Fraudulent Transfers Read online

  Early afternoon the next day, Friday, Tristan, from Josephine Haughton’s office, brought over a DVD containing, as best I could tell, all of the documents and telephone recordings Ed had asked for during Wednesday’s phone call. I thanked Tristan, gave the DVD to Stephanie and told her to make a copy for us and for Veronica, and then to call Ed to see where we should send the original.

  Stephanie came to my office an hour or so later with the two copies of the DVD. She told me she had talked to Ed, who was now at an RV park somewhere along California Route 1 between Sausalito and Stinson Beach with a nice view of the ocean and good cell phone reception. He instructed her, she said, to upload the contents of the DVD to a cloud account he maintained with a company called ShelfSpace Hosting, which she had done. He told her he didn’t need a physical copy of the DVD.

  “Hmm, Stephanie, what exactly is a cloud account?”

  “It’s a contract with a company having powerful computer equipment that you access by means of a secure connection over the Internet. So, if you’re a business, you don’t need your own computer server. You use the cloud account to hold and manage and manipulate all of your digital content--documents, email, photographs, music, videos and so forth.”

  “How do you know this stuff, anyway?”

  “Jack, I consider it part of my job to keep up on the application of technology to the practice of law, since no one else around here does that. Also, I have a teenage daughter who explains it to me. And, while we’re on this subject, I’ve been meaning to tell you that, since the McConnell Jones & Knight server is now old enough to be in a museum, maybe we should be considering a cloud account.”

  “Oh come on. Our server is only six years old and we haven’t finished paying for it yet.”

  “All I can say is, that server is having trouble keeping up with everything we ask it to do now and we’ll be needing it to do more as the court systems we deal with move farther along to all-digital, paperless, procedures. So, one way or another, this firm is on borrowed time.”

  “OK, I’ll talk with Bruce and Jennifer about this at our next partner meeting.”

  “I didn’t know you had partner meetings.”

  “Well we don’t have regularly scheduled meetings but we do talk to each other when the need arises. Tell you what, why don’t you put together a little proposal for us to look at explaining how one of these cloud accounts would work and how much it would cost us. Are they safe?”

  “They’re much safer that what you have now. My guess is my daughter, if she wasn’t busy texting her friends about boys, could hack into the McConnell Jones & Knight server in about thirty minutes. I’ll put together some information for you and get that to you next week.”

  “Thanks Stephanie, I think.”

  Although I should have been doing other things, I spent the next hour looking at the documents and listening to the telephone calls stored on the DVD. Nothing leaped out at me as being particularly useful in our attempt to identify Mr. X and the people he was working for, and get back the missing money. But it was disturbing listening to the voice of Mr. X calmly setting the stage for this $4.8 million fraud.

  I ended the day with a call to Marvin Lang, a now mostly retired accountant who had risen from humble beginnings in a small town in eastern Colorado to the top of his profession. At one point, Marvin had served as the president of the American Accounting Association and he was frequently asked by the accounting profession’s regulatory agencies in Colorado and several other states for his advice about technical and ethical issues affecting the profession. Marvin, in retirement, still took on expert witness assignments if they interested him. In that capacity, he had helped me on several cases, with good outcomes in all of them. Business valuations was one of his specialties.

  “Marvin, Jack McConnell. How the heck are you?”

  “Jack, I’m great. My health is good. My grandkids are all nearby and fun to be with. My golf game is improving, or at least not getting worse. I have no complaints. What’s up?”

  “I was hoping I could interest you in an expert witness assignment for a woman named Olivia Marchant who came in here last Monday with a sad story to tell.” I then told Marvin about the lawsuit against Mrs. Marchant and Mountain View Property Management, and the events leading up to that lawsuit, including her husband’s suicide and the killing of her dog.

