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GARGILL, SASSOON & RUDOLPH L.L.P.
VIA FACSIMILE AND FIRST CLA$S MAIL
Eaton, Peabody, Bradford & Veague, P.A.
P.O. Box 1210
Re: Catherine D. Petit/Trustee vs.
Edward F. Simpson & Tweed Management Corp.
Adversary Proceeding No.95-2064
As a follow-up to our telephone conversation of August 71 1997 and your letter of same date, am providing herein a brief summary of Edward F. Simpson's ("Simpson") relationship with Catherine D. Petit ("Debtor"), the nature Of his claims against the Debtor and payments received in connection with said claims in relation to the above-referenced adversary proceeding. Additionally. 1 have included a brief analysis relative to the Trustee establishing a valid MUFTA claim relative to the transfers from the Debtor to Mr. Simpson.
Mr. Simpson was introduced to the Debtor in November of 1985, in connection with her business difficulties involving the Old Orchard Ocean Pier (and related entitles) [hereinafter "Old Orchard"]. Mr. Simpson initially provided financial assistance to the Debtor in the form of business loans intended to sustain the viability of the Debtor's business, forestall foreclosure and obtain financing. Over a period of time, Mr. Simpson became acquainted with all of the circumstances relating to the Debtor's ownership of Old Orchard, her dealings with Key Bank, its attorneys and various other lenders. Mr. Simpson had numerous meetings with the Debtor and her various attorneys who were advising the Debtor with respect to Old Orchard and other matters. Mr. Simpson became convinced that the Debtor had been seriously damaged by the conduct of certain lenders and their attorneys. Mr. Simpson supported the Debtor's intention to pursue the full extent of her legal recourse and backed up his support -with continued loans while she sought to engage legal counsel to pursue her claims against Key Bank and its attorneys. The Debtor retained the services of the Boston law firm of Looney & Grossman, among others, to bring Suit against Key Bank and its attorneys, Bumstein, Shur, Sayer and Nelson (UBSSNU). It was Mr. Simpson who advanced the funds necessary to retain Looney & Grossman.
Approximately a year after the Debtor commenced suit against Key Bank and BSSN, Mr. Simpson sought to document his numerous loans to the Debtor. While Mr. Simpson was sympathetic to the Debtor's plight, he nevertheless insisted that the loans to the Debtor be properly documented. On or about October 1987, the Debtor executed a promissory note in the face amount of $1 ,500,OOO, a security agreement, loan agreement, collateral assignment of claims and notice of assignment (collectively, the "1987 Loan Docurnents") granting Mr. Simpson a security interest. In, among other things, the proceeds from recoveries of the Debtor's claims against Key Bank and BSSN. The 1987 Loan Documents were reviewed by the Debtor's attorneys, Looney & Grossman, who were well aware of Ms. Simpson's extensive financial support of the Debtor and her litigation. Between 1987 and 1990' Mr. Simpson continued to provide economic and service related support to the Debtor, and her attorneys, in connection with her claims against Key Bank and BSSN. On or about December of 1988 (almost two years prior to the IISSN settlement), Mr. Simpson assigned his interest in the 1987 Loan Documents to Suffolk Investment Trust. The Debtor's attorneys, Looney & Grossman, were advised of the assignment in writing. Mr. Simpson has never held any legal or beneficial interest in the Suffolk Investment Trust.
Unbeknownst to Mr. Simpson, on or about September of 1990, BSSN entered into a settlement agreement with the Debtor. In October of 1990, the Debtor requested Me. Simpson to waive his security interest In the settlement proceeds. Me. Simpson was advised that the Debtor's attorneys desired to retain sufficient funds to finance the litigation against Key Bank. Mr. Simpson initially agreed. Shortly thereafter, Simpson reminded the Debtor of his assignment of his 1987 Loan Documents to Suffolk Investment Trust and that he could not waive the claim without his assignee's consent. Thereafter, Mr. Simpson, on behalf of Suffolk Investment Trust (and with its consent) agreed to accept $550,000 from the Debtor 88 partial payment and release of any lien in connection with the BSSN settlement. Mr. Simpson's assignee (Suffolk Investment) directed that payment be made to Tweed Management Corporation. Contrary to the Trustee's allegations in his complaint, Mr. Simpson has never owned any interest, either directly or indirectly, in Tweed Management Corporation.
