T.C. Mem o. 2 01 6- 14 2

UNITED STAT ES TAX COURT

THOMAS L. W EINTRAUT, TRANSFEREE, E T AL., Pet it io ne rs v. 1 COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No s. 6 50 5- 12 , 67 15 -1 2, Fi le d J ul y 27 , 20 16
. 67 51 -1 2.
Bret t J . Mil le r an d R an da l J . Kalt en m ark , forpe ti ti on ers . St ewartTod d Hi tt in ge r an d S am ue l A. Nay lo r, fo r res po nd en t.
CONTENTS FINDINGS OF FACT.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 FFI an d P et it io ne rs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 FFI, Pe ti ti on ers , andMi dC oa st . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Cas es of t he fol lo win g p et it io ne rs are co ns ol id at edhe rewi th : Cu rti s D. 1 Fan kh au se r, Tran sf

eree , do ck etNo. 6 71 5- 12 ; an d C ynt hi a A. Fan kh au se r, Tran sf eree , do ck etNo. 6 75 1- 12
.- 2 -

[* 2] Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 IRS Ex am in at io n With R es pe ctto FFI an d P et it io ne rs . . . . . . . . . . . . . . . . . . . 86 OPINION.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Pet it io ne rs ’ Mo ti on inLim in e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Eva lu at io n o f W it ne ss es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4 Tran sf eree Liab il it y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5 Sect io n 6 90 1.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5 Fel dm anv. Co m

m is si on er.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 7 Tran sf eree Sta tu s fo r Pu rp os es of S ect io n 6 90 1.
. . . . . . . . . . . . . . . . . . 11 2 Liab il it y Und er In di an a UFTA.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4 Tran sf ers forPurp os es of t he Ind ia naUFTA.
. . . . . . . . . . . . . . . 15 5 Frau du le ntTran sf

ers Und er the Ind ia naUFTA.
. . . . . . . . . . . . . 22 0 Res po nd en t’s Cl ai m

forFFI’s Unp ai d 2 00 1 Def

ic ie nc y Liab il it y . . . . . . . . . . . . . . . . . . . . . . . 22 2 Res po nd en t’s Cl ai m

forFFI’s Unp ai d 2 00 1 P en al ty L iabi li ty. . . . . . . . . . . . . . . . . . . . . . . . . . 23 0 Res po nd en t’s Cl ai m

forTran sf

eree Int eres t. . . . . . . . . . . . . . . . . 23 7 Co nc lu si on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3

MEMORANDUM FINDINGS OF FACT AND OPINION CHIECHI, J ud ge : Re sp on de ntde te rm in edth atpe ti ti on er Cu rti s D. Fan kh au se r is li ab le as atra ns fere e o f ffi Co rp . forth e unp ai d d efi ci en cy in- 3 -

[* 3] Fed eral in co m e ta x (s om et im es , tax ) of $6 09 ,03 7.4 3 an d t he unpa id

2
accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) of $ 85 ,48 2 o f th atco rp or at io n fo r 3 it s t ax ab le y ear 2 00 1, b uton ly to the ex te ntof t he ne t v al ue of t he ass et s t ha t tha t
co rp or at io n tran sf

erre d t o h im , whi ch res po nd en t d et erm in edinth e n ot ic e o f li ab il it y was $ 1,8 24 ,14 3.9 9, as well as i nt eres t the reo n a s p ro vi de d b y law. Res po nd en t d et erm in edth atpe ti ti on er Cynth iaA. Fankhaus er i s l iabl e as a tra ns fere e o f ffi Co rp . forth e unp ai d d efi ci en cy intax of $ 60 9,0 37 .43 an d t he 4
unpa idaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a) o f $8 5,4 82 of t ha t
co rp or at io n fo r it s t ax ab le y ear 2 00 1, as well as i nt eres t the reo n a s p ro vi de d b y la w. 5

As d is cu ss edbe lo w, inth e res pe ct iv e an swe rs inth es e cas es , res po nd en t

2 co nc ed edth atth e Fed eral unpa idde fic ie nc y intax of f

fi C or p. fo r it s t ax ab le y ear 20 01 is $5 78 ,33 8.4 3. All sec ti on refe ren ces are t o t he Int ern al Rev enue Co de ineffe ctat a ll 3 rel ev an t t im es . All R

ul e ref eren ce ar e to th e Tax Co urt Ru le s o f Prac ti ce an d Pro cedur e. See s up ra n ot e 2
. 4 As d is cu ss edbe lo w, inth e n ot ic e o f li ab il it y is su edto pe ti ti on er Cynth ia 5 A. Fan kh au se r, res po nd en t d idno t l im itMs . Fan kh au se r’s tra ns fere e li ab il it y to th e ex te ntof t he ne t v al ue of t he ass et s t ha t FF I tr an sf erre d t o h er, wh ic h re sp on de ntde te rm in edinth atno ti ce was $2 33 ,87 7.4 4.- 4 -

[* 4] Res po nd en t d et erm in edth atpe ti ti on er Th om as L. W ei ntrau t i s l iabl e as a tra ns fere e o f ffi Co rp . forth e unp ai d d efi ci en cy intax of $ 60 9,0 37 .43 an d t he 6
unpa idaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a) o f $8 5,4 82 of t ha t co rpo rat io n fo r it s t ax ab le y ear 2 00 1, b uton ly to the ex te ntof t he ne t v al ue of the
as se ts th atth atco rp or at io n t ran sf erre d t o h im , whi ch res po nd en t d et erm in edinth e
no ti ce o f li ab il it y

was $ 51 4,5 20 .35 , as wel l as in te res t the reo n a s p ro vi de d b y law. W e m us t d eci de whethe r to su st ai n re sp on de nt ’s det erm in at io ns as m od ifi ed by resp on de ntinth e res pe ct iv e an swe rs inth es e cas es . W e h ol d t ha t we s ha ll to 7 th e ex te ntst at edbe lo w. FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. At the ti m e th ey

fil edth e res pe ct iv e p et it io ns inth es e cas es , pet it io ne rs
res id edinInd ia na . FFI an d P et it io ne rs On Au gu st28 , 19 47 , cert ai n i nd iv idua ls who were n otrel at edto Cu rti s D. Fan kh au se r (Mr . Fan kh au se r), Tho m as L. W ei nt rau t (M r. W ei nt rau t), a ndCynt hi a A. Fan kh au se r (Ms . Fan kh au se r) i nc or po rat edEwin g F ou nd ry , Inc ., un de r th e See s up ra n ot e 2
. 6 See s up ra n ot e 2
. 7- 5 -

[* 5] la ws o f th e St at e o f In di an a. On Fe brua ry 6, 1 95 9, the art ic le s o f in co rp orat io n o f Ewin g F ou nd ry , Inc ., were am en de d t o c ha ng e it s n am e to Farm Fan s, In c. On M arch 30 , 19 90 , th e art ic le s o f in co rp or at io n o f Farm Fan s, In c., were
am en de d t o c ha ng e it s n am e to ffi Co rp . (FFI). Atall rel ev an t t im es , FFI was a C
co rp or at io n wi th it s p rin ci pa l p la ce o f bu si ne ss inInd ia na . (W e sh al l re fer t o t he C
co rp or at io n tha t was in co rp or at edas Ewi ng Fo un dry , Inc ., onAug us t 2 8, 1 94 7, as FFI, ev enth ou gh th atco rp or at io n o pe rat edun de r di ffer en t n am es un ti l M arch30 , 19 90 , when it s n am e was ch an ge d t o ff i Co rp .) Fro m 19 60 un ti l 2 00 1, FF I was inth e b us in es s o f de si gn in g, m anuf actur in g,
an d s el li ng equi pm en t u se d fo r dry in g, h an dl in g, an d c on di ti on in g g rai n. Fro m 19 67 un ti l Dec em

be r 20 , 20 01 , FFI h adit s o ffi ces at 5 90 0 El m woo d Av enue , In di an ap ol is , Ind ia na(Elmwoo d p ro pe rty), where itals o c on du ct edall of i ts sal es op erat io ns an d i ts res earc h a ndde ve lo pm en t o pe rat io ns . InNov em

be r 19 89 , Mr. W ei nt rau t, wh o h ol ds a ba ch el or ’s deg ree i n bu si ne ss an d a cco un ti ng fro m Ind ia naUni ve rs it y

an d wh o was li cen se d a s a cert ifi edpubl ic acco un ta nt(C.P.A.), joi ne d F FI as it s ch ie f fi na nc ia l o ffi cer 8 (CFO). M r. W ei ntrau t t oo k t ax cla ss es inco ll eg e an d t oo k t ax rev ie w cou rs es

Dur in g 2 00 1 u nt il at l eas t the ti m e o f th e tr ia l i n the se cas es , Mr. W ei n- 8 traut ’s li cen se as aC.P.A. was i n a n i na ct iv e st atus .- 6 -

[* 6] whi le pre pa rin g fo r hi s C .P.A. exa m in at io n. Be fo re h e joi ne d F FI as it s C FO, Mr. Wein trautha d wo rk edas a n a cco un ta ntor a s t he co nt ro ll er fo r certa in co m pa ni es . As anacco un ta nt , Mr. W ei nt rau t wo rk edon th e au di t s ta ff, whe re h is
res po ns ib il it ie s i nc lu de d e xa m in in g t he fai rn es s o f co m pa ny fin an ci al st at em en ts . Mr. Wein traut ’s workas a n a cco un ta ntdi d n otin cl ud e an y tax work . Som et im e aft er Mr . W ei nt rau t jo in edFFI as it s C FO, he be cam e an d re m ai ne d a t al l re le va nt ti m es FFI’s ex ecu ti ve vi ce p res id en t, treas ur er, an d s ecre tary . InNov em

be r 19 91 , Mr. Fan kh au se r, who ho ld s a b ach el or ’s deg ree i n c iv il
en gi ne eri ng fro m

th e Uni ve rs it y

of M is so ur i, joi ne d F FI as it s p res id en t. On

9 Ja nu ary 15 , 19 96 , Mr. Fan kh au se r pu rch as edall of t he ou ts ta nd in g s to ck of F FI. Ri ch ardThrapp (Mr. Th rap p) , who was apa rtn er wi th th e la w firm kn own at t he ti m e o f tr ia l as Ice M il le r, LLP (Ice M il le r), rep res en te d h im with re sp ectto th at pu rch as e. Afte r Mr. Fa nkhaus er b ecame the so le st oc kh ol de r of FFI, h e rem ai ne d atall rel ev an t t im es it s p res id en t. 1 0

Mr. Fa nkhaus er’s educ at io n a t the Uni ve rs it y of M is so ur i d idno t i nc lu de 9 an y cla ss es inacco un ti ng or b us in es s. At t he ti m e o f th e tr ia l h erei n, M r. Fan khaus er h adbe enus in g atax return p rep arerto pre pa re h is tax returns . W e sh al l s om et im es refe r co ll ect iv el y to Mr. Fan kh au se r an d M r. W ei n- 1 0 trautas F FI’s o ffi cers .- 7 -

[* 7] In19 97 , Mr. Fan kh au se r ga ve 10 pe rcen t o f th e o ut st an di ng st oc k o f FFI t o hi s s po us e, Ms . Fan kh au se r. Ms . Fan kh au se r, who stud ie d a rt f ortwo y ears at Kan sa s St at e Uni ve rs it y , was n otat a ny tim e in vo lv edinth e o pe rat io ns or t he
m an ag em en t o f FFI. On Dec em

be r 30 , 19 97 , Mr. W ei nt rau t p ur ch as ed20 pe rcen t o f th e o ut st an di ng st oc k o f FFI fr om Mr. Fan kh au se r. On J ul y 13 , 20 00 , Mr. W ei nt rau t pu rch as edanad di ti on al two pe rcen t o f th e o ut st an di ng st oc k o f FFI fr om Mr. Fan kh au se r. Fro m Ju ly 13, 2 00 0, u nt il Decem be r 20 , 20 01 , Mr. Fan kh au se r, Mr. Wein
traut , andMs . Fan kh au se r own ed68 pe rcen t, 2 2 p erce nt , and10 pe rcen t, re sp ecti ve ly, of FFI’s o ut st an di ng st oc k. (Du rin g t he ti m es Mr. Fan kh au se r, Mr. Wein
traut , andMs . Fan kh au se r own edall th e st oc k o f FFI, we s ha ll so m et im es refe r
co ll ect iv el y

to th em as t he FFI s to ckho ld ers .) At al l re le va ntti m es un ti l Dec em be r 20 , 20 01 , th e m em

be rs of t he bo ardof d ire ct or s o f FFI wer e Mr. Fankhaus er an d Mr. Wein traut . (Duri ng th e ti m es Mr. Fan kh au se r an d M r. W ei nt rau t wer e
m em be rs of t he bo ardof d ire ct or s o f FFI, we s ha ll so m et im es refe r co ll ect iv el y to th em as t he FFI d ire ct or s)
. Dur in g 1 99 8 a nd19 99 , th e sa le s re ve nu es of F FI d ecl in edas ares ul t o f a
se rie s o f dry

ha rv es t s eas on s an d d et eri or at in g e co no mic co nd it io ns . Con se -- 8 -

[* 8] qu en tl y , FFI res tru ctur edit s o pe rat io ns by cut ti ng co st s thr ou gh si gn ifi can t st aff re du ct io ns . By

20 00 , FFI’s s al es rev enue s h adst ab il iz ed
. In20 00 , th e FFI s to ckho ld ers de ci de d t o s el l FF I th ro ug h t he sal e o f th ei r
res pe ct iv e p orti on s o f FFI s to ckor t he sal e o f FFI’s as se ts . On Oct ob er 2 , 20 00 , FFI re ta in edBan c One Cap it al Mark et s, In c. (Ban c One ), to ev al ua te th e m ark et 1 1 fo r th e sa le of F FI’s s to ckor F FI’s as se ts an d t o s ol ic itan d n eg ot ia te with p ro sp ect iv e b uyers o f th atst oc k o r th os e as se ts . FFI m ad e Ban c One it s ex cl us iv e ag en t fo r an y

tra ns act io n i n wh ic h c on tro l o f FFI t hr ou gh own ers hi p o f it s s to ckor it s as se ts wou ldbe tra ns ferr edforco ns id erat io n t o a no th er en ti ty in a s to cksal e,
as se t s al e, m erg er, t en de r orex ch an ge off er, l ev erag edbu y ou t, joi ntve ntur e,
recapi ta li zat io n, re st ru ctur in g, o r ot he r bu si ne ss co m bi na ti on . In Oct ob er 2 00 0, Ban c One co nt act ednu m ero us po te nt ia l b uyers o f FFI’s s to ckor F FI’s as se ts . InOcto be r 20 00 , th e GSI Gro up , Inc . (GSI), a co m pe ti to r of FFI i n t he bu si ne ss of m anuf

actur in g g rai n e qu ip m en t, ap pr oa ch edFFI an d e xp res se d an in te res t i n a cqui rin g s om e o f FFI’s as se ts . From Octo be r th ro ug h Dec em be r 20 00 ,

Whe n F FI ret ai ne d B an c One in20 00 , itwas i n t he bu si ne ss of o ffer in g 1 1 in ve st m en t b an ki ng servi ces an d fi na nc ia l ad vi so ry servi ces .- 9 -

[* 9] FFI, wi th th e as si st an ce o f it s at to rn ey , Mr. Thr ap p, en ga ge d i n n eg ot ia ti on s fo r th e sa le of c ert ai n o f it s as se ts to GSI (FFI ass etsal e). 1 2 On Dec em

be r 19 , 20 00 , Mr. Fan kh au se r an d M r. W ei nt rau t, as own ers of 9 0 pe rcen t o f FFI’s o ut st an di ng st oc k, s ig ne d a n a ss etsal e ag reem en t o n b eh al f of FFI (FFI ass etsal e ag reem en t). In th atag reem en t, FFI ag reedto sel l t o GSI , andGSI ag reedto pu rch as e fro m

FFI, the fol lo win g a ss et s: (1) all of F FI’s in ve nt ory , pa te nt s, trad em ark s, trad e n am es , bl ue pr in ts , ord ers forpro du ct s t ha t wer e to be pr ov id edto FFI cu st om ers on da te s af te r th e cl os in g d at e o f th e FFI a ss etsal e ag reem en t, an d c us to m er l is ts an d (2 ) a s ig ni fic an t p orti on of F FI’s m anuf actur in g equi pm en t. Inth e FFI a ss etsal e ag reem en t, GSI ag reedto pa y to FFI $ 6,8 64 ,01 8
an d t o a ss um e certa in of F FI’s li ab il it ie s i n re tu rnforth e as se ts th atFFI ag reedto
se ll to GSI. FFI an d GSI ag reedinth e FFI a ss etsal e ag reem en t tha t the clo si ng da te of t he FFI as se t s al e to GSI was to be Jan ua ry 2, 2 00 1. On Dec em

be r 19 , 20 00 , th e FFI s to ckho ld ers an d t he FFI d ire ct or s h el d
res pe ct iv e sp eci al m eet in gs at wh ic h t he y ap pr ov eda pl anto li qu id at e an d d is
so lv e FFI ( Decem

be r 19 , 20 00 pl anof l iqui da ti on ) in th e ev en t an d o nl y inth e
ev en t tha t the FFI as se t s al e to GSI cl os edon Jan uary 2, 2 00 1, as requi redby the Inth e m id -1 99 0s , Mr. Fan kh au se r an d M r. W ei nt rau t s ta rte d re ta in in g M r. 1 2 Thrapp to rep res en t FF I in cert ai n m at te rs . Arou ndDecem be r 1, 2 00 0, FF I te rm in at edBan c One ’s servi ces .- 10 -

[* 10 ] FFI as se t s al e ag reem en t. OnJan ua ry 2, 2 00 1, the FFI as se t s al e cl os ed pu rs ua ntto th e FFI a ss etsal e ag reem en t. Co ns eque nt ly, on th atda te , th e co ndi ti on pre ced en t t o t he Decem be r 19 , 20 00 pl anof l iqui da ti on was s at is fie d. On o r be fo re Ma y

21 , 20 01 , FFI s ol d t o u nr el at edth irdpa rti es forap pr ox im at el y $1 ,06 3,6 45 cert ai n a ss et s t ha t GSI h adno t ag reedto pu rch as e in th e FFI
as se t s al e ag reem en t, i nc lu di ng cert ai n o f FFI’s au to m ob il es an d c ert ai n o f it s
m anuf actur in g e qu ip m en t (F FI Ma y 21 , 20 01 ass etsal e). FFI an ti ci pa te d t ha t i t wo ul d h av e a s ig ni fic an t Fe de ral in co m e ta x l iabi li ty
an d asi gn ifi can t St at e in co m e ta x l iabi li ty (so m et im es co ll ect iv el y , Fed eral an d St at e in co m e ta x l iabi li ti es ) as a res ul t o f th e FFI a ss etsal e an d t he FFI M ay 21 , 20 01 ass etsal e. As o f Oct ob er 1 , 20 01 , FFI h adm ad e o n t he da te s i nd ic at edth e fo ll owi ng Fed eral est im at edin co m e ta x p aym en ts forit s t ax ab le y ear 2 00 1 t ot al in g $6 25 ,00 0 (s om et im es , FFI Fed eral 20 01 est im at edin co m e ta x p aym en ts ): Date Paym en t 4/ 17 /2 00 1 $2 25 ,00 0 6/ 15 /2 00 1 22 5,0 00 10 /1 /2 00 1 17 5,0 00 Tot al 62 5,0 00- 11 -

[* 11 ] Inad di ti on to th e FFI F ed eral 20 01 est im at edin co m e ta x p aym en ts of $6 25 ,00 0 t ha t FF I ha d m ad e as of Oc to be r 1, 2 00 1, i t h adanov erp aym en t cr ed itof $3 ,59 2 fo r it s t ax ab le y ear 2 00 1 t ha t was att rib ut ab le to it s t ax ab le y ear 2 00 0. (We sh al l re fer t o t he to ta l (i .e., $6 28 ,59 2) of the FFI Fe de ral 20 01 est im at edin co m e ta x p aym en ts of $ 62 5,0 00 an d F FI’s Fed eral ov erp aym en t cr ed itfor it s t ax ab le y ear 2 00 1 o f $3 ,59 2 a s t he FFI Fe de ral 20 01 in co m e ta x p aym en ts .) On Oct ob er 5 , 20 01 , th e FFI s to ckho ld ers vo te d t o d is so lv e FFI i n a cco rda nc e with t he Decem

be r 19 , 20 00 pl anof l iqui da ti on . On Oct ob er 1 9, 2 00 1, FF I so ldfor$3 ,25 0,0 00 th e Elmwoo d p ro pe rty (FFI Elm woo d s al e) t o a n u nr el at edco m pa ny kn own as 5 90 0 El m woo d Av enue , LLC (Elmwoo d Av enue LLC). Elm woo d Av enue LLC pai d $ 1 m il li onof t ha t $3 ,25 0,0 00 pu rch as e p ric e b y ex ecu ti ng a pr om is so ry

no te for$1 m il li on (Elm
woo d Av enue LLC no te ) th atwas p ay ab le to FFI. (We sh al l s om et im es refe r
co ll ect iv el y

to th e FFI a ss etsal e, th e FFI M ay 21 , 20 01 ass etsal e, an d t he FFI Elm woo d s al e as th e FFI 2 00 1 a ss etsal es .) On Oct ob er 1 9, 2 00 1, FF I to okcert ai n s te ps inpre pa rat io n fo r it s p lann ed li qu id at io n a nddi ss ol ut io n, i nc lu di ng (1) fil in g a rti cl es of d is so lu ti on with t he
se cret ary of

st at e o f In di an a (In di an a se cret ary of st at e); (2) in fo rm in g t he att orne y ge ne ral of I nd iana(In di an a at to rn ey ge ne ral ) an d t he Depa rtment o f W orkf or ce- 12 -

[* 12 ] Dev el op m en t o f In di an a th atitwas d is so lv in g; (3) m ai li ng Fo rm IT-9 66 , NOTICE OF CORPORATE DISSOLUTION LIQUIDATION OR W ITHDRAWAL (Form

IT-9 66 ), to th e Dep art m en t o f Rev enue of I nd ia na ; an d (4 )
m ai li ng Fo rm

96 6, Co rp or at e Dis so lu ti on or Li qu id at io n (F orm 96 6) , to th e In te rn al Rev enue Serv ic e (IR S). Fo rm 96 6 t ha t FF I co m

pl et edan d m ai le d t o t he IRS i nd ic at edth atFFI’s “ (an ti ci pa te d) [l]as t m on th , day, andy ear o f fi na l t ax y ear” was Dec em

be r 31 , 20 02
. As o f Nov em

be r 30 , 20 01 , FFI h adm ad e St at e es ti m at edin co m e ta x p ay m en ts forit s t ax ab le y ear 2 00 1 t ot al in g $ 15 7,7 00 (FFI S ta te 20 01 in co m e ta x pa ym en ts ). Of th os e p aym en ts , FFI h adpa id$1 52 ,00 0 t o the Sta te of I nd ia naan d th e rem ai ni ng $5 ,70 0 t o c ert ai n o th er St at es . Afte r th e FFI 2 00 1 a ss etsal es , FFI h adno op erat io ns , no em pl oyees
en ga ge d i n o pe rat io ns , no in co m e, an d n o o pe rat io na l as se ts (ex cep t ce rta in
ox id at io n t ech no lo gy). FFI, Pe ti ti on ers , andMi dC oa st Mr. Th rap p was aware tha t FF I ha d a gr eedto , anddi d, s el l t o u nr el at edth ird pa rti es m os t o f it s as se ts , in cl ud in g a ll of i ts op erat in g a ss et s (e xc ep t ce rta in
ox id at io n t ech no lo gy), andth atitno t o nl y in te nd edbu t al so ha d t ak enform al st ep s t o l iqui da te an d d is so lv e. Non ethe le ss , onDecem be r 7, 2 00 1, h e in fo rm ed- 13 -

[* 13 ] th e FFI o ffi cers (i.e ., Mr. Fan kh au se r an d M r. W ei nt rau t) t ha t M id Co as t Cred itCo rp . mig htbe in te res te d i n p ur ch as in g t he ir F FI s to ckan d the FFI s to ck

1 3 of Ms . Fan kh au se r ata so -cal le d p rem iu m ; tha t i s t o s ay , Mid Co as t m ig htbe in
te res te d i n p ur ch as in g a ll of t he FFI s to ckfor anam ou ntth atwas g reat er tha n t he li qu id at io n v al ue of F FI, i.e ., th e v al ue of F FI’s as se ts aft er the pa ym en t o f it s li ab il it ie s, i nc lu di ng it s Fe de ral in co m e ta x l iabi li ty andit s St at e in co m e li ab il it y fo r it s t ax ab le y ear 2 00 1. Mr. Thr ap p i nf orm edth e FFI o ffi cers th atth e p ur ch as e 1 4 pr ic e fo r th e st oc k t ha t M id Co as t u su al ly pai d i n d eal s l ik e th e o ne th atitwas s ug ge st in g t o F FI an d t he FFI s to ckho ld ers was c al cu la te d b y us in g ape rcen ta ge of th e to ta l o f th e acqui redco m pany’ s Fe de ral in co m e ta x l iabi li ty andSta te in co m e ta x l iabi li ty, whi ch varie d fr om acqui si ti onto acqui si ti on bu t was withi n aran ge th atMi dC oa stha d e st ab li sh ed
. At al l re le va ntti m es , Mid Co as t was a subs id ia ry of S ho rewo odHol di ng Co rp . (Sh or ewo od ) an d was pa rt o f th e co ns ol id at edgro up of c or po rat io ns for

Fo r co nv en ie nc e, we sh al l s om et im es refe r to Mi dC oa stCred itCo rp . and 1 3 an y ot he r co m

pa ny tha t was rel at edto , or t ha t was a de si gn ee o f, Mi dC oa stCred it Co rp . as M id Co as t. Mr. Th rap p h adso m e fam il ia rit y with M id Co as t b ecau se itwas acli en t o f 1 4 Ice M il le r wit h re sp ectto a tr an sa ct io n t ha t was un rel at edto th e tr an sa ct io ns he rein an d t ha t cl os edinNov em be r 20 01 . Mr. Thrapp co ns id eredth e in fo rm at io n t ha t Ice M il le r ob ta in edas ares ul t o f th atrep res en ta ti on to be pri vi le ge d.- 14 -

[* 14 ] whi ch Sh or ewo odfil edco ns ol id at edtax returns . At th os e ti m es , Mic ha el Bern st ei n (M r. Bern st ei n) an d Ho no ra Sh ap iro (Ms . Shapi ro ) each own ed50 1 5 pe rcen t o f th e o ut st an di ng st oc k o f Sh or ewo od
. Mr. Th rap p, wh o was no t an att orne y sp eci al iz in g i n F ed eral in co m e ta x
m at te rs an d wh o was no t qua li fie d t o p ro vi de advi ce wi th res pe ctto su ch m at te rs , 1 6
un de rs to odan d a dv is edth e FFI o ffi cers th atMi dC oa stha d aFed eral in co m e ta x
an d S ta te in co m e ta x d eferral st rat eg y (ta x s tra te gy) th atitco ns id eredto be pr op rie ta ry

an d t ha t co ns eque nt ly it wo ul d n otsh are a ny det ai ls ab ou t tha t t ax st rat eg y with t he m . Mr. Thrapp furth er und ers to odan d i nf orm edth e FFI s to ck
ho ld ers th atMi dC oa stha d u se d i ts tax st rat eg y as p artof a n a cqui si ti on m etho do log y inwhi ch itacqui redforcas h c ert ai n C co rp or at io ns with c as h a ndcert ai n Fed eral an d S ta te in co m e ta x l iabi li ti es . Mr. Thrapp di d n otkn ow an y of t he de ta il s o f Mi dC oa st ’s acqui si ti on m etho do lo gy or it s t ax st rat eg y . Howev er, 1 7

Ms . Shapi ro di edbe fo re the tri al inth es e cas es . 1 5 Fo r co nv en ie nc e, we sh al l re fer t o a n a tt orne y or a ny oth er p ers on who 1 6 sp eci al iz es inFed eral in co m e ta x m at te rs an d wh o i s qua li fie d t o p ro vi de advi ce with re sp ectto su chm at te rs as atax pro fes si on al
. Eve n i f Mr. Th rap p h adkn own , th ro ug h Ic e Mi ll er’s rep res en ta ti on of 1 7 Mi dC oa st , so m e o r al l o f th e d et ai ls reg ard in g M id Co as t’s ac qu is it io n m ethod ol og y an d i ts tax st rat eg y , he wo ul d n otha ve be enab le to di sc lo se any su ch de ta il s t o M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r. Thatwas b ecau se (co nt in ue d...)- 15 -

[* 15 ] itwas M r. Thrapp ’s un de rs ta nd in g, wh ic h h e sh aredwith t he FFI o ffi cers , th atMi dC oa stus edth e cas h o f anacqui redC co rp or at io n i n o rd er t o b uy char ge dof f de btsec ur it ie s t ha t M id Co as t i nt en de d t o u se init s s o- cal le d a ss etreco ve ry bu si ne ss , bu t h e h adno un de rs ta nd in g o f ho w Mid Co as t u se d t ho se sec ur it ie s as pa rt o f it s t ax st rat eg y . Mr. Wein trautan d M r. Fan kh au se r m ad e o nl y cert ai n l im it edin qu iri es of Mr. Th rap p wi th res pe ctto Mi dC oa st ’s ov eral l ac qu is it io n m etho do lo gy, inc lu di ng it s t ax st rat eg y , of a cqui rin g C co rp or at io ns . Howev er, Mr . W ei nt rau t an d M r. Fan kh au se r, di rect ly or th ro ug h M r. Thrapp , andMs . Fan kh au se r, th ro ug h M r. Fan kh au se r, kn ew th atMi dC oa st ’s pri ci ng init s ac qu is it io n m etho do lo gy was in ex tri cab ly int ertwin edwith i ts tax st rat eg y . On Dec em

be r 7, 2 00 1, the da y

on whi ch Mr. Thr ap p i nf orm edth e FFI of fic ers ab ou t M id Co as t’s p os si bl e in te res t i n p ur ch as in g the st oc k o f FFI, the FFI of fic ers , Mr. Thr ap p, an d F FI’s acc ou nt an ts , Patric k B urns (Mr. Bu rn s) an d Vi ct or

(...co nt in ue d) 1 7 Mi dC oa stwas acli en t o f Ice Mi ll er o f whi ch Mr. Thr ap p was a pa rtn er, an d M r. Thrapp was s ub

ject t o c ert ai n e th ic al co ns tra in ts with re sp ectto th e d is cl os ur e o f an y cli en t i nf orm at io n.- 16 -

[* 16 ] Vern ic k (M r. Vern ic k) , of Ka tz , Sap pe r & Mi ll er (Kat z acc ou nt in g fi rm), 1 8
anacco un ti ng firm , hel d aco nf eren ce ca ll with c ert ai n re pr es en ta ti ve s o f Mi dCo as t. Neit he r th e FFI s to ckho ld ers no r Mr. Th rap p s aw an y ne edto , anddi d n ot , pr es s M id Co as t’s re pr es en ta ti ve s re ga rd in g t he de ta il s o f it s ac qu is it io n m etho do log y , it s t ax st rat eg y , andit s as se t re co ve ry bu si ne ss , all of wh ic h t he y un de rs to od were i nt erre la te d. No r di d the FFI s to ckho ld ers or M r. Thrapp see an y ne edto , or in fact , in qu ire th ro ug h t he ir r es pe ct iv e co nt act s wh ethe r th ere wer e p ers on s wh o
were n otem

pl oyed b y Mi dC oa stor b y

Ice M il le r an d wh o m ig htbe fam il ia r wit h Mi dC oa st ’s acqui si ti on m etho do lo gy, its tax st rat eg y , andit s as se t re co ve ry bu si ne ss . 1 9 On Dec em

be r 11 , 20 01 , Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan khaus er ex ecu te d a n e ng ag em en t l et te r (en ga ge m en t l et te r da te d Dec em be r 11 , 20 01 ) in whi chth ey

ret ai ne d Ic e Mi ll er t o re pr es en t FF I an d t he m as s to ckho ld ers of FFI wi th res pe ctto Mi dC oa st ’s pro po sa l t o p ur ch as e th e FFI s to ck . The

Mr. Bu rn s an d M r. Vern ic k d ie d b efo re the tri al inth es e cas es . 1 8 The reco rddo es no t es tabl is h wh y Mr. Thr ap p a ndth e FFI s to ckho ld ers 1 9 di d n otin qu ire th ro ug h t he ir r es pe ct iv e co nt act s wh ethe r th ere wer e p ers on s wh o were n otem

pl oyed b y Mi dC oa stor b y

Ice M il le r an d wh o m ig htbe fam il ia r wit h Mi dC oa st ’s acqui si ti on st rat eg y , it s t ax st rat eg y , andit s as se t re co ve ry bu si ne ss .- 17 -

[* 17 ] en ga ge m en t l et te r da te d Dec em be r 11 , 20 01 , st at edinpe rti ne ntpa rt t he fo ll owi ng with re sp ectto th e p ot en ti al co nf li ctof i nt eres t cr eat edby Ice Mi ll er’s rep res en ta ti on of M id Co as t tha t Ic e Mi ll er h adco nc lu de d i t n eed edto expl ai n t o Mr. Fa nk -h au se r, Mr. Wein traut , andMs . Fan kh au se r: Mi dC oa stCo nf

li ctof I nt eres t Whi le we ha ve no di rectco nf li ctinth is pa rti cu la r m at te r, i.e., we are n otrep res en ti ng Mi dC oa st , it s af fil ia te s o r Oth er Pa rti es in co nn ect io n wi th th is Tran sa ct io n [c on te m pl at edtra ns act io ns in vo lv
in g F FI, th e FFI s to ckho ld ers , andMi dC oa st ], we ha ve rep res en te d an d c urren tl y

rep res en t M id Co as t an d/ orit s af fil ia te s, an d Othe r Part ie s, i n c on ne ct io n wi th ot he r, un rel at edm atte rs . All c on fid en ti al in fo rm at io n t ha t we h av e o bt ai ne d abo utMi dC oa st , it s af fil ia te s an d Oth er Pa rti es as ares ul t o f th es e rep res en ta ti on s s ha ll rem ai n c on fide nt ia l. The se pri oran d e xi st in g re la ti on sh ip s wi ll no t p rev en t Ic e Mi ll er fro m

zeal ou sl y

rep res en ti ng th e in te res ts of t he Sel le rs [Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r] in co nn ect io n wi th th e Tran sa ct io n, b utth es e rel at io ns hi ps are o ne s t ha t you d es erv e to be aware o f inco nn ect io n wi th ret ai ni ng us forth is Tran sa ct io n. As at to rn ey s i n In di an a, we are o bl ig at edto bri ng to y ou r at te nt io n R

ul e 1 .7 o f th e Ru le s o f Pro fes si on al Co nduc t ap pl ic ab le to at to rn ey s i n In di an a. Ru le 1.7 pro vi de s, i n p ert in en t p art , as fo ll ows : (a) A lawyer sh al l n otrep res en t a c li en t i f th e rep rese nt at io n o f th atcli en t wi ll be di rect ly adv ers e to an ot he r cl ie nt , un le ss : (1 ) th e la wy er re as on ab ly bel ie ve s t he rep res en ta ti on wil l n otadve rs el y

affe ctth e rel at io ns hi p wi th th e o th er cl ie nt ; an d (2 ) each cli en t co ns en ts aft er co ns ul ta ti on .- 18 -

[* 18 ] (b ) A lawyer sh al l n otrep res en t a c li en t i f th e rep rese nt at io n o f th atcli en t m ay be m at eri al ly lim it edby the la wy er’s res po ns ib il it ie s t o a no th er cl ie ntor t o ath ird pe rs on , or b y

th e la wy er’s o wn i nt eres ts , un le ss : (1 ) th e la wy er re as on ab ly bel ie ve s t he rep res en ta ti on wil l n otbe adve rs el y

affe ct ed ; an d (2 ) th e cl ie ntco ns en ts aft er co ns ul ta ti on . Bas edup onth e in fo rm at io n wh ic h h as be enpro vi de d t o u s, we do no t b el ie ve th atou r rep res en ta ti on of the Sel le rs inco nn ect io n with t he Tran sa ct io n wi ll (a) ad ve rs el y affe ctth e rel at io ns hi p wi th Mi dC oa st , (b) be adve rs el y affe ct edby ourrel at io ns hi p wi th Mi dCo as t an d/ orit s af

fil ia te s, o r an y

of t he Oth er Pa rti es . Like wis e, we do no t b el ie ve ou r rel at io ns hi p wi th Mi dC oa stwou ldm at eri al ly lim it ou r ab il it y

to rep res en t the Sel le rs an d F FI. Howe ve r, we do th in k th atitis pru de ntto reque sty ou r writ te n a ckno wled gm en t o f ou r rel at io ns hi p wi th Mi dC oa stan d c on se ntto ou r rep res en ta ti on of the Sel le rs inco nn ect io n wi thth e Tran sa ct io n i n l ig htof t he se cir cu m st an ces . Your ex ecu ti on of t hi s l et te r wil l co ns ti tu te su ch a fo rm al co ns en t an d wai ve r of

any su ch actua l o r po te nt ia l co nf li ct s o f in te res t. On Dec em

be r 11 , 20 01 , Olg a Parra (M s. Pa rra) si gn ed , as t he ex ecu ti ve vi ce pr es id en t o f Mi dC oa st , a co ns en t an d wai ve r of co nf li ctof i nt eres t o n b eh al f of Mi dC oa st . Ms . Parraals o was th e g en eral co un se l o f Mi dC oa st .

2 0 Als o o n Dec em

be r 11 , 20 01 , Mr. Berns te in sen t t o M r. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er o n b eh al f of Mi dC oa sta no nb in di ng let te r of

The reco rddo es no t es tabl is h wh ethe r an y of t he FFI s to ckho ld ers 2 0 ex ecu te d t he en ga ge m en t l et te r, bu t we p res um e th atall of t he m di d s o.- 19 -

[* 19 ] in te nt(le tt er o f in te nt ) wit h re sp ectto a pr op os edacqui si ti on of t he ir F FI st oc k b y Mi dC oa stth atrequi redFFI t o re de em as p artof t ha t ac qu is it io n 7 5 p ercen t o f it s s to ckfro m

it s s to ckho ld ers . The l et te r of in te nt st at edinpe rti ne nt

2 1 pa rt: Dear Sh areh ol de r(s ) [Mr . W ei nt rau t, Mr . Fan kh au se r, Ms . Fan khaus er]: W e h av e rec ei ve d a ndrev ie wedcert ai n m at eri al reg ard in g ff i Co rp orat io n, an Ind ia naco rp or at io n (t he “ Co m pa ny”) th aty ouha ve pro vi de d t o u s. Th is let te r of in te nt(“ Lett er”) is to setforth th e b as ic te rm s p ur su an t t o wh ic h M id Co as t Cr ed itCo rp . and/o r it s d es ig ne e (th e “ Sh are B uyer”) sh al l ac qu ire all of t he rem ai ni ng is su edan d [ 2 2 ] ou ts ta nd in g s ha res of t he Co m pa ny (th e “ Sh ares ”) fro m it s s ha reh ol ders (th e “ Sh areh ol de rs ”) p ur su an t t o ast oc k p ur ch as e tr an sa ct io n (t he “ Pro po se d S hare Tran sa ct io n” ) to oc cu r imm ed ia te ly after o r si m ul ta ne ou sl y with t he red em

pt io n b y th e Co m pa ny of ap pr ox im at el y se ve nty fiv e p erce nt(75 %) of

th e Sh ares fro m

th e Sh areh ol de rs in co ns id erat io n fo r (i ) anass ig nm en t o f rec ei vabl es rel at in g t o apro m is so ry no te [Elmwoo d Av enue LLC no te ], in cl ud in g a ccru edin te res t, in th e ap pr ox im at e am ou ntof n in e hun dr edtwen ty nin e th ou sand do ll ars ($9 29 ,00 0) , (ii ) anam ou ntequa l t o the est im at edrefu ndof
Whe n re ferr in g t o t he let te r of in te nt , th e sh are p ur ch as e an d re de m pt io n 2 1 ag reem en t (d is cu ss edbe lo w), th e tr an sa ct io ns de sc rib edinth os e d oc um en ts , and an y ot he r ag reem en t o r do cu m en t as so ci at edth erewi thor r el at edth eret o, o urus e of term s s uc h a s “ sa le ”, “pu rch as e”, “ red em pt io n” , “ lo an ”, an d s im il ar t erm s i s fo r co nv en ie nc e o nl y . Our u se of a ny suc h t erm s i s n otin te nd edto im pl y , anddo es no t i m pl y , th atan y

of t ho se tra ns act io ns was asal e, pu rch as e, red em pt io n, l oa n, o r si mil ar tran sa ct io n fo r Fed eral in co m e ta x p ur po se s. As d is cu ss edbe lo w, Mid Co as t d es ig na te d F FI Acqui si ti on , a li m it ed 2 2 li ab il it y co m pa ny, to s erv e as th e “ Sh are b uyer” in th e “ Pro po se d S ha re Tran sact io n” di sc us se d i n t he let te r of in te nt .- 20 -

[* 20 ] In di an a co rp or at e in co m e ta x p aym en ts m ad e b y th e co m pa ny for i ts 20 01 tax y ear i n t he ap pr ox im at e am ou ntof o ne hu nd redfif ty th ou sa nddo ll ars ($1 50 ,00 0) , (ii i) a n a ss ig nm en t o f th e ri gh t t o re cei ve a ref un d o f th e es ti m at edfed eral co rp or at e in co m e ta x p aym en ts m ad e by the Co m

pa ny for i ts 20 01 tax y ear i n t he ap pr ox im at e am ou ntof si x hun dr edth irt y

si x t ho us an d d ol lars ($6 36 ,00 0) , an d (i v) th e [ 2 3 ] tra ns fer b y

th e Co m pa ny to t he Sh areh ol de rs of c ert ai n Ox id at io n Tech no lo gy relat edass et s an d o th er s ch edul edno n- cas h a ss et s o f th e Co m pa ny (th e “ Red em

pt io n P ric e”) ( th e “ Pro po se d S ha re Re de mpti on ”). Thi s Let te r is in te nd edto pro vi de a fram ewo rkforus to ut il iz e as we ne go ti at e th e te rm s an d c on di ti on s o f a d efi ni ti ve sh are p ur ch as e an d red em pt io n a gr eem en t (“ Defi ni ti ve Agre em en t” ) pu rs ua ntto whi ch th e Pro po se d S ha re Tran sa ct io n a ndth e Pro po se d S ha re Re de m pt io n (co ll ect iv el y , th e “ Tran sa ct io n” ) wou ldbe co ns umm at ed . Accor din gl y , th is Lett er d oe s n otco ns ti tu te a le ga ll y bi nd in g o r en fo rceabl e ag reem en t o r co m

m it m en t o n t he pa rt o f th e p art ie s t o n eg ot ia te or pr oc eedwith o r to wardth e Tran sa ct io n, n or do es itpu rp ort t o s et fo rth a co m

pl et e st at em en t o f th e te rm s an d c on di ti on s o f th e Tran sa cti on ; p ro vi de d, h owe ve r, th atinco ns id erat io n o f th e ti m e an d c os ts in cu rredan d t o b e in cu rredinpro ceed in g t owa rd s a p os si bl e Tran sa cti on , th e p ro vi si on s i n num be redpa rag rap hs 1.3 , 1.4 , 1.5 , 1.6 an d 1 .7 be lo w (th e “ Bi nd in g P ro vi si on s” ) sh al l b e le ga ll y bi nd in g upo n t he ex ecu ti onan d a ccep ta nc e o f th is Lett er b y th os e p art ie s. The Sh are B uyer co nt em

pl at es th atth e b as ic term s an d c on di ti on s o f th e Pro po se d S ha re Tran sa ct io n s ha ll be as f ol lo ws: Sect io n 1 .1 Sha re Purc ha se Pric e . The Sh are B uyer sh al l pu rch as e th e Sh ares at t he clo si ng of t he Pro po se d S ha re Tran sa ct io n (th e “ Sh are C lo si ng ”) fo r a p ur ch as e p ric e (the “ Sh are P ur ch as e Pri ce”) equa l t o the am ou ntof t he Co m pa ny’ s ca shas o f th e Sh are Cl os in g l es s fo rty nin e (4 9%) of t he Co m pany’ s co m

bi ne d s ta te an d
The let te r of

in te nterro ne ou sl y

st at edth atth e FFI F ed eral 20 01 in co m e 2 3 ta x p aym en ts to ta le d $ 63 6,0 00 . The co rrec t t ot al is $6 28 ,59 2.- 21 -

[* 21 ] fed eral co rp or at e in co m e ta x l iabi li ty (tak in g i nt o a cco un t an y ne t op erat in g l os s ca rry fo rward s) att rib ut ab le to th e Co m pa ny’ s b us in es s op erat io ns an d a ny sal e, co nv ey an ce an d/ or tra ns fer o f it s as se ts du rin g i ts 20 01 tax y ear wi th ou t t ak in g i nt o a cco un t an y est im at edtax pa ym en t m ad e b y

th e Co m pa ny with res pe ctto su ch tax es (th e “ DeferredTax Li ab il it y ”). The Sh are P ur ch as e Pri ce s ha ll be reduc edby an am ou ntequa l t o any Liab il it ie s re m ai ni ng as o f th e Sh are C lo si ng . “ Liab il it ie s” sh al l in cl ud e al l s pe ci fic al ly sch edul edLiab il it ie s o f th e Co m pa ny, oth er th anth e DeferredTax Li ab il it y an d any liabi li ty attr ib ut ab le to reaso nabl e an d c us to m ary pr of es si on al fees in cu rredinco nn ect io n wi th th e Pro po se d S ha re Tran sa ct io n n otto ex ceedtwen ty tho us an d d ol la rs ($ 20 ,00 0) , whi ch wil l n otbe bo rn e b y th e Sh areh ol de rs . If th e Tran sact io n d oe s n otclo se , th e Sh areh ol de rs wil l b e res po ns ib le forth e pa ym en t o f th ei r pr of

es si on al fees . The p art ie s ex pr es sl y ackno wled ge th atto th e ex te ntth atth e p art ie s fa il to reac h a gr eem en t o n the nu m be r an d a m ou ntof t he Liab il it ie s t o b e sc he du le d, the Tran sa ct io n wil l n otpro ceed
. Sect io n 1 .2. Con di tio ns Preced ent . The fo ll owi ng sh al l b e co nd it io ns pre ced en t t o t he Sh are C lo si ng : (a) The Sh are B uyer’s com pl et io n o f du e d il ig en ce t o it s s at is fact io n, as pro vi de d i n S ect io n 1 .6 b el ow, by the expi rat io n o f th e Due Dil ig en ce Pe rio d (a s su ch term is de fin edinSect io n 1 .6 b el ow) ; (b ) The ex ecu ti on by the Sh are B uyer an d t he Sh areh ol de rs of aDefi ni ti ve Agre em en t, wi th su ch te rm s an d c on di ti on s as sh al l b e sa ti sf act ory to th e Sh are B uyer an d t he Sh areh ol de rs , inth ei r so le di sc ret io n, b y

Decem be r 20 , 20 01 ; (c) No ad ve rs e ch an ge s t o t he bu si ne ss or f in an ci al co nd it io n o f th e Co m

pa ny betweenth e d at e o f th is Lett er an d t he Sh are C lo si ng ;- 22 -

[* 22 ] (d ) No b reac h o f warra nt y , rep res en ta ti on or c ov en an t

co nt ai ne d i n t he Defi ni ti ve Agre em en t as of t he Sh are C lo si ng ; (e) Co ns umm at io n o f th e Pro po se d S ha re Re de m pt io n imm ed ia te ly prio r to or s im ul ta ne ou sl y

with t he Pro po se d S ha re Cl os in g; (f) The oc cu rren ce o f th e Sh are C lo si ng by D ecember 20 , 20 01
. * * * * * * * Sect io n 1 .6 Acces s to Inf or m at io n . The Sh areh ol de rs sh al l pr ov id e rep res en ta ti ve s o f th e Sh are B uyer with a cces s t o t he bo ok s, reco rd s, p ro pe rti es , andot he r rel ev an t i nf orm at io n o f th e Co m

pa ny. The Sh are B uyer sh al l co m pl et e it s ex am in at io n o f th e Co m pa ny at th e Sh are B uyer’s exp en se by the Sh are C lo si ng (th e “ Due Dil ig en ce Peri od ”). The Sh areh ol de rs an d t he ir r es pe ct iv e ag en ts an d re pr es en ta ti ve s s ha ll co op erat e wit h t he Sh are B uyer an d t he Sh are B uyer an d th e Sh are B uyer’s age nt s an d re pr es en ta ti ve s i n t he ir due di li ge nc e ex am in at io n andsh al l p ro vi de th e Sh are B uyer’s age nt s an d re pr es en ta ti ve s wi th acce ss to th e Co m pa ny’ s b oo ks , reco rd s, p ro pe rti es , em pl oyees a ge nt s an d re pr es en ta ti ve s atsu ch reas on ab le ti m es an d pl aces as t he Sh are B uyer an d t he Sh areh ol de rs sh al l re as on ab ly ag ree. If t he Sh are B uyer ele ct s n otto pro ceedwith t he Pro po se d Sh are Tra ns act io n fo r an y reas on , itsh al l s o n ot ify the Sh areh ol de rs in writ in g p rio r to th e ex pi rat io n o f th e Due Dil ig en ce Pe rio d. * * * * * * * Sect io n 1 .8 Defi ni tiv e Sha re Ag reement . The p art ie s t o t hi s Lett er ac kn owl ed ge an d a gr ee tha t the Sh areh ol de rs sh al l b e requi red , in th e ev en t the Sh areh ol de rs ele ctto ex ecu te a Defi ni ti ve Agre em en t, to m ak e certa in rep res en ta ti on s, warr an ti es an d c ov en an ts rel at iv e to cert ai n m at te rs inth e Defi ni ti ve Agre em en t. Tho se m at te rs are as fo ll ows :- 23 -

[* 23 ] (a) Each of t he Sh areh ol de r’ (if o th er than n atur al

pe rs on s) an d t he Co m

pa ny’ s v al idorg an iz at io n an d g oo d s ta nd in g a ndth e su ffi ci en t au th or it y an d cap aci ty to ex ecu te , del iv er an d p erfo rm th e Sh are Agr eem en t an d c on su m

m at e th e Pro po se d S ha re Tran sa ct io n; (b ) The en fo rceabi li ty andbi nd in g e ffec t o f th e Sh are Agr eem en t i n a cco rd an ce wi th it s t erm s; (c) The Sh areh ol de rs ’ ti tl e to an d o wne rs hi p o f th e Sh ares free an d c le ar o f an y li en s, ch arg es or o th er en cu m br an ces ; (d ) The du e an d v al idis su an ce o f th e Sh ares ; (e) The cap it al st ru ctur e o f th e Co m pa ny, inc lu di ng a rep res en ta ti on to th e eff

ectth atth e Sh ares pu rch as edby the Sh are B uyer co ns ti tu te on e hun dr ed pe rcen t (1 00 %) of

all of t he is su edan d o ut st an din g c ap it al st oc k o f th e Co m pa ny; (f) The lac k o f an y

op ti on s, warr an ts , rig ht s o f fi rs t refu sa l, p reem

pt iv e ri gh ts or s im il ar ri gh ts or o bl iga ti on s wi th res pe ctto th e Sh ares an d any autho
riz ed , bu t u ni ss ue d s ha res of t he Co m pany; (g ) The ab se nc e o f an y law, ru le , ord er, d oc um en t o r ag reem en t tha t wo ul d p ro hi bi t o r be inco nf li ct with a ny of th e Sh areh ol de rs ’ orth e Co m pany’ s ex ecu ti onof the Sh are Ag reem en t o r th e co ns um m at io n o f th e Pro po se d S ha re Tran sa ct io n; (h ) Exc ep t as sp eci fic al ly sch edul edby the Sh areh ol ders , th e ab se nc e o f an y

li ti ga ti on an d l iabi li ti es , in cl ud in g b utno t l im it edto an y pe nd in g o r th reat en eden vi ro nm en ta l l it ig at io n o r li ab il it ie s rel at in g t o a ny of th e Co m pa ny’ s as se ts ;- 24 -

[* 24 ] (i) The am ou ntof t he tax ba si s i n t he Co m pa ny’ s as se ts gi vi ng ris e to th e DeferredTax Li ab il it y ; (j) The pa ym en t o f al l t ax es of t he Co m pa ny (othe r th anth e DeferredTax Li ab il ity ), fil in g o f al l t ax returns an d re la te d t ax is su es ; (k ) The accu racy of th e Co m pa ny’ s fi na nc ia l s ta te m en ts ; an d (l) Any oth er warr an ti es , rep res en ta ti on s, an d c ov ena nt s t ha t i s cu st om ary an d re as on ab le with re
sp ectto tra ns act io ns of t he same natur e as th e Pro po se d S ha re Tran sa ct io n. The Sh are B uyer sh al l warran t, re pr es en t an d c ov en an t tha t i t s ha ll cau se th e Co m

pa ny to p ay

th e DeferredTax Li ab il it y to th e ex te nt th atth e DeferredTax Li ab il it y is du e g iv enth e Co m

pa ny’ s p os tcl os in g b us in es s ac ti vi ti es an d s ha ll fil e al l fe de ral an d s ta te in co m e ta x re tu rn s o n ati m el y

ba si s re la te d t he ret o. Sect io n 1 .9 In demnifi ca tio n . In ad di ti on , subjec t t o a ne go ti at edcap (whi ch th e p art ie s b el ie ve to be ap pr ox im at el y $2 ,30 0,0 00 ) an d s urvi va l p eri od(whi ch th e p art ie s b el ie ve wil l b e 2 y ears forall cla im s o th er tha n t ho se cla im s re la te d t o t ax Liab il it ie s, whi ch wil l s urvi ve forth e ap pl ic ab le st atut e o f li m it at io ns pe rio d) whi ch wil l at te m

ptto m irr orth e li ab il it y

th e Sh areh ol de rs wou ldbe ex po se d t o upo n t he di ss ol ut io n a ndwin di ng up of t he Co m pa ny, the Sh areh ol de rs sh al l i nd em ni fy th e Co m pa ny andth e Sh are B uyer an d th ei r res pe ct iv e o ffi cers , di rect or s, s ha reh ol de rs , em pl oyees o r rep res en ta ti ve s ag ai ns t an y lo ss , cla im , dam ag e o r ex pe ns e, in cl ud in g at to rn ey s’ fees an d c os ts , whi ch an y on e o r m or e o f th em

in cu r as a res ul t o f anall eg edor a ctua l (i ) actor o m is si on of t he Co m pa ny or th e Sh areh ol de rs oc cu rri ng pri orto th e Sh are C lo si ng , or (i i) b reac h of an y warran ty, rep res en ta ti on or c ov en an t g iv enor m ad e b y th e Co m pa ny or th e Sh areh ol de rs with re sp ectto th e Co m pa ny or it s as se ts pri orto th e Sh are C lo si ng .- 25 -

[* 25 ] Mr. Fa nkhaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er (t hr ou gh Mr. Fan khaus er) kne w, di rect ly or th ro ug h M r. Thrapp , th atth e tr an sa ct io ns th atMi dC oa st ha d p ro po se d i n t he let te r of in te ntwou ldres ul t i n t he ir r ecei vi ng a gr eat er am ou nt of ass et s- -a s o- cal le d p rem iu m --tha n t he y wou ldrece iv e if

FFI were to li qu id at e
an d d is so lv e an d t he Fed eral an d S ta te in co m e ta x l iabi li ti es th atFFI h adin
2 4
cu rredas ares ul t o f th e FFI 2 00 1 a ss etsal es were t o b e p ai d i n fu ll . Thatis why
on Decem

be r 12 , 20 01 , th e d ay

aft er Mi dC oa stha d s en t FF I an d t he FFI st oc kh ol de rs th e le tt er o f in te nt , Mr. W ei ntrau t o n b eh al f of FFI an d the FFI st oc kh ol de rs si gn edan d a ccep te d t he term s o f th atlet te r. On the same dat e, Mr. Bern st ei n s ig ne d a ndacce pt edth os e te rm s o n b eh al f of Mi dC oa st . At n o t im e b efo re o r aft er s ig ni ng th e le tt er o r be fo re the clo si ng of t he tra ns act io ns to whi chFFI, the FFI s to ckho ld ers , andMi dC oa stag reedinth e sh are pu rch as e an d re de m

pt io n a gr eem en t (d is cu ss edbe lo w) di d M r. Thrapp or Kyle Hup fer (M r. Hup fer ) with Ic e Mi ll er o r Mr. Bu rn s o r Mr. Verni ck with t he 2 5 2 6
FFI an d t he FFI s to ckho ld ers ha d p rev io us ly tak enform al act io ns to effe ct 2 4 th e li qu id at io n a ndth e d is so lu ti on of F FI. Mr. Hupf er, wh o a t al l re le va ntti m es was a n a ss oc ia te with Ic e Mi ll er an d 2 5 who pe rfo rm edcert ai n n on ta x wo rkforFFI an d the FFI s to ckho ld ers rel at in g t o th e Mi dC oa stpro po se d tran sa ct io ns , was n ota ta x p ro fes si on al . Con se qu en tl y , he was no t qua li fie d t o, an d d idno t, p ro vi de an y Fed eral in co m e ta x a dv ic e to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r or to FFI wi th res pe ctto th e

(co nt in ue d...)- 26 -

[* 26 ] Katz acco un ti ng firm in fo rm FFI an d t he FFI s to ckho ld ers ab ou t p os si bl e ta x pr ob le m s as so ci at edwith tho se tra ns act io ns . Nor d idMr. Thr ap p, M r. Hup fer, M r. Bu rn s, o r Mr. Verni ckreco m m en d t o F FI an d t o the FFI s to ckho ld ers th atth ey ret ai n atax pro fes si on al to pro vi de advi ce wi th res pe ctto th e tr an sa ct io ns th at Mi dC oa stha d p ro po se d i n t he let te r of in te ntor t o wh ic h t he y

th erea fte r ag reedin th e sh are p ur ch as e an d re de m pt io n a gr eem en t. FFI an d the FFI s to ckho ld ers di d
no t re ta in an y

tax pro fes si on al to pro vi de advi ce wi th res pe ctto th os e tr an sa ct io ns , ev enth ou gh FFI h adret ai ne d t ax pro fes si on al s o ve r th e y ears to pro vi de itwith ta x a dv ic e wit h re sp ectto cert ai n m at te rs . Afte r th e v ari ou s p art ie s ac cep te d t he let te r of in te nt , Mr. Thr ap p was
res po ns ib le forne go ti at in g i n l arg e p artth e ag reem en t am on g t ho se pa rti es reg ard in g t he tra ns act io ns th atMi dC oa stha d p ro po se d i n t ha t l ette r. Mr. W ei n- 2 7
(...co nt in ue d) 2 5 tra ns act io ns whi ch Mi dC oa stha d p ro po se d i n t he let te r of in te ntor t o wh ic h t he y ag reedinth e sh are p ur ch as e an d re de m pt io n a gr eem en t. (We sh al l s om et im es refe r co ll ect iv el y

to Mr. Thr ap p a ndMr. Hupf er as pe ti ti on ers ’ at to rn ey s.) The reco rddo es no t es tabl is h t ha t M r. Bu rn s o r Mr. Verni ckwas atax 2 6 pr of es si on al
. It wa s M r. Thrapp who ne go ti at edwith M id Co as t an d was ab le to ob ta in 2 7 it s ag reem en t t o p ay

th e at to rn ey s’ fees (up to a st at edli m it ) th atMr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r were t o i nc urinco nn ect io n wi thim pl em en tin g M id Co as t’s p ro po se d t ran sa ct io ns .- 27 -

[* 27 ] traut , ho wev er, n eg ot ia te d d ire ct ly w it h c ert ai n o f Mi dC oa st ’s rep res en tat iv es th e p erce nt ag e o f FFI’s 2 00 1 F ed eral an d S ta te in co m e ta x l iabi li ti es th at Mi dC oa stwas t o p ay

to purch as e th e st oc k o f th e FFI s to ckho ld ers . In d oi ng so , Mr. Wein trautatt em

pt edto ha ve Mi dC oa stag ree t o p ay a pe rcen ta ge th atwas a t th e h ig h e ndof t he ran ge of p erce nt ag es to whi ch he un de rs to odMi dC oa stha d ag reedinth e p as t as pa rt o f it s ac qu is it io n m etho do lo gy. The FFI s to ckho ld ers di d n otpe rs on al ly und ert ak e an y du e d il ig en ce ef

fo rts (due di li ge nc e) o n b eh al f of FFI o r th em se lv es with re sp ectto th e tr an sa ct io ns th at Mi dC oa stha d p ro po se d i n t he let te r of in te nt . Ins te ad , th e FFI s to ckho ld ers rel ie d
on Mr. Thr ap p t o c on du ctdu e d il ig en ce wi th res pe ctto th os e tr an sa ct io ns . Mr. Th rap p s pe ntso m e ti m e p erfo rm in g ali m it edam ou ntof due di li ge nc e
on be ha lf o f FFI, M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r wit h re
sp ectto th e tr an sa ct io ns th atMi dC oa stha d p ro po se d i n t he let te r of in te nt . At a ti m e n otest ab li sh edby the reco rd , Mr. Thr ap p re vi ewedcert ai n p ro m ot io na l
m at eri al s t ha t M id Co as t h adpre pa redinwhi ch Mi dC oa strep res en te d t ha t i t h ad be eninbu si ne ss si nc e 1 95 8 a ndha d b een inth e as se t re co ve ry bu si ne ss si nc e 19 96 . In tho se pro m ot io na l m at eri al s, M id Co as t i nd ic at edth atitacqui redco rp orat io ns forus e in co nn ect io n wi th it s as se t re co ve ry bu si ne ss an d c on ti nu edto op erat e th os e co rp or at io ns aft er i t ac qu ire d the m . Mid Co as t al so in di cat edin- 28 -

[* 28 ] th os e p ro m ot io na l m at eri al s t ha t i t caus edth e co rp or at io ns th atitacqui redto
sa ti sf y th ei r res pe ct iv e ta x l iabi li ti es as we ll as o th er l iabi li ti es . Mr. Thrapp di d
no t p erfo rm

du e d il ig en ce wi th res pe ctto FFI Acqui si ti on , th e en ti ty tha t M r. Bern st ei n fo rm edan d tha t M id Co as t d es ig na te d t o s erv e as th e p ur ch as er o f th e st oc k o f th e FFI s to ckho ld ers (di sc us se d i n m or e d et ai l b el ow)
. Mr. Th rap p c la im edto ha ve be li ev edth atth e li m it edam ou ntof due di li
ge nc e th athe pe rfo rm edwas a de qu at e taki ng in to acco un t the in fo rm at io n a ndth e ci rcu m st an ces with re sp ectto th e tr an sa ct io ns th atMi dC oa stha d p ro po se d i n t he le tt er o f in te ntan d the si gn at or ie s t o t ha t l et te r ab ou t wh ic h h e h adkn owl ed ge or
anun de rs ta nd in g. Mr . Thrap p fu rth er cl ai m edto ha ve be li ev edth atth e kno wled ge an d t he un de rs ta nd in g t ha t h e h adwith re sp ectto th e tr an sa ct io ns th atMi dCo as t h adpro po se d i n the let te r of in te ntan d t he si gn at or ie s t o t ha t l et te r en ab le d hi m to de te rm in e an d t o a ss es s the ris ks th athe co nc lu de d t ho se tra ns act io ns po se d to hi s cl ie nt s, FF I an d t he FFI s to ckho ld ers . Mr. Thrapp cla im edto ha ve he ld th os e b el ie fs ev enth ou gh (1) he di d n otkn ow an y of t he de ta il s o f Mi dC oa st ’s acqui si ti on m etho do lo gy, its tax st rat eg y , or i ts ass etreco ve ry bu si ne ss ; (2 ) he was
no t a t ax pro fes si on al an d t hu s was no t qua li fie d t o kno w of, o r be sen si ti ve to , any ta x ri sk s as so ci at edwith t he tra ns act io ns whi ch Mi dC oa stha d p ro po se d o r to whi chFFI an d t he FFI s to ckho ld ers ag reedinth e sh are p ur ch as e an d re de m pt io n- 29 -

[* 29 ] ag reem en t; an d (3 ) he kn ew (as di sc us se d b el ow) th atth e fu nd s t ha t wer e to be pro vi de d t o M id Co as t i n o rd er t o e ffec t the acqui si ti on of t he FFI s to ckwere t o be returne d a s o f th e cl os in g o f th attra ns act io n t o t he pro vi de r of th os e fu nd s. Fo ll owi ng th e ex ecu ti on of t he let te r of in te nt , Mid Co as t b eg anpe rfo rm in g du e d il ig en ce wi th res pe ctto FFI i n a nt ic ip at io n t ha t the si gn at or ie s t o t ha t l et te r
wou ldag ree t o u nd ert ak e th e tr an sa ct io ns th atMi dC oa stha d p ro po se d i n tha t le tt er an d t ha t the clo si ng da te of t ho se tra ns act io ns wou ldbe Decem be r 20 , 20 01
. Mr. Wein trautass is te d M id Co as t’s co nt ro ll er, Car ol yn S es co (Ms . Ses co ), an d Mi dC oa st ’s in de pe nd en t ac co un ta nt , Sco ttElk in s, wi th res pe ctto th atdu e d il ige nc e. Mr. Wein trautsp en t s ev eral da y s i n p ro vi di ng th atass is ta nc e. On Dec em

be r 14 , 20 01 , FFI s en t b y facs im il e to Mr. Hupf

er p rel im in ary fin an ci al co m

pu ta ti on s (F FI’s p rel im in ary fin an ci al co m pu ta ti on s) th atMr. Wein
trautha d p rep aredby usi ng FFI’s fi na nc ia l re co rd s. Acco rd in g t o F FI’s p rel im ina ry fin an ci al co m

pu ta ti on s, FF I ha d fo r it s t ax ab le y ear 2 00 1 apro jecte d F ed eral in co m e ta x l iabi li ty of $8 01 ,74 9 a nda pr ojec te d S ta te in co m e ta x l iabi li ty of $2 25 ,03 0. The FFI s to ckho ld ers an d t he FFI d ire ct or s en te redin to a joi ntco ns en t da te d Dec em

be r 15 , 20 01 , to rev ok e FFI’s Dec em be r 19 , 20 00 pl anof l iqui da ti on .- 30 -

[* 30 ] On Dec em

be r 17 , 20 01 , FFI o rg an iz edFFW H ol di ng s, LLC (FF W ), un de r th e la ws o f th e St at e o f In di an a. FFW, who se so le m em be r was FFI, was a di sreg ard eden ti ty for Fed eral tax pu rp os es . FFI fo rm edFFW to s erv e, in te r al ia , as a
ve hi cl e to tra ns fer t o t he FFI s to ckho ld ers cert ai n o f FFI’s ca sh an d n on cas h a ss et s
an d a ll of i ts li ab il it ie s ex cep t i ts Fed eral an d S ta te 20 01 in co m e ta x l iabi li ti es in
ex ch an ge for75 pe rcen t o f th e o ut st an di ng st oc k o f FFI tha t the y own ed . On Decem be r 19 , 20 01 , Mr. W ei nt rau t, as ex ecu ti ve vi ce p res id en t o f FFI, s ig ne d FFW’ s o pe rat in g a gr eem en t. Aro un d Dec em

be r 18 , 20 01 , Mr. W ei nt rau t p rep areda ba la nc e sh eetforFFI (Dece m be r 18 , 20 01 ba la nc e sh eet ) th atrefl ect edit s as se ts an d i ts li ab il it ie s as of th atda te on th e as su m

pt io n t ha t the tra ns act io ns pro po se d i n the let te r of in te nt were t o o ccu r. Acco rd in g t o the Decem be r 18 , 20 01 ba la nc e sh eet , FFI was to ha ve th e fo ll owi ng ass et s an d t he fol lo win g F ed eral in co m e ta x l iabi li ty andSta te in co m e ta x l iabi li ty for i ts tax ab le y ear 2 00 1 a fte r itdi strib ut edm em be rs hi p i nte res ts inFFW to M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in ex -- 31 -

[* 31 ] ch an ge for75 pe rcen t o f th e FFI s to ckth atth ey own ed : (1) cas h o f

2 8 $8 75 ,85 5.4 9, (2 ) th e ri gh t t o arefu ndof t he FFI St at e 2 00 1 i nc om e ta x p aym en ts of $1 57 ,70 0, (3 ) anan ti ci pa te d F ed eral in co m e ta x l iabi li ty (ant ic ip at ed20 01 Fed eral in co m e ta x l iabi li ty) for FF I’s ta xabl e y ear 2 00 1 o f $7 94 ,94 9.1 3, an d (4 )
anan ti ci pa te d S ta te in co m e ta x l iabi li ty (ant ic ip at ed20 01 Sta te in co m e ta x l ia
The Decem

be r 18 , 20 01 ba la nc e sh eetdi d n otsh ow as anass etof F FI the 2 8 ba la nc e o f $1 1,9 55 .46 ina cert ai n b an k a cco un t i n t he na m e o f FFI (F FI’s b an k acco un t b al an ce o f $1 1,9 55 .46 ). Nor d idth atba la nc e sh eetsh ow as a li ab il it y of FFI ce rta in ou ts tand in g c he ck s o f $1 1,9 55 .46 is su edby FFI (FFI’s o ut st an di ng ch eck s o f $1 1,9 55 .46 ). Becaus e FFI’s b an k a cco un t b al an ce o f $1 1,9 55 .46 an d FFI’s o ut st an di ng ch eck s o f $1 1,9 55 .46 were i n t he same am ou nt s, the y off se t each ot he r an d h adno effe ctonth e sh are p ur ch as e p ric e (d is cu ss edbe lo w) cal cu la te d i n t he Decem

be r 18 , 20 01 ba la nc e sh eet . Con se qu en tl y , forco nv eni en ce, we s ha ll no t re fer, ex cep t i nf reque nt ly, to FFI’s b an k a cco un t b al an ce o f $1 1,9 55 .46 as a n a ss etof F FI o r to FFI’s o ut st an di ng ch eck s o f $1 1,9 55 .46 as a li ab il it y of F FI wh enwe di sc us s t he tra ns act io ns an d t he ev en ts th atare re le va ntto th e is su es pre se nt edhe re. Inad di ti on , th e Dece m

be r 18 , 20 01 ba lanc e sh eetdi d n otsh ow as anass et of FFI a re cei vabl e o f $4 3,9 26 .57 (di sc us se d b el ow) fro m th e Pru de nt ia l Li fe In su ran ce Co . of Am eri ca (P ru de nt ia l), wh ic h F FI h adne ve r cl ai m ed , whi ch th e St at e o f In di an a was ho ld in g i n the na m e o f FFI, an d o f whi chno on e as so ci at ed with F FI o r Mi dC oa stwas aware atth e ti m e Mi dC oa stpro po se d the tra ns act io ns in th e le tt er o f in te ntan d a t the ti m e th e tr an sa ct io ns clo se d p ur su an t t o t he sh are pu rch as e an d re de m

pt io n a gr eem en t o f FFI, the FFI s to ckho ld ers , andMi dC oa st . As a re su lt , th e rec ei vabl e fro m Pru de nt ia l o f $4 3,9 26 .57 (Pru de nt ia l d em utua liz at io n fu nd s re cei vabl e o f $4 3,9 26 .57 ) ha d n o e ffec t o n the sh are p ur ch as e p ric e cal cu la te d i n t he Decem

be r 18 , 20 01 ba la nc e sh eet . Con se qu en tl y , forco nv eni en ce, we s ha ll no t re fer, ex cep t i nf reque nt ly, to th e Pru de nt ia l d em utua li zat io n fu nd s re cei vabl e o f $4 3,9 26 .57 as a n a ss etof F FI wh enwe di sc us s t he tra ns act io ns an d t he ev en ts th atare re le va ntto th e is su es pre se nt edhe re.- 32 -

[* 32 ] bi li ty) for FF I’s ta xabl e y ear 2 00 1 o f $2 31 ,15 1.5 6. (W e sh al l s om et im es 2 9 refe r co ll ect iv el y

to th e to ta l (i .e., $1 ,02 6,1 00 .69 ) of FFI’s an ti ci pa te d 2 00 1 F ed
eral in co m e ta x l iabi li ty andan ti ci pa te d 2 00 1 S ta te in co m e ta x l iabi li ty tha t wer e sh own inth e Dece m

be r 18 , 20 01 ba la nc e sh eetas F FI’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y .) Pu rs uantto a fo rm

ul a se t fo rth inth e Dece m be r 18 , 20 01 ba lanc e sh eet , th e st oc k p ur ch as e p ric e fo r th e st oc k o f FFI t ha t M id Co as t was to pu rch as e fro m th e FFI s to ckho ld ers was t o b e d et erm in ed , as s ho wn i n c ert ai n c om pu ta ti on s i n t ha t ba la nc e sh eet , by reduc in g F FI’s to ta l as se ts (i.e ., $1 ,03 3,5 55 .49 ) co ns is ti ng of
cas h o f $8 75 ,85 5.4 9 a ndth e ri gh t t o arefu ndof the FFI St at e 2 00 1 i nc om e ta x pa ym en ts of $ 15 7,7 00 , whi ch FFI wo ul d b e co ns id eredto own up on effe ct in g t he red em pt io n t ran sa ct io n t ha t M id Co as t h adpro po se d i n t he let te r of in te nt , by 49 pe rcen t (i .e., by $5 02 ,78 9.3 4) of F FI’s to ta l an ti ci pa te d 2 00 1 t ax li ab il ity of

As n ot ed , Mr. W ei nt rau t m ad e th e und erl y in g c om pu ta ti on s o f FFI’s 2 9 an ti ci pa te d 2 00 1 F ed eral in co m e ta x l iabi li ty andit s an ti ci pa te d 2 00 1 S ta te in co m e ta x l iabi li ty sho wn i n t he Decem be r 18 , 20 01 ba la nc e sh eet . Tho se li ab il it ie s to ta le d $ 1,0 26 ,10 0.6 9, wh ic h i s d iff eren t fr om

th e to ta l (i .e., $1 ,02 6,7 79 ) of FFI’s pr ojec te d F ed eral in co m e ta x l iabi li ty of $8 01 ,74 9 a ndit s p ro jecte d S ta te in co m e ta x l iabi li ty of $2 25 ,03 0 fo r it s t ax ab le y ear 2 00 1 t ha t wer e sh owninFFI’s pr el im in ary fin an ci al co m pu ta ti on s t ha t h e al so pre pared . The rec or d d oe s n ot es tabl is h t he reas on forth atdi ffer en ce.- 33 -

[* 33 ] $1 ,02 6,1 00 .69 . The b al an ce o f $5 30 ,76 6.1 5 was to be th e p ur ch as e p ric e fo r th e FFI s to ck

th atMi dC oa stwas t o p ur ch as e fro m th e FFI s to ckho ld ers . On Dec em

be r 18 , 20 01 , Pru de nt ia l en te redin to a de m utua li zat io n tran sa cti onwher eb y

itco nv ert edfro m

a m utua l i ns ur an ce co m

pa ny to ast oc k i ns ur an ce
co m pa ny. FFI was a po li cyho ld er atth e ti m e o f th atde m utua li zat io n t ran sa ct io n
an d, as su ch , was en ti tl edto rece iv e certa in sh ares of P ru de nt ia l s to ckan d acerta in am ou ntof P ru de nt ia l’s ca sh . Becau se FFI d idno t m ak e a cl ai m to Pru de nt ia l fo r th e st oc k a ndth e cas h t o wh ic h i t was en ti tl edas ares ul t o f Pru de nt ia l’s de m utua li zat io n, Prud en ti al pa id$4 3,9 26 .57 to th e In di an a Att orne y Gene ral ’s of fic e. 3 0 On Dec em

be r 19 , 20 01 , imm ed ia te ly befo re the co nt rib ut io n o f certa in of i ts
as se ts to FFW, FFI h adth e fo ll owi ng ass et s an d l iabi li ti es :

See s up ra n ot e 2 8. 3 0- 34 -

[* 34 ] Assets Amounts Cash $1,045,510.95 Elmwood Avenue L L C note 913,895.43 Real estate in Thief F alls, Minnesota ( ) 1 Cash in escrow

from F FI asset sale 197,131.52 Oxi dation technology ( ) 2 Refundable utilit y

deposit 1,153.54 Intere st rece ivable on Elmwood Ave nue L L C note 19,387.87 Insuranc e pre mium refund 2,696.00 Total 2,179,775.31 L iabilities Amounts Acc ounts payable to ADP $81.00 Acc ounts payable to Ronald Cook 620.32 Acc ounts payable to Citiz ens Insuranc e 10,000.00 Acc ounts payable to I ce Miller 32,454.03 Pay ments due to retire es 25,684.08 Refunds due de aler s 1,046.47 GSIwar ranty claim adjustment 9,608.09 Acc rued pr operty

taxes 33,144.21 Contingent pa

yable to Ha

nover I nsuranc e 10,000.00 Unpaid 2001 anticipated Fe dera l income tax li ability 166,357.13 3 Unpaid 2001 anticipated State income tax liabilit y 73,451.56 4 Total 362,446.89 Ex cess of

assets over

liabiliti es 1,817,328.42 The rec ord does not esta

blish the value of the r eal e state in Thief F alls, Minnesota. 1 The rec ord does not esta blish the value of the oxidation technology . 2 FF Ihad made pay

ments totaling $628,592 with re spect to its anticipated 2001 F eder al 3 income tax liabili ty

of $794,949.13. FF Ihad made pay

ments totaling $157,700 with re spect to its anticipated 2001 State 4 income tax liabili ty

of $231,151.56.- 35 -

[* 35 ] On Dec em

be r 18 , 20 01 , inpre pa rat io n fo r th e tr an sa ct io ns co nt em pl at edin th e le tt er o f in te nt , Mr. Berns te in org an iz edun de r th e la ws o f th e St at e o f In di an a 3 1 FFI Acqui si ti on (FFIA), ali m it edli ab il it y co m pa ny, to en te r in to th os e tr an sa cti on s as Mi dC oa st ’s des ig ne e. Acco rd in g t o F FIA’s op erat in g a gr eem en t, Mr
. Bern st ei n was requi redto co ntrib ut e $ 1,0 00 inreturn fo r hi s i nt eres t as FFIA’s
so le m em be r. 3 2

The pa rti es st ip ul at edth atFFI Acqui si ti on was o rg an iz edun de r th e la ws 3 1 of th e St at e o f In di an a as anInd ia nali m it edli ab il it y co m pany. Inth e sh are pu rch as e an d re de m

pt io n a gr eem en t tha t FF I Acqui si ti on , FFI, Mr. Fa nkhaus er, Mr. Wein traut , andMs . Fan kh au se r ex ecu te d, FF I Acqui si ti on rep res en te d and warra nt edinsec ti on 3.2 th at“pu rch as er [FF I Acqui si ti on ] is du ly org an iz edan d va li dl y ex is ti ng un de r th e la ws o f th e St at e o f Fl or id a.” Inth e p ream bl e o f th at sa m e ag reem en t, FFI Acqu is it io n i s d es cri be d a s an “ In di an a Lim it edLiab il it y Co m pa ny”. Mid Co as t ap paren tl y fol lo wedvi rtu al ly the same or a v ery si m il ar pa tt ernwhen itag reedto bu y at aso -cal le d p rem iu m

st oc k o f a C co rp or at io n t ha t he ldcas h re su lt in g fr om

th e sa le of o pe rat in g a ss et s an d t ha t h adFed eral an d S ta te in co m e li ab il it ie s at tri bu tabl e to th os e sa le s. Co ns eque nt ly, Mi dC oa stm os t l ik el y ha d aco ok ie -cu tt er ty

pe ag reem en t tha t i t u se d i n o rd er t o e ffec t the pu rch as e o f th e C co rp or at io n s to ck

inth e in st an t ca se s an d i n o th er ca se s wi thvi rtu al ly id en ti cal or v ery si mil ar fa ctpa tt ern s. Th atwou ldexpl ai n, b utno t ju st ify or ex cu se , th e in co ns is te nc ie s b etween(1) th e st ip ul at io n o f fac ts inth es e cas es an d th e p ream bl e o f th e st oc k p ur ch as e an d re de m pt io n a gr eem en t an d (2 ) se ct io n 3 .2 of th atag reem en t. The reco rddo es no t es tabl is h t ha t M r. Bern st ei n c on tri bu te d $ 1,0 00 to 3 2 FFIA i n re tu rnforhi s i nt eres t as it s s ol e m em be r. Nor d oe s t he reco rdest ab li sh th atFFIA h adan y

ass et s as of t he clo si ng of the trans act io ns , whi ch Mi dC oa stha d pr op os edinth e le tt er o f in te ntor t o wh ic h F FI, th e FFI s to ckho ld ers , andFFIA ag reedinth e sh are p ur ch as e an d re de m pt io n a gr eem en t, o r th atitha d a ny ass et s aft er tha t cl os in g o th er tha n t he st oc k o f FFI.- 36 -

[* 36 ] On Dece m

be r 19 , 20 01 , FFI co nt rib ut edth e fo ll owi ng ass et s an d l iabi li ti es 3 3 to FFW: Assets Amounts Cash $157,700.00 Elmwood Avenue L L C note 913,895.43 Right to ref

und of F FI

Fe dera l 2001 income tax pay ments 628,592.00 Real estate in Thief F alls, Minnesota ( ) 1 Cash in escrow

from F FI asset sale 197,131.52 Oxi dation technology ( ) 2 Refundable utility

deposit 1,153.54 Intere st rece ivable on Elmwood Ave nue LL C note 19,387.87 Insuranc e pre mium refund 2,696.00 Assets total 1,920,556.36

L iabilities Amounts Acc ounts payable to ADP $81.00 Acc ounts payable to Ronald Cook 620.32 Acc ounts payable to Citiz ens Insuranc e 10,000.00 Acc ounts payable to I ce Miller 32,454.03 Pay ments due to retire es 25,684.08 Refunds due de aler s 1,046.47 GSIwar ranty claim adjustment 9,608.09 Acc rued pr operty

taxes 33,144.21 Contingent pa

yable to Ha

nover Insuranc e 10,000.00 L iability total 122,638.20 Ex cess of

assets over

liabiliti es 1,797,918.16 The re cord doe s not establish the value of the rea l estate in Thief Fa lls, Minnesota, that 1 FF Icontributed to F FW. The re cord doe s not establish the value of the ox idation technology that FF Icontributed 2 to FF W. The ass et s an d t he li ab il it ie s s ho wn as su m e th atth e tr an sa ct io ns pro po se d

3 3 in th e le tt er o f in te ntwere t o o ccur.- 37 -

[* 37 ] On Dec em

be r 20 , 20 01 , Ste ph enJ. Sh ap iro (Mr. Sh ap iro ) ex ecu te d a cert ifi cat e o n b eh al f of

FFIA, whi ch in cl ud edres ol ut io ns of M r. Bern st ei n d at ed Decem be r 19 , 20 01 . Tho se res ol ut io ns pro vi de d t ha t FF IA, as the de si gn ee o f Mi dC oa st , was t o e nt er i nt o t he sh are p ur ch as e an d re de m pt io n a gr eem en t wi th FFI an d t he FFI s to ckho ld ers . On Dec em

be r 20 , 20 01 , FFIA, FFI, an d t he FFI s to ckho ld ers en te redin to a sh are p ur ch as e an d re de m pt io n a gr eem en t (S PRA), the term s o f whi ch were s im
il ar b utno t i de nt ic al to th e te rm s t ha t M id Co as t h adpro po se d i n the let te r of in
te nt . Mr. Bern st ei n s ig ne d the SPRA o n b eh al f of FFIA; Mr. Wein trautsi gn edit
on be ha lf o f FFI; an d M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r si gn ed itas the FFI s to ckho ld ers . The on ly reaso n t ha t FF I an d t he FFI s to ckho ld ers acce pt edMi dC oa st ’s le tt er o f in te ntan d the reaf te r de ci de d t o, an d d id , ent er i nt o the SPRA wi th Mi dCo as t an d t he rel at edag reem en ts (di sc us se d b el ow) was t ha t tho se st oc kh ol de rs
wan te d t o, an d M id Co as t ag reedth atth ey wou ld , recei ve a subs ta nt ia ll y gre at er
am ou nt --a s o- cal le d p rem iu m --fro m th e tr an sa ct io ns whi ch Mi dC oa stpro po se d t o th em or t o wh ic h t he y

ag reedinth e SPRA th anth ey wou ldrece iv e fro m

th e li qu id at io n o f FFI a fte r FFI’s t ot al an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9, whi chwas a tt rib ut ab le to th e FFI 2 00 1 a ss etsal es , was p ai d (p os tt ax li qu id at io n- 38 -

[* 38 ] va lu e). Whe n t he y

acce pt edMi dC oa st ’s let te r of in te ntan d t he reaf

te r
en te redin to th e SPRA with M id Co as t an d t he rel at edag reem en ts (di sc us se d be lo w), Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew, as di d M r. Thrapp , th atth e o nl y

reas on th atth e FFI s to ckho ld ers wou ldbe ab le to rece iv e
su ch a pr em iu m

was tha t tha t t ot al an ti ci pa te d 2 00 1 t ax li ab il it y wou ldno t b e p ai d. Inot he r wor ds , Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew, as di d Mr. Th rap p, tha t i f an d o nl y if FF I’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y was n ot pa idwou ldth e FFI s to ckho ld ers rece iv e th e so -cal le d p rem iu m . 3 4

The res pe ct iv e am ou nt s o f th e Fed eral in co m e ta x l iabi li ty andth e St at e 3 4 in co m e ta x l iabi li ty of FFI fo r it s t ax ab le y ear 2 00 1 t ha t wer e at tri bu tabl e to th e FFI 2 00 1 a ss etsal es were es ti m at edto be $7 94 ,94 9.1 3 and$2 31 ,15 1.5 6, res pe ct iv el y . As di sc us se d b el ow, u nd er the SPRA, the st oc kh ol de rs of F FI were to ret ai n a s o f th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA, th ro ug h t he ir res pe ct iv e o wne rs hi p i nt eres ts inFFW tha t FF I was to di strib ut e to th em inth e so cal le d re de m

pt io n t ran sa ct io n u nd er the SPRA, the rig htto a refu ndof t he FFI Fed eral 20 01 in co m e ta x p aym en ts of $ 62 8,5 92 . FFI, as FFIA’s d es ig ne e, was to ret ai n a s o f th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA th e ri gh t t o arefu ndof th e FFI S ta te 20 01 in co m e ta x p aym en ts of $ 15 7,7 00 . Becau se of t ho se an ti ci
pa te d re fu nd s o f th os e res pe ct iv e in co m e ta x p aym en ts , Mr. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er kne w th atno ne of F FI’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9 wo ul d b e p ai d, the reb y en ab li ng th em

to rece iv e a subs ta nt ia ll y

gre at er am ou nt , a so -cal le d p rem iu m , fro m th e tr an sa ct io ns Mi dC oa st pr op os edto th em

th anth ey wou ldrece iv e fro m

th e li qu id at io n o f FFI a fte r FFI’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9 was pa idinful l.- 39 -

[* 39 ] Im m ed ia te ly befo re the clo si ng of t he SPRA o n Dec em be r 20 , 20 01 , FFI ha d t he fol lo win g a ss et s an d l iabi li ti es 3 5

Ass et s Valu e Mem be rs hi p i nt eres t i n F FW $1 ,92 0,5 56 .36 1 Cas h 87 5,8 55 .49 Ri gh t t o re fu ndof F FI St at e 2 00 1 i nc om e ta x paym en ts 15 7,7 00 .00 Ass etto ta l 2,9 54 ,11 1.8 5

Liab il it ie s Valu e Liab il it ie s h el d b y

FFW $1 22 ,63 8.2 0 Ant ic ip at edFed eral 20 01 in co m e ta x l iabi li ty 79 4,9 49 .13 Ant ic ip at ed20 01 Sta te in co m e ta x l iabi li ty 23 1,1 51 .56 Liab il it ie s To ta l 1,1 48 ,73 8.8 9 Exce ss of a ss et s o ve r li ab il it ie s 1,8 05 ,37 2.9 6 FFW hel d t he rig htto a refu ndof t he FFI Fe de ral 20 01 in co m e ta x 1 pa ym en ts to ta li ng $6 28 ,59 2. The SPRA p ro vi de d i n p ert in en t p art : Thi s Sh are P ur ch as e an d R ed em pt io n Ag reem en t (“ Agr eem en t” ) is m ad e an d e nt eredin to on Decem be r 20 , 20 01 , by an d am on g F FI Acqui si ti on , LLC, an In di an a li m it edli ab il it y co m pa ny (“ Pu rch as er”) , ffi C or

po rat io n (f

orm erl y Farm Fan s, In c.), anInd ia na co rp or at io n (t he “ Co m

pa ny”) an d C urti s D. Fan kh au se r, Cynt hi a A. Fan kh au se r, an d Th om as L. W ei nt rau t, the sh areh ol de rs of t he Co m pa ny (each a “ Sel le r,” an d c ol le ct iv el y th e “ Sel le rs ”). The ass et s an d t he li ab il it ie s s ho wn as su m e th atth e tr an sa ct io ns to whi ch 3 5 th e p art ie s t o t he SPRA ag reedwere t o o ccu r.- 40 -

[* 40 ] W HEREAS, th e Sel le rs own all of t he is su edan d o ut st an di ng co m m on sh ares of t he Co m

pa ny (th e “ Co m

m on Sh ares ”); W HEREAS, th e Co m

pa ny has pre vi ou sl y

so ldsubs ta nt ia ll y

all of th e as se ts of t he Co m

pa ny purs ua ntto th os e certa in do cu m en ts , in st ru m en ts an d a gr eem en ts da te d p rimaril y as o f Ja nu ary 2, 2 00 1, an d Oct ob er 1 2, 2 00 1 b y

an d b etweenth e Co m

pa ny andThe GSI Gro up , Inc . (th e “ Ass etPurch as er”) an d 5 90 0 El m woo d Av enue , LLC an d i ts pre de ces so rs an d a ss ig ns (th e “ Rea l Es ta te Purch as er”) (al l o f th e d oc um en ts , in st ru m en ts an d a gr eem en ts en te redin to by the parti es in co nn ect io n wi th th es e tr an sa ct io ns are l is te d o n S ch edul e 1 .0 an d are h erei na fte r co ll ect iv el y refe rredto as t he “ Ass etPurch as e Agr eem en ts ”); an d W HEREAS, th e Co m

pa ny con tri bu te d c as h a ndcert ai n n on cas h a ss et s t o F FW Hol di ng s, LLC, a n ewly form edInd ianali m it ed li ab il it y co m pa ny (“ Newco , LLC”), an d F FW Hol di ng s, LLC as
su m edon ly certa in sp eci fic li ab il it ie s o f th e Co m pa ny (th e “ Ass um ed Liab il it ie s” ) pu rs ua ntto a Co nt rib ut io n Ag reem en t d at edDecem be r 19 , 20 01 (th e “ Co ntrib ut io n Ag reem en t” ), in ex ch an ge forall of t he m em be rs hi p i nt eres ts of Ne wco , LLC; an d * * * * * * * NOW , THEREFORE, in c on si de rat io n o f th e p rem is es an d t he m utua l p ro m is es he rei n m ad e an d i n fu rth er co ns id erat io n o f th e repr es en ta ti on s, warr an ti es an d c ov en an ts co nt ai ne d h erei n, the parti es ag ree a s fo ll ows : ARTICL E I .