  “I’d be honored to help. I had a casual acquaintance with Robert Marchant when we served together for a brief period of time on the board of directors of our local humane society. That was many years ago but I still remember him as thoughtful and generous and humble. I knew he had tried to get into the land development business and was doing well until the bottom dropped out. I’ve also run into Piranha Partners before when I did some planning work for a client back in Illinois. They are loan sharks of the worst kind, looking for opportunities to make loans they hope will go into default so they can then grab the collateral for those loans by foreclosure and make a big profit. Putting them in their place would be good sport.”

  I explained to Marvin that Mrs. Marchant was short of money and that he might have to discount his fees and accept payment over time.

  “I’ll do this one for $1,000 and she can pay me whenever--if ever--she can. Normally these engagements turn into $10,000 affairs but that would just mean having to pay more taxes. You know what I’ll need to value the two businesses—appraisals for the real estate each company owned, tax returns, and income statements.”

  “We’ve already asked her for those things. I’m hoping I’ll have them by early next week.”

  “Get the documents over to me as soon as you can. I can’t believe these bastards have shown up in Colorado.”

  The following Monday morning, Mrs. Marchant delivered a nicely organized notebook containing everything we had asked her for. Stephanie made a copy for my use and I delivered the original over to Marvin Lang’s office on my way to the Y. Stephanie set up an appointment for me to meet again with Mrs. Marchant on Wednesday, November 30.

  Mid afternoon on Monday I blew off work I should have been doing and took Fletcher for a hike in the Garden of the Gods. Most of the chipmunks were by now underground trying to stay warm. A few of them, however, chirped at Fletcher and baited him into a victimless chase, seemingly enjoyed by all. The Garden of the Gods is always stunning but the soft light of winter gives its dramatic red sandstone rock formations a gentle pastel glow. And this time of year, the tourist traffic is greatly reduced from the peak months of summer, allowing for enjoyment of this special place in an atmosphere of solitude.

  Chapter 11

  On Wednesday, Olivia Marchant arrived fifteen minutes early for her 1:30 appointment, but I was already back from the Y and we went right to work. She was much more composed than at our first meeting.

  “Hello Mrs. Marchant. Thanks for bringing in all the items we asked you for. First of all, we have filed an answer to the complaint against you and included a counterclaim for abuse of process and intentional infliction of emotional distress, otherwise known as outrageous conduct. We have asked for $500,000 in damages but that’s just a made-up number intended to get the plaintiff’s attention. As far as a fee agreement goes, our firm will work for you on an hourly basis. That means $250 an hour for my time and the time of my partners, if they become involved, and $100 an hour for the time of our paralegals. We’ll bill you for our time every month as we go along. We ask that you pay us what you can, when you can. We will not withdraw our representation because of any delay in payment of our invoices.”

  “Mr. McConnell, that is kind and generous but are you interested at all in a contingent fee arrangement that might produce a higher fee for your firm? I’d gladly be willing to pay you half of anything you recover on my behalf.”

  “We don’t like contingent fees around here. They create a conflict of interest between lawyer and client. If the lawyer has a stake in the outcome of a lawsuit, the lawyer may be tempted to look out for his or her own interest, and
not the interest of the client, and then the lawyer fails to give the client objective advice. This can spin off in all kinds of directions. A contingent fee lawyer might look for a quick settlement of a case because that involves minimal work and a sure payment for the lawyer. Or, the lawyer might get into a gambling mode and convince a client to take a case to trial that should be settled, thereby putting the client at risk, unreasonably, of a bad outcome.”

  “I understand. In all events, my family and I greatly appreciate your help and I will pay you whatever you charge us for your work. It may take awhile, but we’ll get there.”

  “Next, and of greater importance, I have called upon a very distinguished accountant friend of mine I have used in the past for expert witness services to provide those services in support of your case. His name is Marvin Lang. He knew your husband from a time when they served together on the board of directors of our local humane society and he has fond memories of Robert. He has also run into Piranha Partners before and has nothing good to say about them. He is willing to provide an expert opinion in support of your case for a much reduced fee of $1,000, payable when you can. Although I probably should have gotten your permission first, I have already given Marvin a copy of the documents you dropped off here on Monday.”

