Manlove Lawsuite

Case 9:13-cv-00183-DWM Document 10 Filed 01/31/14 Page 1 of 31
John L. Amsden Anthony F. Jackson BECK & AMSDEN, pllc 1946 Stadium Drive, Suite 1 Bozeman, MT 59715 (t) 406-586-8700 (f) 406-586-8960 amsden@becklawyers.com anthony@becklawyers.com Attorneys for Plaintiff Trustee ******* IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA MISSOULA DIVISION *******
RICHARD J. SAMSON, duly appointed Chapter 7 Trustee of Vanns Inc., on behalf of the Estate of Vanns Inc. and on behalf of the Plan Participants of the Vanns Inc. Employee Stock Ownership Plan and Trust, Plaintiff, v. GEORGE MANLOVE, an individual, and PAUL NISBET, an individual, as Officers and Directors of Vanns Inc.; and JOHN DOES 1-10, Defendants. CV 13-183-M-DWM PLAINTIFF TRUSTEES PRELIMINARY PRETRIAL STATEMENT
IN RE: VANNS INC., a Montana Corporation, Debtor.
Bankr. Case No. 12-61281-7
RICHARD J. SAMSON, duly appointed Chapter 7 Trustee, Plaintiff, v. GEORGE MANLOVE, PAUL NISBET, ROB STANDLEY and MARK HOPWOOD, individuals; GMRP, LLC, a limited liability company; JPEG, LLC, a limited liability company; GMP, LLC, a limited liability company; and PAINTED SKY, LLC, a limited liability company; and JOHN DOES 1-10, Defendants.
Bankr. Adversary No. 13-00031-JLP (consolidated under CV 13-183-M-DWM)
RICHARD J. SAMSON, duly appointed Chapter 7 Trustee, Plaintiff, v. GEORGE MANLOVE, PAUL NISBET, ROB STANDLEY and MARK HOPWOOD, individuals; GMRP, LLC, a limited liability company; JPEG, LLC, a limited liability company; GMP, LLC, a limited liability company; and PAINTED SKY, LLC, a limited liability company; and JOHN DOES 1-10, Defendants, v. VANNS INC., a Montana Corporation, Debtor-in-Possess.
CV 13-212-M-DWM (consolidated under CV 13-183-M-DWM)
BECK & AMSDEN, pllc PLAINTIFF TRUSTEES PRELIMINARY PRETRIAL STATEMENT PAGE 1
Pursuant to Local Rule 16.2(b)(1) and this Courts January 7, 2014, Scheduling Order, Plaintiff Trustee hereby submits the following preliminary pretrial statement:
A.
FACTUAL OUTLINE OF THE CASE. Plaintiff Richard J. Samson is the Chapter 7 Trustee (the Plaintiff Trustee)
for the Estate of Vanns Inc. Defendants are former executives at Vanns, officers and/or directors of Vanns Inc. (Vanns) and fiduciaries of the Vanns ESOP. The LLC Defendants are corporate vehicles Defendants used to own and lease properties to Vanns. Plaintiff Trustee asserts that, in their various fiduciary and insider capacities, Defendants initiated an executive compensation plan without fully-informed oversight. In doing so, Defendants violated their Employee Retirement Income Security Act (ERISA) fiduciary duties and Montana corporate law duties. In addition, some or all of what Defendants received under the executive compensation plan also constituted fraudulent transfers and/or preferential transfers in violation of Montana and federal statutes.
B.
JURISDICTION AND VENUE ISSUES. The parties agree that jurisdiction and venue are appropriate. Answer at
(Doc. 6 at 5-8).
C.
FACTUAL BASIS OF THE CLAIMS. 1. Parties.
Defendant George Manlove began working for Vanns Inc., an electronic appliance retail store, in 1986 doing operations and MIS. Four years later, he also became the consumer electronics buyer. In approximately 1998, he became Vanns vice president. In 2002, he became president. In 2004 or 2005, the founder of the company, Pete Vann, retired 1. Manlove then became CEO. At approximately the same time, he became a trustee of the Vanns ESOP. Manlove was the CEO of Vanns, an ESOP trustee and/or fiduciary, and an officer or member of the Board of Directors of Vanns. Defendant Manlove is also a member of the limited liability company (LLC) Defendants. Defendant Paul Nisbet started working for the company as a controller in 2000. Four to five years later, he became the CFO. He also became a trustee of the ESOP at around the same time that George Manlove did. Nisbet was the CFO of Vanns, an ESOP trustee and/or fiduciary and an officer or member of the Board of Directors of Vanns. Defendant Nisbet is also a member of the LLC Defendants. Defendant Rob Standley was a manager, officer or director of Vanns and is a member of one or more of the LLC Defendants.
Manlove is Pete Vanns son-in-law.
