good morning your honor your honor may it please the panel my name is william gantz and i'm here today on behalf of rapid displays we're here today because although the trial court got some of the things right particularly the decision as to breach fiduciary duty the result in the end was unjust and inequitable rapid did everything right they had a claim they brought a suit and they were confronted with what can only be deemed is the classic shell game which the courts have seen in many many instances in which many cases and incited to the court mr gorder was a fiduciary he breached his duty he admitted that he breached his duty and he has not appealed that finding he also admitted in the trial court what fiduciary duty does he admit he breached well the trial court's finding your honor was that mr gorder breached his fiduciary duty for failing to properly liquidate his corporation which was insolvent and what was improper about his liquidation well as we pointed out in the trial court and thoroughly in our briefs we identify hundreds and hundreds of thousands of dollars worth of assets belonging to his first company which we've called old core that were either transferred to himself or transferred to his new company when we sued him he started up a new company and shut down the old one new corp essentially our suit was to set aside these transfers and to get back the money that old corp should have had in its coffers to pay us in addition your honor as as we've cited i may have not phrased my question very well yes sir i'm not concerned with the ways in which he breached his duty i'd like you to state what the duty was was it a fiduciary duty owed by him to the creditors to marshal the assets upon his recognition that the company was insolvent is that the same duty as the directors owed under oregon state law that's what i'm getting at yes i do actually believe it is the same duty because as the court will see and in the gantenbein case it's cited to the precursor of a sixty thousand six hundred and thirty seven which is the improper distributions to shareholders case so whether you term it the breach of fiduciary duty or you call it an improper dissolution of the assets when you're dissolving a corporation those duties are the same and i think that's a good point the gantenbein case also specifies that when you were operating the company in an insolvent state although it's a going concern the sole director shareholder or officer is still going to be required to properly account for and establish the good faith of his dealings with the company that part of gantenbein correlates to the rules that are set forth in the uniform fraudulent transfer act which oregon's adopted as set forth in ninety five thousand two hundred and thirty and ninety five thousand two hundred and forty the fundamental error that the trial court made was limiting rapid to what it deemed to be transfers taking place after july of two thousand and one in a sense we know that the district court attempted to do some sort of bankruptcy analysis as of july two thousand and one because that's what the district court has said as we pointed out in our brief the four or five things that the court agreed with us on on transfers were all transfers taking place after mr gorder got our suits started up new corp and transferred assets what was ignored in the trial court was the way in which the company was run while it was insolvent and that dates back all the way to one thousand nine hundred and ninety seven and certainly by the admission of mr gorder in this case on may 4th two thousand the day that we contracted with mr gordon's company they were also insolvent they had lost money hundreds of thousands of dollars in every year prior to that if on may 4th two thousand and one at the time you contracted with as you call it old corp and gorder you have the financial statements of old corp which showed losses and operating as a loss and you had gorder's personal financial statements why didn't you realize the company was insolvent well your honor as the court in gantenbein and numerous other in fact the fraudulent transfer statute contemplates there are many corporations which have a balance sheet insolvency but are going concerns here mr gorder gave us an indication of his net worth he had a vested interest in keeping this company going and there are many companies that people do business with who are in precisely that state so he gave us also we also required that we got a third down before we started the job so we did take certain precautions but essentially mr gorder displayed that he had a net worth of thirty six or thirty nine million the company had significant assets there was not an overwhelming amount of secure debt in essence we knew what the condition were of course because he gave us the information and that's why we asked for certain precautions but that doesn't go back to excuse him for the manner in which he actually ran his corporation if i understand you correctly at that point he should have if he realized he was insolvent he should have stopped operations marshalled the assets and distributed them on an adequate program to share so therefore your contract would never have become a contract well i guess looking retrospectively that's possible but he did enter into the contract with us and he did give us the down payment and your honor i think that there's a distinction to be made here between operating a company and the time when it becomes so bad that you must shut down the company and i think that's a distinction that the district court confused mr gorder because his company was insolvent when he contracted with us he had the particular responsibility to deal with this company in good faith and one of the recent decisions that the panels asked us for a supplemental brief on the houston's case i don't have a copy of i don't