395 Lampe, LLC v. Kawish, LLC, CASE NO. C12-1503RAJ

• Decision Date: 21 January 2014
• Docket Number: CASE NO. C12-1503RAJ
• Court: U.S. District Court — Western District of Washington
• Parties: 395 LAMPE, LLC, et al. Plaintiffs, Counterclaim Defendants, v. KAWISH, LLC, et al., Defendants, Counterclaim Plaintiffs, Third-Party Plaintiffs, v. WAYNE L. PRIM, et al., Third-Party Defendants.

395 LAMPE, LLC, et al. Plaintiffs, Counterclaim Defendants, v. KAWISH, LLC, et al., Defendants, Counterclaim Plaintiffs, Third-Party Plaintiffs, v. WAYNE L. PRIM, et al., Third-Party Defendants.

CASE NO. C12-1503RAJ

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

DATED: January 21, 2014

HONORABLE RICHARD A. JONES

ORDER

I. INTRODUCTION

The court issues the order in the wake of a two-and-a-half day evidentiary hearing that began on January 7. The court makes two primary rulings. First, 395 Lampe, LLC ("Lampe") has not yet effected a "disposition" of the one-third interest in Western Pacific Timber, LLC (the "Collateral WPT Interest") that it acquired on or about April 3, 2012. Second, to the extent it is at all relevant (and the court has little or no reason to believe that it is), the fair market value of the Collateral WPT Interest as of April 3, 2012 was $12.013 million.

The parties shall submit a joint statement in accordance with this order no later than February 6.

II. BACKGROUND

Before explaining its primary rulings, the court places them in the context of this unusual litigation. The court will review the debtor-creditor relationship between the parties and the morass of litigation that has emerged from that relationship. It will consider the parties' representations that the evidentiary hearing they requested would serve as a substantial step toward ending that litigation, and explain the court's conviction that those representations are likely inaccurate. The court will then explain its two primary rulings. The order concludes with a mandate that the parties resolve this litigation, and that they do so much more efficiently than they have so far.

A. The Blixseth Entities Default on Loans Secured by the Collateral WPT Interest.

Entities under the control of Wayne Prim loaned millions of dollars to Timothy Blixseth or entities under his control. For the sake of simplicity, the court will refer to the "Prim Entities" as the loans' creditor and the "Blixseth Entities" as the loans' debtor. Effective April 2008, Mr. Blixseth and Lampe (one of the Prim Entities) entered into a Membership Pledge Agreement ("MPA") in which Mr. Blixseth pledged the Collateral WPT Interest (his one-third interest in WPT) as security for a portion of those loans whose initial principal balance was $16 million.

WPT's primary assets are about 146,000 acres of timberland in Washington and Idaho. During the time the Prim Entities made most of the loans to the Blixseth Entities, WPT had three members with equal ownership interests: Mr. Blixseth, Kingsbury Timber, LLC ("Kingsbury"), and Voyager Group, LP ("Voyager"). Kingsbury is a Prim Entity; Voyager is not.

At the same time that Mr. Blixseth and Lampe entered the MPA, WPT's members executed consent minutes (the "Consent Minutes") that authorized Mr. Blixseth to grant Lampe the security interest reflected in the MPA. The Consent Minutes authorized any sale or other transfer of the Collateral WPT Interest in accordance with the MPA. The Consent Minutes acknowledged paragraphs 11.1 and 11.5 of the WPT operatingagreement, which prohibit most transfers of membership interests, but permit any transfer with the members' unanimous consent.

In 2009, Mr. Blixseth transferred the Collateral WPT Interest to one of his entities, Desert Ranch, LLLP ("Desert Ranch"). He made the transfer with the consent of Lampe and all members of WPT. Desert Ranch took the Interest subject to the MPA.

So far as the court is aware, no one disputes that the Blixseth Entities defaulted on the loans. On March 26, 2012, Lampe issued Desert Ranch a formal notice of default and of its intent to "transfer the [Collateral WPT Interest] into its name" if the default was not cured within five days. On April 6, Lampe notified Desert Ranch in writing that the Interest "ha[d] been transferred into 395 Lampe's name, effective as of April 3, 2012."

The Collateral WPT Interest has languished in Lampe's possession since April 2012. Meanwhile, litigation among the parties has flourished.

B. The Court Allows the Parties to Resolve The Bulk of Their Disputes in This Forum.

To explain how the Blixseth Entities' default led to this month's evidentiary hearing, the court reviews the tortured history of the litigation between the parties.