Defendant Mark Hopwood was a manager, officer or director of Vanns and is a member of one or more of the LLC Defendants. Collectively, Defendants Manlove, Nisbet, Standley and Hopwood are sometimes referred to herein as the Individual Defendants. Under applicable state and federal law, Defendants Manlove, Nisbet, Standley and Hopwood were insiders of Vanns. Defendant GMRP, LLC is a limited liability company with its principal place of business in Missoula, Montana. Defendants Manlove, Nisbet, Standley and Hopwood are the members of GMRP, LLC. Defendant Nisbet is its registered agent. Defendant JPEG, LLC is a limited liability company, with its principal place of business in Missoula, Montana. Defendants Manlove and Nisbet are the members of JPEG, LLC. Defendant Nisbet is its registered agent. Defendant GMP, LLC is a limited liability company, with its principal place of business in Missoula, Montana. Defendants Manlove, Nisbet and Hopwood are the members of GMP, LLC. Defendant Nisbet is its registered agent. Defendant PAINTED SKY, LLC is a limited liability company, with its principal place of business in Park City, Utah. Defendant Manlove is its registered agent.
2.
Vanns Financial Difficulties.
Upon becoming ESOP Trustees and Vanns officers and/or directors, Defendants Manlove and Nisbet caused Vanns to enter into a series of transactions intended to compensate themselves at the expense of Vanns employee owners. As a result of this executive compensation plan, Vanns became insolvent. The following is a chart of payments made pursuant to the plan:
Vann's Chart of Payments - Management Compensation Plan Fiscal Year End 2007 - Fiscal year End 2011
Lease Payments Leased Property Improvements Debt Service of Manlove Share Sale Manlove Education Expense Excess Expenses and Bonuses Total Compensation as % of Free Cash Flow 2007 $ 408,000 $ 1,139,557 $ 172,572 $ $ 80,000 $ 1,800,129 55.5% 2008 $ 588,900 $ 1,489,402 $ 172,572 $ $ 144,089 $ 2,394,963 159.6% 2009 $ 807,600 $ 140,471 $ 172,572 $ 50,000 $ 64,556 $ 1,235,199 63.1% 2010 $ 807,600 $ 799,112 $ 172,572 $ 100,000 $ 114,595 $ 1,993,879 142.1% 2011 $ 828,600 $ 462,159 $ 172,572 $ 57,000 $ 43,490 $ 1,563,821 172.9% AugTotal $ 564,400 $ 4,005,100 $ $ 4,030,701 $ 100,667 $ 963,527 $ $ 207,000 $ $ 446,730 $ 665,067 $ 9,653,058 118.6%
As shown above, between 2007 and 2011, the executive compensation plan took 118% of Vanns available free cash flow, in other words, more cash than Vanns generated through operations. This was in addition to Defendants base salaries and benefits. As shown below, the executive compensation plan (above and beyond salaries) used up Vanns available cash:
Vanns $8 million in cash as of 2007 would have enabled Vanns to withstand any economic downturn. Saddled with Defendants excessive compensation, however, it did not survive. Had Defendants not instituted the executive compensation plan, Vanns would not have become been insolvent, and it would have had sufficient cash reserves as well as significant real estate holdings. The management compensation plan rendered Vanns equity, and thus the employees stock value, worthless. Vanns would have experienced an increase in cash flows.
The specific transactions of the executive compensation plan included a number of transactions relating to, inter alia, the following: Vanns Paid Excessive Rent for Property Owned by Defendants as Part of Defendants C ompensation.
a.
Between 2006 and 2011, Defendants caused Vanns to make rent payments to the Defendant LLCs in which they and the other Individual Defendants were members. These lease payments were made as follows: a. To GMRP, LLC for lease of a property located at 3400 Laramie Drive in Bozeman, MT. Monthly rent for this location ranged from $22,000 per month to $30,000 per month.
b.
To JPEG, LLC for lease of a property located at 1817 South Avenue West in Missoula, MT. Monthly rent for this location ranged from $15,900 per month to $21,200 per month.
c.
To GMP, LLC for lease of a property located at 6418 Mormon Creek Road in Lolo, MT. Monthly rent for this location ranged from $12,000 per month to $17,000 per month.
d.
To Painted Sky, LLC for lease of a property located at 2019 Cromwell Dixon Lane in Helena, MT. Monthly rent for this location was approximately $17,600.
These rents were in excess of the market rate and in excess of the mortgage payments pursuant to the loans on the properties that the LLC Defendants obtained using the Vanns leases as collateral. These rents totaled $4,030,701 between 2007 and 2012.2 Vanns Paid for Improvements to Defendants Properties.
b.
In addition, Defendants caused Vanns to pay over $4 million for leasehold improvements, including for leasehold improvements for the above-described leased properties. The payment of the cost of these leasehold improvements
Defendants Manlove and Nisbet admit that the lease payments were intended as management compensation. Exhibit 1, R. 2004 Exam 56:11-18 (Aug. 23, 2013).
constituted further fraudulent transfer and recoverable preferences pursuant to applicable state and federal law. Vanns Paid for Defendant Manloves Education Expenses.
