Fraudulent Transfers Read online

  After retrieving my shoe and feeding Fletcher, I started the coffee maker, for me, and put a kettle on the stove to boil water for Veronica’s tea. I also set out an Earl Grey tea bag and a spoon next to the cup—mug actually—she had purchased during an earlier visit when she decided all of my existing cups were deficient in either size or shape, or both.

  Veronica emerged from the bedroom a few minutes later, again wearing my work shirt. But, she had added a down vest she’d found on a chair next to the bed. The outside temperature was hovering around twenty and it was chilly in my kitchen. Despite the mussed up hair, or perhaps because of it, Veronica was as lovely as ever.

  “Good morning Jack. I slept like a rock. Thanks for the nice tuck in.”

  “Anytime. Your water is boiling. Sugar or honey?”

  “Honey, please. It’s much better for us than sugar.”

  “So are you ready for today’s adventures? I have to go into the office for a couple of hours to work on the Turnbull and Williston standstill agreement but after that I thought we’d head to the Arkansas River tail water below Pueblo Dam for some fishing.”

  “Are you crazy? It’s November. Isn’t it true that fish are cold blooded and can barely breathe, let alone eat, in the winter? And won’t you be dodging big chunks of ice floating down stream?”

  “Veronica, none of that is true. Fish still eat in the winter. They just don’t move very far to find a meal, so you have to be precise where you place your fly. It’s got to bounce along the bottom, right into their mouth. And in a tail water, below a dam, the water is warmer than elsewhere and the chunks of ice are much smaller.”

  “You go fishing. I’ll keep your poor lonely dog company and probably have a visit from Cooper, wanting further advice about Samantha. Is she still seeing him after he banged them both up in that car accident last summer?”

  “Yes. They kissed and made up, but she does the driving when they go out on a date. Well, listen, I’ll be home by 4:00 and I’ve made a reservation with Georgette for dinner at Le Bistro Saint-Tropez at 6:00.”

  The office was, as usual, quiet on a Saturday morning although both of my partners, Bruce Jones and Jennifer Knight, were there, catching up on work. I said hello to them and then turned my attention to the standstill agreement. By 10:30, I had a decent draft in place and headed for the river.

  It was still below freezing when I arrived at my chosen spot, just upstream of the Pueblo Raptor Center. So, I had to put up with ice in the guides. However, no chunks of ice were floating in the river. The water was clear and I could see several large rainbow trout hunkered down in the deeper area at the end of a short run. I finally convinced one of them, an eighteen incher, to take a bite of my size twelve Prince nymph. He put up an honorable fight, notwithstanding the cold water. I gently removed the barbless hook, stroked his back until I knew he was breathing properly and let him go. He stood still for maybe five seconds and then slowly swam back to his holding spot in the river. Deciding the catch of the day had been caught, and feeling the cold despite several layers of overpriced clothing developed and tested by fishing guides who stand in cold rivers for a living, I headed home. On the drive back, I tried to think about what could be done to find and return Turnbull and Williston’s $4.8 million. Having no luck with that, I listened to Dvorak’s New World Symphony on my truck’s cassette player (said truck pre-dating CD players) and thought about Veronica.

  We had a nice dinner at Le Bistro Saint-Tropez Saturday evening. The owner, Georgette, who cooked and served the food, selected the wines, washed the dishes and, I suspected, cooked the books, was her usual charming self, being sure to gush in French over how pretty Veronica looked.

  “Mon dieu, Jacque, elle est même plus jolie que la dernière fois je t’ai vu!”

  Georgette had come to the U.S. as the wife of an Air Force pilot who was sent off to Viet Nam and, like so many others, never came back. After his death was confirmed, she opened the restaurant, with the help of friends, as a way to make ends meet. Although there was a slow start, the restaurant had developed a loyal following and it now only operated Friday through Sunday for dinner. There was a 6:00 p.m. seating and an 8:00 p.m. seating. To be sure of a table, you sometimes needed to make reservations weeks in advance. Georgette made room for us tonight by squeezing another small table into a corner of the restaurant.

  During dinner, Veronica told me Cooper had indeed paid her a visit, shortly after I left for the office. Cooper, I suspect, saw Veronica’s Subaru in my driveway, saw me drive off in my truck, and figured this would be a perfect time to go one-on-one with Veronica in pursuit of useful knowledge about the ways of women.

  “So what did Cooper want your counsel on this time? Seduction, or something more discrete?”

  “He wanted to continue our previous conversation about what women look for in a man. So I told him again that women look for strength of character, confidence, the ability to listen, compassion, common sense, reasonable prospects for a steady income, honesty, a sense of humor and--nice legs. Cooper is still a little weak in regard to the legs.”

  “And how am I stacking up on that scorecard these days?”

  “Very nicely, of course, but you still haven’t make much progress on the steady income part.”

  Veronica and I spent Sunday morning just hanging out at my house, reading the paper and mystery novels, and giving Fletcher a longer than usual walk around the neighborhood. Veronica headed back to Denver at a little after 2:00 p.m., with the intention of avoiding pre-game and post-game traffic around Invesco Field. The Broncos were playing the Raiders, meaning the crowd would be even more unruly than usual. And, a snowstorm was scheduled to hit the Denver area late this afternoon, right about the time the Bronco fans, with highly elevated blood alcohol levels, would be leaving the stadium.