know i don't know if my colleagues do did you file one we did file a supplemental brief with the court your honor i'll be happy to provide i have a twenty eight j letter where you raised hamilton that was yes that was today your honor we discovered judge gould's opinion in this regard i neglected to mention i would like to reserve i would like to reserve three minutes just tell me whether you think the houston case cause i don't have your brief yes sir the opponent says it doesn't apply because they were not undercapitalized from inception the second prong about a disinterested lender if you think is your position that that case does or doesn't apply i think it certainly applies because the plaintiff in that case brought some of the same claims that we dealt with and the analysis here is the the defendants in that case are the parent company and the officers had given advances in the form of inventory and goods here mr gorder gave certain advances to keep the company afloat and keep it a going concern that's precisely what the district court in this case actually made one correct finding a fact that i agree with when he found that mr gorder's money kept the company afloat the decision in houston's is actually right on point here because where you are putting in money to keep it afloat you are actually gambling on the outcome and if the company does well you'll take a reward in its operations so you don't read the statement from that case that gorder relies upon that it only applies in the case of an undercapitalized company that's undercapitalized from the get go no and that's the point of the gantenbein case it's the point of the fraudulent transfer act at any point that you're running a company that's insolvent you have these duties to act properly and in fact the houston's case was interesting because it didn't specify that the shareholder had to feel in good faith and establish that based upon a breach of fiduciary duty that wasn't even raised by the plaintiff in that case the houston's case has a twopronged test one can be quote a shareholder loan as a capital contribution if it is made to an initially capitalized corporation or when no descend arrested lender would have extended credit correct that's correct so you say that the second prong applies here yes sir now is there any evidence in this record and if so please point out to me that the corporation ie what you call old corporation was undercapitalized and if so when okay again your honor based upon the admissions and the balance sheets and the financial statements and a long history that's not what i meant that's circumstantial evidence i suppose what i should've said more precisely was did you have an expert witness an economist or an accountant testify that on a date certain based on the financial statements a business of this volume was undercapitalized for the purposes under which it was incorporated no your honor mr gorder admitted as of may 4th that his company was insolvent that's not the same as being an undercapitalized you can be undercapitalized from the getgos as judge fisher says that's one issue but you can still be solid okay i think if you read the houston's case with the gantenbein case and the fraudulent transfer statutes whether the company's insolvent or undercapitalized at a particular moment means that it's unable to pay its debts it has a balance sheet insolvency and i think that's i think that's you equate the undercapitalized and insolvent well in terms of under the term undercapitalization implies that from the beginning of time when the company is formed it was under capitalized we don't have that information for mr gorder's company because it had been in existence for twenty plus years what we do know is that it was insolvent at all times that he was dealing with us was this oregon case law provided to the district coordinator the houston case regrettably was not your honor we certainly did argue that the loans were not properly documented that they could not be called loans that he was simply advancing money to keep the company alive we made all of the arguments but we did not cite that specific case how about the gantenbein case gantenbein was front and center in the district court how about hardman was that also hardman i do not believe was presented to the district court now but gantenbein and the fraudulent transfer acts and everything else tells us is that when we proved our case mr gorder had a burden to come in and establish the good faith of his transactions because he was a sole shareholder director and officer of the company both during times it was being dissolved and while it was being operated as an insolvent company nonetheless now we i want to just we have lots of exhibits and i know we've probably overloaded this matter with facts and documents but there's some important ones what did we do we got a bunch of documents and we went through all the documents and ledgers and we tried to guess and come about transactions and transfers we were the bloodhounds in this mr gorder dumped his documents on us and discovery we went through them and we provided affidavits and the result of it your honor was tabs one hundred and five and that was the basic list of all the things that we found that were transferred in properly now the amounts of these transfers and these are things that were really never accounted for the accounting this to the entire accounting that we got in the district court is a document which was produced at trial not in discovery by mr toby who is the controller of both old corp and new corp and that's a tab one hundred and sixteen there was never any explanation or accounting for any of the plain loans we never got information about when where how who for what reason any of that basic information there was a rey loan file that penny kelly said she maintained but she never produced one