In re Raejean S. Bonham dba World Plus
Bankruptcy No. F95-00897
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PLAINTIFF'S FINAL ARGUMENT BRIEF

The plaintiff, LARRY D. COMPTON, in compliance with the court's instructions in open court on April 16, 1997 and its Order Regarding Postpetition Briefing filed April 21, 1997 (Docket No. 49), submits the following Final Argument Brief.

This brief will address first the related issues of insolvency and the Ponzi scheme utilized by the debtor, linking them to the evidence introduced at trial. Next, the trustee will demonstrate that the form of business of the debtor should be ignored. Then the trustee will link the facts to the four theories the trustee has advanced in support of his claim that Steve Bonham is liable for monies paid over by Raejean Bonham, World Plus ("WP"), World Plus, Inc. ("WPI") and, to the extent that monies were transferred indirectly to Steve Bonham from Atlantic Pacific Funding Corporation ("APFC"), APFC as well.

1. Insolvency.

The trustee has shown the court several approaches to determining whether Raejean Bonham, WP, WPI and APFC were solvent; each approach demonstrates they were not.

Raejean Bonham, WP, WPI and APFC were insolvent if their liabilities exceeded their assets, 11 U.S.C. §101(32(A).

The reconstructed income statements for the ticket sales operations of debtor (Exhibit 115) demonstrate that, even without taking into account the staggering amounts of debt owed by WP, WPI and APFC, the income from ticket sales was insufficient to meet expenses. The investor contracts WP, WPI and APFC issued between 1990 ad 1995 required sufficient income to service debt in the range of $977,000 to $52,000,000. Exhibit 110. But there was no income, just a mounting cycle of debt.

The debtor had no accounting system in place and did not know what a balance sheet or an income statement was. But if, as the evidence has proven, there was no income available to service debt, then the only conclusion is that WP, WPI and APFC were insolvent between 1990 and 1995, and the only thing that changed each year was that the extent of the insolvency increased.

The trustee also approached solvency from the number of tickets required to be sold to service the debt. In no year for which records are available did ticket sales begin to approach the volume required to service the debt, without regard to cost of goods sold and overhead. The peak year for ticket sales was 1992, when WPI sold 1,475 tickets. Exhibit 112. Debt service for that year, without regard to cost of goods sold or overhead, required sales of 51,964 tickets.

Finally, the trustee demonstrated that ticket sales for the periods for which records are available (1991, 1992 and 1994) generated gross profit which, without taking overhead into account, was still insufficient to meet even the lowest estimate of accrued interest for those periods. Exhibit 113.

There is no evidence of an inventory of frequent flier miles. The numbers offered by the debtor for the phony mileage contracts at Exhibits 026-030, and the debtor's estimate that her largest mileage purchase paid $450,000-$500,000 for 5,000,000 miles all demonstrate that her cost of goods sold exceed her gross sales price. Findings XX, Exhibit 108.

Confronted with these numerical realities, Raejean Bonham asserted that with bigger blocks of miles, she could obtain international awards, which she could sell for $1,600 each. Her claim doesn't withstand scrutiny. A coach class transatlantic ticket required 70,000 miles. Exhibit 108, page 5. At $0.0240 per mile, the lowest of the prices among those in evidence (Exhibit 108), that translates to a cost of goods sold of not less than $1,680. It just doesn't pencil out.

A Ponzi scheme, by definition, is insolvent from the outset. In re Agricultural Research and Technology Group, 916 F.2d 528, 531 (9th Cir. 1990). The limited number of ticket sales shown to have occurred, which were themselves the consequence of a fraud on Delta Air Lines, cannot possibly have supported the debt service associated with the investment contracts. In the next section, the trustee will show that WP, WPI and APFC operated as a Ponzi scheme, and were therefore insolvent.

The companies had no initial capital that th trustee can discover. They operated at a loss. Each investment contract created additional debt at the rate of 20% - 50% every six to eight months. The inescapable conclusion is that they were insolvent.

2. Ponzi Scheme.

A Ponzi scheme is defined as:

. . .a fraudulent arrangement in which an entity makes payments to investors from monies obtained from later investors rather than from any profits of the underlying business venture. The fraud consists of funneling proceeds received from new investors to previous investors from the alleged business venture, thereby cultivating an illusion that a legitimate, profit-making business opportunity exists and inducing further investment.

