Bird v. Lynn E. Wardley, an Individual, & Am. Benefits Co. (In re White), Bankruptcy Number: 14-25727
| Decision Date | 28 March 2018 |
| Docket Number | Bankruptcy Number: 14-25727,Adversary Proceeding No. 16-02089 |
| Parties | In re: THEODORE WILLIAM WHITE, JR. and PORSCHA SHIROMA, Debtors. J. KEVIN BIRD, an Individual, Plaintiff, v. LYNN E. WARDLEY, an Individual, and AMERICAN BENEFITS COMPANY, INC., Defendants. |
| Court | U.S. Bankruptcy Court — District of Utah |
Hon. Kevin R. Anderson
Theodore William White, Jr. ("White" or the "Debtor") and Lynn E. Wardley ("Wardley") were engaged in several business transactions wherein Wardley would advance funds and the Debtor would operate the businesses. Wardley allegedly advanced over $1.5 million toward these ventures, for which the Debtor was allegedly directly or indirectly liable. The loans were generally evidenced by notes signed by the Debtor. In December 2010, Wardley and the Debtor formed an entity called ABC Club that Wardley would fund and the Debtor would operate. In connection therewith, the Debtor signed a guaranty to repay up to $750,000 of Wardley's advances to ABC Club. During this time, the Debtor's primary asset was a judgment for $15 million. In July of 2011, the Debtor collected on the judgment and immediately made two transfers to Wardley of $750,000 each in payment on the notes, the guaranty, and other loans.
Almost three years later on May 30, 2014, the Debtor and his spouse, Porscha Shiroma ("Shiroma"), filed a voluntary Chapter 7 bankruptcy petition. J. Kevin Bird was appointed as the Chapter 7 Trustee ("Trustee"). On May 30, 2016, the Trustee filed this adversary proceeding against Wardley and American Benefits Company, Inc. The Trustee amended his complaint on September 15, 2017 (the "Complaint").1 The Complaint seeks to recover the Debtor's allegedly fraudulent transfers to Wardley under 11 U.S.C. §§ 544, 550, and the Utah Uniform Fraudulent Transfer Act ("UUFTA").2
The matter before the Court is Wardley's motion for summary judgment, which argues that the Debtor received "reasonably equivalent value in exchange" for the transfers pursuant to Utah Code Ann. §§ 25-6-5(1)(b) and 25-6-6(1)(a).3 The Court held a hearing on Wardley's motion for summary judgment on January 9, 2018 and a continued hearing on January 17, 2018. The Court has reviewed the briefing, including the exhibits attached to Wardley's motion4 and the Trustee's memorandum in opposition,5 and has conducted its own independent research of applicable law.For the reasons set forth in this memorandum decision, the Court denies in part and grants in part Wardley's motion for summary judgment.
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(a) & (b) and 157(b). Wardley's motion for summary judgment is a core proceeding under 28 U.S.C. § 157(b)(2)(H). Venue is appropriate in this District under 28 U.S.C. §§ 1408 and 1409, and notice of the hearing was properly given.
Wardley's Motion for Summary Judgment centers on whether the Debtor received "reasonably equivalent value in exchange" for the transfers to Wardley. The following factual statements from Wardley's Motion for Summary Judgment,6 the Debtor's Memorandum in Opposition,7 and Wardley's Reply8 are undisputed:9
A. The Consolidated Note for $600,000 and the $78,000 in Advances
1. On or about October 1, 2010, White and his wife Shiroma, executed a promissory note (the "First Cascade Note") in the amount of $100,000 payable to Cascade Lending Resources, LLC ("Cascade")—a company Wardley owns and controls.10
2. On or about October 21, 2010, White and Shiroma executed a promissory note (the "Second Cascade Note") in the amount of $100,000 payable to Cascade—a company Wardley owns and controls.11
3. Pursuant to a subsequent agreement between White and Wardley, which was memorialized in writing, the original principal amount owed under the Second Cascade Note was increased from $100,000 to $200,000.12
4. On or about November 9, 2010, White and Shiroma executed a promissory note (the "Wardley/Brennan Note") in the amount of $100,000 payable to Wardley and Lyle E. Brennan.13
5. On or about December 17, 2010, White and Shiroma executed a promissory note (the "Third Cascade Note") in the amount of $100,000 payable to Cascade—a company Wardley owns and controls.14
6. In connection with and in consideration for the First Cascade Note, the Second Cascade Note, the Third Cascade Note, and the Wardley/Brennan Note, Wardley made the following advances of at least $110,50015 for White's use and benefit:
a. $50,000 check on October 21, 2010;
b. $10,000 check on November 23, 2010;
c. $10,500 wire transfer on December 14, 2010; and d. $40,000 check processed on December 17, 2010.
