In re Raejean S. Bonham dba World Plus
Bankruptcy No. F95-00897
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HERBERT A. ROSS
U.S. Bankruptcy Judge

In re RAEJEAN BONHAM, aka Jean Bonham, aka Jeannie Bonham, dba World Plus; WORLD PLUS, INC., an Alaska corporation; and, ATLANTIC PACIFIC FUNDING CORP., a Nevada corporation, Debtor(s)	Case No. F95-00897-HAR In Chapter 7
In re BONHAM RECOVERY ACTIONS, a proceeding to jointly administer certain pre-trial issues in numerous related adversary proceedings.	ADV PROC NO F95-00897-168-HAR (BANCAP No. 96-4281) REPORT AND RECOMMENDATION TO UNITED STATES DISTRICT COURT REGARDING MOTIONS TO WITHDRAW THE REFERENCE

1. RECOMMENDATION REGARDING MOTIONS TO WITHDRAW REFERENCE AND MOTIONS TO CONDITIONALLY WITHDRAW PROOFS OF CLAIM

1.1. Summary of Recommendation

1.2. Procedure in Alaska for Motions to Withdraw the Reference

2. LEGAL ANALYSIS OF WITHDRAWAL OF THE REFERENCE

2.1. Withdrawal of Reference Generally

2.2. The District Court May Defer Withdrawing the Reference

3. THE BONHAM MAIN CASE

4. THE BONHAM RECOVERY ACTIONS (THE BRA)

5. CONCLUSION

TO: THE U.S. DISTRICT COURT

1. RECOMMENDATION REGARDING MOTIONS TO WITHDRAW REFERENCE AND MOTIONS TO CONDITIONALLY WITHDRAW PROOFS OF CLAIM-

1.1. Summary of Recommendation- Numerous fraudulent conveyance and preference defendants have demanded jury trials and filed motions to withdraw the reference of their adversary proceedings so their trials may take place in the district court. These motions have been briefed in the Bonham Recovery Actions (the BRA), a lead case established for the case management of about 599 related adversary proceedings.

Many defendants have joined in as shown on the attached Exhibit A listing 278 individual adversary proceedings. And the court has previously ordered that, when this recommendation was sent to the district court, it would advise those defendants who had not yet moved to withdraw the reference, to give them an "open season" of about 2 weeks to file their own motions to withdraw the reference or join existing motions. The trustee has filed a conditional nonopposition to withdrawal of the reference. Some of those defendants, however, have not demanded a jury trial, so the predicate for withdrawing the reference as to them is not present.

In the BRA and individual adversary proceedings there are a number of pending and anticipated motions. Many of these motions have a global significance to the fraudulent transfer and preference issues common to most of the individual proceedings. Most of the pending motions seek nonfinal orders. There are ongoing discovery disputes.

Should the district court order immediate withdrawal of the reference? In the interest of judicial economy and efficiency, I recommend that the district court defer withdrawal of the reference so that the global and individual pretrial matters can be determined by the bankruptcy court. Withdrawal of the reference should await the time when the adversaries are trial ready for those defendants who have filed a timely jury trial demand, but not for those who have not.

1.2. Procedure in Alaska for Motions to Withdraw the Reference- In this district, LBR 5011-1(d) provides that a motion to withdraw the reference will be heard by the bankruptcy judge who will file a report and recommendation with the district court.

The local rule incorporates the national rule, FRBP 9033, for making recommendations to a district court in noncore matters.

2. LEGAL ANALYSIS OF WITHDRAWAL OF THE REFERENCE-

2.1. Withdrawal of Reference Generally- By a general order of reference in this district, all bankruptcy cases are referred to the U.S. Bankruptcy Court for the District of Alaska. The reference to the bankruptcy court can be withdrawn by the district court.

11 USC Section 157(d) provides:

The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

The district court in Alaska has regularly withdrawn the reference at the recommendation of the Alaska bankruptcy judges where one of the parties has requested a jury trial. This often occurred prior to amendments to the Bankruptcy Code in 1994, which added a section allowing the bankruptcy court to conduct a jury trial in a case where one of the parties was entitled to one, if all parties consented. The amendment alleviated most of the uncertainty about the authority of a bankruptcy judge to conduct a jury trial.

