In re Reed E. Slatkin

Filing 29

ORDER by Judge Ronald S.W. Lew: The United States Bankruptcy Court's 4/25/2008 granting of Summary Judgment for Appellee in the amount of $3,350,000 plus pre- and post-judgment interest is AFFIRMED. the United States Bankruptcy Court's 1/22/2007, denial of Appellants' Motion for Partial Summary Judgment is AFFIRMED. (Made JS-6. Case Terminated.) (gk)

MD JS-6

1 2 3 4 5 6 7 8 9 10 11 IN RE REED E. SLATKIN and substantively 12 consolidated affiliates TOPSIGHT OREGON, INC. and 13 REED SLATKIN INVESTMENT CLUB, L.P. 14 Debtor, 15 16 ROBERT RAKOW, an individual; KAREN RAKOW, an 17 individual; THE HIGHLANDS GROUP, INC., 18 19 20 21 v. Appellant, ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) BANKRUPTCY COURT CASE NUMBER ND 01-11549 RR
ADVERSARY NO. AD03-01132 RR

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

DISTRICT COURT CASE NUMBER CV 08-4037 RSWL ORDER

R. TODD NEILSON, Trustee of 22 the Chapter 11 Bankruptcy Estate of Reed E. Slatkin, 23 24 25 26 Appellee.

This is an appeal from the Bankruptcy Court's

27 denial of Appellants Robert Rakow, Karen Rakow, and 28 the Highlands Group, Inc.'s Motion for Partial Summary
1

1 Judgment and granting of Appellee Trustee of the 2 Chapter 11 Bankruptcy Estate of Reed E. Slatkin, R. 3 Todd Neilson's Motion for Summary Judgment [1]. 4 On January 22, 2007, the United States Bankruptcy 5 Court denied Appellants' Motion for Partial Summary 6 Judgment on the issue of whether Appellants' transfer 7 of 250,000 shares of BID.COM stock offset supposed 8 profits. 9 On April 25, 2008, the United States Bankruptcy 10 Court granted Summary Judgment for Appellee in the 11 amount of $3,350,000 plus pre- and post- judgment 12 interest. The Bankruptcy Court again rejected the 13 argument that the BID.COM Stock Transfer offset these 14 supposed gains. 15 17 18 I. BACKGROUND 19 This case arises out of the bankruptcy proceedings Trustee of the Chapter 11 Bankruptcy 20 of Reed E. Slatkin, the perpetrator of a large-scale 21 Ponzi scheme. 22 Estate of Reed E. Slatkin, R. Todd Neilson, 23 ("Appellee") sued Appellants Robert and Karen Rakow and 24 their company, Highlands Group, Inc., (collectively, 25 "Appellants") to avoid and recover fraudulent and/or 26 preferential transfers made to Appellants by Slatkin. 27 Sometime around February 1991, Appellants opened a
2

Having reviewed all papers submitted pertaining to

16 this Appeal the Court, NOW FINDS AND RULES AS FOLLOWS:

28 purported investment account with Slatkin called the

1 "Highlands Account." 3

The account was named for a

2 corporation jointly owned by Robert and Karen Rakow. According to Appellants, when the Highlands Account 4 was first opened, Appellant Robert Rakow was president 5 of Calvin Klein Jeans and drew a salary, thus, he 6 deposited mostly cash into the account. 8 other companies. 9 options. However, he 7 later left Calvin Klein Jeans and began consulting for Instead of cash, he earned stock In 1999, Appellant Robert Rakow transferred

10 250,000 shares of stock in BID.COM to Slatkin. 11 Therefore, Appellants contend that they used those 12 stock options to invest in what Appellants later 13 learned was a Ponzi scheme. 14 During the seven years before his bankruptcy, ("Net Highlands 15 Slatkin transferred $3,350,000 to the Highlands Account 16 in furtherance of his Ponzi scheme 17 Account Transfers"). The Bankruptcy Court awarded

18 Appellee this amount, plus pre-judgment and post19 judgment interest, on Summary Judgment of Appellee's 20 First Claim For Relief. 21 Appellants main issue raised on appeal is whether 22 Appellants can evoke an affirmative defense of "setoff" 23 under 11 U.S.C. § 548 and CAL CIV. CODE § 3439.08(a). 24 Thus, Appellants claim that the 250,000 of transferred 25 BID.COM stock would setoff the $3,350,000 in the 26 Highlands Account. 27 28
3

1 II. LEGAL STANDARDS 2 3 A. Standard of Review District courts have jurisdiction to hear appeals See 28 U.S.C. § 158(a). See

4 from final judgments, orders, and decrees entered by 5 the Bankruptcy Court. 6 District courts review the lower courts' conclusions of 7 law de novo and findings of fact for clear error. 9 10 B. Summary Judgment 8 Nielson v. Chang, 253 F.3d 520, 526 (9th Cir. 2001). Summary judgment is appropriate when there is no Fed. R. Civ.

