In re Canyon Systems Corp., Bankruptcy No. 97-33774.
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio |
| Writing for the Court | John E. Hoffman, Jr. |
| Citation | 343 B.R. 615 |
| Parties | In re CANYON SYSTEMS CORPORATION, Debtor. John Paul Rieser, Trustee, Plaintiff, v. Dennis Hayslip, et al., Ron Piljay, et al., Camden Enterprises, Lynn A. Kubal, Rose Kubal, Gail D. Mayes, Gregory N. Mayes, Gregory McCollum, Gerald L. Wendling, Mary A. Wilkie, and Nena Grant, Defendants. |
| Docket Number | Adversary No. 03-2605. [DO Adversary No. 03-2606. [DO Adversary No. 03-2607. [DO Adversary No. 03-2609. [DO Adversary No. 03-2610. [DO Adversary No. 03-2611. [DO Adversary No. 03-2612. [DO Adversary No. 03-2613. [DO Adversary No. 03-2614. [DO Adversary No. 03-2615. [DO Adversary No. 03-2616.,Bankruptcy No. 97-33774. |
| Decision Date | 31 March 2006 |
John Paul Rieser, Trustee, Plaintiff,
v.
Dennis Hayslip, et al., Ron Piljay, et al., Camden Enterprises, Lynn A. Kubal, Rose Kubal, Gail D. Mayes, Gregory N. Mayes, Gregory McCollum, Gerald L. Wendling, Mary A. Wilkie, and Nena Grant, Defendants.
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John Paul Rieser, Patricia Friesinger, Dayton, OH, for Plaintiff.
Thomas R. Noland, Tina Woods, Dayton, OH, for Defendants Huffman, Marohl, Osier, Piljay, Camden Enterprises, Lynn A. Kubal, Rose Kubal, McCollum, Wendling, Wilkie and Grant.
Gary C. Schaengold, Dayton, OH, for Defendant Scott Johnson.
Melissa K. Schindler, Dayton, OH, Richard B. Reiling, Springboro, OH, for Defendants Schraeder, Withrow, Julia Carmack and Jeffrey Carmack.
Barry S. Galen, Dayton, OH, for Debtor.
MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART TRUSTEE'S MOTION FOR PARTIAL SUMMARY JUDGMENT
JOHN E. HOFFMAN, JR., Bankruptcy Judge.
Pending before the Court in these adversary proceedings are identical motions for partial summary judgment (collectively, "Motion") filed by the Plaintiff, John Paul Rieser, Chapter 7 Trustee ("Rieser" or "Trustee"), against all remaining defendants ("Defendants") in all remaining adversary proceedings in the bankruptcy case of Canyon Systems Corporation ("Canyon" or "Debtor"). For the reasons explained below, the Motion is granted in part and denied in part.
The Court has jurisdiction to hear and determine these adversary proceedings pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. These are core proceedings. 28 U.S.C. § 157(b)(2).
Canyon filed a voluntary Chapter 11 petition on July 7, 1997 ("Petition Date"), following the collapse of its gold coin sales programs.1 These programs promised participants large profits from purchasing and selling gold bullion coins. Less than a month after the Chapter 11 case was filed, and after the United States Trustee had moved to convert the case to a Chapter 7 liquidation proceeding, or in the alternative to appoint a Chapter 11 trustee, Canyon agreed to convert to Chapter 7. Rieser was appointed Chapter 7 Trustee.
On July 6, 1999, the Trustee filed in excess of 400 adversary proceedings to recover money from individuals and companies who had bought or sold gold coins through one of Canyon's programs. The complaints contain multiple federal and state law causes of action, but the gravamen of each is that prepetition transfers of cash and gold coins made to participants in Canyon's gold coin sales programs — which the Trustee alleges constituted a Ponzi scheme — are subject to avoidance and recovery. On March 29, 2000, Judge William A. Clark, the judge originally assigned to the Canyon case, entered an order reassigning the case and all related adversary proceedings to Judge Hoffman.