c.
Defendants caused Vanns to pay Manloves tuition and other expenses related to obtaining an executive business degree from Kellogg School of Business at Northwestern University. This included payments in the amount of: $19,667 on September 22, 2009; $1,500 on September 30, 2009; $1,489.88 on November 30, 2009; $25,242.59 on December 31, 2009; $24,666 on March 31, 2010; and $24,667 on August 31, 2010. Vanns Paid for Manloves Shares of Company Stock.
d.
In December 2004, George and Jill Manlove sold 8,196 shares of Vanns stock to the ESOP for $1,270,380. To acquire those shares, the Company borrowed $1,270,380 (the entire amount of the purchase price) from a bank under a ten-year variable rate loan. In addition to increasing the Company's liabilities by more than $1.2 million, this loan resulted in an increased monthly cash obligation for the company of $14,381 initially or about $172,572 of additional annual debt service. Vanns Paid for Excessive Personnel Expenses and Bonuses.
e.
Between 2006 and 2011, Vanns paid over $350,000 for Defendant Manloves personal expenses. These expenses include but are not limited:
a.
Interior decorating expenses such as $1,776 spent at Mattress USA on August 31, 2010; $1,303.90 spent for down pillows on May 31, 2010; $601.72 at Bed Bath & Beyond on May 31, 2010; $278 at Pier 1 on July 31, 2008; $759.92 at Art.com on July 31, 2008; $1,553 from Crate & Barrel on August 31, 2008; $1,607.92 at Barstools.com on August 31, 2008; and $1,188.82 spent at Target on May 31, 2011;
b. c.
Multiple hundreds of dollars in iTunes purchases; Multiple hundreds of dollars for an XM Satellite Radio subscription;
d.
Thousands of dollars in purchases from the Apple Store; including $3,644.78 on August 31, 2009; $3,174.90 on August 31, 2009; $699.00 on March 31, 2010; $829 on April 30, 2010; and $1,733 on November 30, 2010;
e. f. g.
Johnston & Murphy shoes; $675 at Bryant Photo on October 31, 2009; $1,580 at a Las Vegas casino on January 31, 2009; and another $1,231.05 at a Las Vegas Casino on January 31, 2010;
h.
Payment of credit card charges in the amount of $24,567 on December 16, 2009; and in the amount of $24,666 on March 10, 2010; and
i.
Unexplained charges in the amount of $13,000 on May 31, 2010; $15,000 on May 31, 2010; $2,077.03 and $13,000 on June 30, 2010; $12,930.90 and $1,450.02 on June 30, 2011.
Defendants also self-approved bonuses at whim, including a $25,000 bonus for Defendant Manlove, which he self-approved via a one-sentence e-mail to Defendant Nisbet. Exhibit 2, Email Exchange Manlove and Nisbet (Dec. 1, 2007).
D.
LEGAL THEORY UNDERLYING EACH CLAIM. Defendants executive compensation plan resulted in four independent
claims: breach of ERISA fiduciary duties; breach of corporate law duties; fraudulent transfers; and, preferential payments recoverable under bankruptcy law.
1.
Breach of ERISA Fiduciary Duties.
Defendants acted as ERISA fiduciaries. 29 U.S.C. 1002(21)(A); see also 1102(a)(1) (trustees are fiduciaries because they have authority to control and manage the operation and administration of the plan). Defendants Manlove and Nisbet admit they were plan fiduciaries. Answer at 12, 47.
As ERISA fiduciaries, Defendants Manlove and Nisbet were required to discharge their duties with respect to the ESOP solely in the interest of the participants and beneficiaries, for the exclusive purpose of providing benefits to participants and their beneficiaries and with the care, skill, prudence and diligence of a reasonable person acting in like capacity and familiar with the circumstances. 29 U.S.C. 1104(a)(1). Excessive executive compensation violates ERISA. Johnson v. Couturier, 572 F.3d 1067, 1077 (9th Cir. 2009). The business judgment rule is not a defense to ERISA claims. Donovan v. Mazzola, 716 F.2d 1226, 1231-32 (9th Cir. 1983); Sallis v. Couturier, 2009 WL 3055207, * 4 (N.D. Cal. Sept. 17, 2009) (business judgment rule not a defense to alleged ERISA violation); Hilton Hotels v. Dunnet, 275 F. Supp. 2d 954, 966 n.1 (W.D. Tenn. 2002) (business judgment rule does not apply to ERISA fiduciary decisions).
2.
Breach of Corporate Duties.
Defendants Manlove and Nisbet owed fiduciary duties under non-ERISA law to Vanns and its shareholders, including its employee shareholders. Mont. Code Ann. 35-1-418; 35-1-443. Directors and officers must discharge their duties: in good faith; with the care an ordinarily prudent person in a similar situation would exercise under similar circumstances; and, in a manner that the director reasonably believes to be in the best interests of the corporation. Ibid.