PURCHASE AND SALE OF SH ARES Sect io n 1 .1. Sa le an d Purch as e o f Sha res . (a) At the Clo si ng [whi chis de em edeffe ct iv e at11 :5 9 p.m . onDecem

be r 20 , 20 01 ], subjec t t o t he term s- 41 -

[* 41 ] an d c on di ti on s o f th is Agre em en t, the Co m pa ny sh al l p ur ch as e th e Red em pt io n S hares fro m

Sel le rs an d t he Sel le rs sh al l s el l, as si gn an d d el iv er the Red em pt io n S ha res to th e Co m

pany, free an d c le ar of all li en s, cl ai m s, en cu m

br an ces , sec ur it y

in te res ts an d s im il ar i nt eres ts of a ny kin d o r na tu re wha ts oe ve r (the “ Red em

pt io n” ). (b ) At the Clo si ng , subjec t t o t he term s an d c on di ti on s of th is Agre em en t, the Purch as er s ha ll purch as e th e Pu rch as e Sh ares fro m Sel le rs , andth e Sel le rs sh al l s el l, as si gn an d d el iv er the Purch as e Sh ares to th e Pu rch as er, fre e an d c le ar o f al l l ie ns , cla im s, en cu m br an ces , sec ur it y

in te res ts an d o th er i nt eres ts of a ny kin d o r na tu re wh at so ev er. The nu m be r of Sh ares be in g p ur ch as edby the Co m pa ny, and th e num be r of Sh ares be in g p ur ch as edby the Purch as er s ha ll be as s et fo rth on Sch edul e 1 .1.

Sect io n 1 .2. Purcha se Pric e. The ag gr eg at e pu rch as e p ric e fo r th e Sh ares (th e “ Pu rch as e Pri ce”) sh al l be equa l t o t he su m

of t he Red em

pt io n Val ue pl us th e Pu rch as e Paym en t, an d s ha ll be pa idby the Co m pa ny with re sp ectto it s p ur ch as e o f th e Red em pt io n S ha res , an d b y th e Pu rch as er wi th res pe ctto it s p ur ch as e o f th e Pu rch as e Sh ares , as fo ll ows : (a) At the Clo si ng , th e Co m pa ny sha ll de li ve r to Sel le rs all of t he m em

be rs hi p i nt eres ts of Ne wco , LLC (th e “ Red em

pt io n P aym en t,” o r th e “ Red em pt io n Val ue ”). The ass et s an d l iabi li ti es of Newco , LLC at tha t t im e sh al l co ns is t s ol el y of th os e li st edon Sch edul e 1 .2(a ). (b ) At the Clo si ng , th e Pu rch as er s ha ll de li ve r to th e Sel le rs incas h v iawire trans fer o f imm ed ia te ly- 42 -

[* 42 ] av ai labl e fu nd s an am ou ntequa l t o $ 53 0,7 66 .15 [ 3 6 ]

in pro po rti on to th ei r own ers hi p i nt eres ts of t he Co m pany (th e “ Pu rch as e Paym en t” ). [ 3 7 ] Sect io n 1 .3. Clo si ng . The p ur ch as e an d s al e o f th e Sh ares pu rs uantto th is Agre em en t (t he “ Cl os in g” ) sh al l t ak e p la ce atth e of fic es of I ce M il le r, One Am eri can Squa re, In di an ap ol is , Ind ia naat 9: 00 a.m . onDecem

be r 20 , 20 01 , or a t s uc h o th er t im e an d p la ce as th e Sel le rs an d t he Purch as er m utua ll y ag ree ( whi ch da te is de si gna te d the “ Cl os in g Dat e”). Fo r pu rp os es of t hi s Ag reem en t, the Cl os in g s ha ll be de em edeffe ct iv e as of 1 1: 59 p.m . onth e Cl os in g Date (th e “ Effect iv e Tim e”). ARTICL E I I. REPRESENT ATI ONS AND WARRANTIE S OF THE SELL ERS As an in du cem en t t o e nt er i nt o t hi s Ag reem en t, the Sel le rs he reb y joi nt ly andsev eral ly repre se ntan d warran t t o t he Purch as er as fo ll ows : * * * * * * * Sect io n 2 .10
. Reta in ed As se ts . Im m ed ia te ly foll owi ng th e Cl os in g h ereu nd er, the Co m pa ny’ s as se ts wil l co ns is t o nl y of ( i) c as h in anam ou ntno t l es s tha n $ 87 5,8 55 .49 , (ii ) $1 1,9 55 .46 whi chsh al l be inth e b an k a cco un t # 00 99 99 04 37 with F ifth Th irdBan k t o s at is fy
The am ou ntof t he “ Pu rch as e Paym en t” inth e SPRA was the am ou ntof 3 6 th e “ St oc k P ur ch as e Pri ce” s ho wn i n t he Decem be r 18 , 20 01 ba la nc e sh eet . As d is cu ss edbe lo w, alt ho ug h t he FFI s to ckho ld ers were d eem edto ha ve 3 7 be enpa idforth ei r res pe ct iv e st oc kh ol di ng s i n F FI “ in cas h v iawire tra ns fer o f imm ed ia te ly avai labl e fu nd s” , th ei r res pe ct iv e p orti on s o f th e so -cal le d p ur ch as e pa ym en t fo r th os e h ol di ng s wer e p la cedin to anesc ro w acco un t an d wer e n otin factdi strib ut edto th em

by w ire tra ns fer u nt il Decem be r 21 , 20 01 , th e d ay

aft er the cl os in g.- 43 -

[* 43 ] ou ts ta nd in g c he ck s (t he “ Ban k Acc ou nt ”) an d (i ii ) a ri gh t t o re cei ve a refu ndof $ 15 2,0 00 fro m

th e St at e o f In di an a, an d $ 5,7 00 fro m ot he r st at es , for20 01 in co m e ta xe s wh ic h wer e p rep ai d i n 2 00 1 (t he “ St at e Tax Refu nd ”), wh ic h s ha ll be free a ndcle ar o f al l l ie ns , cla im s an d en cu m br an ces of a ny natur e wha ts oe ve r. [ 3 8 ] * * * * * * * Sect io n 2 .13
. Ta x a nd Ot her Ret urns an d Repo rts . All fed eral , st at e, lo cal an d fo rei gn tax returns , rep orts , st at em en ts an d ot he r si m il ar fi li ng s re qu ire d t o b e fi le d b y th e Co m pa ny or an y Subs id ia ry

in cl ud in g, wi th ou t l im it at io n, the fed eral an d s ta te in co m e ta x re tu rn s fo r th e Co m

pa ny’ s an d e ach Subs id ia ry ’s fis cal y ear e nd ed Decem be r 31 , 20 00 , (co ll ect iv el y th e “ Tax Returns ”) wi thres pe ctto an y fed eral , st at e, lo cal or f

or ei gn tax es , ass es sm en ts , in te res t, p en al
ti es , def ic ie nc ie s, fe es an d o th er g ov ern m en ta l ch arg es or i m po si ti on , (in cl ud in g, wi th ou t l im it at io n, al l i nc om e ta x, u ne m pl oym en t co m pe ns at io n, s oc ia l s ecu rit y , payrol l, s al es an d u se , exc is e, pr iv il eg e, pr op erty , ad v al or em , fran ch is e, li cen se , sch oo l an d a ny oth er t ax or si mil ar g ov ern m en ta l ch arg e o r im po si ti on un de r th e la ws o f th e Uni te d S ta te s o r an y

st at e o r m

un ic ip al or p ol it ic al subd iv is io n t he reof or a ny forei gn co un try or p ol it ic al subd iv is io n t he reo f) (the “ Tax es ”), h av e b een fil edwith t he ap pr op ria te go ve rn m en ta l ag en ci es in all juri sd ic ti on s i n wh ic h s uc h Tax Returns are re qu ire d t o b e fi le d, an d a ll su chTax R eturns pro pe rly refle ctth e li ab il it ie s o f th e Co m pa ny andeach Subs id ia ry forTaxe s fo r th e p eri od s, p ro pe rty or ev en ts co ve redth ereb y . All Tax es accr ue d s in ce the en d o f th e la st ta x p eri odor f

ro m th e d at e whi ch Tax R eturns were l as t fi le d, i nc lu din g, wi th ou t l im it at io n, tho se ari si ng fro m th e o pe rat io ns of t he Co m pa ny or an y

Subs id ia ry

up to th e Cl os in g, h av e b een accu rat el y an d p ro pe rly det erm in edan d are s etforth on Sch edul e 2 .13 he reo f (“ Cu rren t Tax es ”). All Taxe s, i nc lu di ng , witho utli m it at io n, the The ass et s d es cri be d i n s ect io n 2 .10 of the SPRA ar e th e as se ts th atwere 3 8 sh own inth e Dece m

be r 18 , 20 01 ba la nc e sh eet(ex cep t fo r FFI’s b an k a cco un t ba la nc e o f $1 1,9 55 .46 an d F FI’s o ut st an di ng ch eck s o f $1 1,9 55 .46 , see supr a n ot e 28 ).- 44 -

[* 44 ] Cu rren t Tax es an d t ho se Taxe s wh ic h a re ca ll edfor by the Tax R etu rn s, h av e b een or wi ll be pa idon or b efo re the Clo si ng Date , othe r th anth e DeferredTax Li ab il it y . The Co m pany andeach Subs id ia ry ha s m ad e al l d ep os it s re qu ire d b y law t o b e m ad e with re sp ectto em pl oyees’ withh ol di ng an d o th er em pl oym en t t ax es , in cl ud in g, witho utli m it at io n, the po rti on of s uc h d ep os it s re la ti ng to tax es im po se d upo n i t. Nei th er the Co m pa ny no r an y

Subs id ia ry

ha s rece iv edan y

no ti ce o f as se ss m en t o r pr op os edass es sm en t i n c on ne cti onwith a ny Tax Returns , andth ere a re n otpe nd in g a ny tax ex am ina ti on s o f ortax cla im s as se rte d a ga in stth e Co m pa ny or an y

Subs id
ia ry or a ny of th ei r as se ts or p ro pe rti es . Neithe r th e Co m pa ny no r an y Subs id ia ry

ha s ex te nd ed , or wai ve d t he ap pl ic at io n o f, any st atut e o f li mit at io ns of a ny j ur is di ct io n re ga rd in g t he ass es sm en t o r co ll ect io n of an y Taxe s. Th ere are n o t ax li en s (o th er tha n any lie n fo r curren t ta xe s n oty etdu e an d p ay ab le setforth onSch edul e 2 .13 he reo f) o n an y of t he ass et s o r pr op ert ie s o f th e Co m pa ny or an y

Subs id iary . The re i s n o b as is forany

ad di ti on al ass es sm en t o f an y Taxe s. Th e Co m pa ny has no t fi le d a ny retu rn s o r ot he r do cu m en ts with t he IRS in di cat in g t ha t the Co m

pa ny woul d b e d is so lv edor wa s d is so lv edor th atitwou lddi sc on ti nu in g b us in es s o pe rat io ns , exc ep t tha t the Co m pa ny has fil eda Fo rm

96 6 wi th th e In te rn al Rev enue Serv ic e. * * * * * * * ARTICL E I II . REPRESENT ATI ONS AND WARRANTIE S OF THE PURCHASER The Purch as er re pr es en ts an d warran ts to each of the Sel le rs as fo ll ows : Sect io n 3 .1. Autho ri za tio n o f Purch as er. W he n e xe cu te d an d d el iv eredby the Purch as er, thi s Ag reem en t wi ll co ns ti tu te th e va li d a ndleg al ly bin di ng ob li ga ti onof t he Purch as er en fo rceabl e ag ai ns t the Purch as er i n a cco rd an ce wi th it s t erm s.- 45 -

[* 45 ] Sect io n 3 .2. Cor po ra te Sta tus of Pur cha se r. Pur ch as er i s du ly org an iz edan d v al id ly exi st in g u nd er the laws of t he Sta te of Fl or id a. Purch as er h as all requi si te leg al an d c or po rat e p owe r an d au th or ity to own , lea se an d o pe rat e it s p ro pe rti es an d a ss et s an d t o carry on it s b us in es s as no w con du ct edan d a s p ro po se d t o b e co ndu ct ed , andha s al l re qu is it e le ga l an d c or po rat e p owe r an d autho rit y to en te r in to an d e xe cu te th is Agre em en t an d t he do cu m en ts an d in st ru m en ts rel at edhe ret o. Sect io n 3 .3. Con se nts . Purc ha se r is no t re qu ire d t o o bt ai n an y pe rm it , con se nt , app ro va l, o rd er o r au th or iz at io n fr om , andis no t requi redto m ak e an y

reg is tra ti on , qu al ifi cat io n, d es ig na ti on , dec la rati onor f il in g wi th , any fede ral or s ta te go ve rn m en ta l au th or ity or t hi rd pa rty in c on ne ct io n wi thth e ex ecu ti on , del iv ery orpe rfo rm an ce o f th is Agre em en t o r th e co ns umm at io n o f th e tr an sa ct io n c on te m pl at ed he reb y . Sect io n 3 .4. Autho ri za tio n. All a ct io ns on th e p artof Pu rch as er n eces sary

forth e au th or iz at io n, ex ecu ti on , del iv ery an d pe rfo rm an ce o f th is Agre em en t, an d t he co ns umm at io n o f th e tr an sa cti on s co nt em

pl at edhe reb y

an d t he reb y , has be entak enpri orto th e Cl os in g. Th is ag reem en t h as be endu ly execu te d a ndde li ve redby Pu rch as er an d c on st itut es a le ga l, v al idan d b in di ng ob li ga ti on of Pu rch as er, en fo rceabl e ag ai ns t Pu rch as er i n a cco rd an ce wi th it s t erm s an d c on di ti on s. Sect io n 3 .5. Non co ntra ve nti on . The ex ecu ti on , del iv ery an d pe rfo rm an ce o f th is Agre em en t b y Purch as er d oe s n otan d wi ll no t, i n an y Mat eri al Res pe ct , vi ol at e, co nf li ctwith o r res ul t i n t he bre ach of an y term , con di ti on or p ro vi si on of, o r requi re the co ns en t o f an y ot he r pe rs on un de r: ( a) an y ex is ti ng law, o rd in an ce, o r go ve rn m en ta l ru le or r eg ul at io n t o wh ic h P ur ch as er i s s ub ject; (b) an y

jud gm en t, or de r, writ , in

jun ct io n, d ecre e o r awardof a ny cou rt, a rb it rat oror go ve rn m en ta l o r reg ul at ory off ic ia l, b od y

or aut ho rit y

whi chis ap pl icab le to Purch as er; (c) the ch art er d oc um en ts of P ur ch as er, o r an y se cu rit ie s i ss ue d b y

Purch as er; or ( d) an y

m ortg ag e, in de ntur e, ag reem en t, co nt ract , comm it m en t, l eas e, pl an , aut ho riz at io n, o r ot he r- 46 -

[* 46 ] in st ru m en t, d oc um en t o r un de rs ta nd in g, o ral or wri tt en , to whi ch Pu rch as er i s a p arty , by whi ch Purch as er m ay have rig ht s o r by whic h an y of t he ass et s o f Pu rch as er m ay be bo un d o r affe ct ed , or g iv e an y pa rty with rig ht s t he reu nd er the rig htto term in at e, m od ify, accel erat e orot he rwis e ch an ge th e ex is ti ng rig ht s o r ob li ga ti on s Pu rch as er the reun de r. Sect io n 3 .6. Dis cl os ure. Pur ch as er h as no t o m it te d t o s ta te to th e Sel le rs an y

m at eri al factrel at in g t o P ur ch as er wh ic h i s n eces sa ry in ord er t o m ak e th e rep res en ta ti on s o r warra nt ie s o f Pu rch as er co nta in edinth is Arti cl e III n otm is le ad in g o r whi ch if d is cl os edwou ld reas on ab ly affectinan y

Mat eri al Res pe ctth e d eci si on of ape rs on co ns id eri ng a sa le of t he Sh ares . ARTICL E I V. CONDIT IO NS OF PURCHASER’S O BLI GATI ONS TO CLOSE The ob li ga ti on s o f th e Pu rch as er u nd er thi s Ag reem en t ar e subjec t t o t he ful fil lm en t, ator b efo re the Clo si ng , of e ach of t he fo ll owi ng co nd it io ns : * * * * * * * Sect io n 4 .7. Fina nci al Cond iti on an d Redemptio n. Im m ed ia te ly prio r to th e Cl os in g, the Co m pany sha ll po ss es s as se ts co ns is ti ng so le ly of (i ) th e ri gh t t o re cei ve th e St at e Tax Refund , (ii ) cas h i n an a m ou ntno t l es s t ha n $ 87 5,8 55 .49 , (ii i) $ 11 ,95 5.4 6 wh ic h sh al l b e in th e Ban k Acc ou nt , and(iv ) th e m em be rs hi p i nt eres ts of Newco , LLC, andth e Co m pa ny sha ll be subjec t t o n o Li ab il it ie s ex cep t i ts ob li ga ti on s u nd er the Co ntrib ut io n Ag reem en t. The rede m pt io n b y th e Co m pa ny of th e Red em

pt io n S ha res sh al l h av e b een cl os edto th e sa ti sf

act io n o f th e Pu rch as er. * * * * * * *- 47 -

[* 47 ] ARTICLE VI. COVENANTS To the ex te ntap pl ic ab le , Sel le rs , Pur ch as er an d t he Co m pa ny fu rth er co ve na ntan d a gr ee as fol lo ws: * * * * * * * Sect io n 6 .3. Full Acces s. Fol lo win g t he Clo si ng , to th e ex te ntne ces sa ry , th e Sel le rs wil l p erm itrep res en ta ti ve s o f th e Purch as er t o h av e fu ll acce ss at a ll reas on ab le ti m es to th e b oo ks , reco rd s (in cl ud in g t ax reco rd s) , con tra ct s an d d oc um en ts of o r pe rta in in g t o th e Co m pa ny, any Subs id ia ry , or t he Sh ares . To th e ex te ntth e Pu rch as er t ak es po ss es si on at C lo si ng of a ny of th e b oo ks or r eco rd s o f th e Co m pa ny or an y

Subs id ia ry , th e Pu rch as er s ha ll pro vi de th e Sel le rs , to th e ex te ntne ces sa ry , acce ss at a ll reas on ab le ti m es to su ch bo ok s an d re co rd s. Sel le rs wil l u se th ei r rea so nabl e b es t ef fo rts to pe rm itPurch as er o r it s re pr es en ta ti ve s t o h av e acc es s t o t he bo ok s an d re co rd s o f th e Co m

pa ny tha t wer e tr an sf

erre d t o t he Ass etPurch as er an d t he Real Est at e Pu rch as er upo n re qu es t. * * * * * * * Sect io n 6 .7. Surv iv al of Re pres enta tio ns an d Wa rra nti es an d In demnifi ca tio n Obl ig at io ns . (a) The pa rti es ag ree t ha t the rep res en ta ti on s an d warra nt ie s o f th e Sel le rs un de r th is ag reem en t o r in an y cert ifi cat e, sc he du le , st at em en t, d oc um en t o r in st al lm en t fu rn is he d h ereu nd er, an d t he in de m ni fic at io n o bl ig at io ns of th e Sel le rs un de r th is Agre em en t as m or e p art ic ul arl y se t fo rth inArti cl e IX h ereo f, sh al l s urvi ve for a pe rio d of two (2) y ears aft er the Clo si ng Date , exc ep t tha t the rep res en ta ti on s, warr an ti es an d o bl ig at io ns , andrel at ed in de m ni fic at io n o bl ig at io ns forbre ach or n onpe rfo rm an ce the reo f, with re sp ectto Taxe s an d Tax Returns- 48 -

[* 48 ] sh al l s urvi ve subjec t o nl y to th e ap pl ic ab le st atut e o f li m it at io ns pe rio ds , if an y , andex cep t tha t the Sel le rs ’ ob li ga ti on to in de m

ni fy , def en d a ndho ldha rm le ss th e Pu rch as er, an y

Subs id ia ry , andth e Co m pa ny un de r th is Agr eem en t wi th res pe ctto cla im s ag ai ns t the Co m pa ny ari si ng un de r th e Ass etPurch as e Agr eem en ts sh al l s ur vi ve foras l on g a s t he Co m pa ny has any

ob li ga ti on to (i) in de m ni fy , def en d o r ho ldha rm le ss (oris ot he rwis e de te rm in edto be li ab le to ) an y pa rty un de r an y

of t he Ass etPurch as e Agr eem en ts ari si ng un de r su ch ag reem en t, o r (i i) p refo rm

an y co ve na ntor o bl ig at io n u nd er an y Ass etPurch as e Agr eem en t. Ad di ti on al ly, th e two (2 ) y ear s urvi va l p eri odsh al l n otap pl y to Liab il it ie s ari si ng ou t o f Newco , LLC’ s fa il ur e to sat is fy th e Liabi li
ti es itsp eci fic al ly ass um es un de r th e Co nt rib ut io n Agr eem en t. (b ) The pa rti es ag ree t ha t the rep res en ta ti on s an d warra nt ie s o f th e Pu rch as er u nd er thi s Ag reem en t o r in an y cert ifi cat e, sc he du le , st at em en t, d oc um en t o r in st ru m en t fu rn is he d h ereu nd er an d t he in de m ni fic at io n o bl iga ti on s o f th e Purch as er u nd er thi s Ag reem en t as m or e pa rti cu la rly setforth inArti cl e IX h ereo f sh al l s urvi ve fo r a p eri odof t wo (2 ) y ears aft er the Clo si ng Date
. * * * * * * * Sect io n 6 .10
. Ta xe s a nd Ta x Fi li ng s . The Se ll ers ag ree, at th ei r so le co stan d e xp en se , to pre pa re, o r cau se to be pre pared , all tax returns , othe r th atth e st at e an d fe de ral in co m e ta x fo r th e fi sc al y ear en di ng Decem

be r 31 , 20 01 , (th e “ Sel le rs Tax R eturns ”) tha t ar e due to be fil edaft er the Clo si ng Date an d tha t re la te to an y an d a ll requ ire d t ax ab le act iv it ie s o f th e Co m pany or an y

Subs id ia ry

th ro ug h an d i nc lu di ng th e Cl os in g Dat e, an d s ha ll fil e al l re tu rn s an d p ay all ta xe s i n c on ne ct io n t he rewi th . On o r be fo re the ten th (10 ) bu si ne ss th da y be fo re the ir due da te , Sel le rs wil l s ub m itto th e Co m pa ny cop ie s of all su ch Sel le r[s ] Tax Returns . In ad di ti on to th e p rep arat io n o f th e- 49 -

[* 49 ] Sel le rs ’ Tax Returns , Sel le rs sh al l al so pre pa re an d s ub m itto th e Co m pa ny all Fo rm s W2 an d 1 09 9 fo r th e Co m pa ny’ s emplo y ees ’ an d in de pe nd en t co nt ract or s dur in g t he pe rio d o f Sel le rs ’ own ers hi p o f th e Co m pa ny. The Co m

pa ny sha ll ass is t the Sel le rs inth is pro ces s i f requi red . The Se ll ers ag ree t o a ss is t the Co m pa ny, upo n i ts reque st , in th e p rep arat io n a ndfil in g o f al l fu tu re Tax Returns an d i n t he ap pl ic at io n fo r an d p ro cu rin g o f al l Tax refu nd s an d a gr ee[] to pro vi de all do cu m en ts requi redby the Co m pany in o rd er t o v eri fy

or subs ta nt ia te th e in fo rm at io n i n a ny Tax Return o r ap pl ic at io n fo r a Tax refu nd . The Pu rch as er s ha ll cau se th e Co m pa ny to p rep are a nd fil e th e st at e an d fe de ral in co m e ta x re tu rn s fo r th e fi sc al y ear e nd in g Decem be r 31 , 20 01 . The Co m

pa ny sha ll rep ort o n i ts fed eral an d st at e in co m e ta x re turn s al l g ai ns attrib ut ab le to th e rec ei ptof t he pr oc eed s fr om

th e Ass etPurch as er an d R eal Est at e Pu rch as er p ur su an t t o t he all oc at io n re qu ire d b y th e Ass etPurch as e Agr eem en ts , and sh al l p ay th e ap pl ic ab le tax au th or it ie s t he Deferr edTax Li ab il it y , if an y , res ul ti ng fro m

su ch ga in inli gh t o f th e o th er p os t-c lo si ng act iv iti es of t he Co m

pa ny. The Sel le rs an d Newc o, LLC, joi nt ly and se ve ral ly, (i) ag ree t o re pa y to th e Co m

pa ny an am ou ntequa l t o t he di ffer en ce b etween$1 57 ,70 0 a ndth e actua l am ou ntof the Sta te Tax Refu ndactua ll y

rece iv edby the Co m

pa ny, if an y , and(ii ) pr ov id ed th atth e Co m

pa ny file s i ts reque stforth e St at e Tax Refundonor be fo re J anua ry

31 , 20 02 , sh al l re pa y

anam ou ntequa l t o t he ful l am ou ntof t he Sta te Tax R efu ndto th e Co m pa ny if itis no t re cei ve d withi n o ne hu nd redtwen ty (12 0) da y s o f th e fi li ng of t he ap pl ic at io n fo r refu nd ; p ro vi de d t ha t n ei th er Se ll ers no r Newco , LLC sh al l h av e an y li ab il it y to pa y su cha de fic ie nc y

or r efu ndif (y) it r es ul ts fro m an actor o mis si on of t he Co m pa ny afterth e Cl os in g, o r (z) the Co m pa ny fai ls to co m

pl et el y sat is fy th e DeferredTax Li ab il it y , if an y , res ul ti ng fro m su ch ga in inli gh t o f th e o th er p os t-c lo si ng act iv it ie s o f th e Co m pa ny. Add it io na ll y , if the Co m pa ny has no t re cei ve d t he Sta te Tax Refu ndwithi n n in ety

(90 ) da y s o f fi li ng th e ap pl ic at io n fo r refu nd , th e Co m pa ny sha ll no ti fy

th e Sel le rs an d s ha ll all ow the Sel le rs to pu rs ue th e St at e Tax Refu ndon it s b eh al f an d s ha ll gi ve Sel le rs all co m m erci al ly reaso nabl e as si st an ce i n i ts effo rts to co ll ectsu ch refu nd [.]- 50 -

[* 50 ] * * * * * * * ARTICL E VII . EVENTS AT CLOSI NG. Sect io n 7 .1. Si m ul ta neo us Occu rren ce o f Ev ents at Clo si ng . All of t he ev en ts whi ch are t o o ccu r atth e Cl os in g u nd er th is Agre em en t, i nc lu di ng bu t n otli m it edto , th e d el iv ery of th e Sh are cert ifi cat es an d t he pa ym en t o f th e Pu rch as e Pri ce an d a ll ot he r rel at edex ch an ge s s ha ll be de em edto ha ve oc cu rredsi m ul ta ne ou sl y . Sect io n 7 .2. Doc uments to be Del iv ered by the Se ll ers . At the Clo si ng , th e Sel le rs sh al l d el iv er t o t he Purch as ers an d/ orth e Co m pa ny as ap pl ic ab le : (a) The cert ifi cat es forth e Sh ares with ast oc k p owe r du ly execu te d i n b la nkforeach cert ifi cat e; (b ) The cert ifi cat e o f th e Sel le rs sp eci fie d i n S ect io n 4.6 ; (c) The res ig na ti on s o f th e Sel le rs an d t he othe r officers , em pl oyees, ag en ts , anddi rect or s o f th e Co m pa ny spe ci fie d i n S ect io n 6 .1; (d ) Any Bus in es s R eco rd s re qu es te d b y th e Pu rch as er un de r Sec ti on 6.9 ; (e) Any doc um en ts or c ert ifi cat es ne ces sa ry to co nv ey co nt ro l o ve r eac h a ndev ery ch eck in g, s av in gs , and ot he r op erat io ns acco un ts of t he Co m pa ny to t he Pu rch as er, i nc lu di ng , witho utli m it at io n, s ig na tu re card s;- 51 -

[* 51 ] (f) The Arti cl es of I nc or po rat io n a ndBy -Laws of t he Co m pany certi fie d b y

th e Sec ret ary of

th e Co m pa ny; an d (g ) A rel eas e, in form

sat is fact ory

to th e Purch as er i n it s s ol e d is cret io n, o f al l cl ai m s, l iabi li ti es , ob li ga ti on s, l os s, d am ag e o r res po ns ib il ity th atan y of t he Sel le rs or Ne wco , LLC m ay ha ve ag ai ns t the Co m pa ny, inc lu di ng , witho utli m it at io n, an y cla im s, li ab il it ie s o r ob li ga ti on s fo r in de m ni fic at io n, co ntri bu ti onor o th erwi se , bu t s pe ci fic al ly excl ud in g an y cla im s, l iabi li ti es or o bl ig at io ns ari si ng ou t o f th is Agre em en t o r th e tr an sa ct io ns de sc rib edhe rein , andan y

rig ht s t he Sel le rs ha ve to en fo rce t he te rm s, co nd it io ns or o bl ig at io ns of t he Ass etPurch as e Agr eem en ts ag ai ns t the Ass etPurch as er an d th e Rea l Es ta te Purch as er. Sect io n 7 .3. Doc uments to be Del iv ered by the Purc ha se r. At the Clo si ng , th e Pu rch as er s ha ll de li ve r to th e Sel le rs : (a) The Purch as e Paym en t o wedto each Sel le r orth ei r no m in ee; (b ) The cert ifi cat e o f th e ex ecu ti ve off ic er o f Purch as er as sp eci fie d i n S ect io n 5 .3; (c) Cert ifi edres ol ut io ns of t he Purch as er au th or iz in g th e tr an sa ct io ns co nt em

pl at edby thi s Ag reem en t; (d ) An i nc um

be nc y cert ifi cat e id en ti fy in g t he ex ecu ti ve off ic ers of P ur ch as er; (e) The Arti cl es of Org an iz at io n a ndOper at in g Agr eem en t o f Pu rch as er ce rti fie d b y th e Sec ret ary of Purch as er wi th in si xty

(60 ) da y s o f th e Cl os in g;- 52 -

[* 52 ] (f) The Sto ckPle dg e Agr eem en t ex ecu te d b y Purch as er; an d (g ) The Guar an ty execu te d b y Mi dC oa stCred itCo rp . Sect io n 7 .4. Doc uments to be Del iv ered by the Co m pa ny . At the Clo si ng , th e Co m

pa ny sha ll de li ve r to th e Pu rch as ers an d t he Sel le rs : (a) The Red em

pt io n P aym en t t o S el le rs ; (b ) Cert ifi edres ol ut io ns of t he Co m pa ny autho riz in g th e tr an sa ct io ns co nt em

pl at edby thi s Ag reem en t; an d (c) An i nc um

be nc y cert ifi cat e id en ti fy in g t he ex ecu ti ve off ic ers of t he Co m

pa ny; (d ) The pro fes si on al fees of the Sel le rs up to $2 0,0 00 ; an d (e) A Cert ifi cat e o f Exi st en ce fr om th e In di an a Sec reta ry of S ta te . * * * * * * * ARTICL E I X. INDEMNI FICATI ONS. * * * * * * * Sect io n 9 .2. In demnifi ca tio n Obl ig at io n o f the Pur cha se r. Afte r th e Cl os in g, the Purch as er wi ll rei m bu rs e, in de m

ni fy , def en d an d h ol d h arm le ss Sel le rs an d the ir h ei rs , leg al rep res en ta ti ve s, s uc ces so rs or a ss ig ns (an“ In de m ni fie d S el le r Part y ”) ag ai ns t an d i n re sp ectof a ny andall Ind em ni fie d C la im s i nc urredor s uf fere d b y an y- 53 -

[* 53 ] In de m

ni fie d S el le r Part y , as t o wh ic h aCla im Not ic e is gi ve n i n acco rd an ce wi th Sect io n 9 .3 wi th in th e ap pl ic ab le ti m e p eri odsp ecifi edinSect io n 6 .7, an d t ha t re su lt s fr om , rel at es to or a ris es ou t o f, (i) an y mis rep res en ta ti on , bre ach of warran ty or no nf ul fil lm en t o f an y ag reem en t o r co ve nanton th e p artof t he Purch as er u nd er thi s Ag reem en t, (i i) a ny mis rep res en ta ti on inor o m is si on fro m an y cert ifi cat e, sc he du le , writ te n s ta te m en t, d oc um en t o r in st ru m en t fu rn is he d t o t he Sel le rs by Purch as er[] pu rs ua nthe ret o, (i ii ) a l iabi li ty or ob li ga ti on fir stari si ng subs eque ntto th e Cl os in g o utof P ur ch as er’s o pe rat io n o f th e Co m pa ny or co nduc t o f th e Co m pa ny’ s b us in es s fr om

an d a fte r th e Cl os in g, an d (i v) an y

co st s an d e xp en se s, i nc lu di ng reas on ab le at to rn ey [s ’] fees an d e xp en se s i nc urredinco nn ect io n wi th th e en fo rcem en t o f th is in de m

ni fic at io n. * * * * * * * ARTICLE X. MIS CELLANE OUS. Sect io n 1 0.1
. Ex pens es . Exce ptforth e $ 20 ,00 0 i n p ro fes
si on al fees of t he Sel le rs (th e “ Pro fes si on al Fees ”), wh ethe r orno t the tra ns act io ns co nt em

pl at edby thi s Ag reem en t ar e co ns umm at ed , th e Sel le rs , forth em se lv es an d t he Co m pa ny, sha ll pa y

th e Sel le rs ’ an d th e Co m pa ny’ s fe es an d e xp en se s i nc urredinco nn ect io n wi th th e ne go ti at io n, p rep arat io n a ndth e co ns umm at io n o f al l tran sa ct io ns co nt em pl at edby thi s Ag reem en t, i nc lu di ng , witho utli mit at io n, al l at to rn ey s’, acco un ta nt s’ andfin an ci ng fees , andth e Pu rch as es li ke
wis e sh al l p ay

it s o wn fe es an d e xp en se s. In th e ev en t tha t the tra ns act io n c on te m

pl at edby thi s Ag reem en t d oe s n otclo se for an y reas on (ev enas ares ul t o f a b reac h) , th e Sel le r sh al l n otbe en ti tl edto have th e Pro fes si on al Fees pa idby Purch as er. * * * * * * * Sect io n 1 0.3
. Agr eement is Enti re Co ntra ct. This Agre em en t an d t he ot he r do cu m en ts de li ve redpurs ua nthe ret o (i nc lu di ng ,- 54 -

[* 54 ] witho utli m it at io n, the Sch edul es an d Ex hi bi ts att ach edhe ret o) co ns ti tu te th e en ti re co nt ractbe twee n t he pa rti es he ret o re la ti ng to th e subjec t m atte r he reo f, an d n o p arty sh al l b e li ab le or b ou ndto th e ot he r inan y

m anne r by any warra nt ie s, re pr es en ta ti on s o r co ve na nt s ex cep t as sp eci fic al ly set f orth he rei n a ndth erei n. Th e te rm s an d co nd it io ns of t hi s Ag reem en t s ha ll in ur e to th e b en efi t o f an d b e bi nd in g upo n t he res pe ct iv e h ei rs , leg al rep res en ta ti ve s, s uc ces so rs an d a ss ig ns , of the pa rti es he re t o, n ot hi ng inth is Agre em en t, ex pr es se d o r im

pl ie d, i s i nt en de d t o c on fer upo n a ny part y , othe r th an th e p art ie s h ere t o a ndth ei r res pe ct iv e h ei rs , leg al rep res en ta ti ve s, su cces so rs an d a ss ig ns , any rig ht s, re m ed ie s, o bl ig at io ns or l iabi li ti es un de r orby reaso n o f th is Agre em en t, ex cep t as ex pr es sl y pro vi de d he rei n. Mr. Th rap p, wh o p rin ci pa ll y ne go ti at edth e te rm s i n t he SPRA o f th e
co ve nant s, the rep res en ta ti on s, the warran ti es , andth e in de m ni fic at io n o bl ig at io ns of FFIA i n t he ev en t o f an y bre ach es of a ny of th os e co ve nant s, re pr es en ta ti on s,
an d warran ti es , bel ie ve d t ha t tho se ob li ga ti on s o f FFIA wer e ad equa te forth e tra ns act io ns to whi chFFIA, FFI, a ndth e FFI s to ckho ld ers ag reedinth e SPRA. He he ldth atbe li ef ev enth ou gh FFIA was org an iz eda few d ay s b efo re the clo si ng of th e tr an sa ct io ns inth e SPRA andev enth ou ghitha d n o a ss et s atth atti m e o r aft er tha t cl os in g e xc ep t fo r th e st oc k o f FFI. On Dec em

be r 20 , 20 01 , FFIA, FFI, the FFI s to ckho ld ers , andLeag re Ch an dl er & M il la rd , LLP (Leagr e), en te redin to anesc ro w agr eem en t (S PRA
es cro w agr eem en t) i n wh ic h Lea gr e was de si gn at edas e sc ro w age ntforth e o th er pa rti es to th atag reem en t an d was to est ab li sh an d m ai nt ai n a n e sc ro w acco un t- 55 -

[* 55 ] (Leag re es cro w acco un t). Un de r th e te rm s o f th atag reem en t, an un na m ed in ve st orag reedto pro vi de cert ai n fu nd s as a “ lo an ” to FFIA (Sh ap iro fun ds ) th at FFIA was to us e to acqui re the st oc k o f FFI tha t FF IA ha d a gr eedto purch as e in th e SPRA. All the fun ds to be de po si te d u nd er the term s o f th atesc ro w agr eem en t were t o b e d ep os it edin to th e Leag re es cro w acco un t. The SPRA es cro w agr eem en t p ro vi de d i n p ert in en t p art :

Thi s Es cro w Agre em en t (t he “ Agr eem en t” ) is m ad e an d e nte redin to th is 20 da y

of De cem

be r 20 01 , by an d b etweenffi co rp o- th rat io n, an Ind ia naco rp or at io n (“ ffi co rp or at io n” ), FFI Acqui si ti on , LLC, an In di an a li m it edli ab il it y co m pa ny (“ FFI Acqui si ti on ”), Cu rti s D. Fan kh au se r, Cynthi a A. Fan kh au se r, an d Th om as L. W ei nt rau t, al l of whi ch(si c) ar e In di an a res id en ts an d s hareh ol de rs of f fi c or po rati on(co ll ect iv el y , th e “ Sh areh ol de rs ”) an d Lea gr e Ch an dl er & Mi ll ardLLP, as es cro w age nt(th e “ Escr ow Ag en t” ). W ITNESSETH W HEREAS, th e Sh areh ol de rs an d ff i co rp or at io n h av e en te red in to a cert ai n S ha re Purch as e an d R ed em pt io n Ag reem en t [S PRA] with F FI Acqui si ti on , LLC, an In di an a li m it edli ab il it y co m pa ny (“ FFI Acqui si ti on ”) d at edDecem be r 20 , 20 01 (th e “ Sh are P ur ch as e Agr eem en t” ), whe reb y

FFI Acqui si ti on wil l p ur ch as e al l o f th e ou ts ta nd in g c omm on sh ares of f fi c or po rat io n fr om

th e Sh areh ol de rs whi ch are o ut st an di ng aft er the Red em pt io n (a s d efi ne d i n the Sh are Pu rch as e Agr eem en t) ( th e “ Sh ares ”) i n c on si de rat io n o f ap pr ox im at el y $5 30 ,76 6.1 5, as ad

jus te d p ur su an t t o t he Sh are P ur ch as e Agr eem en t (t he “ Sh are P ur ch as e Pri ce”) ; W HEREAS, a cert ai n i nv es to r rel at edto FFI Acqui si ti on (th e “ In ve st or ”) [M s. Sh ap iro ] ha s ag reedto lo anm on ie s t o F FI Acqui si
ti onto be us edto fun d t he Sh are P ur ch as e Pri ce (t he “ In ve st or- 56 -

[* 56 ] Fu nd s” ), an d t he Escr ow Ag en t h as ag reedto actas e sc ro w age nt with re sp ectto th e In ve st orFund s i n a cco rd an ce wi th th e te rm s an d co nd it io ns of t ha t ce rta in Escr ow Ag reem en t, at ta ch edhe ret o a s Exh ib itA (th e “ In ve st or

Escr ow Ag reem en t” ); a nd W HEREAS, ffi c or

po rat io n h as ag reedto de po si t ce rta in m on ie s i nt o e sc ro w with t he Escr ow Ag en t t o s at is fy th e te rm s an d co nd it io ns of t he Inv es to r Esc ro w Agre em en t an d t o fa ci li ta te th e cl os in g u nd er the Sh are P ur ch as e Agr eem en t. NOW , THEREFORE, in c on si de rat io n o f th e fo reg oi ng , th e m utua l co ve na nt s o f th e p art ie s s etforth he rei n a ndth e m utua l b en efit s t o b e d eri ve d h eref

ro m , th e p art ie s, i nt en di ng to be leg al ly bou nd , he reb y ag ree a s fo ll ows : 1. Deli ve ry

of I nv es to r Fu nd s i nt o Es cro w. The In ve st or sh al l caus e th e In ve st orFund s t o b e d el iv ered , by wire tra ns fer, i nt o th e Esc ro w Agen t’s tru stacco un t (t he “ Escr ow Acc ou nt ”) o nl y aft er ffi co rp or at io n d ep os it s the rem ai ni ng cas h o f ffi co rp or at io n i nt o t he Escr ow Acc ou ntwhi chis est im at edto be $8 75 ,85 5.4 9 (t he “ ffi fu nd s” ), an d t he Escr ow Ag en t ag rees to ho ldan d d is bu rs e th e In ve sto r Fu nd s an d t he ffi Fund s i n a cco rd an ce wi th th e te rm s an d c on di
ti on s o f th is Agre em en t an d t he Inv es to r Esc ro w Agre em en t. 2. Deli ve ry

of S ha reh ol de r Fu nd s. At t he Clo si ng (as de fin edinth e Sh are P ur ch as e Agr eem en t), t he Escr ow Ag en t s ha ll de li ve r th atpo rti on of the Inv es to r Fu nd s t o t he Sh areh ol de rs (in th e de no m in at io ns setforth on th e cl os in g s ta te m en t at ta ch edhe ret o a s Exh ib itB (the “ Cl os in g S ta te m en t” ) [Ca sh Reco nc il ia ti on an d Di sbu rs em en t Sc he du le of Es cro w Fun ds by L eag re] requ ire d t o s at is fy th e Sh are P ur ch as e Pri ce i n a cco rd an ce wi th th e te rm s an d c on di ti on s of th e Sh are P ur ch as e Agr eem en t, p ro vi de d a ll of t he Sh areh ol de r’s co nd it io ns pre ced en t s etforthinth e Sh are P ur ch as e Agr eem en t h av e be ensat is fie d a ndth e tr an sa ct io n h as no t b een ot he rwis e te rm in at ed
. 3. Rep aym en t o f In ve st orFund s. At t he Clo si ng , th e Escr ow Ag en t s ha ll pa y

anam ou ntequa l t o t he Inv es to r Fu nd s t o t he- 57 -

[* 57 ] Inv es to r, an d s ha ll pa y th e b al an ce i n t he Escr ow Acc ou ntto FFI Acqui si ti onor i ts de si gn ee. 4. Deli ve ry

Upo n F ai lu re t o C lo se . At an yti m e p rio r to th e ex ecu ti onof the Clo si ng Sta te m en t b y all of t he Sel le rs , ffi c or

po rati onm ay in st ru ctth e Esc ro w Agen t t o re turnth e ffi Fund s t o ff i co rp or at io n o r it s d es ig ne e, an d upo n re cei ptof s uc h i ns tru ct io ns , th e Escr ow Ag en t s ha ll cau se th e ffi Fund s t o b e d is bu rs edinacco rd an ce with t he in st ru ct io ns . On Dec em

be r 20 , 20 01 , FFIA, Mi dC oa st , Ms . Shapi ro , andLeag re en te red in to anesc ro w agr eem en t (S hapi ro esc ro w agr eem en t). Acc or di ng to th e te rm s o f th e Sh ap iro esc ro w agr eem en t, t o wh ic h t he SPRA es cro w agr eem en t re ferr edan d whi chwas a n a tt ach m en t t o t he SPRA es cro w agr eem en t, Ms . Shapi ro ag reedto pr ov id e $ 55 0,0 00 as a“ lo an ” to FFIA (i .e., Shapi ro fun ds ). Acco rd in g t o t he te rm s o f th e Sh ap iro esc ro w agr eem en t, FFI A was t o u se th e Sh ap iro fun ds to acqui re the st oc k o f FFI t ha t FF IA ha d a gr eedto pu rch as e in th e SPRA. All o f th e fu nd s t o b e d ep os it edun de r th e te rm s o f th e Sh ap iro esc ro w agr eem en t wer e to be de po si te d i nt o t he same L eag re es cro w acco un t i nt o wh ic h a ll of t he fun ds to be de po si te d u nd er the term s o f th e SPRA esc ro w agr eem en t wer e to be de po si te d. The Sh ap iro esc ro w agr eem en t p ro vi de d i n p ert in en t p art :

Thi s Es cro w Agre em en t (t he “ Agr eem en t” ) is m ad e an d e nte redin to th is 20 th da y

of De cem

be r, 20 01 , by an d b etweenFFI Acqui si ti on , LLC, an In di an a li m it edli ab il it y co m pany (“ FFI Acqui
si ti on ”), Mi dC oa stCred itCo rp ., a New Yorkco rp or at io n (“ MCC ”), Mi dC oa stAcqu is it io n C or p., a Fl or id a co rp or at io n (“ MAC” ), Hon or a- 58 -

[* 58 ] Sh ap iro , a Cal ifo rn iares id en t an d ash areh ol de r of Mi dC oa stCred it Co rp . (“ Sh ap iro ”), an d Lea gr e, Ch an dl er & M il la rd , LLP, as Esc ro w Age ntan d c ou ns el to FFI Acqui si ti on , MCC a ndMAC (t he “ Escr ow Age nt ”), an d M atth ew Dol li ng er, Fl oyd Gro ss m anan d J es si ca M
. Sei dm an , all as At to rn ey -in -Fac t fo r Hon or a Sh ap iro (co ll ect iv el y th e “ Dol li ng er Fi rm ”). W ITNESSETH W HEREAS, th e sh areh ol de rs of f fi C or po rat io n, a[ n] Ind ia na Co rp or at io n (“ ffi ”), an d F FI Acqui si ti on ha ve en te redin to a Sh are Pu rch as e Agr eem en t d at edas o f Decem be r 20 , 20 01 (“ Sh are P ur ch as e Agr eem en t” ), whe reb y

FFI Acqui si ti on in te nd s t o p ur ch as e al l o f th e is su edan d o ut st an di ng cap it al st oc k o f ffi (th e “ Sh ares ”) fro m Cu rti s D. Fan kh au se r, Cynthi a A. Fan kh au se r an d Th om as L. W ei nt rau t (t he “ ffi Sh areh ol de rs ”) i n c on si de rat io n o f th e p aym en t o f th e ap pr ox im at e su m of $ 55 0,0 00 .00 , as a dju st edpu rs uantto th e Sh are P ur ch as e Agr eem en t (t he “ Sh are P ur ch as e Pri ce”) ; W HEREAS, Shapi ro ha s ag reedto lo anFiv e Hun dr edFif ty Tho us an d a nd00 /1 00 ($5 50 .00 0.0 0) Dol la rs to FFI Acqui si ti on , MCC an d M AC to be us edto fun d the Sh are P ur ch as e Pri ce as requ ire d t o b e p ai d p ur su an t t o t he term s an d c on di ti on s o f th e Sh are Pu rch as e Agr eem en t (t he “ Sh ap iro Fund s” ), an d Lea gr e, Ch an dl er & Mi ll ard , LLP has ag reedto actas s et tl em en t ag en t fo r th e tr an sa ct io n an d a s Es cro w Agen t wi th res pe ctto th e Sh ap iro fun ds inacco rd an ce with t he term s an d c on di ti on s o f th is Agre em en t. NOW , THEREFORE, in c on si de rat io n o f th e fo reg oi ng , th e m utua l co ve na nt s o f th e p art ie s s etforth he rei n a ndth e m utua l be ne fit s t o b e d eri ve d h ere f ro m , th e p art ie s, i nt en di ng to be leg al ly bo un d, h ereb y

ag ree a s fo ll ows : 1. Deli ve ry of S ha pi ro Funds Int o E sc ro w . Sh ap iro sh al l cau se th e Sh ap iro Fund s t o b e d el iv eredby w ire trans fer t o the Escro w Agen t’s tru stacco un t (t he “ Escr ow Acc ou nt ”), an d t he Escr ow Age ntag rees to ho ldan d d is bu rs e th e Sh ap iro Fund s i n a cco rd an ce- 59 -

[* 59 ] with t he term s an d c on di ti on s o f th is Agre em en t. The Escr ow Acco un t i s m ai nt ai ne d i n t he na m e o f “ Leag re, Ch an dl er & M il la rd
-- Trus t Acc ou nt ”, wit h Hu nt in g Nat io na l Ba nk , 20 1 N. Il li no is Str eet , Su it e 1 80 0, In di an ap ol is , Ind ia na46 20 4 (AB A No.; 04 40 00 02 4) , with anAcco un t Nu m

be r of 01 40 06 66 47 0. 2. Appo in tm ent o f Atto rney -I n-Fa ct. Shapi ro he reb y ap po in ts an d d es ig na te s M athe w Dol li ng er an d/ orFlo y d G. Gro ss m an , and/o r Je ss ic a M. Sei dm an , all res id en ts of the Sta te of Ne w York (“ Dol li ng er Fi rm ”) as he r true an d l awfu l at to rn ey -in -fac t t o: (i) ex ecu te an d d el iv er, i n S hapi ro ’s nam e, an y an d a ll do cu m en ts , no ti ces an d/ orin st ru m en ts , in cl ud in g, wi th ou t l im it at io n, ch eck s an d/ or dra fts forth e p aym en t an d/ ordi st rib ut io n o f th e Sh ap iro Fund s as co nt em

pl at edby thi s Ag reem en t an d the Sh are P ur ch as e Agr eem en t, an d (i i) d o a ndpre fo rm all act s o n h er b eh al f whi ch are n eces sa ry to effe ctth e tr an sa ct io n c on te m pl at edby thi s Ag reem en t an d t he Sh are P ur ch as e Agr eem en t, al l wi th th e sa m e fo rce a ndeffe ctas th ou gh Sh ap iro was p ers on al ly pres en t, an d S hapi ro als o h ereb y rat ifi es an d c on firm s t ha t Do ll in ge r Fi rm sh al l d o b y

vi rtu e h ereo f. The po wer o f at to rn ey

grant edhe reu nd er s ha ll be co m e eff ect iv e whe n th is Agre em en t i s s ig ne d b y Sh ap iro , andsh al l co nt inue ineffe ctfor th irt y (30 ) da y s fr om

th e d at e o f th e ex ecu ti on of t hi s Ag reem en t. 3. Deli ve ry of S ha pi ro Funds . At th e Cl os in g (a s d efi ne d in th e Sh are P ur ch as e Agr eem en t), the Dol li ng er Fi rm , inth ei r di sc reti on , sh al l au th or iz e an d d ire ctth e Esc ro w Agen t, i n wri ti ng , to de li ve r th e Sh ap iro fun ds to FFI Acqui si ti on , MCC a ndMAC fo r de li ve ry to th e ffi Sh areh ol de rs inacco rd an ce wi th th e te rm s an d co nd it io ns of t he Sh are P ur ch as e Agr eem en t p ro vi de d (i ) al l o f th e co nd it io ns pre ced en t s etforthinth e Sh are P ur ch as e Agr eem en t h av e be ensat is fie d t o t he sat is fact io n o f th e Dol li ng er Fi rm ; (i i) t he Tran sact io n S et tl em en t St at em en t h as be enex ecu te d a ndde li ve redin to es cro w by th e p art ie s; an d (i ii ) th e Esc ro w Agen t h as po ss es si on in es cro w of s uf

fic ie ntfun ds fro m

ffi , or o th er s ou rces , andau th or it y in es cro w to im

m ed ia te ly ini ti at e a wir e tr an sf er o f th e su m

of $5 50 ,00 0.0 0 t o t he acco un t o f Sh ap iro . The Es cro w Agen t s ha ll is su e to th e Dol li ng er Fi rm

writ te n n ot ic e v iafacs im il e certi fy in g a nd- 60 -

[* 60 ] at te st in g t ha t (i ) th e Tran sa ct io n S et tl em en t St at em en t h as be en ex ecu te d andde li ve redby all p art ie s an d (i i) t he Escr ow Ag en t h as in it s p os se ss io n g oo d fu nd s i n t he am ou ntof a t l eas t $ 55 0,0 00 .00 , whi ch ha ve be enpro vi de d b y ffi in to th e Esc ro w Acco un t, an d t ha t up on writ te n n ot ic e v iafacs im il e fro m th e Dol li ng er Fi rm , th e Esc ro w Age ntwil l p ro ceedto di sb ur se m on ey s t o t he pa rti es of t he Sh are Pu rch as e Agr eem en t i n a cco rd an ce wi th th e Set tl em en t St at em en t an d si m ul ta ne ou sl y

in it ia te a wire tra ns fer o f th e su m of $ 55 0,0 00 .00 fro m th e Esc ro w Acco un t t o t he Sh ap iro Acco un t (a s d efi ne d b el ow)
. Si m ul ta ne ou sl y

with the for eg oi ng writ te n n ot ic e, Escr ow Ag en t s ha ll pr ov id e th e Dol li ng er Fi rm with aco py of th e fu ll y

ex ecu te d S et tl em en t St at em en t. Up on rece ip t o f writ te n aut ho riz at io n fr om th e Dol li ng er Fi rm

to rel eas e th e Sh ap iro Fund s, Es cro w Agen t h ereb y ag rees to de li ve r th e Sh ap iro Fund s an d the ffi Fund s h el d i n Es cro w Age nt ’s Acco un t i n a cco rd an ce wi th th e te rm s o f th is Agre em en t. 4. Repa yment o f Sha pi ro Funds . In c on ne ct io n wi th th e Cl os in g o f th e tr an sa ct io n c on te m pl at edby the Sh are P ur ch as e Agr eem en t, ffi an d/ orth e ffi sh areh ol de rs sh al l b e d ire ct edto pa y th e en ti re cas h a ss et s o f ffi in to th e Esc ro w Acco un t, an d t he Escr ow Ag en t ag rees to ho ldan d d is bu rs e anam ou ntequa l t o t he Sh ap iro Fund s i n acco rd an ce wi th term s an d c on di ti on s o f th is Agre em en t. Aft er the Cas h As se ts of f

fi h av e b een de cl aredto be go odfun ds inth e Esc ro w Acco un t, the Dol li ng er Fi rm , sh al l, p ur su an t t o p arag rap h 3 ab ov e, au th or iz e th e Esc ro w Agen t, i n wri ti ng , to forward , by wire tra ns fer, anam ou ntequa l t o t he Sh ap iro Fund s, wi th ou t i nt eres t, t o t he fol lo win g: “ HSBC B an k, On e OldCo un try Road , Carl e Pl ace, New Yo rk 11 51 4, BA No . 02 1- 00 10 88 forfurth er cr ed itto Hon or a Sh ap iro in Acco un t No . 02 0- 47 86 58 ” (the “ Sh ap iro Acco un t” ). Sim ul tane ou sl y with i ni ti at io n o f th e wir e tr an sf er fro m th e Esc ro w Acco un t an d/ or th e p aym en t o f th e Pu rch as e Pri ce t o t he ffi Sh areh ol de rs , th e Esc ro w Age ntsh al l en te r anord er wi th th e fi na nc ia l i ns ti tu ti onwher e th e Escr ow Acc ou ntis m ai nt ai ne d t o d el iv er the su m of $ 55 0,0 00 .00 to th e Sh ap iro Acco un t.- 61 -

[* 61 ] On Dec em

be r 20 , 20 01 , FFIA, FFI, an d t he FFI s to ckho ld ers si gn eda do cu m en t t it le d “ Cas h R eco nc il ia ti on an d Di sb ur se m en t Sc he du le of Es cro w Fu nd s b y Leag re” ( cas h re co nc il ia ti on ag reem en t), wh ic h a ls o was anatt ach m en t to th e SPRA esc ro w agr eem en t. The cas h re co nc il ia ti on ag reem en t s etforth di rect io ns to Leag re, the esc ro w age nt , reg ard in g t he m an ne r in whi ch itwas t o di sb ur se th e res pe ct iv e fu nd s t ha t wer e to be de po si te d i nt o t he Leag re es cro w
acco un t p ur su an t t o t he SPRA es cro w agr eem en t an d t he Sh ap iro esc ro w agr eem en t. The cas h re co nc il ia ti on ag reem en t s ho wedth atFFI, Ms . Shapi ro , andMi dCo as t wer e to m ak e th e fo ll owi ng de po si ts in to th e Leag re es cro w acco un t:

Dep os it or Am ou nt FFI $8 75 ,85 5.4 9 Ms . Shapi ro 55 0,0 00 .00 Mi dC oa st 20 ,00 0.0 0 Tot al 1,4 45 ,85 5.4 9 The cas h re co nc il ia ti on ag reem en t i ns tru ct edth e es cro w age nt , Leag re, t o
m ak e th e fo ll owi ng di sb ur se m en ts fro m th e Leag re es cro w acco un t t o the fo ll owi ng pe rs on s:- 62 -

[* 62 ] Dis tri bu te e Am ou nt

Ms . Shapi ro $5 50 ,00 0.0 0 Mr. Fa nkhaus er 36 0,9 20 .98 Mr. Wein traut 11 6,7 68 .55 Ms . Fan kh au se r 53 ,07 6.6 2 Ice M il le r 20 ,00 0.0 0 FFI 34 5,0 89 .34 Tot al 1,4 45 ,85 5.4 9 On Dec em

be r 20 , 20 01 , Mr. Sh ap iro onbe ha lf o f Mi dC oa stan d M r. Fan khaus er o n b eh al f of

FFW sig ne d t he gu aran te e (SPRA gu aran te e) tha t s ect io n 7.3 (g ) of th e SPRA requi red . The SPRA gu aran te e p ro vi de d i n p ert in en t p art : FOR GOOD AND VALUABLE CONSIDERATION, the rece ip t an d s uf

fic ie nc y of wh ic h a re h ereb y

ackno wled ge d, an d i n co nn ect io n wi th th e co ns umm at io n o f th e tr an sa ct io ns co nt em pl at ed in (i) th atcert ai n S ha re Pu rch as e an d R ed em pt io n Ag reem en t b y

an d am on g F FI Acqui si ti on , LLC, an In di an a li m it edli ab il it y co m pa ny (“ Pu rch as er”) , ffi c or

po rat io n, an Ind ia naco rp or at io n (“ FFI” ) an d Cu rti s D. Fan kh au se r, Cynt hi a A. Fan kh au se r an d Th om as W ei nt rau t (co ll ect iv el y , th e “ Sel le rs ”) (t he “ Sh are Ag reem en t” ) an d (i i) t ha t cert ai n a ss ig nm en t b y

FFI t o F FW Hol di ng s, LLC, anInd ia nali m it ed li ab il it y co m pa ny (“ Hol di ng s” ), imm ed ia te ly prio r to an d a s p artof th e tr an sa ct io ns co nt em

pl at edby the Sh are Ag reem en t, o f FFI’s ri gh t to rece iv e a ref

un d o f th e es ti m at edfed eral co rp or at e in co m e ta x p ay m en ts m ad e b y

FFI fo r it s 2 00 1 t ax y ear ( th e “ Tax Refu nd ”) i n t he ap pr ox im at e am ou ntof $ 63 6,0 00 (th e “ Ass ig nm en t” ), th e und ersi gn ed , Mid Co as t Cr ed itCo rp ., a Flo rid a co rp or at io n (t he “ Gua ran to r”), g ua ran te es th e p aym en t o f th e Tax Refu ndby FFI to Hol di ng s withi n fi ve (5) bu si ne ss da y s o f th e rec ei ptby FFI of t he Tax R efu nd ,- 63 -

[* 63 ] as requi redby the term s o f th e Ass ig nm en t. No twi th st an di ng an y ot he r pr ov is io n o f th is Guar an ty to the co ntrary, the Gu aran to r sh al l ha ve no li ab il it y

un de r th is Guar an ty unl es s an d u nt il pa ym en t o f th e Tax Refu ndis rece iv edby FFI. In n o e ve ntsh al l FF I’s li ab il it y ex ceedth e am ou ntactua ll y

rece iv edby FFI with re sp ectto su ch Tax Refu nd . This Guar an ty sha ll co nt in ue an d b e in ful l fo rce a ndeffe ct un ti l the Tax R efu ndis ful ly pai d t o Ho ld in gs . Guara nt or un de rst an ds an d a ckno wled ge s t ha t the Sel le rs were i nduc edto en te r in to th e Sh are Ag reem en t i n re li an ce upo n t hi s Gu aran ty. * * * * * * * Inth e ev en t the pa ym en t o f th e Tax Refu ndby FFI to Hol di ng s is he ldto co ns ti tu te a pr efer en ce u nd er an y ba nkrupt cy

law, o r if for an y ot he r rea so n Ho ld in gs is requi redto refu ndsu ch paym en t o r pa y th e am ou ntth ereo f to an y ot he r pa rty, or if

forany reas on Hol di ng s i s requi redto pa y , rep ay

or r efu ndto FFI o r to an y ot he r pa rty any va lu e rece iv edby H ol di ng s fr om an y so ur ce i n p aym en t o f oron acco un t o f th e Tax Refu nd , su ch pa ym en t b y FFI o r va lu e rec ei ve d b y Hol di ng s sh al l n otco ns ti tu te a rel eas e o f Gua ran to r fro m any li ab il it y un de r th is Guar an ty, bu t Gu aran to r sh al l co nt in ue to be li ab le to th e sa m e ex te ntas i f su ch pa y

m en t h adno t b een m ad e o r su ch va lu e rec ei ve d, an d Gu aran to r ag rees to pa y su cham ou ntto Hol di ng s upo n d em an d an d t hi s Gu aran ty sha ll co nt inue to be effe ct iv e o r sh al l b e rei ns ta te d, as th e cas e m ay

be , to th e ex te ntof a ny suc h p aym en t o r va lu e. As ag reedto an d s ho wn i n t he cas h re co nc il ia ti on ag reem en t, o n Dec em be r 20 , 20 01 , FFI, Ms . Shapi ro , an d M id Co as t m ad e th e fo ll owi ng de po si ts in to th e 3 9 Leag re es cro w acco un t:

Pu rs ua ntto parag rap h 1 of t he SPRA es cro w agr eem en t, Ms . Shapi ro 3 9 m ad e h er d ep os itin to th e Leag re es cro w acco un t o nl y aft er FFI ha d m ad e it s de po si t i nt o t ha t ac co un t.- 64 -

[* 64 ] Dep os it or Am ou nt FFI $8 75 ,85 5.4 9 Ms . Shapi ro 55 0,0 00 .00 Mi dC oa st 20 ,00 0.0 0 Tot al 1,4 45 ,85 5.4 9 Befo re the clo si ng of t he tra ns act io ns (SPR tran sa ct io ns ) to whi ch th e pa rti es to th e SPRA agr eed , Mr. Thr ap p, o ne of p et it io ne rs ’ atto rn ey s, co nc lu de d th atas o f th atclo si ng th e Leag re es cro w acco un t co nt ai ne d t he fun ds ne ed edto effe ctth e cl os in g o f th os e tr an sa ct io ns , whi chin cl ud edth e $ 55 0,0 00 th athe (an d,
as di sc us se d b el ow, Mr . Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r) kne w Ms . Shapi ro was t o d ep os itin to th e Leag re es cro w acco un t o n t he da y of t he cl os in g. Mr . Thrap p re ach edth atco nc lu si on ev enth ou gh he (an d, as di sc us se d be lo w, Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r) kne w th atth at $5 50 ,00 0 was to be returne d t o M s. Sh ap iro as o f th atclo si ng . Mr. Thr ap p a ls o 4 0 kn ew, an d h e ad vi se d F FI, Mr. Fa nkhaus er, Mr . W ei ntrau t, an d M s. Fa nkhaus er, th atif FF I were n otso lv en t as of the clo si ng of t he tra ns act io ns to whi ch th ey an d FFIA (M id Co as t’s d es ig ne e) h adag reedinth e SPRA and/o r if FFI’s fu nd s, as Bec au se th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA was t o b e eff ect iv e 4 0 as of 1 1: 59 p.m . onDecem be r 20 , 20 01 , th e $ 55 0,0 00 was i n fa ctreturne d t o M s. Sh ap iro by w ire tra ns fer o n t he da y aft er the clo si ng , whi ch Mr. Thr ap p (a nd , as di sc us se d b el ow, Mr . Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r) kne w.- 65 -

[* 65 ] op po se d t o s o- cal le d n ew m on ey , were u se d i n o rd er t o e ffec t the acqui si ti on by FFIA of t he st oc k o f FFI fr om th e FFI s to ckho ld ers , th os e st oc kh ol de rs wou ld be subjec t t o p os si bl e cl ai m s u nd er the laws of t he Sta te of I nd ia naby the cred it or s of FFI. Tha t was be cau se th os e st oc kh ol de rs , who were s o- cal le d i ns id ers , wou ld ha ve rece iv edth e as se ts of F FI. Each of t he FFI s to ckho ld ers , each of wh om ha d s ig ne d t he SPRA, the SPRA es cro w agr eem en t t o wh ic h t he Sh ap iro esc ro w agr eem en t was att ach ed , an d t he cas h re co nc il ia ti onag reem en t wh ic h a ls o was att ach edto th e SPRA
es cro w agr eem en t, kne w, as d idMr. Thr ap p, tha t the so -cal le d l oa n o f $5 50 ,00 0 th atMs . Shapi ro ha d d ep os it edin to th e Leag re es cro w acco un t o n Dec em be r 20 , 20 01 , bef or e th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA bu t o nl y aft er FFI ha d
m ad e it s re qu ire d d ep os itin to th atLeag re es cro w acco un t, was no t ev id en cedby a pr om is so ry

no te or o th er wri tt endo cu m en t an d d idno t b ear i nt eres t. The FFI st oc kh ol de rs , as wel l as Mr. Thr ap p, al so kn ew th atth atpu rp orte d l oa n b y Ms
. Sh ap iro was t o b e d eem edrep ai d a s o f th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA, wh ic h was de em edto oc cu r si m ul ta ne ou sl y

pu rs ua ntto th atag reem en t. 4 1
Mr. Fa nkhaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er al so kn ew, as di d M r. 4 1 Thrapp , th atalt ho ug h the y were d eem edto rece iv e as of t he clo si ng of the trans act io ns th ei r res pe ct iv e p ro po rti on at e p orti on s o f th e p ur ch as e p ric e fo r th e tra ns fer o f th ei r FFI s to ckto FFIA, th e wir e tr an sf ers to th ei r res pe ct iv e b an k

(co nt in ue d...)- 66 -

[* 66 ] Mo reo ve r, each of t he m kn ew, as di d M r. Thrapp , th atpu rs ua ntto th e SPRA
an d t he rel at edag reem en ts (i.e ., th e SPRA esc ro w agr eem en t, the Sh ap iro esc ro w ag reem en t, an d t he cas h re co nc il ia ti on ag reem en t) F FI was to de po si t $ 87 5,8 55 .49 in to th e Leag re es cro w acco un t as of t he clo si ng of t he tra ns act io ns un de r th e SPRA at11 :5 9 p .m . onDecem be r 20 , 20 01 , andth atFFI as FFIA’s d es ig ne e was to rece iv e o nl y

$3 45 ,08 9.3 4 fr om

th atesc ro w acco un t as of t he clo si ng of tho se tra ns act io ns . Eachof M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r al so

4 2 kn ew, as di d M r. Thrapp , th atth e d iff eren ce b etweenth e am ou ntth atFFI was to de po si t i nt o t he Leag re es cro w acco un t (i .e., $8 75 ,85 5.4 9) an d t he am ou ntth atFFI
as FFIA’s d es ig ne e was to rece iv e fro m th atesc ro w acco un t (i .e., $3 45 ,08 9.3 4)
was equa l t o $ 53 0,7 66 .15 . Each o f th e FFI s to ckho ld ers kn ew, as di d M r. Thrapp , th atth atdi ffer en ce was equa l t o t he am ou ntof t he pu rch as e p ric e th atth ey were t o
rece iv e fo r th ei r FFI s to ckun de r th e SPRA fro m , acco rd in g t o the term s o f th at ag reem en t, FFI A.