After his appointment as Trustee, Rieser pursued a strategy of negotiating settlements with all investors in the alleged Ponzi scheme before forging ahead with
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the litigation against the Defendants, each of whom he asserts played a larger role in Canyon than being a mere investor in the scheme — some were officers, directors and/or key employees of Canyon, while others were relatives of Jackson Johnson ("Jack Johnson"), the founder, President and CEO of Canyon. Thus, the Trustee asked that trial on the complaints naming the Defendants ("Complaints") be deferred until the other nearly 400 adversary proceedings had been resolved. Counsel for the Defendants did not challenge the Trustee's decision to defer a day of reckoning. In fact, counsel for most of the Defendants sought, and received, multiple extensions of time to answer, move or otherwise plead (some spanning more than a year) in response to the Complaints. Over the ensuing several years, Rieser settled or dismissed his claims against all parties to the Canyon adversary proceedings except the Defendants identified below:2
Defendant Relationship with Debtor Amounts Transferred
D. Scott Johnson Son of Founder/CEO 84,570.00 Commissions
("Scott Johnson") Independent Affiliate 209,800.00 Overrides
Individually and 65,200.00 Comp Gold
----------
through DSJ Enterprise 359,570.00 Total
Trust # 1 and
Enterprise Trust # 2
James W. Huffman Director 25,030.00 Commissions
("Huffman") 2,900.00 Overrides
13,950.00 Comp Gold
-----------
41,880.00 Total
John E. Marohl Director Independent 20,500.00 Commissions
("Marohl") Affiliate 2,200.00 Overrides
0.00 Comp Gold
---------
22,700.00 Total
V. William Osier Director 0.00 Commissions
("Osier") 0.00 Overrides
1,195.00 Comp Gold
--------
1,195.00 Total
Ron Piljay Director Independent 15,810.00 Commissions
("Piljay,) Affiliate 2,200.00 Overrides
3,700.00 Comp Gold
---------
21,710.00 Total
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Kim Schraeder Step-daughter of 60,150.00 Commissions
("Schraeder") Founder/CEO Director 15,300.00 Overrides
Individually and Independent Affiliate 30,700.00 Comp Gold
----------
through Trust #1 106,150.00 Total
Lisa Withrow Step-daughter of 46,770.00 Commissions
("Withrow") Founder/CEO Director 9,200.00 Overrides
Individually and Independent Affiliate 33,900.00 Comp Gold
---------
through Trust #1 89,870.00 Total
Julia M. Carmack Daughter of Founder/CEO 41,792.38 Commissions
Independent Affiliate 7,200.00 Overrides
43,550.00 Comp Gold
---------
92,542.38 Total
Jeffrey T. Carmack Son-in-Law of Founder/CEO 220.00 Commissions
Independent Affiliate
2,100.00 Overrides
4,300.00 Comp Gold
--------
6,620.00 Total
Camden Enterprises Independent Affiliate 17,450.00 Commissions
1,800.00 Overrides
---------
19,250.00 Total
Lynn A. Kubal Independent Affiliate 45,330.00 Commissions
6,100.00 Overrides
12,800.00 Comp Gold
---------
64,230.00 Total
Rose Kubal Independent Affiliate 8,358.80 Commissions
800.00 Overrides
8,100.00 Comp Gold
---------
17,258.80 Total
Gail D. Mayes Independent Affiliate 5,860.00 Commissions
1,000.00 Overrides
14,000.00 Comp Gold
---------
20,860.00 Total
Gregory N. Mayes Independent Affiliate 5,340.00 Commissions
500.00 Overrides
48,800.00 Comp Gold
---------
54,640.00 Total
Gregory McCollum Independent Affiliate 71,220.00 Commissions
("McCollum") 7,100.00 Overrides
62,900.00 Comp Gold
---------
141,220.00 Total
Gerald A. Wendling Independent Affiliate 25,260.00 Commissions
("Wendling") 2,500.00 Overrides
57,000.00 Comp Gold
---------
84,760.00 Total
Mary A. Wilkie Independent Affiliate 160,447.97 Commissions
("Wilkie") 63,500.00 Overrides
72,625.00 Comp Gold
----------
296,572.97 Total
Nena Grant Investor 23,300.00 Comp Gold
---------
("Grant") 23,300.00 Total
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By way of the Motion, the Trustee seeks a ruling on the following issues: (1) whether Canyon was engaged in a Ponzi scheme from May 1996 through the Petition Date; (2) whether Canyon was continuously insolvent from its inception in May 1996 through the Petition Date; (3) whether the Trustee may, under § 548 of the Bankruptcy Code,3 avoid all transfers of cash and gold coins made to each Defendant in the one year preceding the Petition Date that were in excess of that Defendant's original investment — sums referred to by the Trustee as the "false profits" received by the Defendants;4 (4) whether the Trustee may, under § 544(b) of the Code and the Ohio Uniform Fraudulent Transfer Act ("UFTA"), avoid all false profits transferred to the Defendants from the time Canyon's gold coin sales programs began in May 1996 through the Petition Date; (5) whether the defense afforded to good-faith transferees for value under § 548(c) of the Code is available to the Defendants; and (6) whether the Trustee may set aside certain obligations, avoid contracts with and/or transfers to the Defendants, and recover damages and reasonable attorney fees from them under § 544 of the Code and Ohio Revised Code §§ 1333.91-1333.95 — the so-called Ohio Pyramid Sales Act.5 Defendants Marohl, Huffman and Piljay also filed a motion for summary judgment ("Cross-Motion") (Doc. 251) in Adv. Pro. No. 03-2605. After the Trustee responded (Doc. 257) and Defendants replied (Doc. 269), the Court heard argument on both the Motion and Cross-Motion. At the conclusion of the argument, the Court entered an oral ruling denying the Cross-Motion, which was journalized by the Order Denying Motion of Defendants John Marohl, James Huffman and Ronald Piljay for Summary Judgment (Doc. 275). The Trustee's Motion was taken under advisement.