7. On or about February 19, 2011, White and Shiroma executed a promissory note (the "Consolidated Note") in the amount of $600,000 payable to Wardley.16
8. In consideration for the Consolidated Note, which recognized the benefits of the previous loans made to White and Shiroma, Wardley made the following additional loans for White's personal use and benefit:
a. $30,000 wire transfer on February 16, 2011; and
b. $20,000 check on February 22, 2011.17
9. Following execution of the Consolidated Note, Wardley personally, and through companies he owned and controlled, continued to advance funds to or for the benefit of White, and Wardley expected to be repaid for the same. These advances included at least $78,000, evidenced through the following transactions:
a. $5,000 check processed on April 4, 2011;
b. $15,000 wire transfer on April 7, 2011;
c. $32,000 wire transfer on April 11, 2011;
d. $10,000 check processed on May 5, 2011;
10. On October 1, 2010, BayHill Capital Corporation ("BayHill Capital") loaned $75,000 to American One Benefits Company, LLC; Frogboss, LLC; and American Senior Benefits Company (the "American Benefits Entities") in exchange for that certain American One Benefits Company Secured Promissory Note, dated October 1, 2010 (the "BayHill Note") in the principal amount of $100,000.19
11. The term of the BayHill Note expired on November 19, 2010.20
12. Under the BayHill Note, BayHill Capital had the right to foreclose on the American Benefits Entities' business and receive all their assets.21
13. On November 19, 2010, the American Benefits Entities executed that certain Agreement for Assignment and Satisfaction, Through Offset, of Promissory Note (the "Assignment"), by which the American Benefits Entities became obligated to Wardley under the BayHill Note in the principal amount of $100,000.22
14. White has never denied his personal liability under the BayHill Note.23
15. The obligors under the BayHill Note were the American Benefit Entities.24
16. The Debtor did not sign the BayHill Note in his individual capacity.25C. The ABC Club Guaranty of $750,
17. For several months prior to December 2010, White solicited Wardley to invest $4 million in American Benefits Company, a company wholly-owned by White or White's other entities.26
18. While Wardley declined to invest in American Benefits Company, Wardley and White agreed, among other things, that they would form a new entity called "ABC Club LLC" ("ABC Club") that Wardley would fund and White would manage, with Wardley receiving a majority interest and White receiving a minority interest.27
19. In December 2010, and based on their agreement, Wardley began advancing funds to ABC Club,28 and White began to oversee its day-to-day affairs.29
20. On April 7, 2011, White, Wardley, and C. David Hester ("Hester") executed an operating agreement for ABC Club with an effective date of December 6, 2010 (the "Operating Agreement").30
21. The Operating Agreement established the following ownership interests in ABC Club: Wardley 82%; White 15%; and Hester 3%.31
22. Between December 2010 and April 2011, Wardley advanced at least $518,000 to ABC Club.32
23. White believed the value of ABC Club was going to be "millions of dollars."33
24. In the Operating Agreement, White agreed to guarantee the repayment of funds advanced by Wardley to ABC Club up to $750,000 (the "Guaranty" or "ABC Guaranty"):
The members acknowledge that Lynn Wardley has lent and may, in his discretion, lend cash to [ABC Club]. The Members anticipate that [ABC Club] will make profits in its business in sufficient amount to repay in full the amounts loaned by Mr. Wardley to [ABC Club] with interest thereon at the agreed rate. Further, [White] acknowledges the personal benefit Mr. Wardley's organization and capitalization of [ABC Club] has provided to Mr. White in the form of his employment by and promotional ownership interest in [ABC Club]. Accordingly, Mr. White hereby personally guarantees the repayment of the full amount of Mr. Wardley's loans up to $750,000 such that to the extent the Company's cash distributions to Mr. Wardley during the first twelve (12) months of the Company's operations (commencing with the first commercial shipment of the card) do not total the amount owed on the loans he has made, Mr. White shall pay Mr. Wardley personally the shortfall. This is an irrevocable and unconditional promise to pay and not a guarantee of [ABC Club's] performance. The calculation of any amount for which Mr. White may be liable to Mr. Wardley shall be made by the Company's accountant at the time the Company ceases operations and dissolves.34
25. As part of the Guaranty, White also assigned his interest in a $15 million judgment to Wardley:
Mr. White holds a judgment in litigation captioned Theodore W. White, Jr. v. Richard McKinley, Case No. 05-203-CV-W-NKL, U.S. District Court for the Western District of Missouri, Western Division. Mr. White hereby partially assigns his interest in such judgment to Mr. Wardley to secure theforegoing personal guaranty, and shall cause his attorneys in that...
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