A defendant in a fraudulent conveyance or preference proceeding has a right to a jury trial. Even though these are "core" proceedings under 11 USC Section 157(b) (i.e., the meat of what bankruptcy courts traditionally have determined), the defendant is entitled to a jury trial under the Seventh Amendment, which must be conducted by an Article III judge unless all parties consent to a jury trial before the bankruptcy judge. If, however, the defendant has filed a proof of claim, the right to a jury trial is generally deemed to have been waived. Many BRA defendants have moved to withdraw their proofs of claim so they can have their trials in the district court before a jury.

Where a fraudulent conveyance or preference defendant has not filed a proof of claim (or has been permitted to withdraw its proof of claim) and does not consent to have its proceeding tried before jury in bankruptcy court, must the reference be withdrawn immediately?

2.2. The District Court May Defer Withdrawing the Reference- The cases are relatively uniform that, even though the reference might ultimately have to be withdrawn, the district court may delay the withdrawal of reference where appropriate.

In re Hardesty involved a noncore proceeding in which there was a timely jury trial demand. Defendant moved to withdraw the reference on that basis. The plaintiff pointed out the bankruptcy court’s familiarity with the main bankruptcy case and said this knowledge would help in handling discovery disputes and pretrial rulings. The defendant argued that judicial efficiency would not be furthered since the district court would have to review de novo dispositive rulings.

The court held that automatic withdrawal of the reference is not required, even where a right to a jury trial in district court exists, and such a requirement would "run counter to the policy favoring judicial economy that underlies the statutory scheme." Even in a noncore proceeding, a bankruptcy judge may decide matters not requiring a final order or judgment by a district judge. The court concluded that the case was still at an early stage, discovery had not begun, and the bankruptcy judge was familiar with the background to such an extent that it would facilitate ruling on many nonfinal issues. The court in Hardesty held the defendants would not be prejudiced by the bankruptcy court handling the pretrial issues and withdrawing the reference only when the case was ready for trial.

Many district courts have adopted the reasoning in In re Hardesty and deferred withdrawal of the reference to allow the bankruptcy court to handle the pretrial elements of a case in appropriate circumstances. The 2^nd Circuit, in In re Orion Pictures Corp., also approved this procedure.

A review of the history of the main case and the background of the BRA adversary proceeding will show that this is an appropriate situation to defer withdrawing the reference. In part 3 of this Report and Recommendation I will discuss the main case, and in part 4 the BRA proceeding.

3. THE BONHAM MAIN CASE-

On December 19, 1995, an involuntary chapter 7 petition was filed by various creditors against RaeJean Bonham, aka Jean Bonham, aka Jeannie Bonham, dba World Plus. The next day, Larry Compton was appointed the interim trustee during this involuntary chapter 7 proceeding.

RaeJean Bonham consented to the involuntary petition on about January 6, 1996, and converted the case to chapter 11. Compton was then appointed to be the chapter 11 trustee at the same time.

Compton investigated the operations of the debtor-in-possession. Among other things, the purported business (selling tickets procured with frequent flyer mileage, which the debtor or her related companies purchased from third parties) appeared to conflict with an injunction that had been entered against RaeJean Bonham and World Plus, Inc. in the United States District Court for the Northern District of Georgia, Delta Air Lines, Inc. v Robert Y. Seward, et al, Case No. 93-CV-1036-HTW. The debtor acquired funds with the promise of exorbitant interest rates for the alleged purpose of purchasing frequent flyer mileage to conduct the ticket sales business.

The trustee shortly concluded that the ticket sales business was a front for a Ponzi investment scheme. On January 29, 1996, the court converted the chapter 11 case back to chapter 7. Larry Compton was appointed chapter 7 trustee.