In re United Energy Corp., 944 F.2d 589, 590 n. 1 (9th Cir. 1991). See also, In re Agricultural Research and Technology Group, 916 F.2d 528, 531 (9th Cir. 1990).

While the debtor continues to assert that monies from investors were used to purchase miles, there are no financial records to support that assertion. There are no disbursements at all in the range of the $450,000 to $500,000 that the debtor described as her largest mileage purchase. Smaller disbursements, in the range of $10,000 to $100,000, can all be traced to investors, and to dates when investment contracts were due to investors for those amounts. There is no documentary evidence to support monies paid out for mileage purchases, except the contracts to "Apple Corporation" and T.L. Franklin (transparently her brother) and "Patriot Management Corporation," a major investor in WPI. Those contracts are patent forgeries. The prices purportedly paid for those blocks of miles simply underscore that they are forgeries. More to the point, there shuld be hundreds or even thousands of those contracts if there were mileage purchases. The absence of proof of purchases of large blocks of miles strongly supports the conclusion that this was a Ponzi scheme.

Assuming blocks of miles were purchased, how were they sold? In 1994, the debtor would have had to sell something like 51,000 tickets just to meet debt service, without regard to cost of goods sold or overhead. The trustee can find, and the financial records do not show, records of those sales. The absence of proof of sales of the large numbers of tickets generated by the large blocks of miles strongly supports the conclusion that this was a Ponzi scheme.

The limits on available flights to and from Fairbanks on Delta Air Lines impose constraints. The trustee testified that 95%-99% of the flights he reviewed in the debtor's records were through Fairbanks, either originating in Fairbanks or ogiginating elsewhere and coming to Fairbanks. There's just not enough frequent flier seats on the two-three flights per day to meet the needs of the debtor, if she in fact purchased blocks of miles.

Finally, the debtor's own records confirm the level of ticket activity described in the financial records. The volume of tickets described in Exhibit 112 matches to the gross ticket sales, to the frequent flier names notebooks and to the frequent flier coupon vendors. There were no purchases of large blocks of frequent flier miles; tickets were purchased when needed, and paid for either weekly or, towards the end, shipped C.O.D.

The pattern of growth of total investment contracts outstanding, as shown in Exhibits 109 and 100, demonstrates the classic growth curve of debt in a Ponzi scheme, where the interest rate exponentially drives up the total debt.

The evidence is overwhelming that the debtor "funnel[ed] proceeds received from new investors to previous investors from the alleged business venture, thereby cultivating an illusion that a legitimate, profit-making business opportunity exist[ed]," a classic Ponzi scheme as defined by the Ninth Circuit in In re Agricultural Research and Technology Group, 916 F.2d 528, 531 (9th Cir. 1990).

The only thing even slighly unusual about the debtor's Ponzi scheme is the "semi-legitimate" business of defrauding Delta Air Lines by selling frequent flier tickets in violations of Delta's official rules. But since the evidence is overwhelming that even that "semi-legitimate" business lost money, and was propped up by monies taken from investors, there is no meaingful chance that the debtor's activities were not a Ponzi scheme.

3. The corporations.

Alaska law to determines the validity of the corporations, WPI and APFC. The trustee proved that while APFC was nominally a Nevada corporation, it conducted no business in Nevada, maintained only the fiction of a presence there, and conducted all of its business activities from Alaska.

Alaska law requires courts to disregard the corporate form either where the corporations are mere instrumentalities of the controlling shareholder, or where the corporate form is being used to defeat public convenience, justify wrong, commit fraud or defend crime. McKibbin v. Mohawk Oil Co., Ltd., 667 P.2d 1223 (Alaska 1983); Uchitel Co. v. Telephone Co., 646 P.2d 229 (Alaska 1992); Eagle Air, Inc. v. Corroon and Black/Dawson and Co., 648 P.2d 1000 (Alaska 1982). To determine whether a corporation is a mere instrumentality of a controlling shareholder, the courts look at six factors:

(a) Whether the shareholder sought to be charged owns most or all of the stock of the corporation.

