Waldron v. Fed. Deposit Ins. Corp. (In re Venture Fin. Grp., Inc.)

Decision Date09 September 2016
Docket NumberCase No. 13-46392-BDL,Adversary No. 14-04194-BDL
Citation558 B.R. 386
CourtU.S. Bankruptcy Court — Western District of Washington
Parties In re: Venture Financial Group, Inc., Debtor. Mark D. Waldron, as Chapter 7 Trustee for Venture Financial Group, Inc. Plaintiff, v. Federal Deposit Insurance Corporation, in its capacity as Receiver of Venture Bank Defendant.

Dillon E. Jackson, Foster Pepper PLLC, Seattle, WA, for Plaintiff.

C. Marie Eckert, Miller Nash LLP, Teresa H. Pearson, Miller Nash Graham & Dunn LLP, Portland, OR, Geoffrey Groshong, Miller Nash Graham & Dunn LLP, Seattle, WA, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Brian D. Lynch

, U.S. Bankruptcy Court Judge

This trial was held on July 26, 2016 through July 29, 2016. Plaintiff Mark D. Waldron, as Ch. 7 Trustee of Venture Financial Group, Inc., (the Trustee) appeared through his counsel, Dillon E. Jackson and Christopher Emch of Foster Pepper PLLC. Defendant, Federal Deposit Insurance Corporation, in its capacity as Receiver of Venture Bank, appeared through its counsel, Teresa H. Pearson of Miller Nash Graham & Dunn LLP (the “FDIC-R”).

Introduction

Venture Bank is a wholly-owned subsidiary of debtor Venture Financial Group, Inc. (VFG). Venture Wealth Management, Inc. (“VWM”), is a subsidiary of Venture Bank. (the “Bank”) (collectively herein, VFG, VWM and the Bank are the “Consolidated Group”). In the past, VFG, as the parent corporation of the Bank and VWM, served as sole agent for the Consolidated Group for tax purposes, pursuant to 26 C.F.R. § 1.1502–77

. In 2009, the Bank

was closed and placed into federal receivership, and the Federal Deposit Insurance Corporation was appointed as receiver. In 2011, the FDIC-R made a request to the Internal Revenue Service (the “IRS”) to serve as alternative agent for the Consolidated Group pursuant to 26 C.F.R. § 301.6402–7

, which was approved despite VFG's objection. The FDIC-R subsequently filed amended tax returns requesting tax refunds for past tax years based on loss carrybacks arising from the losses incurred mainly by the Bank in 2009. The FDIC-R, as alternative agent for the Consolidated Group, received tax refunds at issue in this case: one in July 2013 in the aggregate amount of $6,204,763.10, and another two in October and November of 2014 in the aggregate amount of $2,267,219.26 (the “Tax Refunds”). On October 10, 2013, the debtor filed a chapter 7 bankruptcy petition.

This dispute concerns the Trustee's actions to avoid both prepetition and postpetition transfers of Tax Refunds to the FDIC-R. Central to both of the Trustee's claims is the question of whether the Tax Refunds are property of the estate under 11 U.S.C. § 541

. The Postpetition Tax Refunds (defined below) are currently held in a neutral account pending resolution of this case. This Court holds that the Tax Refunds are property of the estate and that the Trustee is entitled to avoid the transfers of the Tax Refunds and may recover them for the benefit of the estate.

Having heard the testimony of the witnesses, reviewed the evidence submitted and heard the argument of counsel, the Court makes the following Findings of Fact and Conclusions of Law under Fed. R. Bankr. P. 7052

and Fed. R. Civ. P. 52.1

I. Findings of Fact
A. The 1993 Tax Allocation Agreement

1. On or about February 12, 1993, First Community Financial Group, Inc., and First Community Bank executed the Tax Allocation Agreement (the 1993 TAA”). Ex. 152 ; Agreed Facts for Trial (“AFT”), ¶ 3, July 12, 2016, ECF No.101. The 1993 TAA was executed by Ken F. Parsons, who at that time was a President and CEO of First Community Financial Group, and John R. Johnson, who was a President and CEO of First Community Bank. The 1993 TAA was to continue in existence for “all subsequent taxable periods unless the Parent and the subsidiary agrees [sic] to terminate the agreement.” See Ex. 15, ¶ 8. The 1993 TAA has been in place at all times since it was signed. First Community Financial Group, Inc. and First Community Bank changed their names to Venture Financial Group and Venture Bank in 2003.