(...co nt in ue d) 4 1 acco un ts of t ho se pro po rti on at e p orti on s wer e n otto oc cu r un ti l the da y aft er the cl os in g o f th os e tr an sa ct io ns . As was tru e o f th e res pe ct iv e wir e tr an sf ers to Mr. Fan kh au se r, Mr. Wein
4 2 traut , Ms . Fan kh au se r, an d M s. Sh ap iro , FFI rec ei ve d awire tra ns fer o n t he da y aft er the clo si ng .- 67 -

[* 67 ] Inad di ti on , eachof M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r
un de rs to od , as d idMr. Thr ap p, tha t M id Co as t thr ou gh FFIA was pu rp orti ng to pu rch as e FFI s to ckfro m

th em inord er t o a cqui re FFI so th atMi dC oa stwou ldbe ab le to us e FFI’s c as h i n o rd er t o b uy char ge d- of f de btsec ur it ie s t ha t M id Co as t in te nd edto us e in it s s o- cal le d a ss etreco ve ry bu si ne ss . Howev er, eac h o f th e FFI st oc kh ol de rs kn ew, as di d M r. Thrapp , th atMi dC oa stth ro ug h F FIA ag reedinth e SPRA t o p ay

th em $5 30 ,76 6.1 5 i n c as h fo r th ei r FFI s to ckan d t ha t as of the cl os in g o f th e SPR

tra ns act io ns FFI (F FIA’s de si gn ee) was to rece iv e o nl y $5 02 ,78 9.3 4 (i .e., cas h o f $3 45 ,08 9.3 4 a ndth e ri gh t t o arefu ndof t he FFI St at e 20 01 in co m e ta x p aym en ts of $ 15 7,7 00 ). In o th er wo rd s, ea ch of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew, as di d M r. Thrapp , th atMi dC oa st th ro ug h F FIA ag reedinth e SPRA to pa y $5 30 ,76 6.1 5 i n c as h i n re turnforon ly $5 02 ,78 9.3 4, wh ic h M id Co as t p ur po rte dl y wou ldus e in th e as se t re co ve ry bu si ne ss th atitwas t o o pe rat e in FFI. Mo reo ve r, each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew, as di d M r. Thrapp , or s ho ul d h av e kno wn, as Mr. Thr ap p s ho ul d h av e kn own , th atMs . Shapi ro ’s so -cal le d l oa n o f $5 50 ,00 0 t o F FIA was no t n eed edor
us edinord er t o e ffec t the pu rch as e o f th e FFI s to ckun de r th e SPRA andth atth at
so -cal le d l oa n was m ere wi nd ow dres si ng de si gn edto m ak e itap pe ar tha t FF IA,- 68 -

[* 68 ] no t FF I, was p ro vi di ng th e fu nd s t o b e p ai d t o t he m forth e tr an sf

er o f th ei r FFI s to ckto FFIA. Inot he r wor ds , each of t he FFI s to ckho ld ers kn ew, as di d M r. Thrapp , or s ho ul d h av e kno wn, as Mr. Thr ap p s ho ul d h av e kno wn, tha t M s. Sh api ro ’s so -cal le d l oan o f $5 50 ,00 0 t o F FIA was de vo idof a ny econ om ic subs ta nc e-- a sh am th atwas d es ig ne d andin te nd edto m ak e itap pe ar as th ou gh FFIA, n otFFI,
was pro vi di ng th e fu nd s t o b e p ai d t o t he FFI s to ckho ld ers forth e tr an sf er o f th ei r FFI s to ckto FFIA. Mo reo ve r, each of M r. Fan kh au se r, Mr. Wein traut , andMs
. Fan kh au se r kn ew, as di d M r. Thrapp , or s ho ul d h av e kno wn, as Mr. Thr ap p s ho ul d ha ve kn own , th atth e so ur ce o f th e fu nd s t ha t the y were t o re cei ve forth e tr an sf er of th ei r FFI s to ckto FFIA was FFI, n otFFIA. Tha t i s t o s ay , each of t he FFI st oc kh ol de rs , as wel l as Mr. Thr ap p, kne w, or s ho ul d h av e kno wn, tha t FF I, no t FFIA, was to , anddi d, p ay each of t ho se st oc kh ol de rs each su ch st oc kh ol de r’s pr op orti on at e p orti on of t he so -cal le d p ur ch as e p ric e (i .e., $5 30 ,76 6.1 5) th ateach
was to , anddi d, re cei ve un de r th e SPRA. As o f th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA on Decem be r 20 , 20 01 , FFI h adno op erat io ns , no em pl oyees e ng ag edinop erat io ns , no in co m e, no- 69 -

[* 69 ] op erat io na l as se ts , andno li ab il it ie s ex cep t FF I’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9. 4 3 On Dec em

be r 20 , 20 01 , inacco rd an ce wi th th e te rm s o f th e SPRA, th e fo ll owi ng s t ran sa ct io ns to whi ch th e p art ie s ag reedinth e SPRA clo se d e ffec ti ve
as of 1 1: 59 p.m . onth atda te : (1 ) FFI d is tri bu te d a ll of i ts m em be rs hi p i nt eres ts in FFW to M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r an d re cei ve d fr om th em 75 pe rcen t o f th e o ut st an di ng st oc k o f FFI (S PR re de m pt io n t ran sa ct io n) , 4 4
an d (2 ) Mr. Fankhaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er tran sf erre d t o F FIA th e rem ai ni ng 25 pe rcen t o f th e o ut st an di ng st oc k o f FFI tha t the y own edan d
rece iv ed$5 30 ,76 6.1 5 (S PR s al e tr an sa ct io n)
. As requi redby sect io n 7 .1 o f th e 4 5 SPRA, the SPR tran sa ct io ns were d eem edto oc cu r si m ul ta ne ou sl y . On Dec em

be r 20 , 20 01 , Mr. Fan kh au se r an d M r. W ei nt rau t re si gn edas of fic ers , di rect or s, an d e m

pl oyees o f FFI, as requi redby the SPRA. Aft er the ir
res ig na ti on s, M r. W ei nt rau t an d M r. Fan kh au se r ha d n o fu rth er i nv ol ve m en t i n a ny

See s up ra n ot e 3 4. 4 3 Upo n F FI’s d is tri bu ti on to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan k- 4 4 haus er o f al l o f th e m em

be rs hi p i nt eres ts inFFW, th ey own ed68 pe rcen t, 2 2 p ercen t, an d 1 0 p erce nt , res pe ct iv el y , of FF W ’s m em be rs hi p i nt eres ts . The res pe ct iv e p orti on s o f th e $ 53 0,7 66 .15 th atMr. Fan kh au se r, Mr. 4 5 W ei nt rau t, an d M s. Fa nkhaus er re cei ve d a re s etforth be lo w.- 70 -

[* 70 ] op erat io ns or a ny m an ag em en t o f FFI. Non ethe le ss , as d is cu ss edbe lo w, 4 6 Mr. Wein traut , at M r. Thrapp ’s reque st , pre pa redan d s en t t o M id Co as t o n Decem be r 31 , 20 01 , com

pl et edap pr op ria te IRS fo rm s re qu es ti ng a refu ndof the FFI Fe de ral 20 01 in co m e ta x p aym en ts . At al l re le va ntti m es aft er the clo si ng of the trans act io ns un de r th e SPRA on Decem be r 20 , 20 01 , each of t he fol lo win g i nd iv idua ls was adi rect oran d/ oran of fic er o f FFI: Nam e Pos it io n

Mr. Be rn st ei n Dire ct oran d p res id en t Ms . Ses co Treas ur er an d a ss is ta ntsec ret ary Ms . Parra Secr et ary Mr. Sh ap iro Dire ct oran d e xe cu ti ve vi ce p res id en t On Dec em

be r 21 , 20 01 , Leag re, as th e es cro w age ntof t he SPRA es cro w ag reem en t an d t he Sh ap iro esc ro w agr eem en t an d p ur su an t t o t he cas h re co nc il ia
ti onag reem en t, m ad e th e fo ll owi ng di st rib ut io ns fro m th e Leag re es cro w acco un t to th e p ers on s i nd ic at ed :

Ms . Fan kh au se r was no t atan y ti m e in vo lv edinth e o pe rat io ns or t he 4 6 m an ag em en t o f FFI.- 71 -

[* 71 ] Dis tri bu te e Am ou nt

Ms . Shapi ro $5 50 ,00 0.0 0 Mr. Fa nkhaus er 36 0,9 20 .98 Mr. Wein traut 11 6,7 68 .55 Ms . Fan kh au se r 53 ,07 6.6 2 Ice M il le r 20 ,00 0.0 0 FFI 34 5,0 89 .34 1 Tot al 1,4 45 ,85 5.4 9 The fun ds di st rib ut edto FFI were wire d i nt o ane w acco un t i n F FI’s n am e 1 atSunTru stBan k (F FI’s Su nTru stBan k a cco un t) tha t FF IA an d M r. Bern st ei n co nt ro ll ed
. On Dec em

be r 21 , 20 01 , Mr. Berns te in onbe ha lf o f Mi dC oa stan d F FIA an d in hi s i nd iv idua l capa ci ty sig ne d a n a gr eem en t b etweenth os e two en ti ti es an d hi m se lf. Th atag reem en t p ro vi de d i n p ert in en t p art :

Not withs ta nd in g t he own ers hi p o f FFI Acqui si ti on , LLC, Mi dC oa stCred itCo rp . is th e fi na nc ia l b en efi ci ary of th e ffi Co rp or ati ontrans act io n andown ers hi p o f ffi Co rp or at io n. Mi dC oa stCred it Co rp . sh al l re cei ve all of t he eco no m ic be ne fit s o f th e li m it edli ab il it y en ti ty. Mr. Fa nkhaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er were no t awa re o f th e ab ov e-d es cri be d a gr eem en t u nt il res po nd en t g av e th em a co py of itinan ti ci pa ti on of th e tr ia l i n t he se cas es .- 72 -

[* 72 ] On Dec em

be r 20 , 20 01 , aft er the SPR tran sa ct io ns clo se d s im ul ta ne ou sl y

at 11 :5 9 p .m ., FFI d idno t h av e an y bu si ne ss op erat io ns an d d idno t co m m en ce an y
as se t re co ve ry

bu si ne ss op erat io ns or a ny ass etrece iv ab le co ll ect io n b us in es s op erat io ns . At no ti m e aft er the clo si ng of t he SPR tran sa ct io ns di d F FI h av e an y bu si ne ss op erat io ns , in cl ud in g any ass etreco ve ry bu si ne ss op erat io ns or a ny ass et
rece iv ab le co ll ect io n b us in es s o pe rat io ns . On Dec em

be r 20 , 20 01 , aft er the SPR tran sa ct io ns clo se d s im ul ta ne ou sl y

at 11 :5 9 p .m ., FFI h ad(1) ass et s t ot al in g $ 50 2,7 89 .34 , whi ch co ns is te d o f cas h o f $3 45 ,08 9.3 4 a ndth e ri gh t t o arefu ndof $ 15 7,7 00 of S ta te 20 01 in co m e ta x p ay m en ts , and(2) anan ti ci pa te d F ed eral an d S ta te 20 01 in co m e ta x l iabi li ty andan
an ti ci pa te d S ta te in co m e ta x l iabi li ty tot al in g $ 1,0 26 ,10 0.6 9, o r a n eg at iv e n et
as se t v al ue of $ 52 3,3 11 .35
. 4 7 On Dec em

be r 21 , 20 01 , FFIA an d Wil lo w Hol di ng s, LLC (Will ow Ho ld
in gs ), ag reedto form

FFI Fi na nc ia l, LLC (FFI Fin an ci al ), an d d idso on Decem be r 24 , 20 01 . W il lo w Hol di ng s’ so le m em be r was W il lo w Inv es tm en t Tru st , who se tru st ee was W al te r E. Sch m id t (M r. Sch m id t).

See s up ra n ot e 2 8 re ga rd in g F FI’s b an k a cco un t b al an ce o f $1 1,9 55 .46 , 4 7 FFI’s o ut st an di ng ch eck s o f $1 1,9 55 .46 , andth e Pru de nt ia l d em utua li zat io n fu nd s rece iv ab le of $ 43 ,92 6.5 7.- 73 -

[* 73 ] On Dec em

be r 26 , 20 01 , Mr. Berns te in ha d $ 34 0,0 00 wire d fr om FFI’s Su nTru stBan k a cco un t t o aMi dC oa stacco un t atth e Ban k o f New York. On a d at e n otest ab li sh edby the reco rdbe twee n Dec em be r 24 an d 3 1, 2 00 1, FFI Fi na nc ia l an d F FI en te redin to anag reem en t u nd er wh ic h F FI Fi na nc ia l ag reed to , anddi d, co ntrib ut e U.S. Treas ury bi ll s (T-b il ls ) to FFI, wh ic h Wil lo w Hol di ng s ha d c on tri bu te d t o i t, wh ic h h ada va lu e o f $8 ,00 0, an d wh ic h Wil lo w Hol di ng s ha d re pr es en te d t o F FI Fi na nc ia l h ada ta x b as is of $ 2,9 62 ,96 0. (We sh al l re fer t o th e tr an sa ct io ns to whi ch FFI Fi na nc ia l an d F FI ag reedco nc ern in g t he T-bi ll s as th e T-b il l tran sa ct io n.) Mi dC oa st , FFI Fi na nc ia l, an d F FI rec ei ve d fr om Man at t, Ph el ps & Ph il li ps , LLP (Man att), aFed eral in co m e ta x o pi ni onlet te r da te d Dec em be r 28 , 20 01 (Ma na ttop in io n l et te r) reg ard in g t he T-bi ll tra ns act io n, fo r whi chMi dC oa stpa id Man at t $ 10 ,00 0. Th e Ma na ttop in io n l et te r was ba se d o n c ert ai n re pr es en ta ti on s th atFFI Fi nanc ia l, FFI , andW il lo w Hol di ng s wer e to pro vi de ina le tt er (re pr es en ta ti on s l et te r) t o b e se ntto Man at t (d is cu ss edbe lo w). The o pi ni on let te r st at edin pe rti ne ntpa rt:

Inacco rd an ce wi th y ou r reque st , we pro vi de th e fo ll owi ng an al y si s an d o pi ni on s re la ti ng to cert ai n fe de ral in co m e ta x c on se qu en ces of t he tra ns act io n (t he “ Co nt rib ut io n” ) whe reb y FFI Fi na nci al , LLC, a Delawar e li m it edli ab il it y co m pa ny (“ Pare nt ”), co nt rib
ut edeig htTreas ury

Bil ls inth e am ou ntof $ 8,0 00 an d h av in g a- 74 -

[* 74 ] st at edtax ba si s o f $2 ,96 2,9 60 as o f th e d at e o f Co nt rib ut io n (the “ Ass et s” ) to FFI Co rp or at io n, anInd ia naco rp or at io n (“ Subs id iary ”). At the ti m e o f th e Co ntrib ut io n, Pa ren t o wne d a ll of t he is su ed an d o ut st an di ng sh ares of S ub si di ary. Sub si di ary di d n otis su e an y sh ares of i ts st oc k t o P aren t as a res ul t o f th e Co ntrib ut io n b ecau se (acc or di ng to Pare nt ) is su an ce o f su ch sh ares inex ch an ge forth e Ass et s wo ul d h av e b eenm ean in gl es s (due to th e ex is ti ng own ers hi p by Paren t o f 10 0% o f Subs id ia ry ). Fo r pu rp os es of o ur

op in io n, we h av e ex am in edth e fo ll owi ng do cu m en ts : 1. Lett er re ga rd in g o wne rs hi p a ll oc at io n fo r FFI F in an ci al , LLC, dat edDecem

be r 21 , 20 01 [.] 2. Cert ifi cat e o f Fo rm at io n o f FFI F in an ci al , LLC, fil ed with t he Secr et ary of

Sta te of De la ware d at edDecem be r 21 , 20 01
. 3. Lim it edLiab il ity

Co m pa ny Agreem en t o f FFI F in an ci al , LLC, dat edas o f Decem

be r 24 , 20 01
. 4. Una ni m ou s Writ te n C on se ntof the So le Mem be r of W il lo w Hol di ng s, LLC, a Del aware li m it edli ab il it y co m pa ny, co nc ern in g F FI Fi na nc ia l, LLC, da te d Dec em be r 24 , 20 01
. 5. Una ni m ou s Writ te n C on se ntof the So le Mem be r of FFI Acqui si ti on , LLC, a Delawar e li m it edli ab il it y co m pa ny, con cern in g FFI Fi na nc ia l, LLC, da te d Dec em be r 24 , 20 01
. 6. Una ni m ou s Writ te n C on se ntof the Mem be rs of F FI Fi na nc ia l, LLC, au th or iz in g t he Co nt rib ut io n, d at edDecem be r 26 , 20 01
. 7. Una ni m ou s Writ te n C on se ntof the Dire ct or s o f FFI Co rp or at io n aut ho riz in g t he Co nt rib ut io n d at edDecem be r 26 , 20 01
.- 75 -

[* 75 ] 8. Co nt rib ut io n a ndAss um pt io n Ag reem en t b y

an d be twee n F FI Fi na nc ia l, LLC, an d F FI Co rp or at io n, d at edDecem be r 26 , 20 01
. Ourun de rs ta nd in g o f th e fac ts rel at edto th is op in io n l ette r is de riv edinpa rt f

ro m ou r rev ie w of c op ie s o f th e d oc um en ts li st ed ab ov e. W e h av e as su m ed , witho utin de pe nd en t i nv es ti ga ti on , th at (a) s uc h c op ie s co ns ti tu te tru e, acc ur at e an d c om pl et e co pi es of t he or ig in al s o f su ch do cu m en ts ; (b ) su chdo cu m en ts refl ectth e v al idan d bi nd in g o bl ig at io ns of the res pe ct iv e p art ie s t he ret o a ndare en fo rceab le inacco rd an ce wi th th ei r te rm s; (c) s uc h d oc um en ts refl ectth e en ti re ag reem en t am on g t he res pe ct iv e p art ie s t he ret o wi thres pe ctto th e subjec t m at te rs th ereo f; a nd(d) th e tr an sa ct io ns th atare the subjec t o f su chdo cu m en ts were ca rri edou t i n a cco rd an ce wi th th e te rm s o f su ch do cu m en ts . If th ere wer e, are o r wil l b e m at eri al tra ns act io ns inco nn ect io n wi th th e Co nt rib ut io n t ha t ar e n otde sc rib edin th e d oc um en ts li st edab ov e o r in y ou r rep res en ta ti on let te r to us refe rredto be lo w, or ar e n otcarri edou t as de sc rib edth erei n, o ur op in io ns co ul d b e ad ve rs el y affec te d. W e h av e al so rel ie d fo r pu rp os es of t hi s l et te r on fact s s etforth in a rep res en ta ti onlet te r fro m Pare ntan d S ub si di ary to us of e ve n da te he rewi th . Am on g t he rep res en ta ti on s i n t ha t l et te r is th e rep rese nt at io n t ha t, fo r fed eral in co m e ta x p ur po se s, Paren t’s t ax ba si s fo r th e Treas ury

Bil ls th atPare ntco nt rib ut edto Subs id ia ry was $2 ,96 2,9 60 imm ed ia te ly befo re the Co nt rib ut io n. We hav e as su m ed , witho utin de pe nd en t i nv es ti ga ti on , th e acc ur acy andco m pl et en es s o f al l s uc h re pr es en ta ti on s. If s uc h re pr es en ta ti on s atan y ti m e are no t tru e, co rrec t an d c om

pl et e, ou r op in io ns co ul d b e ad ve rs el y affe ct ed
. The Int ern al Rev enue Serv ic e ta ke s t he po si ti on th atge nu in e no n- ta x b us in es s p ur

po se s m us t b e p res en t i n the cas e o f anass et co nt rib ut io n i n o rd er fo r a tran sa ct io n t o m eetth e requi rem en ts of Sect io n 3 51 of t he Int ern al Rev enue Co de of 1 98 6, as am en de d (t he “ Co de ”). Bo th Pare ntan d S ub si di ary ha ve rep res en te d t ha t the y ha ve subs ta nt ia l n on -ta x b us in es s re as on s fo r en ga gi ng inth e Co nt rib ut io n an d t ha t the y

en te redin to th e Co nt rib ut io n p rin ci pa ll y with avi ew- 76 -

[* 76 ] to ward s m ak in g a n e co no m ic pro fitap artfro m tax co ns eque nc es . Acco rd in g t o P aren t an d S ub si di ary, th ei r no n- ta x b us in es s p ur po se s were as fol lo ws: The co nt rib ut edass et s wi ll st ren gt he n the ba la nc e sh eetof S ub si di ary in pre pa rat io n fo r Subs id iary en te rin g i nt o ane w li ne of b us in es s. Subs id ia ry als o wi ll us e p re-C on tri bu ti on ass et s i n it s n ew bu si ne ss . The n ew bu si ne ss is th atSubs id ia ry wil l p ur ch as e po rtf ol io s o f cre di t ca rdrece iv ab le s an d c ol le ctth os e rec ei vabl es . Subs id ia ry ’s ant ic ip at edcu m ul at iv e in te rn al rat e o f return fr om real iz at io n o f th e rec ei vabl es , ass um in g re in ve st m en t o f th e p ro ceed s of rece iv ab le s co ll ect io n, ac co rd in g t o apro form a cas h fl ow s ta te m en t p rep aredby Mid Co as t Cr ed itCo rp . forSubs id iary , ona di sco un te d p res en t v al ue ba si s (u si ng a 6% d is co un t fa ct or ), is 31 2.4 1% ov er 1 0 years. Subs id iary wil l al so en te r in to a co ll ect io n a ndm an ag em en t ag reem en t wi thMi dC oa stCred itCo rp . inpu rs ua nc e o f th is bu si ne ss . Any chan ge or i na ccu racy in t he fact s s etforth inth e d oc um en ts sp eci fie d abo ve or i n t he ab ov e-re fere nc edrep res en ta ti on s le tt er co ul d a dv ers el y

affe ctou r op in io ns . W e h av e und ert ak enno ob li ga ti on to m on it orsubs eque ntde ve lo pm en ts aft er the Co nt rib ut io n orto an al yze the m

as t he y m ay affec t the op in io ns setforth inth is le tt er. Inren de rin g the se op in io ns , we hav e ex am in edsu ch av ai labl e do cu m en ts , laws , reg ul at io ns an d o th er l eg al m at te rs as we ha ve co ns id eredne ces sa ry

or app ro pr ia te forpu rp os es of t he op in io ns ex pr es se d h erei n. We hav e n otm ad e an y in de pe nd en t i nv es ti ga ti on in ren de rin g t he se op in io ns ot he r th anas d es cri be d h erei n. We hav e no t b een reque st edto m ak e an y su ch in de pe nd en t i nv es ti ga ti on . Ourop in io ns are b as edup on th e Co de as o f th e d at e h ereo f, th e le gi sl at iv e h is to ry

of the Co de , curren tl y

ap pl ic ab le reg ul at io ns pr om ul ga te d t he reu nd er (i nc lu di ng pro po se d re gu la ti on s) , publ is he d adm in is tra ti ve po si ti on s o f th e In te rn al Rev enue Serv ic e in rev enue ru li ng s an d re ve nu e p ro cedur es , andjud ic ia l d eci si on s. Su ch leg al au th or it ie s ar e al l s ub

ject t o c hang e, ei th er p ro sp ect iv el y or r etro acti ve ly. No as su ran ce ca n b e p ro vi de d a s t o the effe ctof any suc h- 77 -

[* 77 ] ch an ge up on ou r op in io ns . W e h av e und ert ak enno ob li ga ti on to up da te th is let te r. The op in io ns setforth he rei n h av e n o b in di ng effe ctonth e In te rn al Rev enue Serv ic e o r th e co urts . No as su ran ce can b e g iv en th at , if co nt es te d, a c ou rt wo ul d a gr ee wi thth e o pi ni on s s etforth he rei n. Th e o pi ni on s s etforth he rei n re pr es en t ra th er o urbe stleg al jud gm en t as to th e li ke ly out co m e o f th e is su es ad dr es se d h erei n i f su ch is su es were l it ig at edan d a ll ap pe al s ex haus te d. Inth e cas e o f tr an sa ct io ns su chas t he Co nt rib ut io n, m an y fed eral , st at e an d l oc al in co m e an d o th er t ax co ns eque nc es ari se . W e h av e b een ask edon ly to ad dr es s t he is su es sp eci fic al ly set f orth be lo w. No op in io n i s ex pr es se d re gard in g a ny oth er i ss ue . Thi s l et te r is be in g i ss ue d s ol el y forth e b en efi t o f FFI C or po rati onan d fo r th e b en efi t o f FFI F in an ci al , LLC, as the so le sh areh ol de r of Subs id ia ry

as o f th e d at e o f th e Co nt rib ut io n. Itm ay no t b e rel ie d up on by any

ot he r pe rs on witho utour pr io r writ te n c on se nt . Subjec t t o t he for eg oi ng , itis ou r op in io n t ha t, m or e li ke ly tha n n ot : (a) The Co nt rib ut io n s at is fie d t he requi rem en ts of S ect io n 3 51 of th e Co de
. (b ) The tax ba si s fo r th e Ass et s t ran sf erre d fr om

Pare ntto Subsi di ary in th e Co nt rib ut io n was a carry ov er t ax ba si s i n acco rd an ce wi th Sect io n 3 62 of t he Co de
. (c) Bas edon th e rep res en ta ti on s m ad e to us inth e ab ov erefe ren cedrep res en ta ti on s l et te r fro m Pare ntan d S ub si di ary, th e carry ov er t ax ba si s fo r Subs id ia ry was $ 2,9 62 ,96 0 fo r th e Treas ury Bil ls Pare ntco nt rib ut edto Subs id ia ry . The rep res en ta ti on s l et te r da te d Dec em be r 28 , 20 01 , whi ch as o f Feb ru ary 15 , 20 02 , Mr. Sch m id t h adsi gn edon be ha lf o f W il lo w Hol di ng s, b utwhi ch Mr.- 78 -

[* 78 ] Bern st ei n h adno t s ig ne d o n b eh al f of FFI Fi na nc ia l an d F FI, s ta te d i n pe rti ne ntpa rt: 4 8

FFI Fi nanc ia l, LLC, a Del aware li m it edli ab il it y co m pa ny (“ Pare nt ”), an d F FI Co rp or at io n, an Ind ia naco rp or at io n (“ Subs id
ia ry ”), h av e reque st edy ou r op in io n re ga rd in g c ert ai n fe de ral in co m e ta x c on se qu en ces of atra ns act io n (t he “ Co nt rib ut io n” ) whe reb y Pare nttra ns ferr edeig htTreas ury Bil ls inth e am ou ntof $ 8,0 00 , ha vi ng a st at edva lu e o f $8 ,00 0 a ndha vi ng a st at edtax ba si s o f $2 ,96 2,9 60 as o f th e d at e o f th e Co nt rib ut io n (the “ Ass et s” ) to Subsi di ary. The un de rs ig ne d o ffi cer o f Pare ntan d t he un de rs ig ne d o ffi cer of Subs id ia ry

ha ve ful l p owe r an d aut ho rit y to co m m itPare ntan d Subs id ia ry , res pe ct iv el y , to th e rep res en ta ti on s co nt ai ne d i n t hi s l et te r. W il lo w Hol di ng s, LLC, a Del aware li m it edli ab il it y co m pa ny anda m em be r of Pare nt(“ W il lo w Hol di ng s” ) al so rep res en ts he rei n P aren t’s t ax ba si s fo r th e Ass et s i m m ed ia te ly prio r to th e Co nt rib ut io n. The off ic er o f W il lo w Hol di ng s s ig ni ng be lo w has ful l p owe r an d au th or ity to m ak e su ch rep res en ta ti on . Paren t an d S ub si di ary un de rst an d tha t the co nc lu si on s i n your op in io n l ette r are de pe nd en t i n p art on th e acc ur acy of th is rep res en ta ti on s l et te r an d t ha t yourop in io n co ul d b e ad ve rs el y

affe ct edif t hi s re pr es en ta ti on s l ette r is no t tru e, co m pl et e an d c orrect . Pare ntan d S ub si di ary ha ve see n adra ft o f y ou r ta x o pi ni on le tt er p rio r to is su an ce o f th is rep res en ta ti on s l ette r. Thatdra ft op in io n l et te r m ak es sp eci fic refer en ce t o c ert ai n l is te d d oc um en ts . Pare ntan d S ub si di ary un de rs ta ndth aty ou r op in io n l ette r co ul d b e adve rs el y affe ct edif t he re were m at eri al tra ns act io ns inco nn ect io n with t he Co nt rib ut io n t ha t ar e n otde sc rib edinth os e li st eddo cu m en ts orinth is rep res en ta ti on s l et te r, or were n otcarr ie d o utas d es cri be d th erei n a ndhe rei n. The reco rddo es no t es tabl is h wh ethe r Mr. Be rn st ei n e ve r si gn edth e 4 8 rep res en ta ti on s l et te r.- 79 -

[* 79 ] Pare ntan d S ub si di ary ha ve ask edy outo ad dr es s s ol el y th e fed eral in co m e ta x c on se qu en ces of t he Co nt rib ut io n t ha t ar e sp eci fical ly set f orth iny ou r dr afttax op in io n l et te r refe rredto ab ov e. Pare ntan d S ub si di ary are a ware tha t the Co ntrib ut io n m ay in vo lv e m an y ot he r ta x i ss ue s an d c on se qu en ces un de r th e In te rn al Rev enue Co de of 1 98 6, as am en de d (t he “ Co de ”), an d o th er t ax st atut es . Howev er, Par en t an d S ub si di ary ha ve no t as ke d youto co ns id er o r ren de r anop in io n re ga rd in g s uc h o th er t ax is su es . Fo r pu rp os es of you r ta x o pi ni on , Paren t, Subs id ia ry an d W il lo w Hol di ng s (a s ap pr op ria te ) rep res en t t o you , aft er due in ve st iga ti on , as fo ll ows : 1. All factua l s ta te m en ts iny ou r dr afttax op in io n l et te r co nc ern in g t he Co nt rib ut io n a re tru e, co rrec t an d c om pl et e. 2. Pare ntan d S ub si di ary to okall pro pe r act io ns to tra ns fer fro m Pare ntto Subs id ia ry

be ne fic ia l o wne rs hi p o f th e Ass et s. Par en t di d n otret ai n a ny ben efi ci al own ers hi p i n t he Ass et s i t tran sf erre d t o subs id ia ry . 3. Bo th Pare ntan d S ub si di ary ha d s ub st an ti al no n- ta x bu si ne ss reas on s fo r en ga gi ng inth e Co nt rib ut io n. Bo th Pare ntan d Subs id ia ry

en te redin to th e Co nt rib ut io n p rin ci pa ll y with avi ew to wardm ak in g a n e co no m ic pro fitap artfro m tax co ns eque nc es . The Co nt rib ut io n wi ll st ren gt he n t he ba la nc e sh eetof S ub si di ary in pre pa rat io n fo r Subs id ia ry

en te rin g i nt o ane w li ne of b us in es s. Subs id ia ry al so wil l u se pre -Co nt rib ut io n a ss et s i n i ts ne w bu si ne ss . The n ew bu si ne ss is th atSubs id ia ry wil l p ur ch as e p ortfo li os of c red itcard rece iv ab le s an d c ol le ctth os e rec ei vabl es . Sub si di ary’ s an ti ci pa te d cu m ul at iv e in te rn al rat e o f return fr om real iz at io n o f th e rec ei vabl es , as su min g re in ve st m en t o f th e p ro ceed s o f rec ei vabl es co ll ect io n, acco rd in g t o apro form a cas h fl ow s ta te m en t p rep aredby Mid Co as t Cred itCo rp . forSubs id ia ry , ona di sc ou nt edpre se ntva lu e b as is (u si ng a 6% d is co un t fa ct or ), is 31 2.4 1% o ve r 10 y ears . Sub si di ary wil l al so en te r in to a co ll ect io n a ndm an ag em en t ag reem en t wi th Mi dC oa stCred itCo rp . inpu rs ua nc e o f th is bu si ne ss .- 80 -

[* 80 ] 4. Pare ntan d S ub si di ary ha ve tre at edan d wi ll tre atth e Co nt rib ut io n i n am an ne r th atis co ns is te ntwith i ts form . 5. At the ti m e o f th e Co nt rib ut io n a ndth erea fte r, Pare nt own ed10 0% o f th e is su edan d o ut st an di ng sh ares of S ub si di ary. Due to it s o wne rs hi p o f al l o f th e Subs id ia ry st oc k, i ss ua nc e o f m or e Subsi di ary sh ares to Pare ntinco nn ect io n wi thth e Co nt rib ut io n wo ul d ha ve be enm ean in gl es s. Fo r th is reas on , Sub si di ary di d n otis su e sh ares to Pare ntas ares ul t o f th e Co nt rib ut io n. Th e m em be rs of Pare ntform edPare ntan d m ad e th ei r co nt rib ut io ns of a ss et s t o P aren t pr in ci pa ll y

for subs ta nt ia l b us in es s p ur

po se s. Th es e rea so ns in cl ud ed st ren gt he ni ng th e cap it al iz at io n o f Pare ntso th atPare ntco ul d a ctas a ho ld in g c om

pa ny for Subs id ia ry

an d h av e th e fl ex ib il it y

to en ga ge in fu tu re b us in es s o pp ortu ni ti es ina ho ld in g c om pa ny struc ture. 6. No s to ckor s ecu rit ie s wer e o r wil l b e is su edby Sub si dia ry forservi ces ren de redto or f orth e b en efi t o f Subs id ia ry inco nne ct io n wi th th e Co nt rib ut io n. No st oc k o r se cu rit ie s wer e o r wil l b e is su edby Sub si di ary fo r in de bt edne ss of S ub si di ary th atis no t ev ide nc edby a secu rit y

or f orin te res t o n i nd eb te dn es s o f Subs id ia ry whi ch accrue d o n o r aft er the be gi nn in g o f th e h ol di ng pe rio d o f Pare ntforth e d eb t. 7. Pare ntne it he r acc um ul at edrece iv ab le s n orm ad e an y ex tra or di na ry

pa ym en t o f pa y ab le s i n a nt ic ip at io n o f th e Co nt rib ut io n. Subs id ia ry

ha s re po rt a ndwil l re po rte d i te m s wh ic h, b utforth e Co ntri bu ti on , wou ldha ve res ul te d i n i nc om e o r de du ct io n t o P aren t i n a pe rio d s ub se qu en t t o t he Co nt rib ut io n a ndsu ch it em s h av e an d wi ll co ns ti tu te in co m e o r de du ct io ns to Subs id ia ry when rece iv edor p ai d by Sub si di ary. 8. The Co nt rib ut io n was no t the res ul t o f so li ci ta ti on by a pr om ot er, b ro ke r orin ve st m en t h ou se . 9. Subs id ia ry

di d n ottak e th e Ass et s s ub ject t o a ny deb t an d d idno t as su m e an y

de btof P aren t i n c on ne ct io n wi th th e Co nt ribu ti on .- 81 -

[* 81 ] 10
. The re was no in de bt edne ss be twee n S ub si di ary an d Pare ntan d t he re was no in de bt edne ss crea te d i n fa vo r of Pare ntas a res ul t o f th e Co nt rib ut io n. 11
. The Co nt rib ut io n o ccurredun de r a p la n a gr eedup on be fo re the Co nt rib ut io n i n wh ic h t he rig ht s o f th e p art ie s wer e d efin ed
. 12
. The re was no pl anor i nt en ti on on th e p artof S ub si di ary to red eem or o th erwi se reac qu ire any Subs id ia ry

st oc k h el d b y

Pare nt . 13
. Tak in g i nt o a cco un t an y is su an ce o f ad di ti on al sh ares of Subs id ia ry

st oc k, an y

is su an ce o f st oc k fo r se rv ic es , th e ex erci se of an y Subs id ia ry

st oc k ri gh ts , warran ts or s ub sc rip ti on s, an y publ ic of feri ng of S ub si di ary st oc k a ndth e sa le , exc ha ng e, tr an sf er b y gi ft, orot he r di sp os it io n o f an y of t he st oc k o f Subs id ia ry he ldby Paren t, Pare ntwas t he so le sh areh ol de r an d i n “ co nt ro l” of S ub si di ary withi n th e m ean in g o f Sec ti on 36 8( c) o f th e Co de at t he ti m e o f th e Co nt ribu ti on . At th e ti m e o f th e Co ntrib ut io n, Paren t was no t u nd er a b in din g o bl ig at io n, an d h adno pl anor i nt en ti on , to di sp os e o f an y po rti on of it s s to ckinSubs id ia ry

fol lo win g t he Co nt rib ut io n. 14
. Subs id ia ry

an d P aren t ea ch pa idth ei r own ex pe ns es in crea se d i n c on ne ct io n wi th th e Co nt rib ut io n. 15
. At the ti m e o f th e Co nt rib ut io n, Subs id ia ry was n otan “ in ve st m en t co m

pa ny” with in th e m ean in g S ect io n 3 51 (e) o f th e Co de
. 16
. W il lo w Hol di ng s, a m em be r of Pare nt , rep res en ts th at , fo r fed eral in co m e ta x p ur po se s, Pa ren t’s t ax ba si s fo r th e Treas ury Bi ll s t ha t Pa ren t co nt rib ut edto Subs id ia ry was $ 2,9 62 ,96 0 i m

m ed iat el y be fo re the Co nt rib ut io n. 17
. Youm ay

rel y on th e acc ur acy of th e rep res en ta ti on s he rei n fo r pu rp os es of your ta x o pi ni on let te r wit ho utfurth er i nqui ry orin de pe nd en t i nv es ti ga ti on .- 82 -

[* 82 ] 18
. Pare ntan d S ub si di ary he reb y co ns en t t o your refe ren ce to th is rep res en ta ti on s l et te r in y ou r ta x o pi ni on let te r. 19
. The un de rs ig ne d h av e und ert ak ensu ch in ve st ig at io n a s th e und ers ig ne d d eem edne ces sa ry to en su re the accu racy of th e fo reg oi ng rep res en ta ti on s. On a d at e n otest ab li sh edby the reco rdbe twee n Dec em be r 20 an d 3 1, 2 00 1, Mr. Th rap p a sk edMr. Wein trautto pre pa re Fo rm 44 66 , Cor

po rat io n Ap pl ic at io n fo r Qui ckRefu ndof Ov erp aym en t o f Est im at edTax (F orm 44 66 ). On Dece m

be r 31 , 20 01 , Mr. W ei ntrau t m ai le d t o M id Co as t a c om pl et ed , bu t u ns ig ne d, Fo rm 4 9 44 66 , Cor

po rat io n Ap pl ic at io n fo r Fo rm 44 66 , forFFI (F FI’s Fo rm 44 66 ). That fo rm sh owe d “ to ta l t ax fro m

Fo rm 11 20 ” o f zer o andan“ [o ]verp aym en t o f
es ti m at edtax ” o f “ $6 28 ,59 2.0 0” . On Ja nu ary 4, 2 00 2, FF I’s Fo rm 44 66 , whi ch Mr. Be rn st ei n h adsi gn edon be ha lf o f FFI, was m ai le d t o t he IRS. At ati m e n ot
es tabl is he d b y

th e rec or d, M s. Se sc o s en t a n ot e to Mr. Wein trautin fo rm in g h im th atFFI’s Fo rm

44 66 ha d b een sen t t o t he IRS. OnJan ua ry 17 , 20 02 , th e U.S. Dep artm en t o f th e Treas ury is su eda ch eckfor$6 28 ,59 2 t o F FI with re sp ectto it s ta xabl e y ear 2 00 1, wh ic h F FI en do rs edto FFW.

Mr. Wein trautdi d n otsi gn FFI’s Fo rm 44 66 on be ha lf o f FFI b ecau se 4 9 fo ll owi ng hi s re si gn at io n o n Dec em be r 20 , 20 01 , he was no lo ng er an off ic er o r a di rect orof F FI.- 83 -

[* 83 ] On J anua ry

14 , 20 02 , Form

96 6 t ha t M s. Se sc o h adsi gn edon be ha lf o f FFI
was m ai le d t o t he IRS. Inth atform , FFI i nd ic at edth atitno lo ng er i nt en de d t o li qu id at e as itha d i nd ic at edinFo rm 96 6 t ha t i t h adsubm it te d t o t he IRS o n Octo be r 19 , 20 01
. InJan uary

20 02 , FFI rec ei ve d fr om th e St at e o f In di an a th ree c he ck s t ot al
in g $ 5,7 56 .56 th atco ns ti tu te d re fu nd s b y th atSta te of c ert ai n re ta il sal es tax (ret ai l
sa le s t ax refu nd s) . FFI es ti m at edth e res pe ct iv e Fed eral an d S ta te in co m e ta x li ab il it ie s o n t ho se refund s, d educ te d 5 1 p erce ntof tho se est im at edto ta l l iabi li ti es fro m th e $ 5,7 56 .56 of r et ai l s al es tax refu nd s tha t i t h adrece iv ed , andsen t the ba la nc e (i .e. $4 ,60 8.2 6) , to FFW. 5 0 Tax Returns Mr. Wein trautti m el y

fil edFo rm

10 40 , U.S. Ind iv idua l In co m e Tax Return (Fo rm 10 40 ), fo r hi s t ax ab le y ear 2 00 1. Mr . Fan kh au se r an d M s. Fa nkhaus er fi le d joi nt ly Form

10 40 forth ei r ta xabl e y ear 2 00 1. In th os e res pe ct iv e fo rm s, M r.

No o ne ass oc ia te d wi th FFI o r wit h M id Co as t was aware o f th e ret ai l s al es 5 0 ta x re fund s t ot al in g $ 5,7 56 .56 at t he ti m e Mi dC oa stpro po se d t he tra ns act io ns in th e le tt er o f in te ntan d a t the ti m e o f th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA. As ares ul t, tho se refu nd s h adno effe cton th e sh are p ur ch as e p ric e cal cu la te d i n t he Decem

be r 18 , 20 01 ba la nc e sh eet(di sc us se d abo ve ). Co ns equ en tl y , forco nv en ie nc e, we sh al l n otrefer , exc ep t i nf reque nt ly, to th e St at e ret ai l sa le s t ax refu nd s as anass etof F FI wh enwe di sc us s the tra ns act io ns an d t he ev en ts th atare re le vantto th e is su es pre se nt edhe re.- 84 -

[* 84 ] W ei nt rau t an d M r. Fan kh au se r an d M s. Fa nkhaus er re po rte d t he ga in th at each ha d re al iz edon Decem be r 20 , 20 01 , as ares ul t o f th e SPR tra ns act io ns un de r th e SPRA. Mr. W ei nt rau t an d M r. Fan kh au se r an d M s. Fa nkhaus er t im el y pa id th ei r res pe ct iv e Fed eral in co m e ta xe s o n t ho se res pe ct iv e g ai ns . On M ay 13 , 20 02 , th e IRS gra nt edFFI an ex te ns io n o f ti m e unt il Sep te m be r 15 , 20 02 , withi n wh ic h t o fi le Fo rm 11 20 , U.S. Corp or at io n In co m e Tax Return (Fo rm 11 20 ), fo r it s t ax ab le y ear 2 00 1 (2 00 1 t ax return) . On Sep te m be r 18 , 20 02 , res po nd en t re cei ve d F FI’s 2 00 1 t ax return. InSch edul e D, Cap it al Gain s an d Lo ss es (20 01 Sch edul e D), at ta ch edto FFI’s 2 00 1 t ax return F FI rep orte d a“ [s ]ale p ric e” o f “ $6 55 ,77 6” , “ [c]os t o r ot he r ba si s” of “ $6 61 ,52 7” , andlo ng -te rm cap it al lo ss of “ $5 ,75 1” with re sp ectto a

“ SALE OF SECURITIES” o n J anua ry 2, 2 00 1. In th e 2 00 1 S ch edul e D, FFI rep orte d a“ [s ]ale p ric e” o f “ $8 ,19 6” , “ [c]os t o r ot he r ba si s” of “ $2 ,96 2,9 60 ”, an d lo ng -te rm cap it al lo ss of “ $2 ,95 4,7 64 ” with re sp ectto a sa le of T-B il ls on Decem
be r 27 , 20 01 . (W e sh al l re fer c ol le ct iv el y to th e lo ng -te rm

cap it al lo ss es to ta li ng $2 ,96 0,5 15 th atFFI cl ai m edinth e 2 00 1 S ch edul e D as th e cl ai m ed20 01 Sch edul e D lo ss es .) InFo rm 47 97 , Sal es of B us in es s Pr op erty , att ach edto it s 2 00 1 t ax return, FFI re po rte d ane t g ai n $ 1,4 78 ,03 8 (g ai n fr om th e sa le of b us in es s p ro pe rty) from- 85 -

[* 85 ] a “ Sal es or Ex ch an ge s o f Pro pe rty Usedina Trad e o r Bu si ne ss an d In
vo lu nt ary Co nv ers io ns fro m Oth er Th anCas ua lty

or Th eft ”. FFI re du cedth e g ai n fro m th e sa le of b us in es s p ro pe rty by th e cl ai m ed20 01 Sch edul e D lo ss es of $2 ,96 0,5 15 . As a res ul t, FFI rep orte d ane t l on g- te rm cap it al lo ss inth e 2 00 1 Sch edul e D of

$1 ,48 2,4 77 . Of th e p orti on of t ha t capi ta l l os s t ha t was us edto of fs etth e $ 1,4 78 ,03 8 o f ga in fro m th e sa le of b us in es s p ro pe rty, all e xc ep t $ 5,7 51 (i.e ., $1 ,47 2,2 87 ) was att rib ut ab le to th e T-b il l tran sa ct io ns (T-b il l cl ai m edlo ss ). FFI al so cla im edinit s 2 00 1 t ax return d educ ti on s o f (1 ) $7 71 ,26 0 fo r “ le ga l
an d p ro fes si on al ” ex pe ns es , (2) $3 5,0 00 fora “ m an ag em en t fe e”, an d (3 ) $2 25 for
a ren t ex pe ns e. Afte r ta ki ng in to acco un t tho se th ree c la im edde du ct io ns an d cert ai n o th er d educ ti on s i n i ts 20 01 return, FF I rep orte d i n i ts 20 01 tax return

“ [t]ax ab le in co m e” o f “ $1 ,00 7,3 45 ”, “ [t]ot al tax ” o f “ $1 43 ,00 3” , and“ ta x due ” o f

“ $1 43 ,00 3” . FFI d idno t p ay an y pa rt o f th e ta x s ho wn due init s 2 00 1 t ax return whe n i t fi le d t ha t re tu rn . FFI fi le d F orm 11 38 , Ext en si on of Ti m e fo r Paym en t o f Tax es by a Corp or at io n Ex pe ct in g aNet Op erat in g Lo ss Carry ba ck , dat edMarc h 3, 2 00 2, i n wh ic h i t i nd ic at edth atitex pe ct eda ne t o pe rat in g l os s fo r it s t ax ab le y ear 2 00 2 t ha t wo ul d e xc eedth e am ou ntof i ts tax ab le in co m e fo r it s t ax ab le y ear 20 01
.- 86 -

[* 86 ] On Se pt em

be r 22 , 20 03 , th e IRS rece iv edFFI’s Fo rm 11 20 for it s t ax ab le y ear 2 00 2 (2 00 2 t ax return) . In i ts 20 02 tax return, FF I rep orte d n eg at iv e “ [t]ax
ab le in co m e” an d ane t o pe rat in g l os s o f $9 02 ,72 2 (2 00 2 NOL). Of th e 2 00 2 NOL of $9 02 ,72 2, FF I carrie d b ack(1) $3 1,0 48 to it s t ax ab le y ear 1 99 7 a nd (2 ) $8 71 ,67 4 t o i ts tax ab le y ear 2 00 1. On Se pt em

be r 23 , 20 04 , th e IRS rece iv edFFI’s Fo rm 11 20 for it s t ax ab le y ear 2 00 3 (2 00 3 t ax return) . In i ts 20 03 tax return, FF I rep orte d n eg at iv e “ [t]ax
ab le in co m e” an d ane t o pe rat in g l os s o f $1 4,5 50 (20 03 NOL). FFI carri edba ck al l o f th e 2 00 3 NOL o f $1 4,5 50 to it s t ax ab le y ear 2 00 1.

IRS Ex am in at io n With R es pe ctto FFI an d P et it io ne rs Aro un d J ul y

22 , 20 05 , res po nd en t b eg ananex am in at io n o f FFI’s t ax ab le y ear 2 00 1. Aro un d Dec em be r 2, 2 00 5, re sp on de ntbe ga n an e xa m in at io n o f FFI’s ta xabl e y ear 2 00 2 fr om

whi ch $8 71 ,67 4 o f it s cl ai m ed20 02 NOL of $ 90 2,7 22 ha d be encarr ie d b ackto it s t ax ab le y ear 2 00 1. Aro un d J ul y 31 , 20 08 , res po nd en t b ega n a n e xa min at io n o f FFI’s t ax ab le y ear 2 00 3 fr om whi ch all of i ts cla im ed20 03 NOL of $ 14 ,55 0 h adbe encarr ie d b ackto it s t ax ab le y ear 2 00 1. FFI was re pr ese nt edby cou ns el th ro ug ho utth e IRS ’ ex am in at io n o f it s t ax ab le y ears 20 01 , 20 02 , and20 03 an d t he res ol ut io n o f th atex am in at io n (d is cu ss edbe lo w).- 87 -

[* 87 ] Dur in g t he pe rio d t ha t s ta rte d i n 2 00 5 a nden de d i n 2 00 8, M r. Bern st ei n, who was t he n p res id en t o f FFI, ex ecu te d o n b eh al f of FFI s ev eral Fo rm s 8 72 -I, Co ns en t t o Ex te ndth e Tim e to Ass es s Tax As Well As Tax Attrib ut ab le to Ite m s of a Part ne rs hi p, i n wh ic h F FI co ns en te d t o t he ex te ns io n t o v ari ou s d at es of t he pe rio d o f as se ss m en t o f FFI’s Fe de ral in co m e ta x fo r it s t ax ab le y ears 20 01 . The la stof t ho se form s t ha t M r. Bern st ei n e xe cu te d a ro un d t he en d o f Ju ly 200 8 e xte nd edth e ti m e fo r as se ss m en t o f th attax to Decem be r 31 , 20 09
. Aro un d Oct ob er 2 7, 2 00 6, re sp on de ntass ig ne d t he same reve nu e ag en t wh o
was ex am in in g F FI’s ta xabl e y ears 20 01 an d 2 00 2 t o b eg in a tr an sf eree li ab il it y
ex am in at io n wi th res pe ctto Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r
as th e st oc kh ol de rs of F FI b efo re the clo si ng of t he tra ns act io ns un de r th e SPRA
on Decem

be r 20 , 20 01 . Sin ce the IRS’ exa m in at io n o f FFI’s t ax ab le y ears 20 01
an d 2 00 2 was st il l o ng oi ng an d re sp on de ntha d n oty etin it ia te d a n e xa m in at io n o f FFI’s t ax ab le y ear 2 00 3 fr om whi ch FFI h adcarr ie d alo ss ba ckto it s t ax ab le y ear 20 01 , th attra ns fere e li ab il it y ex am in at io n re m ai ne d i na ct iv e unt il th e IRS ha d
co m pl et edit s ex am in at io n o f FFI’s t ax ab le y ears 20 01 , 20 02 , and20 03 an d h ad
un de rta ke n c ol le ct io n e ffo rts rel at in g t o t he res pe ct iv e ta x l iabi li ti es forth os e y ears with wh ic h, as di sc us se d b el ow, FF I ag reed
.- 88 -

[* 88 ] On M ay

31 , 20 08 , th e IRS op en eda co ll ect io n fi le with re sp ectto an y un pa idFed eral tax li ab il it ie s o f FFI a ndass ig ne d t he m at te r to on e o f it s re ve nu e of fic ers . On M arch 4, 2 00 9, M r. Bern st ei n e xe cu te d o n b eh al f of FFI Fo rm

90 6, Cl os in g Ag reem en t (F FI cl os in g a gr eem en t), i n wh ic h F FI an d re sp on de ntag reed to cert ai n a dju st m en ts to FFI’s Fed eral in co m e ta x fo r certa in of i ts tax ab le y ears , in cl ud in g i ts tax ab le y ears 20 01 , 20 02 , and20 03 . Purs uantto th e FFI c lo si ng ag reem en t, FFI co ns en te d t o re sp on de nt ’s (1) all owa nc e fo r it s t ax ab le y ear 2 00 1 of a T-bi ll lo ss of $ 14 7,2 29 , whi ch was o nl y 10 pe rcen t o f th e to ta l T-b il l cl ai m ed lo ss of $ 1,4 72 ,28 7, (2 ) di sa ll owa nc e fo r it s t ax ab le y ear 2 00 1 o f (a) r en t ex pe ns es of $2 25 , (b) pro fes si on al ex pe ns es of $ 35 0,0 00 , (c) m an ag em en t fe e ex pe ns es of $3 5,0 00 , and(d) leg al an d p ro fes si on al expe ns es of $ 10 ,00 0, (3 ) di sa ll owa nc e fo r it s t ax ab le y ear 2 00 2 o f th e 2 00 2 NOL o f $9 02 ,72 2, an d (4 ) di sa ll owa nc e fo r it s ta xabl e y ear 2 00 3 o f th e 2 00 3 NOL o f $5 ,81 3. Inth e FFI c lo si ng ag reem en t, FFI al so co ns en te d t o t he im

po si ti on of a n a ccu racy-rela te d p en al ty und er s ect io n 66 62 (a) fo r it s t ax ab le y ear 2 00 1 t ha t was to be cal cu la te d b y m ul ti pl y in g o ne -h al f of th e 2 0 p erce ntim

po se d b y th atsec ti on (or10 pe rcen t) b y th e am ou ntof t he
un de rp aym en t fo r th attax ab le y ear t ha t was att rib ut ab le to res po nd en t’s d is
-- 89 -

[* 89 ] all owa nc e o f FFI’s cl ai m edde du ct io ns of ( 1) pro fes si on al fee ex pe ns es of $3 50 ,00 0, (2 ) m an ag em en t fe e ex pe ns es of $ 35 ,00 0, an d (3 ) $6 50 ,96 1 o f th e 2 00 2 NOL of $ 90 2,7 22 , $8 71 ,67 4 o f whi ch FFI h adcarr ie d b ackto it s t ax ab le y ear 20 01 . As a res ul t, FFI ag reedinth e FFI c lo si ng ag reem en t t o a n a ccuracy-rela te d pe na lty un de r se ct io n 6 66 2( a) o f $1 5,1 26 . In ad di ti on , FFI co ns en te d i n the FFI cl os in g a gr eem en t t o a n a ccu racy-rela te d p en al ty und er s ect io n 6 66 2( a) an d (h ) fo r it s t ax ab le y ear 2 00 1 t ha t was to be cal cu la te d b y m ul ti pl y in g o ne -h al f of

th e 4 0 pe rcen t i m

po se d b y sec ti on 66 62 (h ) (o r 20 pe rcen t) b y th e am ou ntof t he un de rpa ym en t fo r th attax ab le y ear t ha t was att rib ut ab le to res po nd en t’s d is al lo wan ce o f 90 pe rcen t (i .e., $1 ,32 5,0 58 ) of th e to ta l cl ai m edT-bi ll lo ss of $ 1,4 72 ,28 7. As a
res ul t, FFI ag reedinth e FFI c lo si ng ag reem en t t o a n a ccu racy-rela te d p en al ty
un de r se ct io n 6 66 2( a) an d (h ) of $7 0,3 56
. On J anua ry

15 , 20 09 , Mr. Berns te in ex ecu te d o n b eh al f of FFI Fo rm

45 49 , 5 1 In co m e Tax Exam in at io n C ha ng es (Fo rm 45 49 ), in whi ch FFI co ns en te d t o t he
as se ss m en t fo r, in te r al ia , it s t ax ab le y ear 2 00 1 o f a d efi ci en cy intax of $ 62 2,2 65 The pa rti es st ip ul at edth atitwas o n M arch 15 , 20 09 , th atMr. Berns te in 5 1 ex ecu te d o n b eh al f of

FFI Fo rm

45 49 . Thatst ip ul at io n i s cl earl y co nt rary to t he fact s tha t we h av e fo un d a re es tabl is he d b y th e rec or d, an d we s ha ll di sr eg ardit
. See C al -Ma in e Fo od s, In c. v. Co m m is si on er, 9 3 T.C. 1 81 , 19 5 (1 98 9) . The rec or d es tabl is he s, an d we h av e fo un d, fr om ou r rev ie w of Fo rm

45 49 , whi ch Mr. Bernst ei n e xe cu te d a ndwhi ch is pa rt o f th e rec or d, tha t h e si gn edth atform on Jan ua ry 15 , 20 09
.- 90 -

[* 90 ] an d an a ccu racy-rela te d p en al ty und er s ect io n 6 66 2 t ot al in g $ 85 ,48 2 (co ll ect iv el y , FFI’s u np ai d 2 00 1 t ax li ab il it y ). On J un e 2 , 20 09 , Mr. Berns te in co m pl et edon be ha lf o f FFI F orm 43 3- B, Co ll ect io n In fo rm at io n S ta te m en t fo r Bu si ne ss es (Fo rm 43 3- B). Fo rm

43 3- B is a st at em en t tha t the IRS re qu es ts a ta xp ay er tha t o pe rat es a bu si ne ss to co m pl et e an d th atsh ows th e b us in es s’s i nc om e, ex pe ns es , ass et s, l iabi li ti es , andcert ai n o th er fin an ci al in fo rm at io n. 5 2 As p artof t he rev enue off ic er’s at te m

ptto co ll ectFFI’s unp ai d 2 00 1 t ax li ab il it y , he p erfo rm edcert ai n s earc he s fo r an y ass et s b el on gi ng to FFI, b uthe di d
no t fi ndan y

su ch ass et s. On J un e 2 , 20 09 , res po nd en t fi le d ano ti ce o f Fed eral tax li eninMari on Co un ty, In di an a, wit h re sp ectto FFI’s u np ai d 2 00 1 t ax li ab il it y an d i nt eres t the reon as p ro vi de d b y

law. On J anua ry

13 , 20 10 , res po nd en t s en t ei gh t l ev ie s t o c ert ai n b an ks an d o th er
co m pa ni es th atm ig htha ve he ldacco un ts inFFI’s n am e o r th atm ig htha ve owed FFI m on ey . Tho se eig htlev ie s p ert ai ne d, i nt er al ia , to any ass et s o f FFI t ha t M r. 5 3
Fo rm 43 3- B th atFFI s ub m it te d t o t he IRS i s n otpa rt o f th e rec or d, an d 5 2 no th in g i n t he reco rdest ab li sh es th e in fo rm at io n t ha t was setforth inth atform . The U.S. Pos ta l Se rv ic e returne d t o re sp on de nta ni nt h l ev y th atres po n- 5 3 (co nt in ue d...)- 91 -

[* 91 ] Bern st ei n h adsh own inFFI’s Fo rm 43 3- B. Res po nd en t re co ve redno fun ds
as a res ul t o f th e ei gh t l ev ie s. On M arch 9, 2 01 0, the rev enue off ic er s earc he d re sp on de nt ’s dat ab as e fo r
an y in co m e th atha d b eenrep orte d a s h av in g b een pa idto FFI. The rev enue of fic er fo un d n o s uc h i nc om e rep orte d fo r an y y ear a fte r 20 07
. On M arch 10 , 20 10 , th e rev enue off ic er p rep ared , andon th e n ex t d ay hi s
m an ag er s ig ne d, Fo rm

53 , Rep ort o f Cu rren tl y

NotCo ll ect ib le Taxe s (F orm 53 ), with re sp ectto whatth atform de sc rib edas “ Cu r[re nt ly] NotCo ll ect ib le Ass es se d Bal an ce” t ot al in g $ 1,1 44 ,68 4.0 3 fo r FFI’s t ax ab le y ears 19 97 (as se ss m en t o f $7 7,5 49 .64 ), 20 01 (as se ss m en t o f $1 ,06 6,7 35 .70 ), an d 2 00 7 (a ss es sm en t o f $3 98 .69 ). Form

53 sh owe d t ha t ce rta in sea rch es an d s ou rces ha d b een ch eck edon Mar ch9, 2 01 0, i n o rd er t o d et erm in e whe th er FFI ha d a ny ass et s o r in co m e. On Ap ril 2, 2 01 0, the rev enue off ic er p rep areda m em or an du m kn own as a

“ Co ll ect ib il it y

Dete rm in at io n R ep ort” . (W e sh al l s om et im es refe r to th e IRS ’
co ll ect ib il it y

de te rm in at io n re po rt a s the CDR.) Inth e CDR, the rev enue off ic er di sc us se d t he ass es sm en ts to ta li ng $1 ,14 4,6 84 .03 th atth e IRS ha d m ad e ag ai ns t FFI fo r it s t ax ab le y ears 19 97 (as se ss m en t o f $7 7,5 49 .64 ), 20 01 (as se ss m en t o f (...co nt in ue d) 5 3 de ntha d s en t b ecau se th e ad dr es se e was no lo ng er atth e ad dr es s tha t re sp on de nt ha d u se d, an d re sp on de ntwas unabl e to fin d abe tt er ad dr es s.- 92 -

[* 92 ] $1 ,06 6,7 35 .70 ), an d 2 00 7 (a ss es sm en t o f $3 98 .69 ). In t he CDR, th e rev enue of fic er s ta te d i n p ert in en t p art : “ The ass es se d t ax li ab il it ie s o f FFI * * * have be en de em edto be curren tl y

no t co ll ect ib le * * *. Inad di ti on to th is fin di ng , FFI was al so de em edto be in so lv en t.” Th e rev enue off ic er i nd ic at edinth e CDR tha t o n Octo be r 26 , 20 09 , cert ai n s earc he s re la ti ng to whet he r FFI o wne d m ot orve hi cl es , ai rcra ft, wat ercr aft , or re al pro pe rty hadbe enpe rfo rm edon th e Accurin t d at ab as e, whi chha d i nf

orm at io n fr om

publ ic so ur ces . Tho se sea rch es di sc lo se d t ha t FF I
own edno ne of tho se it em s ex cep t the Elm woo d Av enue pro pe rty. H owe ve r, a
subs eque ntrev ie w by th e rev enue off ic er o f Accu rin t p ro pe rty ass es sm en t an d pr op erty de ed s re co rd s re ve al edth atth atpro pe rty hadbe enso ldon Aug us t 3 1, 20 01 . The CDR i nd ic at edth atcert ai n a dd it io na l s earc he s h adbe enm ad e to de te rm in e whe th er FFI own edan y ass et s o r ha d a ny inc om e, bu t tho se sea rch es di sc lo se d n o s uc h a ss et s o r in co m e. The re ve nu e o ffi cer c on cl ud edth e CDR wi th th e fo ll owi ng st at em en t: “ All reas on ab le effo rts an d a ll requi redact io ns ha ve be en ta ke n t o d et erm in e th atth e ta xe s ca nn otbe co ll ect edfro m FFI”. The rev enue off

ic er d idno t s earc h t he Sta te of I nd iana ’s W eb si te for
un cl ai m edpro pe rty or fu nd s b el on gi ng to FFI. The IRS d idno t at te m ptto co ll ect FFI’s u np ai d 2 00 1 t ax li ab il it y fro m an y of t he fol lo win g i nd iv idua ls who was a n- 93 -

[* 93 ] off ic er an d/ ordi rect orof F FI aft er the clo si ng of t he SPRA o n Dec em be r 20 , 20 01 : Mr . Bern st ei n, M s. Sh ap iro (orhe r es ta te ), Mr. Sh ap iro , or M s. Pa rra. The rev enue ag en t wh om res po nd en t as si gn edto co nduc t the tra ns fere e li ab il it y ex am in at io n wi thres pe ctto Mr. Fan kh au se r, Mr. Wein traut , andMs
. Fan kh au se r fo un d n o e vi de nc e th atFFI was act iv e inth e as se t re co ve ry bu si ne ss aft er Dece m

be r 20 , 20 01
. In20 10 , aft er the IRS h adun de rta ke n i ts co ll ect io n e ffo rts with re sp ectto FFI’s u np ai d 2 00 1 t ax li ab il it y an d c on cl ud edth atth atli ab il it y was c urren tl y

no t
co ll ect ib le , th e IRS reac ti va te d i ts tra ns fere e li ab il ity ex am in at io n wi th res pe ctto Mr. Fa nkhaus er, Mr . W ei ntrau t, an d M s. Fa nkhaus er. Itwas a t tha t t im e th atMr. Fan kh au se r fi rs t l earn edth atFFI’s t ax li ab il it y forit s t ax ab le y ear 2 00 1 h adno t be enpa idan d was in fo rm edby the IRS tha t i t was see ki ng to co ll ectth atunpa id li ab il it y fro m , in te r al ia , hi m

as atra ns fere e o f FFI. On J ul y 14 , 20 11 , du rin g aso -cal le d fa sttra ckApp eal s Off ic e co nf eren ce, Mr. Fa nkhaus er advi se d t he App eal s Off ic e rep res en ta ti ve at t ha t co nf eren ce tha t Ms . Fan kh au se r ha d re cen tl y di sc ov eredth atth e St at e o f In di an a was ho ld in g i n
ex ces s o f $4 0,0 00 of u nc la im edfun ds inth e n am e o f FFI. Th os e unc la im edfun ds
co ns is te d o f th e Pru de nt ia l d em utua li zat io n fu nd s o f $4 3,9 26 .57 th atFFI h ad
ne ve r cl ai m ed . There aft er, res po nd en t l ev ie d o n t ho se fun ds
.- 94 -

[* 94 ] On Dec em

be r 8, 2 01 1, re sp on de ntti m el y is su edres pe ct iv e n ot ic es of li ab il it y to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r with re sp ectto FFI’s t ot al li ab il it y

forit s t ax ab le y ear 2 00 1 o f $6 94 ,51 9.4 3 (F FI’s 2 00 1 t ax li ab il it y ). FFI’s t ot al li ab il it y co ns is te d o f a d efi ci en cy intax of $ 60 9,0 37 .43 an d
anaccu racy-rela te d p en al ty und er s ect io n 6 66 2 t ot al in g $ 85 ,48 2, as well as i nte res t the reo n a s p ro vi de d b y law. Res po nd en t d en ie d i n t he res pe ct iv e an swe rs inth es e cas es th at“ th e rem ai nin g u np ai d t ax de fic ie nc y of F FI tha t i s s etforth inth e Not ic e o f Liab il it y as t he
am ou ntof $ 60 9,0 37 .43 ” is co rrec t. Inth e an swe rs , res po nd en t al le ge d t ha t tha t

“ rem ai ni ng unpa idtax de fic ie nc y * * * i s ac tu al ly $57 8,3 38 .43 , pl us I.R.C. § 66 62 pe na lty inth e am ou ntof $ 85 ,48 2.0 0, p lu s ap pl ic ab le in te res t.” Re sp on de nt ’s
co nc es si on inth e res pe ct iv e an swe rs inth es e cas es refl ect s t ha t re sp on de nt
co ll ect edfro m

th e St at e o f In di an a th e Pru de nt ia l d em utua li zat io n fu nd s o f $4 3,9 26 .57 to whi ch FFI h adbe enen ti tl ed . In o rd er t o a rri ve at wh atres po nd en t al le ge s i n t he an swe rs is “ th e rem ai ni ng unpa idtax de fic ie nc y of F FI”, re sp on de nt reduc edth e d efi ci en cy

intax of $ 62 2,2 65 fortax ab le y ear 2 00 1 t o wh ic h M r. Bern st ei n h adco ns en te d o n b eh al f of FFI i n F orm

45 49 by the Pru de nt ia l d emutu al iz at io n fu nd s o f $4 3,9 26 .57 to whi ch FFI h adbe enen ti tl ed . (W e sh al l re fer t o FFI’s re vi se d u np ai d 2 00 1 d efi ci en cy intax of $ 57 8,3 88 .43 an d F FI’s u np ai d 2 00 1- 95 -

[* 95 ] accu racy-rela te d p en al ty of $8 5,4 82 as F FI’s u np ai d 2 00 1 d efi ci en cy li ab il it y an d F FI’s unp ai d 2 00 1 p en al ty liab il it y , res pe ct iv el y .) On M arch 14 , 20 13 , th e o ffi ce o f th e In di an a se cret ary of st at e ad m in
is tra ti ve ly dis so lv edFFIA. On Ap ril 12 , 20 13 , th atoff ic e ad m in is tra ti ve ly di ss ol ve d F FI. OPINION Pet it io ne rs ’ Mo ti on inLim in e Pet it io ne rs fil eda m ot io n i n l im in e (p et it io ne rs ’ m ot io n) to ex cl ud e th e pu rp orte d e xp ertrep ort an d t he pu rp orte d e xp erttes ti m on y setforth inth e rep ort (p ur po rte d e xp ertrep ort) o f Sco ttHaka la(Mr. Hak al a). Afte r vo ir d ire , we fou nd Mr. Hak al a qua li fie d a s an ex pe rt i n fi nanc ia l ec on om ic s an d fi na nc ia l an al y si s. W e to okpe ti ti on ers ’ m ot io n u nd er ad vi se m en t an d a dm it te d c on di ti on al ly in to th e rec or d M r. Hak al a’s pu rp orte d e xp ertrep ort an d h is othe r te st im on y at tri al pe nd in g o urrul in g o n p et it io ne rs ’ m ot io n. In th e p ur po rte d e xp ertrep ort, Mr
. Hak al a st at edinpe rti ne ntpa rt:

The pu rp os e o f th is rep ort i s t o a ss is t the co urt i n a ss es si ng whe th er the pu rp orte d s to cksal e b y th e Sh areh ol de rs of F FI [M r. W ei nt rau t, Mr . Fan kh au se r, an d M s. Fa nkhaus er] to FFI Acqui si ti on , LLC, is insubs ta nc e a d is tri bu ti onof c as h b y FFI t o i ts Sh areh ol de rs . My rep ort i s b ei ng pre pa redinth is reg ardforus e as m y di recttes ti
m on y inUS Tax C ou rt. No ot he r us e is im pl ie d o r in te nd ed
.- 96 -

[* 96 ] I ha ve be enreque st edby y ou[res po nd en t], as p artof o ur as si gn m en t, t o a dd res s fo urqu es ti on s. * * * * * * * 1) Didth e sh areh ol de rs /o ffi cers us e ap pr op ria te du e d il ige nc e in in ve st ig at in g t he po te nt ia l p ur ch as er p rio r to en te rin g i nt o the tra ns act io n? No. Giv enth e st ru ctur e o f th e Sal e Purch as e an d R ed em pt io n Agr eem en t, i t was hi gh ly lik el y (if no t o bv io us ) th atth e cas h p ai d t o th e se ll in g S hareh ol de rs of F FI atclo si ng wou ldco m e fro m th e cas h in th e Co m

pa ny andth e rem ai nd er o f th e co ns id erat io n wo ul d b e p ai d in th e fo rm

of r ecei ptof a n a ss ig nm en t o f th e p rep ai d fe de ral in co m e ta xe s o f FFI i n 2 00 1. Th is is co nf irmed in th e cl os in g d oc um en ts , pa rti cu la rly in Ex hi bi t B: FFI Acqui si ti on , L.L. C./f fi C or po rat io n- - Cas h R eco nc il ia ti on& Dis bu rs em en t Sc he du le of Es cro w Fun ds by Leag re Ch an dl er & M il la rdL.L.P. * * * It i s cu st om ary fo r a s el le r to pre fo rm du e d il ig en ce t o a sc ert ai n th e so ur ce an d u se s o f fu nd s o f th e p ur ch as er p rio r to a sa le of m at eria l as se ts or t he co m

pany, det erm in e th e p ur ch as er’s rep ut at io n a nd fin an ci al res ou rces , andto ob ta in cert ai n a ss ur an ces an d g ua ran te es fro m th e p ur ch as er tha t the sel le r wil l n otface po te nt ia l fu tu re co nt in
ge ntli ab il it ie s i n c on ne ct io n wi th th e sa le . This is do ne bo th to : (i) en su re tha t the purch as er h as th e fi na nc ia l capabi li ti es an d re pu ta ti onto clo se th e tr an sa ct io n a ndho no r an y ou ts ta nd in g g ua ran te es ; an d (i i) t o e ns ur e th e so lv en cy of t he Co m

pa ny for s uf

fic ie ntti m e to av oi d aris k t o t he sel le r of pa ym en ts an d a ss et s re cei ve d b y th e se ll er be in g re ga rd edas p refe ren ti al pa ym en ts inth e ev en t o f a fi nd in g o f in so lv en cy

at o r ne ar the da te of the trans act io n. Th is is esp eci al ly im po rta ntinpo te nt ia l “ as se t-s tri pp in g” acqui si ti on s, s uc h a s t hi s ca se , whe re i t i s l ik el y

or p os si bl e th atth e b uyer wil l u se or d is tri bu te so m e of th e ex is ti ng ass et s o f th e co m pa ny acqu ire d a nd , th us , po te nt ia ll y ren de r th e co m

pa ny ins ol ve ntat t he ti m e o f th e acqui si ti on . A sel le r- 97 -

[* 97 ] wou ldwantto be ass ur edth atsu ffi ci en t re so ur ces wou ldbe ret ai ne d withi n F FI o r se t as id e th [r]ou gh gu aran te es or p le dg es of c ol la te ral to pa y an y futur e p ot en ti al no ti ce o f de fic ie nc y am ou nt s o r ta xe s i n d is
pu te th atm ig htari se as ares ul t o f fed eral or s ta te tax au di ts . Abs en t su ch ass ur an ces , th ere wo ul d b e a ri skth atth e p aym en ts to th e se ll in g Sh areh ol de rs of F FI wo ul d b e reg ard edas p refe ren ce p aym en ts inth e ev en t o f a d et erm in at io n o f co rp or at e in so lv en cy . If FFI were fou nd to ha ve be enin so lv en t o r ren de redin so lv en t, the sel le r co ul d b e requ ire d t o re tu rnto th e co rp or at e es ta te a po rti onof o r al l o f th e cas h an d a ss et s re cei ve d a s p artof t he tra ns act io n i n o rd er t o s at is fy th e cl ai m s o f cred it or s wi th gre at er p rio rit y . I fo un d n o e vi de nc e o f du e d il ig en ce b y th e Sh areh ol de rs an d of fic ers of F FI wit h re sp ectto Mi dC oa stCred itor t he pri nc ip al s an d affi li at es of M id Co as t Cr ed itinan y of t he m at eri al s p ro du cedto da te . By co nt ras t, s om e ev id en ce o f su ch du e d il ig en ce was ob se rv edin m at eri al s p ro du cedby Ice Mi ll er, LLP an d i n c ert ai n o th er m at eri al s with re sp ectto th e sa le of c ert ai n a ss et s an d b us in es s o pe rat io ns by FFI t o Th e GSI Gro up , Inc . effec ti ve Jan ua ry 2, 2 00 1. Fu rth erm or e, in th ei r rec or de d i nt erv ie ws o n Au gu st7, 2 00 7, i t was cle ar tha t n o effo rt wa s m ad e b y

th e Sh areh ol de rs of F FI t o p erfo rm an y su ch du e di li ge nc e o n t he pu rch as er o f FFI. I s im il arl y fou ndno ev id en ce o f si gn ifi can t due di li ge nc e in th e m at eri al s p ro du cedby cou ns el (Ice Mi ll er, LLP) fo r th e Sh areh ol de rs an d o ffi cers of F FI an d F FI rel at in g to th is tra ns act io n. Th e cl os in g p res en te d e vi de nc e * * * th atth e cas h po rti on of t he pu rch as e p ric e o f $5 30 ,76 6.1 5 was pa idfro m th e cas h ba la nc es of F FI. Add it io na ll y , no id en ti fie d p la n o r tr an sa ct io n was av ai labl e to de m on st rat e th e ab il it y of F FI t o a vo idfed eral an d s ta te in co m e ta xe s as of De cem be r 20 , 20 01 . Thu s, the us e o f cas h wi th in FFI t o p ay

th e Sh areh ol de rs of F FI rai se d anu m be r of is su es reg ard
in g t he on go in g c red it -wo rth in es s an d s ol ve nc y of F FI i n t he futur e. The se is su es wou ldord in ari ly be affi rm at iv el y ad dr es se d i n t hi s t y

pe of tra ns act io n.- 98 -

[* 98 ] 2) W as itco m

m erci al ly reaso nabl e fo r th e Sh areh ol de rs of FFI t o b el ie ve th at , aft er the co m pa ny hadsi gn ifi can t cap it al ga in s fr om

th e li qu id at io n o f it s as se ts , th e in
co m e ta x l iabi li ty on t ha t g ai n c ou ldbe av oi de d b y th e sa le of t he co m

pa ny sto ckto an othe r pe rs on or e nt it y ? No. I as su m e in th is op in io n c ert ai n und ers ta nd in gs as t o t he li m it ed ab il it y of aco rp or at io n wi th tax ab le in co m e an d c ap it al ga in s t o o ffs et pr io r ta xabl e in co m e an d c ap it al ga in s wi th subs eque ntlo ss es an d, th us , to reco ve r pr io r pr ep ai d a ndpa idtax es . Thatun de rs ta nd in g i s ob ta in edby resea rchan d p rio r ex pe rie nc e with t he se is su e inth e rel ev an t t im e p eri od . I off er n o o pi ni on s as anex pe rt o n the se is su es * * * * * * * 3) W as th e st oc k s al e co m m erci al ly reaso nabl e--d iditha ve a le gi ti m at e b us in es s p ur

po se ? No. I as su m e in th is op in io n c ert ai n und ers ta nd in gs with re sp ectto th e li m it edab il it y

of aco rp or at io n t o o ffs etpri orcap it al ga in s wi th subs eque ntlo ss es an d re co ve r pr io r pr ep ai d a ndpa idtax es as s et fo rth inm y an swe r to qu es ti on2. I o fferno op in io ns as a n e xp erton th es e is su es . * * * * * * * 4) Didth e te rm s o f th e Sh are P ur ch as e an d R ed em pt io n Agr eem en t re su ltinth e co rp or at io n’s [F FI’s] inso lv en cy ? Yes
. A po st -cl os in g e st im at edba la nc e sh eetforFFI i s s umm ari zed in Exh ib itB-3 . The cl os in g d oc um en ts sh ow a n etcas h b al an ce fo r FFI o f $3 45 ,08 9.3 4. With th e as si gn m en t o f th e p rep ai d fe de ral- 99 -