Excessive executive compensation implicates a directors or officers duty of loyalty to the corporation. ADR Trust Corp. v. Dean, 854 F. Supp. 626, 645 (D. Ariz. 1994). Defendants have the obligation to establish that their compensation was reasonable. 3A Fletcher, Cyclopedia of the Law of Corporations, 1039. Defendants Manlove and Nisbet breached their duties, as officers and directors, to the corporation and the shareholders thereof, including as follows: a. Usurping corporate opportunities in the form of the commercial real estate purchases that their LLCs obtained using Vanns agreement to pay rent thereon; b. Causing Vanns to enter into rental agreements that their LLCs used to buy commercial real estate that the LLCs would then own free and clear when the loans were fully paid using Vanns rental payments; c. Causing Vanns to pay their personal expenses without any oversight or control process; d. Causing Vanns to pay for Manlove to get an MBA from Northwestern University that he intended to use to leave Vanns and pursue other opportunities; and e. Failing to communicate with members of the Board of Directors, hold official meetings, and obtaining Board approval
of Vanns actions, all of which resulted in the resignation of Vanns outside board members. Defendants Burden to Establish Substantive and Procedural Fairness.
3.
As noted above, as a matter of law the business judgment rule does not apply to Defendants ERISA violations. Donovan v. Mazzola, 716 F.2d 1226, 1231-32 (9th Cir. 1983). It would be inapplicable under the facts of this case, in any event, because no reasonable basis exists to indicate that Defendants acted in good faith with respect to their conduct. Such actions would not have been taken by ordinarily prudent people in the management of their own affairs of like magnitude and importance. In addition, the business judgment rule also does not apply to state law directors conflict-of-interest transactions. Warren v. Campbell Farming Corp., 2011 MT 324, 25-25, 363 Mont. 190, 271 P.3d 36. While a conflict-of-interest transaction may be reviewed under the safe harbor provisions of Mont. Code Ann. 35-1-461 to 35-1-464, the Defendants have the burden of establishing compliance with the procedures of Section 35-1463 (majority of directors approve after full disclosure) or Section 35-1-464 (majority of shareholders approve after full disclosure) or that the transaction was fair. Warren, 11 (citing Mont. Code Ann. 35-1-462(2)).
Here, Defendants cannot meet that burden because Defendants actions were not fully disclosed to or approved by the shareholders, were not fair to the corporation and were not fully disclosed and approved by outside, disinterested directors as reflected in the emails attached as Exhibits 3-5. For example, Director Cameron Lawrence resigned in part because of: . . . poor communication between the company and the board. In fact, outside of our annual meetings, the board has not been provided with any financials or updates on important strategic initiatives. In addition, we were required to have our annual meeting in March which obviously did not occur. Not only did we not have a board meeting, there was no communication as to why this was the case or recognition of the fact that we were not meeting our responsibilities. The poor and unsystematic communication is a clear indication that the existing governance structure and processes need to be examined. I would encourage the board to work on this issue. Exhibit 3, Lawrence to Manlove, undated. In addition, director Chris Abess resigned on July 12, 2011, over the following: 1. Lack of transparency Vanns has not provided core financial statements, formal strategic plans for the business, and other formal disclosures that would allow me to operate as an effective board member. Lack of communication The Vanns board does not meet on a regular basis. In fact, the board has long passed the time for its required annual meeting. No communication has been provided to the board explaining meeting inconsistency. Lack of governance rigor 16 months ago, I provided Vanns with a recommended governance framework in a document entitled Board of Directors Responsibilities and Action Plan
2.
3.
Document. The company has taken no substantive action toward adopting the recommended framework or making progress toward improving governance. Exhibit 4, Ltr. Abess to Manlove (July 12, 2011). Also, on October 3, 2011, director Bill Honzel resigned on the basis that: It has become apparent that the ESOP Plan Trustees and the company CEO/Chairman have migrated to a format of governance by company management. Therefore, it seems that outside directors have a hollow role in providing any substantive service to the company. Exhibit 5, Email Honzel to Manlove & Nisbet (Oct. 3, 2011). Defendants acted contrary to the highest consideration required to be given to the interests of the corporation and its shareholders. Defendants acted to maximize their own financial gain at the expense of the corporation and its shareholders.