11 genuine issue of material fact and the moving party is 12 entitled to judgment as a matter of law. 13 P. 56(c). "Bankruptcy Rule 7056 applies Rule 56 of the In re Aubrey, 111 B.R. 268, 272 (9th

14 Federal Rules of Civil Procedure to adversary 15 proceedings." 16 Cir. BAP 1990). 17 III. DISCUSSION 18 Appellants raise 5 issues on appeal: (1) the 19 Bankruptcy Court erred when it found that the purchase 20 of 250,000 shares of BID.COM was a so-called special 21 investment; (2) the Bankruptcy Court erred when it held 22 that special investments were separate transactions 23 unrelated to Slatkin's Ponzi scheme; (3) if the special 24 investments are separate transactions, which must be 25 treated as separate from Slatkin's Ponzi scheme, then 26 Appellee did not establish that any particular transfer 27 from Slatkin was part of the Ponzi scheme as opposed to 28 the special investments; (4) the Bankruptcy Court erred
4

1 in not granting Appellants' Motion for Partial Summary 2 Judgment regarding the BID.COM transaction; and, (5) 3 Appellee has produced no evidence to support a finding 4 of bad faith within the meaning of the fraudulent 5 transfer laws. 6 7 8 A. The Bankruptcy Court did not err in granting Appellee's Motion for Summary Judgment. The Court finds that the Bankruptcy Court did not

9 err in granting Appellee's Motion for Summary Judgment 10 because the Bankruptcy Court properly applied the "no 11 setoff" rule to this case. The "no setoff" rule states See In re The 12 that a fraudulent conveyance cannot be offset against 13 or exchanged for a general unsecured claim. 14 Acequia, Inc., 34 F.3d 800, 817 (9th Cir. 1994).

15 Bankruptcy Court properly evaluated the applicable case 16 law and correctly determined that the "no setoff rule" 17 applies to the case at bar. Accordingly, the 18 Bankruptcy Court correctly held that, as a matter of 19 law, the 250,000 of BID.COM stock could not setoff the 20 $3,350,000 in the Highlands Account and, thus, 21 Appellee's Motion for Summary Judgment should be 22 granted. 23 As the affirmative defense of "setoff" under 11 24 U.S.C. § 548 and CAL CIV. CODE § 3439.08(a) was not 25 available to Defendants, issues (1), (2), (3), and (5) 26 were properly decided. 27 /// 28 ///
5

1 2 3 4

B.

The Bankruptcy Court did not err in denying Appellants' Motion for Partial Summary Judgment regarding the BID.COM transaction.

Appellants were not entitled to Partial Summary

5 Judgment of the Third and Fifth claims for relief 6 because there are issues of material fact as to the 7 value of stock Appellants transferred to Slatkin. 8 Looking at the facts in a light most favorable to This figure was based on 9 Appellee, the 250,000 shares of BID.COM stock may not 10 have been worth $5,120,760. 11 the closing sale price of BID.COM stock on April 8, 12 1999, when the stock certificate was allegedly sent to 13 Slatkin's broker. However, Appellee shows that Slatkin The stock 14 did not receive the stock on April 8, 1999.

15 was sent on April 8th via overnight delivery, thus, it 16 could not have been in the hands of the broker on April 17 8th. Furthermore, Appellee introduced evidence that on 18 May 6, 1999 "Highlands" deposited the 250,000 shares of 19 BID.COM stock into a securities brokerage account in 20 Slatkin's name. 22 stock. 23 Moreover, there is evidence that Appellants may 24 have only owned a portion of the 250,000 share value. 25 Slatkin testified that Appellants would split some of 26 the stock proceeds with Slatkin and Ronald Rakow. 27 Furthermore, Appellant Robert Rakow sent a fax to 28 Slatkin stating that the $4.2 million in BID.COM
6

Thus, there is an issue of material

21 fact as to the exact monetary value of the BID.COM

1 proceeds should be divided amongst Appellants, Slatkin, 2 and "other valuable associates." 3 Thus, evidence that the proceeds of the BID.COM 4 investment may not have been intended to be distributed 5 in whole to Appellants, plus evidence regarding the 6 exact date of transfer, raise enough of a question of 7 material fact to defeat a Partial Summary Judgment 8 Motion on the issue. Accordingly, the Bankruptcy Court 9 did not err in denying the Partial Summary Judgment 10 Motion and issue (4) was properly decided. 11 12 IV. CONCLUSION 13 The Bankruptcy Court properly found that the 14 affirmative defense of "setoff" under 11 U.S.C. § 548 15 and CAL CIV. CODE § 3439.08(a) was not available to 16 Defendants. Accordingly, the United States Bankruptcy 17 Court's April 25, 2008 granting of Summary Judgment for 18 Appellee in the amount of $3,350,000 plus pre- and 19 post- judgment interest is AFFIRMED. 20 Appellee raised a question of material fact to 21 defeat Appellants' Partial Summary Judgment Motion. 22 There are issues of material fact as to the value of 23 the BID.COM stock in question, given conflicting 24 evidence of the exact date of transfer and questions as 25 to whether proceeds were intended to be distributed in 26 whole to Appellants. Thus, the Bankruptcy Court did 27 not err in denying the Partial Summary Judgment Motion. 28 Accordingly, the United States Bankruptcy Court's
7

1 January 22, 2007, denial of Appellants' Motion for 2 Partial Summary Judgment is AFFIRMED. 3 4 IT IS SO ORDERED. 5 6 DATED: December 14,2009 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
8

HONORABLE RONALD S.W. LEW Senior, U.S. District Court Judge

CLEAR FORM

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Case No.
CV 08-4037-RSWL

Case Title IN RE: REED SLATKIN

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