Kriegman v. Mirrow (In re LLS Am., LLC)
| Decision Date | 10 February 2015 |
| Docket Number | No. 2:14–CV–268–RMP.,Bankruptcy No. 09–06194–FPC11.,2:14–CV–268–RMP. |
| Citation | 526 B.R. 841 |
| Parties | In re LLS AMERICA, LLC, Debtor. Bruce P. Kriegman, solely in his capacity as court-appointed Chapter 11 Trustee for LLS America, LLC, Plaintiff, v. Angela Mirrow, et al., Defendants. |
| Court | U.S. District Court — District of Washington |
Daniel J. Gibbons, Michael John Kapaun, Michael Lee Loft, Ross P. White, Shelley N. Ripley, Thomas Dean Cochran, Witherspoon Kelley Davenport & Toole, Spokane, WA, for Plaintiff.
Gregg Randall Smith, Paine Hamblen LLP, Spokane, WA, for Defendants.
Matthew Bowolin, CA, pro se.
Richard Jordan, Downey, CA, pro se.
Connie Konsulis, Cedar Grove, NJ, pro se.
Lisa Sarah Omand, CA, pro se.
Shanna Bowolin, CA, pro se.
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT
Before the Court is Plaintiff's Motion for Summary Judgment against Defendant Angela Mirrow. ECF No. 26. On December 18, 2014, the parties presented oral argument. Michael L. Loft appeared on behalf of Plaintiff. Defendant was represented by Gregg R. Smith. The Court has considered the parties' arguments and all relevant filings. The Court is fully informed.
This matter is an adversary proceeding within the bankruptcy of the LLS Companies (“Debtor”), an extensive Ponzi scheme. Defendant's husband, Alex Mirrow, arranged for the investment of large sums of money in Debtor, both through his companies and by recruiting new lenders. See 2:11–cv–00362–RMP, ECF No. 219 at 10–18. Although the cases of Defendant and her husband originally were to be tried together, the parties stipulated to holding a separate trial for Defendant in light of her right to a trial by jury. See 2:11–cv–00362–RMP, ECF No. 114.
On December 16, 2005, Alex Mirrow arranged for $200,000 to be loaned to Debtor from a line of credit that Weigh Station LLC held. See ECF No. 28–2 at 23. Defendant had no ownership interest in Weigh Station LLC, which was owned by her husband. ECF No. 28–2 at 23. However, at Alex Mirrow's request, Debtor issued an unsigned promissory note for the $200,000 loan in Defendant's name. See ECF Nos. 28–4 at 116; 34–1. Until this litigation began, Defendant was not aware that the December 2005 promissory note had been made in her name, nor did she know that on December 19, 2006, the note had been converted into a new note in the name of Save It, LLC. ECF Nos. 27 at 4; 33 at 3; see also ECF No. 287 at 143–44 (December 2006 promissory note).
In relation to the promissory note, Debtor sent the Mirrows post-dated checks payable to “A. Mirrow.” ECF No. 27 at 4. At her husband's request, Defendant signed at least eleven of the checks, each of which was in the amount of $7,167. ECF No. 33 at 2–3. Debtor issued additional checks in various amounts payable to “A. Mirrow,” some of which were signed by Alex Mirrow. See ECF Nos. 28–3; 33 at 3–4. Defendant asserts that the checks for amounts other than $7,167 were issued in consideration of other promissory notes or commissions owed to Alex Mirrow, not in relation to the 2005 promissory note. ECF No. 31 at 7–8. It is undisputed that all of the “A. Mirrow” checks at issue in this matter, totaling $139,256.29 USD, were deposited into the Mirrows' family bank accounts. See ECF Nos. 27 at 5; 28–6 at 10.
Alex Mirrow filed a proof of claim in Debtor's bankruptcy but did not assert a right to credit for the December 2005 loan. See ECF No. 28–8. Alex Mirrow included the December 2005 loan, however, in the proof of claim that he filed on behalf of Save It, LLC. See ECF No. 28–9 at 157. Defendant did not file a proof of claim in Debtor's bankruptcy. ECF No. 28 at 3–4. In Alex Mirrow's case, the Court included the $200,000 December 2005 deposit in its calculation of the total amount that Save It, LLC had invested in Debtor. See ECF No. 28–6 at 3 and 2:11–cv–00362–RMP, ECF No. 219 at 17.
Plaintiff seeks judgment against Defendant for $139,256, which is the amount of payments and commissions that the Court found that Alex Mirrow personally had received from Debtor, 2:11–cv–00362–RMP, ECF No. 219 at 18. Defendant disputes this amount, claiming that the full amount that Plaintiff could claw back would be $78,837, the proceeds that she claims that Debtor transferred as payment for the December 2005 loan. See ECF No. 31 at 7–8, 13. Defendant further contends that this figure should be subtracted from the $200,000 investment made in December 2005, such that Defendant would be a net-negative investor. See ECF No. 28–11 at 198.
