Wirum v. Wilson

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Memo Re Defendant’s
Motion for Summary Judgment 	-1-
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
SDR CAPITAL MANAGEMENT, INC.
Debtor.
ANDREA A. WIRUM, Trustee,
Plaintiff,
vs.
JOHN O. WILSON,
Defendant.
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Case No. 07-34008 TEC
Chapter 7
Adv. Proc. No. 07-3022 TC
Date: August 3, 2007
Time: 9:30 a.m.
Ctrm: Hon. Thomas E. Carlson
235 Pine Street
San Francisco, CA
MEMORANDUM RE DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
At the above date and time, the court held a hearing on
Defendant’s Motion for Summary Judgment. 	John H. MacConaghy
appeared for Defendant. 	Dennis D. Davis appeared for Plaintiff.
Upon due consideration, and for the reasons stated in this
memorandum, the court determines that the motion should be granted
in part and denied in part.
Signed and Filed: August 31, 2007
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
August 31, 2007
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 07-03022 Doc# 21 Filed: 08/31/07 Entered: 08/31/07 16:38:09 Page 1 of 5

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28 Memo Re Defendant’s
Motion for Summary Judgment 	-2-
A. 	Trustee’s Claims under Cal. Corp. Code section 506(a)
(1) Trustee’s claim for recovery of the April 2002 transfer
under California Corporation Code section 506(a) is barred by the
statute of limitations. 	California Civil Code section 338(a)
establishes a three-year statute of limitations for actions based
upon “liability created by statute.” (emphasis added). 	Trustee
cited no authority that an action against shareholders to recover
unlawful distributions existed at common law, and the court found
no such authority. 	Thus, the court concludes that California
Corporations Code section 506(a) is an action created by statute.
Because the April 2002 transfer occurred more than three years
prior to the petition date, trustee is barred by the statute of
limitations from recovering the April 2002 transfer under section
506(a). 	Cal. Code Civ. Proc. § 338(a).
(2) With respect the June and July 2003 transfers, there
exists a genuine issue of material fact regarding whether Defendant
had knowledge of the facts indicating the impropriety of those
transfers. 	A corporation that is insolvent is barred from making a
distribution to its shareholders. 	Cal. Corp. Code §§ 500, 501.
Trustee submitted evidence that Debtor’s liabilities exceeded its
assets in 2001 (Crom Decl. (Debtor insolvent in 2001); Davis Decl.
Exh. F (attaching July 6, 2001 balance sheet and August 2001 board
minutes)). 	Because Defendant served as Debtor’s Chief Economist
and Chair of Investment Policy Committee through October 1, 2001,
and served on the Board through December 31, 2001, a strong
inference arises that Defendant had knowledge of Debtor’s financial
condition as of the time he left the corporation. 	England v.
Case: 07-03022 Doc# 21 Filed: 08/31/07 Entered: 08/31/07 16:38:09 Page 2 of 5

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28 Memo Re Defendant’s
Motion for Summary Judgment 	-3-
Christensen, 243 Cal. App. 2d 413, 431 (1966). 	Defendant offered
no evidence that he received information after he resigned
indicating that Debtor’s financial condition had improved. 	Thus,
although the statute requires knowledge of the impropriety at the
time of the transfers, and the transfers were not made until June
and July 2003, the inference that Defendant knew that Debtor was
insolvent remains effective as of the time of the transfers.
B. 	Trustee’s Claims Under the Uniform Fraudulent Transfer Act
(1) The evidence submitted suggests that Dale Low is an
unsecured creditor with an allowable claim who could have set aside
the transfers under UFTA.
First, Low had an enforceable claim for payment of a
contractually-promised bonus. 	Low released that claim, but only in
return for Debtor’s contractual promise to redeem his shares. 	Upon
the avoidance of that consideration, the bonus claim revived.
Thus, at all times relevant, Low had an allowable claim either for
the bonus or upon the contractual promise to redeem. 	Trustee has
acted accordingly, by agreeing to allow Low’s bonus claim as part
of the settlement under which Debtor’s transfers to Low (in
redemption of Low’s shares) were set aside.
Second, Low would not have been barred from setting aside the
transfers to Defendant under the doctrine of in pari delicto. 	This
is so because Low did not participate in the transfers to
Defendant, and because the claim Low would have been seeking to
enforce was not sufficiently similar to the transfers to Defendant
that Low would have been seeking to avoid. 	Low might have been
barred from seeking to set aside a fraudulent transfer to enable
Case: 07-03022 Doc# 21 Filed: 08/31/07 Entered: 08/31/07 16:38:09 Page 3 of 5

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28 Memo Re Defendant’s
Motion for Summary Judgment 	-4-
Debtor to pay him a fraudulent transfer. 	Low would not have been
barred, however, from setting aside the transfer to Defendant to
enable Debtor to pay Low’s contractual bonus.
(2) There is a genuine issue of material fact regarding
whether Debtor received reasonably equivalent value in exchange for
any of the stock redeemed.
First, with respect to the April 2002 transfer, it appears
that the alleged sales of treasury stock, if proved, would
establish that Debtor received reasonably equivalent value for the
April 2002 transfer. 	Defendant did not, however, offer admissible
testimony that those sales occurred as he contends. 	He neither
offered into evidence the SEC report that he contends the ledger
was a part of, nor did he submit other admissible evidence
demonstrating that the ledger was part of any official report.
With respect to the June and July 2003 transfers, there is the
additional problem that there was no evidence of sales of treasury
stock on or after the date of that redemption.
Second, Defendant offered no evidence that he was entitled to
redeem the shares as part of his original written employment
agreements with Debtor, or that his subsequent oral termination
agreement was supported by valuable consideration (that it was
granted in consideration for some other right).
**END OF MEMORANDUM**
Case: 07-03022 Doc# 21 Filed: 08/31/07 Entered: 08/31/07 16:38:09 Page 4 of 5

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28 Memo Re Defendant’s
Motion for Summary Judgment 	-5-
Court Service List
Dennis D. Davis, Esq.
Goldberg, Stinnett, Meyers and Davis
44 Montgomery Street, Suite 2900
San Francisco, CA 94104
John H. MacConaghy, Esq.
MacConaghy & Barnier
645 First Street, Suite D
Sonoma, CA 95476
Case: 07-03022 Doc# 21 Filed: 08/31/07 Entered: 08/31/07 16:38:09 Page 5 of 5