amazing example is that there was never any accounting for over five hundred thousand of personal expenses where we found things just in the threeyear period of time that we had records that that had been milked out of old corp because mr gorder was paying his personal bills or non old corp business bills through the company those amounts exceeded those amounts exceeded the amount that the district court ultimately even found as loans and that was mr gorder's justification for taking the money and doing all these things that he did and comingling what would you have us do your honor we would have you on multiple theories because we produced hundreds and hundreds of thousands of dollars of transfers in excess of what we were owed in excess of what the other creditors were owed and in fact in excess of what mr gorder the district court found he was owed all of that adds up to about eight hundred and ninety thousand we had transferred well above that that mr gorder didn't account for that means this court as a matter of law because there was no accounting for these transfers can enter the judgment in full for us this is what happened in the multiple cases such as houstons the defrauded and the disappointed judgment creditor proves that there are assets that were transferred vastly in excess of what they were owed and they recovered in full and one of the interesting things that i hope that the panel found it interesting but on page thirty two of our brief we took the trouble to actually do a prorata distribution that had the court i just wanted to see if we used the district court's actual factual findings we used mr gorder's actual findings for what he paid his creditors over time you may remember and i'll give you the tab number but mr toby set out to determine that and prove on behalf of mr gorder that from may 1st two thousand just three days before we contracted they actually paid all of their other creditors ninety five plus on the dollar that's tab one hundred and twelve we did we added our receivable backend we used the actual findings of fact for the three hundred approximately three hundred thousand that the district court did find was improperly transferred and we actually used mr gorder's numbers for all of his receivables and what he paid and when we added all together we would have been paid nine hundred and seventy one so if the court here is looking for an alternative it should find that the district court if it wanted to do a prorata distribution should have done it as a may 4th two thousand and the evidence provided by mr gorder and using the trial court's findings of fact would have put us in a situation where just under the breach of fiduciary duty claim we would have gotten nine hundred and seventy one and we probably wouldn't have been here except for the issues that we have raised on our attorney's fees you want us to do a pro rata distribution a year before your contract was entered into no our contract was entered on may 4th two thousand oh i thought it was two thousand and one no i'm sorry your honor if i misspoke may 4th two thousand was our date of contract they provided the evidence that showed that they paid ninety five on the dollar from may 1st two thousand til the end of time and we don't ever really know what time the end of time is because there was no real liquidation and the district court actually didn't find when he specifically turned it down you know i don't know what the views of the panel being and i haven't decided the principles yet myself but normally even if we agreed with you on the law we would not get into kind of a fact intensive calculation as an appellate court all we would do is to declare the law and remand it to the district court for further proceedings consistent with our opinions i'm running short on time but i'd like to respond i agree that the findings of fact are subject to the clear air standard and there must be a fundamental mistake but here we have a trial court who misinterpreted the law on how to do the prorata distribution misinterpreted the law on what the fiduciary duty meant and misinterpreted the law on how mr gorder was required to account if we said what the law was is there any reason to think that district court couldn't follow the law as we stated it well that's why we've also maintained that there are clear errors of fact and there are a lot of non findings but the fundamental error here is calling it a day on july 31st two thousand and one and not well into the future that's what the court fundamentally got wrong so that was clear error and it was also a misunderstanding of the law to try to do a faux bankruptcy that was the that's a misunderstanding of the law and it's a mistake of law and this court can reverse that de novo i've suggested ways that this court can why don't you save your time yes sir thank you may it please the court dave sweeney for responding cross opponent ray gorder this was a fact intensive case trade by us magistrate i note that my colleague states that the fundamental error was that the trial court held that the timing in this matter was july 31st two thousand and one in fact the trial court held that mr gorder knew that the company was insolvent on may 10th two thousand and one not late july there were two pivotal factual findings that occurred in this case this case involved interesting exhibits of mr gorder who was the president shareholder of interesting exhibits a company that lasted over twenty years had excellent clients and when they entered into the contract with rapid display gave them a balance sheet which displayed accurately what their financial situation was including a reference to a note payable shareholder of over four hundred and ninety five thousand now the trial court here made two pivotal factual findings one were these infusions of and by mr gorder were they loans or were they