2. In its preliminary recitals, the 1993 TAA states that “it is the intent and desire of the parties hereto that a method be established for allocating consolidated tax liability of the Affiliated Group among its ‘members,’ for reimbursing the Parent for payment of such tax liability, for compensating any part for use of its losses or tax credits, and to provide for the allocation and payment of any refund arising from a carryback of losses or tax credits from subsequent taxable years.” Id.

3. Section (2)(a) of the 1993 TAA required each member to compute its own tax liability as if it was filing its own tax return and pay that amount to the parent, now VFG. Id.

4. Section 5 of the 1993 TAA gave solely the parent (VFG) the discretion to “determine whether an election shall be made to carry back part or all of a consolidated net operating loss for any taxable year ....” Id.

5. Section 6 of the 1993 TAA provided:

If the consolidated tax liability is adjusted for any taxable period, whether by means of an amended return, claim for refund ..., the liability of each member shall be recomputed to give effect to such adjustments, and in the case of a refund, the Parent shall make payment to each member for its share of the refund, determined in the same manner as in paragraph 2 above, within five days after the refund is received by the Parent. ... Id.

6. Section 7 of the 1993 TAA provides that if any party to the agreement acquires or organizes another subsidiary, such as the later formed VWM, it would be bound by the agreement. Id.

7. Section 9 of the TAA provides that it “shall be binding upon and inure to the benefit of any successor, ... to the same extent as if the successor had been an original party to the agreement.” Id. at ¶ 9.

8. At trial, the Trustee offered testimony of three former officers and directors of VFG and the Bank. Mr. Parsons, who signed the 1993 TAA as President/CEO of First Community Financial Group, was also Chairman of the Board of First Community Bank, and assumed those same roles with VFG and Venture Bank after the names were changed to those entities. The Trustee also introduced testimony from Sandra Sager, who was the Chief Financial Officer for both VFG and the Bank, and James Arneson who became President of VFG and a board member and President and Chief Executive Officer of Venture Bank in September 2005.3

9. Both Mr. Parsons and Ms. Sager testified that the 1993 TAA was amended in 2003 to reflect the new names of VFG and the Bank, but that no other substantive changes were made. Despite extensive efforts on behalf of both of the parties during discovery to locate an alleged subsequent tax allocation agreement, in either paper or electronic formats, no other agreement was ever found. Mr. Parsons could not recall ever seeing a subsequent amended tax allocation agreement, and could not recall any specific date such an agreement was executed. While Ms. Sager testified that she saw a tax allocation agreement with VFG and the Bank's name on it, she could not remember any other details about the alleged second agreement or when she saw it.

10. However, Mr. Arneson, who was an officer and director of both VFG and the Bank at the relevant times, testified that the 1993 TAA was never amended. He stated that the 1993 TAA was the tax allocation agreement in effect at all times between VFG and its subsidiaries and neither VFG nor the Bank ever went back to change the names under the 1993 TAA after the holding company and bank changed their names. Mr. Arneson was not aware of any other agreement and testified that in 2007, when VFG prepared its due diligence for a potential initial public offering and needed to identify any tax allocation agreement, the 1993 TAA was the agreement Mr. Arneson provided to potential investors. In addition, Mr. Arneson denied that there was ever a separate oral or implied tax allocation agreement. The Court finds that Mr. Arneson's recollection and testimony in this regard were the most accurate and credible.

11. The FDIC-R concedes in its Trial Brief that “there was no tax allocation agreement other than the First Community TAA.” (i.e., the 1993 TAA) (Def.'s Trial Br., 9, July 12, 2016, ECF No. 102).