  “Again that’s wonderful. Thanks for arranging this. I remember Robert mentioning an accountant who was serving on the humane society board that he thought was a really good person. That must have been Mr. Lang.”

  I then told Mrs. Marchant more about the law of fraudulent transfers. This body of law is set forth in a statute called the Uniform Fraudulent Transfer Act, in place in Colorado and many other states. The statute is technical and complex, and tries to deal with all manner of situations where creditors find themselves unable to collect a debt from a person who should pay. The statute allows a creditor to go after other people if they have ended up with assets formerly belonging to the defaulting debtor. The simplest form of fraudulent transfer that lawyers often see is a transfer of the family home from a businessman husband to a wife who is not involved in the business. When the business falls on hard times, the creditors of the business come after the husband but he claims he’s insolvent, living as a guest in his wife’s home. So the creditors try to get to the value in the home as a means by which to obtain payment of their debts.

  “The Piranha Partners claim is similar,” I told Mrs. Marchant, “only the asset in question, transferred by the husband to the wife, is Robert’s interest in Mountain View Property Management.”

  “And what is abuse of process all about?” Mrs. Marchant asked.

  “This claim arises when someone uses a lawsuit that has little or no substance as a means by which to harass. That’s our theory here--that Piranha Partners has sued you on a trumped up theory of fraudulent transfer as a knee-kicking kind of collection tactic.”

  “You mentioned one other part of the counterclaim. What was that again?”

  “Intentional infliction of emotional distress, also known as outrageous conduct. This claim comes into play when someone engages in conduct that, although perhaps not criminal, is intended to, and does, result in severe emotional distress. The Colorado Supreme Court, way back in 1970, said this theory could be used by a debtor to sue a creditor who had made threats to take legal action the creditor had no right to take. It’s a hard claim to prove but it fits the circumstances you’ve described to me.”

  “How long will it be before this whole awful thing is resolved?”

  “As you probably know, the legal system isn’t big on speed. If we have to go all the way to a trial, it will be at least a year, and probably longer, and that’s assuming there is no appeal. But I have a plan in mind that will get us in front of a judge much sooner than that. What we’re going to do is file a motion for a preliminary injunction. This zips us right into a hearing that is very much like a trial, only without any discovery. At this hearing, the judge will have to decide whether or not we have a reasonable probability of ultimate success in the case. If she—our judge is a woman—rules in our favor, there will be a strong message sent to Piranha Partners that it better get itself out of this lawsuit as soon as possible before it gets hammered big time by a judgment on your counterclaims, as well as an award of attorneys fees against it. At that point, with your permission, we’ll try to settle the case and bring it to a quick end.”

  By now the tears were back, but they were accompanied by a smile. “Thank you again Mr. McConnell. I’m so relieved knowing I have you to help us.”

  And with that, and some further discussion of what might lie ahead, we ended our meeting and I took Mrs. Marchant back to the lobby and the elevator where I left her with a parting handshake and a hug.

  Stephanie, seeing her leave, asked me: “How did it go?”

  “We have a game plan. I hope it’s a good one. At least we’ve made her feel better.”

  “Thanks, Jack, for helping her. I knew you were the right guy for the job.”

  Chapter 12

  After my meeting with Olivia Marchant, I shuffled some papers around and returned long overdue phone calls. I then put in a call to RJ Conover, a retired lawyer friend of mine who taught me much of what I know about trying a lawsuit and almost everything I know about catching trout on a fly rod. RJ is twenty years older than me, putting him at seventy-seven and change. He lost his wife to cancer a few years ago and is now suffering from diminished vision due to rapidly progressing macular degeneration and impaired use of his hands due to arthritis. RJ has two adult children living in the Denver area and several now out of college grandchildren scattered about. As had become his custom, he and his Australian shepherd and best friend, Murphy, who is roughly Fletcher’s age, were spending the winter in Arizona. RJ owns a small home in Manitou Springs—the motel capital of Colorado, if not the world—that Veronica and I are looking after while he’s away.

