Calvert v. Erdman (In re Nw. Territorial Mint, LLC)
| Decision Date | 28 March 2018 |
| Docket Number | Case No. 16-11767-CMA,Adv. Case No. 16-01217-CMA |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Western District of Washington |
| Parties | IN RE NORTHWEST TERRITORIAL MINT, LLC, Debtor. Mark Calvert, as Chapter 11 Trustee of Northwest Territorial Mint, LLC, Plaintiff, v. Diane Erdman, an individual, Defendant. |
Michael J. Gearin, David C. Neu, Brian T. Peterson, K & L Gates LLP, Seattle, WA, for Plaintiff.
James E. Dickmeyer, Kirkland, WA, Allen Lichtenstein, Las Vegas, NV, Defendant.
The Court conducted a bench trial in this adversary proceeding on January 30 and 31, 2018. David Neu and K & L Gates LLP represented Plaintiff Mark Calvert, the Chapter 11 Trustee (the "Trustee") of the estate of Northwest Territorial Mint, LLC (the "Mint"). Thomas Quinlan and Smith Alling PS represented Defendant Diane Erdmann. The Court requested additional briefing and heard closing arguments on February 6, 2018, and then took the matter under advisement.
At trial, the Trustee asserted the Mint's payment of Ms. Erdmann's personal American Express bills gave rise to claims of constructive and intentional fraudulent transfers under the Washington Uniform Fraudulent Transfer Act and United States Bankruptcy Code, and a claim of unjust enrichment under Washington State law. Ms. Erdmann asserted that the obligations satisfied by the payments to American Express largely benefitted the Mint and contested liability.
For the reasons stated below, the Court finds and concludes that the Mint's payments to American Express were for the benefit of Ms. Erdmann, the Mint did not receive reasonably equivalent value for the payments, and the Mint knew or should have known it was unable to pay its debts when they became due when it made the payments. However, Ms. Erdmann is entitled to credit for the value conveyed to the Mint with each payment. The Court will enter judgement against Ms. Erdmann and in favor of the Trustee for an amount equal to the transfers, less the charges on the American Express account that were for business purposes.
The Mint filed a voluntary petition under chapter 11 of the Bankruptcy Code on April 1, 2016 (the "Petition Date"). At the time of the filing, the Mint billed itself as the largest private mint in the United States, employing approximately 240 employees at facilities in six states. The Mint's business operations included custom minting of medals and commemorative coins as well as on-line and walk-in sale of precious metals and coins. Ross Hansen was the 100% owner, sole manager, sole member, and Chief Executive Officer of the Mint. Seven days after commencing its voluntary case, the Mint stipulated to the appointment of a chapter 11 trustee, and the Court approved the appointment of Mark Calvert just four days later.
Ms. Erdmann and Mr. Hansen met in 1997, when Ms. Erdmann purchased gold and silver coins from the Mint. The two of them have lived together since 2000. While they claim to maintain separate bank accounts, Ms. Erdmann and Mr. Hansen jointly own pets and share household expenses. Mr. Hansen is considered the "breadwinner" and Ms. Erdmann ensures payment of household bills. Ms. Erdmann worked at the Mint as vault manager, a role that required her to control the flow and fulfillment of customer orders and to keep control over precious metal inventory. Though she worked long hours—up to 100 hours per week, according to Mr. Hansen—she never received any salary, benefits, or compensation from the company.
In 2000, Diane Erdmann opened an American Express Platinum account (the "Amex Account"). While the Mint was not an account holder, Ms. Erdmann authorized Mr. Hansen to charge purchases on the account. Ms. Erdmann received one reward point for every dollar charged, and she linked the Amex Account to her Amazon.com and PayPal.com accounts. Both Ms. Erdmann and Mr. Hansen charged the Mint business-related expenses on the Amex Account. Neither Mr. Hansen nor the Mint were ever liable to American Express for the amounts charged on Ms. Erdmann's account.
Each month, Mr. Hansen and Ms. Erdmann charged numerous purchases on the Amex Account. Ms. Erdmann acknowledged that they used the account for both business and personal reasons to obtain reward points, which they could in turn use to purchase goods and services. During the four-year period before the commencement of the chapter 11 case, Ms. Erdmann accrued approximately 3.5 million Amex reward points. While contending that the Mint used most of these points, Ms. Erdmann conceded that she used some of them to acquire items for herself and Mr. Hansen.