Along with the Motion and Cross-Motion, the parties filed a significant quantity of evidentiary material, including a number of deposition transcripts and related exhibits. The parties did not object to the admissibility of any of the exhibits attached to the Motion, the Cross-Motion, the responses or depositions.6
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Canyon was incorporated in Delaware in 1989 or 1990. (Section 341 Meeting of Creditors Transcript of Proceedings ("341 Tr.") 20.) Canyon was a dormant corporation until mid-May 1996, when it began operating in Ohio under the name of Canyon Coin Collectors ("CCC"). (341 Tr. 20-21, 27.) The company conducted business in 30 states from its main office in Kettering, Ohio and briefly opened small offices in Safety Harbor, Florida and Johnstown, Pennsylvania. (341 Tr. 21, 23, 26.)
Canyon was the brainchild of Jack Johnson, the company's President and CEO.7 (341 Tr. 12.)...
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In re Llp, Bankruptcy No. 09–15051 (SMB).
...transfers were made with the intent to hinder, delay and defraud investors.”) (citing cases); Rieser v. Hayslip (In re Canyon Sys. Corp.), 343 B.R. 615, 637 (Bankr.S.D.Ohio 2006) (stating that “bankruptcy [and other] courts nationwide have recognized that establishing the existence of a Pon......
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Bash v. Textron Fin. Corp. (In re Fair Fin. Co.), 15-3854
...collapsed and left hundreds of unsophisticated Ohio investors holding the bag. See, e.g. , Rieser v. Hayslip (In re Canyon Sys. Corp.) , 343 B.R. 615, 636–37 (Bankr. S.D. Ohio 2006) (compiling cases in which transfers made in the course of a Ponzi scheme were determined to have been made wi......
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Tabor v. Davis (In re Davis), Case No. 05-15794-L
...F.3d 361 (6th Cir. 1995) (unpublished table decision), available at 1995 WL 764130, at *3; Rieser v. Hayslip (In re Canyon Systems Corp.), 343 B.R. 615, 650-51 (Bankr. S.D. Ohio 2006), also citing Blazo. "In order to establish a defense to avoidability, a transferee must show both that the ......
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In re Bernard L. Madoff Inv. Sec. Llc, Bankruptcy No. 08–01789 (BRL).
...those payments are voidable as fraudulent transfers.”) (internal quotations omitted); Rieser v. Hayslip (In re Canyon Sys. Corp.), 343 B.R. 615, 643–46 (Bankr.S.D.Ohio 2006); Soulé v. Alliot (In re Tiger Petroleum Co.), 319 B.R. 225, 239 (Bankr.N.D.Okla.2004); Lake States Commodities, 253 B......
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In re Llp, Bankruptcy No. 09–15051 (SMB).
...transfers were made with the intent to hinder, delay and defraud investors.”) (citing cases); Rieser v. Hayslip (In re Canyon Sys. Corp.), 343 B.R. 615, 637 (Bankr.S.D.Ohio 2006) (stating that “bankruptcy [and other] courts nationwide have recognized that establishing the existence of a Pon......
-
Bash v. Textron Fin. Corp. (In re Fair Fin. Co.), 15-3854
...collapsed and left hundreds of unsophisticated Ohio investors holding the bag. See, e.g. , Rieser v. Hayslip (In re Canyon Sys. Corp.) , 343 B.R. 615, 636–37 (Bankr. S.D. Ohio 2006) (compiling cases in which transfers made in the course of a Ponzi scheme were determined to have been made wi......
-
Tabor v. Davis (In re Davis), Case No. 05-15794-L
...F.3d 361 (6th Cir. 1995) (unpublished table decision), available at 1995 WL 764130, at *3; Rieser v. Hayslip (In re Canyon Systems Corp.), 343 B.R. 615, 650-51 (Bankr. S.D. Ohio 2006), also citing Blazo. "In order to establish a defense to avoidability, a transferee must show both that the ......
-
In re Bernard L. Madoff Inv. Sec. Llc, Bankruptcy No. 08–01789 (BRL).
...those payments are voidable as fraudulent transfers.”) (internal quotations omitted); Rieser v. Hayslip (In re Canyon Sys. Corp.), 343 B.R. 615, 643–46 (Bankr.S.D.Ohio 2006); Soulé v. Alliot (In re Tiger Petroleum Co.), 319 B.R. 225, 239 (Bankr.N.D.Okla.2004); Lake States Commodities, 253 B......