  Veronica made it home without incident and called me to confirm her safe arrival.

  “Thanks, Jack, for a nice weekend. As long as you feed me like that, you can have your way with me whenever you want.”

  I followed up with a text message confirming and memorializing this conversation.

  Chapter 7

  Monday started out with a new client meeting Stephanie had arranged for me late last week. As she sometimes did, she set up this meeting without asking me first if I wanted to take on a possible new client. I wasn’t sure whether she did this because she knew I would be interested in the prospective new client’s problem or because she had decided, on her own, that my license to practice law required me to assist damsels in distress.

  “Jack,” our receptionist said over the office intercom, “your 9:00 a.m. appointment is here. She knows she’s a little early.” And then, in a quieter voice, “She’s pretty upset, so be prepared for some hand holding.”

  “Thanks for the warning Linda. Put her in the east conference room and I’ll be there shortly.”

  I finished a buzz-off-and-leave-my-client-alone letter I was working on and headed down the hall to meet the prospective new client, Olivia Marchant. Mrs. Marchant, it turned out, had been referred to me by Mike Lawrence at Front Street Bank. Whether this was a favor from a friend, or some kind of punishment, would remain to be seen.

  “Hello Mrs. Marchant, I’m Jack McConnell. How can we help you?”

  Mrs. Marchant, wiping her red and puffy eyes with a tissue, tried to smile and said “Thank you for seeing me on short notice. I’m being sued and I don’t know what to do.”

  She then handed me a wrinkled and tear-stained copy of a summons and complaint, wherein the plaintiff in the case, filed in El Paso County Colorado District Court, was Piranha Partners Credit Corporation and the defendants were Olivia Marchant and Mountain View Property Management, LLC. I glanced quickly at the documents, long enough to see that the plaintiff was seeking a $3 million dollar-plus judgment against the defendants and was being represented by a local lawyer, Thomas Stringer, known by me—and others--to be full of himself and uncooperative. Stringer, based on past experience, als
o had little regard for the Rules of Civil Procedure. These are rules intended to bring a modest amount of logic, order and civility to the resolution of legal disputes in our court system, with varying degrees of success.

  I then asked Mrs. Marchant, who looked to be in her mid-sixties, with dark brown hair showing noticeably grey roots, and who was on the plump side, to tell me what she could about events leading up to this lawsuit.

  “These people want me to pay back money they lent to my husband.”

  “Take me back to the beginning, if you can.”

  “I’m sorry. I know you need the details. For thirty-five years, my husband Robert and I worked to build up a business—that’s Mountain View Property Management—that owned small apartment projects—no more than thirty units each—and that managed similar apartment projects for other owners. Going back ten years or so, we had finally built up some equity in our properties and had a number of good and loyal property management clients. We were looking forward to eventually being able to sell the business and retire. But Robert decided he wanted to take our company in a different direction—buying raw land and turning it into lots to be sold to home builders. He did the math and figured the housing boom on the east side of Colorado Springs would make this a good investment. I was skeptical but I couldn’t talk Robert out of this idea.”

  Although the tears were coming back, Mrs. Marchant continued. “I wouldn’t let Robert do this new business in our existing company so we formed a new company called Mountain View Development, LLC. That company was able to obtain a loan from First Colonial Bank to buy four acres of land and get the land subdivided, and we sold the land as quarter-acre home site lots for a small profit. Robert then arranged for a much larger loan from this bank—a little over $4 million—and we bought a larger parcel of land—fifty acres--and he went to work subdividing that land. This was eight years ago. A year later, First Colonial Bank found itself in trouble because it had made a bunch of bad agricultural loans, mostly to dairy farmers. In any event, when our loan came due, it refused to renew the loan. The bank threatened to foreclose on the land Robert was subdividing if its loan wasn’t immediately paid in full. By then, the amount owed was up to around $4.5 million with the additional interest and fees the bank had added to the loan balance. Robert asked me if we could borrow the money to pay off First Colonial Bank through Mountain View Property Management and I said no. We had a pretty nasty fight about that. Robert then went looking for other lenders and was turned down everywhere he went. That’s when he found Piranha Partners Credit Corporation, through someone he knew in Chicago. The interest rate was twelve percent more than what First Colonial Bank had been charging but Robert felt we had no choice. It was either borrow the money from Piranha Partners or lose the property to foreclosure. So we did the loan and paid off First Colonial Bank. Piranha Partners wanted me to guarantee its loan but I refused. It made the loan anyway, taking just Robert’s personal guarantee and the land as collateral.”

  “And after that?”

  “Things were OK at first. Robert had managed to subdivide some of the land and had started selling lots to builders and we were able to at least keep up with the interest owed on this loan. But by now—late 2007--I’d decided I didn’t like the land development business, mostly because of the need to deal with government red tape every day of the week. So Robert and I agreed we would, business wise, go our separate ways. I gave him my interest in Mountain View Development and he gave me his interest in Mountain View Property Management. We thought this was a fair and even trade.”

