
FREDERICK S. WYLE, Trustee in ) Adversary Proceeding
Bankruptcy of Hamilton Taft & N0"Q---
9~ 81 tK
1.1
Company,
IS
CO~INT FOt)
Plaintiff, ) 1. Recovery of Fraudulent
) Transfer Pursuant to
16
v. ) 11 U.S.C. § 548 and
) California Civil
17
CONNIE C. ARMSTRONG, JR.; ) Code § 3439
THE REMINGTON COMPANIES, INC.; ) 2. Constructive Trust
18
WINTHROP REALTY COMPANY; CCA - ) 3. Turnover of Property
HOLDINGS, INC.; CCAJ CORPOR- ) or the Estate Under
J9
ATION; CHASE DEVELOPMENT CORP.; ) 11 U.S.C. § 542
CHAYSON MORTGAGE AND INVESTMENT ) 4. Injunction
20
COMPANY; CAL-PACIFIC MANAGEMENT ) 5. Conversion
CORP.; C.R. ACQUISITIONS; DEI, ) 6. Breach of Fiduciary
21
INC.; DRESDNER FINANCIAL ) Duties
MANAGEMENT CORPORATION; DRESDNER ) 7. Breach of Contract
22 ENTERPRISES, INC.; DRESDNER )
PETROLEUM, INC.: H.T. INTER- ) (II ~ J,t.M:J~K ~~
23 NATIONAL, INC.; SUISSE TEXAS, )
INC.; KNIGHTSBRIDGE COMPANIES, ) ~) t1;,)/u.f/~
2.1 INC.; and KNIGHTSBRIDGE GUARANTY )
COMPANY, )
25 Defendants. )
26 -----------------)
Plaintiff Frederick s. Wyle, Trustee, alleges as
2 follows:
J THE PARTIES
4 1. Plaintiff is the duly appointed and acting trustee
5 in this case.
8 Francisco, California.
26
C~PLAINT -2-
Texas, and is owned or controlled by, and affiliated with,
!1
business in Dallas, Texas, and is owned or controlled by, and
r2
affiliated with, Armstrong and his affiliated entities.
13
9. Plaintiff is informed and believes and thereon
26
C[)04PLAINT -J-
business in Dallas, Texas, and is owned or controlled by, and
6
owned or controlled by, and affiliated with, Armstrong and his
7
affiliated entities.
8
13. Plaintif: is informed and believes and thereon
9
alleges that defendant suisse Texas, Inc. (HSulsse Texas U ) is a
10
Texas corporation with its principal place of business in Dallas,
Ir
Texas, and is owned or controlled by, and affiliated with,
Armstrong and his affiliated entities.
f2
14. Plaintiff is informed and believes and thereon
13
alleges that defendant H.T. International is an entity owned or
1.11
controlled by, and affiliated with, Armstrong and his affiliated
15
entities.
16
15. Plaintiff is informed and believes and thereon
17
alleges that defendants Dresdner Enterprises, Inc., Dresdner
IB
Petrole~, Inc., and Dresdner Financial Management Corporation
\9
(collectively "Dresdner") are Texas corporations with their
20
principal place of business in Dallas, Texas, and are owned or
21
controlled by, and affiliated with, Armstrong and his affiliated
22
entities.
23
16. Plaintiff is informed and believes and thereon
U
alleges that defendants Knightsbridge Companies, Inc. and
25
Knightsbridge Guaranty Company (collectively "Knightsbridge") are
26
CC»4PlAINT -4-
Texas corporations with their principal place of business in
8 Companies."
9
JURISDICTION AND VENUE
10
18. This is an adversary proceeding brought pursuant to
12
19. This Court has jurisdiction of this adversary
13
proceeding pursuant to 28 U.S.C. §§151, 157, and 1334. Venue is
1<1
proper pursuant to 28 U.S.C. §1409.
jUdgment herein.
17
GENERAL ALLEGATIONS
18
21. Plaintiff is informed and believes and thereon
19
alleges that an involuntary bankruptcy petition was filed against
20
the Debtor on March 20. 1991. Prior to filing the petition, the
2\
Debtor operated as a tax deposit and payment service. The
22
plaintiff, the Chapter 11 Trustee in this case, was appointed on
23
March 26, 1991. The Debtor, by and through the Trustee, continues
24 -,
to operate a payroll tax deposit and payment service.