(b) Whether the shareholder sought to be charged subscribed to all of the capital stock of the corporation or otherwise caused its incorporation.

(c) Whether the corporation has grossly inadequate capital.

(d) Whether the shareholder sought to be charged uses the property of the corporation as her own.

(e) Whether the directors or executives of the corporation act independently in the interests of the corporation or take their orders from the shareholder sought to be charged in the latter's interest.

(f) Whether the legal requirements of the corporation are observed.

Findings 16-44 demonstrate that each of these six factors to be present. In addition, this case present a classic case of an attempt to use WPI and APFC to defeat public convenience, justify wrong, commit fraud and defend crime. Findings 30-45. Under those circumstances, Raejean Bonham or Steve Bonham cannot claim that the corporations protect them from liability.

The trustee has also proven quasi-estoppel. Quasi-estoppel arises where the existence of facts and circumstances make the assertion of an inconsistent position unconscionable. Jamison v. Consolidated Utilities, Inc., 576 P.2d 97, 102-103 (Alaska 1978).

Thus, in determining whether the doctrine of quasi-estoppel is applicable to the matter before it, the trial court should consider whether the party asserting the inconsistent position has gained an advantage or produced some disadvantage through the first position; whether the inconsistency was of such significance as to make the present assertion unconscionable; and whether the first assertion was based on full knowledge.

Jamison, 103. See also Dressel v. Weeks, 779 P.2d 324, 331-333 (Alaska 1989). While some have characterized quasi-estoppel as "judicial estoppel" and suggested its application is limited to positions taken in litigation, that is plainly an understatement of the doctrine. In Dressel, for example, the court applied quasi-estoppel to bar Dressel from claiming title to property where he had accepted the benefit of proceeds of sale of a parcel taken in exchange. Id, 332-333.

But if the court chooses to limit application of quasi-estoppel to judicial positions, the result is the same: Raejean Bonham has earlier argued that the corporations, and not herself personally, are in bankruptcy. See Request for Clarification of Order filed January 5, 1996; Motion for Clarification of Case filed February 9, 1996; Request for Reconsideration filed March 18, 1996. Without admitting in any way that is true, quasi-estoppel prevents her from arguing now that she is in bankruptcy and the corporations are not. Either way, those defenses therefore are barred by quasi-estoppel.

The court should find that, as between the trustee and the Bonhams, the Bonhams are not entitled to assert any defense based upon the existence of validity of either World Plus, Inc. or Atlantic Pacific Funding Corporation.

4. Recovery of monies from Steve Bonham.

The following table summarizes the monies the trustee seeks to recover from Steve Bonham (and Raejean Bonham in the case of the American Funds conversion):

The trustee reminds the court that he does not seek to recover all possible monies from Steve Bonham; wherever possible, the trustee has taken the most conservative reasonable approach to Steve Bonham's liability. While very large, the amounts shown represent only a fraction of the total distributions to or for him over the life of the business activities of WP, WPI and APFC.

(a) Voidable Preference.

The claims based on voidable is not a perfect "fit" to the facts of this case, but it still supports a claim. Steve Bonham, as the spouse of Raejean Bonham, is an "insider" with regard to Raejean Bonham and WPI. 11 U.S.C. §§101(31), 101(45), 547(b). All of the entities were insolvent in the 12 months preceding the petition, 11 U.S.C. §547(b)(3), Finding 85. Given that there are presently $50 million in claims, any person receiving payment in full necessarily received more than they would have received in any probable Chapter 7.

The trustee has shown that in the twelve months preceding the involuntary petition, December 20, 1994-December 19, 1995, the following monies were disbursed by WPI to or for the benefit of Steve Bonham:

