In re Republic Financial Corp.
| Decision Date | 06 July 1987 |
| Docket Number | Adv. No. 85-0304.,Bankruptcy No. 84-01460 |
| Citation | 75 BR 840 |
| Parties | In re REPUBLIC FINANCIAL CORPORATION, an Oklahoma corporation, Debtor. R. Dobie LANGENKAMP, Successor Trustee, Plaintiff, v. Kenneth D. MOORE and Mary L. Moore, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Oklahoma |
Sam G. Bratton, II, John J. Carwile, Richard H. Foster, Doerner, Stuart, Saunders, Daniel & Anderson, Tulsa, Okl., for plaintiff.
William E. Rutledge, Tony W. Haynie, Conner & Winters, Hal F. Morris, Chapel, Wilkinson, Riggs, Abney & Henson, Tulsa, Okl., for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This matter came on for trial before the Court on June 1, 1987. The plaintiff was represented by Sam G. Bratton, II, John J. Carwile, and Richard H. Foster, of Doerner, Stuart, Saunders, Daniel & Anderson, Tulsa, Oklahoma; the defendants were represented by William E. Rutledge and Tony W. Haynie, of Conner & Winters, Tulsa, Oklahoma, and Hal F. Morris, of Chapel, Wilkinson, Riggs, Abney & Henson, Tulsa, Oklahoma. Trial was concluded on June 5, 1987, at which time the Court took this matter under advisement.
The Court, now having duly considered the evidence presented to it, together with the memoranda and arguments of counsel, makes the following Findings of Fact and Conclusions of Law.
1. Plaintiff is the successor trustee of the estate of Republic Financial Corporation ("RFC"), the debtor in the above-captioned bankruptcy proceeding.
2. This chapter 11 bankruptcy proceeding was commenced on September 24, 1984.
3. Jack D. Jones was appointed trustee in the case on October 31, 1984.
4. R. Dobie Langenkamp was appointed successor trustee in the case on May 9, 1986, effective May 16, 1986.
5. RFC was an uninsured financial institution, principally engaged in the business of issuing evidence of debt and the making of commercial and personal loans, both secured and unsecured.
6. On or about April 4, 1984, in exchange for cash or other valuable consideration from the defendants worth $91,000.00, RFC issued to the defendants that certain thrift certificate number 1401423, dated April 4, 1984, in the principal amount of $91,000.00.
7. During the 90-day period immediately preceding the date of the filing of the bankruptcy petition herein, RFC made the following transfers of its property to or for the benefit of the defendants (hereinafter "the transfers"), to-wit:
DATE AMOUNT
July 10, 1984 $91,000.00
August 29, 1984 2,187.17
September 18, 1984 2,027.11
8. The transfers of $2,187.17 and $2,027.11 on August 29 and September 18, 1984, respectively, were wire transfers to Republic Trust & Savings Company, an affiliate of RFC. The transfer on July 10, 1984 was made through RFC check number 45278, in the amount of $91,000.00, which the defendants received and defendant Kenneth D. Moore endorsed.
9. The principal asset of RFC was its loan portfolio.
10. The liabilities of RFC consisted primarily of its obligations to purchasers of its thrift certificates and passbook thrift certificates.
11. RFC was primarily a collateral lender.
12. Prior to September 24, 1984, RFC routinely engaged in unsafe and unsound lending practices. These practices included:
13. On June 29, 1984, through a corporate reorganization referred to as "the divestiture," ownership of RFC was transferred from its parent corporation, Republic Bancorporation, Inc. ("Old RBI") to a newly formed parent corporation, also known as Republic-bancorporation, Inc. ("New RBI"). Prior to the divestiture, Old RBI was indebted to RFC in the amount of $1.5 million. In the divestiture transaction, this debt was transferred to New RBI. As a result of the divestiture, RFC encountered significant and devastating liquidity problems, and the divestiture seriously impaired RFC's ability to raise capital.
14. The general ledger balance sheets for RFC show a $1.5 million to either Old RBI or New RBI as an asset on every day from June 25, 1984 to September 24, 1984.