4.
Fraudulent Transfers.
Defendants directed and received fraudulent transfers under the Uniform Fraudulent Transfer Act and 11 U.S.C. 548, 549 and 550 and Mont. Code Ann. 31-2-326, et seq. These transfers may be avoided and recovered by Plaintiff Trustee, pursuant to Mont. Code Ann. 31-2-326, et seq., and 11 U.S.C. 544(b), 548(a), 549 and 551. Defendants fraudulent transfers or receipts of these assets may be avoided and recovered under the Bankruptcy Code ( 544(b)(1), 548(a), 549 and 551) and Montana statute (Mont. Code Ann. 31-2-327 et seq.).
11 U.S.C. 548 provides that: (a)(1) The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily (A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital;
(III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured; or (IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business. Mont. Code Ann. 31-2-333 provides that: (1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or
after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (a) with actual intent to hinder, delay, or defraud any creditor of the debtor; or without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor: (i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(b)
intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due. Mont. Code Ann. 31-2-334 provides that: 1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation. A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.
(ii)
(2)
Mont. Code Ann. 31-2-339 provides that: (1) In an action for relief against a transfer or obligation under this part, a creditor, subject to the limitations in 31-2-340, may obtain: (a) avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim; an attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by Title 27, chapter 18; or subject to applicable principles of equity and in accordance with applicable rules of civil procedure: (i) an injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property; appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or any other relief the circumstances may require.
(b)
(c)
(ii)
(iii) (2)
If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds.
The subject transfers were made at times when Vanns was insolvent and/or they had the effect of rendering Vanns insolvent. These transfers were fraudulent because they were made with the actual intent to hinder, delay and defraud Vanns from using the funds for ongoing operational expenses and/or to satisfy its obligations to creditors. The transfers were also fraudulent because they were made
without receiving reasonably equivalent value in exchange for the transfers. The transfers were also fraudulent because they were made to or for the benefit of an insider.
5.
Preferential Payments.
Defendants conduct constitutes preferential payments that may be avoided and recovered by the Plaintiff Trustee pursuant to 11 U.S.C. 547, 544(b) and 551 and Mont. Code Ann. 31-2-327 et seq., including Mont. Code Ann. 31-2334(2). These transfers were preferential under 11 U.S.C. 547 to or for the benefit of a creditor, for or on account of an antecedent debt owed by Vanns before such transfer was made, made while Vanns was insolvent, enabling Defendants to receive more than they would otherwise receive in Vanns bankruptcy proceeding. That section provides, in pertinent part, that: (b) Except as provided in subsections (c) and (i) of this section, the trustee may avoid any transfer of an interest of the debtor in property (1) (2) to or for the benefit of a creditor; for or on account of an antecedent debt owed by the debtor before such transfer was made; made while the debtor was insolvent; made
(3) (4)
(A)
on or within 90 days before the date of the filing of the petition; or between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(B)
(5)
that enables such creditor to receive more than such creditor would receive if (A) (B) (C) the case were a case under chapter 7 of this title; the transfer had not been made; and such creditor received payment of such debt to the extent provided by the provisions of this title.
These transfers were fraudulent preferences under Mont. Code Ann. 31-2334(2), made by Vanns to insiders for purported antecedent debts at a time when Vanns was insolvent, and the insider Defendants had reasonable cause to believe that Vanns was insolvent. That statute provides that: A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent. Under applicable state and federal law, Plaintiff Trustee is entitled to set aside and recover all such transfers occurring within the applicable set-aside period.
E.
COMPUTATION OF DAMAGES. Defendants are liable for damages in an amount which will compensate for
all Vanns damages for breach of ERISA fiduciary duties and corporate law duties. As reflected in the valuation chart on page seven above, Plaintiff Trustee estimates compensatory relief to exceed $11 million from the destruction of Vanns equity value and the value of the plan participants employee stock . Punitive damages are to be determined. In addition, Defendants are liable for damages in an amount which will compensate for all fraudulent or preferential transfers. As reflected in the payments chart on page five above, Plaintiff Trustee estimates such claims to exceed $9.6 million. Punitive damages are to be determined.
F.
RELATED LITIGATION. Vanns is the chapter 7 debtor in In re Vanns Inc., Cause No. 12-61281-7.
Plaintiff Trustee filed an Adversary Proceeding asserting his fraudulent and preferential transfer claims. AP No. 13-00031. Plaintiff Trustee also filed a district court action asserting ERISA claims and state law corporate duty claims. Case No. 9:13-cv-00212-DWM. Plaintiff Trustees two actions have been consolidated under Case No. 9:13-cv-00183-DWM. The Department of Labor is also investigating Defendants conduct.
G.
STIPULATIONS OF FACT AND LAW. 1. Richard J. Samson is the duly appointed Chapter 7 Trustee for the
Estate of Vanns Inc., a Montana corporation. 2. 3. Vanns was founded by Pete Vann and his family. Vanns business included the operation of retail stores in Montana that
sold home electronics and appliances. 4. George Manlove is an individual residing in Park City, Utah. Manlove
previously served as CEO of Vanns, as a Trustee of the Vanns ESOP, and a member of the Board of Directors of Vanns. 5. Paul Nisbet is an individual residing in Missoula, Montana. Nisbet
previously served as the CFO of Vanns, a Trustee of the Vanns ESOP, and a member of the Board of Directors of Vanns. 6. Manlove and Nisbet were, at certain times, ESOP fiduciaries as to the
Vanns ESOP. 7. Manlove and Nisbet were officers and directors of Vanns whose
duties were a matter of law. 8. Vanns leased property from separate companies that were owned in
part by Manlove, Nisbet and others. 9. GMRP LLC is a Montana limited liability company that owned the
building that Vanns leased for operation of its Bozeman store. The members of
GMRP LLC were George Manlove, Paul Nisbet, Mark Hopwood, and Rob Standley. 10. JPEG LLC is a Montana limited liability company that owned the
building that Vanns leased for operation of its Missoula store. The members of JPEG LLC were George Manlove and Paul Nisbet. 11. GMP LLC is a Montana limited liability company that owned the
building that Vanns leased for operation of a warehouse in Lolo, Montana. The members of GMP LLC were George Manlove, Paul Nisbet and Mark Hopwood. 12. Painted Sky LLC is a Montana limited liability company that owned
the building that Vanns leased for operation of a retail store in Helena, Montana. The members of Painted sky LLC were George Manlove and Jill Manlove. 14. The lessors borrowed money to acquire the buildings that Vanns
rented; received rent payments from Vanns; and paid principal, interest and other expenses to their lenders and others in conjunction with their ownership of these properties. 15. Vanns paid certain expenses incurred by Defendants, including
interior decorating expenses; iTunes; XM Satellite Radio; Apple Store; shoes; Bryant Photo; travel to Las Vegas; 16. Certain employees of Vanns had credit cards for the purpose of
charging business expenses and Vanns paid the credit card bills.
17.
Vanns paid certain expenses for Manlove to attend the Executive
MBA program at the Northwestern School of Business at Northwestern University. 18. 19. Defendants received bonuses for their work at Vanns. Substantially all of the assets of the Vanns ESOP were invested in
Vanns capital stock. 20. A subsidiary of Vanns purchased real estate near Deer Lodge,
Montana, and constructed a home there. 21. Vanns formed a subsidiary in 1998, known as Big Sky Country LLC
and later used that subsidiary to sell outdoor gear. This start-up company lost money. 22. The business judgment rule does not apply. Donovan v. Mazzola, 716
F.2d 1226, 1231-32 (9th Cir. 1983); Warren v. Campbell Farming Corp., 2011 MT 324, 25-25, 363 Mont. 190, 271 P.3d 36.
H.
JOINDER OF PARTIES OR AMENDMENT OF PLEADINGS. See Joint Discovery Plan (Doc. 8) filed on January 30, 2014.