capital contributions that's a fact issue and the trial court heard testimony from mr gorder they heard testimony from the chief financial officer of the company they heard testimony from the outside accountant of the company they heard testimony from the chief corporate counsel for the company they had documentary evidence showing that the loans were in fact evidence on the books of the corporation did anybody argue to the judge that these were capital contributions oh absolutely okay and but we've heard that at least one of the relevant oregon cases and the federal cases neither of were cited it's all under gantenbein is that it the gantenbein doesn't deal with the issue of loans versus capital contributions gantenbein deals with the issue of whether at what point does your obligation as a fiduciary kick in when does that occur and the issue of loans versus capital contribution which was front and center in front of the trial judge that was an issue that he had to determine that was critical because if in fact these were not loans then mr gorder would not be repaid any of the amounts that those would not have been appropriate mr gorder loaned this company over thirteen million over the course of its activities and as i was trying the case and is reflected in the record the trial judge looked out and he smiled and in the record it says you may wonder why i'm smiling because this is an unusual case most of the time i'm dealing with cases where people are trying to save their own skin but here mr gorder was continuing to place money into the corporation in fact he placed over two hundred thousand into the corporation in the year two thousand and one alone judge jelderks the trial judge held that on early may may 10th two thousand and one mr gorder knew that the company was insolvent so that's when the trust fund theory kicks in at that point that's the purpose of gantenbein gantenbein says the test is the fact test is that the company must discontinue business by reason of its insolvency and what happened in may two thousand and one that the trial judge was looking at to make this determination what happened was that there was in fact outside financing of this company unlike the houston case and it was from key bank there was approximately fifty thousand worth of equity on that line of credit but in may two thousand and one key bank decided that they gave the note over to special assets that meant collect the note it was a demand note and at that point a meeting was held with the outside accountant mr mack who testified with the corporate counsel mr desylvia and at that point mr gorder was told in essence this company can no longer survive it was that may period of time that judge jelderks determined that mr gorder then knew that the company was insolvent judge jelderks saw mr gordon he acknowledged in his findings of fact that mr gorder was unschooled in accounting and law but he relied on his professionals and that without his loans this company would not have survived so and in fact when mr desylvia and the outside counsel was testifying the trial judge says now this time period may be important to me i want to make sure i understand the sequence in may and then in his decision it was that sequence in may that triggered that finding that mr gorder knew insolvency of his company occurred in may 10th that's the findings of fact and from that point forward then his fiduciary duty occurred now it's it's also the trial judge puts assets back into the pot so that the before you go to that sure as of the time when gorder knew that his company was insolvent any loans that he made after that time should be treated as capital importations correct well there's certainly what you don't agree with that i think as a strict construct of law perhaps that's that's correct you want us to apply a loose construct no i guess my counsel's arguing equity and here's a here's a fellow if you if you could imagine that that his company of twenty years is now going down the drain and he's still trying to put money into it to save it and judge jelderks found the trial court found that but under the instance of rule the second rule if he has reason to believe that the company is insolvent at that point you don't consider i mean he's got a duty to marshal up the assets as of that point and any further money he's giving is to an insolvent corporation so he may be trying to save his name but he shouldn't be expecting to see to that i think in this situation i believe judge jelderks would have applied that rubric and i believe that that's from i didn't mean to stop you on the other one you don't have any problem with the disgorgement of one hundred and eighty eight thousand for the boat and a beach house do you no and what happened there was that it was improperly on the balance sheet in the first place it was taken off after that balance sheet had been given to rapid display the trial court said hey rapid display saw this on there so you're a stock from saying it wasn't there not that it was a fraudulent misrepresentation in fact the trial court said it was it was clearly not and our only point in cross appeal is that if you're going to put that back in you need to correspondingly put the debt back into gorder as well that's the only issued after may 1st two thousand and one pardon me you mean the debt issued after two thousand and one that if the trial judge in our point on cross appeal is if you stick that beach house and the boat back in the pot for creditors then those that has a corresponding debt at the same time to mr gorder that should go on his side of the debt column unless the debt given by mr gorder was when he knew the company was insolvent right and we don't believe that occurred we believe that the that those the beach house and the the boat were taken off prior to may 1st two thousand and one in the books well he he