The Prim Entities' efforts to seize collateral have not been limited to the Collateral WPT Interest. This suit, which began in King County Superior Court, was initially an effort to foreclose on a residential property that the Blixseth Entities own in Medina, Washington. The Prim Entities also filed two lawsuits in Nevada's state court arising out of Lampe's seizure of the Collateral WPT Interest, and another lawsuit in Montana's state courts seeking to foreclose on property that the Blixseth Entities owned (or asserted ownership of) in that state. The Blixseth Entities are also debtors in bankruptcy proceedings in several states, including Washington. This case was destined to become a part of bankruptcy proceedings that one of the Blixseth Entities instituted in this District's Bankruptcy Court, but that entity waived automatic reference to the bankruptcycourt by a series of procedural missteps. The court chronicled this morass of lawsuits in its February 13, 2013 order. Dkt. # 48.

In the months following the February 13 order, the parties dismissed the Nevada actions and took other steps to assure the court that they were not attempting to litigate the claims in this lawsuit in multiple forums. See Mar. 25, 2013 ord. (Dkt. # 55); Jun. 24, 2013 ord. (Dkt. # 71). The parties filed an amended complaint and counterclaims. The Prim Entities asserted seven causes of action against the Blixseth Entities. The Blixseth Entities responded with ten counterclaims and third-party claims.

C. The Parties Focus on the Value of the Collateral WPT Interest, Even Though the Value is Relevant Only If Lampe Has Effected a Disposition of That Interest to Itself.

Despite their many claims, the parties assured the court in a May 20, 2013 joint status report that the "heart of this dispute is the defense espoused by [the Blixseth entities] that all debt has been satisfied and/or extinguished by a transfer of the [Collateral WPT Interest]." Dkt. # 69, ¶ 22. The parties claimed that resolving the dispute would "require" determinations of the value of the Collateral WPT Interest, whether a "disposition" of that Interest had already occurred, and whether the Prim Entities somehow waived "a deficiency or interest." Id. The parties also informed that court that if a "disposition" had not yet occurred, they would request that the court determine a commercially reasonable method to dispose of the Collateral WPT Interest and then determine the amount of any surplus or deficiency after that "disposition." Id. The parties first proposed that the court hold an evidentiary hearing "to determine the value of the WPT Membership Units and the method, if any, of the commercially reasonable disposition of the WPT Membership Units." Id. ¶ 23. The court demanded that the parties "explain precisely how the[y] propose to resolve the issues they have raised, whether by way of dispositive motion, a 'trial on the papers' procedure, by evidentiary hearing, or otherwise." Jun. 24, 2013 ord. (Dkt. # 71) at 2. The parties responded by requesting only an evidentiary hearing, and only to determine the value of the CollateralWPT Interest. Jul. 12, 2013 joint status report (Dkt. # 73) ¶ 2. The court scheduled a January 7, 2014 evidentiary hearing.

Although the parties did not request leave to file dispositive motions in advance of the evidentiary hearing, the Blixseth Entities filed one. That motion requested partial summary judgment on two issues:

1) Based on undisputed facts, Lampe took full ownership of the [Collateral WPT Interest] effective April 3, 2012 such that a disposition of the [interest] for the purposes of the U[niform Commercial Code ("UCC")] occurred on April 3, 2012.

2) Based on the facts and circumstances of the disposition, lack of control and marketability discounts are inapplicable to the valuation of the [interest].

Defs.' Mot. (Dkt. # 86) at 2. The court declined to resolve the motion in advance of the evidentiary hearing. Dec. 18, 2013 ord. (Dkt. # 104).

The first of those issues is pivotal. The Blixseth Entities' principal argument as to the "heart of this dispute" is that when Lampe seized the Collateral WPT Interest in April 2012, it effected a "disposition" of that Interest to itself. The court uses "disposition" to mean an acquisition of collateral that requires a secured party to recognize the proceeds of that acquisition and offset the proceeds against the outstanding debts.¹ The only purpose the parties have announced for an evidentiary hearing to determine the value of the Collateral WPT Interest is to determine whether, assuming Lampe's seizure of the Collateral WPT Interest was a "disposition" to itself, that "disposition" was worth as much as or more than the Blixseth Entities' debts. The evidentiary hearing, in short, put the proverbial cart before the horse. That approach might have been sensible if it were difficult to determine whether Lampe's seizure of the Collateral WPT Interest was in fact a "disposition." But the "disposition" determination turns on facts that are undisputed, and is thus ripe for summary judgment. Indeed, Lampe might well have resolved thatissue on a motion to dismiss. As a matter of law, Lampe has not yet effected a "disposition" of the WPT interest. The court will explain that conclusion shortly.

Because there has been no "disposition" of the Collateral WPT Interest, the determination that the parties requested at the evidentiary hearing would appear to be irrelevant. The value of the Collateral WPT Interest in the abstract means nothing, or at least it has no meaning that the parties have explained. When Lampe finally effects a "disposition" of the Collateral WPT Interest, it...