Description	Total Amount	Payment 12/20/94 or Later	Adjusted to 50% (Except American Funds and Life Ins.)
American Funds Recovery	1,700.00	1,700.00	1,700.00
Lease Payments	24,651.00	1,746.00	873.00
GVEA Payments	8,306.07	121.47	60.74
Heating Oil Payments	6,573.67	340.56	170.28
Steve Bonham's Truck	7,696.50	0.00	0.00
Raejean Bonham's Blazer	3,956.10	0.00	0.00
Life Insurance Payments	21,889.00	6,444.00	6,444.00
Health Insurance Payments	7,366.50	1,503.72	751.86
Vehicle Insurance Payments	13,158.37	346.70	173.35
Stephanie's Credit Card Payments	10,531.86	2,003.00	1,001.50
Shane's Credit Card Payments	10,766.00	0.00	0.00
Shane's 1984 Jeep CJ7	3,800.00	0.00	0.00
Shane's 1991 Jeep Wrangler	16,188.00	0.00	0.00
Stephanie's 1990 Eagle Talon	9,500.00	0.00	0.00
Stephanie's 1994 Chevrolet Pickup	13,012.95	0.00	0.00
Steve Bonham's Credit Cards	49,078.75	11,691.91	5,845.96
Transfers to S & S Account	199,008.05	49,608.00	24,804.00
Payments of credit card drafts	11,000.00	11,000.00	5,500.00
TOTALS	418,182.82	86,505.36	47,324.68

Finding 182.

Each of these obligations was an antecedent debt; that is, all of them involved payment of an obligation after it was accrued. In the case of the credit card obligations, for example, it might be as many as forty days after billing; see, e.g., Exhibit No. 96, American Express bill dated April 20, 1995, paid May 30, 1995.

As noted above, the trustee believes the court will find that as to the trustee, Raejean Bonham, WP, WPI and APFC were the same entity. In each case, Steve Bonham was personally liable with Raejean Bonham for the monies due. If Raejean Bonham had not caused WPI to pay the obligations, Steve Bonham would have had to pay. Thus, Steve Bonham had a contingent claim against Raejean Bonham as to each of the bills and expenses as to which they were jointly liable.

A holder of a contingent claim is a creditor for purposes of voidable preference analysis:

The basic issue was addressed by Judge Learned Hand in Smith v. Tostevin, 247 F 102 (2nd Cir. 1917), in which an individual debtor paid his bank loan one week prior to the filing of his bankruptcy petition. The bank then released certain stock that the debtor's wife had pledged as security for the loan. The Second Circuit reversed the dismissal of the trustee's suit against the debtor's wife, holding the debtor's payment to the bank was a voidable preference to the wife, reasoning as follows:

A payment to the creditor [bank] discharges [the surety] . . . precisely as though made directly to the [surety]. Hence, it was inevitable that such a payment should be held a preference, whether made to the innocent creditor or to the surety; the effect was identical, whichever course was chosen.

5 Collier on Bankruptcy, 15th Edition Revised, ¶547[3][a] at page 547-30 (footnotes omitted).

The 1994 amendments to the Bankruptcy Code modified 11 U.S.C. §550 by reversing the result in In re Deprizio Construction Co., 874 F.2d 1186, 1195-6 (7th Cir. 1989). But amended §550(c) simply limits the liability of non-insider transferees. Steve Bonham is an insider transferee. "Indirect preferences remain avoidable from the insider; it is only the non-insider transferee who may have some protection." Collier, page 547-32. Steve Bonham is an insider in this case and, even after the amendments to §550(c), remains liable.

Thus, Steve Bonham is a "creditor" under 11 U.S.C. §§101(10)(C) and 101(7).

All of the elements of §547(b) are proven. Steve Bonham is liable to the trustee for transfers between December 20, 1994 and December 19, 1995.

(b) Federal Fraudulent Conveyances.

The trustee seeks to recover all monies disbursed by Raejean Bonham, WPI or APFC to third parties for the benefit of Steve Bonham in the twelve months preceding the petition date where the disbursement was made either with the actual intent to hinder, delay or defraud, or where Raejean Bonham, WPI or APFC received less than reasonably equivalent value while insolvent. 11 U.S.C. §§548(a)(1), 548(a)(2). The trustee seeks to recover the following sums under this theory:

Description	Total Amount	Payment 12/20/94 or Later	Adjusted to 50% (Except American Funds and Life Ins.)
American Funds Recovery	1,700.00	1,700.00	1,700.00
Lease Payments	24,651.00	1,746.00	873.00
GVEA Payments	8,306.07	121.47	60.74
Heating Oil Payments	6,573.67	340.56	170.28
Steve Bonham's Truck	7,696.50	0.00	0.00
Raejean Bonham's Blazer	3,956.10	0.00	0.00
Life Insurance Payments	21,889.00	6,444.00	6,444.00
Health Insurance Payments	7,366.50	1,503.72	751.86
Vehicle Insurance Payments	13,158.37	346.70	173.35
Stephanie's Credit Card Payments	10,531.86	2,003.00	1,001.50
Shane's Credit Card Payments	10,766.00	0.00	0.00
Shane's 1984 Jeep CJ7	3,800.00	0.00	0.00
Shane's 1991 Jeep Wrangler	16,188.00	0.00	0.00
Stephanie's 1990 Eagle Talon	9,500.00	0.00	0.00
Stephanie's 1994 Chevrolet Pickup	13,012.95	0.00	0.00
Steve Bonham's Credit Cards	49,078.75	11,691.91	5,845.96
Transfers to S & S Account	199,008.05	49,608.00	24,804.00
Payments of credit card drafts	11,000.00	11,000.00	5,500.00
TOTALS	418,182.82	86,505.36	47,324.68

A determination that Raejean Bonham operated a Ponzi scheme conclusively determines that Raejean Bonham had intent to defraud as a matter of law. In re Cohen, 199 B.R. 709, 717 (9th Cir. BAP 1996); In re Agricultural Research and Technology Group, Inc., 916 F.2d 528 (9th Cir. 1990); In re M & L Business Machine Company, Inc., 194 B.R. 496 (D. Colo 1996). The court should make no distinction between monies paid to "investors" or monies taken as "owner draws" or monies taken in outright fraud. The plaintiff is entitled to recover from Steve Bonham all monies disbursed by Raejean Bonham, WPI or APFC to Steve Bonham in the period December 20, 1994 to December 19, 1995 as fraudulent conveyances. 11 U.S.C. §550(a). Neither Raejean Bonham nor WPI received reasonably equivalent value from Steve Bonham.

To the extent that Steve Bonham claims good faith as a defense to a claim of fraudulent conveyance under 11 U.S.C. §548(c) the defense is rejected, because Steve Bonham did not give value for the monies disbursed to him or for his benefit.

The determination that Raejean Bonham operated a Ponzi scheme conclusively determines that WPI and APFC were insolvent at all times during their existence. A Ponzi scheme, by definition, is insolvent from the outset. In re Agricultural Research and Technology Group, 916 F.2d 528, 531 (9th Cir. 1990). The limited number of ticket sales shown to have occurred, which were themselves the consequence of a fraud on Delta Air Lines, cannot possibly have supported the debt service associated with the investment contracts.

There is no evidence that WPI or APFC received any value, let alone reasonably equivalent value, from the disbursements made to or for the benefit of Steve Bonham. The court should specifically reject any claim that Raejean Bonham was entitled to draw a "salary" or other compensation in any amount since her "services" to WPI and APFC were simply to perpetuate the fraudulent activities of WPI and APFC. Both aspects of the business activities of WPI and APFC - defrauding Delta Air Lines and defrauding investors - involved fraud, and Raejean Bonham is not entitled to draw a "salary" or other compensation in any amount for either activity. Nor should Steve Bonham be permitted to claim any protection based upon purported characterization of the distributions as Raejean Bonham's salary or his salary as an officer or director, since he performed no discernible work on behalf of WPI.

In any event, as a director of WPI for the period January 1993 to present, Steve Bonham was in a position to direct the distribution of monies by WPI, and is legally liable for mis-directed monies. AS 10.06.480(a)(1).

All of the elements for Federal fraudulent transfers under §548. The trustee should receive judgment for he monies he seeks under this theory.

(c) State Fraudulent Transfers.

The plaintiff is entitled to assert the rights of a judgment lien creditor to avoid transfers by the debtor which would be voidable under Alaska law. 11 U.S.C. §§544, 548. Alaska law at AS 34.40.010-130 permits a creditor to set aside as void a transfer made with the intent to hinder, delay or defraud creditors. Under this theory, the trustee seeks to recover:

Intent to defraud is to be determined by the presence or absence of "badges of fraud." First National Bank of Fairbanks v. Enzler, 537 P.2d 517, 522 (Alaska 1975). Typical badges of fraud include:

(a) Inadequate consideration;

(b) Transfer in anticipation of an impending suit;

(c) Insolvency of the transferor;

(d) Failure to record;

(e) A transfer encompassing substantially all of the transferor's property;

(f) The transferor retaining possession of the transferred property;

(g) A transfer depleting the transferor's property; and

(h) The relationship between the parties to the transfer.