[* 99 ] co rp or at e in co m e ta xe s t o t he pri orSh areh ol de rs of F FI, th e o nl y ot he r as se t o f FFI was $1 57 ,70 0 i n p rep ai d s ta te co rp or at e in co m e ta xe s. As of De cem

be r 20 an d 2 1, 2 00 1, FF I’s es ti m at edto ta l fe de ral co rp or at e in co m e ta xe s fo r fi sc al 20 01 were $ 79 4,9 49 .13 , andFFI’s es ti m at edst at e co rp or at e in co m e ta xe s fo r fi sc al 20 01 were $2 31 ,15 1.5 6. Th atrep res en ts a to ta l es ti m at edli ab il ity of app ro xi
m at el y $1 ,02 6,0 00 forFFI’s co rp or at e in co m e ta xe s i n 2 00 1. Netof cas h a ndpri orst at e in co m e ta x d ep os it s, the sh areh ol de rs ’ equi ty of FFI was ap pr ox im at el y

ne ga ti ve $5 23 ,00 0 a s o f Decem be r 21 , 20 01
. Thu s, FF I fai ls th e b al an ce s he ettes t fo r so lv en cy . Add it io na ll y , with no cred ib le ev id en ce o f su cces sf ul op erat io ns an d abi li ty to av oi d m os t o f th e fed eral an d s ta te co rp or at e in co m e ta xe s b y leg it im at e an d un di sp ut edm ean s, the bu si ne ss fai ls th e cas h fl ow t es t an d c ap it al ad equa cy tes ts . Insupp ort o f pe ti ti on ers ’ m ot io n, p et it io ne rs arg ue th atth e p ur po rte d e xp ert rep ort o f Mr. Hak al a “ (1 ) co ns is ts of l eg al co nc lu si on s, (2 ) co nt ai ns advo cacy, and (3 ) is un rel iabl e.” Ru le 70 2 o f th e Fed eral Ru le s o f Evi de nc e, whi ch go ve rn s t he adm is si bi li ty of ex pe rt t es ti m on y , pro vi de s: A witne ss who is qu al ifi edas a n e xp ertby kno wled ge , sk il l, ex pe rien ce, trai ni ng , or e du cat io n m ay tes ti fy inth e fo rm

of a n o pi ni on or ot he rwis e if

: (a) t he expe rt’s s ci en ti fic , tec hn ic al , or o th er s pe ci al iz edkn owl ed ge wil l h el p t he tri er o f fac t t o u nd ers ta ndth e ev id en ce o r to de te rm in e a fac t i n is su e; (b ) th e te st im on y

is ba se d o n s uf

fic ie ntfact s o r da ta ;- 10 0 -

[* 10 0] (c) t he tes ti m on y is th e p ro du ctof r el iabl e p rin ci pl es an d m etho ds ; an d (d ) th e ex pe rt h as rel iabl y ap pl ie d t he pri nc ip le s an d m etho ds to th e fac ts of t he cas e. Test im on y

of apro ffer edex pe rt t ha t ex pr es se s a l eg al co nc lu si on do es no t
as si stth e tr ie r of

factan d i s n otadm is si bl e. Alum ax , Inc . v. Co m m is si on er, 1 09 T.C. 13 3, 1 71 (19 97 ), aff’d, 1 65 F.3d82 2 (1 1t h C ir. 1 99 9) ; Ho sp . Cor p. o f Am . v. Co m m is si on er, 1 09 T.C. 21 , 59 (19 97 ). An ex pe rt wh o i s m erel y anadvo cat e o f a pa rty’ s p os it io n d oe s n otass is t the tri er o f fac t i n u nd ers ta nd in g t he ev id en ce o r in de te rm in in g afactinis su e. Suno co , Inc . & Subs . v. Co m m is si on er, 1 18 T.C. 18 1, 18 3 (2 00 2) ; Sn ap -Drap e, In c. v. Co m m is si on er, 1 05 T.C. 16 , 20 (19 95 ), aff’d, 9 8 F.3 d 1 94 (5t h C ir. 1 99 6) . The d et erm in at io n o f whe th er p ro ffer edex pe rt te st im on y is he lp fu l t o t he tri er o f fac t i s a m at te r wit hi n o urso un d d is cret io n. Se e Laureys v. Co m

m is si on er, 9 2 T.C. 1 01 , 12 7 (1 98 9)
. Insupp ort o f th ei r fi rs t ar gu m en t tha t the pu rp orte d e xp ertrep ort o f Mr. Hak al a “ co ns is ts of l eg al co nc lu si on s,” p et it io ne rs co nt en d t ha t M r. Hak al a’s
res pe ct iv e an swe rs (qu ot edab ov e) t o t he fou r qu es ti on s i n the pu rp orte d e xp ert rep ort tha t re sp on de ntask edhi m to ad dr es s ar e co nc lu si on s t ha t “ are a ll th e pr oduc t o f le ga l an al y si s.” In de te rm in in g wh ethe r we ag ree wi th th atco nt en ti on- 10 1 -

[* 10 1] of p et it io ne rs , we con si de r Mr. Hak al a’s res pe ct iv e an swe rs to th os e fo ur qu es ti on s. W e tu rnto Mr. Hak al a’s an swe r (quo te d abo ve ) to th e fi rs t que st io n i n t he pu rp orte d e xp ertrep ort. The qu es ti on of wh ethe r th e due di li ge nc e eff orts of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r an d t he ir a tt orne y s wi th res pe ct to th e SPR

trans act io ns were ad equa te is a qu es ti on of f actth atwe sh al l co ns id er in de te rm in in g wh atMr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew or sh ou ldha ve kn own with re sp ectto th os e tr an sa ct io ns . W e d o n otbe li ev e th atMr. Hak al a’s vi ew reg ard in g t he ad equa cy of t ho se du e d il ig en ce ef fo rts or h is co m pa ris onof t ho se effo rts with wh atis “ cu st om ary fo r a s el le r” i n s im il ar tran sa cti on s i s the res ul t o r “ th e p ro du ctof l eg al an al y si s.” We rejectpe ti ti on ers ’ arg um en t tha t M r. Hak al a’s an swe r to th e fi rs t que st io n “ co ns is ts of l eg al co nc lu si on s”
an d i s t he “pr oduc t o f le ga l an al y si s.” 5 4 W e tu rnne xtto Mr. Hak al a’s res pe ct iv e an swe rs (qu ot edab ov e) t o t he
se co ndqu es ti on an d the th irdqu es ti on inth e p ur po rte d e xp ertrep ort. Mr
. Hak al a’s an swe r to th e se co ndqu es ti on reg ard in g wh ethe r itwas “ co m m erci al ly

W e h av e co ns id ered , andals o re ject, ea ch of p et it io ne rs ’ two rem ai ni ng 5 4 arg um en ts th atMr. Hak al a’s an swe r to th e fi rs t que st io n i n the pu rp orte d e xp ert rep ort s ho ul d b e ex cl ud edfro m th e rec or d b ecau se th os e an swe rs rep res en t “ advo cacy” andare “ un rel iabl e”.- 10 2 -

[* 10 2] reas on ab le ” fo r Mr. Fa nkhaus er, Mr . W ei ntrau t, an d M s. Fa nkhaus er t o be li ev e th atMi dC oa stwou ldbe ab le to de fer FF I’s 20 01 an ti ci pa te d t ax li ab il it y
an d h is an swe r to th e th irdqu es ti on reg ard in g wh ethe r th ere was a “ le gi ti m at e bu si ne ss pu rp os e” fo r th e p ur po rte d s al e o f th ei r st oc k i n t he SPR tran sa ct io ns bo th de pe nd edon“ cert ai n und ers ta nd in gs ” th athe ha d. Mr . Haka lade sc rib ed th os e und ers ta nd in gs inth e p ur po rte d e xp ertrep ort as “un de rs ta nd in gs as t o t he li mit edab il it y

of aco rp or at io n wi th tax ab le in co m e an d c ap it al ga in s t o o ffs et pr io r ta xabl e in co m e an d c ap it al ga in s wi th subs eque ntlo ss es an d, thu s, re co ve r pr io r pr ep ai d a ndpa idtax es ”. Acco rd in g t o M r. Hak al a, “ [t]ha t u nd ers ta nd in g i s ob ta in edby resea rchan d p rio r ex pe rie nc e with t he se is su es inth e rel ev an t t im e pe rio d. I o fferno op in io ns as a n e xp erton th es e is su es .” W e ag ree wi th pe ti ti on ers th atMr. Hak al a’s res pe ct iv e an swe rs to th e se co ndqu es ti on an d t he th irdqu es ti onsh ou ldbe ex cl ud edbe cau se th os e an swe rs de pe nd edonleg al co nc lu si on s t ha t in tu rnde pe nd edon leg al an al y si s. 5 5 W e co ns id er fi na ll y

Mr. Hak al a’s an swe r (quo te d abo ve ) to th e fo urth qu es ti oninth e p ur

po rte d e xp ertrep ort. The qu es ti on of wh ethe r th e te rm s o f th e
Si nc e we ag ree wi th pe ti ti on ers ’ fir starg um en t as to why we sh ou ld 5 5 ex cl ud e fro m

th e rec or d M r. Hak al a’s res pe ct iv e an swe rs to th e se co ndqu es ti on an d t he th irdqu es ti on inth e p ur po rte d e xp ertrep ort, we d idno t co ns id er the ir rem ai ni ng two arg um en ts as t o wh y th os e res pe ct iv e an swe rs sh ou ldbe ex cl ud ed
.- 10 3 -

[* 10 3] SPRA re su lt edinFFI’s i ns ol ve nc y requi redMr. Hak al a to co m pa re FFI ’s
as se ts an d l iabi li ti es aft er the clo si ng of the SPR tran sa ct io ns with i ts ass et s an d li ab il it ie s b efo re the clo si ng of t ho se tra ns act io ns . In m ak in g t ha t co m pa ris on , Mr. Hak al a tr eat edth e rep aym en t o f th e Sh ap rio fun ds an d t he pa ym en t o f th e p ur ch as e p ric e to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r as oc cu rri ng si m ul ta ne ou sl y . Mr. Hak al a’s tr eat m en t o f th os e ev en ts as o ccu rri ng si m ul ta ne ou sl y di d n otass um e, as pe ti ti on ers arg ue , “ th atth e [SPR ] tra ns act io n wi ll be
co ll ap se d, wh ic h i s a l eg al co nc lu si on .” Bo th th e SPRA andth e SPRA esc ro w ag reem en t re qu ire d t ha t the rep aym en t o f th e Sh ap rio fun ds an d t he pay m en t o f th e pu rch as e p ric e to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r oc cu r si m ul ta ne ou sl y , andth ey

di d. We reject p et it io ne rs ’ arg um en t tha t M r. Hak al a’s
an swe r to th e fo urth qu es ti on “ co ns is ts of l eg al co nc lu si on s” an d i s t he “pr oduc t o f le ga l an al y si s.” 5 6 W e sh al l g ran t p et it io ne rs ’ m ot io n i n t ha t M r. Hak al a’s res pe ct iv e an swe rs to th e se co ndqu es ti on an d t he th irdqu es ti on an d a ny m at eri al s i n t he pu rp orte d
ex pe rt r ep ort o f Mr. Hak al a o r an y tes ti m on y

of M r. Hak al a atth e tr ia l i n t he se

W e h av e co ns id ered , andals o re ject, ea ch of p et it io ne rs ’ two rem ai ni ng 5 6 arg um en ts th atMr. Hak al a’s an swe r to th e fo urth qu es ti on inth e p ur po rte d e xp ert rep ort s ho ul d b e ex cl ud edfro m th e rec or d b ecau se th atan swe r rep res en ts “ advo cacy” andis “un rel iabl e”.- 10 4 -

[* 10 4] cas es rel at in g t o t ho se an swe rs are d eem edst ric ke n fr om th e rec or d. We sh al l d en y

pe ti ti on ers ’ m ot io n i n t ha t M r. Hak al a’s res pe ct iv e an swe rs to th e fi rs t qu es ti on an d t he fou rth qu es ti on an d a ny m at eri al s i n t he pu rp orte d e xp ertrep ort of Mr. Hak al a o r an y

tes ti m on y

of M r. Hak al a atth e tr ia l i n t he se cas es rel at in g t o th os e an swe rs are u nc on di ti on al ly adm it te d i nt o t he reco rd
. 5 7 Eva lu at io n o f W it ne ss es At tria l, p et it io ne rs an d re sp on de ntcal le d a s wi tn es se s M r. W ei ntrau t, Mr
. Fan kh au se r, Mr. Th rap p, an d M r. Hup fer. Re sp on de ntcal le d t wo ad di ti on al wit
ne ss es , Mr. Hak al a, who se pu rp orte d e xp ertrep ort an d p ur po rte d e xp erttes ti m on y we ad dr es se d abo ve , andRic ha rdW ol f (Mr . W ol f), th e rev enue ag en t wh o c on du ct edth e ex am in at io n o f FFI’s t ax ab le y ears 20 01 , 20 02 , and20 03 an d wh o
co nduc te d t he trans fere e li ab il ity ex am in at io n wi th res pe ctto each of M r. Fan khaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er. W e fo un d t he res pe ct iv e te st im on ie s of Mr. Wein traut , Mr. Fan kh au se r, an d M r. Thrapp to be incert ai n m at eri al resp ect s co nt rary to co m

m on sen se an d/ orin cred ib le . W e sh al l n otrel y onan y su ch po rti on s o f th ei r res pe ct iv e te st im on ie s. See , e.g., To ka rs ki v. Co m m is si on er,
Altho ug h we h av e ru le d o n p et it io ne rs ’ m ot io n, we n ot e th at , inreac hi ng 5 7 ou r fi nd in gs an d h ol di ng s h erei n, we d idno t re ly on any po rti on of t he pu rp orte d ex pe rt r ep ort an d t es ti m on y of M r. Hak al a th atwe un co nd it io na ll y adm it te d i nt o th e rec or d.- 10 5 -

[* 10 5] 87 T.C. 74 , 77 (19 86 ). Gene ral ly, we fo un d t he res pe ct iv e te st im on ie s o f Mr. Hupf er an d M r. W ol f to be cred ib le bu t n otm at eri al to ou r res ol ut io n o f th e is su es pre se nt ed
. Tran sf eree Liab il it y Sect io n 6 90 1 Res po nd en t b ears th e b ur de n o f es tabl is hi ng th ateach of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r is li ab le un de r se ct io n 6 90 1 a s a t ran sf eree of pr op erty of F FI fo r FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y an d F FI’s u np ai d 2 00 1 pe na lty li ab il it y (to th e ex te ntof the ne t as se t v al ue of the ass et s (i .e., fai r m ark et
va lu e d eri ve d b y

reduc in g v al ue of a ss et s o f FFI b y it s l iabi li ti es ) th ateach recei ve d fr om

FFI), as well as i nt eres t the reo n a s p ro vi de d b y law. See s ec. 5 8 69 02 (a); see als o R

ul e 1 42 (d ).

Pet it io ne rs be ar the burd enof e st ab li sh in g t ha t re sp on de nterre d i n c on 5 8 cl ud in g t ha t FF I is li ab le forth e Fed eral in co m e ta x andth e acc ur acy-rela te d pe na lty un de r se c. 66 62 forit s t ax ab le y ear 2 00 1, t o wh ic h F FI co ns en te d i n F orm 45 49 . See Ru le 14 2( a), (d ). Altho ug h p et it io ne rs cla im edinth ei r res pe ct iv e pe ti ti on s t ha t tho se co nc lu si on s ar e err on eo us , th ey st ip ul at edinth e st ip ul at io n o f fact s tha t the y

do no t t ak e a p os it io n wi th res pe ctto th em , andth ey do no t d is pu te th em on bri ef. W e co nc lu de th atpe ti ti on ers ha ve ab an do ne d t he all eg at io ns in th ei r res pe ct iv e p et it io ns th atres po nd en t erredinco nc lu di ng th atFFI i s l iabl e fo r th e Fed eral in co m e ta x a ndth e acc ur acy-rela te d p en al ty und er s ec. 6 66 2 fo r it s ta xabl e y ear 2 00 1, t o wh ic h F FI co ns en te d i n F orm 45 49
.- 10 6 -

[* 10 6] Sect io n 6 90 1 p ro vi de s i n p ert in en t p art : SEC. 6 90 1. TRANSFERR ED ASSETS. (a) M etho d o f Co ll ect io n.-- The am ou nt s o f th e fo ll owi ng li ab il it ie s s ha ll , exc ep t as he rei na fte r in th is sec ti on pro vi de d, b e as se ss ed , pai d, an d c ol le ct edinth e sa m e m an ne r an d s ub ject t o t he sa m e p ro vi si on s an d l im it at io ns as i n the cas e o f th e ta xe s wi th res pe ctto whi chth e li ab il it ie s wer e in cu rred :

(1 ) In co m e, es ta te , andgi ft t ax es .-- (A) Tran sf

eree s.-- The li ab il it y , at l aw orinequi ty, of a tr an sf eree of p ro pe rty-- (i) of atax pa y er i n the cas e o f a t ax im po se d by sub ti tl e A (rel at in g t o i nc om e ta xe s) , * * * * * * * (h ) Defi ni ti on of Tra ns fere e.--As us edinth is sec ti on , th e te rm “ trans fere e” i nc lu de s d on ee, h ei r, le ga te e, de vi se e, an d d is tri bu te e * * *. The Supr em e Co urt o f th e Uni te d S ta te s h el d i n C omm is si on er v . Ste rn , 35 7 U.S. 39 , 42 (19 58 ), th atsec ti on69 01 do es no t cr eat e o r de fin e a s ub st an ti ve li ab il it y ; tha t s ect io n m erel y pro vi de s a p ro cedur e b y

whi ch th e Gov ern m en t m ay
co ll ectfro m

a tr an sf eree of p ro pe rty unpa idtax es owedby the trans fero r of th e pr op erty . The ex is te nc e an d t he ex te ntof atrans fere e’s li ab il it y are d et erm in ed
un de r ap pl ic ab le Sta te law. See id . at 4 2- 45 ; Hag am anv. Co m m is si on er, 1 00 T.C. 18 0, 1 83 -1 85 (19 93 ).- 10 7 -

[* 10 7] Fel dm anv. Co m

m is si on er Befo re co ns id eri ng th e tr an sf eree li ab il it y

is su es th atare p res en te d h ere, we sh al l s umm ari ze Fe ld m anv. Co m m is si on er, 7 79 F.3d44 8, 4 57 , 45 9 (7 th Cir
. 20 15 ), aff’g T.C. Me m o. 2 01 1- 29 7, 2 01 1 WL 67 81 00 6, an op in io n o f th e U.S. Co urt o f App eal s fo r th e Sev en th Cir cu it(Co urt o f App eal s) , th e co urt i n wh ic h ap pe al inth es e cas es wou ldno rm al ly lie. In Fe ld m an , th e Co urt o f App eal s 5 9 6 0 he ldth atth e ta xp ay ers in vo lv edth ere wer e li ab le un de r se ct io n 6 90 1 fo r a certa in Fed eral in co m e ta x l iabi li ty of a C co rp or at io n, Woo ds id e Ran ch Res ort, In c. (Wood si de ). In r each in g tha t h ol di ng , th e Co urt o f App eal s fi rs t h el d t ha t fo r pu rp os es of s ect io n 6 90 1 t he tax pa y ers in vo lv edth ere wer e tr an sf eree s o f pr op erty of W oo ds id e, th e st oc k o f whi ch th ey ha d o wne d b efo re the y

en ga ge d i n apurpo rte d s al e o f th atst oc k t o o ne of t he co m pa ni es own edor c on tro ll edby Mid Co as t Acqui si ti on Co rp . and/o r Mi dC oa stCred itCo rp . See Fe ld m anv. Co m m is si on er, 6 1
Bec au se th e Co urt o f App eal s i ss ue d F el dm anaft er the pa rti es ha d fi le d 5 9 th ei r res pe ct iv e b rie fs inth e in st an t ca se s, we al lo wedth em to fil e supp le m en ta l br ie fs inord er t o a dd res s t ha t o pi ni on . Unl es s o th erwi se in di cat ed , ou r refe ren ces to Fel dm anare t o the Co urt o f 6 0 App eal s o pi ni oninFel dm anv. Co m m is si on er, 7 79 F.3d44 8 (7 th Cir . 20 15 ), aff’g T.C. Mem o. 2 01 1- 29 7, 2 01 1 WL 67 81 00 6. Cert ai n c ou rts , in cl ud in g t hi s C ou rt, t ha t h av e co ns id eredtra ns fere e li a- 6 1 bi li ty und er s ec. 6 90 1 h av e fi rs t ad dr es se d wh ethe r th e ta xp ay er was li ab le un de r (co nt in ue d...)- 10 8 -

[* 10 8] 77 9 F .3dat 4 57 . The Co urt o f App eal s n ex t turne d t o t he ap pl ic ab le law o f th e St at e o f W is co ns in an d h el d (1 ) th atforpu rp os es of t ha t ap pl ic ab le Sta te law 6 2 th os e ta xp ay ers were tran sf eree s o f pr op erty

of Woo ds id e, se e id . at 4 59 , and(2) th atth os e ta xp ay ers were l iabl e und er tha t ap pl ic ab le law fo r W oo ds id e’s unpa id Fed eral in co m e ta x l iabi li ty in que st io n, s ee i d. at45 7- 46 1. Inreac hi ng it s fi rs t h ol di ng th atth e ta xp ay ers inFel dm anwere tran sf eree s of pro pe rty of Wood si de forpu rp os es of s ect io n 6 90 1, the Co urt o f App eal s co ncl ud edth atun de r th e wel l-e st ab li sh edFed eral tax law d oc tri ne s kno wn as th e
subs ta nc e o ve r fo rm

do ctrin e (Fe de ral subs ta nc e o ve r fo rm do ctrin e) an d t he eco no m ic subs ta nc e d oc tri ne (Fed eral eco no m ic subs ta nc e d oc tri ne ) th e p ur po rte d
sa le by tho se tax pa y ers to Mi dC oa stof t he ir s to ckinW oo ds id e sh ou ldbe reca stor

(...co nt in ue d) 6 1 ap pl ic ab le Sta te law fo r certa in unpa idtax es . See, e.g ., Starne s v . Comm is si on er, 68 0 F .3d41 7 (4 thCir . 20 12 ), aff’g T.C. Me m o. 2 01 1- 63 . In tha t ca se , th e co urt he ldth atth e ta xp ay ers were n otli ab le un de r ap pl ic ab le Sta te law. As a res ul t, i t was irr el ev an t wh ethe r th e ta xp ay ers were tran sf eree s fo r pu rp os es of s ec. 6 90 1. The ap pl ic ab le law o f th e St at e o f W is co ns in inFel dm anv. Co m m is si on er, 6 2 77 9 F .3dat 4 57 , reg ard in g t ran sf eree li ab il it y

was t he Uni fo rm

Frau du le ntTran sfer Act(UFTA) in effe ctinW is co ns in (W is co ns in UFTA). See Wis. St at . Ann
. se cs . 24 2.0 1 t o 2 42 .13 (W es t 2 01 5) . Accor di ng to th e Co urt o f App eal s, the W is co ns in UFTA is by its term s ex pr es sl y supp le m en te d b y

“pr in ci pl es of l aw an d equi ty”. See Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 59 (qu ot in g Wis . Sta t. An n. se c. 24 2.1 0)
.- 10 9 -

[* 10 9] rech arac te riz edas ali qu id at io n i n wh ic h t ho se tax pa y ers rece iv edcas h fro m W oo ds id e. See i d. at45 4- 45 7. Inreac hi ng it s s eco ndho ld in g t ha t the tax pa y ers inFel dm anwere tran sfere es of p ro pe rty of Wood si de forpu rp os es of t he ap pl ic ab le law o f th e St at e o f W is co ns in , th e Co urt o f App eal s fi rs t re jecte d a n a rg um en t tha t the Co m m is si on er of Int ern al Rev enue (Co m

m is si on er) h adadva nc edreg ard in g t he rol e o f Fed eral la w inde te rm in in g t ran sf eree st atus un de r ap pl ic ab le Sta te law. Th e Co m m is
si on er ar gu edinFel dm an , as re sp on de ntin it ia ll y arg ue d h ere, tha t i f th e Co urt o f App eal s wer e to rech arac te riz e th e tr an sa ct io n i n que st io n i n F el dm aninord er t o
as cert ai n t ran sf

eree st atus for

pu rp os es of s ect io n 6 90 1, s ub st an ti ve li ab il ity un de r St at e la w sh ou ldbe de te rm in edby app lying th atSta te law t o t he tra ns act io n a s rech arac te riz edun de r Fed eral law. See i d. at45 7. Th e Co urt o f App eal s h el d i n 6 3 Fel dm anv. Co m

m is si on er, 7 79 F.3dat 4 57 -4 58 , th atun de r Co m m is si on er v . St ern , 35 7 U.S. 3 9, the ex is te nc e an d t he ex te ntof atra ns fere e’s li ab il it y , in cl ud in g t he qu es ti on of t ran sf eree st atus , are d et erm in edun de r ap pl ic ab le Sta te

Res po nd en t ac kn owl ed ge s i n re sp on de nt ’s supp le m en ta l b rie f th atth e 6 3 Co urt o f App eal s i n F el dm anv. Co m m is si on er, 7 79 F.3dat 4 57 -4 60 , “ ag reedwith ot he r ci rcu itco urts to requi re i nd ep en de ntde te rm in at io ns of t ran sf eree st atus un de r fed eral law an d s ub st an ti ve li ab il it y un de r st at e la w.” In re sp on de nt ’s supp le m en ta l b rie f fi le d i n the se cas es aft er the Co urt o f App eal s d eci de d F el dm an , res po nd en t n o l on ge r adva nc es th atarg um en t.- 11 0 -

[* 11 0] law. Hav in g s o h el d, the Co urt o f App eal s turne d t o a n e xa m in at io n o f th e ap pl ic ab le law o f th e St at e o f W is co ns in
. Afte r an al y zi ng th e ap pl ic ab le law o f W is co ns in , th e Co urt o f App eal s h el d th atun de r th atlaw (1 ) th e p ur po rte d s al e b y

th e ta xp ay ers to Mi dC oa stof t he ir st oc k i n Woo ds id e sh ou ldbe reca stor r ech arac te riz edas ali qu id at io n i n wh ic h th os e ta xp ay ers rece iv edcas h fr om W oo ds id e an d c on se qu en tl y th os e ta xp ay ers were tran sf

eree s o f W oo ds id e, an d (2 ) th os e tr an sf eree s wer e li ab le forW oo dsi de ’s unpa idFed eral in co m e ta x l iabi li ty in que st io n. Se e id . at 4 57 -4 60
. The ap pl ic ab le Sta te law i n t he in st an t ca se s i s t he UFTA ineffe ctin In di an a (In di an a UFTA), In d. Co de Ann . sec s. 3 2- 2- 7- 1 t o 3 2- 2- 7- 21 (W es t 2 00 2) , an d n otth e Wisco ns in UFTA th atwas app li cab le inFel dm an . Non ethe le ss , as 6 4 Afte r 20 02 , th e In di an a UFTA was p la cedinan ot he r se ct io n o f th e In di an a 6 4 Co de , nam el y , Ind . Cod e Ann . sec s. 3 2- 18 -2 -1 to 32 -1 8- 2- 21 (W es t 2 01 5) . Ind
. Co de Ann . sec s. 3 2- 18 -2 -1 to 32 -1 8- 2- 21 (W es t 2 01 5) is vi rtu al ly ide nt ic al to it s pr ed eces so r, In d. Co de Ann . sec s. 3 2- 2- 7- 1 t o 3 2- 2- 7- 21 (W es t 2 00 2) . For c on ve ni en ce, we g en eral ly refer t o In d. Co de Ann . sec s. 3 2- 18 -2 -1 to 32 -1 8- 2- 21 (West 2 01 5)
. In19 84 , th e Nat io na l Co nf eren ce o f Co m

m is si on ers onUni fo rm

Sta te Laws (Nat io na l Co nf

eren ce) app ro ve d a ndpro m ul ga te d t he Uni fo rm

Frau du le nt Tran sf er Actth atha d b een dra fte d b y a co m mit te e th atitha d app oi nt edto stud y th e Uni fo rm

Frau du le ntCo nv ey an ce Act(UFCA), wh ic h t he Nati on al Co nf eren ce ha d p ro m ul ga te d i n 1 91 8. Whenpro m ul ga te d i n 1 98 4, UFTA s ec. 1 1, 7 A (PartII) U.L.A. 20 3 (2 00 6) , pro vi de d t ha t tha t ac t “ sh al l b e ap pl ie d a ndco ns tru edto effe ctua te it s g en eral pu rp os e to m ak e uni fo rm th e la w with re sp ectto th e subjec t

(co nt in ue d...)- 11 1 -

[* 11 1] pe rti ne nthe re an d a s d is cu ss edinde ta il be lo w, th e In di an a UFTA ap pl icab le inth e in st an t ca se s an d t he W is co ns in UFTA app li cab le inFel dm anare vi rtu al ly ide nt ic al inall m at eri al res pe ct s. As a res ul t, we fi ndFel dm anto be in st ru ct iv e in res ol vi ng va rio us qu es ti on s u nd er the Ind ia naUFTA th atwe sh al l
co ns id er i n d et erm in in g wh ethe r eac h o f Mr. Fa nkhaus er, Mr . W ei nt rau t, an d M s. Fan kh au se r is li ab le un de r se ct io n 6 90 1 a s a t ran sf eree of p ro pe rty of FFI forFFI’s
unpa id20 01 de fic ie nc y

li ab il it y . In c on si de rin g t he is su es pre se nt edinth es e

6 5
cas es , we sh al l fo ll ow the ord er i n wh ic h t he Co urt o f App eal s i n F el dm anad
dr es se d t he is su es pre se nt edto itinde ci di ng whet he r th e ta xp ay ers in vo lv ed

(...co nt in ue d) 6 4 of th is [Act ] am on g s ta te s en act in g i t.” Th e res pe ct iv e In di an a UFTA an d W is co ns in UFTA hav e p ro vi si on s t ha t ar e v irtua ll y id en ti cal to UFTA sec. 1 1. See I nd . Cod e Ann . sec . 32 -1 8- 2- 21 (“ Thi s ch ap te r sh al l b e ap pl ie d a ndco ns tru ed to effe ctua te it s g en eral pu rp os e to m ak e uni fo rm th e la w with re sp ectto th e subjec t o f th is ch ap te r am on g s ta te s en act in g i t.”) ; Wis. St at . Ann . sec . 24 2.1 1 (“ Thi s ch ap te r sh al l b e ap pl ie d a ndco ns tru edto effe ctua te it s g en eral pu rp os e to m ak e uni fo rm

th e la w with re sp ectto th e subjec t o f th is ch ap te r am on g s ta te s en act in g i t.”)
. Cert ai n unp ai d a dd it io ns to tax an d i nt eres t as pro vi de d b y law wer e al so 6 5 in vo lv edinFel dm anv. Co m mis si on er, 7 79 F.3d44 8. Ho wev er, we d o n otfin d th e o pi ni on of t he Co urt o f App eal s o r th e o pi ni on of t hi s C ou rt t o b e in st ru ct iv e orhe lp fu l i n re so lv in g v ari ou s que st io ns th atwe sh al l co ns id er i n d et erm in in g whe th er ea ch of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r is li ab le un de r se c. 69 01 as atra ns fere e o f pr op erty of F FI fo r FFI’s u np ai d 2 00 1 p en al ty li ab il it y , as wel l as forin te res t the reo n a s p ro vi de d b y law.- 11 2 -

[* 11 2] th ere wer e li ab le as t ran sf eree s o f pr op erty

of Woo ds id e fo r it s Fe de ral in co m e ta x l iabi li ty in que st io n. Tran sf eree Sta tu s fo r Pu rp os es of S ect io n 6 90 1 It i s re sp on de nt ’s po si ti onth ateach of M r. Fan kh au se r, Mr. Wein traut , and Ms . Fan kh au se r is a tr an sf eree of p ro pe rty of FFI forpu rp os es of s ect io n 6 90 1 with re sp ectto th e SPR

red em pt io n tran sa ct io n a ndth e SPR sal e tr an sa ct io n u nd er th e SPRA. In s up po rt o f th atpo si ti on , res po nd en t ar gu es th atinsubs ta nc e FFI
m ad e v ari ou s d is tri bu ti on s o r tr an sf ers to each of M r. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er i n e ach of t ho se SPR tran sa ct io ns . 6 6 W it h re sp ectto th e SPR

red em pt io n t ran sa ct io n und er the SPRA, res po nde ntarg ue s t ha t i n fo rm

an d i n s ub st an ce FF I m ad e d is tri bu ti on s o r tr an sf ers of FFI’s p ro pe rty to M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r inth at tra ns act io n. As a res ul t, re sp on de ntm ai nt ai ns , each of M r. Fan kh au se r, Mr.

6 7 W ei nt rau t, an d M s. Fa nkhaus er i s a t ran sf eree of p ro pe rty of FFI for

Res po nd en t ch arac te riz es th e d is tri bu ti on s o r tr an sf ers th atres po nd en t 6 6 cl ai m s FF I m ad e to it s s to ckho ld ers inth e SPR red em pt io n tran sa ct io n a ndinth e SPR s al e tr an sa ct io n u nd er the SPRA as insubs ta nc e li qu id at in g d is tri bu ti on s o r tra ns fers . W e d o n otus e th atch arac te riz at io n. Se e in fra n ot e 1 07
. Im m ed ia te ly foll owi ng FFI’s d is tri bu ti on s o f FFW’ s m em be rs hi p i nt eres ts 6 7 to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r, th ey own ed68 pe rcen t, 2 2 pe rcen t, an d 1 0 p erce nt , res pe ct iv el y , of t ho se in te res ts .- 11 3 -

[* 11 3] pu rp os es of s ect io n 6 90 1 wi th res pe ctto th e SPR red em pt io n tran sa ct io n
un de r th e SPRA. Pet it io ne rs do no t ad dr es s wh ethe r, le t al on e d is pu te th at , inth e SPR red em pt io n t ran sa ct io n u nd er the SPRA ea ch of t he m rece iv eda di st rib ut io n o r tra ns fer o f pr op erty

of F FI, n am el y , a pr op orti on at e o wne rs hi p i nt eres t i n F FW. Nordo pe ti ti on ers ad dr es s wh ethe r, le t al on e d is pu te th at , each of the m is a tra ns fere e o f pr op erty

of F FI fo r pu rp os es of s ect io n 6 90 1 wi thres pe ctto th at red em pt io n t ran sa ct io n. In st ead , as we u nd ers ta ndpe ti ti on ers ’ arg um en ts with
res pe ctto th e SPR

red em pt io n t ran sa ct io n und er the SPRA, the ir f oc us is on why th ey be li ev e th atth ey

are n otli ab le as t ran sf

eree s u nd er the Ind ia naUFTA with
res pe ctto th atred em

pt io n t ran sa ct io n. Inth e li gh t o f pe ti ti on ers ’ fai lu re t o a dd res s wh ethe r, an d t o d is pu te th at , in th e SPR red em pt io n t ran sa ct io n u nd er the SPRA the y rece iv eddi st rib ut io ns or tra ns fers of p ro pe rty of FFI , nam el y , res pe ct iv e p ro po rti on at e o wne rs hi p i nt eres ts in FFW, we co nc lu de th atFFI m ad e d is tri bu ti on s o r tr an sf ers of p ro pe rty to M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r inth e SPR red em pt io n t ran s-- 11 4 -

[* 11 4] act io n u nd er the SPRA an d t ha t ea ch of t he m is a tr an sf

eree of p ro pe rty of FFI fo r pu rp os es of s ect io n 6 90 1 wi th res pe ctto th attra ns act io n. 6 8 W it h re sp ectto th e SPR

sal e tr an sa ct io n u nd er the SPRA, res po nd en t ar gu es th atinsubs ta nc e FFI m ad e ad di ti on al li qu id at in g d is tri bu ti on s o f FFI’s ca sh to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r inth attra ns act io n. As a res ul t,
res po nd en t m ai nt ai ns , each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan khaus er i s a t ran sf

eree of p ro pe rty of FFI forpu rp os es of s ect io n 6 90 1 wi thres pe ct to th e SPR

sal e tr an sa ct io n und er the SPRA. Res po nd en t al so arg ue s wi th res pe ctto th e SPR sal e tr an sa ct io n tha t [t]he “ lo an ” fro m

Sh ap iro [to FFIA] was a “ ru se , recyclin g, a s ham .” Fel dm an , 20 15 W L 75 92 50 , at * 8. Re m ov e th e Sh ap iro “ lo an ” fro m th is tra ns act io n [S PR s al e tr an sa ct io n] an d n ot hi ng of c on se qu en ce ch an ge s- -th e sh areh ol de rs [of FFI] getpa idth e sa m e am ou nt , [$ 53 0,7 66 .15 ] fro m

th e sa m e trus t [e sc ro w] acco un t. Id . In the same way , whatrem ai ns aft er d is reg ard in g t he Sh ap iro “ lo an ” in FFI i s a tra ns fer o f cas h fr om

FFI t o p et it io ne rs vi a th e trus t [e sc ro w] acco un t. Inreal ity , th e o nl y

m on ey th atch an ge d h an ds was FF I’s cas h. As a re su lt , res po nd en t m ai nt ai ns , each of M r. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er i s a t ran sf eree of p ro pe rty of FFI forpu rp os es of s ect io n 6 90 1 with re sp ectto th e SPR

sal e tr an sa ct io n u nd er the SPRA. The reco rdful ly sup po rts ou r co nc lu si on th atFFI m ad e d is tri bu ti on s o r 6 8 tra ns fers of p ro pe rty to M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR re de m

pt io n t ran sa ct io n u nd er the SPRA an d t ha t ea ch of t he m is a tr an sf

eree of pro pe rty of FFI forpurp os es of s ec. 6 90 1 wi th res pe ctto th attra ns act io n.- 11 5 -

[* 11 5] Pet it io ne rs do no t ad dr es s wh ethe r, le t al on e d is pu te th at , inth e SPR
sa le tra ns act io n u nd er the SPRA i n s ub st an ce FF I m ad e ad di ti on al di st rib ut io ns or tra ns fers of F FI’s cas h t o M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r an d th atco ns eque nt ly each o f Mr. Fa nkhaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er i s a tra ns fere e o f pr op erty

of F FI fo r pu rp os es of s ect io n 6 90 1 wi thres pe ctto th e SPR
sa le tra ns act io n u nd er the SPRA. In st ead , as we u nd ers ta ndpe ti ti on ers ’ arg um en ts with re sp ectto th e SPR

sal e tr an sa ct io n u nd er the SPRA, l ik e th ei r arg um en ts with
res pe ctto th e SPR

red em pt io n t ran sa ct io n und er the SPRA, the ir f oc us is on why th ey be li ev e th atth ey

are n otli ab le as t ran sf

eree s u nd er the Ind ia naUFTA with
res pe ctto th atsal e tr an sa ct io n. Pet it io ne rs als o d o n otad dr es s wh ethe r, le t al on e d is pu te th at , inth e SPR
sa le tra ns act io n u nd er the SPRA the purp orte d l oan fr om Ms . Shapi ro was “ a sh am ” an d t ha t “ wha t re m ai ns aft er d is reg ard in g t he Sh ap iro ‘ lo an ’ * * * i s a tra ns fer o f cas h fr om

FFI t o * * * [Mr. Fa nkhaus er, Mr . W ei nt rau t, an d M s. Fa nk
haus er] vi a th e trus t [Lea gr e es cro w] acco un t” an d t ha t co ns eque nt ly each o f Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r is a tr an sf eree of p ro pe rty of FFI fo r pu rp os es of s ect io n 6 90 1 wi th res pe ctto th e SPR sal e tr an sa ct io n u nd er the SPRA. In st ead , as we u nd ers ta ndpe ti ti on ers ’ arg um en ts with re sp ectto th e SPR
sa le tra ns act io n u nd er the SPRA, l ik e th ei r arg um en ts with re sp ectto th e SPR- 11 6 -

[* 11 6] red em

pt io n t ran sa ct io n u nd er the SPRA, the ir f oc us is onwhy th ey

be li ev e th atth ey are n otli ab le as t ran sf

eree s u nd er the Ind ia naUFTA with res pe ctto th at
sa le tra ns act io n. Inth e li gh t o f pe ti ti on ers ’ fai lu re t o a dd res s wh ethe r, an d t o d is pu te th at , in th e SPR sal e tr an sa ct io n u nd er the SPRA the y rece iv eddi st rib ut io ns of c as h o f FFI, n am el y , res pe ct iv e p ro po rti on at e p orti on s o f $5 30 ,76 6.1 5, we co nc lu de th at each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r is a tr an sf eree of pr op erty of F FI fo r pu rp os es of s ect io n 6 90 1 wi th res pe ctto th e SPR sal e tr an sa cti onun de r th e SPRA. Non ethe le ss , forth e sa ke of c om pl et en es s we s ha ll co n- 6 9 si de r whe th er ea ch of t he m rece iv eda di st rib ut io n o r tr an sf er o f cas h o f FFI i n t he SPR s al e tr an sa ct io n u nd er the SPRA, n am el y , a pr op orti on at e p orti on of $5 30 ,76 6.1 5, the pu rch as e p ric e fo r th e p ur po rte d s al e o f th ei r FFI s to ckto Mi dC oa st , andwhet he r eac h o f th em is a tr an sf

eree of p ro pe rty of FFI forpu rpo se s o f se ct io n 6 90 1wi th res pe ctto th atsal e tr an sa ct io n. 7 0
As d is cu ss edinde ta il be lo w, th e rec or d fu ll y supp orts ou r co nc lu si on th at 6 9 FFI m ad e d is tri bu ti on s o f cas h t o M r. Fan kh au se r, Mr. Wein traut , andMs . Fan khaus er i n t he SPR s al e tr an sa ct io n u nd er the SPRA an d t ha t ea ch of t he m is a tra ns fere e o f pr op erty

of F FI fo r pu rp os es of s ec. 6 90 1 wi th res pe ctto th attra ns act io n. W e ad dr es s i n d et ai l o nl y th e SPR sal e tr an sa ct io n, an d n otth e SPR re- 7 0 de m pt io n t ran sa ct io n, u nd er the SPRA. Tha t i s b ecau se inform each of M r. Fan k- (co nt in ue d...)- 11 7 -

[* 11 7] Res po nd en t co nt en ds inres po nd en t’s s up pl em en ta l b rie f th at

“ [p ]etit io ne rs ’ tra ns act io n wi th Mi dC oa stis inall m at eri al res pe ct s i de nt ic al to th e tra ns act io n i n F el dm an ” an d t ha t “ [t]he Sev en th Cir cu itCo urt o f App eal s d eci si on in Fel dm anst ro ng ly sup po rts ” res po nd en t’s p os it io n wi th res pe ctto th e SPR sal e tra ns act io n u nd er the SPRA. Pet it io ne rs co nt en d i n t he ir s up pl em en ta l b rie f th at“ Fel dm anis factua ll y di st in gu is habl e fro m

th e m at eri al fact s i n t hi s ca se [si c]” andth at“ al th ou gh th e equi ti es inFel dm anjus ti fie d t he co ll ap se of t he tra ns act io ns at i ss ue th ere, the y do
no t d o s o h ere” . Accor di ng to pe ti ti on ers , “ inFel dm an* * * the ev id en ce s ho wed th attax pa y er-s ha reh ol de rs kn ew or sh ou ldha ve kn own th atth e co rp or at io n’s ta xe s re su lt in g fr om

it s as se t s al e wou ldno t b e p ai d. In th is cas e [s ic ], ho wev er, th e ev id en ce i s o th erwi se .” W e b el ie ve th atpe ti ti on ers ’ co nt en ti on s re ga rd in g 7 1 th e al le ge d m at eri al factua l d iff eren ces be twee n F el dm anv. Co m m is si on er, 7 79
(...co nt in ue d) 7 0 haus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er re cei ve d p ro pe rty dir ect ly from FFI i n th e SPR red em pt io n t ran sa ct io n- -fac ts th atth ey do no t d is pu te . Inth ei r supp le m en ta l b rie f, pe ti ti on ers po in t t o o th er al le ge d d iff eren ces 7 1 be twee n the res pe ct iv e fac ts inFel dm anan d i n t he se cas es . Mos t o f th os e al le ge d di ffer en ces ap pe ar t o re la te to whet he r th e ta xp ay ers th ere a ndhe re kne w or sh ou ldha ve kn own th atth e res pe ct iv e Fed eral in co m e ta xe s re al iz edfro m th e res pe ct iv e sa le s b y

th e res pe ct iv e C co rp or at io ns inwhi ch th e ta xp ay ers th ere and he re h adbe enst oc kh ol de rs wou ldno t b e p ai d.- 11 8 -

[* 11 8] F.3d44 8, an d t he in st an t ca se s re ga rd in g wh ethe r th ey kn ew orsh ou ld ha ve kn own th atFFI’s “ ta xe s fr om it s as se t s al e wou ldno t b e p ai d” are n ot rel ev an t t o wh ethe r th ey

are tran sf

eree s o f pr op erty

of F FI fo r pu rp os es of s ect io n 69 01 with re sp ectto th e SPR sal e tr an sa ct io n u nd er the SPRA. W e sh al l, h owev er, co ns id er b el ow i n d et erm in in g wh ethe r pe ti ti on ers are l iabl e as tra ns fere es of FFI u nd er the Ind ia naUFTA with res pe ctto th e SPR sal e tr an sa ct io n u nd er the SPRA wh ethe r th os e co nt en ti on s ar e rel ev an t t o t ha t d et erm in at io n. W e tu rnno w to th e d is pu te be twee n re sp on de ntan d p et it io ne rs as t o whe th er, as res po nd en t m ai nt ai ns , th e Co urt o f App eal s o pi ni on inFel dm an

“ st ro ng ly sup po rts ” res po nd en t’s p os it io n t ha t ea ch of M r. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er i s a t ran sf eree of p ro pe rty of FFI forpu rp os es of
se ct io n 6 90 1 wi th res pe ctto th e SPR sal e tr an sa ct io n und er the SPRA b ecau se th e
m at eri al fact s i n F el dm an , as t he y rel at e to th atis su e, are “ id en ti cal ” to th e m ate ria l fa ct s i n t he se cas es . In o rd er t o re so lv e th atdi sp ut e, we co m pa re b el ow cert ai n re le va ntfact s, i nc lu di ng m at eri al fact s, wh ic h we f ou ndth ere, s ee Fe ld m an v. Co m m is si on er, 2 01 1 WL 67 81 00 6, an d o n wh ic h t he Co urt o f App eal s re li edin- 11 9 -

[* 11 9] Fel dm anv. Co m

m is si on er, 7 79 F.3dat 4 49 , andcert ai n re le va ntfact s, in cl ud in g m at eri al fact s, wh ic h we h av e fo un d h ere. 7 2 InFel dm anan d i n t he se cas es , th e st oc kh ol de rs of aC co rp or at io n t ha t
own edcert ai n app reci at edass et s, wh o a ls o wer e it s o ffi cers or r el at edto th os e of fic ers , dec id edth atitwas t im e to termin at e th e b us in es s o f th e C co rp or at io n
an d t o s el l i ts st oc k o r it s as se ts . See i d. at45 0. Th ere a ndhe re, the st oc kh ol de rs
were awa re tha t the C co rp or at io n’s s al e o f ap pr eci at edass et s wo ul d g en erat e si gn ifi can t Fe de ral an d S ta te in co m e ta xe s. See id . In Fe ld m anan d i n t he in st an t
cas es , ho wev er, p ro sp ect iv e b uyers wer e in te res te d i n p ur ch as in g t he C co rp or ati on ’s ass et s, n otit s s to ck . See i d. at45 0- 45 1. In bo th in st an ces , th e st oc kh ol de rs ag reedto sel l the C co rp or at io n’s o pe rat in g a ss et s. In Fel dm an , on e b uyer pu rch as edth e C co rp or at io n’s as se ts du rin g t he y ear a t i ss ue th ere. Se e id . at 4 51 . In th e in st an t ca se s, d iff

eren t b uyers p ur ch as eddi ffer en t as se ts of t he C co rp or at io n atdi ffer en t t im es du rin g t he y ear a t i ss ue he re. InFel dm an , th e sa le of t he C co rpo rat io n’s as se ts cau se d i t t o re al iz e in co m e th atwou ldha ve res ul te d i n F ed eral
an d S ta te in co m e ta xe s t ot al in g $ 75 0,0 00 . See i d. In th e in st an t ca se s, the sal es of W e sh al l u su al ly cite th e Co urt o f App eal s’ op in io n i n F el dm anv. Co m 7 2 m is si on er, 7 79 F.3dat 4 49 , for ou r rec it at io n o f certa infact s wh ic h we f ou ndan d on whi ch th e Co urt o f App eal s re li edun le ss th e Co urt o f App eal s d oe s n ot ex pr es sl y res ta te init s o pi ni on a factth atwe di sc us s h erei n. In th atev en t, we sh al l ci te ou r op in io n i n F el dm anv. Co m m is si on er, 2 01 1 WL 67 81 00 6.- 12 0 -

[* 12 0] th e C co rp or at io n’s as se ts cau se d i t t o re al iz e in co m e th atwou ldhave
res ul te d i n F ed eral an d S ta te in co m e ta xe s t ot al in g $ 1,0 26 ,10 0.6 9. InFel dm an , aft er the sal e o f th e C co rp or at io n’s as se ts th e C co rp or at io n ha d c eas edcarry in g o n a ny acti ve bu si ne ss an d h adno op erat in g a ss et s; itwas “ an ‘em pt y sh el l’ con si st in g o f cas h o n h an d a lo ng with afew n ot es an d re cei vabl es .” Id . at 4 51 . In Fe ld m an , th e C co rp or at io n p la nn edto li qu id at e an d d is tri bu te th os e
no no pe rat in g a ss et s t o i ts st oc kh ol de rs . See i d. at44 9- 45 0, 4 51 . In the in st an t
cas es , aft er the sal es of the C co rp or at io n’s as se ts th e C co rp or at io n h adceas ed
carry in g o n a ny acti ve bu si ne ss , hadno op erat in g a ss et s (e xc ep t ce rta in ox id at io n te ch no lo gy), andha d n on op erat in g a ss et s co ns is ti ng of c as h, a n ot e fro m th e b uyer of th e Elmwoo d p ro pe rty, certa in in te res t re cei vabl e o n t ha t n ot e, a few o th er
rece iv ab le s, an d c ert ai n re al pro pe rty in M in ne so ta . In t he se cas es , th e C 7 3

Ms . Fan kh au se r le arn edaro un d J ul y 20 11 th atth e C co rp or at io n h ad 7 3 an ot he r rec ei vabl e o f whi ch no on e as so ci at edwith F FI o r Mi dC oa stwas a ware i n 20 01 , nam el y , th e Pru de nt ia l d em utua li zat io n fu nd s re cei vabl e o f $4 3,9 26 .57 th at FFI h adne ve r cl ai m edan d t ha t the Sta te of I nd ia nawas h ol di ng inth e n am e o f FFI. No ne of t he pa rti es to th e SPRA kn ew ab ou t tha t re cei vabl e atth e ti m e th ey were n eg ot ia ti ng th atag reem en t o r atth e cl os in g o f th e tr an sa ct io ns th ereu nd er. W e co nc lu de th atth atrece iv ab le is no t m at eri al to , andwe sh al l n otco ns id er i t, i n ou r di sc us si on of the is su es pre se nt ed . See s up ra n ot e 2 8.- 12 1 -

[* 12 1] co rp or at io n n oton ly hadpl an ne d b utals o h adtak enform al co rp or at e act io ns to li qu id at e an d t o d is tri bu te th os e n on op erat in g a ss et s t o i ts st oc kho ld ers . 7 4 InFel dm anan d i n t he se cas es , th e C co rp or at io n d idno t, as pl an ne d, fo rm al ly liqui da te an d d is tri bu te it s as se ts to it s s to ckho ld ers . In b ot h i ns ta nc es , a rep res en ta ti ve of t he C co rp or at io n (i n F el dm an , th e C co rp or at io n’s ac co un ta nt
an d fi na nc ia l advi so r an d i n t he in st an t ca se s, the C co rp or at io n’s at to rn ey ) in tro du cedth e C co rp or at io n’s s to ckho ld ers to cert ai n re pr es en ta ti ve s o f Mi dC oa stbe
cau se Mi dC oa stwas i nt eres te d i n b uyin g t he st oc k o f th e C co rp or at io n. Se e Fel dm anv. Co m

m is si on er, 7 79 F.3dat 4 51 . In Fe ld m anan d i n t he se cas es , th e C Sp eci fic al ly, on Decem

be r 19 , 20 00 , th e FFI s to ckho ld ers an d t he FFI 7 4 di rect or s h el d re sp ect iv e sp eci al m eet in gs at wh ic h t he y ap pr ov eda pl anto li qu id
at e an d d is so lv e FFI ( i.e., the Decem be r 19 , 20 00 pl anof l iqui da ti on ) in th e ev en t an d o nl y inth e ev en t tha t the FFI as se t s al e to GSI cl os edon Jan ua ry 2, 2 00 1, as pr ov id edinth e FFI a ss etsal e ag reem en t. OnJan uary 2, 2 00 1, the FFI as se t s al e cl os edpu rs ua ntto th e FFI a ss etsal e ag reem en t. Co ns eque nt ly, onJan ua ry 2, 20 01 , th e co nd it io n p rece de ntto th e Dece m be r 19 , 20 00 pl anof l iqui da ti on was sa ti sf ie d. OnOcto be r 5, 2 00 1, the FFI s to ckho ld ers vo te d t o d is so lv e FFI i n acco rd an ce wi th th e Dece m be r 19 , 20 00 pl anof l iqui da ti on . On Oct ob er 1 9, 2 00 1, th e d ay on whi ch FFI s ol d t he Elm woo d p ro pe rty, it t oo k c ert ai n s te ps inpre pa rat io n fo r it s p la nn edli qu id at io n a nddi ss ol ut io n, i nc lu di ng (1) fil in g a rti cl es of di ss ol ut io n wi th th e In di an a Sec ret ary of Sta te ; (2 ) in fo rm in g t he Ind ia naAtt orne y Gen eral an d t he Depa rtment o f W orkf or ce Dev el op m en t o f In di an a th atitwas di ss ol vi ng ; (3 ) m ai li ng Fo rm IT-9 66 to th e Dep art m en t o f Rev enue of I nd ia na ; an d (4 ) m ai li ng Fo rm

96 6 t o t he IRS. Fo rm

96 6 t ha t FF I co m

pl et edan d m ai le d t o t he IRS i nd ic at edth atFFI’s “ (an ti ci pa te d ) [ l]astm on th , day, andy ear o f fi na l t ax y ear” was Dec em

be r 31 , 20 02
.- 12 2 -

[* 12 2] co rp or at io n’s s to ckho ld ers were i nf orm edth atMi dC oa stwas i nt eres te d i n bu y in g t he ir s to ckina way th atwou ldeli m in at e (i n F el dm an ) orde fer (i n t he se
cas es ) th e Fed eral in co m e ta x a ndSta te in co m e ta x re su lt in g fr om th e sa le of t he C
co rp or at io n’s as se ts . In Fe ld m anan d i n t he se cas es , th e Mi dC oa stpro po sa l wo ul d
en ab le th os e st oc kh ol de rs to rece iv e a g reat er am ou nt , a so -cal le d p rem iu m , fro m th e sa le of t he ir s to ckof t he C co rp or at io n t ha n t he y wou ldrece iv e fro m

th e pl an ne d l iqui da ti on of t he C co rp or at io n a fte r th e p aym en t o f al l o f th e C co rp or ati on ’s Fed eral in co m e ta x a ndSta te in co m e ta x a tt rib ut ab le to th e as se t s al es . See id
. InFel dm anan d i n t he in st an t ca se s, M id Co as t s en t a l et te r of in te ntto th e C
co rp or at io n’s s to ckho ld ers inwhi ch itpro po se d ast ru ctur e to effe ctth e p ro po se d pu rch as e b y

itan d t he pro po se d s al e b y th os e st oc kh ol de rs of t he ir s to ckinth e C
co rp or at io n. Un de r th e p ro po se d s tru ctur e in Fel dm an , th e C co rp or at io n was to red eem 20 pe rcen t o f it s s to ckth atth e C co rp or at io n’s s to ckho ld ers own ed . In ad di ti on , th os e st oc kh ol de rs were t o s el l the rem ai nd er o f th ei r C co rp or at io n s to ck to Mi dC oa st(orit s d es ig ne e) fo r a p ur ch as e p ric e th atwas e qu al to th e am ou ntof th e C co rp or at io n’s ca sh as o f th e cl os in g re du cedby a sta te d p erce nt ag e (7 0 p ercen t) o f th e C co rp or at io n’s an ti ci pa te d F ed eral an d S ta te in co m e ta x l iabi li ti es at tri bu tabl e to th e sa le of i ts ass et s. See id . Und er the pro po se d s tru ctur e in th es e- 12 3 -

[* 12 3] cas es , th e C co rp or at io n was to red eem 75 pe rcen t o f it s s to ckth atth e C
co rp or at io n’s s to ckho ld ers own ed . In ad di ti on , th os e st oc kh ol de rs were t o s el l the
rem ai nd er o f th ei r C co rp or at io n s to ckto Mi dC oa st(orit s d es ig ne e) fo r a p ur ch as e pr ic e th atwas e qu al to th e to ta l am ou ntas o f th e cl os in g o f th e C co rp or at io n’s
cas h a ndth e am ou ntof arefu ndof t he FFI St at e 2 00 1 i nc om e ta x p aym en ts redu cedby a sta te d p erce nt ag e (4 9 p erce nt ) of th e C co rp or at io n’s an ti ci pa te d Fed eral an d S ta te in co m e ta x l iabi li ti es attrib ut ab le to th e sa le s o f it s as se ts du rin g 20 01
. InFel dm anan d i n t he in st an t ca se s, the st oc kh ol de rs of the C co rp or at io n
un de rs to odth atth e co rp or at io n’s an ti ci pa te d F ed eral an d S ta te in co m e ta xe s
wou ldno t b e p ai d. In Fel dm an , alt ho ug h M id Co as t p ro m is edto pa y th os e Fed eral
an d S ta te in co m e ta x l iabi li ti es , th e st oc kh ol de rs un de rs to odth atMi dC oa stin te nd
edto us e certa in ba d d eb ts an d l os se s t ha t i t h adpu rch as edfro m cert ai n c red itcard
co m pa ni es init s s o- cal le d a ss etreco ve ry bu si ne ss inord er t o e li m in at e th os e ta x li ab il it ie s. See Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 51 . In the in st an t ca se s, Mi dC oa stm ad e a qua li fie d p ro m is e in th e SPRA to “pa y th e ap pl ic ab le tax au th or it ie s t he Deferr edTax Li ab il it y , if an y , res ul ti ng fro m su ch ga in inli gh t o f ot he r po st -cl os in g a ct iv it ie s o f th e Co m pa ny.” Howev er, i n t he se cas es Mi dC oa stals o rep res en te d, an d t he st oc kh ol de rs of the C co rp or at io n u nd ers to od , th atMi dC oa st- 12 4 -

[* 12 4] in te nd edto bu y

an d u se ch arg edoff

de btpo rtf

ol io s i n i ts ass etreco ve ry bu si ne ss inord er t o d eferth e C co rp or at io n’s an ti ci pa te d F ed eral an d S ta te in co m e ta x l iabi li ti es . InFel dm anan d i n t he se cas es , th e st oc kh ol de rs of t he C co rp or at io n d id li tt le or n o due di li ge nc e. InFel dm an , th e st oc kh ol de rs ob ta in eda Dun n & Brad
st reetrep ort o n M id Co as t an d c al le d afew refe ren ces . See i d. at45 2. Here , pe ti ti on ers th em se lv es di d n o due di li ge nc e. Mr. Th rap p, o ne of p et it io ne rs ’ at to rn ey s, re adso m e p ro m ot io na l m at eri al s tha t M id Co as t h adpre pa red . Befo re th e cl os in g o f th e SPR

trans act io ns Mr. Thr ap p c on cl ud edth atas o f th atclo si ng th e Leag re es cro w acco un t co nt ai ne d t he fun ds ne ed edto effe ctth e cl os in g o f th os e tr an sa ct io ns , whi ch in cl ud edth e $ 55 0,0 00 th athe (an d, as di sc us se d b el ow, Mr. Fa nkhaus er, Mr . W ei ntrau t, an d M s. Fa nkhaus er) kne w Ms . Shapi ro was t o de po si t i nt o t he Leag re es cro w acco un t o n t he da y of the clo si ng . Mr. Thr ap p 7 5

All of t he di st rib ut io ns to FFIA (o r it s d es ig ne e, FFI) , th e FFI s to ck
7 5 ho ld ers , andMs . Shapi ro th atwere re qu ire d t o i m pl em en t the SPRA an d t he rel at edag reem en ts (na m el y , th e SPRA esc ro w agr eem en t, the Sh ap iro esc ro w ag reem en t, an d t he cas h re co nc il ia ti on ag reem en t) we re d eem edto be m ad e as of th e cl os in g o f th e SPRA. The cl os in g o f th e SPR tra ns act io ns un de r th e SPRA was to be de em edeffe ct iv e as of 1 1: 59 p.m . onDecem be r 20 , 20 01 , th e d at e o f th e cl os in g. Mo reo ve r, th e SPRA pro vi de d t ha t al l o f th e ev en ts th atwere t o o ccu r at th e cl os in g u nd er the SPRA, i nc lu di ng bu t n otli m it edto , th e d el iv ery of th e FFI st oc k ce rti fic at es an d t he pa ym en t o f th e p ur ch as e p ric e an d “ al l o th er re la te d ex ch an ge s” were t o b e d eem edto oc cu r si m ul ta ne ou sl y .- 12 5 -

[* 12 5] reac he d t ha t co nc lu si on ev enth ou gh he (an d, as di sc us se d b el ow, Mr
. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r) kne w th atth at$5 50 ,00 0 was to be returne d t o M s. Sh ap iro as o f th atclo si ng . 7 6 InFel dm anan d i n t he in st an t ca se s, the red em pt io n o f a p orti on of t he C
co rp or at io n’s s to ckan d t he sal e o f th e b al an ce o f th atst oc k t o M id Co as t wer e effe ct ediness en ti al ly the same m an ne r. In b ot h i ns ta nc es , th e p art ie s t o t he tra ns act io ns us edon e es cro w age ntan d t wo es cro w agr eem en ts . See Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 52 . In Fe ld m an , th e p art ie s t o t he tra ns act io ns in vo lv ed th ere u se d ash are p ur ch as e ag reem en t an d t wo es cro w agr eem en ts . The p art ie s t o th e fi rs t es cro w agr eem en t wer e th e C co rp or at io n’s s to ckho ld ers , Mid Co as t, an d th e la w firm

of F ol ey & Lardne r, whi ch was t he esc ro w age nt . The p art ie s t o t he
se co ndesc ro w agr eem en t i n F el dm anwere Mi dC oa st , Ms . Shapi ro (a 5 0- pe rcen t
own er o f Mi dC oa st ), he r atto rn ey , andFo le y & Lardne r, whi ch was t he esc ro w ag en t. See Fel dm anv. Co m m is si on er, 2 01 1 WL 67 81 00 6, at*6 . In the in st an t
cas es , th e p art ie s t o t he SPRA tran sa ct io ns us eda sh are p ur ch as e an d re de m pt io n

Bec au se th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA was d eem edto 7 6 oc cu r as of 1 1: 59 p.m . onDecem be r 20 , 20 01 , Mr. Thr ap p (a nd , as d is cu ss ed be lo w, Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r) kne w th atth e di st rib ut io ns requi redby tha t ag reem en t an d t he rel at edag reem en ts , in cl ud in g t he $5 50 ,00 0 t ha t was requi redto be returne d t o M s. Sh ap iro , were t o b e m ad e b y wire tra ns fers on th e d ay

aft er the clo si ng .- 12 6 -

[* 12 6] ag reem en t (S PRA) an d t wo es cro w agr eem en ts . The p art ie s t o the fir st
es cro w agr eem en t wer e th e C co rp or at io n’s s to ckho ld ers (pe ti ti on ers ), th e C
co rp or at io n, M id Co as t, an d Lea gr e, whi ch was t he esc ro w age nt . The fi rs t 7 7
es cro w agr eem en t i n t he in st an t ca se s i nc or po rat eda se co ndesc ro w agr eem en t. The parti es to th atsec on d e sc ro w agr eem en t wer e FFIA, M id Co as t, Ms . Shapi ro , an d Lea gr e, whi chwas t he esc ro w age nt . The pa rti es to th e res pe ct iv e tr an sa ct io ns (i.e ., th e red em pt io n t ran sa ct io n
an d t he sal e tr an sa ct io n) inFel dm anan d i n t he se cas es us eda ne wly fo rm edli m it
edli ab il it y

co m pa ny as p artof t ho se res pe ct iv e tr an sa ct io ns . In Fe ld m an , th e st oc kh ol de rs form eda li m it edli ab il it y co m pa ny to re cei ve th e res pe ct iv e p ro ceed s of th e red em

pt io n t ran sa ct io n a ndth e sa le tra ns act io n. Se e Fel dm anv. Co m m is
si on er, 7 79 F.3dat 4 52 . The s ol e m em be rs of the li m it edli ab il it y co m pa ny were th e st oc kh ol de rs of t he C co rp or at io n, wh os e res pe ct iv e p erce nt ag e m em be rs hi p

Inth es e cas es , Mid Co as t h adde si gn at edFFIA, a l im it edli ab il it y co m 7 7 pa ny, as th e b uyer of t he C co rp or at io n (F FI) s to ck . FFIA was a co m pa ny whic h Mr. Be rn st ei n, the pre si de ntof M id Co as t, h adorg an iz edun de r th e la ws o f th e St at e o f In di an a two da y s b efo re the clo si ng of the SPR tran sa ct io ns un de r th e SPRA an d o f whi ch he was t he so le m em be r. The re co rddo es no t es tabl is h t ha t Mr. Be rn st ei n c on tri bu te d t o F FIA th e $ 1,0 00 th atit s o pe rat in g a gr eem en t re qu iredhi m to co nt rib ut e in return fo r hi s i nt eres t as it s s ol e m em be r. Nor d oe s t he reco rdest ab li sh th atFFIA h adan y ass et s as of t he clo si ng of t he tra ns act io ns un de r SPRA. Th e rec or d a ls o d oe s n otest ab li sh th ataft er tha t cl os in g F FIA h ad an y ass et s o th er tha n t he st oc k o f FFI.- 12 7 -

[* 12 7] in te res ts inth atco m pa ny were th e sa m e as th ei r res pe ct iv e p erce nt ag e st oc k o wne rs hi p i nt eres ts inth e C co rp or at io n. Se e Fel dm anv. Co m m is si on er, 20 11 W L 67 81 00 6, at*6
. Inth e in st an t ca se s, the C co rp or at io n fo rm eda li m it edli ab il it y co m pa ny th atitwho ll y

own edto serve , in te r al ia , as ave hi cl e to trans fer t o i ts st oc kh ol de rs (p et it io ne rs ) certa inof i ts cas h a ndcert ai n o f it s n on cas h a ss et s an d a ll of i ts li ab il
it ie s ex cep t i ts Fed eral an d S ta te in co m e ta x l iabi li ti es inex ch an ge fora sp eci fie d pe rcen ta ge of the ou ts ta nd in g s to ckof the C co rp or at io n t ha t the y own ed . The C
co rp or at io n c on tri bu te d t o t he ne wly fo rm edli m it edli ab il ity co m pa ny the bu lkof it s as se ts , whi ch co ns is te d o f certa in cas h, a n ot e fro m th e b uyer of t he Elm

woo d pr op erty , cert ai n i nt eres t re cei vabl e o n t ha t n ot e, a few o th er re cei vabl es , cert ai n real pro pe rty in M in ne so ta , cert ai n o xi da ti on tec hn ol og y , andth e ri gh t t o arefu nd to be cla im edby the C co rp or at io n o f cert ai n F ed eral in co m e ta x p aym en ts to ta li ng $6 28 ,59 2 (i .e., th e FFI F ed eral 20 01 in co m e ta x p aym en ts ) fo r it s t ax ab le y ear 20 01 . In the se cas es , th e C co rp or at io n a ls o c on tri bu te d t o t he li m it edli ab il it y
co m pa ny certa in no nt ax li ab il it ie s. Th e n etva lu e o f th e as se ts (i.e ., ass et s l es s- 12 8 -

[* 12 8] li ab il it ie s) th atth e C co rp or at io n c on tri bu te d t o t he li m it edli ab il it y
co m pa ny was atlea st$1 ,79 7,9 18 .16
. 7 8 InFel dm an , imm ed ia te ly befo re the clo si ng of t he red em pt io n tran sa ct io n
an d t he sal e tr an sa ct io n t he C co rp or at io n h el d c ert ai n c as h a ndcert ai n a nt ic ip at ed Fed eral an d S ta te in co m e ta x l iabi li ti es . See Fe ld m anv. Co m m is si on er, 7 79 F.3d 7 9 at45 2. In th es e cas es , imm ed ia te ly befo re the clo si ng of t he SPR tran sa ct io ns th e C co rp or at io n h el d a ll of t he m em be rs hi p i nt eres ts inth e li m it edli ab il it y co m pa ny to whi ch , as d is cu ss edab ov e, itha d c on tri bu te d m os t o f it s as se ts (in cl ud in g t he rig htto a refu ndof t he FFI 2 00 1 i nc om e ta x p aym en ts ), cert ai n c as h, an d t he rig ht to a refu ndof S ta te in co m e ta x p aym en ts (i.e ., th e St at e 2 00 1 i nc om e ta x p ay m en ts ) th atitha d m ad e fo r it s t ax ab le y ear 2 00 1 an d h adcert ai n a nt ic ip at ed 8 0

The reco rddo es no t es tabl is h ava lu e fo r th e rea l es ta te inMi nn es ot a o r 7 8 a v al ue forth e o xi da ti ontec hn ol og y th atFFI co nt rib ut edto FFW in an ti ci pa ti on of th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA. As s ta te d p rev io us ly, in Fel dm anv. Co m mis si on er, 7 79 F.3dat 4 51 , th e 7 9 to ta l am ou ntof t he Fed eral an d S ta te in co m e ta x l iabi li ti es of t he C co rp or at io n was est im at edto be $7 50 ,00 0. Inth es e cas es , th e C co rp or at io n a ls o h el d $ 11 ,95 5.4 6 i n aba nkacco un t 8 0 th atoff se t a l iabi li ty in the same am ou ntco ns is ti ng of o ut st an di ng ch eck s. See supr a n ot e 2 8.- 12 9 -

[* 12 9] Fed eral an d S ta te in co m e ta x l iabi li ti es . In a dd it io n, i n F el dm anan d i n 8 1 th es e cas es , imm ed ia te ly befo re the clo si ng of the res pe ct iv e tr an sa ct io ns th ere a nd he re the C co rp or at io n h adno op erat io ns , no em pl oyees e ng ag edinop erat io ns , no in co m e, no op erat io na l as se ts (ex cep t ce rta in ox id at io n t ech no lo gy in t he se cas es ),
an d n o l iabi li ti es ex cep t the an ti ci pa te d F ed eral an d S ta te in co m e ta x l iabi li ti es . See i d. InFel dm anan d i n t he in st an t ca se s, the red em pt io n t ran sa ct io n a s wel l as th e sa le tra ns act io n t oo k p la ce. See id . There an d h ere, v irtua ll y id en ti cal st ep s were t ak eninqu ic k s uc ces si on inord er t o e ffec t the clo si ng of the red em pt io n o f a po rti onof t he C co rp or at io n s to ckan d t he pu rp orte d s al e to Mi dC oa stby the C
co rp or at io n’s s to ckho ld ers of the rem ai ni ng po rti on of t he C co rp or at io n s to ckth at th ey own ed
. InFel dm an , th e C co rp or at io n re de em edfro m it s s to ckho ld ers 20 pe rcen t o f it s o ut st an di ng st oc k a ndtra ns ferr edth e p ro ceed s fr om th atred em

pt io n (i .e., $2 93 ,72 8) to th e li m it edli ab il it y co m pa ny in wh ic h t ho se st oc kh ol de rs own edth e

Inth es e cas es , th e to ta l am ou ntof t he an ti ci pa te d F ed eral an d S ta te in co m e 8 1 ta x l iabi li ti es rem ai ni ng inth e C co rp or at io n was est im at edto be $1 ,02 6,1 00 .69 , whi chco ns is te d o f th e an ti ci pa te d F FI Fed eral an d S ta te 20 01 in co m e ta x l iabi
li ti es of $ 79 4,9 49 .13 an d $ 23 1,1 51 .56 , res pe ct iv el y .- 13 0 -

[* 13 0] m em

be rs hi p i nt eres ts . See Fe ld m anv. Co m m is si on er, 2 01 1 WL 8 2 67 81 00 6, at*6 . The p art ie s t o t he trans act io ns inFel dm anth ensi gn edon th e sa m e da te (cl os in g d at e) the st oc k p ur ch as e ag reem en t an d t he two esc ro w agr eem en ts in vo lv edth ere. At12 :0 9 p .m . on th atda te , th e C co rp or at io n d ep os it edit s ca sh
res erv es of $ 1.8 3 m il li on in to th e es cro w age nt 's tru stacco un t. At 1 :3 4 p .m . on th e cl os in g d at e, Ms . Shapi ro de po si te d $ 1.4 m il li on in to th e sa m e trus t ac co un t pu rp orte dl y

as alo anto Mi dC oa stto fun d t he st oc k p ur ch as e tr an sa ct io n. At 8 3 3: 35 p.m . onth e cl os in g d at e, $1 ,34 4,4 51 , th e p ur ch as e p ric e fo r th e C co rp or at io n st oc k t ha t the C co rp or at io n s to ckho ld ers ag reedinth e st oc k p ur ch as e ag reem en t to sel l t o M id Co as t, was wire d fr om th e es cro w age nt ’s tru stacco un t t o the li m it ed li ab il it y co m pa ny as p aym en t t o t he m forth atsal e. One m in ut e la te r at3: 36 p.m . on th e cl os in g d at e, $1 .4 m il li on was re tu rn edto Ms . Shapi ro fro m th attru st
acco un t as rep aym en t o f th e lo anth atsh e h adpu rp orte dl y m ad e to Mi dC oa st . See Fel dm anv. Co m

m is si on er, 7 79 F.3dat 4 52 . The d ay aft er the da te of t he red em pt io n t ran sa ct io n a ndth e cl os in g o f th e sa le tra ns act io n, $ 45 2,7 28 .84 was
InFel dm an , th e sh are p ur ch as e ag reem en t b etweenth e st oc kh ol de rs of t he 8 2 C co rp or at io n a ndMi dC oa stwas e xe cu te d i m m ed ia te ly after t he red em pt io n tra ns act io n t oo k p la ce. See Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 52
. InFel dm an , th ere was no pro m is so ry no te or o th er wri ti ng ev id en ci ng Ms
. 8 3 Sh ap iro ’s purp orte d l oa n, an d i t d idno t b ear i nt eres t. See Fel dm anv. Co m m is
si on er, 7 79 F.3dat 4 56
.- 13 1 -

[* 13 1] withd rawnfro m

th e es cro w tru stacco un t an d d ep os it edin to a ne wly
crea te d b an k a cco un t o f th e C co rp or at io n t ha t M id Co as t, the C co rp or at io n’s n ew
own er, co nt ro ll ed . See i d. Inth es e cas es , onDecem be r 20 , 20 01 , inacco rd an ce wi th th e te rm s o f th e SPRA, the SPRA es cro w agr eem en t, the Sh ap iro esc ro w agr eem en t, an d t he cas h
reco nc il ia ti on ag reem en t, FFI de po si te d $ 87 5,8 55 .49 in to th e Leag re es cro w
acco un t. The reaf

te r, on th e sa m e d ay , Ms . Shapi ro de po si te d $ 55 0,0 00 in to th e Leag re es cro w acco un t p ur po rte dl y as alo an to FFIA (M id Co as t’s d es ig ne e).

8 4 8 5 On Dec em

be r 20 , 20 01 , Mid Co as t d ep os it edin to th e Leag re es cro w acco un t $2 0,0 00 , th e m ax im

um am ou ntof p ro fes si on al fees th atitha d a gr eedinth e SPRA to pa y on be ha lf o f th e FFI s to ckho ld ers .