  “Hello RJ, just checking in to see how you and Murphy are doing.”

  “Well good afternoon McConnell. Good to hear your voice. Everything’s fine down here. As you know, my kids found me a nice little eight hundred square foot apartment to rent on the west side of Tucson so I no longer have to live in my Winnebago parked at some noisy RV campground, as in past years. This place is pure luxury by comparison. We have a swimming pool and a putting green, although I can’t swim anymore and don’t play golf. There’s a nice library, although I can’t read anymore either. And there’s an eight lane shuffle board court that’s always busy. This is a sport I can still do and I’m getting damn good at it. I picked up ten bucks this week on shuffle board bets with some of the other geezers around here who are even more beat up than me. And there are a bunch of little yap dogs for Murphy to play with and herd around, so she’s happy. How’s my house?”

  “Your house is fine, RJ. Veronica and I have been over there every couple of weeks to check on things. The furnace is working OK and keeping the pipes from freezing. No one has broken in. The only thing we noticed that might concern you is that a family of foxes has taken up residence in your old woodshed, out behind the garage. There’s a momma and a papa and three little kits. They’re not causing any trouble and they’re actually helping to keep the mice away. You may recall that last year you had a large population of rodents spending the winter in your basement.”

  “Those mice weren’t all bad, McConnell. They’ve been eating away at all the client files I have stored down there. I’d like to get rid of those files but I can’t just throw them away. Every time I’ve thrown a client file away, the client has shown up the next week and wanted something out of it. But, mice eating the files, that’s OK. They can’t blame me for that. Death, of course, will finally solve this problem. The files then become your problem since you’re my personal representative named in my will.”

  “Let’s not be thinking about death just yet. We’ve still got some fishing to do.”

  “Hell, Jack, my fishing days are over and I think about death all the time. Every morn
ing I see what’s left in my retirement savings account and then I try to calculate when I need to die in order not to run out of money. I had always hoped to leave something for my kids and my grandkids when I’m gone, and not end up being a burden to them. But now it looks like a race to the finish line that I may not win--unless I have a nice neat cardiovascular accident in the reasonably near future.”

  “Well I’d still rather talk about fishing. I’ve had a couple of good days on the Arkansas River tail water below Pueblo Dam. There’s lots of food coming out of the reservoir and some of the rainbows are getting really big. They’re also getting really smart, since this is no longer a secret place to fish. The whole world seems to know about it. The good fishing days I’ve had were bad weather days, so I mostly had the river to myself. Otherwise, it gets crowded. Anyway, I’m thinking our fall fishing trip next year should be a float trip with a guide, like we did this year. But this time, I’m thinking we’ll try the North Platte River.”

  “Let’s see if I’m still alive first.”

  “You’d better be. It wouldn’t be the same without you. I’ve been trying to teach Veronica to fly fish, but it’s slow going. She’s now worried that fishing dries out her hands.”

  “Tell that good woman hello for me, will you? And don’t do something stupid and lose her. She’s a keeper and you’re damn lucky to have found a woman who can apparently overlook your considerable flaws.”

  “Thanks RJ. Always nice to talk to you and get your advice and opinion about things. Call me if you need anything. Otherwise, I’ll check in again in a couple of weeks.”

  “Right. Take care Jack. Glad you called. I like having those foxes living at my house. Make sure they have enough to eat.”

  After I hung up with RJ, I went to the Internet and checked on the status of my own retirement savings. It was immediately clear to me, without much math involved, that, if my money was to outlast me, retirement would not be part of the plan. I would need to be one of those lawyers who died at his desk. With that thought as motivation, I resolved to spend more time in the office tending to projects for clients who could actually pay for the work we did. I also told Bruce and Jennifer we needed a partner meeting, which we scheduled for Friday, at 4:00 p.m. I asked Stephanie, if at all possible, to get us her cloud computing report prior to our Friday meeting, rather than next week.