There have been approximately 1,111 proofs of claim filed for over $53 million. Most of these claims, to the exclusion of the Delta Air Lines settlement, and a handful of others, arise from the investment operations of the debtor or her related corporations, World Plus, Inc. (WPI) or Atlantic Pacific Funding Corp. (APFC).

Larry Compton, the chapter 7 trustee, filed a motion to consolidate the estate of the individual debtor, RaeJean Bonham, with the estates of two nondebtors, WPI and APFC, two corporations closely held by Bonham. The trustee asked that consolidation be effective as of December 19, 1995, the date that the involuntary bankruptcy proceeding was commenced against Ms. Bonham. The trustee sought to fix that date for avoidance proceedings with respect to any transfers made by Bonham, WPI, and APFC.

There are no assets in these estates of significant value, except the avoidance recoveries. Ms. Bonham operated a Ponzi scheme through investment contracts issued in the names of WPI and APFC during the four or five years before December 19, 1995. If consolidation were not permitted, the creditors of Bonham, WPI and APFC, totaling more than $50 million in claims filed in this bankruptcy (the largest percentage coming from losses related to the investment contracts), would recover nothing. The $50 million dollar figure is inflated since it includes the exorbitant interest promised by Bonham. It is probably closer to a third of that amount.

There was vigorous opposition to consolidation from the targets of the BRA avoidance actions filed by the trustee.

On April 10, 1998, this court entered a Memorandum Decision For Allowance of Substantive Consolidation. Fourteen separate appeals were filed in the district court from the order implementing this Memorandum. These appeals were filed by separate counsel and pro se defendants. Each of the counsel represented numerous individual defendants. The appeals were consolidated by Judge Singleton in district court Case No. A98-0167-CV, and a briefing schedule was ordered. Subsequently, Judge Singleton remanded the matter to the bankruptcy court because it was not ripe. Judge Singleton’s order is on appeal to the Ninth Circuit.

4. THE BONHAM RECOVERY ACTIONS (THE BRA)- The Bonham Recovery Actions (BRA) adversary proceeding was established by order dated October 18, 1996, to serve as the case file for all pleadings related to the mega case administration of all related adversary actions. The docket sheet has grown to about 708 entries as of November 13, 1998.

About 599 adversary proceedings were filed by the trustee to recover money judgments on the grounds of fraudulent and preferential transfers. Although a number of the adversaries have settled, there are probably 451 or more left.

There are a number of pro se defendants. There are also a number of competent lawyers representing multiple defendants. I estimate about one-half of the BRA adversaries involve pro se defendant cases. Many counsel for defendants have formed into a loose coordinating committee called the "Joint Defense Committee" with David Parry, Esq., for Fairbanks, and Rebecca Copeland, Esq., acting as points of contact.

The bankruptcy court and my chamber’s staff have developed a knowledge of the issues and parties involved. My law clerk, Jane Pettigrew, and my secretary, Karolyn Miller, are familiar with the proceedings from their inception. They have developed tables and database to track the cases. Janet Stafford is an in-court recorder who acts as adversary case manager. She is invaluable in monitoring the cases.

In addition, the court and parties have worked in the BRA on devising a rational discovery plan. It would not do to have 599 parties conducting individual discovery. As a result, the records of the trustee have been reviewed and copied to CD-ROM disks which are available to the parties at a reasonable cost. Copies of the records are available at locations in Fairbanks and Anchorage.

In the BRA, the parties have attempted to identify and brief global issues. Some of the issues overlapped the substantive consolidation issue in the main case, but the major ones can be identified as follows:

• Should the reference be withdrawn if a timely demand for a jury trial has been made?
• Should those BRA defendants who filed a proof of claim be entitled to conditionally withdraw the proof of claim (the condition being that they can reinstate the proof of claim if the substantive consolidation of Bonham, WPI, and APFC is sustained)?
• Does the trustee have standing (related to the substantive consolidation issue in the main case)?
• Has the trustee properly pled the matter in his form complaint?
• Is the trustee’s demand for usury damages unwarranted given Bonham’s behavior?
• Is the trustee entitled to recover for transfers of "money" under 11 USC Section 544(b), incorporating AS 34.40.010 et seq?