15. On the date of the transfers at issue herein and at all times during the 90-day period immediately preceding the filing of the bankruptcy petition New RBI was completely unable to repay the $1.5 million loan, and the fair value of this loan was zero.
16. The debtor's schedules list property totaling $21,604,279.67 and debts of $25,196,162.30, as of September 24, 1984, the date of the filing of RFC's petition.
17. Harold J. Madigan, an independent loan portfolio expert, rendered an opinion that on June 25, 1984, 52 loans in RFC's loan portfolio were overvalued in the amount of at least $11,914,917.00, and he further rendered an opinion that a write-down or reserve against these loans in this amount was appropriate. A write-down or reserve against these loans in the amount of the overvaluation would render RFC insolvent on June 25, 1984.
18. Touche, Ross & Co. was retained by the trustee to perform a comprehensive investigation and analysis of RFC's affairs and condition. Richard Spillers on behalf of Touche, Ross & Co. rendered an opinion that on June 25, 1984, RFC's assets were overvalued in the amount of at least $8,001,000.00. Spillers further rendered an opinion that a write-down or reserve against the assets of RFC in the amount of the overvaluation would render RFC insolvent on June 25, 1984.
19. Harold J. Madigan, an independent loan portfolio expert, also rendered an opinion that on September 24, 1984, 30 loans in RFC's loan portfolio were overvalued in the amount of at least $12,040,413.00, and he further rendered an opinion that a write-down or reserve against these loans in this amount was appropriate. A write-down or reserve against these loans in this amount would render RFC insolvent on September 24, 1984.
20. Touche, Ross & Co. reviewed the debtor's financial statements for each of the 90 days next preceding the filing of the debtor's petition and was of the opinion that RFC was insolvent on each such date.
21. There were no developments from June 25, 1984 to September 24, 1984 that improved the financial condition of RFC.
22. The affirmative evidence offered by defendants to support a claim of solvency consisted of the testimony of Ansil L. Ludwick, former president of RFC, the testimony of Paul Anderson, former vice chairman of RFC, and the unaudited daily general ledger balance sheets for RFC prepared during the 90-day period prior to bankruptcy.
23. From June 25, 1984 to September 24, 1984 the loan portfolio asset values shown on the RFC general ledger balance sheets were significantly overstated.
24. The Court finds the daily general ledger balance sheets to be unreliable evidence of RFC's financial condition or its asset value from June 25, 1984 to September 24, 1984.
25. The Court finds that the testimony of Ansil L. Ludwick and Paul Anderson that RFC was solvent from June 25, 1984 to September 24, 1984 is not credible and is contradicted by the evidence introduced by the plaintiff.
26. The RFC estate's lawsuit against Aetna Casualty and Surety Company ("Aetna") is a contingent, inchoate, and speculative claim, and cannot be rendered available for payment of the RFC estate's debts within a reasonable period of time. The Court finds that this cause of action is an asset of the estate. However, in light of the nature of the claim and the evidence before the Court, for the purposes of the test for insolvency under § 547(b)(3) and the test for greater recovery under § 547(b)(5), the Court finds the value of this asset to be zero.
27. The RFC estate's lawsuit against Peat, Marwick, Mitchell & Co. is a contingent, inchoate, and speculative claim, and cannot be rendered available for payment of the RFC estate's debts within a reasonable period of time. The Court finds that this cause of action is an asset of the estate. However, in light of the nature of the claim and the evidence before the Court, for the purposes of the test for insolvency under § 547(b)(3) and the test for greater recovery under § 547(b)(5), the Court finds the value of this asset to be zero.
28. There is no evidence of the existence of any claims or causes of action, other than collections, that could be rendered available for payment of the RFC estate's debts within a reasonable period of time.
29. On June 25, 1984, the fair value of RFC's debts exceeded the fair value of its assets.
30. On each and every day in the period from June 25, 1984 to September 24, 1984, and including the dates of the transfers at issue, the sum of RFC's debts exceeded the fair value of its assets, and therefore RFC was insolvent on those dates within the meaning of § 547 of the Bankruptcy Code.
31. The transfers on July 10, August 29, and September 18, 1984 were in payment of RFC's obligations to ...
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