Plaintiff moves for summary judgment, asserting that the fact and amount of the deposits is not in dispute and that Defendant cannot succeed under the defense of good faith. Defendant argues that multiple issues must be resolved by a jury.
Summary judgment is appropriate when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The party asserting the existence of an issue of material fact must show “ ‘sufficient evidence supporting the claimed factual dispute ... to require a jury or judge to resolve the parties' differing versions of the truth at trial.’ ” T.W. Elec. Serv. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987) (quoting First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 288–89, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968) ). The nonmoving party “may not rely on denials in the pleadings, but must produce specific evidence, through affidavits or admissible discovery material, to show that the dispute exists.” Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir.1991).
In deciding a motion for summary judgment, a court must construe the evidence and draw all reasonable inferences in the light most favorable to the nonmoving party. T.W. Elec. Serv., 809 F.2d at 630–31.
The Court has held that Debtor was a Ponzi scheme and that transfers made from Debtor in furtherance of that scheme constitute actual fraud. See 2:11–cv–00357–RMP, ECF No. 92. However, a transferee of a fraudulent transfer may keep funds that it took for reasonably equivalent value and in good faith. See 11 U.S.C. § 548(c) ; RCW 19.40.081(a). As recipients of transfers that constitute actual fraud, the burden of proof in establishing the affirmative defense of good faith is on the transferees. In re Agric. Research and Tech. Grp., Inc., 916 F.2d 528, 535 (9th Cir.1990) ; 5 Collier on Bankruptcy ¶ 548.09[2][c] at 548–98.2 (16th ed. 2011).
The parties dispute whether Defendant may rely on the December 2005 loan to Debtor as reasonably equivalent value for any transfers received from Debtor. Defendant contends that the 2005 loan constitutes reasonably equivalent value because of the indirect benefit rule.
The indirect benefit rule provides that “ ‘reasonably equivalent value can come from one other than the recipient of the payments....' ” In re N. Merch., Inc., 371 F.3d 1056, 1058 (9th Cir.2004) (quoting In re Jeffrey Bigelow Design Grp., Inc., 956 F.2d 479, 485 (4th Cir.1992) ); see also Kreidler v. Cascade Nat. Ins. Co., 179 Wash.App. 851, 862–63, 321 P.3d 281 (2014) (). In Northern Merchandise , a debtor's shareholders borrowed money from Frontier Bank after the bank had refused to loan the funds to the debtor. 371 F.3d at 1057. The bank understood that the debtor would use the funds for its business operations and the bank even deposited the money directly into the debtor's account. Id. On the same day that the shareholders entered into the loan, the debtor granted Frontier Bank a security interest in its inventory and other property. Id. at 1058.
The debtor in Northern Merchandise later ended its business and sold its inventory. Id. at 1058. Frontier Bank was repaid for the loan from the proceeds from the sale of the debtor's inventory. Id. A bankruptcy petition was filed, and the trustee contended that the money that the shareholders had borrowed technically was a capital contribution rather than a loan, such that the debtor was not obligated to grant Frontier Bank a security interest. Id. at 1059. The trustee argued that the debtor had not received reasonably equivalent value, supporting the trustee's assertion that the grant of a security interest and transfers to Frontier Bank to satisfy the loan were fraudulent. See id. at 1058.
The Ninth Circuit rejected the trustee's view as too formalistic. “Although Debtor was not a party to the ... loan, it clearly received a benefit from that loan.” Id. at 1059. The court explained that “the primary focus of Section 548 is on the net effect of the transaction on the debtor's estate and the funds available to the unsecured creditors.” Id. Because the debtor received the same value from the loan as it transferred to Frontier Bank, its grant of a security interest “resulted in no net loss to Debtor's estate nor the funds available to the unsecured creditors.” See id.
Here, Plaintiff argues that the indirect benefit rule does not apply. Plaintiff explains that the deposit already was attributed to Save It, LLC in Alex Mirrow's case; that the promissory note in Defendant's name was re-issued in the name of Save It, LLC; and that the Court already has determined that Alex Mirrow and Save It, LLC did not meet the objective standard of good faith. ECF No. 26 at 7. Plaintiff also distinguishes Northern Merchandise because that case concerned a legitimate business debtor rather than a Ponzi scheme and because, unlike Defendant, Frontier Bank undisputedly had paid money that was received by the debtor.
The root of the disagreement between the parties appears to be that the “indirect benefit” in ...
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