In addition to the advances evidenced by the 1987 Loan Documents, Mr. Simpson and entities under his control, continued to make loans to the Debtor for business and personal use. Mr. Simpson provided the Debtor with housing (the Debtor's adversaries would suggest an intimate relationship where none existed). Mr. Simpson paid for the Debtor's living expenses, her mother's funeral and medical expenses, and her daughter's education. The Debtor executed a second promissory note in the original amount of $111,807.50 payable to Mr. Simpson which evidenced some of these advances (the "1988 Note"). On or about May 5, 1991, payment was made to Mr. Simpson in satisfaction of the 1988 Note The Debtor proposed a payment to Mr. Simpson of less than the face amount of the 1988 Note in full settlement and satisfaction of her obligation under the 1988 Note. Mr. Simpson agreed to accept $1001000 in full settlement and satisfaction of the 1989 Note. Prom 1991 to the present date, Mr. Simpson has continued to provide support and personal services, to the extent he is able, to assist the Debtor in pursuing her claims against Key Bank.
Mr. Simpson admittedly sympathized with the Debtor's circumstances and over time became guided by a desire to see the Debtor vindicated via litigation of her claims against Key Ilank. Today, Mr. Simpson is himself in financial distress and his busin~ses are encumbered by judgments which far exceed their value. As a result of Mr. Stmpson's sympathy, and his financial support. he has become a target of persons who intend to stop the Debtor from prosecuting her claims against Key Bank. Mr. Simpson believes that the prior Trustee was manipulated with half-truths, innuendo and the fear of liability if he did not bring the above referenced action against Mr. Simpson. The Trustee's reliance on facts, stated in his complaint, which he could have easily discovered to be false, is illustrative of this point. It was apparently easier to accept the information selectively supplied by attorneys for Key Bank, Richard Poules, John Connor and others rather than conduct an independent investigation of the facts. strongly urge you to step back and take a look at the facts before proceeding merely because the case has been filed and the Court expects some action on this matter.
It is somewhat ironic that in conversations with the prior Trustee, Peter Fessenden, the undersigned suggested that the release granted by the Debtor to SSSN in connection with the settlement might be attacked as being in violation of MUFTA. It is even more ironic that the special counsel employed by the current Trustee, whose appointment was opposed by Mr. Simpson, would debunk this theory in his Report of Special Counsel to Trustee Regarding Trustee's Potential Claim for Avoidance of Settlement Agreement (the "Special Counsel Report"). Today, the analysis in the Special Counsel Report would strongly suggest that the Trustee's allegations regarding MUFTA claims against Mr. Simpson are more specious than those which the Trustee's Special Counsel recommended should not be pursued.
The Trustee's (Fessenden) complaint does not indicate which of the statutory provisions under MUFTA are being invoked to avoid transfers to Mr. Simpson, or his assignee. The Trustee's complaint takes the kitchen sink approach by referencing 14 M.R.S.A. 3571, et seq. Trustee's Complaint at ¶5. It is presumed that Mr. Fessenden was proceeding under 3576 based on the content of ¶ ¶ 11 and 12 of the Complaint. The Trustee's allegation that the transfer was for an antecedent debt establishes the defense. Trustee's Complaint at ¶ 12. The Trustee did not challenge the incurrence of the obligation evidenced by the 1987 Loan Documents or the 1988 Note. In any case, a challenge to those obligations is time barred under 358O.
Status
Arguably, BSSN, as a party to the settlement agreement (which was a private settlement agreement and supposedly subject to stringent confidentiality arrangements) could be held to be an uinsidern under some judicial interpretations of that term with respect to the settlement agreement. To the contrary, the disbursements made to Mr. Simpson, or his assignee, were made from a settlement in which Mr. Simpson had no actual knowledge Of its making or the amount of the settlement. Mr. Simpson accepted less than full payment of his outstanding claim against the Debtor in response to the Debtor's request that he do so to further the Key Bank litigation. It is difficult to imagine this fact pattern being construed to be an exercise by Mr. Simpson of dominion and control over the Debtor; Mr. Simpson was initially a business associate, and thereafter a friend, who sought to assist the Debtor in correcting what he perceived to be an egregious wrong. Mr. Simpson acted as an arms length creditor and sought to document his loans and provided written notice of the assignment of his claim. Mr. Simpson has never been presented with any credible evidence to demonstrate his alleged "insider" status other then hearsay and innuendo of persons with obvious agendas. To the extent that the Court finds an "lnsider" status is established the defendant will rely upon 3579(6).