I.
CONTROLLING ISSUES OF LAW FOR PRETRIAL DISPOSITION. None.
J.
PERSONS WITH KNOWLEDGE OR INFORMATION OF CLAIMS. Subject to further investigation and discovery, Plaintiff Trustee identifies the
following individuals who may have knowledge that significantly bears on claims made in the Complaint: Identity George Manlove Subject Matter Former Vanns CEO. Has knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Former Vanns CFO. Has knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Former Vanns Board member and executive management team member. Has knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Member of one or more LLCs from which Vanns leased commercial space. Former Vanns Board member and executive management team member. Has knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Member of one or more LLCs from which Vanns leased commercial space. These entities have knowledge of Vanns operations, activities, and financial condition.
Paul Nisbet
Mark Hopwood
Rob Standley
Vanns accountants, auditors, business consultants, and financial advisors, including ESOP advisors, 2005-present
Identity Vanns former board members
Chris M. Abess
Bill Honzel
Chris Orvis
Connie Kulbeck
Cameron Lawrence
Jerry Demple Ed Gay Darren Jenkinson Darrell Messmer
Subject Matter Former board members have members have knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Resigned because of the lack of transparency, oversight, communication, and failure to satisfy meeting requirements. Resigned board member with knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Resigned board member with knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Resigned board member with knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Former Vanns director of human resources and executive committee member with knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Resigned board member with knowledge of Vanns operations, activities, financial condition, and defendants impact and influence on the company. Former Vanns director of retail sales and executive committee member. Former Vanns employee with knowledge of Vanns accounting information. Former Vanns employee with knowledge of Vanns accounting software and systems. Former Vanns employee with knowledge of Vanns accounting software and inventory controls.
Identity Gordon King Duane Bethel Jay Allen Amy Ashley Dudley Chicioene David Kotz Courtney Manlove Jill Manlove Jaiden Nisbet Nisbet Construction
Amy Greger
Gail Forcee Pete Vann Jabari Lenders or potential lenders for Vanns real estate transactions. Dave Cotner
Subject Matter Former Vanns employee with knowledge of Vanns accounts payable and receivable. Former Vanns employee with knowledge of Vanns accounting system. Former Vanns employee with knowledge of Vanns accounting system. Former Vanns employee with knowledge of Vanns accounting data and system. Former Vanns installer, director of installation, and director of services. Former Vanns employee with knowledge of Vanns computer system. George Manloves daughter. Former employee of Vanns. George Manloves wife or former wife. Contracted with Vanns for interior design. Paul Neisbets niece. Former Bigskycountry.com employee. Construction company owned by Paul Neisbets father. Paid to do Vanns construction work. Former Vanns employee with knowledge of Vanns accounts. Balanced accounts and worked on accounts payable. Former Vanns employee with knowledge of Vanns accounts. Vanns Inc. founder and predecessor to George Manlove. Father of Jill Manlove. Involved in collateral business endeavors with Manlove and/or Vanns Inc. Entities with knowledge of commercial properties related to Vanns Inc. Knows that Vanns paid for Defendants legal services.
K.
TANGIBLE EVIDENCE. 1. 2. 3. Leases between Vanns and the LLC Defendants . Corporate records including minutes of board meetings. Resignations letters from outside directors, including Cameron Lawrence, Chris Abess, and Bill Honzel. 4. 5. Accounting records detailing the executive compensation plan. Vanns financial statements and appraisals.
L.
INSURANCE COVERING JUDGMENT. Vanns purchased a fiduciary liability policy with a liability limit of $15.5
million from Travelers Inc. Travelers is defending under a reservation of rights.
M.
PROSPECTS FOR COMPROMISE/SETTLEMENT. Plaintiff Trustee is amenable to an early neutral evaluation and/or mediation.
N.
SUITABILITY OF SPECIAL PROCEDURES. Plaintiff Trustee is not aware of any special procedures appropriate for this
case.
O.
ELECTRONIC DISCOVERY. The parties agree that documents stored in electronic format will be
produced in the same manner as other documents.