12. The FDIC occasionally conducted examinations of the Bank, during which the FDIC would request copies of all policies and agreements, including a tax allocation agreement. See Ex. P-15. The Bank provided a tax allocation agreement during each of these examinations, and the 1993 TAA was the agreement provided. In addition, the 1993 TAA was provided to the Federal Reserve Board during their examinations of VFG.

13. The Court finds that the 1993 TAA was the only tax allocation agreement between VFG and the Bank, entered into by their predecessors-in-interest, and the 1993 TAA was still in effect as of the Petition Date, as no steps were taken to terminate the 1993 TAA. The Consolidated Group was never otherwise disassociated for tax filing purposes, through any other means. No credible evidence was produced that the 1993 TAA had been superseded or rescinded.

B. The Terms of the 1993 TAA Established a Creditor-Debtor Relationship

14. The terms of the 1993 TAA are not vague or ambiguous. The 1993 TAA required VFG to make a payment to the Bank of the Bank's proportionate share of any tax refund received by VFG.

15. The 1993 TAA does not contain any language giving the subsidiaries control of any tax refunds in the parent's possession. Nor does it require VFG to segregate any of the funds.

16. The 1993 TAA contains no language which suggests that VFG was the agent of the Bank, nor did the 1993 TAA give the Bank any control over VFG in the preparing and processing of the consolidated tax returns, or in the processing of tax refunds (except after the FDIC-R requested to become the alternative agent for the Consolidated Group when the Bank was closed, which is...

To continue reading

Request your trial
3 cases
  • Fed. Deposit Ins., Corp. v. Fbop Corp., Case No. 14 CV 4307, Case No. 14 CV 4307.
    • United States
    • U.S. District Court — Northern District of Illinois
    • May 12, 2017
    ...Deposit Ins. Corp. (In re United W. Bancorp, Inc.), 558 B.R. 409 (Bankr. D. Colo. 2016) ; Waldron v. Fed. Deposit Ins. Corp. (In re Venture Fin. Grp., Inc.), 558 B.R. 386 (Bankr. W.D. Wash. 2016) ; Sharp v. Fed. Deposit Ins. Corp. (In re Vineyard Nat'l Bancorp), 508 B.R. 437 (Bankr. C.D. Ca......
  • First Korean Christian Church of San Jose v. Dong Wuk Kim (In re First Korean Christian Church of San Jose)
    • United States
    • U.S. Bankruptcy Court — Northern District of California
    • February 21, 2017
    ...identified property constitutes property of the estate under 11 U.S.C. § 541(a). See, e.g. Waldron v. F.D.I.C. (In re Venture Financial Group, Inc.) , 558 B.R. 386 (Bankr. W.D. Wash. 2016) ; see also Velo Holdings, Inc. v. Paymentech, LLC (In re Velo Holdings, Inc.) , 475 B.R. 367, 387–88 (......
  • In re Carpenter
    • United States
    • U.S. Bankruptcy Court — District of Montana
    • September 15, 2016
    ... ... were conducted by Big Sky Fire Protection, Inc. Gavriel, LLC and Big Sky Fire Protection were ... FED.R.BANKR.P. 3001(f). This evidentiary presumption ... ...
1 books & journal articles
  • Stern Claims and Article Iii Adjudication—the Bankruptcy Judge Knows Best?
    • United States
    • Emory University School of Law Emory Bankruptcy Developments Journal No. 35-1, March 2019
    • Invalid date
    ...LLC v. Milberg Factors, Inc. (In re Dots, LLC) 562 B.R. 286, 290 (Bankr. D.N.J. 2017) ; Waldron v. FDIC (In re Venture Fin. Grp., Inc.), 558 B.R. 386, 397 (Bankr. W.D. Wash. 2016); Tow v. Exxon Mobil Corp. (In re ATP Oil & Gas Corp), 553 B.R. 577, 581 (Bankr. S.D. Tex. 2016); AFA Inv. Inc. ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT