Waldron v. Huber (In re Huber)

• Citation: 493 B.R. 798
• Decision Date: 17 May 2013
• Docket Number: Adversary No. 12–04171.,Bankruptcy No. 11–41013.
• Parties: In re Donald G. HUBER, Debtor. Mark D. Waldron, Trustee for the estate of Donald G. Huber, Plaintiff, v. Donald G. Huber, a single man; Kevin D. Huber, individually and as Trustee of the Donald Huber Family Trust; Alaska U.S.A. Trust Company, as Trustee of the Donald Huber Family Trust; Gary M. Dreyer and Constance M. Dreyer, as Trustees of the Dreyer Family Living Trust dated May 12, 1999; Kimball Center, LLC, an Alaska limited liability company; DGH, LLC, an Alaska limited liability company; 8310 LLC, an Alaska limited liability company; 3505 N. Gove, LLC a/k/a 3305 N. Gove, LLC, an Alaska limited liability company; Pioneer Plaza, LLC, an Alaska limited liability company; PSEA, LLC, an Alaska limited liability company; Sure Seal, LLC, a Washington limited liability company; and John Doe, entities 1 through 50, Defendants.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Western District of Washington

493 B.R. 798

In re Donald G. HUBER, Debtor.

Mark D. Waldron, Trustee for the estate of Donald G. Huber, Plaintiff,

v.Donald G. Huber, a single man; Kevin D. Huber, individually and as Trustee of the Donald Huber Family Trust; Alaska U.S.A. Trust Company, as Trustee of the Donald Huber Family Trust; Gary M. Dreyer and Constance M. Dreyer, as Trustees of the Dreyer Family Living Trust dated May 12, 1999; Kimball Center, LLC, an Alaska limited liability company; DGH, LLC, an Alaska limited liability company; 8310 LLC, an Alaska limited liability company; 3505 N. Gove, LLC a/k/a 3305 N. Gove, LLC, an Alaska limited liability company; Pioneer Plaza, LLC, an Alaska limited liability company; PSEA, LLC, an Alaska limited liability company; Sure Seal, LLC, a Washington limited liability company; and John Doe, entities 1 through 50, Defendants.

Bankruptcy No. 11–41013.

Adversary No. 12–04171.

United States Bankruptcy Court,

W.D. Washington,

at Tacoma.

May 17, 2013.

Gary H. Branfeld, Emily R. Gonzalez, Smith Alling PS, Michael E. McAleenan, Tacoma, WA, for Plaintiff.

David C. Smith, Attorney at Law, Tacoma, WA, Michael P. Klein, Attorney at Law, Bainbridge Island, WA, Gayle E. Bush, Bridget G. Morgan, Bush Strout & Kornfeld LLP, Donald A. Bailey, Seattle, WA, for Defendants.

John Doe, pro se.

ORDER GRANTING TRUSTEE PARTIAL SUMMARY JUDGMENT

PAUL B. SNYDER, Bankruptcy Judge.

This matter came before the Court on April 15, 2013, on the Motions for Summary Judgment as to Claims Relating to Transfers by Debtor & Invalidity of Trust and as to Claim of Denial of Discharge, filed by Mark D. Waldron, Trustee for the estate of Donald G. Huber (Trustee) against Donald G. Huber (Debtor). At the conclusion of the hearing, the Court took the matter under advisement. Based on the arguments and pleadings presented, the order of the Court is as follows:

The Debtor has been involved in real estate development and management in the Puget Sound area for over 40 years. He graduated from Pacific Lutheran University in Tacoma with a degree in Business Administration and Sociology. In 1968, he founded United Western Development, Inc. (UWD) with its principal place of business located in Tacoma, Washington. The purpose was to use it as a vehicle to engage in real estate development. The Debtor still serves as its President, although he is partially retired. The operation of UWD and the Debtor's other businesses is now primarily performed by his eldest son, Kevin D. Huber, who has served as UWD's Senior Vice President—Business Development since 2001. Kevin Huber received an MBA from the University of Southern California's Marshall School of Business in 1999 and is heavily involved in managing the various Huber-related interests.

In the past, the Debtor's residential development customers were not only the typical home buying public, but large home builders such as Quadrant Homes and Polygon Northwest, which have substantial financial backing. Many, if not all, of the projects of the Debtor were undertaken by him through the use of an entity separate and apart from UWD, such as through a corporation or limited liability company, with the Debtor owning all, or a portion, of the project. The Debtor, however, was required on many projects to sign as guarantor in favor of third party lenders, many of them local banks. These appear to be the largest creditors of his bankruptcy. In 2002, UWD added additional staff in order to expand its market share and geographic market within the Pacific Northwest.

In 2007, UWD hired an individual who was experienced in investment banking and real estate securitization with a plan to secure additional financing. Subsequently, UWD entered into an engagement letter with Houlihan Lokey, a private finance group, to assist it in raising approximately $55 million in capital. The Private Placement Memorandum was completed in August 2008. The funds were to be used to pay off existing debt, provide additional working capital for present and future needs, and to fund the transaction fees. The cost of the “due diligence” requirements was substantial, but in late September or early October 2008, the Debtor embarked on a fund raising trip to New York City. The Debtor/UWD, however, proved to be unsuccessful in its attempt to secure additional financing, receiving only one verbal offer and no written offers. On October 10, 2008, UWD terminated the agreement with Houlihan Lokey, partly due to the market turmoil that was by then affecting the real estate market nationwide, further dimming their chances of securing additional funding.

In 2007, the Debtor had and was in partnership on many of his projects with Robert Terhune, who was also a guarantor of many of the same projects. In a series of emails entered into the record as exhibits between the Debtor and Mr. Terhune, it became apparent that several of their joint projects were beginning to unwind due to a lack of capital, particularly with the withdrawal and cancellation of the Quadrant Homes projects. The Debtor placed ever increasing pressure on Mr. Terhune from the spring of 2008, through the end of the year to become current on monies he believed he was owed. When Mr. Terhune also threatened to set up his own spendthrift trust, the Debtor through his counsel made it clear to Mr. Terhune that the setting up of such a trust would be fraudulent as to him, as he considered himself a creditor.

The Examiner indicated in his report filed with the Court that the Debtor was or had to be aware of the “gathering storm clouds.” In addition to the threat of a collapsing housing market, a review of court files after the establishment of the Trust reflects that several loans in existence in August 2008 were fragile at best. The following are examples set forth in the Examiner's Report:

a. In Columbia State Bank v. Donald G. Huber, 10–2–08686–8, Pierce County, Columbia Bank sued the Debtor and his business partner, Robert Terhune, for failure to pay a promissory note of $3,370,000 executed on November 30, 2007, and secured by certain real property known as Ridge at Molasses Creek, LLC. The Debtor had personally guaranteed the note. The original maturity date of the note was June 1, 2008, but the borrowers negotiated an extension on that very day until December 1, 2008. No interest payments were subsequently made, and the loan was not paid at maturity. Columbia Bank issued a Notice of Default on February 5, 2009, and following foreclosure, the property was sold on July 10, 2009, in partial satisfaction of the obligation. The state court granted a default judgment for Columbia Bank against the Debtor on his guaranty for the remaining $1,659,245.46 on April 23, 2010. That obligation remains outstanding.

b. In Frontier Bank v. Black Lake Estates, et al., 09–2–09503–3, Snohomish County, Frontier Bank sued Black Lake Estates, LLC (one of the Debtor's real estate holdings), the Debtor and Robert Terhune for failure to pay a promissory note of $1,706,000 executed on April 30, 2007. The Debtor had personally guaranteed the note. The maturity date of the note was extended multiple times, the last time from July 15, 2008, to October 15, 2008. An interest payment was made for approximately $9,000 on September 15, 2008, and although due and owing, no subsequent interest payments were made on this loan. Although Frontier Bank did not serve process on the Debtor until at least May 29, 2009, presumably he would have anticipated litigation if the loan was not repaid. The state court granted summary judgment for Frontier Bank against the Debtor on April 22, 2010, and that obligation remains unpaid.

c. In Anchor Bank v. Oakland Bay Estates, LLC, 09–2016750–3, Pierce County, Anchor Bank sued Oakland Bay Estates, LLC (one of the Debtor's real estate holding LLCs), the Debtor and once again his business partner, Robert Terhune, for failure to pay a promissory note of $588,250 executed on March 13, 2006. The Debtor had personally guaranteed the note. The maturity date of the note was extended multiple times, the last time from July 1, 2008, to January 1, 2009, although the extension was not signed until the day after the Trust was signed. On September 30, 2008, an interest reserve account was established on the company's books and interest payments were applied against this account until funds were reduced to zero in February 2009; no subsequent interest payments were made on this loan. The state court granted summary judgment in favor of Anchor Bank against the Debtor on April 23, 2010. The obligation remains unpaid.

d. In a separate action Anchor Mutual Savings Bank v. Terhune et. al., 10–2–16750–3, Anchor Bank sued the Debtor and Mr. Terhune for Oakland Bay Estates' failure to pay a different promissory note of $1,101,750 executed on January 23, 2006. The Debtor had personally guaranteed the note. The maturity date of the note was extended multiple times, the last time from July 1, 2008, to January 1, 2009, although the extension was not signed until September 24, 2008. On September 30, 2008, an interest reserve account was established on the company's books and interest payments were applied against this account until funds were reduced to zero in February 2009. No subsequent interest payments were made on this loan. The state court granted summary judgment against the Debtor on April 23, 2010.

It is well documented that in 2007 and 2008 nationally, as well as locally, the real estate market began to deteriorate due to the collapse of the subprime mortgage market and the implementation of more restrictive lending standards. On August 19, 2008, Kevin Huber, on behalf of his father, emailed attorney Harold Snow, an estate planning attorney, because “[m]y father has some assets that he would like to protect and shield.” The Debtor subsequently retained Mr. Snow to set up an asset protection trust, called the Donald Huber Family Trust (Trust), which was established on September 23, 2008....