The pu rp orte d l oa n o f $5 50 ,00 0 t ha t M s. Sh ap iro was t o m ak e to Mi d- 8 4 Co as t as part o f th e SPR

tra ns act io ns was n otev id en cedby a pro m is so ry no te or an y ot he r writ in g, an d i t d idno t b ear i nt eres t. Para gr ap h 1 of t he SPRA es cro w agr eem en t p ro vi de d t ha t the $5 50 ,00 0 8 5 whi chth e so -cal le d i nv es to r (Ms . Shapi ro ) was to tra ns fer i nt o t he Leag re es cro w acco un t as a pu rp orte d l oa n was to be tra ns ferr edby w ire in to th atacco un t o nl y aft er FFI trans ferr edit s re m ai ni ng cas h o f $8 75 ,85 5.4 9 i nt o t ha t ac co un t. Co ns is te nt ly, pa rag rap h 3 of t he Sh ap iro esc ro w agr eem en t p ro vi de d t ha t M s. Sh ap iro was n otto tra ns fer a ny fun ds in to th e Leag re es cro w acco un t unt il FFI h ad tra ns ferr edin to th atacco un t “ su ffi ci en t fu nd s * * * [fo r th e es cro w age nt ] to imm ed ia te ly ini ti at e a wir e tr an sf er o f th e su m

of $ 55 0,0 00 .00 to th e acc ou ntof Sh ap iro ”.- 13 2 -

[* 13 2] Als o o n Dec em be r 20 , 20 01 , inacco rd an ce wi th th e te rm s o f th e SPRA, the SPRA es cro w agr eem en t, the Sh ap iro esc ro w agr eem en t, an d t he cas h
reco nc il ia ti on ag reem en t, the fol lo win g e ve nt s o ccu rredsi m ul ta ne ou sl y

as o f 11 :5 9 p .m .: (1) th e C co rp or at io n d is tri bu te d i ts m em be rs hi p i nt eres ts inth e 8 6 li mit edli ab il it y

co m pa ny to i ts th ree s to ckho ld ers (pe ti ti on ers ) in ex ch an ge for75 pe rcen t o f th e o ut st an di ng st oc k o f th e C co rp or at io n (S PR re de m pt io n t ran sact io n) ; (2) th e C co rp or at io n’s s to ckho ld ers so ldth e rem ai ni ng 25 pe rcen t o f th e

8 7
ou ts ta nd in g s to ckof t he C co rp or at io n t ha t the y own ed(SPR s al e tr an sa ct io n) in
ex ch an ge forcas h; (3) th e es cro w age ntreturne d $ 55 0,0 00 fro m th e Leag re es cro w
acco un t t o M s. Sh ap iro ; (4 ) th e es cro w age ntdi strib ut eda to ta l o f $5 30 ,76 6.1 5 fro m th e Leag re es cro w acco un t t o t he C co rp or at io n’s s to ckho ld ers ; (5 ) th e
es cro w age ntwithd rew $ 34 5,0 89 .34 fro m th e Leag re es cro w acco un t an d

Sect io n 1 .3 o f th e SPRA pro vi de d t ha t the clo si ng th ereu nd er was de em ed 8 6 to be effe ct iv e as of 1 1: 59 p.m . on Decem be r 20 , 20 01 . Sect io n 7 .1 o f th e SPRA pr ov id edth at“ [a]ll of t he ev en ts whi ch are t o o ccu r atth e Cl os in g u nd er thi s Agr eem en t, i nc lu di ng bu t n otli m it edto , th e d el iv ery of th e Sh are c ert ifi cat es an d th e p aym en t o f th e Pu rch as e Pri ce an d a ll ot he r rel at edex ch an ge s s ha ll be de em ed to ha ve oc cu rredsi m

ul ta ne ou sl y .” Inth es e cas es , onDecem be r 19 , 20 01 , inpre pa rat io n fo r th e cl os in g o f th e 8 7 SPRA tran sa ct io ns onDecem be r 20 , 20 01 , th e C co rp or at io n t ran sf erre d t o t he li mit edli ab il it y

co m pa ny tha t i t h adform edth ree d ay s b efo re the clo si ng da te cert ai n a ss et s, i nc lu di ng th e ri gh t t o arefu ndof t he FFI 2 00 1 i nc om e ta x p aym en ts of $6 28 ,59 2, an d c ert ai n n on ta x l iabi li ti es .- 13 3 -

[* 13 3] de po si te d t ho se fun ds in to a ne wly crea te d b an k a cco un t o f FFIA’s de si gn ee, the C co rp or at io n t ha t FF IA an d M ic ha el Bern st ei n, M id Co as t’s pr es id en t, co ntro ll ed ; an d (6 ) th e es cro w age ntdi st rib ut ed$2 0,0 00 fro m th e Leag re es cro w acco un t t o t he law fi rm th atha d re pr es en te d t he C co rp or at io n’s st oc kh ol de rs . 8 8 InFel dm anan d i n t he in st an t ca se s, af te r th e tr an sa ct io ns in vo lv edth ere a nd he re the C co rp or at io n h adan ti ci pa te d F ed eral an d S ta te in co m e ta x l iabi li ti es ina to ta l am ou ntth atex ceed edth e v al ue of i ts ass et s. See Fel dm anv. Co m m is si on er, 77 9 F .3dat 4 52 . After t he red em pt io n t ran sa ct io n a ndth e sa le tra ns act io n i n Fel dm an , th e C co rp or at io n h ad(1) $4 52 ,72 8.8 4 i n c as h o n h an d tha t, as di sc us se d ab ov e, ha d b een withd rawnfro m th e es cro w tru stacco un t an d d ep os it edin to a The va rio us de po si ts in to , andth e v ari ou s d is tri bu ti on s fr om , th e Leag re 8 8 es cro w acco un t wer e eff

ect edvi a wir e tr an sf

ers . The res pe ct iv e b an k s ta te m en ts sh owe d t ho se de po si ts in to th e Leag re es cro w acco un t as ha vi ng oc curredon Decem be r 20 , 20 01 . Tho se ba nkst at em en ts sh owe d tho se di st rib ut io ns fro m th e Leag re es cro w acco un t as havi ng oc cu rredon Decem be r 21 , 20 01 . As di sc us se d ab ov e, un de r th e SPRA, th e SPRA esc ro w agr eem en t, the Sh ap iro esc ro w agr eem en t, an d t he cas h re co nc il ia ti on ag reem en t the vario us di st rib ut io ns th atth os e res pe ct iv e ag reem en ts requi redwere co ns id eredto oc cu r si m ul tane ou sl y

as o f th e cl os in g o f th e SPRA, whi chwas d eem edto oc cu r at11 :5 9 p .m . onDecem be r 20 , 20 01 . For e xa m

pl e, th e SPRA esc ro w agr eem en t, wh ic h i nc or po rat edby referen ce th e Sh ap iro esc ro w agr eem en t an d t o wh ic h the Sh ap iro esc ro w agr eem en t an d t he cas h re co nc il ia ti on ag reem en t wer e atta ch ed , pro vi de d t ha t “ [a]t th e Cl os in g, the Escr ow Ag en t s ha ll pa y

anam ou ntequa l t o t he Inv es to r Fu nd s [$ 55 0,0 00 ] to th e In ve st or[Ms . Shapi ro ], an d s ha ll pa y th e b al an ce i n t he Escr ow Acc ou ntto FFI Acqui si ti on or i ts de si gn ee.”- 13 4 -

[* 13 4] ne wly crea te d b an k a cco un t o f th e C co rp or at io n t ha t M id Co as t co ntro ll ed an d (2 ) an ti ci pa te d F ed eral an d S ta te in co m e ta x l iabi li ti es to ta li ng

8 9 ap pr ox im at el y

$7 50 ,00 0, o r a n eg at iv e n etass etva lu e o f ap pr ox im at el y $2 97 ,27 1. See i d. Aft er the red em

pt io n t ran sa ct io n a ndth e sa le tra ns act io n i n t he se cas es , th e C co rp or at io n h ad(1) ass et s t ot al in g $ 50 2,7 89 .34 , whi ch co ns is te d o f cas h o f $3 45 ,08 9.3 4 an d t he rig htto a refu ndof $ 15 7,7 00 of t he FFI St at e 2 00 1 i nc om e

9 0 ta x p aym en ts , and(2) an ti ci pa te d F ed eral in co m e ta x l iabi li ti es an d a nt ic ip at ed St at e in co m e ta x l iabi li ti es to ta li ng $1 ,02 6,1 00 .69 , or ane ga ti ve ne t as se t v al ue of $5 23 ,31 1.3 5. 9 1

Fo urda y s af

te r th e cl os in g o f th e tr an sa ct io ns in vo lv edinFel dm an , Mid
8 9 Co as t wi th dr ew $4 42 ,00 0 o f th e $ 45 2,7 28 .84 th atha d b een de po si te d fr om th e es cro w tru stacco un t i nt o ane wly crea te d b an k a cco un t o f th e C co rp or at io n t ha t Mi dC oa st , th e C co rp or at io n’s n ew own er, co nt ro ll ed . See Fel dm anv. Co m m is
si on er, 7 79 F.3dat 4 52
. The fun ds di strib ut edto FFI, FFI A’ s d es ig ne e, were wi redin to a ne w 9 0 acco un t i n F FI’s n am e atSunTru stBan k t ha t FF IA an d M r. Bern st ei n c on tro ll ed
. On Dec em

be r 26 , 20 01 , si x d ay s af

te r th e cl os in g o f th e SPR trans act io ns , Mr. Bern st ei n h ad$3 40 ,00 0 wi redfro m FFI’s Su nTru stBan k a cco un t t o aMi dC oa st acco un t atth e Ban k o f New York. Afte r th e red em

pt io n t ran sa ct io n a ndth e sa le tra ns act io n i n the se cas es , th e 9 1 C co rp or at io n a ls o h ad$1 1,9 55 .46 ina ba nkacco un t, b utth atass etoff se t a l iabi lit y co ns is ti ng of o ut st an di ng ch eck s i n t he same am ou nt . In ad di ti on , as n ot ed ab ov e, aft er tho se tra ns act io ns th e C Co rp or at io n h adan othe r rec ei vabl e, whi ch co ns is te d o f th e Pru de nt ia l d em utua li zat io n fu nd s o f $4 3,9 26 .57 , th atFFI h ad ne ve r cl ai m edan d t ha t the Sta te of I nd ia nawas h ol di ng inth e n am e o f th e C (co nt in ue d...)- 13 5 -

[* 13 5] InFel dm anan d i n t he se cas es , aft er the clo si ng of t he res pe ct iv e tra ns act io ns th ere a ndhe re the C co rp or at io n d idno t h av e an y bu si ne ss op erat io ns
an d d idno t co m

m en ce an y

ass etreco ve ry

bu si ne ss op erat io ns or a ny ass et
rece iv ab le co ll ect io n b us in es s o pe rat io ns . See i d. at45 2. InFel dm anan d i n t he in st an t ca se s, af te r th e cl os in g o f th e res pe ct iv e tra ns act io ns th ere a ndhe re the C co rp or at io n c la im edcert ai n l os se s t o o ffs etth e ga in s fr om

th e sa le of i ts ap pr eci at edass et s t ha t h adtak enpl ace b efo re the
res pe ct iv e tr an sa ct io ns in vo lv edoc cu rred . See i d. at45 3. In Fel dm an , th e Co m m is si on er d en ie d t he lo ss es cla im edan d i ss ue d ano ti ce o f de fic ie nc y to th e C
co rp or at io n. Th e C co rp or at io n d idno t re sp on d t o t he no ti ce o f de fic ie nc y , and th e Co m m is si on er as se ss edth e d efi ci en cy , cert ai n a dd it io ns to tax , andth e
accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) d et erm in edinth atno ti ce. The reaf
te r, th e Co m

m is si on er i ss ue d n ot ic es of l iabi li ty to the res pe ct iv e fo rm er s to ck
ho ld ers of t he C co rp or at io n. Se e Fel dm anv. Co m mis si on er, 7 79 F.3dat 4 53 . In Fel dm an , th os e fo rm er s to ckho ld ers st ip ul at edth atth e “ di st res se d a ss et/d eb t t ax sh el te r” tha t M id Co as t u se d i n a n a tt em ptto sh el te r th e g ai n t ha t the C co rp or at io n ha d re al iz edfro m

th e sa le of i ts ap pr eci at edass et s was “ il le ga l” , andth ey di d n ot
(...co nt in ue d) 9 1 co rp or at io n. Se e supr a n ot e 2 8.- 13 6 -

[* 13 6] ch al le ng e th e as se ss m en t o f th e Fed eral in co m e ta x l iabi li ty agai ns t the C
co rp or at io n. Se e id
. Inth e in st an t ca se s, re sp on de ntde ni edth e lo ss es th atth e C co rp or at io n cl ai m ed . The C co rp or at io n e nt eredin to a cl os in g a gr eem en t wi th res po nd en t wi th
res pe ctto , in te r al ia , th os e d is al lo wedlo ss es . The C co rp or at io n a ls o c on se nt edto th e as se ss m en t an d t he co ll ect io n o f Fed eral in co m e ta x o f $6 22 ,26 5 a ndan
accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) an d (h ) of $8 5,4 82 forit s t ax ab le y ear 2 00 1. Th erea fte r, res po nd en t i ss ue d re sp ect iv e n ot ic es of l iabi li ty to the
res pe ct iv e fo rm er s to ckho ld ers of t he C co rp or at io n (M r. Fan kh au se r, Mr. Wein
traut , andMs . Fan kh au se r) fo r FFI’s t ot al in co m e ta x l iabi li ty for i ts tax ab le y ear 20 01 of $ 69 4,5 19 .43 th atco ns is te d o f Fed eral in co m e ta x o f $6 09 ,03 7.4 3 an d a n 9 2
accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) an d (h ) to ta li ng $8 5,4 82 , as wel l as in te res t the reo n a s p ro vi de d b y law. Pet it io ne rs do no t d is pu te on bri ef tha t FF I is li ab le forth attax an d t ha t p en al ty, an d we c on cl ud edth atth ey ha ve ab an do ne d
co nt es ti ng th em . See s up ra n ot e 5 8.

Res po nd en t co nc ed edinth e res pe ct iv e an swe rs inth es e cas es th at“ th e 9 2 rem ai ni ng unpa idtax de fic ie nc y of F FI tha t i s s etforthinth e Not ic e o f Liab il it y as th e am ou ntof $ 60 9,0 37 .43 is actua ll y $5 78 ,33 8.4 3, p lu s I.R .C. § 6 66 2 p en al ty in th e am ou ntof $ 85 ,48 2.0 0, p lu s ap pl ic ab le in te res t.” Re sp on de nt ’s con ces si on refl ect s t ha t re sp on de ntco ll ect edfro m th e St at e o f In di an a th e Pru de nt ia l d em utual iz at io n fu nd s o f $4 3,9 26 .57 to whi ch FFI h adbe enen ti tl ed
.- 13 7 -

[* 13 7] InFel dm anan d i n t he in st an t ca se s, the C co rp or at io n was adm in
is tra ti ve ly dis so lv edby the ap pr op ria te Sta te auth or it y . See i d. at45 3. W e h av e co m

pa redrel ev an t fa ct s, i nc lu di ng m at eri al fact s, wh ic h we f ou nd in Fel dm anan d o n wh ic h the Co urt o f App eal s re li ed , andrel ev an t fa ct s, i nc lu di ng
m at eri al fact s, wh ic h we h av e fo un d i n t he se cas es . As a res ul t o f th atco m pa ris on , we rejectpe ti ti on ers ’ co nt en ti on th atth e fac ts inFel dm anare n otth e sa m e in
m at eri al res pe ct s as th e fac ts th atwe ha ve fou ndinth es e cas es . 9 3 Mo reo ve r, as a res ul t o f ou r co m pa ris on of c ert ai n fa ct s i n F el dm anan d cert ai n fa ct s i n t he se cas es , we con cl ud e th atth e Co urt o f App eal s’ op in io n i n Fel dm anst ro ng ly sup po rts a fi nd in g i n t he se cas es th ateach of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r is a tr an sf eree of p ro pe rty of FFI forpu rp os es of sec ti on 69 01 with re sp ectto th e SPR sal e tr an sa ct io n und er the SPRA. W e sh al l re st at e certa in of the fact s t ha t we h av e fo un d i n t he in st an t ca se s tha t l eadus to th atco nc lu si on .

As i nd ic at edpre vi ou sl y , we bel ie ve th atpe ti ti on ers ’ co nt en ti on s re ga rd in g 9 3 th e al le ge d m at eri al factua l d iff eren ces be twee n F el dm anv. Co m m is si on er, 7 79 F.3 d 4 48 , andth e in st an t ca se s re ga rd in g wh ethe r pe ti ti on ers kn ew orsh ou ldha ve kn own th atFFI’s “ ta xe s fr om it s as se t s al e wou ldno t b e p ai d” are n otrel ev an t t o whe th er the y

are tran sf

eree s o f pr op erty

of F FI fo r pu rp os es of s ec. 6 90 1 wi th res pe ctto th e SPR

sal e tr an sa ct io n u nd er the SPRA.- 13 8 -

[* 13 8] Afte r th e sa le s o f it s o pe rat in g a ss et s, FF I cea se d c arrying on an y act iv e b us in es s, h adno op erat in g a ss et s (e xc ep t ce rta in ox id at io n t ech no lo gy), and ha d c ert ai n n on op erat in g a ss et s, wh ic h c on si st edof c as h, a n ot e fro m th e b uyer of th e Elmwoo d p ro pe rty, certa inin te res t re cei vabl e o n t ha t n ot e, a few o th er re cei vab le s, an d c ert ai n re al pro pe rty in M in ne so ta . Mor eo ve r, aft er FFI so ldit s o pe rat in g a ss et s, i t n oton ly hadpl an ne d b utals o h adtak enform al co rp or at e act io ns to li qu id at e an d t o d is tri bu te it s n on op erat in g a ss et s t o i ts st oc kh ol de rs , Mr. Fan khaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er. Inad di ti on , du rin g 2 00 1, af te r FFI’s 20 01 ass etsal es , FFI m ad e to ta l Fe de ral an d S ta te in co m e ta x p aym en ts of $7 86 ,29 2 t ha t wer e to be ap pl ie d a ga in stit s t ot al Fed eral an d S ta te in co m e ta x li ab il it ie s fo r it s t ax ab le y ear 2 00 1, wh ic h wer e at tri bu tabl e to th e g ai ns th atitha d real iz edas ares ul t o f th e FFI 2 00 1 a ss etsal es . Altho ug h M r. Thrapp was a ware o f FFI’s s itua ti on as o f ear ly D ecember 20 01 , no ne th el es s o n Dec em be r 7, 2 00 1, h e in fo rm edth e FFI o ffi cers (Mr. Fa nk
haus er an d M r. W ei nt rau t) t ha t M id Co as t m ig htbe in te res te d i n p ur ch as in g the st oc k o f FFI a t a s o- cal le d p rem iu m ; tha t i s t o s ay , Mid Co as t m ig htbe in te res te d i n pu rch as in g t he st oc k o f FFI fo r anam ou ntth atwas g reat er tha n t he po st ta x l iqui d-- 13 9 -

[* 13 9] ati on va lu e o f FFI, i .e., th e v al ue of F FI’s as se ts aft er the paym en t o f it s li ab il it ie s, i nc lu di ng it s Fe de ral an d S ta te in co m e li ab il it ie s fo r it s t ax ab le y ear 20 01
. 9 4 Mr. Th rap p i nf

orm edMr. Wein trautan d M r. Fan kh au se r th atth e p ur ch as e pr ic e fo r th e st oc k t ha t M id Co as t u su al ly pai d i n d eal s l ik e th e o ne th atitwas
su gg es ti ng was c al cu la te d b y us in g ape rcen ta ge of t he acqui redco m pa ny’ s t ot al Fed eral an d S ta te in co m e ta x l iabi li ti es , whi chva rie d fr om acqui si ti on to acqui si
ti onbu t was withi n aran ge th atMi dC oa stha d e st ab li sh ed . Mr. Thrapp , who was
no t a t ax pro fes si on al , als o a dv is edth e FFI o ffi cers th atitwas h is un de rs tand in g th atMi dC oa stha d atax st rat eg y th atitco ns id eredto be pro pr ie ta ry an d t ha t i t h ad
us edinco nn ect io n wi th it s ac qu is it io n m etho do lo gy in wh ic h i t ac qu ire d C
co rp or at io ns with c as h a ndcert ai n F ed eral an d S ta te in co m e ta x l iabi li ti es . Mr. Thrapp di d n otkn ow an y of t he de ta il s o f Mi dC oa st ’s acqui si ti on m etho do lo gy or it s t ax st rat eg y . Howev er, i t was Mr. Thr ap p’s und ers ta nd in g, wh ic h h e sh ared 9 5
Mr. Th rap p h adso m e fam il ia rit y with M id Co as t b ecau se itwas acli en t o f 9 4 Ice M il le r on a pr io r oc cas io n i n atra ns act io n t ha t was un rel at edto th e tr an sa cti on s h erei n a ndth atclo se d i n No ve m be r 20 01 . Mr. Thrapp co ns id eredth e in fo rm at io n t ha t Ic e Mi ll er o bt ai ne d a s a r es ul t o f th atrep res en ta ti on to be pri vi le ge d. Eve n i f Mr. Th rap p h adkn own , th ro ug h Ic e Mi ll er’s rep res en ta ti on of 9 5 Mi dC oa st , so m e o r al l o f th e d et ai ls reg ard in g M id Co as t’s ac qu is it io n m ethod ol og y an d i ts tax st rat eg y , he wo ul d n otha ve be enab le to di sc lo se any su ch (co nt in ue d...)- 14 0 -

[* 14 0] with t he FFI o ffi cers , th atMi dC oa stus edth e cas h o f anacqui redC
co rp or at io n i n o rd er t o b uy char ge d- of f de btsec ur it ie s t ha t M id Co as t i nt en de d t o
us e in it s s o- cal le d a ss etreco ve ry bu si ne ss , bu t h e h adno un de rs ta nd in g o f ho w Mi dC oa stus edth os e se curit ie s as pa rt o f it s t ax st rat eg y . Mr. Wein trautan d M r. Fan kh au se r m ad e o nl y cert ai n l im it edin qu iri es of Mr. Th rap p wi th res pe ctto Mi dC oa st ’s ov eral l ac qu is it io n m etho do lo gy, inc lu di ng it s t ax st rat eg y , of a cqui rin g C co rp or at io ns . Howev er, Mr . Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er kne w, di rect ly or th ro ug h M r. Thrapp , th atMi dCo as t’s p ric in g i n i ts acqui si ti on m etho do lo gy was in ex tri cab ly int ertwin edwith it s t ax st rat eg y . On Dec em

be r 7, 2 00 1, the same day on whi ch Mr. Thr ap p i nf orm edth e FFI of fic ers ab ou t M id Co as t’s p os si bl e in te res t i n p ur ch as in g the st oc k o f FFI, the FFI of fic ers , Mr. Thr ap p, an d F FI’s acc ou nt an ts , Mr. Bu rn s an d M r. Vern ic k o f th e Katz acco un ti ng firm , hel d aco nf eren ce ca ll with c ert ai n re pr es en ta ti ve s o f Mi dC oa st .
(...co nt in ue d) 9 5 de ta il s t o M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r. Thatwas b ecau se Mi dC oa stwas acli en t o f Ice Mi ll er o f whi ch Mr. Thr ap p was a pa rtn er, an d M r. Thrapp was s ub

ject t o c ert ai n e th ic al co ns tra in ts with re sp ectto th e d is cl os ur e o f an y cli en t i nf orm at io n.- 14 1 -

[* 14 1] Neit he r Mr. Th rap p n oran y of the FFI s to ckho ld ers saw a ny needto , an d d idno t, p res s M id Co as t’s re pr es en ta ti ve s re ga rd in g t he de ta il s o f it s t ax st rat eg y . Nor d idMr. Thr ap p o r an y of t he FFI s to ckho ld ers see an y ne edto , or i n fact , in qu ire th ro ug h t he ir r es pe ct iv e co nt act s wh ethe r th ere wer e p ers on s wh o
were n otem

pl oyed b y Mi dC oa stor b y

Ice M il le r an d wh o m ig htbe fam il ia r wit h Mi dC oa st ’s acqui si ti on m etho do lo gy andit s t ax strat eg y . 9 6 On Dec em

be r 11 , 20 01 , Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan khaus er ex ecu te d a n e ng ag em en t l et te r da te d Dec em be r 11 , 20 01 , inwhi ch th ey ret ai ne d Ic e Mi ll er t o re pr es en t FF I an d the m as s to ckho ld ers of F FI wit h re sp ect to Mi dC oa st ’s pro po sa l t o p ur ch as e th e st oc k o f FFI. On Dec em

be r 11 , 20 01 , Mr. Berns te in sen t t o M r. Fan kh au se r, Mr. Wein
traut , andMs . Fan kh au se r onbe ha lf o f Mi dC oa sta no nb in di ng let te r of in te ntwith
res pe ctto a pr op os edacqui si ti on of the st oc k o f FFI b y Mi dC oa stth atrequi red FFI as pa rt o f th atpro po se d a cqui si ti on to red eem 75 pe rcen t o f it s s to ckfro m it s st oc kh ol de rs . Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r (thr ou gh Mr. Fan kh au se r) kne w, di rect ly or th ro ug h M r. Thrapp , th atth e tr an sa ct io ns th at
The reco rddo es no t es tabl is h wh y Mr. Thr ap p a ndth e FFI s to ckho ld ers 9 6 di d n otin qu ire th ro ug h t he ir r es pe ct iv e co nt act s wh ethe r th ere wer e p ers on s wh o were n otem

pl oyed b y Mi dC oa stor b y

Ice M il le r an d wh o m ig htbe fam il ia r wit h Mi dC oa st ’s tax st rat eg y .- 14 2 -

[* 14 2] Mi dC oa stha d p ro po se d i n t he let te r of in te ntwou ldres ul t i n t he ir
rece iv in g aso -cal le d p rem iu m , i.e., a g reat er am ou ntof a ss et s t ha n t he y wou ld
rece iv e if FFI were to li qu id at e an d t he res pe ct iv e Fed eral an d S ta te in co m e ta x li ab il it ie s t ha t FF I ha d a s a r es ul t o f th e FFI 2 00 1 a ss etsal es were t o b e p ai d i n fu ll . Thatwas wh y

on Decem

be r 12 , 20 01 , th e d ay

aft er Mi dC oa stha d s en t the FFI s to ckho ld ers th e le tt er o f in te nt , th os e st oc kh ol de rs si gn edan d a ccep te d t he te rm s o f th atlet te r. Whe n t he y acce pt edMi dC oa st ’s let te r of in te ntMr. Fan khaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er kne w, as d idMr. Thr ap p, tha t the on ly
reas onth atth e FFI s to ckho ld ers wou ldbe ab le to rece iv e th atso -cal le d p rem iu m
was th atFFI’s t ot al an ti ci pa te d 2 00 1 t ax li ab il it y , whi ch was a tt rib ut ab le to th e
sa le s o f it s as se ts in20 01 , wou ldno t b e p ai d. In ot he r wor ds , Mr. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er kne w, as d idMr. Thr ap p, tha t i f an d o nl y if t ha t to ta l an ti ci pa te d 2 00 1 t ax li ab il it y was n otpa idwou ldth ey rece iv e th e so -cal le d pr em iu m th atMi dC oa stha d p ro po se d i n t he let te r of in te nt . Afte r th e FFI s to ckho ld ers acce pt edth e le tt er o f in te nt , Mr. Thr ap p was
res po ns ib le forne go ti at in g i n l arg e p artth e ag reem en t am on g t ho se pa rti es reg ard
in g t he tra ns act io ns th atMi dC oa stha d p ro po se d i n t ha t l ette r. Mr. Wein traut , ho wev er, n eg ot ia te d d ire ct ly w it h c ert ai n o f Mi dC oa st ’s rep res en ta ti ve s as to th e pe rcen ta ge of F FI’s to ta l Fe de ral an d S ta te in co m e ta x l iabi li ti es for it s t ax ab le- 14 3 -

[* 14 3] y ear 2 00 1 t ha t M id Co as t wo ul d p ay to pu rch as e th e st oc k o f th e FFI st oc kh ol de rs . In d oi ng so , Mr. W ei nt rau t at te m pt edto ha ve Mi dC oa stag ree t o p ay a p erce nt ag e th atwas a t the hi gh en d o f th e ran ge of p erce nt ag es to whi ch he
un de rs to odMi dC oa stha d a gr eedinth e p as t as pa rt o f it s ac qu is it io n m etho dol og y . Aro un d Dec em

be r 18 , 20 01 , aft er Mr . W ei nt rau t co m pl et edne go ti at in g wi th cert ai n o f Mi dC oa st ’s rep res en ta ti ve s as to th e p erce nt ag e o f FFI’s t ot al Fed eral
an d S ta te in co m e ta x l iabi li ti es forit s t ax ab le y ear 2 00 1 t ha t M id Co as t wo ul d p ay to pu rch as e th e st oc k o f th e FFI s to ckho ld ers , Mr. W ei ntrau t p rep areda ba la nc e sh eetforFFI (i .e., th e Dece m be r 18 , 20 01 ba la nc e sh eet ) th atrefl ect edit s as se ts
an d i ts li ab il it ie s as of t ha t d at e o n t he ass um pt io n t ha t the tra ns act io ns pro po se d in th e le tt er o f in te ntwere t o o ccur. Acco rd in g t o t he Decem be r 18 , 20 01 ba la nc e sh eet , FFI was to ha ve th e fo ll owi ng ass et s an d t he fol lo win g l iabi li ti es aft er i t di st rib ut edm em

be rs hi p i nt eres ts inFFW to Mr. Fan kh au se r, Mr. Wein traut , and 9 7 Ms . Fan kh au se r in ex ch an ge for 75 pe rcen t o f th e FFI s to ckth atth ey own ed : (1 )
cas h o f $8 75 ,85 5.4 9, (2 ) th e ri gh t t o arefu ndof t he FFI St at e 2 00 1 i nc om e ta x
FFI fo rm edFFW to s erv e, in te r al ia , as ave hi cl e to tra ns fer t o t he FFI 9 7 st oc kh ol de rs cert ai n o f FFI’s ca sh an d n on cas h a ss et s an d a ll of i ts li ab il it ie s ex cep t i ts Fed eral an d S ta te in co m e ta x l iabi li ti es forit s t ax ab le y ear 2 00 1 i n ex ch an ge for75 pe rcen t o f th e o ut st an di ng st oc k o f FFI tha t the y own ed
.- 14 4 -

[* 14 4] pa ym en ts of $ 15 7,7 00 , (3) anan ti ci pa te d F ed eral in co m e ta x l iabi li ty for FFI’s t ax ab le y ear 2 00 1 o f $7 94 ,94 9.1 3, an d (4 ) anan ti ci pa te d S ta te in co m e ta x li ab il it y for FFI’s t ax ab le y ear 2 00 1 o f $2 31 ,15 1.5 6. Pu rs ua ntto a fo rm ul a se t fo rth inth e Dece m

be r 18 , 20 01 ba la nc e sh eet , th e st oc k p ur ch as e p ric e fo r th e st oc k o f FFI t ha t M id Co as t was to pu rch as e fro m th e FFI s to ckho ld ers was t o b e de te rm in ed , as s ho wn i n t ha t b al an ce s he et , by reduc in g t ho se to ta l as se ts (i.e ., $1 ,03 3,5 55 .49 ) by 49 pe rcen t (i .e., by $5 02 ,78 9.3 4) of t ho se to ta l l iabi li ti es (i.e ., $1 ,02 6,1 00 .69 ). The b al an ce o f $5 30 ,76 6.1 5 was to be th e p ur ch as e p ric e fo r th e st oc k o f FFI. On Dec em

be r 20 , 20 01 , FFIA (Mi dC oa st ’s des ig ne e to serve as t he pu rch as er o f th e FFI s to ck ), FFI, an d t he FFI s to ckho ld ers en te redin to th e SPRA, 9 8 th e te rm s o f whi ch were s im il ar b utno t i de nt ic al to th e te rm s t ha t M id Co as t h ad pr op os edinth e le tt er o f in te nt . The o nl y reas on th atFFI an d t he FFI s to ckho ld ers de ci de d t o, an d d id , exe cu te th e SPRA andth e rel at edag reem en ts (i.e ., th e SPRA
es cro w agr eem en t an d t he cas h re co nc il ia ti onag reem en t tha t was att ach edto th e

On Dec em

be r 18 , 20 01 , inpre pa rat io n fo r th e tr an sa ct io ns co nt em pl at edin 9 8 th e le tt er o f in te nt , Mr. Berns te in org an iz edun de r th e la ws o f th e St at e o f In di an a FFIA as a li m it edli ab il it y co m pa ny to e nt er i nt o t ho se tra ns act io ns as M id Co as t’s de si gn ee. Imm ed ia te ly befo re the clo si ng of t he SPR tran sa ct io ns , FFIA h adno as se ts , andim

m ed ia te ly the reaf

te r it s o nl y

ass etwas t he st oc k o f FFI.- 14 5 -

[* 14 5] SPRA es cro w agr eem en t) was t ha t tho se st oc kh ol de rs want edto , and 9 9 Mi dC oa stag reedth atth ey wou ld , recei ve a subs ta nt ia ll y gre at er am ou nt , a so cal le d p rem iu m , fro m

th e tr an sa ct io ns to whi chth ey ag reedpu rs ua ntto th os e do cu m en ts th atth anth ey wou ldrece iv e fro m

th e li qu id at io n o f FFI a fte r FFI’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9, wh ic h was attrib ut ab le to FFI’s 2 00 1 a ss etsal es , hadbe enpa id . Mr. Fan kh au se r, Mr. Wein traut , andMs
. Fan kh au se r kn ew, as di d M r. Thrapp , th atth e o nl y reas onth atth e FFI s to ck
ho ld ers wou ldbe ab le to rece iv e th atsubs ta nt ia ll y gre at er am ou ntwas t ha t FF I’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9 wo ul d n otbe pa id . In o th er
wor ds , Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew, as di d M r. Thrapp , th atif a ndon ly if th atto ta l an ti ci pa te d 2 00 1 t ax li ab il ity was n otpa id
wou ldth ey

rece iv e th e so -cal le d p rem iu m . 1 0 0
The Sh ap iro esc ro w agr eem en t al so was a tt ach edto th e SPRA esc ro w 9 9 ag reem en t. The res pe ct iv e am ou nt s o f th e Fed eral an d S ta te in co m e ta x l iabi li ti es of 1 0 0 FFI fo r it s t ax ab le y ear 2 00 1 t ha t wer e at tri bu tabl e to th e sa le s o f it s as se ts were es ti m at edto be $7 94 ,94 9.1 3 and$2 31 ,15 1.5 6, re sp ect iv el y . Und er the SPRA, the st oc kh ol de rs of F FI were to ret ai n, thr ou gh th ei r res pe ct iv e o wne rs hi p i nt eres ts in FFW tha t FF I was to di st rib ut e to th em un de r th atag reem en t, the rig htto a refu nd of th e FFI F ed eral 20 01 in co m e ta x p aym en ts of $ 62 8,5 92 , whi ch Mi dC oa st gu aran te edFFI wo ul d p ay to FFW after F FI rec ei ve d i t fr om th e Fed eral Gov ern m en t. FFI , andth us Mi dC oa st , was t o re ta in aft er the tra ns act io ns inth e SPRA were ef fect edth e ri gh t t o arefu ndof t he FFI St at e 2 00 1 i nc om e ta x p aym en ts of (co nt in ue d...)- 14 6 -

[* 14 6] Each of t he FFI s to ckho ld ers als o kne w, as d idMr. Thr ap p, tha t the
so -cal le d l oa n o f $5 50 ,00 0 tha t M s. Sh ap iro was t o m ak e to FFIA (M id Co as t’s de si gn ee) t o fu ndth e so -cal le d p ur ch as e o f th e FFI s to ck was n otev id en cedby a pr om is so ry

no te or o th er wri tt endo cu m en t an d d idno t b ear i nt eres t. Eachof th os e st oc kh ol de rs als o kne w, as d idMr. Thr ap p, tha t tha t s o- cal le d l oa n o f Ms
. Sh ap iro was t o b e d ep os it edin to th e Leag re es cro w acco un t o n Dec em be r 20 , 20 01 , bu t o nl y

aft er FFI ha d d ep os it edit s ca shof $ 87 5,8 55 .49 in to th atacco un t o n th atda y , andth atitwas t o b e returne d t o h er as of t he clo si ng of the trans act io ns
un de r th e SPRA at 1 1: 59 p.m . on Decem be r 20 , 20 01 , whi ch , pu rs ua ntto th e SPRA, was de em edto oc cu r si m ul ta ne ou sl y . Mo reo ve r, each of M r. Fan k-

1 0 1 (...co nt inue d) 1 0 0 $1 57 ,70 0. Be cau se of t ho se an ti ci pa te d re fu nd s o f th e FFI F ed eral 20 01 in co m e ta x p aym en ts an d t he FFI St at e 2 00 1 i nc om e ta x p aym en ts , Mr. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er kne w, as d idMr. Thr ap p, tha t n on e o f FFI’s t ot al an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9 wo ul d b e p ai d, the reb y en ab li ng th em to rece iv e a s ub st an ti al ly great er am ou nt , a so -cal le d p rem iu m , fro m th e tra ns act io ns to whi chth ey ag reedinth e SPRA th anth ey wou ldrece iv e fro m

th e li qu id at io n o f FFI t o wh ic h the y ha d a gr eedbe fo re Mr . Thrap p t ol d t he m ab ou t Mi dC oa st ’s in te res t i n b uyin g t he ir F FI s to ck . See s up ra n ot e 3 4. Each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r al so kn ew 1 0 1 th atalt ho ug h M s. Sh ap iro ’s so -cal le d l oa n o f $5 50 ,00 0 t o F FIA was to be de em ed rep ai d a s o f th e cl os in g o f th e SPR tra ns act io ns , th e wir e tr an sf er t o M s. Sh ap iro ’s ba nkacco un t o f $5 50 ,00 0 fr om th e es cro w was n otto oc cu r un ti l the da y aft er the cl os in g o f th os e tr an sa ct io ns . Sim il arl y , each of t he m kn ew th atalt ho ug h t he y were d eem edto rece iv e as of t he clo si ng of the SPR tran sa ct io ns th ei r res pe ct iv e (co nt in ue d...)- 14 7 -

[* 14 7] haus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er kne w, as d idMr. Thr ap p, tha t pu rs ua ntto th e SPRA, th e SPRA esc ro w agr eem en t, an d t he cas h re co nc il ia ti on ag reem en t, FFI was t o d ep os it$8 75 ,85 5.4 9 i nt o t he Leag re es cro w acco un t o n Decem be r 20 , 20 01 , bu t i t was to rece iv e o nl y $3 45 ,08 9.3 4 fr om

th atLeag re
es cro w acco un t as of t he clo si ng of t he SPRA at11 :5 9 p .m . onth atda te . Each 1 0 2 of th e FFI s to ckho ld ers als o kne w, as d idMr. Thr ap p, tha t the di ffer en ce b etween th e am ou ntth atFFI was to de po si t i nt o t he Leag re es cro w acco un t (i .e., $8 75 ,85 5.4 9) an d t he am ou ntth atitwas t o re cei ve fro m th e Leag re es cro w
acco un t (i .e., $3 45 ,08 9.3 4) was e qu al to $5 30 ,76 6.1 5, wh ic h e ach of t he m kn ew,
as di d M r. Thrapp , was the am ou ntof t he pu rch as e p ric e th atth ey were t o re cei ve fro m , acco rd in g t o t he term s o f th e SPRA, FFIA. In a dd it io n, ea ch of M r. Fan khaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er u nd ers to od , as d idMr. Thr ap p, tha t Mi dC oa stth ro ug h F FIA was purp orti ng to pu rch as e FFI s to ckfro m th em inord er to acqui re FFI so th atMi dC oa stwou ldbe ab le to us e FFI’s c as h i n o rd er t o b uy
(...co nt inue d) 1 0 1 pr op orti on at e p orti on s o f th e p ur ch as e p ric e fo r th e tr an sf er o f th ei r FFI s to ckto FFIA, the wire tra ns fers to th ei r res pe ct iv e b an k a cco un ts of t ho se pro po rti on at e po rti on s wer e n otto oc cu r un ti l the da y aft er the clo si ng of t ho se tra ns act io ns . As was tru e o f th e res pe ct iv e wir e tr an sf ers to Mr. Fan kh au se r, Mr. Wein
1 0 2 traut , Ms . Fan kh au se r, an d M s. Sh ap iro , FFI, FFIA’s d es ig ne e, rece iv eda wire tra ns fer o n t he da y

aft er the clo si ng of t he SPR tran sa ct io ns .- 14 8 -

[* 14 8] ch arg ed -o ff d eb t s ecu rit ie s t ha t M id Co as t i nt en de d t o u se init s s o- cal le d
as se t re co ve ry

bu si ne ss . Howev er, eac h o f th e FFI s to ckho ld ers kn ew, as di d M r. Thrapp , th atMi dC oa stth ro ug h F FIA ag reedinth e SPRA to pa y th em $5 30 ,76 6.1 5 in cas h fo r th ei r FFI s to ckan d t ha t as of t he clo si ng of t he SPR tran sa ct io ns FFIA
was to rece iv e o nl y

$3 45 ,08 9.3 4 o f cas h a ndth e ri gh t t o arefu ndof the FFI St at e 20 01 in co m e ta x p aym en ts of $ 15 7,7 00 , or ato ta l o f $5 02 ,78 9.3 4. In ot he r wor ds , each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew, as di d M r. Thrapp , th atMi dC oa stth ro ug h F FIA ag reedinth e SPRA to pa y $5 30 ,76 6.1 5 o f
cas h t o a cqui re the FFI s to ckfro m th em inord er t o h av e acc es s fo r pu rp orte d u se in it s as se t re co ve ry

bu si ne ss to on ly a tot al of $ 50 2,7 89 .34 (i.e ., $3 45 ,08 9.3 4 o f
cas h a ndth e ri gh t t o arefu ndof t he FFI St at e 2 00 1 i nc om e ta x p aym en ts of $1 57 ,70 0)
. Inad di ti on , eachof M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew, as di d M r. Thrapp , or s ho ul d h av e kno wn, as Mr. Thr ap p s ho ul d h av e kn own , th atMs . Shapi ro ’s so -cal le d l oa n o f $5 50 ,00 0 t o F FIA was no t n eed edor
us edinord er t o e ffec t the SPR s al e tr an sa ct io n u nd er the SPRA an d t ha t tha t s ocal le d l oa n was m ere wi nd ow dres si ng de si gn edto m ak e itap pe ar tha t FF IA, no t FFI, was pro vi di ng th e fu nd s t o b e p ai d t o t he m forth e tr an sf

er o f th ei r FFI s to ck to FFIA. Inothe r wor ds , each of the FFI s to ckho ld ers kn ew, as di d M r. Thrapp , or- 14 9 -

[* 14 9] sh ou ldha ve kn own , as M r. Thrapp sh ou ldhave kn own , th atMs . Shapi ro ’s
so -cal le d l oa n o f $5 50 ,00 0 t o F FIA was de vo idof a ny econ om ic subs ta nc e--a sh am th atwas d es ig ne d a ndin te nd edto m ak e itap pe ar as th ou gh FFIA, n otFFI,
was pro vi di ng th e fu nd s t o b e p ai d t o t he FFI s to ckho ld ers forth e tr an sf er o f th ei r FFI s to ckto FFIA. Mo reo ve r, each of M r. Fan kh au se r, Mr. Wein traut , andMs
. Fan k- haus er kne w, as d idMr. Thr ap p, o r sh ou ldha ve kn own , as M r. Thrapp sh ou ldha ve kn own , th atth e so ur ce o f th e fu nd s tha t the y were t o re cei ve forth e tra ns fer o f th ei r FFI s to ckto FFIA was FFI, n otFFIA. Tha t i s t o s ay , each of t he FFI s to ckho ld ers , as wel l as Mr. Thr ap p, kne w, or s ho ul d h av e kno wn, tha t FF I,
no t FF IA, was t o, an d d id , pay eachof t ho se st oc kh ol de rs eachsu chst oc kh ol de r’s pr op orti on at e p orti on of t he so -cal le d p ur ch as e p ric e (i .e.,$5 30 ,76 6.1 5) th ateach
was to rece iv e und er the SPRA. Inreac hi ng it s h ol di ng th atth e ta xp ay ers inFel dm anv. Co m m is si on er, 7 79 F.3 d 4 48 , were tran sf

eree s o f pr op erty

of Woo ds id e fo r pu rp os es of s ect io n 6 90 1, th e Co urt o f App eal s fi rs t o bs erv edth atth e an al y si s t ha t we h adun de rta ke n i n Fel dm anv. Co m

m is si on er, 2 01 1 WL 67 81 00 6, wh ic h l oo ks be y on d t he form al it ie s of cert ai n t ran sa ct io ns , im pl ic at es sev eral rel at ed , ov erl ap pi ng do ctrin es us edintax cas es an d in ot he r are as of t he law fo r th e p ro te ct io n o f cre di to rs . Kno wn b y di ffer en t n am es --e.g ., th e “ subs ta nc e o ve r fo rm ” d oc tri ne , th e- 15 0 -

[* 15 0] “bu si ne ss pu rp os e” d oc tri ne , th e “ eco no m ic subs ta nc e” d oc tri ne --the an im at in g p rin ci pl e o f eac h i s t ha t the law l oo ks be y on d t he form of a tra ns act io n t o d is cern it s s ub st an ce. * * * [ Fel dm anv. Co m mis si on er, 77 9 F .3dat 4 54 .] Und er the Fed eral subs ta nc e o ve r fo rm do ctrin e, itis th e subs ta nc e, no t the fo rm , of atra ns act io n wh ic h d et erm in es it s Fe de ral tax co ns eque nc es . See ge ne ral ly FrankLy onCo . v. Co m m is si on er, 4 35 U.S. 56 1, 5 73 (19 78 ); Gre go ry v. Helv eri ng , 29 3 U.S. 4 65 (19 35 ); F el dm anv. Co m m is si on er, 7 79 F.3dat 4 55 ; Gro jeanv. Co m

m is si on er, 2 48 F.3d57 2 (7 th Cir . 20 01 ), aff’g T.C. Me m o. 1 99 9- 42 5. Th e Co urt o f App eal s af firm edou r fi nd in g, s ee Fe ld m anv. Co m m is si on er, 20 11 W L 67 81 00 6, at*1 0- *1 4, tha t i n s ub st an ce the pu rp orte d s to cksal e in vo lv ed th ere was a li qu id at io n. Se e Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 55 -4 57
. Und er the Fed eral eco no m ic subs ta nc e d oc tri ne , a tra ns act io n t ha t d oe s n ot ha ve eco no m ic subs ta nc e, th atis to say, a tran sa ct io n wh ic h d oe s n otch an ge a ta xp ay er’s p os it io n “ ina m ean in gf ul way ” an d fo r whi chth e ta xp ay er d oe s n ot ha ve a no nt ax bu si ne ss pu rp os e, wil l n otbe res pe ct edfor Fed eral tax pu rp os es . 1 0 3 See F el dm anv. Co m

m is si on er, 7 79 F.3dat 4 55 ; s ee al so Greg ory v. Acco rd in g t o t he Co urt o f App eal s i n F el dm anv. Co m mis si on er, 7 79 F.3d 1 0 3 at45 5, the Fed eral eco no mic subs ta nc e d oc tri ne “bo rro ws h eav il y fro m bo th th e bu si ne ss -p ur

po se an d s ub st an ce-o ve r-fo rm do ctrin es .” Und er the bu si ne ss pu rpo se do ctrin e, a tr an sa ct io n m us t h av e a v al idno nt ax bu si ne ss pu rp os e in ord er t o be res pe ct edfor

Fed eral tax pu rp os es . See Greg ory v. Hel ve rin g, 2 93 U.S. 46 5, 46 9 (1 93 5) ; Fe ld m anv. Co m m is si on er, 7 79 F.3dat 4 55
.- 15 1 -

[* 15 1] Helv eri ng , 29 3 U.S. 4 65 ; Gro jeanv. Co m

m is si on er, 2 48 F.3d57 2. Th e Co urt o f App eal s af

firm edour fi nd in gs , see Fel dm anv. Co m m is si on er, 2 01 1 WL 67 81 00 6, at*1 0- *1 4, tha t the pu rp orte d s to cksal e in vo lv edth ere h adno no nt ax bu si ne ss pu rp os e an d n o e co no m ic subs ta nc e. See Fe ld m anv. Co m m is si on er, 7 79 F.3 d a t 4 55 -4 57
. Und er the so -cal le d s ha m tra ns act io n d oc tri ne est ab li sh edinFed eral tax law (Fed eral sh am

tra ns act io n d oc tri ne ), a tr an sa ct io n tha t i s d ev oi d o f an y eco no m ic 1 0 4
subs ta nc e an d wi th no no nt ax pu rp os e is a sh am whi ch wil l n otbe res pe ct edfor 1 0 5 Fed eral tax pu rp os es . See g en eral ly FrankLy on Co . v. Co m m is si on er, 4 35 U.S. 1 0 6
Altho ug h t he Co urt o f App eal s d idno t m en ti on th atwe rel ie d o n t he 1 0 4 Fed eral sh am

tra ns act io n d oc tri ne inFel dm an , we di d. Se e Fel dm anv. Co m m is
si on er, 2 01 1 WL 67 81 00 6, at*1 0- *1 4. Inde te rm in in g wh ethe r a tran sa ct io n i s an eco no m ic sh am , cert ai n c ou rts 1 0 5 co ns id er the fact or s o f la ckof e co no m ic subs ta nc e an d n o n on ta x p ur po se to be di sju nc ti ve . Oth er co urts co ns id er tho se fact or s t o b e co nju nc ti ve . W e n eedno t de ci de whi ch tes t fo r th e eco no m ic sh am trans act io n d oc tri ne to ap pl y he re. Tha t is be cau se we fin d b el ow b ot h l ackof e co no m ic subs ta nc e an d n o n on ta x p ur po se . InFal se tt i v . Comm is si on er, 8 5 T.C. 3 32 , 34 7 (1 98 5) (ci ti ng Fran k Lyon 1 0 6 Co . v. Co m

m is si on er, 4 35 U.S. 56 1, 5 72 (19 78 )), we d efi ne d the term “ sh am in subs ta nc e”, al so kn own as e co no m ic sh am , as “ th e ex pe di en t o f dr awin g up p ap ers to ch arac te riz e tr an sa ct io ns co nt rary to o bjec ti ve eco no m ic real it ie s an d wh ic h ha ve no eco no m ic si gn ifi can ce b ey on d e xp ect edtax be ne fit s.” In ot he r wor ds , a sh am insubs ta nc e is m erel y

a m is labe li ng of wh atactua ll y oc cu rred . See Gla ss v. Co m m is si on er, 8 7 T.C. 1 08 7, 1 17 6 (1 98 6) , aff’d s ub no m . Yos hav. Co m m is si on er, 8 61 F.2d49 4 (7 th Cir . 19 88 ). (co nt in ue d...)- 15 2 -

[* 15 2] at57 2- 57 3; Knet sc h v . Comm is si on er, 3 64 U.S. 36 1 (1 96 0) ; Gre go ry v. Helv eri ng , 29 3 U.S. 4 65 ; Karr v. C omm is si on er, 9 24 F.2d10 18 (11 th Cir . 19 91 ), aff’g Sm it h v . Comm is si on er, 9 1 T.C. 7 33 (19 88 ). The C ou rt o f App eal s af firm ed
ou r fi nd in g, s ee Fe ld m anv. Co m m is si on er, 2 01 1 WL 67 81 00 6, at*1 2- *1 4, tha t th e p ur po rte d l oa n o f Ms . Shapi ro in vo lv edth ere was a sh am th atwas “ de vo idof
subs ta nc e”. See Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 56
. W e co ns id er ea ch of the Fed eral subs ta nc e o ve r fo rm do ctrin e, th e Fed eral
eco no m ic subs ta nc e d oc tri ne , andth e Fed eral sh am tra ns act io n d oc tri ne , alt ho ug h cl os el y rel at edan d o ve rlapp in g d oc tri ne s i n F ed eral tax law, t o b e anin de pe nd en t
oralt ern at iv e b as is un de r whi ch we sh al l re ach ou r ul ti m at e fi nd in gs as t o wh ethe r each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r is a tr an sf eree of pr op erty of F FI fo r pu rp os es of s ect io n 6 90 1 wi th res pe ctto th e SPR sal e tr an sact io n und er the SPRA.

(...co nt inue d) 1 0 6 As i s t ru e o f ot he r do ctrin es est ab li sh edinFed eral tax law t ha t l oo k t o t he subs ta nc e, an d n otth e fo rm , of atra ns act io n, the Fed eral eco no m ic subs ta nc e do ctrin e an d t he Fed eral sh am trans act io n d oc tri ne are cl os el y rel at edto , and bo rro w fro m , each ot he r. In f act , so m e co urts be li ev e th atth e Fed eral sh am tra ns act io n d oc tri ne is an ot he r na m e fo r th e Fed eral eco no mic subs tanc e d oc tri ne . See, e.g ., Sup eri orTrad in g, LLC v . Comm is si on er, 7 28 F.3d67 6, 6 80 -6 81 (7t h C ir. 20 13 ), aff’g 1 37 T.C. 70 (20 11 ); Yo sh a v . Comm is si on er, 8 61 F.2dat 4 97 -4 98
.- 15 3 -

[* 15 3] Bas edup onou r ex am in at io n o f th e en ti re re co rdbe fo re u s, we fi nd th at , inde te rm in in g wh ethe r eac h o f Mr. Fa nkhaus er, Mr . W ei nt rau t, an d M s. Fan kh au se r is a tr an sf

eree of p ro pe rty of FFI inth e SPR sal e tr an sa ct io n u nd er the SPRA fo r pu rp os es of s ect io n 6 90 1, u nd er ea ch of t he Fed eral subs ta nc e o ve r fo rm do ctrin e, th e Fed eral eco no m ic subs ta nc e d oc tri ne , andth e Fed eral sh am tra ns act io n d oc tri ne (1) Ms . Shapi ro ’s pu rp orte d l oan h ere, l ik e Ms . Shapi ro ’s pu rpo rte d l oa n i n F el dm anv. Co m m is si on er, 7 79 F.3dat 4 56 , was a s ha m th atwas de vo idof a ny econ om ic subs ta nc e; (2) th e SPR sal e tr an sa ct io n u nd er the SPRA, li ke th e p ur

po rte d s to cksal e in vo lv edinFel dm anv. Co m m is si on er, 7 79 F.3dat 45 5- 45 7, h adno no nt ax bu si ne ss pu rp os e; (3) Ms . Shapi ro ’s pu rp orte d l oa n h ere, li ke Ms . Shapi ro ’s pu rp orte d l oa n i n F el dm anv. Co m mis si on er, 7 79 F.3dat 4 56 , ha d n o n on ta x b us in es s p ur po se ; (4 ) th e SPR

sal e tr an sa ct io n u nd er the SPRA, l ik e th e p ur po rte d s to cksal e in vo lv edinFel dm anv. Co m m is si on er, 7 79 F.3dat 4 55
- 45 7, h adno eco no m ic subs ta nc e; (5) Ms . Shapi ro ’s pu rp orte d l oa n h ere, l ik e Ms
. Sh ap iro ’s purp orte d l oa n i n F el dm anv. Co m m is si on er, 7 79 F.3dat 4 56 , sh ou ldbe di sr eg ard ed ; (6 ) th e SPR

sal e tr an sa ct io n u nd er the SPRA, l ik e th e p ur po rte d s to ck
sa le in vo lv edinFel dm anv. Co m m is si on er, 7 79 F.3dat 4 55 -4 57 , sh ou ldbe di sreg ard ed ; an d (7 ) FFI, n otFFIA, m ad e a d is tri bu ti on or tran sf er o f FFI’s fu nd s i n th e SPR sal e tr an sa ct io n u nd er the SPRA t o e ach of M r. Fan kh au se r, Mr. Wein
-- 15 4 -

[* 15 4] traut , andMs . Fan kh au se r, li ke th e C co rp or at io n, n otMi dC oa st , m ad e to each of i ts st oc kh ol de rs inFel dm anv. Co m m is si on er, 7 79 F.3dat 4 59 , of e ach
su ch st oc kh ol de r’s pr op orti on at e p orti on of t he pu rch as e p ric e (i .e., $5 30 ,76 6.1 5) th ateach su ch st oc kh ol de r was to rece iv e fo r th ei r st oc k u nd er the SPRA. 1 0 7 Bas edup onou r ex am in at io n o f th e en ti re re co rdbe fo re u s, we fi ndth at
un de r eac h o f th e Fed eral subs ta nc e o ve r fo rm do ctrin e, th e Fed eral eco no m ic
subs ta nc e d oc tri ne , andth e Fed eral sh am tra ns act io n d oc tri ne each of M r. Fan khaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er i s a t ran sf eree of p ro pe rty of FFI for pu rp os es of s ect io n 6 90 1 wi th res pe ctto th e SPR sal e tr an sa ct io n u nd er the SPRA. Liab il it y Und er In di an a UFTA It i s re sp on de nt ’s po si ti onth ateach of M r. Fan kh au se r, Mr. Wein traut , and Ms . Fan kh au se r is li ab le un de r th e In di an a UFTA as atrans fere e o f pr op erty of FFI wi th res pe ctto th e SPR red em pt io n t ran sa ct io n a ndth e SPR sal e tr an sa ct io n
un de r th e SPRA for

FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y an d F FI’s unp ai d 2 00 1

Res po nd en t ch arac te riz es th e d is tri bu ti on s o r tr an sf ers m ad e to th e FFI 1 0 7 st oc kh ol de rs inth e SPR

sal e tr an sa ct io n u nd er the SPRA as insubs ta nc e li qu id
at in g d is tri bu ti on s o r tr an sf ers fro m FFI. We do n otha ve to ch arac te riz e th os e di st rib ut io ns or t ran sf

ers as “ li qu id at in g” or a ny oth er ty pe of d is tri bu ti on s o r tra ns fers inord er t o c on cl ud e, as we do , th atFFI m ad e a d is tri bu ti on or t ran sf er o f it s p ro pe rty to e ach of the FFI s to ckho ld ers as p artof t he SPR s al e tr an sa ct io n un de r th e SPRA andth ateach of t he m is a tr an sf

eree of F FI’s p ro pe rty for p ur po se s o f se c. 69 01 with re sp ectto th attra ns act io n.- 15 5 -

[* 15 5] pe na lty

li ab il it y . In s up po rt o f th atpo si ti on , res po nd en t ar gu es (1) th at

1 0 8 fo r pu rp os es of t he Ind ia naUFTA insubs ta nc e FFI m ad e v ari ou s d is tri bu ti on s o r tra ns fers to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR re de m

pt io n t ran sa ct io n a ndth e SPR sal e tr an sa ct io n u nd er the SPRA an d (2 ) th atth os e d is tri bu ti on s o r tr an sf ers were fraudul en t und er ea ch of t he two so cal le d c on st ru ct iv e fraudpro vi si on s i n In d. Co de Ann . sec s. 3 2- 18 -2 -1 4( 2) an d 32 -1 8- 2- 15
. Tran sf ers forPurp os es of t he Ind ia naUFTA W it h re sp ectto th e SPR

red em pt io n t ran sa ct io n und er the SPRA,
res po nd en t ar gu es th atforpu rp os es of t he Ind ia naUFTA inform an d i n s ub st an ce FFI m ad e a d is tri bu ti on or t ran sf er o f it s p ro pe rty, nam el y , a pr op orti on at e
own ers hi p i nt eres t i n F FW, to each of M r. Fan kh au se r, Mr. Wein traut , andMs
. Fan kh au se r inth attra ns act io n. 1 0 9

Res po nd en t al so cla im s t ha t ea chpe ti ti on er i s l iabl e fo r in te res t as pro vi d- 1 0 8 edby law with re sp ectto FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y an d F FI’s u np ai d 20 01 pe na lt y

li ab il ity . As o f th e cl os in g o f th e SPR red em pt io n, wh ic h p ur su an t t o t he term s o f 1 0 9 th e SPRA was d eem edto oc cu r si m ul tane ou sl y

with t he clo si ng of t he SPR s al e tra ns act io n, M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r own ed68 pe rcen t, 2 2 p erce nt , and10 pe rcen t, re sp ect iv el y , of FF W ’s m em be rs hi p i nt eres ts .- 15 6 -

[* 15 6] Pet it io ne rs do no t ad dr es s wh ethe r, le t al on e d is pu te th at , inth e SPR red em pt io n t ran sa ct io n u nd er the SPRA ea ch of t he m rece iv eda di st rib ut io n o r tra ns fer o f pr op erty

of F FI, n am el y , a pr op orti on at e o wne rs hi p i nt eres t i n F FW. In st ead , as we u nd ers ta ndpe ti ti on ers ’ arg um en ts with re sp ectto th e SPR red empti ontra ns act io n und er the SPRA, the ir f oc us is on why th ey

be li ev e th atan y

su ch tra ns fers th atFFI m ad e to th em were n otfrau du le ntun de r ei th er o f th e co ns tru cti ve frau d p ro vi si on s i n t he Ind ia naUFTA. Inth e li gh t o f pe ti ti on ers ’ fai lu re t o a dd res s wh ethe r, an d t o d is pu te th at , in th e SPR red em pt io n t ran sa ct io n u nd er the SPRA the y rece iv eddi st rib ut io ns or tra ns fers of p ro pe rty of FFI , nam el y , res pe ct iv e p ro po rti on at e o wne rs hi p i nt eres ts in FFW, we co nc lu de th atforpu rp os es of t he Ind ia naUFTA FFI m ad e a d is tri bu
ti onor t ran sf

er o f pr op erty

to each of M r. Fan kh au se r, Mr. Wein traut , andMs
. Fan kh au se r inth e SPR

red em pt io n t ran sa ct io n u nd er the SPRA. 1 1 0 W it h re sp ectto th e SPR

sal e tr an sa ct io n u nd er the SPRA, res po nd en t ar gu es th atforpu rp os es of t he Ind ia naUFTA insubs ta nc e FFI m ad e a d is tri bu ti on or tra ns fer o f it s p ro pe rty, nam el y , a pr op orti on at e p orti on of $ 53 0,7 66 .15 (th e to ta l pu rch as e p ric e fo r th ei r FFI s to ck ), to each of M r. Fan kh au se r, Mr. Wein traut , and The reco rdful ly sup po rts ou r fi nd in gs th atFFI m ad e d is tri bu ti on s o r 1 1 0 tra ns fers of p ro pe rty to M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR re de m

pt io n t ran sa ct io n u nd er the SPRA.- 15 7 -

[* 15 7] Ms . Fan kh au se r in th attra ns act io n. In s up po rt o f th atarg um en t, re 1 1 1 sp on de ntrel ie s o n F el dm anv. Co m mis si on er, 7 79 F.3d44 8, an d a dv oc at es th e u se in th es e cas es of the type o f St at e la w equ it ab le pri nc ip le s o n wh ic h the Co urt o f App eal s re li edinth atcas e. Inco ns id eri ng res po nd en t’s ar gu m en ts with re sp ectto th e SPR sal e tr an sa cti onun de r th e SPRA, we bea r in m in d, an d re sp on de ntan d p et it io ne rs ag ree, tha t
res ol ut io n o f th e is su e o f whe th er fo r pu rp os es of t he Ind ia naUFTA insubs ta nc e FFI m ad e a d is tri bu ti on or t ran sf er o f it s p ro pe rty to e ach of M r. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er i n t he SPR s al e tr an sa ct io n und er the SPRA de pe nd s o n t he law o f th e St at e o f In di an a. W e al so be ar i n m in d, an d t he parti es al so ag ree, tha t i n re so lv in g t ha t i ss ue we m us t ap pl y th e la w of t he Sta te of In di an a in th e m anne r in whi ch th e Supr em e Co urt o f In di an a (In di an a Supr em e Co urt) h as in di cat editwou ldap pl y th atlaw. See Co m

m is si on er v . Est at e o f Bo sc h, 3 87 U.S. 45 6, 4 65 (19 67 ). If th e In di an a Supr em e Co urt h as no t ad dr es se d th e is su e, we m

us t ap pl y whatwe fin d t o b e th e la w of t he Sta te of I nd ia naaft er As o f th e cl os in g o f th e SPR sal e tr an sa ct io n, wh ic h p ur su an t t o t he term s 1 1 1 of th e SPRA was d eem edto oc cu r si m ul ta ne ou sl y

with t he clo si ng of t he SPR red em pt io n t ran sa ct io n, d is tri bu ti on s o f $3 60 ,92 0.9 8, $ 11 6,7 68 .55 , and $5 3,0 76 .62 to ta li ng $5 30 ,76 6.1 5 wer e d eem edm ad e to Mr. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er, res pe ct iv el y . Thatis to say, as o f th atclo si ng , di st rib ut io ns of 6 8 p erce nt , 22 pe rcen t, an d 1 0 p erce ntof t he pu rch as e p ric e o f $5 30 ,76 6.1 5 wer e d eem edm ad e to th os e res pe ct iv e FFI s to ckho ld ers .- 15 8 -

[* 15 8] ha vi ng gi ve n “pr op er re ga rd ” to rel ev an t ru li ng s o f ot he r co urts of t he Sta te of Ind ia na . See i d. Inco ns id eri ng res po nd en t’s ar gu m en ts with re sp ectto th e SPR sal e tr an sa cti onun de r th e SPRA, we als o b ear i n m in d, an d re sp on de ntan d p et it io ne rs als o ag ree, tha t (1 ) th e is su e o f whe th er fo r pu rp os es of t he Ind ia naUFTA it i s ap pr opr ia te to us e certa in equi tabl e p rin ci pl es to di sr eg ardth e fo rm of c ert ai n t ran sa cti on s (h ere, the SPR s al e tr an sa ct io n u nd er the SPRA) i n o rd er t o a sc ert ai n wh ethe r th ere was a tr an sf

er o f a d eb to r’s pr op erty

(he re, FFI ’s pro pe rty) to it s s to ckho ld ers (h ere, M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r) i s an is su e th atth e In di an a Supr em e Co urt h as no t ad dr es se d; (2) th e d efi ni ti on of t he term “ tra ns 1 1 2 fer” inth e In di an a UFTA, li ke th e d efi ni ti on of t ha t t erm inth e Wisco ns in UFTA in vo lv edinFel dm anv. Co m mis si on er, 7 79 F.3d44 8, i s v ery br oa d, co m pa re In d. Co de Ann . sec . 32 -1 8- 2- 10 with Wis . Sta t. Ann. s ec. 2 42 .01 (1 2) ; (3 ) th e In di an a UFTA, lik e th e Wisco ns in UFTA in vo lv edinFel dm an , is fle xi bl e an d e xp res sl y in co rp or at es equi tabl e p rin ci pl es th atlo okto subs ta nc e, rathe r th anform , com pa re
As d is cu ss edbe lo w, ho wev er, certa in Fed eral co urts co ns tru in g t he 1 1 2 In di an a UFTA ha ve ad dr es se d t ha t que st io n i n B oyer v. Cr ownSto ckDis tri b. (I n re Cr own Unl im it edMac h., In c.), Adv . No. 0 4- 10 85 , 20 06 W L 64 01 54 8 (B an kr
. N.D. Ind . Oct. 1 3, 2 00 6) , aff’d, Bo y er v . Cro wn St oc k Di st rib ., Inc ., 20 09 W L 41 82 75 (N.D. Ind . Feb . 17 , 20 09 ), aff’d i n p art , rev ’d inpa rt, 5 87 F.3d78 7 (7 th Ci r. 20 09 ).- 15 9 -

[* 15 9] Ind . Cod e Ann . sec . 32 -1 8- 2- 20 with Wis . Sta t. An n. s ec. 2 42 .10 ; an d (4 ) th e In di an a Supr em e Co urt wo ul d, an d t he refo re we s ho ul d, l oo k t o c ert ai n e qui tabl e p rin ci pl es inde te rm in in g wh ethe r fo r pu rp os es of t he Ind ianaUFTA in
subs ta nc e FFI m ad e a d is tri bu ti on or tran sf er o f it s p ro pe rty to e ach of the FFI st oc kh ol de rs inth e SPR

sal e tr an sa ct io n u nd er the SPRA. At l eas t as far as pe ti ti on ers are co nc ern ed , th e p art ie s d is ag ree o ve r whi ch equi tabl e p rin ci pl es th e In di an a Supr em e Co urt wo ul d u se inord er t o d et erm in e whe th er fo r pu rp os es of t he Ind ia naUFTA insubs ta nc e FFI m ad e a d is tri bu ti on or tra ns fer o f it s p ro pe rty to e ach of t he FFI s to ckho ld ers inth e SPR sal e tr an sa ct io n
un de r th e SPRA. Pet it io ne rs be li ev e th atwhi chequi tabl e p rin ci pl es th e In di an a 1 1 3

Inanatt em

ptto di st in gu is h t he ho ld in gs of t he Co urt o f App eal s i n 1 1 3 Fel dm anv. Co m

m is si on er, 7 79 F.3d44 8, p et it io ne rs adva nc e m an y of t he arg um en ts th atwe ad dr es s h ere i n asupp le m en ta l b rie f th atth e Co urt al lo wed pe ti ti on ers , as wel l as res po nd en t, t o fi le aft er tha t o pi ni on was i ss ue d. We di d n ot gi ve th e p art ie s t he op po rtu ni ty to fi le res po ns iv e b rie fs to th ei r res pe ct iv e supp le m en ta l b rie fs . Con se qu en tl y , we do no t kno w whet he r res po nd en t b el ie ve s th atwhi ch equi tabl e p rin ci pl es th e In di an a Supr em e Co urt wo ul d u se is m at eri al to res ol vi ng th e is su es un de r th e In di an a UFTA pre se nt edhe re. Nordo we kn ow whe th er re sp on de ntco ns id ers th e so -cal le d e qu it ab le co ll ap si ng do ctrin e th at pe ti ti on ers m ai nt ai n i s t he on ly equ it ab le do ctrin e th atth e In di an a Supr em e Co urt wou ldap pl y

to be m at eri al ly diff

eren t fr om

th e equi tabl e subs ta nc e o ve r fo rm pr in ci pl es an d t he equi tabl e sh am tra ns act io n p rin ci pl es , whi ch are es tabl is he d i n th e la w of In di an a an d o n wh ic h, as di sc us se d b el ow, re sp on de ntrel ie s, o r fro m an y ot he r equi tabl e p rin ci pl es th atare co ns is te ntwith In d. Co de Ann . sec . 32 -1 8- 2- 20 th at“ th e p rin ci pl es of * * * equi ty * * * supp le m en t thi s ch ap te r [o f th e In di an a Co de co di fy in g t he Ind ia naUFTA] .”- 16 0 -

[* 16 0] Supr em e Co urt wo ul d u se is cri ti cal to th ei r po si ti on th atinsubs ta nc e FFI di d n otm ak e an y

su ch di st rib ut io n o r tr an sf er. Tha t i s b ecau se , pet it io ne rs
m ai nt ai n, the subs ta nc e o ve r fo rm equi tabl e p rin ci pl es est ab li sh edinW is co ns in la w (W is co ns in subs ta nc e o ve r fo rm pri nc ip le s) th atth e Co urt o f App eal s u se d i n Fel dm anv. Co m

m is si on er, 7 79 F.3dat 4 58 -4 60 , andth e “ equi tabl e d oc tri ne s fr om fed eral tax law, s uc h a s s te p t ran sa ct io n a ndsubs ta nc e o ve r fo rm ” th atres po n- 1 1 4 de ntadvo cat es we us e in th es e cas es “ di fferfro m th e equi tabl e co ll ap si ng

Pet it io ne rs ass ertinvario us pl aces inth ei r supp le m en ta l b rie f th atres po n- 1 1 4 de ntis arg ui ng th atcert ai n e qu it ab le tax do ctrin es est ab li sh edinth e Fed eral tax la w are t o b e u se d i n d et erm in in g wh ethe r fo r pu rp os es of t he Ind ia naUFTA in subs ta nc e FFI m ad e a d is tri bu ti on or tran sf er o f it s p ro pe rty to e ach of M r. Fan khaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er i n t he SPR s al e tr an sa ct io n u nd er the SPRA tran sa ct io n. Th os e as se rti on s ar e unf ou nd ed , see supr a n ot e 6 3, an d we rejectth em .- 16 1 -

[* 16 1] do ctrin e [th atpe ti ti on ers advo cat e we u se he re] inth atth ey do no t [ 1 1 5 ] requi re an y

sh owi ng of kno wled ge ”. 1 1 6 Befo re turni ng to pe ti ti on ers ’ arg um en t, we n ot e th atwe ha ve ser io us res erva ti on s re ga rd in g p et it io ne rs ’ co nt en ti on th atth e equi tabl e co ll ap si ng do ctrin e th at th ey urg e we u se he re i s m at eri al ly diff eren t fr om

th e equi tabl e subs tanc e o ve r fo rm pri nc ip le s es tabl is he d i n In di an a la w (In di an a subs ta nc e o ve r fo rm pri nc ipl es ) th atres po nd en t ad vo cat es we us e in th es e cas es an d t ha t we co nc lu de are
m at eri al ly the same as th e Wisco ns in subs ta nc e o ve r fo rm pri nc ip le s t ha t the Co urt of App eal s u se d i n F el dm an . In fa ct , inBo y er v . Cro wn St oc k Di st rib . (Inre
Pet it io ne rs pro vi de th e fo ll owi ng de sc rip ti on of t he equi tabl e co ll ap si ng 1 1 5 do ctrin e, al so kn own as the co ll ap si ng do ctrin e, whi ch th ey fou ndinanop in io n o f th e U.S. Ban krup tc y

Co urt o f th e Dis tri ctof Ne w Jer se y th atth atco urt h adm ark ed “NOT FOR PUBLICATION”: “ The ‘ co ll ap si ng ’ do ctrin e is ess en ti al ly an equi tab le do ctrin e al lo win g aco urt t o d is pe ns e wit h the st ru ctur e o f a tran sa ct io n o r se rie s o f tr an sa ct io ns .” Ro ut e 7 0 & Mas s., L.L.C. v. Ban k (I n re Ro ut e 7 0 & Mas s., L.C.C.), Adv. No . 09 -0 14 73 (MBK) 20 11 W L 18 83 85 6, at*5 (Ban kr . D. N.J. Ma y 17 , 20 11 ) (We sh al l re fer t o t he equi tabl e d oc tri ne th atpe ti ti on ers urg e we us e inth es e cas es as t he equi tabl e co ll ap si ng do ctrin e.) As d is cu ss edm or e fu ll y

be lo w, pet it io ne rs co nt en d t ha t “ cas e la w fro m 1 1 6 ot he r juri sd ic ti on s * * * ut il iz es th e equi tabl e co ll ap si ng do ctrin e whi ch , inth is cas e [s ic ], requi res th atRes po nd en t p ro ve th atPet it io ne rs kn ew orsh ou ldha ve kn own th atFFIA an d/ orMi dC oa stwas g oi ng to cau se FFI’s t ax es to no t b e p ai d.” Acco rd in g t o p et it io ne rs , res po nd en t h as fai le d t o c arry tha t b ur de n o f pr oo f. (Fo r co nv en ie nc e, we sh al l o fte n re fer t o t he requi rem en t tha t p et it io ne rs co nt en d sh ou ldbe im

po se d o n re sp on de ntinth es e cas es an d t ha t, as di sc us se d b el ow, cert ai n c ou rts ha ve im

po se d o n c red it or s i n c ert ai n o th er ca se s as th e kno wled ge requi rem en t.)- 16 2 -

[* 16 2] Cro wn Un li m it edMac h., In c.), Adv . No. 0 4- 10 85 , 20 06 W L 64 01 54 8, at *3 (Ban kr . N.D. In d. Oct . 13 , 20 06 ), aff’d, Bo y er v . Cro wn St oc k Di st rib ., Inc ., 20 09 W L 41 82 75 , at * 7 (N.D. In d. Fe b. 1 7, 2 00 9) , aff’d i n p art , rev ’d inpa rt, 5 87 F.3 d 7 87 (7t h C ir. 2 00 9) , a cas e in vo lv in g t he ap pl ic at io n o f th e sa m e co ns tru ct iv e frau d p ro vi si on s o f th e In di an a UFTA (i.e., In d. Co de Ann . sec s. 3 2- 18 -2 -1 4( 2)
an d 3 2- 18 -2 -1 5) on whi ch res po nd en t i s re lying he re an d wh ic h we d is cu ss in de ta il be lo w, th e U.S. Ban krup tc y Co urt (b an krup tc y

co urt) a ndth e U.S. Dis tri ct Co urt (Di st ric t Co urt) d es cri be d “ co ll ap si ng ” o r “ rech arac te riz in g” th e tr an sact io ns in vo lv edth ere a s wh atwou ldoc cu r if Ind ia nasubs ta nc e o ve r fo rm pr in ci pl es th atrequi re tha t the subs ta nc e o f a tran sa ct io n t o p rev ai l o ve r it s fo rm were d et erm in edto be ap pr op ria te pri nc ip le s t o u se gi ve n t he fact s an d c irc um st an ces of t he cas e. See Al te rm anv. Co m m is si on er, T.C. Mem o. 2 01 5- 23 1, at 1 1 7 *4 7- *4 8 (r eferrin g i nt erch an ge ab ly to the equi tabl e p rin ci pl e in Flo rid a law of

“ co ll ap si ng tra ns act io ns ” an d “ th e equi tabl e d oc tri ne of s ub st an ce o ve r fo rm ”
un de r th e Fl or id a UFTA).