DATED, this 31st day of January 2014.
/s/ John L. Amsden BECK & AMSDEN, pllc Attorneys for Plaintiff Trustee
Case 9:13-cv-00183-DWM Document 10-1 Filed 01/31/14 Page 1 of 2
From: Paul Nisbet <paul.nisbet@vanns.net> Subject: RE: Payday Date: December 1, 2007 8:26:58 PM MST To: George Manlove <george.manlove@vanns.net>
No thank you!!! I saw Eugene at the mall today and told him I intended to complete the application very quickly. I think he was very happy to hear this, and thanked us for taking the time to take such a complete tour of the RCCC.
________________________________ From: George Manlove [mailto:george.manlove@vanns.net] Sent: Saturday, December 01, 2007 8:09 PM To: Paul Nisbet Subject: Fwd: Payday
Paul - I would like to take a $25k bonus on the next payroll.
Thanks,
George
George; I have decided to resign from the Vann's board. Given my current responsibilities and obligations, coupled with a concern that I briey outline below, I believe it is best for me to resign. First, my wife and I have recently purchased our partners 50% interest in our business and will require more of my attention as we go forward. We are thrilled to have this opportunity, but we also have a $2 million obligation that I want to focus on over the next two years. The concern mentioned above is related to what I believe to be poor communication between the company and the board. In fact, outside of our annual meetings, the board has not been provided with any nancials or updates on important strategic initiatives. In addition, we were required to have our annual meeting in March which obviously did not occur. Not only did we not have a board meeting, there was no communication as to why this was the case or recognition of the fact that we were not meeting our responsibilities. The poor and unsystematic communication is a clear indication that the existing governance structure and processes need to be examined. I would encourage the board to work on this issue. I believe the company has some very talented people with some great opportunities and I look forward to watching its future success. I am also happy to continue to help match talented students at UM with opportunities within the company. It has been a privilege to be associated with all of you and I consider you friends. Sincerely, Cameron -Cameron Lawrence Ph.D. Poe Family Faculty Fellow The University of Montana School of Business Administration 32 Campus Drive Missoula, MT 59812 406-243-6739
From: Bill Honzel <Bill@ghg-cpa.com> Subject: Vann's Board Date: October 3, 2011 9:47:53 AM MDT To: George Manlove (george.manlove@vanns.net) <george.manlove@vanns.net> Cc: Paul Nisbet (paul.nisbet@vanns.net) <paul.nisbet@vanns.net>
Please let this serve as official notification of my resignation from the Board of Directors of Vanns, Inc. It has become apparent that the ESOP Plan Trustees and the company CEO/ Chairman have migrated to a format of governance by company management. Therefore, it seems that outside directors have a hollow role in providing any substantive service to the company. I wish Vanns every success in the future. Bill

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Case 9:13-cv-00183-DWM Document 10 Filed 01/31/14 Page 1 of 31

IN RE: VANNS INC., a Montana Corporation, Debtor.

Bankr. Case No. 12-61281-7

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Bankr. Adversary No. 13-00031-JLP (consolidated under CV 13-183-M-DWM)

CV 13-212-M-DWM (consolidated under CV 13-183-M-DWM)

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FACTUAL BASIS OF THE CLAIMS. 1. Parties.

Manlove is Pete Vanns son-in-law.

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Vanns Financial Difficulties.

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Breach of ERISA Fiduciary Duties.

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Breach of Corporate Duties.

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Vanns paid certain expenses for Manlove to attend the Executive

CONTROLLING ISSUES OF LAW FOR PRETRIAL DISPOSITION. None.

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Identity Vanns former board members

Jerry Demple Ed Gay Darren Jenkinson Darrell Messmer

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million from Travelers Inc. Travelers is defending under a reservation of rights.

produced in the same manner as other documents.

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DATED, this 31st day of January 2014.

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Paul - I would like to take a $25k bonus on the next payroll.

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