Keep looking over your shoulder, Luv.
From: Marty Harper Subject:
Notice to USAPA and its
Officers and Directors
To: John Gresham Brian O'Dwyer , Gary Silverman Marty Harper Kelly J. Flood Mr. Jeffrey Freund
Pierce, C. Grainger Jr.
Counsel,
The Ninth Circuit Court of appeals included in its opinion dated June 26 a remand for the
District Court to address the West Pilots claim for attorneys fees, which was based on the
common benefit doctrine. Consequently, the West Pilots are currently creditors of USAPA, and will
seek reimbursement for their attorneys fees and costs immediately upon issuance of the mandate.
Even before the Ninth Circuit issued its opinion, USAPA and its officers and directors have
acknowledged numerous times in publications to USAPA members that prior to being able to
distribute excess treasury funds at dissolution to members on a pro rata basis, USAPA needs to
reserve funds for USAPAs heretofore potential liability for the West Pilots attorneys fees and
costs in the Addington litigation in its various iterations. USAPA and its officers and directors have
also made avowals to the court in North Carolina to this effect. This is consistent with USAPAs
Constitution and Bylaws, Article I, Section 3(A)(All assets shall be liquidated, less any
indebtedness) USAPA and its officers and directors are on notice at this time that the potential
amount of USAPAs indebtedness for the West Pilots attorneys fees and costs sought under the
common benefit doctrine is at least approximately $4+ million. Based upon the Ninth Circuits
conclusion confirming that USAPA has acted only on behalf of East Pilots, USAPA should reserve
the $4 million out of East Pilots share of whatever treasury funds will be distributed, and not out of
the West Pilots share.
To the extent that USAPA intends to quickly dissolve and begin to disburse its treasury
funds, USAPA and its officers and directors must reserve at least $4 million as potential liability to
the West Pilots for attorneys fees and costs, out of the East Pilots share. Should the officers and
directors of USAPA authorize USAPA to distribute all of its funds without appropriately accounting
for and reserving this amount, the officers and directors, and any attorneys who counsel them to
do so, may be personally jointly and severally liable for fraudulent transfers. This is true under
North Carolina law (Uniform Fraudulent Transfer Act , N.C. Gen. Stat. § 39-23.4, et seq) even
though the debt is not yet reduced to a judgment. See, e.g., Kirkhart v. Saieed, 107 N.C.App. 293,
294, 419 S.E.2d 580 (1992) (holding that a creditor is entitled to protection from fraudulent
transfers even though a debtor transfers the assets prior to the creditor obtaining judgment against
the debtor). Because USAPA and its officers and directors are on notice that the West Pilots
claim for fees based on the common benefit doctrine is imminent on issuance of the mandate, if
USAPA fails to properly reserve the funds and, instead, depletes its treasury rendering it insolvent
and unable to pay the debt owed to the West Pilots, USAPA, its officers and directors, and lawyers
who counseled them to do so will be held liable for fraudulent transfers.
The US Bankruptcy code provisions regarding fraudulent transfers, in an action brought
under the NC Uniform Fraudulent Transfer Act, have been applied to simple transfers of money
into bank accounts. See, e.g., In re Jenkins, Case No. 12-50413, Adversary Proceeding No. 12-
5033, United States Bankruptcy Court, W.D. North Carolina, Charlotte Division (December 12,
2012):
A transfer is a disposition of an interest in property. The definition is as broad as possible . . . .
Under this definition any transfer of an interest in property is a transfer, including a transfer of
possession, custody or control even if there is no transfer of title, because possession, custody,
and control are interests in property. A deposit in a bank account or similar account is a transfer.
In re Pulliam, 279 B.R. 916, 920 (Bankr. M.D. Ga. 2002) (quoting S.Rep. No. 95-989, 95th Cong.
2d Sess. 27 (1978), U.S. Code Cong. & Admin. News 1978, pp. 5787, 5813) (emphasis added).
To conclude, to the extent that USAPA intends to dissolve at this time and begins the
distribution of its treasury funds to members, it must first reserve at least $4 million out of the East
distribution of its treasury funds to members, it must first reserve at least $4 million out of the East
Pilots share as indebtedness to the West Pilots for attorneys fees and costs.
Thank you,
Marty