Inin te rp ret in g t he Ind ia naUFTA, we m ay rel y on , in te r al ia , th e in te r- 1 1 7 pr et at io n b y

a ba nkrupt cy

co urt o r ot he r Fed eral co urt. See , e.g., Lei bo wit z v . Parkway Ban k & Trus t Co . (Inre Im ag e World wid e, Ltd .), 13 9 F .3d57 4, 5 77 (7t h Ci r. 19 98 ).- 16 3 -

[* 16 3] W e al so ha ve ser io us res erv at io ns reg ard in g p et it io ne rs ’ co nt en ti on th aton ly cases us in g t he equi tabl e co ll ap si ng do ctrin e h av e, be fo re ap pl y in g t ha t do ctrin e, requi reda cred it orto sh ow tha t a p ur po rte d t ran sf

eree of t he de bt orkn ew
orsh ou ldha ve kn ownth atth e d eb t wo ul d n otbe pa id . See i d. at*4 8 (r equi rin g th e Co m m is si on er t o s ho w “ actua l o r co ns tru ct iv e kno wled ge ” b y th e p ur po rte d tra ns fere e b efo re ap pl y in g “ th e equi tabl e d oc tri ne of s ub st an ce o ve r fo rm ” und er th e Fl or id a UFTA). Des pi te th e se rio us res erv at io ns th atwe ha ve , we tu rnno w to pe ti ti on ers ’ arg um en t re ga rd in g t he equi tabl e p rin ci pl es whi chth ey co nt en d t he Ind ia na Supr em e Co urt wo ul d u se an d wh ic h we b el ie ve th ey are ad vo cat in g i n a n e ffo rt t o pe rs ua de us th atFel dm anv. Co m mis si on er, 7 79 F.3d44 8, i s m at eri al ly dis ti ngu is habl e fro m , andth us in ap po si te to , th e in st an t ca se s. We sta rt b y su m m ari zi ng th e p art ie s’ res pe ct iv e p os it io ns as t o wh ic h e qu it ab le pri nc ip le s t he y m ai nt ai n t he In di an a Supr em e Co urt wo ul d u se inde te rm in in g wh ethe r fo r pu rp os es of t he In di an a UFTA insubs tanc e FFI m ad e a d is tri bu ti on or t ran sf er o f it s p ro pe rty to each of t he FFI s to ckho ld ers inth e SPR sal e tr an sa ct io n u nd er the SPRA. Res po nd en t ar gu es th atInd ia naco urts , in cl ud in g the Ind ia naSupr em e Co urt, u se Ind ianasubs ta nc e o ve r fo rm pri nc ip le s i n v ari ou s co nt ex ts , in cl ud in g
m os t n ot ab ly Ind ia natax cas es . Res po nd en t m ai nt ai ns th atth os e co urts , in cl ud in g- 16 4 -

[* 16 4] th e In di an a Supr em e Co urt, wo ul d u se th os e sa m e p rin ci pl es inde te rm in
in g wh ethe r fo r pu rp os es of t he Ind ia naUFTA th e SPR sal e tr an sa ct io n u nd er the SPRA i n s ub st an ce was a li qu id at io n o f FFI i n wh ic h F FI m ad e d is tri bu ti on s o r tra ns fers of i ts cas h t ot al in g $ 53 0,7 66 .15 to Mr. Fan kh au se r, Mr. Wein traut , and Ms . Fan kh au se r. Acco rd in g t o re sp on de nt , th e In di an a Supr em e Co urt’s u se of In di an a subs ta nc e o ve r fo rm pri nc ip le s wo ul d l eaditto co nc lu de th atforpu rp os es of th e In di an a UFTA th atSPR s al e tr an sa ct io n i n s ub st an ce was a li qu id at io n o f FFI i n wh ic h F FI m ad e d is tri bu ti on s o r tr an sf ers of i ts cas h t ot al in g $ 53 0,7 66 .15 to th e FFI s to ckho ld ers . W e und ers ta ndres po nd en t al so to be arg ui ng inth e al te rn at iv e th atth e In di an a Supr em e Co urt wo ul d u se th e equi tabl e p rin ci pl es of t he sh am trans act io n do ctrin e es tabl is he d i n t he law o f In di an a (In di an a sh am tra ns act io n d oc tri ne ) in
va rio us co nt ex ts , in cl ud in g In di an a ta x c as es . Acco rd in g t o re sp on de nt , 1 1 8
Eve n i f res po nd en t wer e n otrel y in g i n t he alt ern at iv e o n t he Ind ia nash am 1 1 8 tra ns act io n d oc tri ne , we wou ld , andwe do , no ne th el es s co ns id er i t h ere i n d et erm in in g wh ethe r fo r pu rp os es of the Ind ianaUFTA insubs ta nc e FFI m ad e a di st rib ut io n o r tr an sf

er o f it s p ro pe rty to e achof t he FFI s to ckho ld ers inth e SPR sa le tra ns act io n u nd er the SPRA. Inth is co nn ect io n, wh il e res po nd en t i s re lying pr in ci pa ll y

onInd ia nasubs ta nc e o ve r fo rm pri nc ip le s, ce rta in of t he arg um en ts th atres po nd en t adva nc es inrel y in g o n t ho se pri nc ip le s o ve rlap wi th th e equi tabl e pr in ci pl es of t he Ind ia nash am tra ns act io n d oc tri ne (di sc us se d i n m or e d et ai l be lo w). W e n ot e th atth e In di an a Supr em e Co urt h el d i n In d. Dep ’t of St at e Rev enue v. Be lt erraRes ort In d., LLC, 93 5 N.E.2d17 4, 1 79 (In d. 2 01 0) , th at (co nt in ue d...)- 16 5 -

[* 16 5] [t]he “ lo an ” fro m

Sh ap iro [to FFIA] was a “ ru se , recyclin g, a s ha m .” Fel dm an , 20 15 W L 75 92 50 , at * 8. Re m ov e th e Sh ap iro “ lo an ” fro m th is tra ns act io n [S PR s al e tr an sa ct io n] an d n ot hi ng of c on se qu en ce ch an ge s- -th e sh areh ol de rs [of FFI] getpa idth e sa m e am ou nt , [$ 53 0,7 66 .15 ] fro m

th e trus t s am e [es cro w] acco un t. Id . In the same way , whatrem ai ns aft er d is reg ard in g t he Sh ap iro “ lo an ” in FFI i s a tra ns fer o f cas h fr om

FFI t o p et it io ne rs vi a th e trus t [e sc ro w] acco un t. Inreal ity , th e o nl y

m on ey th atch an ge d h an ds was FF I’s cas h. Pet it io ne rs co un te r th at , inde te rm in in g wh ethe r fo r pu rp os es of t he Ind ia na UFTA insubs tanc e FFI m ad e a d is tri bu ti onor t ran sf er o f it s p ro pe rty to e ach of (...co nt inue d) 1 1 8
“ ‘[a] trans act io n s tru ctur edso le ly for the pu rp os e o f av oi di ng tax es with n o o th er le gi ti m at e b us in es s p ur

po se wil l b e co ns id ereda sh am for[In di an a] tax at io n pu rp os es .’ Bel te rra, 9 00 N.E.2d a t 5 17 (ci ti ng Greg ory v. Hel ve rin g, 2 93 U.S. 46 5, 4 69 -7 0, 5 5 S .Ct. 2 66 , 79 L.Ed. 59 6 (1 93 5) ).” As i s t ru e in Fed eral tax law, th e In di an a sh am

tra ns act io n d oc tri ne is si m il ar i n m at eri al res pe ct s t o In di an a subs ta nc e o ve r fo rm

pri nc ip le s. As is als o t ru e in Fed eral tax law, the Ind ia na sh am tra ns act io n d oc tri ne als o i s s im il ar i n m at eri al res pe ct s t o t he so -cal le d s te p tra ns act io n d oc tri ne est ab li sh edinInd ia nalaw (I nd ia nast ep tra ns act io n d oc tri ne ). In de ed , th e In di an a Supr em e Co urt co nc lu de d i n B el te rra R es ort In d., LLC, 93 5 N.E.2dat 1 79 (ci ti ng Mas on Met al s C o. v . Ind . Dep’t o f St at e Rev enue , 59 0 N.E.2d67 2, 6 75 (In d. T.C. 1 99 2) , andBethl eh em Ste el Co rp . v. In d. Dep ’t of St at e Rev enue , 59 7 N.E.2d13 27 , 13 31 (In d. T.C. 1 99 2) ): “ InInd ia na , th e subst an ce, rat he r th anth e fo rm , of t ran sa ct io ns de te rm in es th ei r ta x c on se qu en ces . * * * Inth is cas e th e [In di an a u se ] ta x c on se qu en ces * * * m us t b e an al y zedun de r th e jud ic ia ll y

crea te d ‘st ep tra ns act io n’ do ctrin e to de te rm in e th ei r subs ta nc e.” (Ci ta ti on om it te d.) ( ci ti ng Greg ory v. Hel ve rin g, 2 93 U.S. at 4 69 -4 70 ). All of t he di ffer en t In di an a equi tabl e p rin ci pl es or d oc tri ne s t ha t the Ind ia naSupr em e Co urt us es ina va rie ty of cas es , in cl ud in g d iff eren t ty pe s o f In di an a ta x c as es , were de ve lo pe d b ecau se th e In di an a co urts , in cl ud in g t he Ind ia naSupr em e Co urt, be li ev editne ces sa ry

an d app ro pr ia te to lo okbe y on d t he form of atra ns act io n t o it s s ub st an ce. Thi s i s p reci se ly wha t the UFTA, inc lu di ng th e In di an a UFTA an d th e Wisco ns inUFTA th atth e Co urt o f App eal s ap pl ie d i n F el dm anv. Co m m is
si on er, 7 79 F.3d44 8, re qu ire s.- 16 6 -

[* 16 6] Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR sal e tra ns act io n u nd er the SPRA tran sa ct io n, the Ind ianaSupr em e Co urt wo ul d u se th e equi tabl e co ll ap si ng do ctrin e. Inadva nc in g t ha t p os it io n, p et it io ne rs ackno wled ge th at , inth e ab se nc e o f an y au th or it y inInd ia nalaw ex pr es sl y ad dr es si ng whet he r a tra ns fer h as oc cu rredforpu rp os es of t he Ind ia naUFTA, “ th e In di an a Supr em e Co urt co ul d l oo k t o t he st atut e an d re as on by anal og y as wa s d on e inFel dm an .” Howev er, p et it io ne rs m ai nt ai n tha t the Ind ianaSupr em e Co urt wo ul d n otdo what th e Co urt o f App eal s d idinFel dm anv. Co m m is si on er, 7 79 F.3d44 8. Th atis be cau se , pet it io ne rs co nt en d, wh enface d wi th anis su e li ke th e is su e und er the In di an a UFTA pre se nt edinth es e cas es , th e In di an a Supr em e Co urt wo ul d, an d t he Co urt o f App eal s fo r th e Sev en th Cir cu itwou ld“pr es um es th atth e In di an a Supr em e Co urt wi ll ”, (1 ) as cert ai n t he m ajor it y vi ew reg ard in g t ha t i ss ue of o th er juri sd ic ti on s t ha t h av e ad op te d t he UFTA and(2) fol lo w th atm ajor ity vi ew. Acco rd in g t o p et it io ne rs , th e m ajor it y vi ew is th atth e equi tabl e co ll ap si ng do ctri ne wou ldbe ap pl ie d i n d et erm in in g wh ethe r in subs ta nc e th ere was a tr an sf er o f a d eb to r’s pr op erty

forpurp os es of t he UFTA. In co nt ras t, the W is co ns in subst an ce o ve r fo rm

pri nc ip le s t ha t the Co urt o f App eal s u se d i n F el dm anrep res en ts , acco rd in g t o p et it io ne rs , a m in or it y vi ew th atis di st in gu is habl e fro m th atm ajor it y- 16 7 -

[* 16 7] vi ew. As a re su lt , pet it io ne rs m ai nt ai n: “ Fel dm anis di st in gu is habl e as a
m at te r of law an d h as no ap pl ic at io n h ere.” An ad di ti on al reas on off

eredby pet it io ne rs insupp ort o f th ei r po si ti on th at th e In di an a Supr em e Co urt wo ul d u se th e equi tabl e co ll ap si ng do ctrin e is th atth at
co urt wo ul d wan t t o avo idth e co nf li ctth atpe ti ti on ers cla im wou ldbe crea te d i f
res po nd en t’s equi tabl e d oc tri ne s wer e u se d b etween(1) Ind . Cod e Ann . sec . 32 -1 8- 2- 20 , whi ch in co rp or at es equi tabl e p rin ci pl es in to th e In di an a UFTA, and (2 ) In d. Co de Ann . sec . 32 -1 8- 2- 21 , whi ch requi res th e ap pl ic at io n a ndth e co nst ru ct io n o f th e In di an a UFTA ina m an ne r th ateffe ctua te s t he ge ne ral pu rp os e o f th e m od el UFTA of m ak in g t ha t l aw un ifo rm am on g t he juri sd ic ti on s t ha t en actit
. Befo re ad dr es si ng pe ti ti on ers ’ arg um en t tha t the W is co ns in co urts ’ us e o f equi tabl e subs tanc e o ve r fo rm pri nc ip le s u nd er the W is co ns in UFTA, see Fe ld m an v. Co m m is si on er, 7 79 F.3dat 4 59 , rep res en ts a m in or it y vi ew, we no te th atth e equi tabl e co ll ap si ng do ctrin e, as de sc rib edby pet it io ne rs inth ei r supp le m en ta l br ie f, se e supr a n ot e 1 15 , wou ldap pe ar t o a ll ow a c ou rt t o d o i n m at eri al res pe ct s
es se nt ia ll y

th e sa m e th in g a s Wis co ns in subs ta nc e o ve r fo rm pri nc ip le s, In di an a
subs ta nc e o ve r fo rm

pri nc ip le s, an d t he Ind ia nash am tra ns act io n d oc tri ne (as well
as ot he r In di an a equi tabl e p rin ci pl es su ch as t he Ind ia nast ep trans act io n d oc tri ne ) al lo w a co urt t o d o; th atis to say, all o f th os e equi tabl e p rin ci pl es or d oc tri ne s- 16 8 -

[* 16 8] all ow a c ou rt t o l oo k b ey on d t he form of atra ns act io n t o t he subs tanc e o f th e tr an sa ct io n. 1 1 9 W e tu rnno w to pe ti ti on ers ’ arg um en t tha t the W is co ns inco urts ’ us e o f equi tabl e subs tanc e o ve r fo rm pri nc ip le s u nd er the W is co ns in UFTA, see Fe ld m an v. Co m m is si on er, 7 79 F.3dat 4 59 , rep res en ts a m in or it y vi ew. In F el dm an , th e Co urt o f App eal s h el d: “ Inli gh t o f th e b ro adde fin it io n o f ‘tran sf er’ inW is co ns in frau du le nt -tr an sf

er l aw an d t he ge ne ral ap pl ic ab il it y of s ub st an ce-o ve r-fo rm
an al y si s, the sh areh ol de rs are p ro pe rly deem edto be tra ns fere es un de r st at e la w as well as f ed eral .” Id . Befo re the Co urt o f App eal s d ecl aredth atho ld in g, i t s etou t th e le ga l fr am ewo rkinwhi chitreac he d i t. Tha t fr am ewo rkco ns is te d o f th e fo ll owi ng leg al pri nc ip le s es tabl is he d b y th e UFTA an d a do pt edby the W is co ns in UFTA: (1 ) th e te rm

“ tra ns fer” inth e Wisco ns in UFTA, lik e th e d efi ni ti onof t ha t te rm inth e UFTA ad op te d b y ot he r juri sd ic ti on s, i s d efi ne d “ ve ry bro ad ly”; (2 ) “ st at e fraudul en t-t ran sf er l aw is it se lf f

le xi bl e an d l oo ks to equi tabl e p rin ci pl es li ke ‘ subs ta nc e o ve r fo rm ,’ jus t l ik e th e fed eral tax do ctrin es [subs ta nc e o ve r fo rm , bu si ne ss pu rp os e, an d e co no m ic subs ta nc e]”; (3 ) W is co ns in , li ke ot he r juri sd ic
ti on s t ha t h av e ad op te d t he UFTA, “ha s l on g fo ll owe d t he ge ne ral rul e th at ‘[e] qu it y lo ok s t o s ub st an ce an d n otto form ’”; an d (4 ) “ W is co ns in co urts us e th e See s up ra n ot e 1 18
. 1 1 9- 16 9 -

[* 16 9] ‘ subs ta nc e o ve r fo rm ’ pr in ci pl e in a va rie ty of co nt ex ts , m os t n ot ab ly in cl ud in g t ax cas es .” Id. at45 8- 45 9 (quo ti ng Cu nn een v. Kal sc he ue r, 20 6 N.W. 1 2 0 91 7, 9 18 (W is . 19 26 )). As fo r th e fi rs t p rin ci pl e th atth e te rm “ tra ns fer” inth e Wisco ns in UFTA, li ke th e d efi ni ti on of t ha t t erm inth e UFTA ad op te d b y ot he r juri sd ic ti on s, i s de fin ed“ ve ry

bro ad ly” andth e th irdpri nc ip le th atW is co ns in , li ke ot he r juri sd ic
ti on s t ha t h av e ad op te d t he UFTA, “ha s l on g fo ll owe d t he ge ne ral rul e th at ‘[e] qu it y lo ok s t o s ub st an ce, an d n otto form ’”, pet it io ne rs do no t d is pu te , andwe
co nc lu de , th atth ey

are v al idpri nc ip le s u nd er the Ind ianaUFTA. 1 2 1
Insupp ort o f it s co nc lu si on th at“ W is co ns in co urts us e th e ‘sub st an ce 1 2 0 ov er fo rm ’ pr in ci pl e in a va rie ty of co nt ex ts , m os t n ot ab ly inc lu di ng tax cas es ”, th e Co urt o f App eal s ci te d e xa m pl es of Wis co ns in cas el aw in vo lv in g n oton ly W is co ns in tax is su es , as p et it io ne rs all eg e, bu t al so W is co ns in no nt ax is su es . Fel dm anv. Co m

m is si on er, 7 79 F.3dat 4 59
. In d. Co de Ann . sec . 32 -2 -7 -1 0 (West20 02 ) in effe ctin20 01 de fin edth e 1 2 1 te rm “ trans fer” to m ean “ any

m od e o f di sp os in g o f orpa rti ng with a n a ss etor a n in te res t i n a n a ss etwhet he r di rector i nd ire ct , abs ol ut e o r co nd it io na l, o r vo lu nt ary orin vo lu nt ary. The t erm in cl ud es pa y

m en t o f m on ey , rel eas e, le as e, an d c reat io n of a li enor o th er en cu m

br an ce.” Th atde fin it io n o f th e te rm “ tra ns fer” was i n a ll m at eri al res pe ct s i de nt ic al to th e d efi ni ti on of t ha t t erm inInd . Cod e Ann . sec . 32
- 18 -2 -1 0 (West20 15 ) th atwas i n e ffec t af te r 20 01 . The d efi ni ti on of t he term “ tra ns fer” inth e In di an a UFTA ineffe ctinan d a fte r 20 01 is inall m at eri al res pe ct s i de nt ic al to th e d efi ni ti on of t ha t t erm inth e Wisco ns in UFTA. Com pa re In d. Co de Ann . sec . 32 -2 -7 -1 0 (West20 02 ) an d In d. Co de Ann . sec . 32 -1 8- 2- 10 (West 2 01 5) with Wis . Sta t. s ec. 2 42 .01 (1 2)
. (co nt in ue d...)- 17 0 -

[* 17 0] As fo r th e se co ndpri nc ip le th at“ st at e fraudul en t-t ran sf er l aw is it se lf fle xi bl e an d l oo ks to equi tabl e p rin ci pl es li ke ‘ subs ta nc e o ve r fo rm ,’ jus t l ik e th e fed eral tax do ctrin es [subs ta nc e o ve r fo rm , bu si ne ss pu rp os e, an d e co no mic
subs ta nc e]”, inpo si ti ng th atpri nc ip le th e Co urt o f App eal s re li edon Bo y er, 5 87 F.3 d a t 7 93 , a cas e th atitha d d eci de d u nd er the Ind ia naUFTA. See Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 59 . The Co urt o f App eal s h adco nc lu de d i n B oyer th atth e “ [f]rau du le ntco nv ey an ce d oc tri ne . . . is a fl ex ib le pri nc ip le th atlo ok s t o
subs ta nc e, rathe r th anform , andpro te ct s cr ed it or s fr om any tra ns act io ns th e d eb to r
en ga ge s i n t ha t h av e th e eff ectof i m pa iri ng th ei r ri gh ts , whi le en su rin g t ha t the de bt orcanco nt in ue to do bu si ne ss an d a ss ur in g t hi rdpa rti es th attra ns act io ns do ne with t he de bt orat a rm ’s len gt h wi ll no t b e se co nd -g ue ss ed .” Bo y er, 5 87 F.3dat 79 3 (a lt erat io n i n B oyer) (quo ti ng Dou gl as G. Bair d, El em en ts of B an krup tc y 15 3- 15 4 (4 thed . 20 06 )). W e ag ree wi th th e Co urt o f App eal s’ con cl us io n i n B oyer 1 2 2 (...co nt inue d) 1 2 1 The Ind ia naSupr em e Co urt, l ik e th e Supr em e Co urt o f W is co ns in th atth e Co urt o f App eal s ci te d i n F el dm anv. Co m m is si on er, 7 79 F.3dat 4 59 , has lo ng fo ll owe d t he ge ne ral pri nc ip le th atequi ty loo ks to subs ta nc e, an d n otto form (th e th irdpri nc ip le setforth ab ov e). See , e.g., St at e ex rel . McGo ni gl e v . Mad is on Ci rcu itCo urt, 1 93 N.E.2d 2 42 , 25 0 (I nd . 19 63 ); Ot is v. Greg ory , 13 N.E. 39, 4 3 (In d. 1 88 7)
. InBo y er, 5 87 F.3d78 7, the Co urt o f App eal s d idno t ev enm en ti on , let 1 2 2 al on e u se , whatpe ti ti on ers cal l the co ll ap si ng do ctrin e o r th e equi tabl e co ll ap si ng (co nt in ue d...)- 17 1 -

[* 17 1] in vo lv in g t he Ind ia naUFTA, onwhi ch itrel ie d i n F el dm anv. Co m m is
si on er, 7 79 F.3dat 4 59 , in vo lv in g t he W is co ns in UFTA, tha t the sec on d p rin ci pl e
se t fo rth ab ov e in Fel dm anis a va li d p rin ci pl e und er the Ind ia naUFTA. As fo r th e fo urth pri nc ip le th at“ W is co ns in co urts us e th e ‘sub st an ce o ve r fo rm ’ pr in ci pl e in a varie ty of co nt ex ts , m os t n ot ab ly inc lu di ng tax cas es ” (Wisco ns insubs ta nc e o ve r fo rm pri nc ip le s) , pet it io ne rs do no t d is pu te , andwe co ncl ud e, th atInd ianaco urts , li ke W is co ns in co urts , “us e th e subs ta nc e o ve r fo rm pr in ci pl e ina va rie ty of co nt ex ts , m os t n ot ab ly inc lu di ng tax cas es .” Pet it io ne rs 1 2 3 do , ho wev er, co nt en d tha t re sp on de ntis wron g i n a ss ert in g t ha t we m ay rel y on
(...co nt inue d) 1 2 2 do ctrin e in de te rm in in g wh ethe r in subs ta nc e th ere was a tr an sf er o f th e d eb to r’s pr op erty to cert ai n p ers on s fo r pu rp os es of app lying th e co ns tru ct iv e fraudpro vi si on s o f th e In di an a UFTA. Howev er, as di sc us se d p rev io us ly, in th e p ro ceed in gs be lo w inth atcas e, bo th th e b an krup tc y co urt an d t he Dis tri ctCo urt de sc rib ed“ co ll ap si ng ” o r “ rech arac te riz in g” th e tr an sa ct io ns in vo lv edth ere a s wha t wo ul d o ccu r if

Ind ianasubs ta nc e o ve r fo rm pri nc ip le s t ha t re qu ire th atth e subs ta nc e o f a tran sa ct io n t o p rev ai l o ve r it s fo rm were d et erm in edto be ap pr opr ia te pri nc ip le s t o u se gi ve n t he fact s an d c irc um st an ces of t he cas e. See B oyer v. Cro wn St oc k Di st rib ., Inc ., 20 09 W L 41 82 75 , at * 7; In r e Cro wn Un li m it edMac h., In c., 20 06 W L 64 01 54 8, at*3
. See, e.g ., Belt erraRes ort In d., LLC, 93 5 N.E.2dat 1 79 (ci ti ng Bel te rra 1 2 3 Res ort In d., LLC v . Ind . Dep’t o f St at e Rev ., 90 0 N.E.2d51 3, 5 17 (In d. 2 01 0) ); W al te r v. B al og h, 6 19 N.E.2d 5 66 , 56 8 (I nd . 19 93 ); B ethl eh em Ste el Co rp . v. In d. Dep ’t of St at e Rev ., 59 7 N.E.2d13 27 , 13 31 -1 33 2 (I nd . T.C. 19 92 ); M on arch Bev erag e Co . Inc . v. In d. Dep ’t of St at e Rev ., 58 9 N.E.2d12 09 , 12 15 (In d. T.C. 19 92 ).- 17 2 -

[* 17 2] Ind ia natax cas es as s up po rt f orus in g In di an a subs ta nc e o ve r fo rm pri nci pl es forpu rp os es of the Ind ia naUFTA. W e b el ie ve th atth e Co urt o f App eal s, whi chde ci de d F el dm anv. Co m m is si on er, 7 79 F.3d44 8, wo ul d, an d we d o, re ject pe ti ti on ers ’ co nt en ti on . In d et erm in in g wh ethe r eac h o f th e C co rp or at io n’s s to ck
ho ld ers in vo lv edinFel dm anwas atra ns fere e o f pr op erty of t he C co rp or at io n fo r pu rp os es of t he W is co ns in UFTA with res pe ctto th e p ur po rte d s al e tr an sa ct io n in vo lv edinth atcas e, th e Co urt o f App eal s re li edon , in te r al ia , W is co ns in tax
cas es th atha d app li edsubs ta nc e o ve r fo rm pri nc ip le s. 1 2 4 W e h av e ex am in edth e h ol di ng an d t he rat io na le of t he Co urt o f App eal s th at“ [i]n l ig htof the bro adde fin it io n o f ‘tran sf er’ inW is co ns in frau du le nt tra ns fer l aw an d t he ge ne ral ap pl ic ab il it y of s ub st an ce-o ve r-fo rm

an al y si s, the sh areh ol de rs [of

th e d eb to r-C c or

po rat io n i n que st io n] are p ro pe rly deem edto be tra ns fere es un de r st at e la w as wel l as fed eral .” Id . 45 9. We hav e al so ex am in ed th e le ga l fr am ewo rkinwhi chitreac he d t ha t h ol di ng an d ra ti on al e. See i d. at45 8- 45 9. We con cl ud e th atno th in g i n t ha t h ol di ng , th atrat io na le , or t ha t l eg al fram ework p ro vi de s an y

supp ort fo r pe ti ti on ers ’ arg um en t tha t the W is co ns in co urts ’
us e o f W is co ns in subs ta nc e o ve r fo rm pri nc ip le s u nd er the W is co ns in UFTA

See s up ra n ot e 1 20
. 1 2 4- 17 3 -

[* 17 3] rep res en ts a m in or it y vi ew. In fa ct , th e h ol di ng an d t he rat io na le of the

1 2 5 Co urt o f App eal s an d t he leg al fram ewo rkinwhi ch itreac he d t ha t h ol di ng in Fel dm anrefu te th atarg um en t, an d we r ejectit
. 1 2 6 W e co nc lu de th at , inde te rm in in g wh ethe r fo r pu rp os es of t he Ind ia na UFTA insubs tanc e FFI m ad e a d is tri bu ti onor t ran sf er t o e achof M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR sal e tr an sa ct io n u nd er the SPRA, th e In di an a Supr em e Co urt wo ul d u se th e sa m e type o f an al y si s t ha t the Co urt o f App eal s u se d i n F el dm anv. Co m m is si on er, 7 79 F.3d44 8, wh enitwas m ak in g a si mil ar d et erm in at io n u nd er the W is co ns in UFTA. T ha t i s t o s ay , th e In di an a Supr em e Co urt wo ul d u se Ind ianasubs ta nc e o ve r fo rm pri nc ip le s. We furt he r
co nc lu de inth e al te rn at iv e th at , inm ak in g t ha t d et erm in at io n, the Ind ia naSupr em e Co urt wo ul d u se th e sa m e type o f an al y si s t ha t the Co urt o f App eal s u se d i n
Inth e li gh t o f th e co nc lu si on s o f th e Co urt o f App eal s i n F el dm anv. 1 2 5 Co m m is si on er, 7 79 F.3dat 4 58 -4 60 , th atth e p rin ci pl es un de r th e Wisco ns in UFTA are co ns is te ntwith t he pri nc ip le s o f th e UFTA, we bel ie ve th atif t he Co urt of App eal s h adbe li ev edth atth e Wisco ns in co urts ’ us e o f W is co ns in subs ta nc e ov er fo rm pri nc ip le s u nd er the W is co ns in UFTA refl ect eda m in or it y vi ew, it wou ldha ve ex pr es sl y

so st at ed . It d idno t. W e al so rejectth e se co ndarg um en t o f pe ti ti on ers reg ard in g t he all eg ed 1 2 6 co nf li ctth atwou ldbe crea te d b etweenInd . Cod e Ann . sec s. 3 2- 18 -2 -2 0 a nd32
- 18 -2 -2 1 i f In di an a subs ta nc e o ve r fo rm pri nc ip le s, an d n otth e equi tabl e co ll ap si ng do ctrin e, were u se d. Th atarg um en t i s p rem is edup onpe ti ti on ers ’ vi ew, whi ch we ha ve reject ed , th atth e law of Wis co ns in , as arti cu la te d b y th e Co urt o f App eal s i n Fel dm anv. Co m

m is si on er, 7 79 F.3dat 4 59 , rep res en ts a m in or it y vi ew.- 17 4 -

[* 17 4] Bo y er, 5 87 F.3dat 7 93 , with re sp ectto th e In di an a UFTA. Thatis to say, th e In di an a Supr em e Co urt wo ul d u se th e equi tabl e “ ‘flex ib le pri nc ip le [un de r th e In di an a UFTA] th atlo ok s t o s ub st an ce, rat he r th anform , andpro te ct s cr ed it or s fro m an y tra ns act io ns th e d eb to r en ga ge s i n t ha t h av e th e eff ectof i m pa iri ng th ei r rig ht s, wh il e en su rin g tha t the de bt orcanco nt in ue to do bu si ne ss an d a ss ur in g th irdparti es th attra ns act io ns do ne with t he de bt orat a rm ’s len gt h wi ll no t b e
se co nd -g ue ss ed .’ ” Id . (qu ot in g B ai rd , supr a, at15 3- 15 4) ; s ee al so Co nt ’l Cas . Co. v. Sym on s, 8 17 F.3d97 9, 9 93 (7th C ir. 2 01 6) (“ [A] bas ic pre cep t o f frau du le nt tra ns fer d oc tri ne * * * [i s] subs ta nc e trum ps form .” (ci ti ng Bo y er, 5 87 F.3dat 79 3) ). In a dd it io n, we co nc lu de inth e al te rn at iv e th at , inde te rm in in g wh ethe r fo r pu rp os es of t he Ind ia naUFTA insubs ta nc e FFI m ad e a d is tri bu ti on or t ran sf er t o each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR sal e tr an sact io n und er the SPRA, the Ind ia naSupr em e Co urt wo ul d u se th e sa m e type o f
an al y si s tha t i t an d o th er In di an a co urts ha ve us edina va rie ty of cas es un de r whi cha tr an sa ct io n t ha t i s a s ha m an d d ev oi d o f eco no m ic subs ta nc e is di sr ega rd ed . Thatis to say, the Ind ia naSupr em e Co urt wo ul d u se th e In di an a sh am tra ns act io n d oc tri ne . 1 2 7 The re ar e o th er equi tabl e p rin ci pl es , e.g., the Ind ia nast ep tra ns act io n 1 2 7 do ctrin e, th atwe co nc lu de inth e al te rn at iv e th e In di an a Supr em e Co urt wo ul d u se (co nt in ue d...)- 17 5 -

[* 17 5] W e ad dr es s n ex t wh ethe r pe ti ti on ers are co rrec t i n t he ir c on te nt io n th aton ly the equi tabl e co ll ap si ng do ctrin e “ requi res th atRes po nd en t p ro ve th at Pet it io ne rs kn ew orsh ou ldha ve kn own th atFFIA an d/ orMi dC oa stwas g oi ng to
cau se FFI’s t ax es to no t b e p ai d.” As we i nd ic at edpre vi ou sl y , th e equi tabl e
co ll ap si ng do c-trin e rel ie s o n e qu it ab le pri nc ip le s tha t ar e n otm at eri al ly diff eren t fro m , in te r al ia , Ind ia nasubs ta nc e o ve r fo rm pri nc ip le s, wh ic h i n turn a re
m at eri al ly the same as Wisco ns in subs tanc e o ve r fo rm pri nc ip le s t ha t the Co urt o f App eal s u se d i n F el dm anv. Co m m is si on er, 7 79 F.3d44 8. In fact , as a ls o n ot ed ab ov e, so m e co urts ha ve refe rredin te rch an ge ab ly to the equi tabl e p rin ci pl es of
co ll ap si ng tra ns act io ns an d t he equi tabl e p rin ci pl es of s ub st an ce o ve r fo rm . See, e.g ., Alte rm anv. Co m -m is si on er, T.C. Mem o. 2 01 5- 23 1 a t * 47 -* 48 (in vo lv in g t he Fl or id a UFTA); I n re Cro wn Un li m it edMac h., In c., 20 06 W L 64 01 54 8, at*3 (in vo lv in g t he Ind ia naUFTA), aff’d, Bo y er, 2 00 9 WL 41 82 75 , at * 7. Mo reo ve r,
as we als o i nd ic at edab ov e, incert ai n c as es th atha ve refe rredin te rch an ge ab ly to th e equi tabl e p rin ci pl es of c ol laps in g tran sa ct io ns an d t he equi tabl e p rin ci pl es of
subs ta nc e o ve r fo rm , cert ai n c ou rts ha ve , bef or e u si ng th os e p rin ci pl es un de r th e (...co nt inue d) 1 2 7 un de r th e In di an a UFTA, pro vi de d t ha t tho se ot he r In di an a equi tabl e p rin ci pl es do wha t the equi tabl e p rin ci pl es th atth e In di an a UFTA, as wel l as th e UFTA ad op te d by oth er jur is di ct io ns , do ; tha t i s t o s ay , lo okto subs ta nc e, rathe r th anform . See Bo y er, 5 87 F.3dat 7 93
.- 17 6 -

[* 17 6] ap pl ic ab le Sta te UFTA, requ ire d acred it or to sh ow tha t a p ur

po rte d tra ns fere e o f th e d eb to r kn ew or sh ou ldha ve kn own th atth e d eb t wo ul d n otbe pa id . See, e.g ., Alte rm anv. Co m m is si on er, at*4 8 (i nv ol vi ng th e Fl or id a UFTA). Fu rth erm or e, as pe ti ti on ers po in t o ut , incert ai n c as es th athave refe rredon ly to the equi tabl e p rin ci pl es of c ol laps in g t ran sa ct io ns , cert ai n c ou rts ha ve , bef or e u si ng th os e p rin ci pl es un de r th e ap pl ic ab le Sta te UFTA, requ ire d acred it orto sh ow tha t a p ur po rte d t ran sf

eree of t he de bt orkn ew orsh ou ldha ve kn own th atth e d eb t
wou ldno t b e p ai d. Se e, e.g ., Starne s v . Commis si on er, 6 80 F.3d41 7 (4 th Cir
. 20 12 ) (i nv ol vi ng th e North Caro li naUFTA), aff’g T.C. Mem o. 2 01 1- 63 ; HBE Leas in g C or

p. v . Fran k, 4 8 F .3d62 3 (2 d C ir. 1 99 5) (in vo lv in g t he New York Uni fo rm Frau du le ntCo nv ey an ce Act ). Howev er, n on e o f th e cas es im po si ng 1 2 8 th e kno wled ge requi rem en t i nv ol ve d the Ind ia naUFTA. 1 2 9 The on ly cases th atwe ha ve fou ndin vo lv in g t he Ind ianaUFTA inwhi ch th e co urt u se d e qu it ab le pri nc ip le s t ha t l oo k t o s ub st an ce, rat he r th anform , in de te rm in in g wh ethe r th ere was a tr an sf er o f th e d eb to r’s pr op erty to cert ai n

Cert ai n ju ris di ct io ns , su ch as t he Sta te of Ne w York , di d n otad op t the 1 2 8 UFTA bu t re ta in edth e UFCA tha t, l ik e th e UFTA, is de si gn edto pro te ctcred it or s fro m frau du le ntco nv ey an ces or t ran sf ers Nordi d a ny of th e cas es im po si ng th e kno wled ge requi rem en t i nv ol ve th e 1 2 9 W is co ns in UFTA.- 17 7 -

[* 17 7] pe rs on s ar e Bo y er, 5 87 F.3d78 7, an d C on t’l Ca s. Co ., 81 7 F .3d97 9. We di sc us s o nl y

Bo y er, 5 87 F.3d78 7. Th atis be cau se th e Co urt o f App eal s i n C on t’l Cas . Co., 8 17 F.3dat 9 91 -9 97 , rel ie d o n t he so -cal le d a lt er eg o t he ory , andno t o n th e In di an a UFTA, to ho ldcert ai n i nd iv idua ls li ab le forfrau du le nttra ns fers to cert ai n c or

po rat io ns th atth ey

own edan d c on tro ll ed
. InBo y er, a b an krup tc y

pro ceed in g, Cr ownUnl im it edMac hi ne , Inc . (ol d Cro wn) , so ldall of i ts ass et s t o ane wly fo rm edco rp or at io n (n ew Cro wn) , whi ch ch an ge d i ts na m e aft er tha t s al e (Cr own sal e) t o t he na m e o f th e se ll er, i n e xc ha ng e fo r $3 .1 m il li on incas h a nda $2 .9 m il li on pro m is so ry no te (no te ) th atwas s ecu red by all of the co m

pa ny’ s as se ts . (W e sh al l s om et im es refe r to (1) th e cas h andth e
no te th atne w Cro wn tran sf erre d t o o ldCro wn as th e sa le s p ro ceed s an d (2 ) th e pa ym en t o f th e cas h p ro ceed s b y ne w Cro wn t o o ldCro wn as th e cas h s al es pro ceed s p aym en t.) Pu rs ua ntto anun de rs ta nd in g o f th e p art ie s t o t he Cro wn s al e, imm ed ia te ly befo re the clo si ng ol d C ro wn tran sf erre d $ 59 0,3 28 fro m

it s b an k
acco un t t o asep arat e b an k a cco un t an d t he n d is tri bu te d t ho se fun ds as d iv id en ds to it s s to ckho ld ers (pr ecl os in g d iv id en d d is tri bu ti on s) . See Bo y er, 5 87 F.3dat 79 0- 79 1. Atth e cl os in g, n ew Cro wn tran sf erre d t he sal es pro ceed s t o o ldCro wn in ex ch an ge for

it s the n re m ai ni ng ass et s. Aft er the clo si ng , ol d C ro wn d is tri bu te d th e cas h t ha t i t h adrece iv edas p artof t he sal e p ric e to it s s to ckho ld ers an d c eas ed- 17 8 -

[* 17 8] be in g a n o pe rat in g c om pa ny. Ineach of t he two y ears aft er the clo si ng , pu rs ua ntto th e te rm s o f th e n ot e, ne w Cro wn m ad e a p aym en t t o o ldCro wn o f $1 00 ,00 0 o n t he no te (co ll ect iv el y , po st cl os in g n ot e p aym en ts ), whi ch itdi st rib ut edto it s s to ckho ld ers . See i d.; see als o In re Cro wn Un li mit edMac h., In c., 20 06 W L 64 01 54 8, at*1 -* 2. (We sh al l re fer t o a ll of t he ev en ts th atoc cu rredrel at in g to th e o ldCro wn s al e, in cl ud in g t ho se th atare n otreci te d h erei n b utare re ci te d i n Inre Cro wn Un li m it edMac h., In c., as th e o ldCro wn s al e tr an sa ct io n.) Afte r th e cl os in g o f th e Cro wn s al e, ne w Cro wn b eg anop erat in g t he bu si
ne ss inwhi ch ol d C ro wn h adbe enen ga ge d b efo re the sal e o f ol d C ro wn’s as se ts , bu t n ew Cro wn was no t s uc ces sf ul . New Crown be ga n b an kr up tc y pro ceed in gs ab ou t thr ee an d aha lf years aft er i t p ur ch as edol d C ro wn’s as se ts . There were n ot
en ou ghfun ds inne w Cro wn t o p ay it s u ns ecu redcred it or s, an d t he tru st ee i n b an krupt cy (trus te e) b ro ug htanadve rs ary act io n a ga in stol d C ro wn as th e in it ia l tran sfere e an d i ts st oc kh ol de rs (ol d C ro wn s to ckho ld ers ) as t he subs eque ntan d i m 1 3 0
m ed ia te or m ed ia te trans fere es . In tha t ac ti on , th e trus te e ackno wled ge d (1 ) th atin fo rm ne w Cro wn h adpu rch as edol d C ro wn’s as se ts an d m ad e tr an sf ers of c ert ai n fu nd s t o o ldCro wn t o p ay forth os e as se ts an d (2 ) th atif t he form of the trans The ol d C ro wn s to ckho ld ers were m em be rs of t he same fam il y . See Inre 1 3 0 Cro wn Un li m it edMac h., In c., 20 06 WL 64 01 54 8, at*1
.- 17 9 -

[* 17 9] act io n wer e to be res pe ct ed , (a) o ldCro wn wo ul d b e th e in it ia l tran sf eree to who m anaffi rm at iv e d efen se m ig htbe av ai labl e und er In d. Co de Ann . sec . 32 -1 8- 2- 18 an d (b ) th e o ldCro wn s to ckho ld ers wou ldbe subs eque ntan d i m m ed ia te or
m ed ia te tra ns fere es to who m anaffi rm at iv e d efen se m ig htbe av ai labl e und er 1 1 U.S.C. se c. 55 0( b) (20 12 ). Howev er, the tru st ee m ai nt ai ne d (1 ) th atth e subs ta nc e of th e Cro wn s al e o f as se ts sh ou ldpre va il ov er i ts form an d (2 ) th atif t he sub- 1 3 1 st an ce were to pre va il , th e tr an sa ct io n s ho ul d b e co ll ap se d a ndrech arac te riz edas a st oc k s al e b y

th e o ldCro wn s to ckho ld ers to ne w Cro wn tha t was fin an cedby
en cu m be rin g t he ass et s o f ol d C ro wn, i .e., a lev erag edbu y ou t (LBO) . In tha t
ev en t, ac co rd in g t o t he tru st ee, n ew Cro wn, the de bt or , wou ldbe co ns id eredto ha ve purch as edth e st oc k o f th e o ldCro wn s to ckho ld ers with fu nd s s ecu redby old Cro wn’s as se ts , th ereb y

all owi ng th os e st oc kh ol de rs to “ cas h o utan y equi ty” in ol d C ro wn, wh ic h s erv edas am ere c on du itforth os e st oc kh ol de rs of t he st oc k pu rch as e p ric e an d wh os e b us in es s re m ai ne d b ur de ne d wi thth e res ul ti ng de bt . As
a res ul t, the tru st ee co nt en de d, (1 ) ne w Cro wn, the de bt or , wou ldbe co ns id eredto ha ve m ad e d is tri bu ti on s t o t he ol d C ro wn s to ckho ld ers th atwere fraudul en t tra ns fers un de r eac h o f th e co ns tru ct iv e frau d p ro vi si on s i n In d. Co de Ann . sec s. W e sh al l re fer t o t he tru st ee’s the ory th atth e subs ta nc e o f th e Cro wn s al e 1 3 1 of it s as se ts sh ou ldpre va il ov er i ts form as the tru st ee’s s ub st an ce o ve r fo rm th eo ry .- 18 0 -

[* 18 0] 32 -1 8- 2- 14 (2 ) an d 3 2- 18 -2 -1 5, an d (2 ) th os e st oc kh ol de rs wou ldbe co n- 1 3 2 si de redin it ia l tran sf

eree s (n otsubs eque ntan d i m m ed ia te or m ed ia te tra ns fere es ) to who m no affi rm at iv e d efen se s wo ul d b e av ai labl e und er 1 1 U.S.C. s ec. 5 50 (b ). See B oyer, 20 09 W L 41 82 75 , at * 3. Befo re co ns id eri ng th e trus te e’s subs ta nc e o ve r fo rm th eo ry , th e b an krup tc y
co urt d idno t fi rs t re qu ire , as p et it io ne rs urg e we m us t d o i n t he se cas es , a sh owi ng by the tru st ee tha t the ol d C ro wn s to ckho ld ers kn ew orsh ou ldha ve kn ownth at
ne w Cro wn’s d eb ts wou ldno t b e p ai d. Id . at * 3- *4 . Alth ou gh th e b an kr up tc y
co urt was un wil li ng to acce pt , andinfactreject ed , th e trus te e’s subs ta nc e o ve r fo rm th eo ry un de r whi ch th e en ti re tran sa ct io n wo ul d b e co ll ap se d a ndrech arac te riz edas an LBO, i t d idso forth e fo ll owi ng reas on s. Th e b an krup tc y co urt h ad
co nc lu de d t ha t ac cep ta nc e o f th e trus te e’s subs ta nc e o ve r fo rm th eo ry “ no t o nl y
un ne ces saril y

co m pl ic at es th is m at te r, bu t al so in accu rat el y ch arac te riz es what tra ns pi red , ov erl oo ks si gn ifi can t fa ct s an d wo ul d o pe rat e to de pr iv e th e in di vi du al de fen da nt s [i .e., th e o ldCro wn s to ckho ld ers ] of th e d efen se s t ha t [1 1 U.S.C.]

The co ns tru ct iv e fraudpro vi si on s o f th e In di an a UFTA on whi ch th e 1 3 2 tru st ee re li edinBo y er, 5 87 F.3d78 7, In re Cro wn Un li m it edMac hi ne , Inc ., 20 06 W L 64 01 54 8, af

f’d, Bo y er, 2 00 9 WL 41 82 75 , are the same con st ru ct iv e fraud pr ov is io ns on whi ch , as d is cu ss edhe rei n, re sp on de ntrel ie s i n t he se cas es .- 18 1 -

[* 18 1] §5 50 (b ) gi ve s t o s ub se qu en t tran sf eree s [b utno t t o i ni ti al tra ns fere es ]. ” 1 3 3 Inre Cro wn Un li m it edMac h., In c., 20 06 W L 64 01 54 8, at*3
. Hav in g re jecte d t he tru st ee’s s ub st an ce o ve r fo rm th eo ry , andha vi ng acce pt edth e fo rm

of t he en ti re o ldCro wn s al e tr an sa ct io n, the ba nkrupt cy co urt h el d t ha t th e p recl os in g d iv id en d d is tri bu ti on s d idno t i nv ol ve “pr op erty of t he de bt or[ne w Cro wn]. * * * [a ndth at ] [a]t th e ti m e th atdi vi de ndwas p ai d, the m on ey be lo ng ed to th e d eb to r’s se ll er [o ldCro wn] * * * an d n otto th e d eb to r. Thu s, i t was no t ‘a tra ns fer m ad e * * * by [the ] de bt or ’ an d, as su ch , can no t b e av oi de d a s fr au du le nt
un de r ei th er I.C. 3 2- 18 -2 -1 4 o r I.C. 3 2- 18 -2 -1 5.” Id. at*1 1. The ba nkrupt cy

co urt the n a dd res se d wh ethe r, ha vi ng acce pt edth e fo rm of th e en ti re o ldCro wn s al e tr an sa ct io n, the tra ns fers by new Cro wn, the de bt or , to ol d C ro wn wer e “ av oi dabl e tr an sf ers ” und er ea ch of t he two co ns tru ct iv e fraud pr ov is io ns inInd . Cod e Ann . sec s. 3 2- 18 -2 -1 4( 2) an d 3 2- 18 -2 -1 5. In ad dr es si ng th atis su e, th e b an krup tc y co urt o bs erv edth at“ si nc e fraudul en t co nv ey an ce l aws are i nt en de d t o p ro te cta de bt or ’s cred it or s, the tra ns act io n i s t o b e ev al ua te d fr om th ei r pe rs pe ct iv e, no t tha t o f th e d efen da nt/tran sf eree .” Id . at * 6. Aft er a tho ro ug h The ba nkrupt cy

co urt s ta te d t ha t “ [c]ol laps in g t he trans act io n wo ul d 1 3 3 tra ns fo rm th e in di vi du al de fen dant s fr om subs eque nttra ns fere es in to in it ia l tra ns fere es an d d ep riv e th em of * * * de fen se s [a va il ab le on ly to s ub se qu en t tra ns fere es un de r 11 U.S.C. sec . 55 0( b) ]. ” Inre Cro wn Un li mit edMac h., In c., 20 06 W L 64 01 54 8, at*4
.- 18 2 -

[* 18 2] an al y si s o f th e fac ts an d t he law, the ba nkrupt cy co urt h el d t ha t the cas h
sa le s p ro ceed s p aym en t an d t he po st cl os in g n ot e p aym en ts were fraudul en t tran sfers by new Cro wn, the de bt or , to ol d C ro wn. See i d. at*4 -* 14
. 1 3 4 The ba nkrupt cy

co urt n ex t turne d t o t he qu es ti on s u nd er 1 1 U.S.C. s ec. 5 50
as to whatth e trus te e was en ti tl edto reco ve r an d fr om who m . Thatco urt co nc lu dedth atol d C ro wn was th e in it ia l tran sf eree an d t ha t the ol d C ro wn s to ckho ld ers were the subs eque ntan d i m m ed ia te or m ed ia te tra ns fere es un de r th atpro vi si on . The bankrupt cy

co urt o bs erv ed : “ Ju stbe cau se a [fraudul en t] tran sf er i s re co ve rab le , as h ere, fr om

th e in it ia l tran sf

eree [ol d C ro wn] do es no t au to m at ic al ly m ean

W e n ot e th at , inco ns id eri ng each of t he co ns tru ct iv e fraudpro vi si on s i n 1 3 4 th e In di an a UFTA, th e b an krup tc y co urt i nd ic at edth at , inde te rm in in g wh ethe r a de bt orm ad e a tran sf

er “ witho utrece iv in g areas on ab ly equ iv al en t v al ue inex ch an ge forth e tr an sf

er” und er In d. Co de Ann . sec s. 3 2- 18 -2 -1 4( 2) an d 3 2- 18 -2
- 15 (1 ), itm

us t co ns id er al l o f th e fac ts an d c irc um st an ces , in cl ud in g “ th e g oo d fa it h of th e tr an sf

eree an d wh ethe r th e * * * [tr an sf er] was the res ul t o f anarm s l en gt h tra ns act io n” . In re Cro wn Un li m it edMac h., In c., 20 06 W L 64 01 54 8, at*8
. Howev er, the ba nkrupt cy co urt co nc lu de d t ha t tho se ot he r co ns id erat io ns are n ot de te rm in at iv e o f whe th er re as on ab le equi va le ntva lu e was gi ve n b y th e tr an sf

eree un de r th os e p ro vi si on s. See id . In s up po rt o f th atco nc lu si on , th atco urt ci te d Mel lo n B an k, N.A. v. Offi ci al Co m m . of Un se cu redCred it or s o f R.M.L. (In re R.M.L., In c.), 9 2 F .3d13 9, 1 48 -1 54 (3dCir . 19 96 ). In I n re R.M.L., Inc ., a ba nkrupt cy

pro ceed in g i nv ol vi ng 11 U.S.C. sec . 54 8, the U.S. Cou rt o f App eal s fo r th e Thi rdCir cu ithe ldth atth e d eb to r in vo lv edinth atcas e d idno t re cei ve reas on ab ly equ iv al en t v al ue , des pi te th e g oo d fa it h o f th e tr an sf eree , th e arm s le ng th na tu re o f th e tr an sa ct io n, an d t he ch arg in g o f m ark etrat es forth e fee s i n t he tra ns act io n. Se e id .; s ee al so In r e Cro wn Un li m it edMac h., In c., 20 06 W L 64 01 54 8, at*8
.- 18 3 -

[* 18 3] th atitis als o re co ve rab le fro m th e subs eque nttra ns fere es . Sect io n 5 50 (b ) [o f 11 U.S.C.] gi ve s i m

m ed ia te an d m ed ia te tra ns fere es affi rm at iv e d efen se s t ha t
are n otav ai labl e to th e in it ia l tran sf eree .” Inre Cro wn Un li m it edMac h., In c., 20 06 W L 64 01 54 8, at*1 4. The affi rm at iv e d efen se (go odfai th de fen se ) th atth e o ldCro wn s to ck
ho ld ers (th e imm ed ia te or m ed ia te trans fere es ) rai se d was th atth ey to okpro pe rty of ne w Cro wn, the de bt or , “ fo r va lu e, * * * i n g oo d fa it h, an d wi th ou t kno wled ge of th e v oi dabi li ty of th e tr an sf er”. 11 U.S.C. sec . 55 0( b) . The o ldCro wn s to ck
1 3 5 OldCro wn cl ai m edanaffi rm at iv e d efen se un de r In d. Co de Ann . sec . 32
- 1 3 5 18 -2 -1 8( d) , whi chall ows , in te r al ia , “ a g oo d fa it h t ran sf eree or o bl ig ee * * * to th e ex te ntof t he va lu e g iv enth e d eb to r fo r th e tr an sf er o r ob li ga ti on , * * * a r ig htto ret ai n a ny int eres t i n the ass ettra ns ferr ed* * * [o r] a reduc ti on inth e am ou ntof th e li ab il it y

on th e jud gm en t.” Se e Inre Cro wn Un li m it edMac h., In c., 20 06 W L 64 01 54 8, at*1 2- *1 3. Th e b an krup tc y co urt re jecte d tha t af

firm at iv e d efen se be cau se itfou ndth atol d C ro wn was no t a g oo d fa it h t ran sf eree un de r In d. Co de Ann . sec . 32 -1 8- 2- 18 (d ). Id. In reac hi ng th atfin di ng , th e b an krup tc y co urt n ot ed th at“ [w]hethe r th e rec ip ie ntof afrau du le ntco nv ey an ce qua li fie s as a go odfai th tra ns fere e is a qu es ti on of f act* * * wh ic h l arg el y

tu rn s o n * * * [th e] kn owl ed ge [o f th e tr an sf

eree ] atth e ti m e o f th e tr an sa ct io n s ou gh t t o b e av oi de d.” In re Cro wn Un li m it edMac h., In c., 20 06 WL 64 01 54 8, at*1 3. Th e b an krup tc y co urt in di cat edth atalt ho ug h t he re was li tt le ag reem en t am on g c ou rts as t o t he ap pr op riat e le ga l s ta nd ardforth e aff irmativ e d efen se un de r In d. Co de Ann . sec . sec . 32
- 18 -2 -1 8( d) an d s im il ar p ro vi si on s u nd er the UFTA ena ct edby oth er jur is di ct io ns , a co urt m us t t ak e “ anob

jecti ve ap pr oa ch to de te rm in e wha t the tra ns fere e kne w or sh ou ldha ve kn own su ch th atth e tr an sf eree do es no t ac t i n g oo d fa ith wh enitha s su ffi ci en t kno wled ge to pl ace * * * [th e tr an sf eree ] on in qu iry no ti ce o f th e v oi dab il it y of t he tra ns fer.” Id. (quo ti ng Dob in v. Hi ll (Inre Hil l), 3 42 B.R. 1 83 , 20 3 (Ban kr . D.N.J. 20 06 )). As d is cu ss edbe lo w, th e b an kr up tc y co urt ap pl ie d asi m il ar

(co nt in ue d...)- 18 4 -

[* 18 4] ho ld ers ha d t he bu rd enof p ro vi ng th ei r en ti tl em en t t o tha t af firm at iv e de fen se . The b an krup tc y co urt ex pr es sl y

fou ndth at , exc ep t fo r on e o f th e o ld Cro wn s to ckho ld ers na m edSte ve n S tro up II (Mr . Stro up II), wh o was ol d C ro wn’s pr es id en t an d i ts m ajor it y st oc kh ol de r an d wh o n eg ot ia te d t he sal e o f ol d C ro wn’s
as se ts to ne w Cro wn, s ee In re Cro wn Un li m it edMac h., In c., 20 06 W L 64 01 54 8, at*1 , th e o ldCro wn s to ckho ld ers di d n otha ve a “ hi gh de gr ee o f in vo lv em en t i n th e tr an sa ct io n o r hi s [M r. Str oup II ] kn owl ed ge of i ts de ta il s.” Id . at * 14 . The ba nkrupt cy

co urt fu rth er fo un d t ha t “ itap pe ars th atth ey [ol d C ro wn s to ckho ld ers
ex cep t M r. Str oup II ] were m or e o r le ss co nt en t t o l etMr. Stro up II m ak e th e
ne ces sa ry de ci si on s an d ru n t hi ng s.” Acc or di ng ly, th e b an krup tc y co urt fo un d t ha t th os e st oc kh ol de rs “ ha d n o re as on to kn ow o f th e p os si bl y frau du le ntna ture o f th e tra ns act io n t ha t re su lt edinth e d is tri bu ti on s the y rece iv ed ”. Id . at * 14
. The fin di ng s o f th e b an krup tc y co urt tha t the ol d C ro wn s to ckho ld ers to ok pr op erty “ in go odfai th ” fo r pu rp os es of 1 1 U.S.C. s ec. 5 50 (b ) di d n ot , ho wev er, le adth atco urt t o c on cl ud e th atth e o ldCro wn s to ckho ld ers , exc ep t fo r Mr. St ro up II, h adpro ve d the ir e nt it le m en t t o t he affi rm at iv e d efen se un de r th atpro vi si on . (...co nt inue d) 1 3 5 te stinde te rm in in g wh ethe r th e o ldCro wn s to ckho ld ers , as i m m ed ia te or m ed ia te tra ns fere es , to okpro pe rty “ in go odfai th ” fo r pu rp os es of t he affi rm at iv e d efen se un de r 11 U.S.C. sec . 55 0( b) (20 12 ).- 18 5 -

[* 18 5] Thatwas b ecau se th os e st oc kh ol de rs als o h adto pro ve th atth ey to ok pr op erty “ fo r va lu e”. With res pe ctto th atqu es ti on , th e b an krup tc y co urt co nc lu dedth at“ va lu e fo r th e p ur po se of [ 11 U.S.C.] § 5 50 (b )(1 ) ‘loo ks to whatth e tr an sfere e g av e up’”. Id. a t * 15 (qu ot in g B on de d F in . Serv s., In c. v. Eu ro pe anAm
. Ban k, 8 38 F.2d89 0, 8 97 (7th C ir. 1 98 8) ). The b an krup tc y co urt fo un d t ha t the ol d Cro wn s to ckho ld ers “ ga ve no th in g i n e xc ha ng e fo r th ei r di st rib ut io ns fro m Cro wn St oc k [o ldCro wn]”. Acco rd in g t o t ha t co urt, “ [t]ho se di st rib ut io ns were m ad e,
no t i n re tu rnforso m e ex ch an ge of p ro pe rty or s erv ic es , or t he pay m en t o f an
an te ced en t d eb t, b utso le ly on a cco un t o f th ei r st atus as s ha reh ol de rs inth e
co m pa ny. Su ch di st rib ut io ns are n otanex ch an ge of a nyth in g anddo no t co nst itut e v al ue forpurp os es of [ 11 U.S.C.] § 5 50 (b ).” Id . at * 15 . Con se qu en tl y , th e ba nkrupt cy

co urt h el d t ha t n on e o f th e o ldCro wn s to ckho ld ers was e nt it le d t o t he affi rm at iv e d efen se un de r 11 U.S.C. sec . 55 0( b) . Id. at*1 5. The ba nkrupt cy

co urt d eci si on inBo y er was ap pe al edto th e U.S. Dis tri ct Co urt fo r th e North ernDis tri ctof I nd ia na . The Di st ric t Co urt af firm edth e b an krupt cy co urt d eci si on . See Bo y er, 2 00 9 WL 41 82 75 . The Di stric t Co urt, l ik e 1 3 6 The Dis tri ctCo urt d idno t re ach th e is su e p res en te d o n app eal by old 1 3 6 Cro wn an d t he ol d C ro wn’s s to ckho ld ers th atth e b an krup tc y co urt h aderre d i n ho ld in g t ha t the tra ns fers by new Cro wn t o o ldCro wn i n t he ol d C ro wn s al e tra ns act io n wer e av oi dabl e tr an sf ers un de r th e co ns tru ct iv e fraudpro vi si on s i n (co nt in ue d...)- 18 6 -

[* 18 6] th e b an krup tc y

co urt, re jecte d t he tru st ee’s s ub st an ce o ve r fo rm th eo ry an d
as a res ul t fo un d, as th e b an krup tc y co urt h adfou nd , th atth e p recl os in g d iv id en d di s- tri bu ti on s wer e p ai d wh enth e fu nd s wi th whi ch th os e d is tri bu ti on s wer e m ad e be lo ng edto ol d C ro wn, an d n otto ne w Cro wn, the de bt or . Con se qu en tl y , th e Dis tri ctCo urt h el d, as th e b an krup tc y co urt h adhe ld , th atth os e d is tri bu ti on s wer e
no t tran sf ers m ad e b y

ne w Cro wn, the de bt or , andth eref or e m ay no t b e av oi de d a s frau du le ntun de r In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 ). See Bo y er, 2 00 9 WL 41 82 75 , at * 8. The Dis tri ctCo urt ju dg m en t i n B oyer was app eal edto th e Co urt o f App eal s fo r th e Sev en th Cir cu it . The Co urt o f App eal s af firm edinpa rt a ndrev ers edin pa rt t ha t ju dg m en t. See Bo y er, 5 87 F.3d78 7. Th e rev ers al was wi th res pe ctto th e Dis tri ctCo urt’s h ol di ng th atth e p recl os in g d iv id en d d is tri bu ti on s wer e n ottra ns fers m ad e b y

ne w Cro wn, the de bt or , to th e o ldCro wn s to ckho ld ers an d t he refo re
m ay no t b e av oi de d a s fr au du le ntun de r In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 ). As
was tru e o f th e b an krup tc y co urt an d t he Dis tri ctCo urt, the Co urt o f App eal s be ga n i ts an al y si s o f th e is su es pre se nt edwith wh atitde sc rib edas “ th e tr us te e’s (...co nt inue d) 1 3 6 In d. Co de Ann . sec . 32 -1 8- 2- 15 . Thatwas b ecau se itha d a ffi rm edth e b an krup tc y co urt’s d eci si on th atth os e tr an sf ers were av oi dabl e tr an sf ers un de r th e co ns tru cti ve frau d p ro vi si on s i n In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 ). See Bo y er, 2 00 9 WL 41 82 75 , at * 13
.- 18 7 -

[* 18 7] arg um en t fo r rec ha ract eri zi ng th e [o ldCro wn s al e] tran sa ct io n” as asal e b y th e o ldCro wn s to ckho ld ers of t he st oc k o f ol d C ro wn, i .e., an LBO, i ns te adof a
sa le by oldCro wn o f it s as se ts . See i d. at79 1- 79 2. Th e Co urt o f App eal s ackno wled ge d t ha t the ol d C ro wn s al e o f it s as se ts di ffer ed“ in two form al
res pe ct s” fro m

a so -cal le d c on ve nt io na l LBO i n wh ic h a n i nv es to r pu rch as es th e st oc k o f a co rp or at io n fr om it s s to ckho ld ers with t he pro ceed s o f a l oa n t ha t i s
se cu redby the co rp or at io n’s as se ts . The fi rs t fo rm al di ffer en ce, ac co rd in g t o t he Co urt o f App eal s, was th atth e o ldCro wn s al e in vo lv edth e p ur ch as e o f ol d Cro wn’s as se ts an d n otit s s to ck . The s eco ndform al di ffer en ce, ac co rd in g t o t he Co urt o f App eal s, was th at“ de sp it e a l oa d o f de btan d ade arth o f cas h, the
co rp or at io n [n ew Cro wn] li m pe d a lo ng forth ree- an d- a-h al f y ears be fo re co llaps in g i nt o t he arm s o f th e b an krup tc y co urt.” Se e id . at 7 93
. Des pi te th e two form al di ffer en ces fro m a co nv en ti on al LBO th atth e Co urt of App eal s fo un d i n t he ol d C ro wn s al e tr an sa ct io n, i t i nd ic at edth at“ whe th er o ne cal ls itanLBO or n otis no t cr it ic al ”. Howev er, the Co urt o f App eal s i nd ic at ed th at“ if o ne ha s t o c al l the ov eral l [o ldCro wn s al e] tran sa ct io n s om ethi ng , th e
so m ethi ng is anLBO.” Id. at78 7. Whatwas c rit ic al to th e Co urt o f App eal s was de te rm in in g wh enanLBO is leg it im at e an d wh enitis a frau du le nttra ns fer. Th e Co urt o f App eal s o bs erv edth at , inm ak in g t ha t d et erm in at io n wi th res pe ctto th e- 18 8 -

[* 18 8] ol d C ro wn s al e tr an sa ct io n, i t m us t b ear i n m in d tha t the “ ‘[f] rau du le nt
co nv ey an ce d oc tri ne . . . is a fl ex ib le pri nc ip le th atlo ok s t o s ub st an ce, rat he r th an fo rm , andpro te ct s cr ed it or s fr om an y tra ns act io ns th e d eb to r en ga ge s i n t ha t h av e th e eff ectof i m pa iri ng th ei r ri gh ts , whi le en su rin g t ha t the de bt orcanco nt in ue to do bu si ne ss an d a ss ur in g thi rdpa rti es th attra ns act io ns do ne with t he de bt orat
arm ’s len gt h wi ll no t b e se co nd -g ue ss ed ’. ” Bo y er, 5 87 F.3dat 7 87 (al te rat io n i n Bo y er) (quo ti ng Bai rd , supr a, at15 3- 15 4) . As far a s t he Co urt o f App eal s was
co nc ern ed , if the pre cl os in g d iv id en d d is tri bu ti on s wer e “pa rt andpa rcel of t he tra ns act io n t ha t fa ta ll y

de pl et edne w Cro wn’s as se ts , itwas p artan d p arce l o f a frau du le ntco nv ey an ce.” Id . at 7 93
. The Co urt o f App eal s t he n a dd res se d wh ethe r th ere was any si gn ifi can ce t o th e fi rs t fo rm al di ffer en ce b etweenth e o ldCro wn s al e tr an sa ct io n a nda co nv en ti on al LBO inwhi ch th e st oc k, an d n otth e as se ts , of aco rp or at io n i s p ur ch as ed
. The co urt d is m is se d t ha t fo rm al di ffer en ce as “ of no co nc ei vabl e si gn ifi can ce”, po in ti ng ou t tha t an LBO canals o t ak e th e fo rm of a n a ss etpu rch as e. See i d. at 79 3. Th e Co urt o f App eal s ex pl ai ne d t ha t al th ou gh th e acqui si ti on was “ no m ina ll y of t he ass et s o f ol d C ro wn * * * [, itwas] actua ll y of t he own ers hi p o f th e
co m pa ny; fo r ol d C ro wn d is tri bu te d t he m on ey itrece iv edinth e sa le forth with t o it s s ha reh ol de rs an d fr om th enon ex is te d o nl y

as ash el l.” Id . at 7 93 -7 94 . The- 18 9 -

[* 18 9] Co urt o f App eal s co nt in ue d i ts ex pl an at io n a ndst at ed : “New Cro wn op erat edun de r th e sa m e n am e as it s p red eces so r, an d i ts tra de cred it or s an d o th er
un se curedcred it or s wer e n otev ento ldab ou t the tra ns act io n. Th atret ic en ce
wou ldbe no rm al if t he st oc k o f a co rp or at io n wer e so ld , rathe r th anit s as se ts ; b ut in a sa le of i ts ass et s, the sel le r’s cred it or s wo ul d e xp ectto be no ti fie d t ha t the y
wou ldhe nc efo rth be de al in g wi th a di ffer en t fi rm .” Id . at 7 94
. The Co urt o f App eal s n ex t ad dr es se d wh atitha d c al le d t he sec on d fo rm al di ffer en ce b etweenth e o ldCro wn s al e tr an sa ct io n a nda co nv en ti on al LBO, i.e.,

“ de sp it e a l oa d o f de btan d ade arth o f cas h, the co rp or at io n l im pe d a lo ng for th ree- an d- a-h al f y ears be fo re co ll ap si ng in to th e arm s o f th e b an krup tc y co urt.” See i d. at79 3. Th e co urt fi rs t ex pl ai ne d t ha t a c om pa ny mig htbe in so lv en t, tha t i s to say, it l iabi li ti es ex ceed edit s as se ts , andno ne th el es s m ig htco nt in ue to op erat e
as lo ng as i t was ab le to rai se en ou gh m on ey to pa y it s d eb ts as t he y

be cam e due , orpe rh ap s l on ge r if

it s cr ed it or s wer e fo rb eari ng . Howev er, the Co urt o f App eal s
co nc lu de d t ha t tha t was no t the fin an ci al si tu at io n i n wh ic h n ew Cro wn fo un d it se lf a s a r es ul t o f th e te rm s o f th e o ldCro wn s al e tr an sa ct io n. Acco rd in g t o t he
co urt, tha t s al e tr an sa ct io n re du cedne w Cro wn’s ab il it y to bo rro w on fav or ab le te rm s b ecau se , inord er t o b uy oldCro wn’s as se ts , new Cr own ha d e nc um be redall of th e as se ts of o ldCro wn tha t n ew Cro wn o wne d a fte r th attra ns act io n a s- 19 0 -

[* 19 0] co ll at eral forth e m on ey th atitbo rro wedto m ak e th atpu rch as e. Mo reo ve r, th e Co urt o f App eal s co nt in ue d, “ ne w Cro wn was for cedto en ga ge inco nt in ua l bo rro win g dur in g i ts rem ai ni ng li fe, an d o n u nf av or ab le term s.” B oyer, 58 7 F .3d at79 4. Th atwas b ecau se , acco rd in g t o t he Co urt o f App eal s, m os t o f ol d C ro wn’s
cas h h adbe enco m

m it te d t o m ak in g t he pre cl os in g d iv id en d d is tri bu ti on s t o t he ol d C ro wn s to ckho ld ers an d the po st cl os in g n ot e p aym en ts to ol d C ro wn an d t o pa y in g a lm os t $ 50 0,0 00 an nu al ly in o rd er t o s erv ic e th e n ot e to th e b an k re pr ese nt in g t he lo anth atfin an cedit s p ur ch as e o f th e o ldCro wn as se ts . The Co urt o f App eal s p oi nt edou t tha t s ev enm on th s b efo re i t b eg anba nkrupt cy pro ceed in gs
ne w Cro wn h ad“ run up $ 8.3 m il li on inde btan d i ts ass et s wer e worth les s t ha n ha lf t ha t am ou nt .” Id . As far a s t he co urt was co nc ern ed , new Cr own ha d m ad e pa ym en ts an d i nc urredob li ga ti on s b ecau se of t he ol d C ro wn s al e tr an s- act io n fo r whi chitrece iv edno th in g i n re turnex cep t the $5 00 cap it al co nt rib ut io n o f it s s ol e st oc kh ol de r an d c ert ai nl y di d n otrece iv e “ reas on ab ly equ iv al en t v al ue ”. As a
res ul t, the Co urt o f App eal s fo un d t ha t ev enif n ew Cro wn was no t i n fa ctin
so lv en t wh enitst art edit s b us in es s af te r th e o ldCro wn s al e tr an sa ct io n, i t “ be ga n li fe wi th ‘ un reas on ab ly sm al l’ ass et s g iv enth e n atur e o f it s b us in es s.” Id . The
co urt em ph as iz edth atitwas t hi s d iff eren ce b etweenin so lv en cy on th e d ay

an LBO is effe ct edan d h av in g a t tha t t im e su ch m eag er, i .e., “un reas on ab ly sm al l” ,- 19 1 -

[* 19 1] ass et s t ha t b an krup tc y is “ a co ns eque nc e b ot h l ik el y an d fo res eeab le ” th at is th e d iff eren ce b etweenin so lv en cy an d “ un reas on ab ly sm al l” ass et s i n t he LBO
co nt ex t. Id . The Co urt o f App eal s fo un d t ha t n ew Cro wn “ was na ke d t o a ny fina nc ia l s to rm s t ha t m ig htass ai l i t” be cau se of i ts co m m it m en ts as ares ul t o f th e ol d C ro wn s al e tr an sa ct io n. Th e co urt thu s af firm edth e b an krup tc y

co urt’s fi nd
in g t ha t n ew Cro wn s urvi ve d fo r th ree a nda ha lf years aft er the ol d C ro wn s al e tra ns act io n “ on ly on ‘li fe s up po rt’”. Id . at 7 94 -7 95 . Con se qu en tl y , th e Co urt o f App eal s h el d t ha t “ th e st atut ory co nd it io n fo r a fraudul en t co nv ey an ce [u nd er In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 )] was sa ti sf ie d- -o r so at l eas t the ba nkrupt cy jud ge
co ul d a nddi d fi ndwitho utco m m it ti ng a cl ear e rro r.” Id. at79 5. 1 3 7 The Co urt o f App eal s t he n turne d t o t he pre cl os in g d iv id en d d is tri bu ti on s, whi chth e lo wer co urts (i.e ., th e b an krup tc y co urt an d t he Dis tri ctCo urt), h av in g reject edth e trus te e’s subs ta nc e o ve r fo rm th eo ry , hadfou ndwere p aym en ts m ad e by oldCro wn b efo re tha t tran sa ct io ns clo se d a ndth us were n ottra ns fers un de r th e
The Co urt o f App eal s h adob se rv edearl ie r inBo y er tha t a c or po rat e 1 3 7 tra ns fer i s fr au du le ntwithi n t he m ean in g o f In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 ), “ ev enif t he re i s n o fr au du le ntin te nt , if the co rp or at io n d idn’t re cei ve ‘ reas on ab ly equi va le ntva lu e’ in re tu rnforth e tr an sf er an d a s a r es ul t was lef

t wi th in su ffi ci en t as se ts to ha ve a reas on ab le ch an ce o f su rv iv in g i nd efi ni te ly.” Boy er, 5 87 F.3dat 79 2 (c it in g R os e v . Merc an ti le Nat’l Bankof Ham m on d, 8 44 N.E.2d 1 03 5, 1 05 4 (In d. Ct . App . 20 06 ), va cat edinpa rt o n o th er g ro un ds , 86 8 N.E.2d77 2 (I nd
. 20 07 )).- 19 2 -

[* 19 2] Ind ia naUFTA by

ne w Cro wn, the de bt or , to th os e st oc kh ol de rs . The Co urt of App eal s fo un d t ha t tho se di strib ut io ns were “ anin te gr al pa rt o f th e LBO”. Inso fin di ng , th e co urt p oi nt edou t tha t d iv id en ds are ra re fo r fam il y -o wne d c om pa ni es li ke ol d C ro wn, tha t the y rep res en te d 5 0 p erce ntof i ts pro fit s fo r th e y ear b efo re th e o ldCro wn s al e tr an sa ct io n c lo se d, wh ic h was un reas on ab ly larg e g iv enth at
co m pa ny’ s ca sh ne ed s, an d tha t the ol d C ro wn s to ckho ld ers ha d t he reb y dra in ed ol d C ro wn o f it s ca sh , a factwhi ch was n otkn own by its th encurren t an d fu tu re
un se curedcred it or s. See Bo y er, 5 87 F.3dat 7 94 . From th os e fi nd in gs , th e Co urt of App eal s h el d: “ The se in di cat io ns th atth e d iv id en d was pa rt o f th e fraudul en t tra ns fer ra th er tha n ano rm al di st rib ut io n o f pr ev io us ly earne d p ro fit s- -th atit
was n’t anord in ary di vi de ndbu t ra th er the withd rawal of a n a ss etvi ta l t o t he acqui rin g fi rm

[ne w Cro wn, the de bt or ]--were su ffi ci en t t o p la ce a b ur de n o n * * * [o ldCro wn an d the ol d C ro wn s to ckho ld ers ] of pro du ci ng ev id en ce tha t i t was a bo nafid e d iv id en d, a b ur de n the y fai le d t o c arry.” Id. at79 6. Inso ho ld in g wi th res pe ctto th e p recl os in g d iv id en d d is tri bu ti on s, the Co urt of App eal s d idno t fi rs t i m

po se , letalo ne m ak e an y

refe ren ce t o, the kn owl ed ge requi rem en t tha t p et it io ne rs arg ue is a pr erequi si te un de r th e In di an a UFTA be fo re itis pe rm is si bl e to ap pl y

equi tabl e p rin ci pl es to de te rm in e whe th er i n t he SPR s al e tra ns act io n u nd er the SPRA the re was a tr an sf er u nd er the Ind ia naUFTA of FF I’s- 19 3 -

[* 19 3] pro pe rty to e ach of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r. Infact , th e kno wled ge requi rem en t tha t p et it io ne rs urg e we ad op t fo r pu rp os es of th e In di an a UFTA he re was no t s at is fie d i n B oyer as t o a ny of th e o ldCro wn st oc kh ol de rs ex cep t M r. Str oup II . As di sc us se d p rev io us ly, th e b an krup tc y co urt
ex pr es sl y ha d fo un d wh enitwas c on si de rin g the so -cal le d g oo d fa it h d efen se
un de r 11 U.S.C. sec . 55 0( b) rai se d b y th e o ldCro wn s to ckho ld ers th atth e o ld Cro wn s to ckho ld ers di d n otha ve a “ hi gh de gr ee o f in vo lv em en t i n t he tra ns act io n
orhi s [M r. Str oup II ] kn owl ed ge of i ts de ta il s.” In re Cro wn Un li m it edMac h., In c., 20 06 W L 64 01 54 8, at*1 4. Th e b an krup tc y co urt fu rth er fo un d t ha t “ it ap pe ars th atth ey

[ol d C ro wn s to ckho ld ers ex cep t M r. Str oup II ] were m or e o r le ss
co nt en t t o l etMr. Stro up II m ak e th e n eces sa ry de ci si on s an d ru n t hi ng s.” Id
. Acco rd in gl y , th e b an krup tc y co urt fo un d t ha t tho se st oc kh ol de rs “ha d n o re as on to kn ow o f th e p os si bl y

frau du le ntna tu re o f th e tr an sa ct io n t ha t re su lt edinth e d is
tri bu ti on s the y

rece iv ed ”. Id . The Co urt o f App eal s d idno t d is tu rb th os e fi nd in gs of th e b an krup tc y

co urt. 1 3 8 Sev eral y ears aft er the Co urt o f App eal s fo r th e Sev en th Cir cu itde ci de d Bo y er, 5 87 F.3d78 7, i t ag ai n was ask edinFel dm anv. Co m mis si on er, 7 79 F.3d The Dis tri ctCo urt al so di d n otdi sturb the fin di ng s o f th e b an krup tc y 1 3 8 co urt re ga rd in g t he lac k o f kn owl ed ge an d t hu s g oo d fa it h o f th e o ldCro wn s to ck
ho ld ers ex cep t M r. Str oup II . See Bo y er, 2 00 9 WL 41 82 75
.- 19 4 -

[* 19 4] 44 8, wh ethe r th e cre di to r th ere (t he Co m mis si on er) was requi redto sat is fy th e kno wled ge requi rem en t b efo re the co urt wo ul d u se ap pl ic ab le Sta te law equi tabl e p rin ci pl es (na m el y , W is co ns in subs tanc e o ve r fo rm pri nc ip le s) in de te rm in in g wh ethe r un de r th e ap pl ic ab le Sta te ’s (na m el y , W is co ns in ’s) UFTA th ere was a tr an sf

er o f th e d eb to r’s pr op erty to th e d eb to r’s st oc kh ol de rs inth e sa le tra ns act io n i nv ol ve d i n t ha t ca se . See i d. at45 9. Co ns is te ntwith wh atitha d im pl ic it ly fou ndinBo y er, 5 87 F.3dat 7 87 , un de r th e la w inInd ia na , in cl ud in g t he In di an a UFTA, th e Co urt o f App eal s ex pl ic it ly hel d t ha t u nd er the law o f W is co ns in , in cl ud in g t he W is co ns inUFTA, “ du e d il ig en ce an d l ackof kno wled ge of il le ga li ty is s im

pl y be si de th e p oi nt ” in de te rm in in g wh ethe r th e sa le tra ns act io n in vo lv edinth atcas e co ul d b e “ reca st ” o r “ rech arac te riz ed ” und er the W is co ns in UFTA as a t ran sf

er b y th e d eb to r to it s s to ckho ld ers . See Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 59 -4 60
. Inreject in g t he kn owl ed ge requi rem en t i n F el dm an , th e Co urt o f App eal s rel ie d o n B ad ge r St at e Ban k v . Tay lo r, 68 8 N.W.2d 4 39 , 44 7- 44 9 (Wis . 20 04 ). See F el dm anv. Co m

m is si on er, 7 79 F.3dat 4 59 . Accor di ng to th e Co urt o f App eal s, “ [t]he W is co ns in Supr em e Co urt h as ex pl ai ne d t ha t s ub jecti ve in te ntan d go odfai th pl ay

no rol e in th e ap pl ic at io n o f th e co ns tru ct iv e-fr au d p ro vi si on s o f- 19 5 -

[* 19 5] W is co ns in ’s UFTA.” (Bad ge r co nc lu si on ) Id. We hav e fo un d n o 1 3 9 juri sd ic ti on th atha s en act edth e UFTA whi ch ha s re jecte d t he pri nc ip le em

bo di ed in th e Bad ge r co nc lu si on . To th e co nt rary, w e h av e fo un d autho rit y in di cat in g 1 4 0 th atth e Bad ge r co nc lu si onun de r th e Wisco ns in UFTA th atth e Wisco ns in Supr em e Co urt arti cu la te d i n B ad ge r St at e Ban k i s g en eral ly accep te d b y th e St at e of Ind ia naas we ll as o th er jur is di ct io ns th athave en act edth e UFTA. InMan ni ng v. Wall ace ( Inre Fi rs t Fi n. As so cs ., Inc .), 37 1 B .R. 87 7, 8 99 (Ban kr . N.D. In d. 2 00 7) , in vo lv in g, i nt er al ia , th e co ns tru ct iv e fraudpro vi si on s o f th e In di an a UFTA, th e b an krup tc y co urt co nc lu de d t ha t “ [a] ‘ co ns tru ct iv el y frau dul en t co nv ey an ce’ * * * [u nd er the Ind ia naUFTA] ha s n ot hi ng to do with the in te ntor m ot iv at io n s urro un di ng th e tr an sf er. In st ead , it s fr au du le ntna tu re i s de te rm in edso le ly by

th e ci rcu m st an ces of t he tra ns act io n i ts el f.” 1 4 1
InBad ge r St at e Ban k v . Tay lo r, 68 8 N.W.2d 4 39 , 44 7- 44 9 (Wis . 20 04 ), 1 3 9 th e Wisco ns inSupr em e Co urt d idno t h av e b efo re i t the is su e o f whe th er t o “ reca st ” o r “ rech arac te riz e” a t ran sa ct io n u nd er the W is co ns in UFTA whenit reac he d t he Bad ge r co nc lu si on as r es ta te d b y th e Co urt o f App eal s i n F el dm anan d qu ot edinth e te xt . W e are pe rs ua de d t ha t i f th e Co urt o f App eal s h adbe li ev edth atot he r 1 4 0 juri sd ic ti on s h adreject edth e Bad ge r co nc lu si on , itwou ldha ve ex pr es sl y so st at ed
. It d idno t. See Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 59 -4 60
. As was tru e o f th e Wisco ns in Supr em e Co urt i n B ad ge r St at e Ban k, 6 88 1 4 1 N.W .2d43 9, the ba nkrupt cy co urt d idno t h av e b efo re i t i n M an ni ng v. Wall ace (co nt in ue d...)- 19 6 -

[* 19 6] Mo reo ve r, th e h ol di ng of the Co urt o f App eal s i n B oyer th atth ere were tran sf

ers fro m ne w Cro wn, the de bt or , to th e o ldCro wn s to ckho ld ers un de r th e In di an a UFTA when th ey rece iv edth e p recl os in g d iv id en d d is tri bu ti on s n eces sa ril y was p rem is edon th atco urt’s b el ie f th atsubjec ti ve in te ntan d g oo d fa it h ha ve no rol e in th e ap pl ic at io n o f th e co ns tru ct iv e fraudpro vi si on s o f th e In di an a UFTA. See Bo y er, 5 87 F.3dat 7 96 ; s ee al so Nesc o, In c. v. Ci sc o, No . CV 20 5-