  “When did that happen in relation to when the Piranha Partners loan was made?”

  “I’d say it was four months later.”

  “Did you ask Piranha Partners if it was OK to do this asset exchange?”

  “No. It never occurred to us to do that. As we saw things, this transaction had no effect on Robert’s net worth. Before the transaction, he owned 50% of two companies, with a value of roughly $2 million each. After the transaction, he owned 100% of one company with a value of roughly $4 million.”

  “Alright, please continue.”

  “Well, another few months down the road—we’re now in the middle of 2008--the housing market totally collapsed. Suddenly, no one was buying lots or building homes anymore and the Piranha Partners loan went into default. Robert tried to get some breathing room from these people but they refused and immediately began a foreclosure. They took the property back in the foreclosure, low-balled the foreclosure sale bid, and claimed after the foreclosure that Mountain View Development, and Robert personally as a guarantor, still owed $3 million. Mountain View Development didn’t have any assets so they went after Robert. They sued him and got a judgment for the $3 million and then they took away his truck and his wedding ring and his baseball card collection and garnished his wages when he went to work for a friend selling used cars. And they made subtle threats to the effect that they would physically harm him or me or our children or our grandchildren if he didn’t come up with the money. I told Robert, and our two children told Robert, that he needed to file bankruptcy to wipe out this debt. At least then he could get Piranha Partners Credit Corporation off his back and have a fresh start. I told him we could live on the money I was making in Mountain View Property Management, although forget about retirement.”

  “And did he take your advice?”

  At this point, the tears came back again, big time. “No. Robert was a proud man. He could not accept the black mark of a bankruptcy as the last chapter of his business career. So, he came home one afternoon three months ago, took his shotgun outside in the back yard, sat down in a chair, put the barrel of the gun in his mouth and pulled the trigger. My daughter Roberta and my granddaughter Tracie found him there—or what was left of him--later that afternoon when they stopped by for a visit.”

  Not knowing what else to say or do, I offered a weak “I’m sorry,” and got up and put my arm around her shoulder and let her cry.

  “I don’t have $3 million and neither does Mountain View Property Management,” she finally said. “The equity in that company has been hammered by the recession. What money I do have I need to live on and to help one of my children, Joshua, who lost his job with a high tech company in California and is struggling to support his family—a wife and two kids, one of whom has cystic fibrosis--and avoid a foreclosure against their home. And Mr. McConnell, there’s more to the story. These people started calling me on the phone and badgering me, telling me I owed the money and telling me I had a moral duty to not let Robert’s legacy be a big unpaid debt. What kind of wife would let that happen to her husband, they said. And then I started getting calls in the middle of the night, and all I would hear was breathing, and then the caller would hang up. And then they poisoned my dog, a sweet little poodle named Tanya.”

  “How do you know it was them?” I asked, again not knowing what else to say.

  “Oh I can’t prove it, of course. I came home from work one afternoon and found Tanya dead in my yard. My vet did an autopsy and concluded that she had been given something to eat containing strychnine. But I have no way to link this to these Piranha people other than suspicion.”

  “Mrs. Marchant, McConnell Jones and Knight would be honored to represent you in this matter. Looking at the complaint, you’re being sued on a theory of fraudulent transfer. The plaintiff claims the transaction by which you acquired ownership of all of Mountain View Property Management and Robert acquired ownership of all of Mountain View Development had as its purpose to move your family’s primary source of wealth into your name only, so there would be nothing left for Robert’s creditors if his business failed. We’ll need to drill down on that transaction and get an expert witness on board who can value the two companies and show that the exchange of ownership interests was fair, and was not intended to leave Robert’s creditors with nowhere to go to collect debts he had guaranteed. I’ll have my secretary, Stephanie--you talked with her last week when you made your appointment--g
et back to you with a list of information we’ll want to have. Then, we’ll set up another meeting. In the meantime, we’ll file an answer to the complaint, and that will prevent the plaintiff from taking a default judgment against you. I’m going to throw in a counterclaim for intentional infliction of emotional distress, otherwise known as outrageous conduct, and a claim for abuse of process. This will help Piranha Partners understand that the path it has chosen to follow comes with risk.”

  “I can give you a retainer of five hundred dollars. Is that enough? That’s all I have.”

  “Yes, of course that will be enough. But we’ll take care of those details at our next meeting, not today. For the moment, I just want you to know this situation is under control.”

  Mrs. Marchant was now under better control herself, but I nonetheless offered to take her down to the parking garage and back to her car.

  “No, I’ll be fine Mr. McConnell. I’m sorry I’m such a wreck today. I thought I was over all the crying but I guess I’m not.” And with that, Olivia Marchant got up slowly, tried to smile, and headed down the hall toward our office lobby and the elevator to the parking garage.

  After she had gone, I pulled together a quick meeting with Stephanie and our litigation paralegal, Susie Castle, and told them what documents we would need from Mrs. Marchant. I asked Stephanie to draft a new client engagement letter and Susie to draft an answer to the complaint, together with a counterclaim for intentional infliction of emotion distress and abuse of process.