26
CCf4PLAII4T -5-
22. Plaintiff is informed and believes and thereor.
3 the sole shareholder and chairman of the Debtor from March 19a9,
II
books and records show that (a) in January and February of 1991
12
approximately $11,000,000 was transferred from Debtor directly to
IJ
Knightsbridge, (b) Debtor's funds were transferred to an account
111
at Merrill Lynch which were then transferred to Bank One in Dallas
17
account and then "invested" in various of the Armstrong Companies
C~PLAINT -6-
were at least in that amount. Plaintiff and Plaintiff's
5 transfers.
11 Debtor and questioned the relevant staff of Debtor, but have found
12
no notes, agreements, interest payments, collateral or security
13
relating to such transfers.
\ Ii
27. Plaintiff is informed and believes and alleges on
15
that basis that Armstrong caused the Affiliate Transfers to be
16
made.
21
Companies.
lease real property, goods or services for the personal use and/or
25
enjoyment of Armstrong, (b) to make investments or acquisitions
26
C~PLAINT -7-
for the benefit of Armstrong, (c) to make 1 arge gi fts, dona t ie,.s .
7 that basis that the Armstrong Companies that advanced large sums
12 Trans fers .
17 the funds received from Debtor were used to pay operating expenses
211 Armstrong had agreed to pay as the "price" for buying the Debtor.
C~PLAH/f -8-
Dresdner Enterprises, Inc., a company which formerly owned the
13
to the Debtor. Portions of the SlO million from the debtor were
15
$2.4 million spent on a cutting horse arena, and for prepaid
Ib
interest on Armstrong's note.
17
f) In October 1990, the $68,800,000 intercompany
19
shown on the books of Debtor as a long-term "bond" in the amount
C""PLAINT -9-
Cornpanies--Oresdner Petroleum--to purchase oil and gas leases i~
4 ~ave come from the Debtor for unauthorized purposes. For example,
8
using Debtor's funds. He contributed hundreds of thousands of
9
dollars to political campaigns. He was drawing a salary of some
10
$21,000 every two weeks--Dver $500,000 a year--from his various
CQHPLAINT -10-
collateral. Hence, on behalf of the Debtor, Armstrong a~par=~L::
10 any operating costs incurred by the Debtor itself. The funds for
II
such operating costs were obtained from the Debtor.
11
k) In March 1991 Armstrong invested SJ,OOO,OOO to
13
acquire ~arker Automotive.
lJ
1) Armstrong caused Debtor's funds to be
appear as if the check had actually been written. After the check
23
had been processed in this manner, the Debtor had another employee
CQHPlAfNT -11-
to the taxing authorities, Debtor would physically hold the c~e~~:3
J end of the. three-month period, the Debtor would then void the
7 to the authorities, and this new check would have to be held, thus
9
rn) Armstrong's Dallas staff prepared a weekly
10
cash summary projecting the Armstrong Companies' cash needs for
II
the next several months. If t t : cash flow showed that the
entities would soon run out of funds, Armstrong would transfer the
12
Debtor's funds to the Dallas office. These funds were then
13
distributed to whichever Armstrong Companies needed them.
1d
COUNT ONE
15
(Recovery of Fraudulent Transfer Pursuant to § 548
and California Civil Code §§ 3439.04 and 3439.05)
16
32. Plaintiff realleges and incorporates by reference
17
26
defendants were made while the Debtor was insolvent and for less
9
37. The transfers of assets from the Debtor to the
10 defendants caused the Debtor to become insolvent and were made for
I]
voidable pursuant to section 548(a) (2) of the Bankruptcy Code,
small capital and were made for less than a reasonably equivalent
18
value.
19
40. By reason of the foregoing, the transfers are
20
voidable pursuant to § 548(a) (2) of the Bankruptcy Code,
2I
California civil Code § 3439.04 and Bankruptcy Code § 544(b).
n
41. The transfers of assets from the Debtor to the
21
defendants were made without receiving reasonably equivalent value
2.1
in exchange for the transfers, and the Debtor intended to incur,
25
26
C~PLA1NT -1]-
•
or believed or reasonably should have believed that it wculd
8 beyond its ability to pay as such debts matured and for less than
10
44. By reason of the foregoing, the transfers are
II
voidable pursuant to § 548(a) (2) of the Bankruptcy Code.
I]
defendants were made with actual intent to hinder, delay or
IJ
defraUd the Debtor's creditors.
COHPlAINT -14-
•
belonging to the Debtor's estate, and any proceeds of those f~~~s,
6 hereinbelow.
7 COUNT THREE
(Turnover of Property Pursuant to § 542)
8
t2
transferred its property to defendants. Such property consisted
13
of money and other property which is property of this estate, as
14
set forth hereinabove.
26
CC»olPlAIWT -15-
53.
•
Plaintiff is entitled to injunctive relief pur5~3~:
iO
refrain from dissipating, transferring, or encumbering assets or
11
funds received from the Debtor or acquired with the Debtor's
12
assets or funds.
\3
WHEREFORE, plaintiff prays for relief as set forth
14
hereinbelow.
COc-NT FIVE
15
(Conversion)
16
,7
54. Plaintiff real leges and incorporates by reference
24
25
26
CCfolPlAINT -16-
•
COUNT SIX
(Breach of Fiduciary Duties)
2
12 best interests of the Debtor, has failed to control and manage the
14
assets of the Debtor, and has by such breaches of fiduciary duty
hereinbelow.
17
COUNT SEVEN
IS
(Breach of contract)
19
CCt\PlAlllT -17-
·. •
companies owing such obligations in violation of the terns and
3 obligations.
Il
2. For an injunction or order requiring defendants to
12
surrender the property of the estate, or the proceeds thereof, to
13
the Trustee, and to render an accounting to the court for the
1<1
disposition by defendants of such property.
25
26
deems appropriate.
8
12 BYqylu;, ;~
L.~. Chris Martiniak
13
Attorneys for Trustee
Frederick S. Wyle
14
15
16
17
18
19
20
21
22
23
24
2S
26
CCl4PLAIHT -19-
•
FELDMAN, WALDMAN & KLINE
A Professional Corporation
2 ;ATRICIA S. MAR
L.J. CHRIS MARTINIAK
J 2700 Russ Building
235 Montgomery street
4 Francisco, CA 94104
San
Telephone: (415) 981-1300
5
Attorneys for Trustee
6 Frederick S. Wyle
13 ----------------))
FREDERICK S. WYLE, Trustee in ) Adversary Proceeding
IJ Bankruptcy of Hamilton Taft- & ) No.
Company, )
15 )
Plaintiff, )
16 )
v. )
17 )
CONNIE c. ARMSTRONG, JR.; )
18 THE REMINGTON COMPANIES, INC.: )
WINTHROP REALTY COMPANY: CCA )
19 HOLDINGS, INC.; CCAJ CORPOR- )
ATION; CHASE DEVELOPMENT CORP.; )
20 CHAYSON MORTGAGE AND INVESTMENT )
COMPANY; CAL-PACIFIC MANAGEMENT }
21 CORP.; C.R. ACQUISITIONS; DEI, )
INC.; DRESDNER FINANCIAL )
22 MANAGEMENT CORPORATION: DRESDNER )
ENTERPRISES, INC.; DRESDNER }
23 ,PETROLEUM, INC.; H.T. INTER- )
NATIONAL, INC.; SUISSE TEXAS, )
24 INC.: KNIGHTSBRIDGE COMPANIES, )
INC.: and KNIGHTSBRIDGE GUARANTY }
25 COMPANY, )
I Defendants. )
26 ~---------------}
u.s. Departmen. ~C Justice
1 - Addressee
/1 - San FranClSCO ((196A-2868)
RES/bfa
(2 )
Mr. Joseph P. Russoniello
~
further information could be obtained regarding the allegations /
.'
---
presented, he would reconsider his opinion.
Based on AUSA Yamaguchi's declination, our office will
close its investigation into the captioned matter.
Very truly yours,
RICHARD W. HELD
Special Agent in Charge
b7C::
By: I f
Superv~sory Speclal Agent
2*
( I2IJII199j)
From: Sacramento
Contact: IA 1"'-- ....
Approved By:
t ., .-.
; ,'I~
••