Gabaig v. Gabaig, 717 P.2d 835, 839 n.6 (Alaska 1986).

The transfers Raejean Bonham caused WP, WPI and APFC to make to or for the benefit of Steve Bonham carry many of these badges of fraud. There was no adequate consideration. WP, WPI and APFC were insolvent when the transfers were made. The transfers depleted the property of WP, WPI and APFC. Steve Bonham was at all times the spouse of Raejean Bonham and a director and an officer of WPI.

There is no "magic formula" by which courts may assess the number of badges of fraud which may be present; rather, courts are required to view badges of fraud in the context of each particular case. Blumenstein v. Phillips Insurance Center, 490 P.2d 1213, 1223 (Alaska 1971). In the context of this case, which involves an underlying fraudulent scheme to defraud Delta Air Lines and an underlying fraudulent Ponzi scheme, the requirement of additional badges of fraud is slight.

The statute of limitations under AS 34.40.010 is six years. Battley v. Alfred J. Ferrara, 3 A.B.R. 472 (Alaska 1994); Battley v. Stanton, Case No. A91-01610 Civil, United States District Court for the District of Alaska. AS 09.10.070. At a minimum, the trustee is entitled to recover transfers made by Raejean Bonham to or for the benefit of Steve Bonham through WP, WPI and APFC under AS 34.40.010 for the period December 20, 1989 to December 19, 1995.

However, Alaska courts have recently adopted the "discovery rule" for general statutes of limitation on contract claims. Bauman v. Day, 892 P.2d 817 (Alaska 1995). Under the "discovery rule," the statute of limitations for fraudulent conveyances under Alaska law did not begin to run until a person in the position of the trustee possessed the information necessary to determine that a claim existed. In light of the affirmative efforts by Raejean Bonham to conceal the true character of the business activities of WP, WPI and APFC, including chastising investors for disclosing its activities, the discovery rule sets the commencement of the time for filing a claim at the date of the trustee's appointment, December 20, 1995. Raejean Bonham and Steve Bonham should not be permitted to rely upon the statute of limitations as a defense to claims of fraudulent conveyances under Alaska law.

During oral argument, the court suggested that Alaska's fraudulent conveyance statute might not extend to claims for the recovery of monies or claims under checks and wire transfers. Bundy & Christianson, special counsel to the trustee, has extensively briefed this question to the court in the context of the BRA cases. The trustee has attached a copy of that briefing to this brief as Appendix A, and incorporates it by reference. As the court considers that briefing, the trustee requests the court bear in mind that it is liquid assets, and money in particular, that lend themselves most readily to fraud. It would be an exceedingly strange result if the most common mechanism for working a fraud - transfers of money and checks - were outside the scope of Alaska's fraudulent transfer statute.

(d) Improper corporate distributions.

WPI was an Alaska corporation. APFC, while nominally an unregistered Nevada corporation doing business in Alaska, conducted essentially all of its business activities in Alaska. Finding 30. Under Alaska law, corporations are not permitted to make payment of dividends or other distributions when to do so would lower the asset to debt ratio below 1.25 to 1 or lower the current assets of the corporation below the current liabilities. AS 10.06.358(a). Similarly Alaska law bars corporations from making payment of dividends or other distributions when to do so would make or is likely to make the corporations unable to meet its debts as they come due. AS 10.06.360. Under the theory of improper corporate distributions, the trustee seeks to recover from Steve Bonham:

In the event that WPI and APFC are deemed valid corporations, notwithstanding the court's determination to the contrary, the distributions Steve Bonham and Raejean Bonham caused WPI and APFC to make to Steve Bonham are recoverable by the trustee as a creditor of those corporations. 11 U.S.C. §544, AS 10.06.378.

Because WPI and APFC were insolvent during their entire existence, they could not have met the tests under which distributions may be made under AS 10.06.358(a). Findings 188-194. Those tests require that either the asset to liability ratio be in excess of 1.25:1 or that current assets exceed current liabilities. Insolvency defeats both of those requirements. Any distributions by WPI were simly improper.