The Trustee alleges Ms. Erdmann and Mr. Hansen made numerous monthly charges on the account during the four-year period prior to the petition date for their personal benefit. The Trustee has categorized those charges and determined the amounts spent in each category. The expenditures identified by the Trustee as personal include the following in the stated approximate amounts:
The Trustee offered a summary of the charges he contends were personal in nature for each month. Exh. P-35. Ms. Erdmann testified extensively on these alleged personal charges. While disputing the personal categorization of some of the charges, Ms. Erdmann essentially confirmed that most of the expenses in most of these categories were personal in nature.
Medical: Ms. Erdmann admitted that she and Mr. Hansen incurred the charges listed in this category for personal reasons, even though she did not agree that all of the listed charges were for medical treatment.
Fitness/Beauty Products, Clothing/Apparel, and Home Improvement/Crafts: Ms. Erdmann guessed that some of the expenses might have been gifts for company employees or somehow related to the business, but conceded many of the charges must have been personal. Her inability to identify a credible basis for when or why she or Mr. Hansen would allegedly buy employee gifts, coupled with a lack of any corporate documents or records to support this practice, leads the Court to reject her testimony that many, if any, of the these charges were corporate gifts.
Vet/Pet-Related: Ms. Erdmann asserted that some of the charges could have been for military identification tags for service dogs, but acknowledged that most of the charges were for the dogs she and Mr. Hansen owned.
Gas/Auto: Ms. Erdmann acknowledged these charges included gas that went into vehicles that she and Mr. Hansen owned, but she testified the Mint used her vehicle and therefore the gas charges were business expenses. She provided no company records or tax returns to support her claim that the company used her vehicle to such an extent that she was entitled to have the company pay for gas for her personal or non-business travel. The Trustee did include charges for plane tickets on the list of Gas/Auto expenses that should have been included in the Travel/Lodging category. Given the timing and frequency of the charges, it does appear that these plane tickets were more likely than not for business trips.
Grocery, Drug, and Convenience Stores and Costco/Sam's Club (collectively the "Grocery Charges"): Ms. Erdmann asserted that most of these expenses were for the business because she and Mr. Hansen often bought food and supplies for the Mint. On cross-examination, she conceded that after September 2012, the Mint tasked an employee with purchasing food and supplies for the company. She therefore agreed that any Costco/Sam's Clubs charges after that time were almost entirely personal. Further, Ms. Erdmann admitted that whenever she made Grocery Charges for the company, she always included items for personal use and consumption and that she always used the Amex Account to buy all household groceries to obtain the rewards points. Finally, after the Mint commenced this case and Ms. Erdmann and Mr. Hansen ceased using the Amex Account for Mint business, they continued to make sizable Grocery Charges that were comparable in amount to the pre-petition purchases. See Exh. P-35 and Exh. P-2.
Entertainment and Travel/Lodging: Ms. Erdmann testified she had stopped traveling for work after 2012 and admitted that many of expenses were personal, but nonetheless declared that she considered many of these expenses to be business-related. These expenses included tickets and travel to Disneyland, science-fiction conventions, concerts, and other entertainment venues. Ms. Erdmann acknowledged she attended these events, but she noted that on many occasions one or more Mint employees accompanied her at the Mint's expense, purportedly as a bonus or benefit to the employee. She concluded that if an employee went to the event, the entire expense was business-related. Ms. Erdmann conceded, however, that these employees were all friends. Further, she had no decision-making authority at the Mint, and neither she nor Mr. Hansen testified that Mr. Hansen had either authorized any of the alleged employee benefits or granted Ms. Erdmann the authority to do so. Finally, Ms. Erdmann offered no company financial records, tax returns, or documents to support her claim that the Mint distributed bonuses in the form of tickets for entertainment or travel. The Court finds Ms. Erdmann's testimony is not credible and is merely an after-the-fact justification for these Entertainment and Travel expenses that were for her personal benefit.
PayPal: Ms. Erdmann...
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