Payments of less than the full amount of outstanding obligations, evidenced by writings entered into two years prior to any settlement and acknowledged by prior counsel is hardly a prima facie case of intent to hinder or defraud other creditors. Simple reference to the prior Trustee's Report Respecting the BSSN Settlement Proceeds indicates numerous distributions from the settlement funds without a resulting MUFTA adversary complaint. It is difficult to understand how collection on unsecured deficiency claims (see New England Mortgage Company) have some greater entitlernent to the settlement proceeds than the claims of Mr. Simpson. Interestingly, New England Mortgage Company (UNEMCU) has indicated that they received payments equal to 60% of their claims from the settlement funds. Mr. Simpson's assignee obtained approximately 33% of its claim. Mr. Simpson, or hi$ assignee. accepted less than full repayment of their claims in order to further assist the Debtor in presenting her claim against Key Bank and in doing so enhance the opportunity for full recovery of their claims against the Debtor. Ironically, it appears that Mr. Simpson's (or his assignee acceptance of a reduced claim enhanced the recovery of NEMC. Mr. Simpson Is unaware of any factual allegation which suggests that Mr. Simpson took part in any attempt to hinder the collection efforts of any other creditor of the Debtor or that Mr. Simpson knew about the distribution process regarding the BSSN settlement. Arguably, but for Mr. Simpson's advances to the Debtor and her litigation (employ counsel) there would be no BSSN settlement. Mr. Simpson was not preferred by the Debtor over other equally situated creditors. In fact, he received less than he was entitled to In an effort to advance the Key Bank litigation in the hope of 8 full collection in the future.
As previously indicated I do not believe the Trustee's complaint alleges any facts which are intended to establish a claim under 3575.
Less Than Reasonable Equivalent Value
The Trustee's burden Is to demonstrate that the transfers to Mr. Simpson were based upon less than reasonably equivalent consideration to the Debtor. As previously indicated, each of the distributions to Mr. Simpson, or his assignee, were in payment of outstanding loans from Mr. Simpson to the Debtor. Again, the Trustee has not sought to avoid the obligations evidenced by the 1987 Loan Documents or the 1988 Note.
As I indicated to you in our telephone conversation of August 7, 1997, I will not rehash some of the more tedious litigation issues that would be faced by the Trustee. Without going into great detail, the Trustee must demonstrate that the Debtor was insolvent at the time of the transfers. Based upon the size of the BSSN settlement. the asserted claim against Key Sank, and the viability of that claim today, this may be an insurmountable threshold issue. Additionally, can you, as Trustee, argue this issue without becoming involved in the Key Bank litigation?
Mr. Simpson has asserted a right to trial by jury. This is an action at law by the trustee and is therefor within the protection of the 7th Amendment. Mr. Simpson has not filed a proof of claim and therefore has not waived his right to a jury trial. (See, Granfinanciera. S.A. v. Nordberg, 492 U.S. 33, 1 09 S.Ct. 2782, 106 L.Ed. 26 (1989).
Your correspondence of August 7, 1997 also included a "draft" motion to compel response to discovery request. Upon reading your letter, I attempted to uncover your June 28. 1996 interrogatories and request for production of documents. I can not find your discovery requests of June 28, 1996. Could you be referring to Mr. Fessenden's request of August, 1995? Obviously, it was my understanding that all discovery in connection with this adversary (and the other pending adversaries) was mutually stayed by the parties pending the various proposals respecting a "global" settlement. Therefore, a motion to compel seems inappropriate prior to attempting to obtain this information consensually. More importantly, we should discuss Mr. Fessenden's request as much of the information as in his(your) possession or irrelevant to the adjudication of MUFTA claims.
After you have had an opportunity to review this summary and you would like to discuss the Trustee's claims against Mr. Simpson, please contact the undersigned.
GARGILL, SASSOON & RUDOLPH, L.L.P.
cc: Edward F. Simpson
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