1 4 2 14 2, 2 00 5 WL 24 93 35 3 (S .D. Ga. Oct. 7, 2 00 5) (in vo lv in g Geo rg iaUFTA); In te rpo ol Ltd . v. Pat te rs on , 89 0 F . Sup p. 2 59 , 26 8 n .7 (S .D.N.Y. 19 95 ) (i nv ol vi ng Fl or id a UFTA); In re Pet te rs Co . Inc ., 49 4 B .R. 41 3, 4 32 , n.2 5 (B an kr . D. Min n. 20 13 ) (i nv ol vi ng Mi nn es ot a UFTA); R os e v . Merc an ti le Nat’l Ba nkof Ha m m on d, (...co nt inue d) 1 4 1 (Inre Fi rs t Fi n. As so cs . Inc .), 37 1 B .R. 87 7 (B an kr . N.D. In d. 2 00 7) , th e is su e o f whe th er t o “ reca st ” o r “ rech arac te riz e” a t ran sa ct io n und er the Ind ia naUFTA whe n i t re ach edth e co nc lu si on qu ot edinth e te xt . As d is cu ss edab ov e, th e Co urt o f App eal s (a ndth e Dis tri ctCo urt) d idno t 1 4 2 di sturb t he ex pr es s fi nd in gs of t he ba nkrupt cy co urt, wh enitwas c on si de rin g t he so -cal le d g oo d fa it h d efen se un de r 11 U.S.C. sec . 55 0( b) rai se d b y th e o ldCro wn st oc kh ol de rs , th atth e o ldCro wn s to ckho ld ers (ex cep t M r. Str oup II ) di d n otha ve a “ hi ghde gr ee o f in vo lv em en t i n t he tra ns act io n o r hi s [M r. Str oup II ] kn owl ed ge of it s d et ai ls .” Inre Cro wn Un li m it edMac h., In c., 20 06 WL 64 01 54 8, at*1 4. Nordi d t he Co urt o f App eal s (o r th e Dis tri ctCo urt) d is tu rb th e b an krup tc y co urt’s ex pr es s fi nd in gs th at“ itap pe ars th atth ey [ol d C ro wn s to ckho ld ers ex cep t M r. Stro up II] were m or e o r le ss co nt en t t o l etMr. Stro up II m ak e th e n eces sa ry de ci si on s an d ru n thi ng s” , id ., andth atth eref or e th os e st oc kh ol de rs “ ha d n o re as on to kn ow o f th e p os si bl y

frau du le ntna ture o f th e tr an sa ct io n t ha t re su lt edinth e di st rib ut io ns th ey

rece iv ed ”, id
.- 19 7 -

[* 19 7] 84 4 N.E.2d10 35 , 10 54 (In d. Ct . App . 20 06 ) (i nv ol vi ng Ind ia naUFTA),
va cat edinpa rt o n o th er g ro un ds , 86 8 N.E.2d77 2 (I nd . 20 07 ); Ort ho te c, LLC v. Heal thpo in t Capi ta l, LLC, 20 13 N.Y. Mis c. LEXIS 23 40 , at * 25 (N.Y. Sup . Ct. 20 13 ) (i nv ol vi ng Cal ifo rn iaUFTA); Se as e v . Jo hn Sm ith Gra in Co ., 47 9 N.E.2d 28 4, 2 87 (Ohi o C t. Ap p. 1 98 4) (in vo lv in g Oh io UFTA); UFTA Prefat ory Not e, 1 4 3 7A (P artII) U.L.A. 5-6 (20 06 ). W e co nc lu de th atth e In di an a Supr em e Co urt wi ll no t i m po se , andth atth e Co urt o f App eal s fo r th e Sev en th Cir cu itwil l h ol d t ha t the Ind ia naSupr em e Co urt wil l n otim

po se , th e kno wled ge requi rem en t b efo re u si ng Ind ia nasubs ta nc e o ve r fo rm pri nc ip le s i n o rd er t o d et erm in e whe th er FFI m ad e a d is tri bu ti on or t ran sf er
un de r th e In di an a UFTA of i ts pro pe rty to e ach of M r. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er i n t he SPR s al e tr an sa ct io n u nd er the SPRA. See Bo y er, 5 87 F.3 d 7 87
. Ass um in g a rg ue nd o t ha t, co nt rary to o ur ho ld in g, the Co urt o f App eal s fo r th e Sev en th Cir cu itwere t o c on cl ud e th atth e In di an a Supr em e Co urt wo ul d i m po se th e kno wled ge requi rem en t b efo re u si ng Ind ia nasubs ta nc e o ve r fo rm pri nAs was tru e o f Bad ge r St at e Ban k, 6 88 N.W .2d43 9, an d Inre Fi rs t Fi n. 1 4 3 Ass oc s., In c., 37 1 B .R. 87 7, the co urts inth e cas es inth e st rin g c it at io n i n t he tex t di d n otha ve be fo re the m th e is su e o f whe th er t o “ reca st ” o r “ rech arac te riz e” a tra ns act io n u nd er the ap pl ic ab le Sta te UFTA. See supr a n ot es 13 9 a nd14 1.- 19 8 -

[* 19 8] cip le s i n o rd er t o d et erm in e whe th er FFI m ad e a d is tri bu ti on or t ran sf er
un de r th e In di an a UFTA of i ts pro pe rty to e ach of M r. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er i n t he SPR s al e tr an sa ct io n u nd er the SPRA, we fi ndonth e
reco rdbe fo re u s t ha t tha t re qu ire m en t i s s at is fie d wi th res pe ctto each of t he m . Befo re co ns id eri ng whet he r eac h o f Mr. Fa nkhaus er, Mr . W ei nt rau t, an d Ms . Fan kh au se r kn ew, orsh ou ldha ve kn own (so -cal le d c on st ru ct iv e kno wled ge ), th atFFI’s Fed eral in co m e ta x l iabi li ty for i ts tax ab le y ear 2 00 1 wo ul d n otbe pa id , we no te th atco ns tru ct iv e kno wled ge in cl ud es so -cal le d i nqui ry kn owl ed ge . See Dieb ol d F ou nd ., Inc . v. Co m m is si on er, 7 36 F.3d17 2, 1 87 -1 90 (2dCir . 20 13 ) (in vo lv in g New Yo rkUFCA), v acat in g a ndrem an di ng Sal us Mu nd i Fo un d. v
. Co m m is si on er, T.C. Mem o. 2 01 2- 61 ; St arn es v. Co m m is si on er, 6 80 F.3dat 4 34 (in vo lv in g t he Nort h C aro li naUFTA). A tran sf eree ha s i nqui ry

kn owl ed ge wher e th e tr an sf eree was “ aware of c irc um st an ces th atsh ou ldha ve led* * * [t he tra ns fere e] to i nqui re fu rth er i nt o the cir cu m st an ces of t he tra ns act io n, b ut* * * fa il ed to m ak e su ch in qu iry.” HBE L eas in g C or p., 4 8 F .3dat 6 36 (in vo lv in g t he New York UFC A); s ee Di eb ol d F ou nd ., Inc . v. Co m m is si on er, 7 36 F.3dat 1 87 . As th e Co urt o f App eal s fo r th e Sec on d C irc ui t s ta te d i n Di eb ol d F ou nd ., Inc . v. Co m m is
si on er, 7 36 F.3dat 1 90 :- 19 9 -

[* 19 9] [W ]henen te rin g i nt o apa rti cu la r tr an sa ct io n fo r th e ex pr es s p ur po se of li mit in g- -o r al to ge th er av oi di ng --t ax li ab il it y , parti es are al l the m or e li ke ly to h av e th is du ty to i nqui re. Insu ch cas es , th e su rro un d- in g ci rcu m st an ces alway s i nc lu de a de li be rat e eff ort t o a vo idli ab il ity , and itwou ldbe th e v ery rare cas e in de edwher e a p ur ch as in g p arty wou ld as su m e su ch li ab il it y

witho utanap pr op ria te di sc ou ntinth e sa le pr ic e. Insu ch sce na rio s, b ei ng aware t ha t thi s i s the cas e, pa rti es ha ve a du ty “ to in qu ire furth er i nt o the cir cu m st an ces of t he tra ns act io n.” [Ci ta ti on om it te d.] The re i s s om e am

bi gu it y with re sp ectto th e p reci se tes t fo r co ns tru ct iv e kn owl ed ge inth atcert ai n c ou rts de fin e th atterm as the kn owl ed ge th atord in ary di li ge nc e wou ldha ve eli ci te d, wh il e o th er co urts requi re a m or e act iv e av oi da nc e of th e truth. Se e id . at 1 87 . Becau se we fin d t ha t ea ch of M r. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er h adco ns tru ct iv e kno wled ge un de r ei th er o f th os e te st s, we n eedno t, an d d o n ot , res ol ve whi chtes t t o app ly in the se cas es . Inord er t o d et erm in e whe th er ea ch of t he FFI s to ckho ld ers ha d c on st ru ct iv e kn owl ed ge , in cl ud in g i nqui ry kn owl ed ge , th atFFI’s Fed eral in co m e ta x l iabi li ty fo r it s t ax ab le y ear 2 00 1 wo ul d n otbe pa id , we m us t ex am in e al l o f th e fac ts an d ci rcu m st an ces . See i d. at18 7- 18 8. We st artwith t he fai lu re o n t he pa rt o f th e FFI st oc kh ol de rs , as wel l as Mr. Thr ap p, t o l earnan yth in g abo utth e ta x s tra te gy of Mi dC oa stinad di ti on to whatth ey un de rs to odth e res ul ts of t ha t t ax st rat eg y
wou ldbe forFFI; na m el y , FFI’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $1 ,02 6,1 00 .69 wou ldno t b e p ai d b utwou ldbe de ferr ed . Neithe r th e FFI s to ck
-- 20 0 -

[* 20 0] ho ld ers no r Mr. Th rap p s aw an y ne edto , anddi d n ot , pre ss Mi dC oa st ’s rep res en ta ti ve s re gard in g t he de ta il s o f it s t ax st rat eg y , it s ac qu is it io n s tra te gy, and it s as se t re co ve ry

bu si ne ss , all of wh ic h t he y un de rs to odwere i ne xt ric ab ly int ertwi ne d. No r di d t he FFI s to ckho ld ers or M r. Thrapp see an y ne edto , or i n fa ct , in qu ire th ro ug h the ir r es pe ct iv e co nt act s wh ethe r th ere wer e p ers on s wh o wer e n ot
em pl oyed b y Mi dC oa stor b y

Ice M il le r an d wh o m ig htbe fam il ia r wit h M id
Co as t’s t ax st rat eg y , acqui si ti on m etho do lo gy, andit s as se t re co ve ry bu si ne ss . The on ly reaso n o ffer edat t ria l wh y no ne of t he FFI s to ckho ld ers , or M r. Thrapp , m ad e an y

in qu iri es reg ard in g M id Co as t’s t ax strat eg y was t ha t the y
un de rs to odth atth atst rat eg y was p ro pr ie ta ry

an d t ha t co ns eque nt ly Mid Co as t
wou ldno t s ha re an y

de ta il s ab ou t i t wi th th em . Peti ti on ers pro ffer edth atex pl an at io n e ve n t ho ug h M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew, di rect ly or th ro ug h M r. Thrapp , th atMi dC oa st ’s pri ci ng init s ac qu is it io n m ethod ol og y was i ne xt ric ab ly int ertwin edwith i ts tax strat eg y . Mr. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er, as well as M r. Thrapp , kn ew th atth e tr an sa ct io ns th atMi dC oa stha d p ro po se d i n t he let te r of in te ntan d t o wh ic h t he y

ag reedinth e SPRA wo ul d re su ltinth ei r rec ei vi ng a gr eat er am ou ntof a ss et s- -a s o- cal le d pr em iu m --tha n t he y

wou ldrece iv e if

FFI were to li qu id at e an d the res pe ct iv e Fed eral an d S ta te in co m e ta x l iabi li ti es th atFFI i nc urredas ares ul t o f th e FFI- 20 1 -

[* 20 1] 20 01 ass etsal es were p ai d i n fu ll . The FFI st oc kh ol de rs , as wel l as Mr. Thrapp , als o kne w th atth e o nl y reas on th atth e FFI s to ckho ld ers wou ldbe ab le to
rece iv e su ch a pr em iu m

was tha t FF I’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $1 ,02 6,1 00 .69 wou ldno t b e p ai d. In ot he r wor ds , Mr. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er, as well as M r. Thrapp , kn ew th atif a ndon ly if th atto ta l
an ti ci pa te d 2 00 1 t ax li ab il it y was n otpa idwou ldth e FFI s to ckho ld ers rece iv e th e
so -cal le d p rem iu m . On the reco rdbe fo re u s, we fi ndth atth e fai lu re o n t he part o f th e FFI s to ck
ho ld ers , as wel l as Mr. Thr ap p, t o l earn an yth in g abo utth e ta x s tra te gy of Mi dCo as t, es pe ci al ly sin ce the y un de rs to odth atth e res ul ts of t ha t t ax st rat eg y pu rp ortedto be th atFFI’s t ot al an ti ci pa te d 2 00 1 t ax li ab il ity of $ 1,0 26 ,10 0.6 9 wo ul d n ot be pa idbu t wo ul d b e d eferred , was wi ll fu l an d unr eas on ab le
. On tha t re co rd , 1 4 4 we fu rth er fi ndth atth atfai lure was anatt em pton th ei r pa rt t o a vo idm ak in g a ny in qu iri es th atwou ldrai se redfla gs . W e tu rnne xtto th e fai lu re o n t he pa rt o f th e FFI s to ckho ld ers , as wel l as Mr. Th rap p, t o m ak e in qu iri es ab ou t the unus ua l p ric in g m etho do lo gy tha t M id
Tha t M id Co as t co ns id eredit s t ax strat eg y to be pro pr ie ta ry

an d t hu s 1 4 4 wou ldno t b e d is cl os edto th em was aredfla g, n ota reas on to m ak e n o i nqui rie s reg ard in g t ha t s tra te gy.- 20 2 -

[* 20 2] Co as t i nt en de d t o u se , whi ch th ey un de rs to odMi dC oa stha d u se d i n the pa stinest ab li sh in g t he pu rch as e p ric e fo r it s ac qu is it io n o f th e st oc k o f C co rp or ati on s. Th e FFI s to ckho ld ers , as wel l as Mr. Thr ap p, und ers to odth atpu rs ua ntto Mi dC oa st ’s pri ci ng m etho do lo gy the pu rch as e p ric e th atitwas wi ll in g t o p ay was cal cu la te d b y

us in g ape rcen ta ge of t he to ta l o f th e acqui redC co rp or at io n’s Fed eral in co m e ta x l iabi li ty andSta te in co m e ta x l iabi li ty, whi chva rie d fr om acqui si ti on to acqui si ti on bu t was withi n aran ge th atMi dC oa stha d e st ab li sh ed
. Inth es e cas es , Mr. Fan kh au se r an d M r. W ei nt rau t wer e ex pe rie nc edbu si ne ss m en who own edan d o pe rat edFFI, an d M r. Thrapp was a n e xp eri en cedco rp or at e an d bu si ne ss lawyer. In fac t, Mr . W ei nt rau t n eg ot ia te d d ire ct ly w it h M id Co as t’s rep res en ta ti ve s t he pe rcen ta ge of t he to ta l o f FFI’s Fe de ral an d S ta te in co m e ta x li ab il it ie s fo r it s t ax ab le y ear 2 00 1 t ha t M id Co as t wo ul d p ay to pu rch as e th e st oc k of th e FFI s to ckho ld ers . In d oi ng so , Mr. W ei nt rau t at te m pt edto ha ve Mi dC oa st ag ree t o p ay

a pe rcen ta ge th atwas a t the hi gh en d o f th e ran ge of p erce nt ag es to whi chhe un de rs to odMi dC oa stha d a gr eedinth e p as t as part o f it s ac qu is it io n
m etho do lo gy. Afte r so m e n eg ot ia ti on , th e p ur ch as e p ric e to whi ch th e FFI st oc kh ol de rs an d M id Co as t ag reedwas $ 53 0,7 66 .15
. Eachof M r. Fan kh au se r, 1 4 5 The pu rch as e p ric e o f $5 30 ,76 6.1 5 t ha t M r. W ei nt rau t n eg ot ia te d wi th 1 4 5 Mi dC oa st ’s rep res en ta ti ve s was equa l t o t he to ta l (i .e., $1 ,03 3,5 55 .49 ) of FFI’s (co nt in ue d...)- 20 3 -

[* 20 3] Mr. Wein traut , andMs . Fan kh au se r, as well as M r. Thrapp , sh ou ldha ve kn own , andwou ldha ve kn own , as d is cu ss edbe lo w, if the FFI s to ckho ld ers ha d ret ai ne d atax pro fes si on al , th ata bu y er i nt eres te d i n p ur ch as in g t he st oc k o f a C
co rp or at io n tha t h adsubs ta nt ia l t ot al Fed eral an d S ta te in co m e ta x l iabi li ti es
wou ldus ua ll y

di sc ou ntth e am ou ntth atitwou ldbe wil li ng to pa y to bu y th e st oc k of su ch a co rp or at io n i n o rd er t o t ak e acc ou ntof t ho se li ab il it ie s, n otpa y th e pr em iu m th atth ey kn ew th ey

wou ldrece iv e if

th ey were t o e nt er i nt o t he trans act io ns th atMi dC oa stpro po se d. On the reco rdbe fo re u s, we fi ndth atth e fai lu re o n t he part o f th e FFI st oc kh ol de rs , as wel l as Mr. Thr ap p, t o m ak e in qu iri es ab ou t the unus ua l p ric in g
m etho do lo gy tha t M id Co as t i nt en de d t o u se was wi ll fu l an d unr eas on ab le . On th at
reco rd , we furth er fi ndth atth atfai lu re was anatt em pton th ei r pa rt t o a vo idm ak
in g a ny inqui rie s tha t wo ul d ra is e redfla gs . W e co ns id er n ow the fai lu re o n t he pa rt o f th e FFI s to ckho ld ers to m ak e in qu iri es reg ard in g t he tax co ns eque nc es to th em an d F FI fro m

th e tr an sa ct io ns th atMi dC oa stha d p ro po se d b y ret ai ni ng a ta x p ro fes si on al to advi se th em an d F FI (...co nt inue d) 1 4 5 cas h o f $8 75 ,85 5.4 9 a ndth e ri gh t t o arefu ndof the FFI St at e 2 00 1 i nc om e ta x pa ym en ts of $ 15 7,7 00 , whi ch FFI wo ul d b e co ns id eredto ha ve as o f th e cl os in g o f th e SPR red em pt io n t ran sa ct io n u nd er the SPRA, reduc edby 49 p erce nt(i.e ., by $5 02 ,78 9.3 4) of F FI’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9.- 20 4 -

[* 20 4] with re sp ectto th os e tr an sa ct io ns . They fai le d t o d o s o e ve n t ho ug h F FI ha d re ta in edtax pro fes si on al s o ve r th e y ears to pro vi de itwith t ax advi ce wi th
res pe ctto cert ai n m at te rs . Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r of fer a s an ex pl an at io n fo r th atfai lu re tha t atno ti m e aft er Mi dC oa stpro po se d t he tra ns act io ns inth e le tt er o f in te ntan d b efo re the clo si ng of t he tra ns act io ns un de r th e SPRA di d M r. Thrapp or M r. Hup fer wi th Ice M il le r orMr. Burn s o r Mr. Vern ic k wi th th e Kat z acc ou nt in g fi rm in fo rm FFI an d t he FFI s to ckho ld ers ab ou t po ss ib le tax pro bl em s as so ci at edwith t ho se trans act io ns . Nor d idMr. Thr ap p, M r. Hup fer, M r. Bu rn s, o r Mr. Verni ckreco m m en d t o F FI an d t he FFI s to ckho ld ers th atth ey ret ai n a ny tax pro fes si on al to pro vi de advi ce wi th res pe ctto th e tr an sact io ns th atMi dC oa stha d p ro po se d a ndth e tr an sa ct io n t o wh ic h t he y ag reedin th e SPRA. Peti ti on ers ’ ex pl an at io n a s t o wh y th ey di d n otret ai n atax pro fes si on al rin gs ho ll ow. The reco rddo es no t es tabl is h t ha t an y of t he pro fes si on al s wh o wer e advi si ng an d wo rk in g wi th th e FFI s to ckho ld ers an d F FI reg ard in g t he Mi dC oa st pr op os edtra ns act io ns was atax pro fes si on al . Con se qu en tl y , we bel ie ve th at , un li ke a ta x p ro fes si on al , no ne of t he m wou ldhave be enaware o f, an d s en si ti ve to , any po te nt ia l t ax pro bl em s t ha t M id Co as t’s p ro po se d t ran sa ct io ns an d t he tra ns act io ns to whi chth e FFI s to ckho ld ers an d F FI ag reedinth e SPRA po se d t o th os e st oc kh ol de rs an d t ha t co rp or at io n. Mo reo ve r, we be li ev e th atif t he FFI- 20 5 -

[* 20 5] st oc kh ol de rs ha d a tt em pt edto ret ai n atax pro fes si on al , th ey pro babl y
wou ldha ve be enab le to ret ai n o ne who was fa m il iar wit h M id Co as t an d t he tra ns act io ns with C co rp or at io ns inwhi ch itha d e ng ag edinth e p as t an d wh ic h i t
co nt in ue d t o p ro m ot e in it s p ro m ot io na l m at eri al s. We als o b el ie ve , as d is cu ss ed ab ov e, th atif t he FFI s to ckho ld ers ha d re ta in eda ta x p ro fes si on al , th at pr of es si on al wou ldha ve advi se d t he m th ata bu y er i nt eres te d i n p ur ch as in g t he st oc k o f a C co rp or at io n t ha t h adsubs ta nt ia l t ot al Fed eral an d S ta te in co m e ta x li ab il it ie s wo ul d u su al ly dis co un t the am ou ntth atitwou ldbe wil li ng to pa y to bu y th e st oc k o f su cha co rp or at io n i n o rd er t o t ak e acc ou ntof t ho se li ab il it ie s, n otpa y a p rem iu m . On the reco rdbe fo re u s, we fi ndth atth e fai lu re o n t he part o f th e FFI s to ck
ho ld ers to m ak e in qu iri es reg ard in g t he tax co ns eque nc es to th em an d F FI fro m th e tr an sa ct io ns th atMi dC oa stha d p ro po se d b y ret ai ni ng a ta x p ro fes si on al to advi se th em

an d F FI wit h re sp ectto th os e tr an sa ct io ns was wi ll fu l an d u nr eas on ab le . On th atreco rd , we furth er fi ndth atth atfai lu re was anatt em pton th ei r pa rt to av oi d re cei vi ng an y

tax advi ce tha t wo ul d ra is e redfla gs . W e ad dr es s n ex t the fai lu re o n t he part o f th e FFI s to ckho ld ers , as wel l as Mr. Th rap p, t o m ak e in qu iri es reg ard in g h ow M id Co as t’s p la nn edop erat io n o f it s
as se t re co ve ry

bu si ne ss inFFI wo ul d re su ltinFFI’s n otpa y in g b utde ferr in g F FI’s- 20 6 -

[* 20 6] to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9. Eachof M r. Fan kha su er, Mr . W ei nt rau t, an d M s. Fa nkha su er kne w, as d idMr. Thr ap p, tha t as of t he cl os in g o f th e res pe ct iv e tr an sa ct io ns on Decem be r 20 , 20 01 , FFI h adno op erati on s, n o e m

pl oyees e ng ag edinop erat io ns , no in co m e, an d n o o pe rat io na l as se ts . Each of t he m

als o kne w, as d idMr. Thr ap p, tha t o n Dec em be r 20 , 20 01 , aft er the SPR t ran sa ct io ns clo se d s im ul tane ou sl y

at 1 1: 59 p.m ., FFI h ad(1) ass et s t ot al in g $5 02 ,78 9.3 4, wh ic h c on si st edof c as h o f $3 45 ,08 9.3 4 andth e ri gh t t o arefu ndof $1 57 ,70 0 o f St at e 2 00 1 i nc om e ta x p aym en ts , and(2) an ti ci pa te d F ed eral in co m e ta x l iabi li ti es an d ant ic ip at edSta te in co m e ta x l iabi li ti es to ta li ng $1 ,02 6,1 00 .69 , or
a n eg at iv e n etass etva lu e o f $5 23 ,31 1.3 5. 1 4 6 Inad di ti on , eachof M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r
un de rs to od , as d idMr. Thr ap p, tha t M id Co as t thr ou gh FFIA was pu rp orti ng to pu rch as e th ei r FFI s to ckso th atMi dC oa stwou ldbe ab le to us e FFI’s c as h i n o rd er to bu y ch arg ed -o ff d eb t s ecu rit ie s t ha t M id Co as t i nt en de d t o u se init s s o- cal le d The FFI s to ckho ld ers als o kne w, as d idMr. Thr ap p, tha t af te r th e SPR 1 4 6 tra ns act io ns un de r th e SPRA clo se d, the y wou ldhave , th ro ug h t he ir r es pe ct iv e own ers hi p i nt eres ts inFFW, th e ri gh t t o arefu ndof the Fed eral in co m e ta x p ay m en ts of $ 62 8,5 92 th atFFI h adm ad e dur in g 2 00 1 a s p aym en ts to wardFFI’s an ti ci pa te d 2 00 1 F ed eral in co m e ta x l iabi li ty of $7 94 ,94 9.1 3. In ad di ti on , aft er the SPR t ran sa ct io ns un de r th e SPRA clo se d, FF I wou ldha ve th e ri gh t t o arefu ndof th e St at e 2 00 1 i nc om e ta x p aym en ts of $ 15 7,7 00 th atFFI h adm ad e dur in g 2 00 1 as pa ym en ts to wardFFI’s an ti ci pa te d 2 00 1 S ta te in co m e ta x l iabi li ty of $2 31 ,15 1.5 6. Se e supr a n ot es 34 an d 1 00
.- 20 7 -

[* 20 7] ass etreco ve ry

bu si ne ss . Howev er, eac h o f th e FFI s to ckho ld ers als o kne w,
as di d M r. Thrapp , th atMi dC oa stth ro ug h F FIA ag reedinth e SPRA to pa y th em $5 30 ,76 6.1 5 i n c as h fo r th ei r FFI s to ckan d t ha t as of t he clo si ng of t he SPR tran sact io ns FFI (F FIA’s de si gn ee) was to rece iv e o nl y $5 02 ,78 9.3 4 (i .e., cas h o f $3 45 ,08 9.3 4 a ndth e ri gh t t o arefu ndof t he FFI St at e 2 00 1 i nc om e ta x p aym en ts of $1 57 ,70 0) . In o th er wo rd s, ea ch of M r. Fan kh au se r, Mr. Wein traut , andMs
. Fan kh au se r kn ew, as di d M r. Thrapp , th atMi dC oa stth ro ug h F FIA ag reedinth e SPRA t o p ay

$5 30 ,76 6.1 5 i n c as h i n re tu rnforon ly $50 2,7 89 .34 , whi ch Mi dC oa st pu rp orte dl y

wou ldus e in th e as se t re co ve ry bu si ne ss th atitwas t o o pe rat e in FFI. The fin an ci al term s o f th e SPR tra ns act io ns , onth ei r fac e, m ad e n o b us in es s s en se fo r Mi dC oa st ’s all eg edop erat io n o f it s as se ts reco ve ry bu si ne ss inFFI an d c rie d
ou t fo r anex pl an at io n. In qu iri es by the FFI s to ckho ld ers , or b y Mr. Thr ap p, ab ou t M id Co as t’s pl an s fo r th e o pe rat io n o f it s as se t re co ve ry bu si ne ss inFFI wo ul d h av e d is cl os ed th atMi dC oa stin te nd edforFFI t o e ng ag e in a tr an sa ct io n wi th in ap pr ox im at el y
on e weekaft er the clo si ng on Decem be r 20 , 20 01 , of t he SPR tran sa ct io ns . In tha t tra ns act io n, FF I was to sel l ata ve ry subs ta nt ia l cl ai m edlo ss cert ai n T-b il ls th at were t o b e co nt rib ut edto itby a com pa ny, FFI Fin an ci al , th atFFIA an d Wil lo ws Hol di ng s h adform edon th e d ay aft er tha t cl os in g. Th atT-bi ll tra ns act io n, o n i ts- 20 8 -

[* 20 8] face , app eare d t o b e in co ns is te ntwith M id Co as t’s p ur po rte d i nt en ti on to op erat e it s as se t re co ve ry bu si ne ss inFFI b y

ha vi ng FFI ac qu ire ch arg ed -o ff d eb t
se cu rit ie s fo r us e in su ch a bu si ne ss . In o th er wo rd s, tha t tran sa ct io n ra is ed 1 4 7
an ot he r redfla g. Bu t b ecau se ne it he r th e FFI s to ckho ld ers no r Mr. Th rap p e ve r
as ke d abo utMi dC oa st ’s pl an s fo r th e o pe rat io n o f it s as se t re co ve ry bu si ne ss in FFI, the y di d n otkn ow ab ou t the T-bi ll trans act io n. If t he y ha d kno wn ab ou t tha t tra ns act io n, the FFI s to ckho ld ers , or M r. Thrapp , cou ldha ve th enask edwhatth e pl an ne d a cqui si ti onan d t he pl an ne d s al e o f T-b il ls at t he en d o f 20 01 ha d t o d o with a cqui rin g c ha rg ed -o ff d eb t s ecu rit ie s fo r us e inth e as se t re co ve ry bu si ne ss in

In cl ud edinth e rep res en ta ti on s wh ic h wer e m ad e fo r pu rp os es of t he 1 4 7 Man at t o pi ni on let te r an d o n wh ic h M an at t re li edforpurp os es of t he op in io ns ex pr es se d i n t ha t l et te r, in cl ud in g t ha t “ th e carry ov er t ax ba si s fo r Subs id ia ry [FFI] was $2 ,96 2,9 60 forth e Treas ury Bil ls Pare nt[FII Fi nanc ia l] con tri bu te d t o Subs id ia ry ” were the fol lo win g re pr es en ta ti on s: Bo th Pare ntan d S ub si di ary en te redin to th e Co nt rib ut io n p rin ci pa ll y with avi ew to wardm ak in g a n e co no m ic pro fitap artfro m tax co nse qu en ces . The Co nt rib ut io n wi ll st ren gt he n t he ba la nc e sh eetof Subs id ia ry

inpre parat io n fo r Subs id ia ry en te rin g i nt o ane w li ne of bu si ne ss . Sub si di ary al so wil l u se pre -Co nt rib ut io n a ss et s i n i ts ne w bu si ne ss . The n ew bu si ne ss is th atSubs id ia ry wil l p ur ch as e p ortfo li os of c red itcardrece iv ab le s an d c ol le ctth os e rec ei vabl es . * * * The ab ov e-quo te d re pr es en ta ti on s ar e in co ns is te ntwith F FI’s acqui si ti on fro m FFI Fi na nc ia l o f certa in T-bi ll s as well as i ts sal e o f th os e T-b il ls withi n d ay s af te r acqui rin g t he m

at ave ry subs ta nt ia l cl ai m edlo ss .- 20 9 -

[* 20 9] whi ch th ey

un de rs to odMi dC oa stin te nd edFFI t o e ng ag e. The a ns wer t o th atqu es ti on wou ldha ve be enno th in g, the reb y rai si ng anad di ti on al redfla g. The FFI s to ckho ld ers , as wel l as Mr. Thr ap p, al so co ul d h av e as ke d abo ut ho w th e ex pe ct edsi gn ifi can t l os s fr om th e sa le of t he T-bi ll s was cal cu la te d. Th ey
wou ldha ve lea rn edth atth e v al ue of t he T-bi ll s was $8 ,00 0 a ndth atth e v ery subst an ti al lo ss th atFFI was to cla im init s t ax return fo r it s t ax ab le y ear 2 00 1 was pr em is edon th e rep res en ta ti on , in te r al ia , by Mr. Be rn st ei n a ndot he r in te res te d pe rs on s t ha t the ba si s o f th e T-b il ls was $ 2,9 62 ,96 0. In ad di ti on , th e FFI s to ck
ho ld ers an d M r. Thrapp wou ldha ve lea rn ed , if the y ha d a sk ed , th atFFI i nt en de d to us e th e v ery si gn ifi can t cl ai m edlo ss fro m th e sa le of t he T-bi ll s t o re -duc e th e si gn ifi can t g ai ns th atFFI h adreal iz edfro m th e FFI 2 00 1 a ss etsal es . If th e FFI st oc kh ol de rs ha d re ta in eda ta x p ro fes si on al be fo re co m m it ti ng inth e SPRA to th e tra ns act io ns th atMi dC oa stpro po se d i n t he let te r of in te nt , we bel ie ve th atan y
su ch tax pro fes si on al wou ldha ve rai se d s eri ou s co nc ern s re ga rd in g t he pro pr ie ty of th atsi gn ifi can t cl ai m edT-bi ll lo ss an d wo ul d h av e wan te d t o m ak e furth er in qu iri es ab ou t h ow an d wh y Mr. Berns te inan d o th ers were ab le to rep res en t tha t th e T-b il ls ha d aba si s o f $2 ,96 2,9 60 . If th e FFI s to ckho ld ers , or M r. Thrapp , had in qu ire d abo utho w FFI’s b as is inth e T-b il ls was d et erm in ed , th e an swe r co ul d ha ve rai se d m or e d an ge r si gn al s.- 21 0 -

[* 21 0] On the reco rdbe fo re u s, we fi ndth atth e fai lu re o n t he part o f th e FFI st oc k- ho ld ers , as wel l as Mr. Thr ap p, t o m ak e in qu iri es reg ard in g h ow M id Co as t’s pl an ne d o pe rat io n o f it s as se t re co ve ry bu si ne ss inFFI wo ul d re su ltinFFI’s n ot pa y in g b utde ferr in g F FI’s to ta l an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9
was wil lfu l an d u nr eas on ab le . On th atreco rd , we furth er fi ndth atth atfai lure was
anatt em pton th ei r pa rt t o a vo idm ak in g a ny inqui rie s tha t wo ul d ra is e redfla gs . W e tu rnno w to th e fai lure o n t he pa rt o f Mr. Fa nkhaus er, Mr . W ei nt rau t,
an d M s. Fa nkhaus er, as well as M r. Thrapp , to m ak e in qu iri es or c on du ctdu e di li ge nc e reg ard in g F FIA, Mi dC oa st ’s des ig ne e as th e p ur po rte d p ur ch as er o f th e FFI s to ckfro m

th e FFI s to ckho ld ers . Each was th em kn ew, orsh ou ldha ve kn own th ro ug h due di li ge nc e, th atFFIA was crea te d b y Mr. Berns te in on Decem be r 18 , 1 4 8 The FFI s to ckho ld ers di d n otpe rs on al ly und ert ak e an y du e d il ig en ce o n 1 4 8 be ha lf o f FFI o r th em se lv es with re sp ectto th e tr an sa ct io ns th atMi dC oa stha d pr op os edinth e le tt er o f in te nt . Ins te ad , th e FFI s to ckho ld ers rel ie d o n M r. Thrapp to co nduc t due di li ge nc e with re sp ectto th os e tr an sa ct io ns . Mr. Thrapp sp en t so m e ti m e p erfo rm in g ali m it edam ou ntof due di li ge nc e o n b eh al f of FFI an d t he FFI s to ckho ld ers th atco ns is te d fo r th e m os t p artof r ev ie win g c ert ai n p ro m ot io na l m at eri al s t ha t M id Co as t h adpre pa red . Mr. Thrapp di d n otpe rfo rm du e d il ig en ce with re sp ectto FFIA tha t M id Co as t d es ig na te d t o s erv e as th e p ur ch as er o f th e st oc k o f th e FFI s to ckho ld ers . Mr. Thrapp cla im edto ha ve be li ev edth atth e li mit edam ou ntof due di li ge nc e th athe pe rfo rm edwas a de qu at e ta ki ng in to acco un t the in fo rm at io n a ndth e ci rcu m st an ces with re sp ectto th e tr an sa ct io ns th at Mi dC oa stha d p ro po se d i n t he let te r of in te ntan d t he si gn at or ie s t o t ha t l et te r ab ou t wh ic h h e h adkn owl ed ge or a n u nd ers ta nd in g. Mr . Thrap p fu rth er cl ai m ed to ha ve be li ev edth atth e kno wled ge an d t he un de rs ta nd in g tha t h e h adwith (co nt in ue d...)- 21 1 -

[* 21 1] 20 01 , a few d ay s b efo re the pa rti es were t o e xe cu te th e SPRA andeffe ct th e tr an sa ct io ns to whi ch th ey ha d a gr eedth erei n. FFI A hadno ass et s wh enit ag reedto th e SPRA on Decem be r 20 , 20 01 , app aren tl y

no t ev enth e $ 1,0 00 of cap it al th atMr. Berns te inwas s up po se d t o h av e co ntrib ut edto it . Non ethe le ss , pe ti ti on ers an d M r. Thrapp wantus to be li ev e th atth ey were wi ll in g t o re ly on t he
co ve nant s, the rep res en ta ti on s, an d t he warran ti es of F FIA b ecau se of t he in de m ni fic at io n o bl ig at io ns of F FIA in th e ev en t o f an y bre ach es of a ny of th os e co ve na nt s, re pr es en ta ti on s, an d/ orwarran ti es . W e ref us e to do so . Becau se of i ts fin an ci al co nd it io n, we b el ie ve , andso sh ou ldha ve th e FFI s to ckho ld ers an d M r. Thrapp , th atFFIA wo ul d n otha ve be enab le to sat is fy any fin an ci al ob li ga ti on s
res ul ti ng fro m

th os e co ve na nt s, re pr es en ta ti on s, an d/ orwarran ti es . On the reco rdbe fo re u s, we fi ndth atth e fai lu re o n t he part o f th e FFI s to ck
ho ld ers , as wel l as Mr. Thr ap p, t o m ak e in qu iri es or c on du ctdu e d il ig en ce re ga rd
- (...co nt inue d) 1 4 8 res pe ctto th e tr an sa ct io ns th atMi dC oa stha d p ro po se d i n t he let te r of in te ntan d th e si gn at or ie s t o tha t l et te r en ab le d h im to de te rm in e an d t o a ss es s t he ris ks th at he co nc lu de d tho se tra ns act io ns po se d t o h is cli en ts , FFI an d t he FFI s to ckho ld ers . Mr. Th rap p c la im edto ha ve he ldth os e b el ie fs ev enth ou gh(1) he di d n otkn ow an y of t he de ta il s o f Mi dC oa st ’s acqui si ti onm etho do lo gy, its ass etreco ve ry bu si ne ss , or i ts tax st rat eg y , (2) he was n ota ta x p ro fes si on al an d t hu s was no t qu al ifi edto kn ow o f, orbe sen si ti ve to , any tax ris ks ass oc ia te d wi th th os e tra ns act io ns , and(3) he kn ew th atth e fu nd s t ha t wer e to be pro vi de d b y Ms
. Sh ap iro to Mi dC oa stinord er t o e ffec t the acqui si ti on of t he FFI s to ck were t o b e returne d t o h er as of the clo si ng of t ha t tran sa ct io n.- 21 2 -

[* 21 2] in g F FIA, Mi dC oa st ’s des ig ne e as th e p ur po rte d p ur ch as er o f th e FFI s to ck fro m th e FFI s to ckho ld ers , was wi ll fu l an d u nr eas on ab le . On th atreco rd , we fu rth er fi ndth atth atfai lu re was anatt em pton th ei r pa rt t o a vo idm ak in g a ny in qu iri es th atwou ldrai se redfla gs . W e tu rnfin al ly to the fai lu re o n t he pa rt o f th e FFI s to ckho ld ers , as wel l as Mr. Th rap p, t o m ak e an y in qu iri es reg ard in g the so -cal le d l oa n b y Ms . Shapi ro of $5 50 ,00 0 t o F FIA (Mi dC oa st ’s des ig ne e), wh ic h, ac co rd in g t o t he term s o f th e SPRA, FF IA was t o u se to pu rch as e th e FFI s to ck . Each o f Mr. Fa nkhaus er, Mr
. W ei nt rau t, an d M s. Fa nkhaus er, eac h o f who m ha d s ig ne d t he SPRA, the SPRA
es cro w agr eem en t t o wh ic h t he Sh ap iro esc ro w agr eem en t was att ach ed , andth e
cas h re co nc il ia ti on ag reem en t wh ic h a ls o was att ach edto th e SPRA esc ro w agr eem en t, as well as M r. Thrapp , kn ew th atth atpu rp orte d l oan o f Ms . Shapi ro was n ot
ev id en cedby a pro mis so ry no te or o th er wri tt endo cu m en t an d d idno t b ear i nt eres t. Each of t he FFI s to ckho ld ers , as wel l as Mr. Thr ap p, al so kn ew th atth at pu rp orte d l oa n b y

Ms . Shapi ro was t o b e d eem edrep ai d a s o f th e cl os in g o f th e tra ns act io ns un de r th e SPRA, whi ch was d eem edto oc cu r si m ul tane ou sl y

purs ua nt to th atag reem en t. Mo rev er, eac h o f th em kn ew, as di d M r. Thrapp , th at 1 4 9
Mr. Fa nkhaus er, Mr . W ei nt rau t, an d M s. Fa nkhaus er al so kn ew th at 1 4 9 be cau se th e SPR

tra ns act io ns clo se d s im

ul tane ou sl y

at 1 1: 59 p.m . onDecem

be r (co nt in ue d...)- 21 3 -

[* 21 3] pu rs ua ntto th e SPRA andth e rel at edag reem en ts FFI was to de po si t $8 75 ,85 5.4 9 i nt o t he Leag re es cro w acco un t o n Dec em be r 20 , 20 01 , andth atFFI
as FFI’s d es ig ne e was to rece iv e o nl y $3 45 ,08 9.3 4 fr om

th atesc ro w acco un t as of th e cl os in g o f th e tr an sa ct io ns un de r th e SPRA at 1 1: 59 p.m . onDecem be r 20 , 20 01
. Eachof M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r al so kn ew,

1 5 0
as di d M r. Thrapp , th atth e d iff eren ce b etweenth e am ou ntth atFFI was to de po si t in to th e Leag re es cro w acco un t (i .e., $8 75 ,85 5.4 9) an d the am ou ntth atFFI as FFIA’s d es ig ne e was to rece iv e fro m th atesc ro w acco un t (i .e., $3 45 ,08 9.3 4) was equa l t o $ 53 0,7 66 .15 . Each o f th e FFI s to ckho ld ers kn ew, as di d M r. Thrapp , th at th atdi ffer en ce was equa l t o t he am ou ntof t he pu rch as e p ric e th atth ey were t o
rece iv e fo r th ei r FFI s to ckun de r th e SPRA fro m , acco rd in g t o the term s o f th at ag reem en t, FFI A.

(...co nt inue d) 1 4 9 20 , 20 01 , th e wir e tr an sf

er fro m th e Leag re es cro w acco un t t o M s. Sh ap iro ’s ban k acco un t o f $5 50 ,00 0 a ndth e wir e tr an sf ers fro m th atsame L eag re es cro w acco un t to th ei r res pe ct iv e b an k a cco un ts of t he ir p ro po rti on at e p orti on s o f th e p ur ch as e pr ic e fo r th ei r FFI s to ckwere n otto oc cu r un ti l the day aft er the clo si ng of t ho se tra ns act io ns . As was tru e o f th e res pe ct iv e wir e tr an sf ers to Mr. Fan kh au se r, Mr. 1 5 0 W ei nt rau t, Ms . Fan kh au se r, an d M s. Sh ap iro , FFI rec ei ve d awire trans fer o n t he da y aft er the clo si ng .- 21 4 -

[* 21 4] Mo reo ve r, each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan khaus er kne w, as d idMr. Thr ap p, o r sh ou ldha ve kn own , as M r. Thrapp sh ou ld ha ve kn own , th atMs . Shapi ro ’s so -cal le d l oa n o f $5 50 ,00 0 t o F FIA was no t
ne ed edor u se d i n o rd er t o e ffec t the purch as e o f th e FFI s to ck un de r th e SPRA
an d t ha t tha t s o- cal le d l oa n was m ere wi nd ow dres si ng de si gn edto m ak e itap pe ar th atFFIA, n otFFI, was pro vi di ng th e fu nd s t o b e p ai d t o the m forth e tr an sf

er o f th ei r FFI s to ckto FFIA. Inot he r wor ds , eachof t he FFI s to ckho ld ers kn ew, as di d Mr. Th rap p, o r sh ou ldha ve kn own , as M r. Thrapp sh ou ldha ve kn own , th atMs
. Sh ap iro ’s so -cal le d l oa n o f $5 50 ,00 0 t o F FIA was de vo idof a ny econ om ic subst an ce-- a sh am

th atwas d es ig ne d a ndin te nd edto m ak e itap pe ar as th ou gh FFIA,
no t FF I, was p ro vi di ng th e fu nd s t o b e p ai d t o t he FFI s to ckho ld ers forth e tr an sf er of th ei r FFI s to ckto FFIA. Mo reo ve r, each of M r. Fan kh au se r, Mr. Wein traut , and Ms . Fan kh au se r kn ew, as di d M r. Thrapp , or s ho ul d h av e kno wn, as Mr. Thr ap p sh ou ldha ve kn own , th atth e so ur ce o f th e fu nd s tha t the y were t o re cei ve forth e tra ns fer o f th ei r FFI s to ckto FFIA was FFI, n otFFIA. Tha t i s t o s ay , each of t he FFI s to ckho ld ers , as wel l as Mr. Thr ap p, kne w, or s ho ul d h av e kno wn, tha t FF I,
no t FF IA, was t o, an d d id , pay eachof t ho se st oc kh ol de rs eachsu chst oc kh ol de r’s pr op orti on at e p orti on of t he so -cal le d p ur ch as e p ric e (i .e., $5 30 ,76 6.1 5) th ateach
was to , anddi d, re cei ve un de r th e SPRA.- 21 5 -

[* 21 5] On the reco rdbe fo re u s, we fi ndth atth e fai lu re o n t he part o f th e FFI st oc kh ol de rs , as wel l as Mr. Thr ap p, t o m ak e in qu iri es reg ard in g t he so -cal le d l oa n by Ms. Sh ap iro of $ 55 0,0 00 to FFIA (M id Co as t’s d es ig ne e), wh ic h, ac co rd in g t o th e te rm s o f th e SPRA, FFIA was to us e to purch as e th e FFI s to ck was wi ll fu l an d
un reas on ab le . On th atreco rd , we furth er fi ndth atth atfai lu re was anatt em pton th ei r pa rt t o avo idm ak in g a ny inqui rie s t ha t wo ul d ra is e redfla gs . Bas edup onof o urex am in at io n o f al l the fact s an d c irc um st an ces th atwe ha ve fou ndinth es e cas es , we fin d t ha t ea ch of M r. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er, as well as M r. Thrapp , wil lfu ll y an d u nr eas on ab ly avo id ed
m ak in g i nqui rie s t ha t the y sh ou ldha ve m ad e wit h re sp ectto th e tr an sa ct io ns whi chMi dC oa stpro po se d andth e tr an sa ct io ns to whi ch th ey ag reedinth e SPRA. W e b el ie ve th atth e FFI s to ckho ld ers in st eadsu ccu m be d t o t he all ur e o f rec ei vi ng
a so -cal le d p rem iu m

fro m th os e tr an sa ct io ns th atMi dC oa sthe ldou t en ti ci ng ly to th em , eve n t ho ug h t he y

kn ew th atth atpre m iu m

wou ldbe pa idon ly if FFI’s t ot al
an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9 was no t p ai d. On the ba si s o f al l o f th e rel ev an t fa ct s an d c irc um st an ces , we fin d t ha t ea ch of Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r ha d i nqui ry , andth us co nst ru ct iv e, kn owl ed ge th atMi dC oa stin te nd edto im pl em en t a s ch em e th atwou ld le av e FFI wi th ou t s uf

fic ie ntass et s t o s at is fy

FFI’s t ot al an ti ci pa te d 2 00 1 t ax- 21 6 -

[* 21 6] li ab il it y

of $ 1,0 26 ,10 0.6 9. Onth e b as is of t ho se fact s an d c irc um st an ces , we fu rth er fi ndth ateach of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r kn ew, orsh ou ldha ve kn own (i.e ., hadco ns tru ct iv e kno wled ge ), th atFFI’s Fed eral in co m e ta x l iabi li ty for i ts tax ab le y ear 2 00 1 wo ul d n otbe pa id . To fi ndot he rwis e
wou ld , we bel ie ve , “bl es s t he wil lfu l b li nd ne ss [of Mr. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er, as well as t he ir a tt orne y , Mr. Thr ap p] th e co ns tru ct iv e kno wled ge tes t was de si gn edto roo t o ut .” Dieb ol d F ou nd ., Inc . v. Co m mis si on er, 7 36 F.3 d a t 1 89 -1 90
. W e ad dr es s n ow wh ethe r un de r th e In di an a UFTA insubs ta nc e FFI m ad e a di st rib ut io n o r tr an sf

er o f it s p ro pe rty to e achof M r. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er i n t he SPR s al e tr an sa ct io n u nd er the SPRA. Inm ak in g t ha t de te rm in at io n, we re ly on In di an a subs ta nc e o ve r fo rm pri nc ip le s an d, i n t he alt erna ti ve , on th e In di an a sh am tra ns act io n d oc tri ne . W e co ns id er ea ch of I nd ia na
subs ta nc e o ve r fo rm

pri nc ip le s an d t he Ind ianash am tra ns act io n d oc tri ne , alth ou gh clo se ly relat edan d o ve rlapp in g i n m at eri al res pe ct s, t o b e anin de pe nd en t
oralt ern at iv e b as is un de r whi ch we sh al l re ach ou r ul ti m at e fi nd in gs as t o t ha t is su e und er the Ind ia naUFTA. W e res ta te in it ia ll y

th atwe co nc lu de d abo ve , andth e p art ie s ag ree, tha t the de fin it io n o f th e te rm

“ tra ns fer” inth e In di an a UFTA, li ke th e d efi ni ti onof t ha t- 21 7 -

[* 21 7] term

inth e Wisco ns inUFTA, is v ery br oa d. Mo reo ve r, we co nc lu de d 1 5 1 ab ov e, an d t he pa rti es ag ree, tha t In di an a co urts , li ke W is co ns in co urts , us e In di an a subs ta nc e o ve r fo rm pri nc ip le s i n ava rie ty of co nt ex ts , m os t n ot ab ly in cl ud in g t ax cas es . Und er In di an a subs ta nc e o ve r fo rm pri nc ip le s, as un de r 1 5 2 W is co ns in subs ta nc e o ve r fo rm pri nc ip le s, i t i s t he subs ta nc e, no t the form , of a tra ns act io n wh ic h i s co nt ro ll in g. 1 5 3 W it h re sp ectto th e In di an a sh am tra ns act io n d oc tri ne , Ind ia naco urts all ow a tr an sa ct io n t o b e d is reg ard edas ash am ina varie ty of co nt ex ts , in cl ud in g t ax
cas es . See, e.g ., Belt erraRes ort In d., LLC, 93 5 N.E.2dat 1 79 (ci ti ng Greg ory v. Helv eri ng , 29 3 U.S. at46 9- 47 0) ; Lo ng v. St at e, 66 6 N.E.2d12 58 , 12 61 (Ct . App
. In d. 1 99 6) ; Be dr ee v . Bedree, 5 28 N.E.2d 1 12 8, 1 13 1 (C t. Ap p. In d. 1 98 8) ; W al la ce v . Rog ie r, 39 5 N.E.2d29 7, 3 00 -3 01 (Ct . App . Ind . 19 79 ). Bas edup onou r ex am in at io n o f th e en ti re re co rdbe fo re u s, we fi ndth at , in de te rm in in g wh ethe r un de r th e In di an a UFTA FFI m ad e a tran sf er o f it s p ro pe rty to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r inth e SPR sal e tra ns act io n u nd er the SPRA, u nd er ea ch of I nd ianasubs ta nc e o ve r fo rm pri nc ip le s
See s up ra n ot e 1 21
. 1 5 1 See s up ra n ot e 1 23
. 1 5 2 See s up ra n ot es 12 1 and12 3. 1 5 3- 21 8 -

[* 21 8] an d t he Ind ia nash am tra ns act io n d oc tri ne (1) Ms . Shapi ro ’s pu rp orte d l oa n he re, l ik e Ms . Shapi ro ’s pu rp orte d l oa n i n F el dm anv. Co m m is si on er, 7 79 F.3dat 45 6, was a sh am

th atwas d ev oi d o f an y

eco no m ic subs ta nc e; (2) th e SPR sal e tra ns act io n u nd er the SPRA, l ik e th e p ur po rte d s to cksal e in vo lv edinFel dm anv. Co m m is si on er, 7 79 F.3dat 4 55 -4 57 , hadno no nt ax bu si ne ss pu rp os e; (3) Ms
. Sh ap iro ’s purp orte d l oa n h ere, l ik e Ms . Shapi ro ’s purp orte d l oa n i n F el dm anv. Co m m is si on er, 7 79 F.3dat 4 56 , hadno no nt ax bu si ne ss pu rp os e; (4) th e SPR sal e tra ns act io n u nd er the SPRA, l ik e th e p ur po rte d s to cksal e in vo lv edinFel dm anv. Co m m is si on er, 7 79 F.3dat 4 55 -4 57 , hadno eco no m ic subs ta nc e; (5) Ms
. Sh ap iro ’s purp orte d l oa n h ere, l ik e Ms . Shapi ro ’s purp orte d l oa n i n F el dm anv. Co m m is si on er, 7 79 F.3dat 4 56 , sh ou ldbe di sr eg ard ed ; (6 ) th e SPR sal e tr an sact io n und er the SPRA, l ik e th e p ur po rte d s to cksal e in vo lv edinFel dm anv. Co m m is si on er, 7 79 F.3dat 4 55 -4 57 , sh ou ldbe di sr eg ard ed ; an d (7 ) FFI, n ot FFIA, m ad e in th e SPR

sal e tr an sa ct io n und er the SPRA a d is tri bu ti onor t ran sf er of it s fu nd s t o e achof M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r, li ke th e C co rp or at io n, n otMi dC oa st , m ad e to eachof i ts st oc kh ol de rs inFel dm anv. Co m m is si on er, 7 79 F.3dat 4 59 , of e ach su ch st oc kh ol de r’s pr op orti on at e p orti on- 21 9 -

[* 21 9] of t he pu rch as e p ric e (i .e., $5 30 ,76 6.1 5) th ateach su ch st oc kh ol de r was to
rece iv e fo r th ei r st oc k und er the SPRA. 1 5 4 Bas edup onou r ex am in at io n o f th e en ti re re co rdbe fo re u s, we fi ndth at
un de r eac h o f In di an a subs ta nc e o ve r fo rm pri nc ip le s an d t he Ind ianash am tra ns act io n d oc tri ne insubs ta nc e FFI m ad e a d is tri bu ti onor t ran sf er o f it s p ro pe rty
un de r th e In di an a UFTA to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan khaus er i n t he SPR s al e tr an sa ct io n u nd er the SPRA. On tha t re co rd , we furth er 1 5 5 fin d t ha t ea ch of the m

is a fi rs t tran sf

eree of p ro pe rty of FFI inth attra ns act io n
un de r In d. Co de Ann . sec . 32 -1 8- 2- 18 (b )(1 ). 1 5 6

Res po nd en t ch arac te riz es th e d is tri bu ti on s o r tr an sf ers m ad e to th e FFI 1 5 4 st oc kh ol de rs inth e SPR

sal e tr an sa ct io n u nd er the SPRA as insubs ta nc e li qu id
at in g d is tri bu ti on s o r tr an sf ers fro m FFI. We do n otha ve to ch arac te riz e th os e di st rib ut io ns or t ran sf

ers as “ li qu id at in g” or a ny oth er ty pe of d is tri bu ti on s o r tra ns fers inord er t o c on cl ud e, as we do , th atun de r th e In di an a UFTA insubs ta nc e FFI m ad e a d is tri bu ti on or t ran sf er o f it s p ro pe rty to e ach of t he FFI s to ckho ld ers in th e SPR

sal e tr an sa ct io n und er the SPRA. W e co nc lu de d p rev io us ly tha t FF I m ad e a d is tri bu ti on or t ran sf er o f it s 1 5 5 pr op erty to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR re de m

pt io n t ran sa ct io n u nd er the SPRA an d t ha t ea ch of t he m is a tr an sf

eree of pro pe rty of FFI with re sp ectto th attra ns act io n fo r pu rp os es of t he Ind ia na UFTA. See i nf

ra n ot e 1 59
. 1 5 6- 22 0 -

[* 22 0] Frau du le ntTran sf ers Und er the Ind ia naUFTA It i s re sp on de nt ’s po si ti onth atFFI’s tran sf ers of i ts pro pe rty to e ach of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r inth e SPR tra ns act io ns un de r th e SPRA wer e fraudul en t u nd er ea ch of t he co ns tru ct iv e fraudpro vi si on s o f th e In di an a UFTA. Con se qu en tl y , res po nd en t m ai nt ai ns , each of t he m is li ab le un de r th e In di an a UFTA forres po nd en t’s cl ai m forFFI’s t ot al li ab il it y

forit s t ax ab le y ear 2 00 1, wh ic h c la im

co ns is te d o f a d efi ci en cy intax of $ 60 9,0 37 .43 an d a n 1 5 7
accu racy-rela te d p en al ty und er s ect io n 6 66 2 t ot al in g $ 85 ,48 2, as well as i nt eres t th ereo n a s p ro vi de d b y

law (F FI’s in te res t l iabi li ty). (W e sh al l re fer t o t he 1 5 8 li ab il it y of e ach pe ti ti on er fo r FFI’s t ot al li ab il ity forit s t ax ab le y ear 2 00 1, i ncl ud in g F FI’s in te res t l iabi li ty, th atres po nd en t ar gu es each of t he m ha s u nd er the In di an a UFTA as t ran sf

eree li ab il it y .) Res po nd en t fu rth er m ai nt ai ns th at , inad di
Res po nd en t al le ge d i n t he res pe ct iv e an swe rs inth es e cas es , andpe ti ti on 1 5 7 ers do no t d is pu te , th atth e am ou ntof F FI’s d efi ci en cy intax for it s t ax ab le y ear 20 01 th atrem ai ns unpa idis $5 78 ,33 8.4 3. Res po nd en t d idno t ca lc ul at e o r sh ow i n t he res pe ct iv e n ot ic es of l iabi li ty 1 5 8 th atres po nd en t i ss ue d t o M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r th e am ou ntof i nt eres t as pro vi de d b y law o n F FI’s 2 00 1 t ax li ab il it y . The rec or d ot he rwis e es tabl is he s t ha t as of J ul y 7, 2 00 9, re sp on de ntha d a ss es se d ato ta l o f $3 68 ,99 0.8 4 o f in te res t wi th res pe ctto th atli ab il it y . See d is cu ss io n i nf ra. Res po nd en t ac kn owl ed ge s o n b rie f th ateach pe ti ti on er’s l iabi li ty as a tra ns fere e is li m it edto th e n etva lu e o f th e as se ts th atFFI tran sf erre d t o e ach of th em inth e SPR

tra ns act io ns un de r th e SPRA. See d is cu ss io n i nf ra.- 22 1 -

[* 22 1] ti on to th e tr an sf

eree li ab il it y

of e ach of M r. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er, eac h o f th em is li ab le forin te res t (t ran sf eree in te res t), a s pr ov id edby law. As we u nd ers ta ndres po nd en t’s p os it io n, re sp on de ntm ai nt ai ns th atres po nde nt ’s cla im

ag ai ns t ea ch of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r fo r FFI’s t ot al li ab il it y

for it s t ax ab le y ear 2 00 1 s ho ul d b e an al y zedas asi ng le cl ai m un de r th e co ns tru ct iv e fraudpro vi si on s o f th e In di an a UFTA. In o th er
wor ds , we un de rs ta ndres po nd en t t o b e arg ui ng th atwe sh ou ldno t an al yze s ep arat el y un de r th os e co ns tru ct iv e fraudpro vi si on s t he co m po ne nt s o f FFI’s t ot al
unpa id20 01 li ab il it y , nam el y , FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y an d F FI’s
unpa id20 01 pe na lt y

li ab il it y . Res po nd en t ap pe ars to ackno wled ge th atres po nde nt ’s cla im

fortra ns fere e in te res t s ho ul d b e an al y zedsep arat el y fro m res po nde nt ’s cla im

forFFI’s t ot al unpa id20 01 li ab il it y . Pet it io ne rs ap pe ar t o d is ag ree wi th res po nd en t an d c ou nt er tha t n oton ly
res po nd en t’s cl ai m

for tra ns fere e in te res t b utals o re sp on de nt ’s cla im forFFI’s
unpa id20 01 de fic ie nc y

li ab il it y an d fo r FFI’s u np ai d 2 00 1 p en al ty liab il it y sh ou ld be an al y zedsep arat el y

un de r th e co ns tru ct iv e fraudpro vi si on s o f th e In di an a UFTA. Alth ou gh we do no t ag ree wi th pe ti ti on ers th atres po nd en t’s cl ai m for FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y an d fo r FFI’s unp ai d 2 00 1 p en al ty liab il it y- 22 2 -

[* 22 2] sh ou ldbe an al y zedsep arat el y , we sh al l n on ethe le ss an al y ze ea ch of t ho se
se pa rat el y

an d e xp la in inou r co ns id erat io n o f FFI’s u np ai d 2 00 1 p en al ty liab il it y why w e d is ag ree wi th pe ti ti on ers .

Res po nd en t’s Cl ai m

forFFI’s Unp ai d 2 00 1 Def

ic ie nc y Liab il it y Res po nd en t re li es oneach of t he co ns tru ct iv e fraudpro vi si on s i n In d. Co de Ann . sec s. 3 2- 18 -2 -1 4( 2) an d 3 2- 18 -2 -1 5 i n s up po rt o f res po nd en t’s cl ai m th at each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r is li ab le forth at FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y . W e ad dr es s o nl y Ind . Cod e Ann . sec . 1 5 9 32 -1 8- 2-1 5. Th atis be cau se ou r an al y si s u nd er tha t p ro vi si on res ol ve s t ha t i ss ue in res po nd en t’s fa vo r as to th atcla im
. In d. Co de Ann . sec . 32 -1 8- 2- 15 , whi ch ap pl ie s t o acred it or ’s cla im th at
aro se be fo re the tra ns fer was m ad e b y th e d eb to r, pr ov id es inpe rti ne ntpa rt:

If a tran sf er i s fr au du le ntun de r In d. Co de sec . 32 -1 8- 2- 14 (2 ) or 32 -1 8- 2- 1 5 9 15 , th e tr an sf

er i s v oi dabl e und er In d. Co de Ann . sec . 32 -1 8- 2- 17 (a)( 1) . If a tra ns fer i s v oi dabl e und er In d. Co de Ann . sec . 32 -1 8- 2- 17 (a)( 1) , un de r In d. Co de Ann . sec . 32 -1 8- 2- 18 (b )(1 ) “ th e cre di to r m ay reco ve r jud gm en t fo r th e v al ue of t he as se t tran sf

erre d, as ad

jus te d u nd er s ub se ct io n (c ) [In d. Co de Ann . sec . 32 -1 8- 2- 18 (c)], or the am ou ntne ces sa ry to sat is fy th e cre di to r’s cl ai m , whi ch ev er i s le ss .” Thatjud gm en t “ m ay be en te redag ai ns t [i nt er al ia ] * * * the fir sttra ns fere e of th e as se t” tra ns ferr ed . W e fo un d abo ve th ateach of M r. Fan kh au se r, Mr. Wein
traut , andMs . Fan kh au se r is a fi rs t tran sf eree of F FI u nd er In d. Co de Ann . sec . 32 -1 8- 2- 18 (b )(1 ).- 22 3 -

[* 22 3] A tran sf

er m ad e o r anob li ga ti on in cu rredby a deb to r is frau du le nt as to a cred it orwho se cla im aro se be fo re the tra ns fer was m ad e o r th e o bl ig at io n was in cu rredif: (1 ) th e d eb to r m ad e th e tr an sf er o r in curredth e o bl ig at io n witho utrece iv in g areas on ab ly equ iv al en t v al ue inex ch an ge forth e tra ns fer o r ob li ga ti on ; an d (2 ) th e d eb to r: (A) was in so lv en t atth e ti m e; or (B) b ecame ins ol ve ntas ares ul t o f th e tr an sf er o r ob li ga ti on . Inord er t o e st ab li shth atth e tr an sf ers th atFFI m ad e o f it s p ro pe rty to e ach of Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r inth e SPR tra ns act io ns
un de r th e SPRA (FFI’s tran sf ers ) were fr au du le ntun de r In d. Co de Ann . sec . 32
- 18 -2 -1 5, re sp on de ntm

us t s ho w th at(1) res po nd en t h ada cl ai m forFFI’s u np ai d 20 01 de fic ie nc y

li ab il it y be fo re FFI m ad e th os e tr an sf ers (pr eex is ti ng cla im

requ ire m en t); (2) FFI d idno t re cei ve reas on ab ly equ iv al en t v al ue inex ch an ge for FFI’s tran sf

ers (rea so nabl y

equi va le ntva lu e requi rem en t); an d (3 ) FFI was in
so lv en t atth e ti m e o f, or

was re nd eredin so lv en t as a res ul t o f, th os e tr an sf ers (in so lv en cy

requi rem en t). W it h re sp ectto th e p reex is ti ng cla im requi rem en t, re sp on de ntm ai nt ai ns th at
res po nd en t’s cl ai m

for FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y “ aro se on th e sa le of FFI’s as se ts , whi ch was p rio r to FFI’s tran sf ers to pe ti ti on ers .” As a re su lt ,- 22 4 -

[* 22 4] res po nd en t ar gu es , res po nd en t’s cl ai m for FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y aro se be fo re FFI ’s tra ns fers , as re qu ire d b y Ind . Cod e Ann . sec . 32 -1 8- 2- 15
. Pet it io ne rs co un te r th at“ [b ]ecaus e a t ax is co ns id ereddu e an d o win g o n t he requi redtax return fi li ng da te , Res po nd en t’s al le ge d c la im * * * [f orFFI’s u np ai d 20 01 de fic ie nc y

li ab il it y ] di d n otari se un ti l af te r th e Dece m

be r 20 , 20 01 clo si ng da te on [si c] the SPRA”. Acc or di ng to pe ti ti on ers , bef or e “ th e requi redtax return fil in g d at e” fo r FFI’s 2 00 1 F ed eral in co m e ta x re turn , it s Fe de ral in co m e ta x l ia
bi li ty for i ts tax ab le y ear 2 00 1 was “ co nt in ge nt ”. As we u nd ers ta ndpe ti ti on ers ’ arg um en t, the y

ackno wled ge th atres po nd en t i s co rrec t tha t re sp on de nt ’s cla im for FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y “ aro se on th e sa le of F FI’s as se ts , whi ch
was pri orto FFI’s tran sf

ers to pe ti ti on ers ”; ho wev er, the y co nt en d t ha t tha t cl ai m
was a co nt in ge ntcla im

an d t hu s d oe s n otqu al ify un de r In d. Co de Ann . sec . 32 -1 8- 2- 15 as acla im

of r es po nd en t tha t ar os e b efo re tho se tra ns fers
. W e rejectpe ti ti on ers ’ arg um en t tha t re sp on de nt ’s cla im forFFI’s u np ai d 20 01 de fic ie nc y

li ab il it y do es no t qua li fy

un de r In d. Co de Ann . sec . 32 -1 8- 2- 15 as a cl ai m of r es po nd en t tha t ar os e b efo re FFI ’s tra ns fers . Thatarg um en t i gn or es th e fo ll owi ng de fin it io n o f th e te rm “ cl ai m ” fo r pu rp os es of I nd ianaUFTA inInd
.- 22 5 -

[* 22 5] Co de Ann . sec . 32 -1 8- 2- 3, wh ic h i s v irtua ll y id en ti cal to Ind . Cod e Ann
. se c. 32 -2 -7 -3 (W es t 2 00 2) ineffe ctin20 01 : As u se d i n t hi s ch ap te r [In di an a UFTA], “ cl ai m ” m ean s a r ig htto pa ym en t, wh ethe r th e ri gh t i s: (1 ) reduc edto jud gm en t o r no t; (2 ) li qu id at edor u nl iqui da te d; (3 ) fi xe d o r co nt in ge nt ; (4 ) m atur edor u nm atur ed ; (5 ) di sp ut edor u nd is pu te d; (6 ) le ga l o r no t; (7 ) equi tabl e o r no t; or (8 ) se cu redor u ns ecu red
. On the reco rdbe fo re u s, we fi ndth atres po nd en t’s cl ai m forFFI’s u np ai d 20 01 de fic ie nc y

li ab il it y is a co nt in ge ntcla im

or a n u nm atur edcla im

un de r In d. Co de Ann . sec . 32 -1 8- 2- 3( 3) or ( 4) th ataro se be fo re FFI ’s tra ns fers to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r inth e SPR tra ns act io ns un de r th e SPRA. See , e.g., Fel dm anv. Co m m is si on er, 7 79 F.3dat 4 60 (“ as se t s al e--t he tri gg eri ng ev en t fo r th e [Fe de ral in co m e] tax li ab il ity --o ccu rredbe fo re the tra ns fer of * * * [d eb to r’s cas h] to th e [d eb to r’s] sha reh ol de rs ” fo r pu rp os es of Wis co ns in- 22 6 -

[* 22 6] UFTA); Stua rt v . Comm is si on er, 1 44 T.C. 23 5, 2 58 -2 59 (20 15 ) (s am e
un de r Neb ras kaUFTA); Cu ll ife r v. C omm is si on er, T.C. Mem o. 2 01 4- 20 8, at*5 0 (s am e und er Tex as UFTA), aff’d, F. A pp ’x , 20 16 WL 30 57 66 4, (1 1t h C ir. May 31, 2 01 6) . On th e rec or d b efo re u s, we fu rth er fi ndth atres po nd en t h as
sa ti sf ie d t he pre ex is ti ng cla im

requi rem en t i n In d. Co de Ann . sec . 32 -1 8- 2- 15 with
res pe ctto FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y . W it h re sp ectto th e rea so nabl y equi va le ntva lu e requi rem en t, p et it io ne rs do
no t cl ai m th atFFI re cei ve d re as on ab ly equ iv al en t v al ue inex ch an ge forFFI tra ns fers
. On the reco rdbe fo re u s, we fi ndth atFFI d idno t re cei ve reas on ab ly equ iv
al en t v al ue forFFI tran sf ers . On th atreco rd , we furth er fi ndth atres po nd en t h as
sa ti sf ie d t he reas on ab ly equ iv al en t v al ue requi rem en t i n In d. Co de Ann . sec . 32
- 18 -2 -1 5 wi th res pe ctto FFI’s u np ai d 2 00 1 d efi ci en cy li ab il ity . W it h re sp ectto th e in so lv en cy requi rem en t, re sp on de ntarg ue s t ha t FF I was
ren de redin so lv en t b y

FFI’s tran sf

ers to each of M r. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er i n t he SPR tran sa ct io ns un de r th e SPRA. Thatis be cau se , acco rd in g t o re sp on de nt , aft er tho se tra ns fers FFI “ fai le d t he ba la nc e sh eettes t fo r
so lv en cy ”. Insupp ort o f th atarg um en t, re sp on de ntrel ie s o n In d. Co de Ann . sec .- 22 7 -

[* 22 7] 32 -1 8- 2- 12 (c), wh ic h p ro vi de s t ha t ‘[a] deb to r is in so lv en t i f th e su m of t he de bt or ’s deb ts is gre at er tha n a ll of t he de bt or ’s ass et s ata fai r va lu at io n.” Pet it io ne rs co un te r th atth e SPR red em pt io n t ran sa ct io n “ was a co nd it io n pr eced en t t o t he sal e [SPRsal e tr an sa ct io n] of r em ai ni ng st oc k. * * * Altho ug h FFI t ran sf

erre d i ts in te res t i n F FW to Pet it io ne rs inparti al red em pt io n o f Pet iti on ers ’ FFI s to ck , th attra ns fer was no t fr au du le ntbe cau se , aft er the red em pt io n, FFI was so lv en t.” Th e o nl y supp ort i n t he reco rdforpe ti ti on ers ’ cl ai m th atth e SPR re de m

pt io n t ran sa ct io n u nd er the SPRA “ was a co nd it io n p rece de ntto th e
sa le ” is th e te st im on y

of M r. Thrapp , on e o f pe ti ti on ers ’ at to rn ey s. Th e te st im on y of Mr. Thr ap p o n wh ic h p et it io ne rs rel y di sr eg ard s an d c on tra di ct s t he term s o f th e SPRA t o wh ic h F FI, th e FFI s to ckho ld ers , andFFIA (M id Co as t’s d es ig ne e) ag reed . The SPRA pro vi de d i n p ert in en t p art : Sect io n 7 .1. Si m ul ta neo us Occu rren ce o f Ev ents at Cl os in g. All of th e ev en ts whi ch are t o o ccu r atth e Cl os in g u nd er thi s Ag reem en t, in cl ud in g, b utno t l im it edto , th e d el iv ery of all Sh are c ert ifi cat es an d th e p aym en t o f th e Pu rch as e Pri ce an d a ll ot he r rel at edex ch an ge s sh al l b e d eem edto ha ve oc cu rredsi m ul ta ne ou sl y .- 22 8 -

[* 22 8] On the reco rdbe fo re u s, we re ject M r. Thrapp ’s tes ti m on y an d p et it io ne rs ’ arg um en t tha t i s p rem is edon th attes ti m on y th atth e SPR

red em pt io n t ran sa ct io n
un de r th e SPRA “was a co nd it io n p rece de ntto th e sa le ”. 1 6 0 Pet it io ne rs furth er co un te r res po nd en t’s co nt en ti on th atFFI was ren de red in so lv en t b y

FFI’s tran sf

ers to each of M r. Fan kh au se r, Mr. Wein traut , andMs
. Fan kh au se r inth e SPR

tra ns act io ns un de r th e SPRA by co nt en di ng th at“ FFI
was * * * s ol ve ntimm ed ia te ly after c lo si ng onDecem be r 20 , 20 01 with $1 ,09 5,1 94 .08 of t ot al ass et s an d $ 1,0 38 ,02 6.1 5 o f to ta l l iabi li ti es ”. It i s n otcle ar ho w pet it io ne rs arri ve d a t the co nc lu si on th atFFI h ad“ imm ed ia te ly after c lo si ng
on Decem

be r 20 , 20 01 * * * $ 1,0 95 ,19 4.0 8 o f to ta l as se ts an d $ 1,0 38 ,02 6.1 5 o f to ta l l iabi li ti es ”. Inan y

ev en t, tha t co nt en ti onis no t s up po rte d b y th e rec or d, an d

Ass um in g arg ue nd o t ha t we h adfou ndth atth e SPR red em pt io n t ran s- 1 6 0 act io n was a co nd it io n p rece de ntto th e SPR sal e tr an sa ct io n, tha t fi nd in g wo ul d no t ch an ge ou r fi nd in gs be lo w th atFFI b ecame ins ol ve ntwithi n t he m ean in g o f In d. Co de Ann . sec . 32 -1 8- 2- 12 (c) b y FFI’s tran sf

ers to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR tra ns act io ns un de r th e SPRA and th atres po nd en t h as sat is fie d t he in so lv en cy requi rem en t i n In d. Co de Ann . sec . 32 -1 8- 2- 15 with re sp ectto FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y . The SPR red em pt io n t ran sa ct io n a ndth e SPR sal e tr an sa ct io n, wh ic h b y th e te rm s o f th e SPRA wer e d eem edto oc cur si m ul ta ne ou sl y , were i ne xt ric ab ly relat edan d i nt erde pe nd en t; ne ithe r tr an sa ct io n wo ul d h av e o ccu rredun le ss th e o th er o ccu rred
. Each of t ho se tra ns act io ns un de r th e SPRA m us t b e co ns id eredto ge th er i n d et erm in in g wh ethe r FFI b ecame ins ol ve ntwithi n the m ean in g o f In d. Co de Ann . sec . 32 -1 8- 2- 12 (c) b y

FFI’s tran sf

ers to each of M r. Fan kh au se r, Mr. Wein traut , and Ms . Fan kh au se r in th os e tr an sa ct io ns .- 22 9 -

[* 22 9] we rejectit . W e fo un d o n t he reco rdbe fo re u s tha t o n Dec em be r 20 , 20 01 , aft er the SPR tran sa ct io ns clo se d s im ul ta ne ou sl y

at 1 1: 59 p.m ., FFI h ad(1) 1 6 1
as se ts to ta li ng $5 02 ,78 9.3 4, wh ic h c on si st edof c as h o f $3 45 ,08 9.3 4 a ndth e ri gh t to a refu ndof $ 15 7,7 00 of S ta te 20 01 in co m e ta x p aym en ts , and(2) an ti ci pa te d Fed eral an d S ta te 20 01 in co m e ta x l iabi li ty tot al in g $ 1,0 26 ,10 0.6 9, o r a n eg at iv e
ne t as se t v al ue of $ 52 3,3 11 .35
. 1 6 2 On the reco rdbe fo re u s, we fi ndth atFFI, the de bt or , bec am e in so lv en t withi n t he m ean in g o f In d. Co de Ann . sec . 32 -1 8- 2- 12 (c) a s a r es ul t o f FFI’s tra ns fers to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR t ran sa ct io ns un de r th e SPRA. On th atreco rd , we furth er fi ndth atres po nThe clo si ng of the SPR tran sa ct io ns un de r th e SPRA was d eem edto be 1 6 1 effe ct iv e as of 1 1: 59 p.m . onDecem be r 20 , 20 01 . Mor eo ve r, th e SPRA pro vi de d th atall of t he ev en ts th atwere t o o ccu r atth e cl os in g u nd er the SPRA, i nc lu di ng bu t n otli m it edto , th e d el iv ery of th e FFI s to ckcert ifi cat es an d the pa ym en t o f th e pu rch as e p ric e an d “ al l o th er re la te d e xc ha ng es ” were t o b e d eem edto oc cu r si m ul ta ne ou sl y . Con se qu en tl y , all of t he di st rib ut io ns to FFIA (o r it s d es ig ne e, FFI) , th e FFI s to ckho ld ers , andMs . Shapi ro th atwere re qu ire d t o i m pl em en t the SPRA an d t he rel at edag reem en ts (na m el y , th e SPRA esc ro w agr eem en t, the Sh ap iro esc ro w agr eem en t, an d t he cas h re co nc il ia ti on ag reem en t) we re d eem edto be m ad e as of t he clo si ng of the SPRA. Bec au se th e cl os in g was de em edto oc cu r as of 1 1: 59 p.m . onDecem be r 20 , 20 01 , th os e d is tri bu ti on s wer e in factm ad e, in m os t i ns ta nc es by w ire tra ns fers , on th e d ay aft er the clo si ng . See s up ra n ot e 2 8 re ga rd in g F FI’s b an k a cco un t b al an ce o f $1 1,9 55 .46 , 1 6 2 FFI’s o ut st an di ng ch eck s o f $1 1,9 55 .46 , andth e Pru de nt ia l d em utua li zat io n fu nd s rece iv ab le of $ 43 ,92 6.5 7 a ndno te 50 reg ard in g t he Sta te ret ai l s al es tax refu nd s o f $5 ,75 6.5 6.- 23 0 -

[* 23 0] de ntha s s at is fie d t he in so lv en cy requi rem en t i n In d. Co de Ann . sec . 32 -1 8- 2- 15 with re sp ectto FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y . Bas edup onou r ex am in at io n o f th e en ti re re co rdbe fo re u s, we fi ndth at FFI’s tran sf

ers to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR tra ns act io ns un de r th e SPRA were fraudul en t tran sf ers un de r In d. Co de Ann . sec . 32 -1 8- 2- 15 . On th atreco rd , we furth er fi ndth ateach of t he m is li ab le fo r FFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y . 1 6 3 Res po nd en t’s Cl ai m

forFFI’s Unp ai d 2 00 1 P en al ty L iabi li ty Befo re an al y zi ng res po nd en t’s cl ai m forFFI’s u np ai d 2 00 1 p en al ty liab il ity
un de r th e In di an a UFTA, we wil l ex pl ai n, as we in di cat edpre vi ou sl y we wou ld , why w e b el ie ve th atres po nd en t’s cl ai m un de r th e co ns tru ct iv e fraudpro vi si on s o f th e In di an a UFTA forFFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y an d fo r FFI’s u np ai d 20 01 pe na lt y

li ab il ity sh ou ldbe an al y zedto ge th er, an d n otsep arat el y . As d is cu ss edab ov e, In d. Co de Ann . sec . 32 -1 8- 2- 3 d efi ne s t he term “ cl ai m ” br oa dl y to m ean an y

“rig htto pa ym en t” , reg ard le ss of wh ethe r th atrig htis “ co nti ng en t” or “ un m atur ed ”. W e b el ie ve th atres po nd en t m ay ha ve a cl ai m

forFFI’s
unpa id20 01 pe na lt y

li ab il it y un de r th e In di an a UFTA reg ard le ss of wh ethe r th at

See s up ra n ot e 1 58
. 1 6 3- 23 1 -

[* 23 1] pe na lty

ha d b een ass ert edat t he ti m e o f FFI’s tran sf ers to each of t he FFI st oc kh ol de rs inth e SPR

tra ns act io ns un de r th e SPRA. See Tric ari ch i v . Comm is
si on er, T.C. Mem o. 2 01 5- 20 1, at*6 2. In ad di ti on , th e In di an a UFTA do es no t requi re tha t a c red it or , her e res po nd en t, es tabl is h t ha t the de btinqu es ti on , her e FFI’s u np ai d 2 00 1 p en al ty liab il it y , was co nt em pl at edat the ti m e o f th e tr an sf er, he re FFI ’s tra ns fers to eachof the FFI s to ckho ld ers . See i d. Inan y ev en t, we n ow an al y ze wh ethe r eac h o f Mr. Fankhaus er, Mr . W ei ntraut , andMs . Fan kh au se r is li ab le un de r th e co ns tru ct iv e fraudpro vi si on s o f th e In di an a UFTA forFFI’s u np ai d 2 00 1 p en al ty liab il it y . In s up po rt o f res po nd en t’s po si ti onth ateach of t he m is so li ab le , res po nd en t re li es on Est at e o f Gla ss v. Co m m is si on er, 5 5 T.C. 5 43 , 57 5- 57 6 (1 97 0) , aff’d p er curia m , 45 3 F .2d13 75 (5t h Ci r. 19 72 ), an d Lee Opt ic al Ass oc ia te d C os . Pen si on Pla n & Tr. v. Co m m is si on er, T.C. Mem o. 1 98 9- 15 2. Pet it io ne rs co un te r th atun de r St an ko v. Co m m is si on er, 2 09 F.3d10 82 , 10 88 (8t h C ir. 2 00 0) , rev ’g T.C. Mem o. 1 99 6- 53 0, n on e o f th em is li ab le forFFI’s
unpa id20 01 pe na lt y

li ab il it y . W e d o n otfin d a ny of th e cas es on whi ch th e p art ie s re ly in s up po rt o f th ei r
res pe ct iv e p os it io ns with re sp ectto res po nd en t’s cl ai m forFFI’s u np ai d 2 00 1 pe na lty li ab il it y to be ap po si te or h el pf

ul inres ol vi ng whet he r un de r th e In di an a- 23 2 -

[* 23 2] UFTA each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r is li ab le forth atpe na lt y

li ab il it y . In n on e o f th os e cas es di d t he co urt re ach it s
co nc lu si on s re ga rd in g wh ethe r th e tr an sf eree was l iabl e fo r ad di ti on s t o t ax an d/ or pe na lt ie s o n t he ba si s o f th e ap pl ic ab le Sta te UFTA. Ind eed , inno ne of t ho se
cas es ha d t he Sta te ad op te d t he UFTA as o f th e p eri odat i ss ue ineach of t ho se
cas es . In fa ct , inEst at e o f Gla ss , on e o f th os e cas es on whi ch res po nd en t re li es , th e UFTA ha d n otev enbe enpro m ul ga te d b y

th e Nat io na l Co nf

eren ce o f Co m m is si on ers onUni fo rm

Sta te Laws atth e ti m e th atcas e was de ci de d, l etalo ne as of th e p eri odat i ss ue inth atcas e. Mo reo ve r, th e co nc lu si on s i n t he cas es on whi chres po nd en t re li es are ju stth at --co nc lu si on s wi th no reas on in g wh ic h c it e ot he r cas es th atst at e co nc lu si on s wi th no reas on in g. Mo reo ve r, th e co nc lu si on s i n th e cas e o n wh ic h p et it io ne rs rel y were d ep en de nton th e Neb ras kaUFCA th at requi redth e Co m

m is si on er t o p ro ve th atth e tr an sf er was m ad e with t he in te ntto de frau d fu tu re cr ed it or s.” St an ko v. Co m m is si on er, 2 09 F.3dat 1 08 8. W e ad dr es s n ow, wi th ou t the be ne fitof a ny app os it e o r he lp fu l ca se s ci te d by the pa rti es , th e co ns tru ct iv e fraudpro vi si on inInd . Cod e Ann . sec . 32 -1 8- 2- 14 (2 )(A) i n o rd er t o d et erm in e whe th er ea ch of M r. Fan kh au se r, Mr. Wein traut , an d M s. Fa nkhaus er i s l iabl e fo r FFI’s u np ai d 2 00 1 p en al ty liab il it y . W e ad dr es s- 23 3 -

[* 23 3] on ly tha t p ro vi si onbe cau se ou r an al y si s the reu nd er re so lv es th atis su e in
res po nd en t’s favo r as to th atcla im
. In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 )(A), wh ic h app li es to a cred it or ’s cla im th ataro se be fo re o r aft er the trans fer was m ad e b y th e d eb to r, pr ov id es : A tra ns fer m ad e o r anob li ga ti on in cu rredby a deb to r is frau du le ntas to a cred it or , whet he r th e cre di to r’s cl ai m aro se be fo re o r aft er the tra ns fer was m ad e o r th e o bl ig at io n was in cu rred , if the de bt orm ad e th e tr an sf er o r in cu rredth e o bl ig at io n: * * * * * * * (2 ) wit ho utrece iv in g areas on ab ly equ iv al en t v al ue in ex ch an ge for

th e tr an sf

er o r ob li ga ti on , andth e d eb to r: (A) was en ga ge d o r was ab ou t t o e ng ag e in a bu si ne ss or a tra ns act io n fo r whi ch th e rem ai ni ng ass et s o f th e d eb to r were un reas on ab ly sm al l i n re la ti on to th e b us in es s o r tr an sa ct io n; * * * Inord er t o e st ab li shth atFFI’s tran sf ers to each of M r. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er i n t he SPR tran sa ct io ns un de r th e SPRA were frau du le ntun de r In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 )(A), res po nd en t m us t s ho w th at(1) FFI d idno t re cei ve reas on ab ly equ iv al en t v al ue inex ch an ge forth os e tra ns fers (rea so nabl y

equi va le ntva lu e requi rem en t) an d (2 ) atth e ti m e o f FFI’s 1 6 4

W e u se th e sa m e d efi ne d t erm “ reas on ab ly equ iv al en t v al ue requi rem en t” 1 6 4 whe n re ferr in g t o t he requi rem en t i n In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 ) th atwe us edwhenrefe rri ng to th e requi rem en t i n In d. Co de Ann . sec . 32 -1 8- 2- 15 . Thatis be cau se th atrequi rem en t i s i de nt ic al ineach of t ho se pro vi si on s.- 23 4 -

[* 23 4] tra ns fers FFI “ was en ga ge d o r was ab ou t t o e ng ag e ina bu si ne ss or a tra ns act io n fo r whi ch th e rem ai ni ng ass et s o f th e d eb to r were u nr eas on ab ly sm al l in rel at io n t o t he bu si ne ss or t ran sa ct io n” (un reas on ab ly sm al l as se t re qu ire m en t). W it h re sp ectto th e rea so nabl y equi va le ntva lu e requi rem en t i n In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 )(A), p et it io ne rs di d n otdi sp ut e, an d we f ou ndinou r co nsi de rat io n o f whe th er ea ch of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r is li ab le forFFI’s u np ai d 2 00 1 d efi ci en cy li ab il it y , th atFFI d idno t re cei ve reas on ab ly equ iv al en t v al ue forFFI tran sf ers an d t ha t re sp on de ntsat is fie d t he reas on ab ly equi va le ntva lu e requi rem en t i n In d. Co de Ann . sec . 32 -1 8- 2- 15 . W e fu rth er fi nd th atres po nd en t h as sat is fie d t he reas on ab ly equ iv al en t v al ue requi rem en t i n In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 )(A) wi th res pe ctto FFI’s u np ai d 2 00 1 p en al ty li ab il it y . W it h re sp ectto th e unr eas on ab ly sm al l as se ts requi rem en t, we m us t ex am in e th e co nd it io ns th atex is te d a t the ti m e FFI’s t ran sf ers were m ad e as of t he cl os in g o f th e SPR

tra ns act io ns un de r th e SPRA at 1 1: 59 p.m . onDecem be r 20 , 20 01 , no t o n wh athapp en edth erea fte r. See Bo y er, 5 87 F.3dat 7 94 -7 95 . In d et erm in in g wh ethe r th e unr eas on ab ly sm al l as se t re qu ire m en t i s s at is fie d i n t he se
cas es , we m

us t ev al ua te onanob

jecti ve ba si s wh ethe r atth e ti m e o f th os e tr an sf ers FFI h ad“ su ch m eag er as se ts th atba nkrupt cy * * * [wa s] a co ns eque nc e b ot h l ik el y- 23 5 -

[* 23 5] an d fo res eeab le ”. Id . In o th er wo rd s, we m us t ev al ua te on anob

jecti ve ba si s wh ethe r atth e ti m e o f FFI t ran sf ers itha d t he ab il it y

to ge ne rat e en ou gh cas h to pa y it s d eb ts an d re m ai n fi na nc ia ll y st ab le
. W e h av e fo un d tha t FF I be cam e in so lv en t wi th inth e m ean in g o f In d. Co de
se c. 32 -1 8- 2- 12 (c) (i .e., FFI’s to ta l d eb ts ex ceed edit s as se ts ) as a res ul t o f FFI’s tra ns fers inth e SPR

tra ns act io ns un de r th e SPRA. In thi s co nn ect io n, we h av e fo un d tha t i m

m ed ia te ly after t he clo si ng at 1 1: 59 p.m . onDecem be r 20 , 20 01 , of th e SPR tra ns act io ns un de r th e SPRA th e o nl y ass et s o f FFI wer e cas h o f $3 45 ,08 9.3 4 a ndth e ri gh t t o arefu ndof $ 15 7,7 00 of S ta te 20 01 in co m e ta x p ay m en ts an d i ts on ly liab il it ie s wer e FFI’s t ot al an ti ci pa te d 2 00 1 t ax li ab il it y of $1 ,02 6,1 00 .69
. Con se qu en tl y , we fou ndth ataft er tha t cl os in g F FI h ada ne ga 1 6 5 ti ve ne t as se t v al ue of $ 52 3,3 11 .35
. W e al so fou ndth atimm ed ia te ly after t he 1 6 6 cl os in g o f th e SPR

tra ns act io ns on Decem

be r 20 , 20 01 , FFI h adno op erat io ns , no
em pl oyees e ng ag edinop erat io ns , no in co m e, an d n o o pe rat io na l as se ts .