Most recently, the trustee has filed a motion for partial summary judgment on the issue of whether RaeJean Bonham was involved in a Ponzi scheme, and, if so, should the trustee be entitled to summary judgment on the claims of actual fraudulent transfers. This is a motion with extensive expert witness declarations. A separate discovery path has been fashioned for this motion. Oral argument is scheduled for December 17, 1998.

There are about a dozen summary judgment motions pending in individual adversary proceedings, some of which are scheduled for oral argument and some of which have been argued.

5. CONCLUSION- The district court should defer withdrawing the reference for those defendants who have requested jury trials until the pending summary judgment motions are resolved. Withdrawl of the reference should be denied for those defendants who have not filed a timely request for a jury trial.

The major issues in the numerous adversary proceedings are gradually being resolved. A procedure for handling this complex litigation, complex because of the number of individual adversary proceedings involved, is in place. When the individual proceedings are trial ready, it would then be appropriate to withdraw the reference.

 

Dated: November 30, 1998

 

Serve:

RaeJean Bonham, Debtor

Cabot Christianson, Esq., for Trustee

Larry D. Compton, Trustee

John Burns and David Parry, Esqs., for Joint Defense Comm. and Various Adv. Defts.

Rebecca Copeland, Esq., for Joint Defense Committee and Various Adversary Defts.

Brad Ambarian, Esq., for Various Adversary Defendants

William Artus, Esq., for Various Adversary Defendants

Mark Bledsoe, Esq., for Various Adversary Defendants

Gary Foster, Esq., for Barbara Woods, et al

Ron Goss, Esq., for Gerard Uphues, et al.

Chris Johansen, Esq., for Various Adversary Defendants

Michael MacDonald, Esq., for Various Adversary Defendants

James Magoffin, Esq., for Various Adversary Defendants

Greg Oczkus, Esq., for Various Adversary Defendants

Samuel Peterson, Jr., Esq., for Vern Foster, et al

Julian Rice, Esq., for Terry Franklin

William Satterberg, Esq., for Various Adversary Defendants

Barbara Schuhmann, Esq., for Various Adversary Defendants

Gary Sleeper, Esq., for Various Adversary Defendants

Thomas Yerbich, Esq., for Gayle Garrigues

Chris Zimmerman, Esq., for Various Adversary Defendants

Jame Chumbley, Pro Se (Adv F95-00897-197; BANCAP 96-4313)

Shane & Kathleen Diffley, Pro Se s (Adv F95-00897-234; BANCAP 96-4353)

Frank Fiala, Pro Se (Adv F95-00897-145; BANCAP 96-4258)

Kevin & Katie Kenaston, Pro Se s (Adv F95-00897-407; BANCAP 96-4530)

Virginia Golsan, Pro Se (Adv F95-00897-541; BANCAP 97-4338)

Dorothy Rehbein, Pro Se (Adv F95-00897-378; BANCAP 96-4501)

Mary Baranoski, et al, Pro Se s (Adv F95-00897-349; BANCAP 96-4472)

Christina Tuescher, Pro Se (Adv F95-00897-465; BANCAP 96-4591)

Michael & Sally Berkey, Pro Se s (Adv F95-00897-516; BANCAP 97-4313)

Roger Clemens, et al, Pro Se s (Adv F95-00897-354; BANCAP 96-4477)

Elliott Lowe, Pro Se (Adv F95-00897-047; BANCAP 96-4155)

George & Ethel Hicks, Pro Se s (Adv F95-00897-173; BANCAP 96-4286)

Kathleen Barron, et al, Pro Se s (Adv F95-00897-226; BANCAP 96-4345)

David Hendren, Pro Se (Adv F95-00897-442; BANCAP 96-4568)

James & Nikki Richardson, Pro Se s (Adv F95-00897-133; BANCAP 96-4246)

Janet Stafford, Adversary Proceeding Manager

Maia Weber, Deputy Clerk, Fairbanks

Clerk of Court

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