made two loans after oh pardon me now didn't he make a loan of two hundred and twenty nine thousand between twelve million three hundred and twelve thousand to fifty one thousand and one i'm going to have to rely on the record your honor i don't have it in front of me i'm going to avoid at the suggestion of judge gould getting into details like leave that to the trial judge but it's our principal position on this appeal that it was a fact bound case that had two critical factual underpinnings to it one that these were loans rather than the capital contributions two that in fact the under gantenbein and under common law principles the trial judge made a very clear analysis of when that fiduciary responsibility occurred and it was early may two thousand and one the trial judge had an analysis by the chief financial officer that he used trial judge i'm still trying then to understand how you want us to end run houston and that principle and say that anything any capital contribution made after he was aware should not be treated as excuse me any advancement as much loan whatever should be treated as other than as a capital contribution what's your theory again why given your acknowledgement that as of may 10th two thousand no no may 10th two thousand and one your honor but the trial judge yes may 10th two thousand and one but any monies after that date that mr gorder loaned to the corporation which i understood to be about a hundred some odd thousand would be treated as a capital contribution contrary to what judge jelderks found i don't recall how judge jelderks treated those monies post may two thousand and one but in light of in light of the law that would seem to be pretty much have to be given what you acknowledged that the trust fund the duty applied at that point absolutely your honor all right i think we have your point the trial judge had counted by the chief financial officer and the trial judge spent a significant period of time it's cited in our supplemental record examining directly as is his power to do so the chief financial officer asked to how the accounting records work how did the the loans were booked to mr gorder and the trial judge was entitled to rely on that testimony the countervailing evidence was prepared by a paralegal that was admitted simply that was judged as the trial judge says to try to make the record make sense but not for as i understand it the proof of the underlying calculations or the information this is not a fraudulent transfer under oregon state statutes because there was contemporaneous value given the loans that occurred this was not an asset because the the materials and assets of the company were encumbered by the key bank's loans so it turns to the statute it doesn't apply this was not an improper shareholder distribution because it wasn't a distribution it wasn't in wasn't in regards to a shareholder these in fact were loans the equitable subordination argument i've only seen advanced ever in an admiralty case and that's the only time we've ever seen it occur it requires an equitable conduct and that inequitable conduct did not occur judge jelderks i think went out of his way to indicate that this conduct was not inequitable and in fact the the fiduciary duty judge jelderks found that mr gorder was not told of his obligations under to martial assets and to do an orderly liquidation now this doesn't excuse a shareholder from doing that once that point in time is achieved but nonetheless in terms of in terms of culpability in terms of that analysis does that go to the issue of punitive damages and attorney's fees the issue of punitive damage and attorney's fees there was flat note no substantive basis for attorney fees in this case it doesn't exist it's not an oregon common law nor in the statutes in terms of punitive damages punitive damages were never pled in this case in fact when the trial counsel said let's bifurcate this i told her i said to the trial judge punitive damages aren't at play in this case so they're simply not there so the record in terms of mr gorder's culpability is closed punitive damages were never played there's no substitute basis for an award of attorney fees here there's no vindication of a constitutional right the creation of a pool of assets for others to share in the right to attorney fees or may in some instances if you're shaking the attorney fees you spent in the prior litigation but the prior litigation was against the corporation not against mr gorder i have a question on one of your earlier points were there improper shareholder distributions if loans will be paid after that were made after the date when mr gorder knew of insolvency because i believe in that instance the distributions have to be because of mr gorder's shareholder status you're a shareholder therefore i'm going to distribute x dollars to you given your status the that simply did not occur these were these were loans that were paid and in fact the loans the loans are the monies that went in late two thousand and one certainly if you're talking about a first in first out analysis we're never repaying because a judge the trial judge found that that mr gorder was still owed over three hundred and ninety five thousand at the end of the day and then so judge gould's question you mean unless the repayment where stamp dividend then it's not an improper distribution to shareholders if he's the sole shareholder i don't think that this were these were shareholder distributions in the in the sense of in the sense of the definition no i don't it was a distribution to the only shareholder that's correct you said that the punitive damages wasn't flooding yet i'm looking at the transcript of the free trial fashion for bifurcated the trial and mr gas is saying we pleaded the right to recover attorney's fees as well as punitive damages and the court says okay without prejudice