See s up ra n ot es 34 , 10 0, an d 1 46
. 1 6 5 See s up ra n ot e 2 8 re ga rd in g FF I’s bankacco un t b al an ce o f $1 1,9 55 .46 , 1 6 6 FFI’s o ut st an di ng ch eck s o f $1 1,9 55 .46 , andth e Pru de nt ia l d em utua li zat io n fu nd s rece iv ab le of $ 43 ,92 6.5 7 a ndno te 50 reg ard in g t he Sta te ret ai l s al es tax refu nd s o f $5 ,75 6.5 6.- 23 6 -

[* 23 6] On the reco rdbe fo re u s, we fu rth er fi ndth atas o f th e cl os in g o f th e SPR t ran sa ct io ns un de r th e SPRA FFI d idno t h av e th e ab il it y to pa y FFI’s t ot al
an ti ci pa te d 2 00 1 t ax li ab il it y , letalo ne ha ve th e ab il it y to ge ne rat e en ou gh cas h t o pa y it s d eb ts an d re m ai n fi nanc ia ll y st ab le aft er FFI ’s trans fers to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r inth os e tr an sa ct io ns . On th at
reco rd , we furth er fi ndth atitwas re as on ab ly fores eeab le at t he ti m e o f FFI’s tra ns fer t o e ach of t he FFI s to ckho ld ers th atFFI wo ul d h av e in su ffi ci en t capi ta l o r pr of it s t o e ng ag e inan d s us ta in an y bu si ne ss op erat io ns . 1 6 7 On the reco rdbe fo re u s, we fi ndth atres po nd en t h as sat is fie d t he un reas on ab ly sm al l as se ts requi rem en t i n In d. Co de Ann . sec . 32 -1 8- 2- 14 (2 )(A). Bas edup onou r ex am in at io n o f th e en ti re re co rdbe fo re u s, we fi ndth at FFI’s tran sf

ers to each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR tra ns act io ns un de r th e SPRA were fraudul en t tran sf ers un de r In d. Co de

Ourfin di ng th atitwas re as on ab ly fores eeab le at t he ti m e o f FFI’s tran s- 1 6 7 fers to eachof t he FFI s to ckho ld ers th atFFI wo ul d h av e in su ffi ci en t capi ta l o r pr of it s t o e ng ag e inan d s us ta in an y bu si ne ss op erat io ns is rei nf or cedby our fin di ng th ateach of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r ha d in qu iry, andth us co ns tru ct iv e, kn owl ed ge th atMi dC oa stin te nd edth ro ug h t he SPRA t o i m

pl em en t a s ch em e to lea ve FFI wi th ou t s uf fic ie ntass et s t o s at is fy FFI’s t ot al an ti ci pa te d 2 00 1 t ax li ab il it y of $ 1,0 26 ,10 0.6 9 a ndth ereb y cau se itno t to pa y th atli ab il it y .- 23 7 -

[* 23 7] Ann . sec . 32 -1 8- 2- 14 (2 )(A). On t ha t re co rd , we furth er fi ndth ateach of th em is li ab le forFFI’s u np ai d 2 00 1 p en al ty liab il ity . 1 6 8 Res po nd en t’s Cl ai m fo r Tran sf

eree Int eres t Pet it io ne rs do no t d is pu te th atif we wer e to fin d, wh ic h we h av e, th ateach of th em is li ab le forFFI’s t ot al unpa id20 01 li ab il it y , in cl ud in g i nt eres t as requi red by law on th atli ab il it y , to th e ex te ntof t he ne t v al ue of t he ass et s t ha t FF I tr an sferr edto eachof t he m , eachals o wo ul d b e li ab le for so -cal le d p os tn ot ic e in te res t. The d is pu te be twee n t he pa rti es is ov er s o- cal le d p ren ot ic e in te res t, i .e., 1 6 9 in te res t tha t b eg in s t o a ccru e o n ada te be fo re the da te on whi ch a no ti ce o f li ab il it y is is su edto a tr an sf

eree -ta xp ay er an d t ha t co nt in ue s t o a ccru e to th e la tt er da te (pr en ot ic e in te res t p eri od ). See Lo wy v. Co m m is si on er, 3 5 T.C. 3 93 , 39 4- 39 5 (1 96 0) . The d at e o n wh ic h p ren ot ic e in te res t b eg in s t o a ccru e d ep en ds on th e

See s up ra n ot e 1 58
. 1 6 8 Po st no ti ce i nt eres t b eg in s t o a ccru e o n the da te on whi ch a no ti ce o f li a- 1 6 9 bi li ty is i ss ue d a ndco nt in ue s t o a ccru e to th e d at e o n wh ic h the tra ns fere e li ab il it y is ful ly pai d (p os tn ot ic e in te res t p eri od ). See Pa tt ers on v. Si m s, 2 81 F.2d57 7, 5 80 (5 th Cir . 19 60 ); Es ta te of S te in v. Co m m is si on er, 3 7 T.C. 9 45 , 95 9 (1 96 2) ; Sh oc kl ey v. Co m m is si on er, T.C. Mem o. 2 01 6- 8, at*7 . Pos tn ot ic e in te res t accrui ng du rin g the po st no ti ce i nt eres t p eri odis co m pu te d p ur su an t t o s ec. 6 60 1. See Es ta te of S te in v. Co m m is si on er, 3 7 T.C. at95 9; Sh oc kl ey v. Co m m is si on er, at*7 . Sec. 6 62 1 e st ab li sh es th e rat e o f in te res t fo r po st no ti ce i nt eres t fo r th e po st no ti ce i nt eres t p eri od . See Sh oc kl ey v. Co m m is si on er, at*7
.- 23 8 -

[* 23 8] am ou ntof a ss et s t ha t the tra ns fero r-t ax pa y ers tra ns ferr edto th e tr an sf eree ta xp ay er. See id
. It i s re sp on de nt ’s po si ti onth atres po nd en t i s en ti tl edto pre no ti ce i nt eres t fro m each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r. In s up po rt o f th atpo si ti on , res po nd en t ar gu es : Fo r th e p ren ot ic e p eri od , in te res t d ep en ds on st at e law. Lowy v. Co m m is si on er, 3 5 T.C. 3 93 , 39 5- 96 (19 60 ). Bu t wh enth e tr an sf erre d as se ts are g reat er tha n t he li ab il it y , as fo r Mr. Fa nkhaus er, the n p reno ti ce i nt eres t ac cru es un de r fed eral law. Est at e o f St ei n v . Com
m is si on er, 3 7 T.C. 9 45 , 95 9- 61 (19 62 ). W ei nt rau t an d M rs . Fan khaus er ar e li ab le forpre no ti ce i nt eres t b ecau se , un de r In di an a st at e la w, pre jud gm en t i nt eres t i s p ro pe r whe n the tri er o f fac t d oe s n ot ha ve to ex erci se jud gm en t i n o rd er t o a ss es s t he am ou ntof d am ag es . Lars on v. Kara ga n, 9 79 N.E.2d 6 55 , 66 3 (I nd . App . 20 12 ). The am ou nt s o f th e tr an sf

ers were ag reedun de r th e SPRA to be $1 ,58 6,6 38 .95 to Fan kh au se r, $5 13 ,32 4.3 7 t o Wein traut , and $2 33 ,32 9.2 6 t o M rs . Fan kh au se r. * * * Th e in te res t due un de r [ 1 7 0 ]
It app ears th atres po nd en t i nc lu de d i n t he res pe ct iv e am ou nt s o f FFI’s 1 7 0 tra ns fers to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r th atres po nd en t cl ai m s “ were ag reedun de r th e SPRA” th ei r res pe ct iv e sh ares (i.e ., $3 ,13 3.6 2, $1 ,01 3.8 2, an d $ 46 0.8 3) , aft er wi th ho ld in g fo r Fed eral an d S ta te in co m e ta xe s , o f cert ai n S ta te ret ai l s al es tax refu nd s t ot al in g $ 5,7 56 .56 th atFFI re cei ve d fr om th e St at e o f In di an a aft er the clo si ng of t he SPR tran sa ct io ns an d t ha t FF I se ntto FFW in Jan ua ry

20 02 aft er es ti m at in g a ndde du ct in g t ho se tax es . W e d o n otbe li ev e th atth os e res pe ct iv e am ou nt s o f certa in Sta te ret ai l s al es tax es “were ag reedun de r th e SPRA”, as res po nd en t cl ai m s. See supr a n ot e 5 0. No r do we be li ev e th at th os e res pe ct iv e am ou nt s o f certa in Sta te ret ai l s al es tax es sh ou ldbe in cl ud edin th e res pe ct iv e am ou nt s o f FFI’s tran sf ers to Mr. Fan kh au se r, Mr. Wein traut , and Ms . Fan kh au se r un de r th e SPRA. See s up ra n ot e 2 8. We setforth be lo w th e n et va lu e o f th e as se ts th atwe fin d F FI tran sf erre d t o e ach of M r. Fan kh au se r, Mr. (co nt in ue d...)- 23 9 -

[* 23 9] Ind ia nalaw ac cru es fro m th e due da te pre sc rib edforpa ym en t o f th e ta x. It i s p et it io ne rs ’ po si ti on th atres po nd en t i s n oten ti tl edto an y pre no ti ce in te res t o n a ny resp ect iv e tr an sf eree li ab il it ie s t ha t we fi ndforMr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r. In s up po rt o f th ei r po si ti on , pet it io ne rs rel y
on Sta nk o v . Comm is si on er, 2 09 F.3d10 82 . The Co urt o f App eal s fo r th e Eig ht h Ci rcu itin di cat edinth atcas e th atitfou nd“ no th in g i n Neb ras kafrau du le ntco nve y an ce l aw al lo win g s uc h areco ve ry of i nt eres t.” Th e co urt p oi nt edou t tha t

“ [u ]nde r th e n ew Uni fo rm Frau du le ntTran sf

er Act[ad op te d b y

Nebr as ka ], th e cred it oris li m it edto reco ve rin g ‘th e v al ue of t he ass etat t he ti m e o f th e [fraud
ul en t] tran sf

er, s ub ject t o a dju st m en t as th e equi ti es m ay requi re.’” Id. at10 88

1 7 1 (quo ti ng Neb. Re v. St at . Ann . sec . 36 -7 09 (c) (West19 99 )). Alt ho ug h t he Co urt o f App eal s co nc lu de d i n S ta nk o t ha t the Nebr as kaUFCA an d c as el aw th ereu nd er 1 7 2 (...co nt inue d) 1 7 0 W ei nt rau t, an d M s. Fa nkhaus er. See in fra n ot e 1 79
. The UFTA th atNebr as kaad op te d i n 1 98 9 d idno t ap pl y retro act iv el y

to 1 7 1 co nv ey an ces m ad e b efo re i ts en act m en t. See Stank o v . Comm is si on er, 2 09 F.3d 10 82 , 10 84 n.1 (8t h C ir. 2 00 0) . The co nv ey an ce atis su e in Sta nk o was m ad e be fo re Neb ras ka ’s ena ctm en t o f th e UFTA. See i d. On b rie f, pe ti ti on ers m is ta ke nl y cla im th atth e Co urt o f App eal s fo r th e 1 7 2 Eig ht h C irc ui t d eci de d S ta nk o v . Commis si on er, 2 09 F.3d10 82 , un de r th e Neb ras kaUFTA. Stan ko in vo lv edth e Neb ras kaUFCA whi ch was i n e ffec t fo r th e (co nt in ue d...)- 24 0 -

[* 24 0] were s il en t o n t he is su e, th e co urt n on ethe le ss he ld : “ Bec au se th e d el ay in
reco ve rin g fr om

th e tr an sf

eree th atoc cu rredbe fo re the Co m m is si on er as se ss ed tra ns fere e li ab il it y

is att rib ut ab le to th e Co m m is si on er (abs en t p ro of

of t ran sf eree de cei t), we c on cl ud e th e equi ti es do no t re qu ire anawardof i nt eres t fo r th at pe rio d.” Id. Pet it io ne rs ’ po si ti on di sr eg ard s ce rta in cas el aw (d is cu ss edbe lo w) ad dr es sin g p ren ot ic e in te res t wh ere atax pa y er t o wh om an ot he r ta xp ay er tran sf

erre d
as se ts is li ab le as atrans fere e fo r th attra ns fero r-t ax pa y er’s t ax li ab il ity . Non eth el es s, we wi ll ad dr es s p et it io ne rs ’ arg um en t i n s up po rt o f th ei r po si ti on with
res pe ctto res po nd en t’s cl ai m forpre no ti ce i nt eres t. Pet it io ne rs arg ue th atth ey “ an y de la y inis su in g s uc h n ot ic e [o f tr an sf eree li ab il it y to each pe ti ti on er] was attri bu tabl e en ti rel y to Res po nd en t’s d el ay

in pr os ecu ti ng th is m at te r.” As a r es ul t, p et it io ne rs m ai nt ai n, und er In d. Co de Ann
. se c. 32 -1 8- 2- 18 (c) “ th e equi ti es do no t re qu ire anawardof [ pr en ot ic e] int eres t” 1 7 3 (...co nt inue d) 1 7 2 pe rio d a t i ss ue th erei n. Se e id . at 1 08 4, 1 08 8. In d. Co de Ann . sec . 32 -1 8- 2- 18 (c) p ro vi de s t ha t i f a cre di to r is en ti tl ed 1 7 3 un de r In d. Co de Ann . sec . 32 -1 8- 2- 18 (b ) to a jud gm en t tha t i s b as edup on th e va lu e o f th e as se ts th atth e d eb to r tr an sf ers ina tr an sf

er tha t i s fr au du le ntun de r th e In di an a UFTA, “ th e jud gm en t m us t b e fo r anam ou ntequa l t o t he va lu e o f th e as se t atth e ti m e o f th e tr an sf er, s ub ject t o a dju st m en t as th e equi ti es m ay requi re.” (co nt in ue d...)- 24 1 -

[* 24 1] inth e in st an t ca se s, jus t as “ th e equi ti es * * * [d id ] no t re qu ire anawardof [p ren ot ic e] int eres t” inSta nk o v . Comm is si on er, 2 09 F.3dat 1 08 8. Pe ti ti on ers ’ arg um en t as su m es th atth ere was a “ de la y ” inth e is su an ce o f th e res pe ct iv e n ot ic es of li ab il it y to th em an d t ha t tha t d el ay

was “ at tri bu tabl e en ti rel y to res po nd en t”
. W e co ns id er wh ethe r th os e as su m pt io ns are v al idinth e fac e o f th e fac ts th atwe ha ve fou nd
. W e h av e fo un d tha t ar ou ndJu ly 22, 2 00 5, re sp on de ntbe ga n a n e xa m in at io n of FFI’s t ax ab le y ear 2 00 1. Th atex am in at io n d is cl os edth atFFI h adres pe ct iv e lo ss carry ba ck s t o t ha t t ax ab le y ear f ro m it s t ax ab le y ears 20 02 an d 2 00 3. Aro un d Decem be r 2, 2 00 5, re sp on de ntbe ga n a n e xa min at io n o f FFI’s t ax ab le y ear 2 00 2,
an d a ro un d J ul y

31 , 20 08 , res po nd en t b eg ananex am in at io n o f FFI’s t ax ab le y ear 20 03 . Alth ou gh th e rec or d d oe s n otest ab li sh why th e ex am in at io n o f FFI’s t ax ab le y ear 2 00 3 b eg anaro un d J ul y 31 , 20 08 , th e rec or d d oe s es tabl is h, an d we h av e fo un d, tha t FF I was rep res en te d b y co un se l thr ou gh ou t the IRS’ exa m in at io n o f al l th ree t ax ab le y ears 20 01 , 20 02 , and20 03 an d t he res ol ut io n o f th atex am in at io n. The reco rdals o e st ab li sh es , andwe als o h av e fo un d, tha t dur in g t he pe rio d t ha t st art edin20 05 an d e nd edin20 08 Mr. Berns te in , who was t he n p res id en t o f (...co nt inue d) 1 7 3 See s up ra n ot e 1 59
.- 24 2 -

[* 24 2] FFI, ex ecu te d o n b eh al f of FFI s ev eral Fo rm s 8 72 -I i n wh ic h F FI co ns en te d to th e ex te ns io n t o v ari ou s d at es of t he pe rio d o f as se ss m en t o f FFI’s Fe de ral in
co m e ta x fo r it s t ax ab le y ear 2 00 1. Mr . Bern st ei n e xe cu te d t he las t o f th os e fo rm s
aro un d t he en d o f Ju ly 200 8, wh ic h was at t he same tim e res po nd en t b eg anan
ex am in at io n o f FFI’s t ax ab le y ear 2 00 3. Th atform ex te nd edun ti l Dec em

be r 31 , 20 09 . th e ti m e fo r as se ss m en t o f FFI’s Fe de ral in co m e ta x fo r it s t ax ab le y ear 20 01
. W e in fer a ndfin d fr om ou r co ns id erat io n o f al l o f th e fac ts th atwe ha ve fo un d re la ti ng to th e res pe ct iv e ex am in at io ns th atres po nd en t co nduc te d wi th
res pe ctto FFI an d p et it io ne rs th atif re sp on de ntha d u nr eas on ab ly del ay edth e
ex am in at io n o f FFI’s t ax ab le y ear 2 00 3, FF I, ei th er o n i ts own an d/ or up on th e advi ce o f it s co un se l, wo ul d h av e b eenun wil li ng to co nt in ue to co ns en t as lat e as
aro un d t he en d o f Ju ly 200 8 t o t he ex te ns io n unt il Decem be r 31 , 20 09 , of t he pe rio d o f as se ss m en t o f FFI’s Fe de ral in co m e ta x fo r it s t ax ab le y ear 2 00 1. Aro un d Oct ob er 2 7, 2 00 6, re sp on de ntass ig ne d t he same reve nu e ag en t wh o
was ex am in in g F FI’s ta xabl e y ears 20 01 an d 2 00 2 t o b eg in a tr an sf eree li ab il it y
ex am in at io n wi th res pe ctto Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r
as th e st oc kh ol de rs of F FI b efo re the clo si ng of t he SPRA o n Dec em be r 20 , 20 01
. Si nc e th e IRS ’ ex am in at io n o f FFI’s t ax ab le y ears 20 01 an d 2 00 2 was st il l o n-- 24 3 -

[* 24 3] go in g a ndres po nd en t h adno t yet in it ia te d a n e xa min at io n o f FFI’s t ax ab le y ear 2 00 3 fr om

whi ch FFI h adcarr ie d alo ss ba ckto it s t ax ab le y ear 2 00 1, tha t tra ns fere e li ab il it y

ex am in at io n re m ai ne d i na ct iv e unt il th e IRS co m pl et edit s ex am in at io n o f FFI’s t ax ab le y ears 20 01 , 20 02 , and20 03 an d h adun de rta ke n c ol
le ct io n e ffo rts with re sp ectto th e res pe ct iv e ta x l iabi li ti es forth os e y ears , whi ch th e IRS ha d d et erm in edan d t o wh ic h F FI ag reed
. On M ay 31 , 20 08 , th e IRS op en eda co ll ect io n fi le with re sp ectto FFI’s
unpa idli ab il it y

forit s t ax ab le y ear 2 00 1 a ndass ig ne d t he m at te r to on e o f it s
rev enue off

ic ers . On M arch 4, 2 00 9, M r. Bern st ei n e xe cu te d o n b eh al f of FFI the FFI cl os in g ag reem en t i n wh ic h F FI an d re sp on de ntag reedto cert ai n a dju st m en ts to FFI’s Fed eral in co m e ta x fo r certa in of i ts tax ab le y ears , in cl ud in g i ts tax ab le y ears 20 01 , 20 02 , and20 03 . In ad di ti on , FFI co ns en te d i n t he FFI cl os in g a gr eem en t t o
anaccu racy-rela te d p en al ty und er s ect io n 6 66 2. On J anua ry

15 , 20 09 , Mr. Berns te in ex ecu te d o n b eh al f of FFI Fo rm

45 49 in whi chFFI co ns en te d t o t he ass es sm en t fo r, in te r al ia , it s t ax ab le y ear 2 00 1 o f a de fic ie nc y

intax of $ 62 2,2 65 an d a n a ccu racy-rela te d p en al ty und er s ect io n 6 66 2 to ta li ng $8 5,4 82 . Res po nd en t the reaf te r as se ss edFFI’s u np ai d 2 00 1 t ax li ab il it y , as well as i nt eres t the reo n a s p ro vi de d b y law.- 24 4 -

[* 24 4] On J un e 2 , 20 09 , Mr. Berns te in co m pl et edon be ha lf o f FFI F orm 43 3- B, a s ta te m en t tha t the IRS re qu es ts a ta xp ay er tha t o pe rat es a bu si ne ss to
co m pl et e, th atsh ows th e b us in es s’s i nc om e, ex pe ns es , ass et s, l iabi li ti es , and cert ai n o th er fi na nc ia l i nf orm at io n. 1 7 4 As p artof t he rev enue off ic er’s at te m

ptto co ll ectFFI’s unp ai d 2 00 1 li ab il it y he pe rfo rm edcert ai n s earc he s fo r an y ass et s b el on gi ng to FFI, b uthe di d
no t fi ndan y

su ch ass et s. On J un e 2 , 20 09 , res po nd en t fi le d ano ti ce o f Fed eral tax li eninMari on Co un ty, In di an a, wit h re sp ectto FFI’s 2 00 1 u np ai d 2 00 1 t ax li ab il it y an d i nt eres t th ereo n a s p ro vi de d b y

law. On J anua ry

13 , 20 10 , res po nd en t s en t ei gh t l ev ie s t o c ert ai n b an ks an d o th er
co m pa ni es th atm ig htha ve he ldacco un ts inFFI’s n am e o r th atm ig htha ve owed FFI m on ey . Tho se eig htlev ie s p ert ai ne d, i nt er al ia , to an y ass et s o f FFI tha t M r. 1 7 5 Bern st ei n h adsh own inFFI’s Fo rm 43 3- B. Res po nd en t re co ve redno fun ds as a
res ul t o f th e ei gh t l ev ie s.

See s up ra n ot e 5 2. 1 7 4 See s up ra n ot e 5 3. 1 7 5- 24 5 -

[* 24 5] On M arch 9, 2 01 0, the rev enue off ic er s earc he d re sp on de nt ’s dat aba se foran y

in co m e th atha d b een rep orte d a s h av in g b een pa idto FFI. The
rev enue off

ic er fo un d n o s uc h i nc om e rep orte d fo r an y y ear a fte r 20 07
. On M arch 10 , 20 10 , th e rev enue off ic er p rep ared , andon th e n ex t d ay hi s
m an ag er s ig ne d, Fo rm

53 with re sp ectto whatth atform de sc rib edas “ Cu r[re nt ly] NotCo ll ect ib le Ass es se d B al an ce” t ot al in g $ 1,1 44 ,68 4.0 3 tha t the IRS h adm ad e fo r FFI’s t ax ab le y ears 19 97 (as se ss m en t o f $7 7,5 49 .64 ), 20 01 (as se ss m en t o f $1 ,06 6,7 35 .70 ), an d 2 00 7 (a ss es sm en t o f $3 98 .69 ). Form 53 sh owe d t ha t ce rta in
se arch es ha d b een m ad e an d c ert ai n s ou rces ha d b een ch eck edon Marc h 9 , 20 10 , in ord er t o d et erm in e whe th er FFI ha d a ny ass et s o r in co m e. On Ap ril 2, 2 01 0, the rev enue off ic er p rep areda co ll ect ib il it y de te rm in at io n rep ort. Inth atCDR, th e rev enue off ic er d is cu ss edth e as se ss m en ts to ta li ng $1 ,14 4,6 84 .03 th atth e IRS ha d m ad e ag ai ns t FF I fo r it s t ax ab le y ears 19 97 (as se ss m en t o f $7 7,5 49 .64 ), 20 01 (as se ss m en t o f $1 ,06 6,7 35 .70 ), an d 2 00 7 (as se ss m en t o f $3 98 .69 ). In t he CDR, th e rev enue off ic er s ta te d i n p ert in en t p art :

“ The ass es se d t ax li ab il it ie s o f FFI * * * have be ende em edto be curren tl y no t
co ll ect ib le * * *. Inad di ti on to th is fin di ng , FFI was als o d eem edto be in so lv en t.” The rev enue off

ic er i nd ic at edinth e CDR tha t o n Oct ob er 2 6, 2 00 9, ce rta in sea rch
es rel at in g t o wh ethe r FFI o wne d m ot orve hi cl es , air craf t, wat ercr aft , or re al pro p-- 24 6 -

[* 24 6] erty

ha d b een pe rfo rm edon th e Accu rin t d at ab as e, whi ch ha d i nf orm at io n fro m publ ic so ur ces . Tho se sea rch es di sc lo se d t ha t FF I own edno ne of t ho se it em s
ex cep t the Elm

woo d Av enue pro pe rty. H owe ve r, a subs eque ntrev ie w by th e rev enu e o ffi cer o f Accu rin t p ro pe rty ass es sm en t an d p ro pe rty deed s re co rd s re ve al ed th atth atpro pe rty hadbe enso ldon Aug us t 3 1, 2 00 1. Th e CDR i nd ic at edth at cert ai n a dd it io na l s earc he s h adbe enm ad e to de te rm in e whe th er FFI own edan y
as se ts or h adany

in co m e b utth os e se arch es di sc lo se d n o s uc h a ss et s o r in co m e. The rev enue off

ic er co nc lu de d t he CDR wit h t he fol lo win g s ta te m en t: “ All
reas on ab le effo rts an d a ll requi redact io ns ha ve be entak ento de te rm in e th atth e ta xe s ca nn otbe co ll ect edfro m FFI”. Th e rev enue off

ic er d idno t s earc h t he Sta te of Ind ia na ’s W eb si te forun cl ai m edpro pe rty or fu nd s b el on gi ng to FFI. In20 10 , when th e IRS ha d c om pl et edit s co ll ect io n e ffo rts with re sp ectto FFI’s u np ai d 2 00 1 t ax li ab il it y an d c on cl ud edth atth atli ab il it y was c urren tl y

no t
co ll ect ib le , th e IRS reac ti va te d i ts tra ns fere e li ab il ity ex am in at io n wi th res pe ctto Mr. Fa nkhaus er, Mr . W ei ntrau t, an d M s. Fa nkhaus er. Itwas a t tha t t im e th atMr. Fan kh au se r fi rs t l earn edab ou t FF I’s unpa id20 01 tax li ab il it y an d was in fo rm ed by the IRS tha t i t was see ki ng to co ll ectth atunpa idli ab il it y fro m , in te r al ia , hi m
as a tr an sf

eree of F FI.- 24 7 -

[* 24 7] On J ul y

14 , 20 11 , th e IRS ’ App eal s Off ic e h el d aso -cal le d fa sttra ck App eal s Off

ic e co nf eren ce wi th pe ti ti on ers reg ard in g the tra ns fere e li ab il it y ex am in at io n t ha t the IRS was co nduc ti ng with re sp ectto th em . On Dec em

be r 8, 2 01 1, re sp on de ntti m el y is su edres pe ct iv e n ot ic es of li ab il it y to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r fo r FFI's unpa id 20 01 tax li ab il it y

of $ 69 4,5 19 .43 , whi ch co ns is te d o f a d efi ci en cy intax of $6 09 ,03 7.4 3 an d a n a ccuracy-rela te d p en al ty und er s ect io n 6 66 2 t ot al in g

1 7 6 $8 5,4 82
. On the reco rdbe fo re u s, we re ject t he ass um

pt io ns inpe ti ti on ers ’ arg um en t in supp ort o f th ei r po si ti on th atno ne of t he m is li ab le forpre no ti ce i nt eres t tha t th ere was a “ de la y ” in th e is su an ce o f th e res pe ct iv e n ot ic es of l iabi li ty to the m
an d t ha t tha t d el ay

was “ at tri bu tabl e en ti rel y to res po nd en t”
. On tha t re co rd , we 1 7 7

See s up ra n ot e 2
. 1 7 6 Eve n i f we were a ss um e arg ue nd o t ha t re sp on de ntwere en ti tl edun de r 1 7 7 In d. Co de Ann . sec . 32 -1 8- 2- 18 (b ) to a jud gm en t tha t i s b as edup on th e v al ue of th e as se ts th atFFI tran sf

erre d t o e achof M r. Fan kh au se r, Mr. Wein traut , andMs
. Fan kh au se r intra ns fers th atwe have fou ndto be frau du le ntun de r th e co ns tru cti ve frau d p ro vi si on s o f th e In di an a UFTA, an a ss um pt io n the va li di ty of whi ch with re sp ectto Mr. Fan kh au se r we co ns id er b el ow, we wo ul d n otbe pe rs ua de d o n th e rec or d b efo re u s t ha t “ th e equi ti es ” to whi chInd . Cod e Ann . sec . 32 -1 8- 2- 18 (c) refe rs requi re u s t o c on cl ud e th atres po nd en t i s n oten ti tl edto pre no ti ce i nt eres t fro m an y of t he m .- 24 8 -

[* 24 8] als o re

ject p et it io ne rs ’ rel ia nc e o n S ta nk o v . Comm is si on er, 2 09 F.3d 10 82
. On the reco rdbe fo re u s, we re ject p et it io ne rs ’ arg um en ts insupp ort o f 1 7 8 th ei r po si ti on th atres po nd en t i s n oten ti tl edto pre no ti ce i nt eres t fr om any of t he m . W e ad dr es s n ow re sp on de nt ’s po si ti on th atres po nd en t i s en ti tl edto pre no ti ce i nt eres t fr om

each pe ti ti on er an d t ha t the de te rm in at io n o f th atin te res t d epe nd s o n wh ethe r FFI tran sf erre d a ss et s t o e ach of t he m th atwas g reat er o r le ss th anFFI’s t ot al unpa id20 01 li ab il it y . W e are inge ne ral ag reem en t wi th res po nde nt ’s po si ti on . To u nd ers ta ndwhy, we be li ev e th atitwou ldbe he lp fu l t o s etforth th e rat io na le forco nc lu di ng th ata cred it oris en ti tl edto pre no ti ce i nt eres t an d t he
ex pl an at io n o f th e two di ffer en t ty pe s o f pr en ot ic e in te res t, as ex pl ai ne d i n Lo wy v. Co m m is si on er, 3 5 T.C. 3 93 , onwhi ch res po nd en t re li es inadva nc in g re sp on de nt ’s po si ti on . InLowy , th e p art ie s h adst ip ul at edth atth e ta xp ay er was li ab le as atra ns fere e fo r th e res pe ct iv e Fed eral tax li ab il it ie s an d the res pe ct iv e Fed eral ad di ti on s to tax li ab il it ie s fo r two tax ab le y ears (co ll ect iv el y , Fed eral tra ns fere e li ab il it ie s) of a co rp or at io n t ha t h addi st rib ut edcert ai n a ss et s t o the tra ns fere e-t ax pa y er. The Noton ly are th e fac ts in vo lv edinSta nk o v . Commis si on er, 2 09 F.3d 1 7 8 10 82 , m at eri al ly dis ti ng ui sh ab le fro m th e fac ts in vo lv edinth e in st an t ca se s, St an ko in vo lv edth e Neb ras kaUFCA whi ch was i n e ffec t fo r th e p eri odat i ss ue th erei n; itdi d n otin vo lv e th e Neb ras kaUFTA. See id . at 1 08 4, 1 08 8; see als o supr a n ot es 17 1 a nd17 2.- 24 9 -

[* 24 9] tra ns fere e-t ax pa y er i n Lo wy arg ue d t ha t h e was no t l iabl e fo r an y in te res t
accrui ng be fo re the da te on whi ch th e Co m m is si on er i ss ue d t he no ti ce o f li ab il it y to hi m . The Co m

m is si on er t oo k the po si ti on th atth e tr an sf eree -ta xp ay er was li ab le fo r in te res t tha t s ta rte d t o a ccru e o n the res pe ct iv e d at es on whi ch th e res pe ct iv e Fed eral tax li ab il it ie s fo r th e two tax ab le y ears inqu es ti on were re qu ire d t o b e pa id . See i d. at39 4. W e b eg anou r co ns id erat io n o f th e is su e p res en te d i n Lo wy by poi nt in g o ut th at“ [t]he re ar e atlea sttwo di ffer en t co nc ep ts rel at in g t o i nt eres t co ll ect ib le fro m a tr an sf eree --o ne fou nd edup on Fed eral st atut e an d the ot he r up on Sta te law” . Id. at39 4. We exp la in edth e co nc ep t re la ti ng to in te res t tha t i s fo un de d o n F ed eral st atut e as fol lo ws:

The Fed eral st atut e it se lf s pe ll s o uta li ab il it y forin te res t o n a de fic ie nc y

an d fi xe s i t at6 p er ce ntpe r an nu m fro m th e due da te * * * [b y whi ch th e ta x m

us t b e p ai d]. Whe n atax is no t p ai d t he Uni te d St at es be co m es en ti tl ed , by Fed eral st atut e, no t o nl y to th e ta x a nd ad di ti on s (“ pe na lt ie s,” e .g., fo r ne gl ig en ce o r frau d * * * ), bu t al so for in te res t atth e rat e o f 6 p er ce ntfro m th e due da te , andth es e ad di ti on s an d i nt eres t ar e co ll ect ib le to ge th er wi th th e b as ic de fic ie nc y by the Uni te d S ta te s. Su ch is th e ri gh t wh ic h t he Fed eral st atut e it se lf crea te s i n re sp ectof the de fic ie nc y intax , andsu ch is th e m eas ur e o f th e ta xp ay er's li ab il ity

to th e Gov ern m en t. Hadth ere b eenno tra ns fer of ass et s b y th e co rp or at io n, s uc h wo ul d b e th e ex te ntof i ts li ab il it y to th e Uni te d S ta te s. Ho wev er, i t d idtra ns fer i ts ass et s t o p et it io ne r [tr an sf eree -ta xp ay er] inanam ou ntfar g reat er tha n i ts to ta l p ot en ti al li ab il it y fortax es , “pe na lt ie s,” a ndin te res t. The parti es ha ve st ip
ul at edth atpe ti ti on er “ is a tr an sf eree ” o f th e co rp or at e as se ts “ an d i s- 25 0 -

[* 25 0] li ab le , as s uc h t ran sf eree ” fo r sp eci fie d t ax es an d “ pe na lt ie s” owi ng by the co rp or at io n fo r th e y ears 19 42 an d 1 94 3. Th e n eteffe ctof t hi s st ip ul at io n i s t ha t the de bt or(th e co rp or at io n) trans ferr edit s as se ts in su ch m an ne r as to en ab le th e cre di to r (the Gov ern m en t) t o fo ll ow th os e as se ts inth e h an ds of t he tra ns fere e inord er t o s at is fy it s cl ai m ag ai ns t the de bt or . To be su re, the li ab il it y of t he tra ns fere e as su ch m us t ar is e und er ap pl ic ab le Sta te Law, cf. Co m m is si on er v . Ste rn , 35 7 U.S. 3 9, b utth e qua ntum of the cred it or 's ri gh t-- i.e., the am ou nt of tax du e, th e ad di ti on s t o t ax forne gl ig en ce o r frau d, an d the am ou ntof i nt eres t ap pl ic ab le th eret o- -m us t, o f ne ces si ty, be de te rm in edinacco rd an ce wi th th e Fed eral st atut e. Cert ai nl y , itis th e In
te rn al Rev enue Co de an d n otNew Yorklaw wh ic h fi xe s t he am ou nt of de fic ie nc y

intax . Anditis si m il arl y th e In te rn al Rev enue Co de , rathe r th anSta te law, wh ic h s pe ll s o utth e ri gh t o f th e Gov ern m en t t o th e so -cal le d p en al ti es an d i nt eres t. The se am ou nt s i n t he ag gr eg at e co ns ti tu te th e cl ai m

of t he Uni te d S ta te s ag ai ns t the tax pa y ertra ns fero r an d t he y

si m il arl y m eas ur e th e cl ai m

ag ai ns t the tra ns ferr ed as se ts . Lowy v. Co m

m is si on er, 3 5 T.C. at39 4- 39 5. W e th entu rn edinLowy

to a di sc us si on of wh atwe be li ev edwas “ [t]he
co nf us io n * * * wher e th e am ou ntof t he tra ns ferr edass et s i s l es s t ha n t he am ou nt of th e cre di to r’s cl ai m , andwher e, in ord er t o m ak e th e cre di to r who le , itm ay be
ne ces sa ry to fin d s om e li ab il it y

ag ai ns t the tra ns fere e fo r in te res t i n re sp ectof t he tra ns ferr edass et s.” Id . at 3 95 . W it h re sp ectto th atsi tu at io n- -th e si tu at io n re la ti ng to in te res t fo un de d o n S ta te law- -we ex pl ai ne d a s fo ll ows : Su ch in te res t, b y

it s v ery na tu re, can ari se on ly und er St at e la w, and m us t co m pl y inev ery res pe ctwith app li cab le Sta te law n oton ly as to rat e, bu t al so as t o t he st art in g p oi nt . Thu s, i f th e tr an sf erre d a ss et s he rei n h adbe enequa l t o o nl y $1 00 ,00 0, s ub st an ti al ly less th anth e- 25 1 -

[* 25 1] am ou ntof t he ba si c d efi ci en ci es , th ey wou ldpl ai nl y

ha ve be en in su ffi ci en t t o s at is fy

th e Gov ern m en t’s cl ai m . Howev er, i n s uc h ci rcu m st an ces , th e tr an sf

eree wou ldha ve ha d t he us e o f th e tr an sferr edass et s o ve r a p eri odof t im e, an d i t i s qui te po ss ib le th athe wou ldbe li ab le , un de r St at e la w, for i nt eres t, n otonth e Gov ern m en t’s cl ai m

ag ai ns t the tra ns fero r, bu t o n t he am ou ntof t he tra ns ferr edass et s, m eas ur edfro m a po in t o f ti m e th atwou ldno t b e ear li er th anth e d at e o f tr an sf

er. * * * * * * * [T]he tr an sf

eree pro ceed in gs he rei n a re m erel y a subs ti tu te fora rem edy ag ai ns t the trans fere e whi chm us t ex is t i n t he fir stin st an ce un de r St at e la w, bu t the un de rlyin g ri gh ts whi chth e cre di to r is se ek in g t o e nf

or ce ar e ri gh ts th atha ve th ei r so ur ce i n t he Int ern al Rev enue Co de . It i s t ha t l aw whi ch sp el ls ou t a l iabi li ty for i nt eres t on a ta x d efi ci en cy

an d fi xe s i t at6 p er ce ntpe r an nu m fro m th e d at e th atth e ta x a ndreturns are due . Stat e la w has no m or e to do with t he de te rm in at io n o f th e am ou ntof t hi s l iabi li ty tha n i t h as with fi xi ng th e li ab il it y forad di ti on s due to frau d o r fai lu re t o fi le returns or wi th th e co rrec t co m

pu ta ti on of t he ba si c ta x i ts el f. Thes e are li ab il it ie s tha t are f ou nd edon Fed eral st atut e. It i s t he refo re wh ol ly inapp ro pr ia te in th is cas e, whe re the tra ns ferr edass et s ar e m or e th anam pl e to di sch arg e th e fu ll Fed eral li ab il it y of t he trans fero r (i nc lu di ng in te res t), to lo okto Sta te law fo r th e cre at io n o f an y rig htto in te res t. Ho wev er, as in di cat edab ov e, whe re the tra ns ferr edass et s ar e in su ffi ci en t, i t i s tru e th atth e cre di to r m ay ha ve a fu rth er ri gh t t o c ol le ctin te res t fr om th e tr an sf eree , bas edup onth e wro ng fu l u se of t ho se ass et s b y th e tra ns fere e p rio r to pa ym en t. The lat te r ri gh t i s o ne th atis fou nd ed up on Sta te law, an d i t i s o nl y insu ch cir cu m st an ces th atitbe co m es ap pr op ria te to in ve st ig at e St at e la w to de te rm in e th e rat e o f in te res t, th e d at e fro m

whi ch itrun s, an d t he li ke . * * * Id . at 3 95 -3 97 (fn . ref. o m it te d)
.- 25 2 -

[* 25 2] Inth e n ot ic e o f li ab il it y th atres po nd en t i ss ue d t o M r. Fan kh au se r,
res po nd en t d et erm in edth at , bec au se th e n etva lu e o f th e as se ts th atFFI tran sf erre d to hi m (i.e ., $1 ,82 4,1 43 .99 ) was gre at er tha n t he am ou ntof t he to ta l (i .e., $6 94 ,51 9.4 3) of F FI’s 2 00 1 t ax li ab il it y (i.e ., $6 09 ,03 7.4 3) an d F FI’s 2 00 1 p en al ty li ab il it y (i.e ., $8 5,4 82 ), th e am ou ntof h is tra ns fere e li ab il it y is th e to ta l am ou ntof th os e li ab il it ie s, as well as i nt eres t as pro vi de d b y law. Inth e n ot ic e o f li ab il it y th atres po nd en t i ss ue d t o M r. W ei ntrau t, re sp on de ntde te rm in edth at , bec au se th e
ne t v al ue of t he ass et s t ha t FF I tr an sf erre d t o h im

(i.e ., $5 14 ,52 0.3 5) was l es s t ha n th e am ou ntof t he to ta l (i .e., $6 94 ,51 9.4 3) of F FI’s 2 00 1 t ax li ab il it y (i.e ., $6 09 ,03 7.4 3) an d F FI’s 2 00 1 p en al ty liab il it y (i.e ., $8 5,4 82 ), th e am ou ntof h is tra ns fere e li ab il it y

is li m it edto th atne t v al ue , as wel l as in te res t as pro vi de d b y la w. In the no ti ce o f li ab il it y th atres po nd en t i ss ue d t o M s. Fa nkhaus er, resp on de ntde te rm in edth atth e am ou ntof h er tran sf eree li ab il it y

is th e to ta l (i .e., $6 94 ,51 9.4 3) of F FI’s 2 00 1 t ax li ab il it y (i.e ., $6 09 ,03 7.4 3) an d F FI’s 2 00 1 p en al ty li ab il it y (i.e ., $8 5,4 82 ), as well as i nt eres t as pro vi de d b y law. Inth atno ti ce, resp on de ntdi d n otli m itMs . Fan kh au se r’s tra ns fere e li ab il it y to th e n etva lu e o f th e
as se ts th atFFI tran sf

erre d t o h er, wh ic h re sp on de ntde te rm in edinth atno ti ce was- 25 3 -

[* 25 3] $2 33 ,87 7.4 4, as well as i nt eres t as pro vi de d b y law. As n ot edpre 1 7 9 vi ou sl y , res po nd en t ac kn owl ed ge s o n b rie f th ateach pe ti ti on er’s tran sf eree li ab il it y un de r th e In di an a UFTA is li mit edto th e n etva lu e o f th e as se ts th atFFI tra ns ferr edto each of t he m inth e SPR

tra ns act io ns un de r th e SPRA, pl us tra ns fere e in te res t. W e n ot e th atth e res pe ct iv e to ta l n etva lu es of t he ass et s t ha t we fi ndFFI 1 7 9 tra ns ferr edto each of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r in th e SPR t ran sa ct io ns un de r th e SPRA are d iff eren t b ot h fr om

th e res pe ct iv e to ta l va lu es of t he trans fers (1) th atres po nd en t d et erm in edinth e res pe ct iv e n ot ic es of li ab il it y th atres po nd en t i ss ue d t o t he m an d (2 ) th atres po nd en t cl ai m s o n b rie f. The parti es st ip ul at ed , andwe ha ve fou nd , th atimm ed ia te ly befo re the clo si ng of th e SPRA on Decem

be r 20 , 20 01 , FFI h adcert ai n a ss et s, wh ic h i nc lu de d i ts m em be rs hi p i nt eres t i n F FW th atha d ava lu e o f $1 ,92 0,5 56 .36 an d c ert ai n n on ta x li ab il it ie s h el d b y

FFW tha t t ot al ed$1 22 ,63 8.2 0. Se e supr a n ot e 2 8. Th e p art ie s al so st ip ul at ed , andwe als o h av e fo un d, tha t as of t he clo si ng of t he SPR red em pt io n t ran sa ct io n u nd er the SPRA FF I tr an sf erre d t o M r. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er i n p erce nt ag e m em be rs hi p i nt eres ts inFFW of 68 pe rcen t, 2 2 p erce nt , and10 pe rcen t, re sp ect iv el y . As a res ul t, as of t ha t cl os in g Mr. Fa nkhaus er, Mr . W ei ntrau t, an d M s. Fa nkhaus er h el d m em be rs hi p i nt eres ts in FFW, the res pe ct iv e n etva lu es of wh ic h (r ou nd edto th e n eare stdo ll ar) wer e $1 ,22 2,5 84 , $3 95 ,54 2, an d $ 17 9,7 92 . W e al so ha ve fou ndth atas o f th e cl os in g o f th e SPR sal e tr an sa ct io n u nd er the SPRA FF I m ad e res pe ct iv e tr an sf ers to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r of $3 60 ,92 0.9 8, $ 11 6,7 68 .55 , and $5 3,0 76 .62 , whi ch to ta le d $ 53 0,7 66 .15 , th e am ou ntof t he pu rch as e p ric e se t fo rth in th e SPRA for

th e FFI s to ck

of M r. Fan kh au se r, Mr. Wein traut , andMs . Fan khaus er. Inad di ti on , as n ot edsupr a n ot e 1 70 , we do no t b el ie ve th atth e res pe ct iv e am ou nt s o f certa in Sta te ret ai l s al es tax es sh ou ldbe in cl ud edinth e res pe ct iv e am ou nt s o f FFI’s tran sf

ers to Mr. Fan kh au se r, Mr. Wein traut , andMs . Fan kh au se r un de r th e SPRA. The p art ie s’ st ip ul at io ns an d o urfin di ng s es tabl is h t ha t the res pe ct iv e to ta l v al ue s o f th e as se ts th atFFI tran sf erre d t o M r. Fan kh au se r, Mr. W ei nt rau t, an d M s. Fa nkhaus er i n t he SPR tran sa ct io ns un de r th e SPRA were $1 ,58 3,5 04 .98 , $5 12 ,31 0.5 5, an d $ 23 2,8 68 .62
.- 25 4 -

[* 25 4] On the reco rdbe fo re u s, we fi ndth atth e n etva lu e o f th e as se ts th at FFI t ran sf

erre d t o e ach of M r. W ei nt rau t an d M s. Fa nkha su er i n t he SPR tran sact io ns is les s t ha n F FI’s to ta l l iabi li ty for i ts tax ab le y ear 2 00 1, i nc lu di ng th e

1 8 0
am ou ntof i nt eres t as pro vi de d b y law ca lc ul at edfro m

th e d at e o n wh ic h F FI’s ta x li ab il it y for th aty ear was requi redto be pa idto th e d at e o n wh ic h re sp on de nt is su edth e res pe ct iv e n ot ic es of l iabi li ty to the m . Con se qu en tl y , we con cl ud e th at
an y pre no ti ce i nt eres t fo r whi ch each of t he m m ay be li ab le is in te res t tha t i s b as ed up on th e la w of In di an a. See Lo wy v. Co m m is si on er, 3 5 T.C. at39 4- 39 7. Inco nt ras t, we ar e unabl e to fin d d efi ni ti ve ly on the reco rdbe fo re u s whe th er the ne t v al ue of t he ass et s t ha t FF I tr an sf erre d t o M r. Fan kh au se r in th e SPR t ran sa ct io ns is les s t ha n o r gr eat er tha n F FI’s to ta l l iabi li ty for i ts tax ab le y ear 20 01 , in cl ud in g t he am ou ntof i nt eres t as pro vi de d b y law ca lc ul at edfro m

th e d at e
on whi ch FFI’s t ax li ab il it y forth aty ear was requi redto be pa idto th e d at e o n whi chres po nd en t i ss ue d t he no ti ces of l iabi li ty in que st io n. Th atis be cau se , as
no te d p rev io us ly, res po nd en t d idno t ca lc ul at e o r sh ow i n t he no ti ce o f li ab il it y th atres po nd en t i ss ue d t o M r. Fan kh au se r (o r in th e res pe ct iv e n ot ic es of l iabi li ty is su edto Mr. Wein traut , andMs . Fan kh au se r) the am ou ntof i nt eres t as pro vi de d by law on th e to ta l o f FFI’s d efi ci en cy li ab il it y an d p en al ty liab il ity

forit s t ax ab le See s up ra n ot e 1 79
. 1 8 0- 25 5 -

[* 25 5] y ear 2 00 1. Al th ou gh th e rec or d o th erwi se est ab li sh es th atas o f Ju ly 7, 20 09 , res po nd en t h adass es se d ato ta l o f $3 68 ,99 0.8 4 o f in te res t o n t he to ta l o f FFI’s d efi ci en cy

li ab il it y an d p en al ty liab il it y

forit s t ax ab le y ear 2 00 1, re sp on de nt is su edth e n ot ic e o f li ab il ity to Mr. Fan kh au se r on Decem be r 8, 2 01 1, ap pr ox im at el y 21⁄2 y ears th erea fte r. Add it io na l i nt eres t as pro vi de d b y law co nt in ue d t o
accrue aft er J ul y

7, 2 00 9, o n t he to ta l o f th os e FFI l iabi li ti es to th e d at e o n wh ic h
res po nd en t i ss ue d t he no ti ces . Howev er, the reco rddo es no t es tabl is h t he am ou nt of th atad di ti on al in te res t. Alt ho ug h we b el ie ve th atitis li ke ly tha t the ne t v al ue of th e as se ts th atFFI tran sf erre d t o M r. Fan kh au se r in th e SPR trans act io ns rem ai ns gre at er tha n F FI’s to ta l l iabi li ty for i ts tax ab le y ear 2 00 1, i nc lu di ng th e
am ou ntof i nt eres t as pro vi de d b y law ca lc ul at edfro m

th e d at e o n wh ic h F FI’s ta x li ab il it y for th aty ear was requi redto be pa idto th e d at e o n wh ic h re sp on de nt is su edth e n ot ic es of l iabi li ty to h im , we are re lu ct an t t o m ak e a d efi ni ti ve fin di ng in th atreg ardon th e rec or d b efo re u s. 1 8 1 The in te res t ca lc ul at io ns with re sp ectto FFI’s 2 00 1 d efi ci en cy li ab il it y 1 8 1 an d F FI’s 2 00 1 p en al ty liab il it y wil l i nv ol ve th e co m

pu ta ti on of i nt eres t at di ffer en t ra te s co m

po un de d fo r a p eri odof o ve r ni ne y ears . Tho se cal cu la ti on s m us t t ak e acc ou ntof t he factth atres po nd en t co ll ect edfro m th e St at e o f In di an a th e Pru de nt ia l d em

utua li zat io n fu nd s o f $4 3,9 26 .57 to whi ch FFI h adbe en en ti tl ed , whi ch reduc edth e am ou ntof F FI’s u np ai d 2 00 1 t ax li ab il it y as o f th e d at e on whi ch res po nd en t co ll ect edth os e fu nd s. We thus are re lu ct an t t o m ak e an y de fin it iv e d et erm in at io n a t thi s t im e as to whet he r th e p ren ot ic e in te res t fo r whi ch (co nt in ue d...)- 25 6 -

[* 25 6] W e d ire ctth e p art ie s t o u nd ert ak e as pa rt o f th e co m pu ta ti on s u nd er Ru le 15 5 t he cal cu la ti on of t he am ou ntof i nt eres t as pro vi de d b y law o n t he to ta l of FFI’s t ax li ab il it y

an d p en al ty liab il ity

forit s t ax ab le y ear 2 00 1 fo r th e p eri od th atco m m en cedon th e d at e o n wh ic h the tax forFFI’s t ax ab le y ear 2 00 1wa s requi redto be pa idan d t ha t en de d a s o f th e d ay be fo re the da te on whi ch resp on de ntis su edth e res pe ct iv e n ot ic es of l iabi li ty to p et it io ne rs . W e fu rth er d ire ct th atas p artof t he Ru le 15 5 c om pu ta ti on s t he pa rti es co m pa re the to ta l o f FFI’s li ab il it y for it s t ax ab le y ear 2 00 1, i nc lu di ng th e am ou ntof i nt eres t s o c al cu la te d, t o th e n etva lu e, de te rm in edco ns is te ntwith o ur fin di ng s h erei n o f th e as se ts th atFFI tra ns ferr edto Mr. Fan kh au se r. Inth e ev en t tha t the cal cu la ti on s an d the co m pa ris on th atwe ha ve di rect ed th e p art ie s u nd ert ak e as part o f th e Ru le 15 5 c om pu ta ti on s wer e to sh ow tha t the
ne t v al ue of t he ass et s t ha t FF I tr an sf erre d t o M r. Fan kh au se r inth e SPR tra ns act io ns is gre at er tha n F FI’s to ta l l iabi li ty for i ts tax ab le y ear 2 00 1, i nc lu di ng th e
am ou ntof i nt eres t ca lc ul at edas d ire ct edab ov e, we wou ldco nc lu de th atres po nde ntis en ti tl edto pre no ti ce i nt eres t fr om hi m th atis fou nd edup on Fed eral law,
na m el y , th e In te rn al Rev enue Co de . See Lo wy v. Co m m is si on er, 3 5 T.C. at (...co nt inue d) 1 8 1 Mr. Fa nkhaus er i s l iabl e is in te res t tha t i s b as edup on Fed eral law o r in te res t tha t i s ba se d upo n t he law o f In di an a.- 25 7 -

[* 25 7] 39 4- 39 7. In th atev en t, we wo ul d fu rth er co nc lu de th atth e p ren ot ic e in te res t p eri odwith re sp ectto Mr. Fan kh au se r wou ldco m m en ce o n the da te on whi chFFI was requi redto pa y th e ta x due for

it s t ax ab le y ear 2 00 1 andwou ldrun up to th e d at e o n wh ic h t he no ti ce o f li ab il ity was i ss ue d. Se e Est at e o f St ei n v . Co m m is si on er, 3 7 T.C. at96 1; Lowy v. Co m m is si on er, s up ra; Sh oc kl ey v. Co m m is si on er, T.C. Mem o. 2 01 6- 8, at*7 . Mor eo ve r, an y in te res t ac cru in g dur in g t ha t pr en ot ic e in te res t p eri odwou ldbe de te rm in edun de r se ct io n 6 60 1, s ee Es ta te of St ei n v . Comm is si on er, 3 7 T.C. at96 1, an d t he rat e o f in te res t o n a ny suc h i nt eres t
wou ldbe de te rm in edun de r se ct io n 6 62 1, s ee Sh oc kl ey v. Co m m is si on er, at*7 . In ot he r wor ds , if the cal cu la ti on s an d t he co m paris on th atwe ha ve di rect edth e pa rti es to un de rta ke as p artof t he Ru le 15 5 c om pu ta ti on s wer e to sh ow tha t the ne t
va lu e o f th e as se ts th atFFI tran sf erre d t o M r. Fan kh au se r inth e SPR tra ns act io ns is gre at er than t he to ta l o f FFI’s l iabi li ty for i ts tax ab le y ear 2 00 1, i nc lu di ng th e
am ou ntof i nt eres t ca lc ul at edas d es cri be d abo ve , he wo ul d b e li ab le forth e fu ll
am ou ntof t ha t t ot al li ab il it y of F FI, in cl ud in g tha t am ou ntof i nt eres t, wh ic h
wou ldbe th e p ren ot ic e in te res t fo r whi ch he wou ldbe li ab le
. Inth e unl ik el y

ev en t tha t the cal cu la ti on s an d t he co m pa ris on th atwe ha ve di rect edth e p art ie s u nd ert ak e as pa rt o f th e Ru le 15 5 c om pu ta ti on s wer e to sh ow th atth e n etva lu e o f th e as se ts th atFFI tran sf erre d t o M r. Fan kh au se r in th e SPR- 25 8 -

[* 25 8] tra ns act io ns is les s t ha n F FI’s to ta l l iabi li ty for i ts tax ab le y ear 2 00 1, i ncl ud in g t he am ou ntof i nt eres t ca lc ul at edas d es cri be d abo ve on FFI’s t ax li ab il it y
an d p en al ty liab il it y

forit s t ax ab le y ear 2 00 1, we wo ul d c on cl ud e, as we ha ve with
res pe ctto Mr. Wein trautan d M s. Fa nkhaus er, tha t an y pre no ti ce i nt eres t fo r whi ch he m ay be li ab le is in te res t tha t i s b as edup on th e la w of In di an a. See Lo wy v. Co m m is si on er, 3 5 T.C. at39 4- 39 7. The pa rti es do no t ci te , andwe ha ve no t fo un d, an y Ind ia naau th or it y

in
vo lv in g afrau du le nttra ns fer u nd er the Ind ia naUFTA th atad dr es se s s qu arel y whe th er a cr ed it oris en ti tl edto pre no ti ce i nt eres t an d i f so , ho w andfro m what da te th atpre no ti ce i nt eres t i s t o b e cal cu la te d. Re sp on de ntin vi te s o uratt en ti on to cert ai n c as el aw inInd iana , andwe ha ve fou ndad di ti on al Ind ia nacas el aw, th at
co ns id ers so -cal le d p reju dg m en t i nt eres t wh ic h m ay be award edbe fo re a ju dg
m en t. The awardof p reju dg m en t i nt eres t u nd er In di an a la w “ is fou nd edso le ly up on th e th eo ry

th atth ere h as be ena de pr iv at io n o f th e u se of m on ey * * * an d th atun le ss in te res t i s ad de d t he in jure d p arty

can no t b e fu ll y

co m pe ns at edforth e lo ss su ffer ed . * * * In te res t i s n otreco ve rab le as i nt eres t b utas a dd it io na l d am ag es to acco m pl is h fu ll co m

pe ns at io n.” Mo ne y

Sto re In v. Co rp . v. Su m

m ers , 90 9 N.E.2d45 0, 4 61 (In d. Ct . App . 20 09 ).- 25 9 -

[* 25 9] W e co nc lu de th atth e co nc ep t und erl y in g t he awardof p reju dg m en t in te res t i n In di an a la w is ap pl ic ab le inco ns id eri ng whet he r to awardpre no ti ce i nte res t t o acred it orwho is en ti tl edto a reco ve ry inth e cas e o f a fraudul en t tran sf er
un de r th e In di an a UFTA. W e fu rth er co nc lu de th atInd ia nacas el aw ad dr es si ng pr ejud gm en t i nt eres t i s re le va ntto ou r co ns id erat io n o f an y pre no ti ce i nt eres t fo r whi cheach of M r. W ei nt rau t an d M s. Fa nkhaus er (a ndMr. Fan kh au se r de pe nd in g
on th e res ul ts of t he Ru le 15 5 c om pu ta ti on s as di sc us se d abo ve ) m ay be li ab le
. The Ind ia naCo urt o f App eal s h as ob se rv edth at“ In di an a co urts ha ve lo ng he ldth ata st atut e is no t the ex cl us iv e au th or ity forpre jud gm en t i nt eres t” an d t ha t

“ [m ]any [In di an a] case s h av e award edpre jud gm en t i nt eres t i n the ab se nc e o f a st atut e au th or iz in g s uc h a n a wardwher e th e d am ag es were ‘asce rta in ab le inacco rda nc e with fi xe d ru le s o f ev id en ce an d a ccep te d s ta nd ard s o f va lu at io n’ at the ti m e th e d am ag es accrue d.” Oil Supp ly Co., In c. v. Hi res Part s Se rv ., Inc ., 67 0 N.E.2d 86 , 93 -9 4 (I nd . Ct. Ap p. 1 99 6) (qu ot in g B la ndTruc ki ng , Inc . v. Kig er, 5 98 N.E.2d 11 03 , 11 06 (In d. Ct . App . 19 92 )), aff ’d inpa rt, re v’d i n p arton an ot he r is su e, 72 6 N.E.2d24 6 (I nd . 20 00 ); see als o Tro utwin e Est at es Dev. Co ., LLC v. Co m sub 1 8 2 Des ig n & Eng ’g, Inc ., 85 4 N.E.2d89 0, 9 04 (In d. Ct . App . 20 06 ). Acco rd in g t o The Ind ia naSupr em e Co urt ex pr es sl y affi rm edth e In di an a Co urt o f 1 8 2 App eal s’ ho ld in g o n p reju dg m en t i nt eres t. See Oil Supp ly Co., In c. v. Hi res Part s Serv ., Inc ., 72 6 N.E.2d24 6, 2 50 n.3 (In d. 2 00 0)
.- 26 0 -

[* 26 0] th e In di an a Co urt o f App eal s, “ [o ]nce the tri er o f fac t d et erm in es th ata pa rty is l iabl e fo r da m ag es , ‘ pr ejud gm en t i nt eres t i s p ro pe r on ly whe re a s im pl e
m athe m at ic al co m

pu ta ti on is requi red .’ ” Oil Supp ly Co., In c., 67 0 N.E.2dat 9 4 (quo ti ng Bla ndTruc ki ng , Inc ., 59 8 N.E.2dat 1 10 6) . In o th er wo rd s, as res po nd en t po in ts ou t, the Ind ia naCo urt o f App eal s h el d tha t an awardof p reju dg m en t i nte res t i s ap pr op ria te wher e th e tr ie r of factdo es no t h av e to ex erci se jud gm en t i n
or de r to de te rm in e th e d am ag es . See Lars on v. Kara ga n, 9 79 N.E.2d 6 55 , 66 3 (In d. Ct . App . 20 12 ). On the reco rdbe fo re u s, we fi ndth atres po nd en t was de pr iv edof t he us e o f th e m on ey

th atFFI was requi redto rem itto th e IRS inpa ym en t o f it s t ax li ab il it y fo r it s t ax ab le y ear 2 00 1 o n t he da te on whi ch th atli ab il ity was re qu ire d t o b e pa id . On th atreco rd , we furth er fi ndth atth e rat io na le foraward in g p reju dg m en t in te res t i n In di an a la w is pre se ntinth es e cas es with re sp ectto each of M r. W ei ntrautan d M s. Fa nkhaus er (a ndMr. Fan kh au se r de pe nd in g o n t he res ul ts of the Ru le 15 5 c om

pu ta ti on s as di sc us se d abo ve ). W e h av e fo un d, s ee s up ra n ot e 1 79 , th e res pe ct iv e n etva lu es of t he ass et s th atFFI tran sf

erre d t o M r. W ei nt rau t an d M s. Fa nkhaus er (a ndto Mr. Fan kh au se r) in th e SPR

trans act io ns . The tran sf

eree li ab il it y

of e ach of M r. W ei nt rau t an d M s. Fan kh au se r (an d M r. Fan kh au se r) i s d et erm in ab le . W e co nc lu de th atwe do no t- 26 1 -

[* 26 1] ha ve to ex erci se an y jud gm en t o r di sc ret io n i n o rd er t o d et erm in e th e
am ou nt s o f pr ejud gm en t i nt eres t. We furt he r co nc lu de th atth e p reju dg m en t o r pr en ot ic e in te res t p eri odwou ldbe “ m eas ur edfro m a po in t o f ti m e th atwou ldno t be earl ie r th anth e d at e o f th e [FFI ] tra ns fer[ s]”to each of M r. W ei nt rau t an d M s. Fan kh au se r (an d M r. Fan kh au se r de pe nd in g o n t he res ul ts of the Ru le 15 5 c om pu ta ti on s as di sc us se d abo ve ), Lowy v. Co m m is si on er, 3 5 T.C. at39 5, up t o b ut
no t i nc lu di ng th e d at e o n wh ic h re sp on de ntis su edth e n ot ic e o f li ab il it y to each of th em , see Pat te rs onv. Si m s, 2 81 F.2d57 7, 5 80 (5th C ir. 1 96 0) . On th e rec or d be fo re u s, we fi ndth atth e p reju dg m en t o r pr en ot ic e in te res t p eri odsh ou ldbe gi n
on th e d at e o n wh ic h F FI’s ta x l iabi li ty for i ts tax ab le y ear 2 00 1 was requi redto be pa id
. W e co ns id er n ow the rat e th atsh ou ldbe us edincal cu la ti ng pre jud gm en t o r pr en ot ic e in te res t i n t he cas e o f eac h o f Mr. Wein trautan d M s. Fa nkhaus er (a nd Mr. Fa nkhaus er d ep en di ng on th e res ul ts of t he Ru le 15 5 c om pu ta ti on s as di scu ss edab ov e). In d. Co de Ann . sec . 34 -5 1- 4- 9 (Le xi sNe xi s 2 00 8) est ab li sh es th e pr ejud gm en t i nt eres t ra te wher e anawardforto rti ou s co nduc t h as be enm ad e “ at th e si m pl e rat e o f in te res t d et erm in edby the co urt.” Ho wev er, u nd er tha t s ta tu te ,

“ [t]he rat e se t b y

th e co urt m ay

no t b e le ss th ansi x p erce nt(6%) pe r y ear a ndno t [b e] m or e th anten pe rcen t (1 0%) pe r y ear.”- 26 2 -

[* 26 2] In d. Co de Ann . sec . 24 -4 .6-1 -1 03 (Lex is Nex is 20 13 ) es tabl is he s t he pr ejud gm en t i nt eres t ra te at 8 pe rcen t p er y ear wh ere an a wardha s b een m ad e, as fo ll ows : (a) * * * on m on ey du e o n a ny ins tru m en t i n wri ti ng whi ch do es no t s pe ci fy

a rat e o f in te res t an d wh ic h i s n otco ve redby IC 19 71 , 24 -4 .5 [Un ifo rm

Co ns um er Cr ed itCo de ] orth is art ic le [Sp eci al Pro vi si on s C on cern in g C ert ai n Tra ns act io ns ]; (b ) * * * [m on ey

du e] onanacco un t s ta te d, ac co un t cl os edor fo r m on ey

ha d a ndrece iv edforth e u se of a no th er an d re ta in ed witho uthi s co ns en t. Each of t he se two Ind ia naCo de pro vi si on s ap pe ars to be ap pl ic ab le inth es e
cas es . On th e o ne ha nd , frau du le nt ly dep riv in g acred it orof m on ey to whi ch th e cred it oris en ti tl edm ay

be vi ewedas i n t he na ture o f to rti ou s co nduc t. Co ns equ en tl y , itwou ldap pe ar tha t In d. Co de Ann . sec . 34 -5 1- 4- 9 s ho ul d g ov ernth e pr ejud gm en t i nt eres t ra te he re. On t he ot he r ha nd , frau du le nt ly dep riv in g a cred it orof m on ey

to whi ch th e cre di to r is en ti tl edm ay be vi ewedas i nv ol vi ng

“ m on ey du e o n a ny ins tru m en t i n wri ti ng whi ch do es no t s pe ci fy a rat e o f in
te res t” , Ind . Cod e Ann . sec . 24 -4 .6-1 -1 03 , or m on ey du e “ on anacco un t s ta te d * * * [o r an ] acco un t cl os ed ”, id . Con se qu en tl y , itwou ldap pe ar tha t In d. Co de Ann . sec . 24 -4 .6-1 -1 03 sh ou ldgo ve rnth e p reju dg m en t i nt eres t ra te he re.- 26 3 -

[* 26 3] W e h av e fo un d n o o th er g ui danc e und er the law o f In di an a reg ard in g th e rat e th atsh ou ldbe us edincal cu la ti ng pre jud gm en t i nt eres t. We dir ectth e pa rti es to co op erat e an d s ti pu la te as p artof t he Ru le 15 5 c om pu ta ti on s wh atth e ap pr op ria te pre

jud gm en t o r pr en ot ic e in te res t ra te sh ou ldbe inth e cas e o f eac h o f Mr. Wein trautan d M s. Fa nkhaus er (a ndMr. Fan kh au se r de pe nd in g o n t he res ul ts of th e Ru le 15 5 c om

pu ta ti on s as di sc us se d abo ve ).

Co nc lu si on W e h av e co ns id eredall of t he pa rti es ’ res pe ct iv e co nt en ti on s an d a rg um en ts th atare n otdi sc us se d h erei n, an d we f in d t he m to be witho utm eri t, i rrel ev an t,
an d/ orm oo t. 1 8 3

W e n ot e h ere o ne arg um en t o f pe ti ti on ers th atwe ha ve no t ex pr es sl y 1 8 3 ad dr es se d b utth atwe ha ve co ns id ered . Peti ti on ers arg ue th atres po nd en t fa il edto en ga ge inreas on ab le effo rts to co ll ectFFI’s u np ai d 2 00 1 t ax li ab il ity an d tha t th eref or e res po nd en t m ay

no t co ll ectth e am ou ntof t ha t l iabi li ty, as well as i nt eres t th ereo n a s p ro vi de d b y

law. As su m in g a rg ue nd o t ha t re sp on de ntwas re qu ire d t o en ga ge inreas on ab le effo rts to co ll ectFFI’s u np ai d 2 00 1 t ax li ab il ity inord er fo r each pe ti ti on er t o b e li ab le as atra ns fere e, on th e rec or d b efo re u s, we re ject pe ti ti on ers ’ arg um en t. Onth e rec or d b efo re u s, we fi ndth atres po nd en t p ur su ed reas on ab le co ll ect io n e ffo rts with re sp ectto FFI’s unp ai d 2 00 1 t ax li ab il it y . W e m ak e th is fin di ng alt ho ug h we h av e al so fou ndth atres po nd en t was un aware of t he Pru de nt ia l d em

utua li zat io n fu nd s o f $4 3,9 26 .57 un ti l J ul y 20 11 , when res po nde nt ’s rev enue off

ic er was to ldab ou t tho se fun ds by Mr. Fan kh au se r.- 26 4 -

[* 26 4] To re fle ctth e fo reg oi ng an d re sp on de nt ’s con ces si on reg ard in g t he
am ou ntof F FI’s ta x l iabi li ty (excl ud in g the pe na lt y li ab il it y ) fo r it s t ax ab le y ear 20 01 th atrem ai ns unpa id , An ap pr op ria te ord er wi ll be is su ed de nyin g i n p artan d g ran ti ng inpa rt pe ti ti on ers ’ m ot io n i n l im in e, an d de ci si on s wi ll be en te redun de r Ru le 15 5.