To the extent a violation of AS 10.06.358(a) or .360 occurs, the shareholders receiving the benefits are liable to the creditors of the corporation. AS 10.06.378.

Steve Bonham, as a director of WPI, is accountable under AS 10.06.480, which makes a director liable under AS 10.06.358 and .360 for improper distributions to which a director assents. AS 10.06.480(a). Steve Bonham assented to and indeed received the benefit of the distributions described in the Findings. Therefore, Steve Bonham as a director of WPI is liable jointly and severally to the plaintiff as successor in interest to WPI for many of the distributions described in the Findings. Plainly, the distributions made by WPI for the period January 1993 to December 1995, the interval when Steve Bonham was a director as well as an officer, were improper, since WPI was insolvent at all times during that period.

Almost all of the distributions at issue in this case were made by WPI between its incorporation in April 1991 and December 1995. The distributions were made by WPI to or for the benefit of Steve Bonham. As such, they represent classic self-dealing; an officer of a corporation received benefits from the corporation in violation of his obligation of good faith, his duty of care, and his duty of reasonable inquiry. AS 10.06.483(e) provides:

An officer shall perform the duties of the office in good faith and with that degree of care, including reasonable inquiry, that an ordinarily prudent person in a like position would use under similar circumstances.

(Emphasis added) The plaintiff notes that ignorance is not an excuse; Steve Bonham is in violation of his duty of care owed to the corporation unless he shows he made reasonable inquiry to the level of the prudent man rule. There is no evidence that Steve Bonham made any inquiry at any time about any aspect of WPI.

In the absence of reasonable inquiry, Steve Bonham failed to act with due care. Therefore, he is liable to the corporation and its creditors for breach of his duty of due care.

Any question about the intent of the Alaska legislature in this regard is resolved by an examination of the section of the Alaska's corporations code dealing with loans of officers. AS 10.06.485(b) provides:

A loan to a director, officer or employee and a loan secured by the shares of the corporation may not be made unless the loan would be permissible as a distribution under AS 10.06.358-365. A loan under this subsection impairs the retained earnings or paid in capital accounts to the extent of the loan.

If a loan to Steve Bonham would be improper under AS 10.06.358-365, then an outright distribution to or for the benefit of Steve Bonham would be improper. The promise to repay in the case of a loan carries the lower risk of injury to the corporation. An outright distribution to an officer in violation of AS 10.06.358-365 carries the greater risk of injury. And where, as here, it was committed in the context of a breach of a duty to care, and the distributions were for the benefit of Steve Bonham, a particularly forceful case for recovery of the improper distributions is made out.

5. Steve Bonham's Portion.

Except for a few of the credit card obligations, Steve Bonham was jointly and severally liable for all of the distributions described in the Findings of Fact. Strictly speaking, the trustee is entitled to recovery from Steve Bonham of all of the monies described in the Findings. However, in the interests of fairness and equity, and because a larger judgment against Steve Bonham would likely be uncollectible, the trustee seeks to recover only 50% of those amounts. There are two exceptions: the American Funds post-petition conversion of monies and the life insurance purchased by Steve Bonham on his own life, the premiums for which were purchased solely by WPI funds. As to both those claims, the trustee seeks 100% of the disbursements.

In apportioning Steve Bonham's liability to the plaintiff for the distributions described in the Findings, the court will hold Steve Bonham liable for 100% of the distribution if the benefit went to Steve Bonham and Steve Bonham alone. For example, the insurance on the life of Steve Bonham benefited Steve Bonham and Steve Bonham alone. Where the benefit went to Steve Bonham and another person or persons, the court will only hold Steve Bonham liable for 50% of the distribution.

CONCLUSION

The following table summarizes the amounts the Trustee seeks to recover from Steve Bonham by theory:

The trustee notes the theories are not cumulative.

As to Raejean Bonham, the trustee seeks to recover $1,700.00 for the conversion of the American Funds monies.

DATED at Fairbanks, Alaska this 28th day of April, 1997.

GUESS & RUDD
Attorneys for the Trustee

James D. DeWitt
ABA No. 760523

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