either attorney fees or punitive damages i'll allow you to reserve putting on any testimony or making any argument on those two issues until the underlying little liability issues have been resolved let's take a look at the first amended complaint it's not there okay the pretrial conference seemed to think it was i was if that was the conference immediately before trial i believe i stated and i was inserted in this case late i think i told the judge that i said your honor there were no punitive damages that i'm aware of that have been pled in the case okay you did raise that i don't recall specifically when you said there was no organic basis for an attorney fees claim okay well we'll see what the there was a bifurcation order issued right the order that you that's what i recall the court doing what the transcript said there's no formal pretrial order apart from that trans that i wondered is is there a formal pretrial and it's a good question if there is law i think or at least there used to be when i did litigation a number of years back that a pretrial order supersedes the pleading sure so that if a pretrial order said punitive damages once that happened even if they weren't in the complaint pardon me i don't believe there was a pretrial order here i got involved just before the trial i should know the answer but i don't i don't think that there was so for those reasons your honor we believe that with the exception of our issuing cross appeal judgment of the trial court should be sustained and what relief you wish on your cross appeal cross appeal the judgment against mr gorder personally should be reduced by slightly over four thousand i just have a couple of minutes so i'm going to go as quickly as i can the definition of distribution under the transfer to distribution act is sixty thousand and seventeen it means a direct or indirect transfer of money or other property that's a broad definition and covers any type of distribution the idea that my clients have waived the protections of the fraudulent transfer act or the breach of fiduciary duties because we knew that the company had a negative balance sheet isn't square with the law otherwise no one would do any business with a going concern that it's operating as an insolvent the trial court made numerous errors of fact and clear errors one is on page if you look at page twelve of the conclusions of law and findings of fact that the court finds that there were overpayments on leases that old corp didn't receive revenues and it paid for repairs for properties that gorder owned we identified four hundred and eighty eight thousand worth of that and added up to four hundred and eighty eight thousand my reference for that is tab one thousand and sixty nine and duncan's testimony mr toby came back and said the entire amount of rent's due they try to offset that claim with rent by his testimony it was ninety six thousand there was no finding in our favor as to the differential that's three hundred thousand plus that would have been available to us the issue here is not what came in and out it's globally what happened and we were entitled to have a prorata distribution there was five hundred and sixty eight thousand in accounts receivable not accounted for there was a receivable for forty three thousand that his mr gorder judy walsh acknowledged was received but it vanished into thin air the trial court's problem is that it didn't make proper findings of fact and it missed it missed the boat it didn't even roll up all right we've got that point now in terms of punitive damages and attorney fees was there because it's not in the punitives are not in the first amend of complaint not specifically anyway and but you do ask for attorney fees so what's the status of the record on first punitive damage there was no pretrial order we filed an amended complaint we felt at the pretrial that our claims and the evidence that we are going to see would sustain our action or our claim for punitive damages and in fact reaching that's all you've got it's just what you said that you thought you had a punitive damage claim and when challenged you said you'd have to go back and take a look that's the state of the record that's correct your honor and there was never any and as far as attorney fees what's your basis for attorney fees the attorney's fees your honor in a couple cases i'd like to cite to are these also new cases that haven't been cited previously these are cases that we cited in our we never got an opportunity to brief the issue in the trial court so what you decided that these are in our brief your honor give me the name osborn versus hay that's fine which adopted the restatement of toward five ninety one you don't have to just cite okay osborn versus hay okay got that and for these single cases i want to save my quotes and time by having to track them down oskenholt versus lederle thank you one last question i'm sorry there were a couple more dizick versus umpqua and medford irrigation and also i'd like to point out that ors 95261c allows for any other relief the circumstances require we've got no equity here unless we get our expenses from this case one last question counsel as to the punitive damages at the end of the evidence did you make a motion to amend your complaint to include a punitive damage based on the proof no i did not your honor it was never it was never challenged after we started the trial and oregon law well it was challenged at pretrial conference but does oregon law require specific fleeting of punitive damages in other words you have to specifically request that you can't it doesn't come under the such other relief as maybe just the proper you know i don't know the answer to that question and i'd be happy to look into it and provide the court with a short brief on that if necessary we'll ask all right the case just argue will be submitted