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Appeal lost in brewery case

courts: Trustee says he again might try to recover money lost in former Tumwater beer factory

CHRISTIAN HILL; The Olympian | • Published November 07, 2009

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The nearly three-year-old bankruptcy case involving the former Olympia Brewery property appears to be winding to a close.

Michael Hitt, the court-appointed trustee tasked with liquidating the assets of the defunct All American Bottled Water Corp., lost his latest attempt to bring money to its estate to repay creditors.

A federal judge rejected his appeal of an earlier decision by a bankruptcy judge that, had it succeeded, could have generated millions of dollars for the estate.

Few avenues appear to be left for the trustee. He lost the property, the estate’s primary asset, to foreclosure in March 2008 after spending a year trying to sell it. He recovered some company money that All American’s former chief executive, L. Eric Whetstone, and his wife unlawfully put to personal use, but it’s a small amount compared with the creditors’ total claims.

Hitt wrote in an e-mail that he is considering a second appeal.

“Nobody likes to lose,” he wrote of the Oct. 28 decision made on his first appeal.

In his appeal, Hitt alleged that U.S. Bankruptcy Judge Paul Snyder erred when he ruled All American received reasonably equivalent value for the $6 million in points, or fees, it paid to secure loans to buy the brewery property in April 2004 and begin its conversion into a water-bottling plant.

Hitt argued that the payment of points was separate from the main loan transaction and recoverable as a fraudulent transfer. He added that it’s “improper for the bankruptcy court to ‘collapse’ the multiple transfers … and to shield $6 million in unearned points from individualized scrutiny.”

A fraudulent transfer occurs when a debtor makes an obligation without receiving reasonably equivalent value and the transaction leaves it with little chance to repay creditors.

U.S. District Judge Benjamin Settle upheld Snyder’s ruling that the payment of points was integral to the entire loan transaction; in other words, All American would not have secured the loans without paying the points.

The lenders were RE Loans, a California-based investment pool; and Pensco Trust Co., which holds the retirement account of Barney Ng, a central figure in the loan transactions. They lent a total of $32.2 million. The points were paid to Bar K Inc., the mortgage loan broker for RE Loan and Ng, Bar K’s president.

Ng said he was pleased with Settle’s decision.

“His argument just wasn’t a very good argument,” he said of Hitt. “He was being vindicative.”

Hitt has managed to secure some money. He obtained a $200,000 court judgment against Whetstone, who abandoned the property in June 2006, for putting company money to private use. He reached settlements totalling $58,220 with six businesses that received some of that money, court papers show. He secured a default judgment against another company. Some of that settle-ment money has been paid, although the exact amount isn’t known.

Minus the lenders, creditors held secured claims totalling $5.7 million, according to schedules the trustee filed with the bankruptcy court filed in April 2007. Unsecured creditors added nearly $440,000, they show.

Asked whether creditors will see any money from the case, Hitt declined to comment because he hadn’t “worked through the numbers and (didn’t) have that information readily available.”

Mark Bruun, chief executive officer of Portland-based Lorentz Bruun Co., expressed doubt that his company would see any money from the bankruptcy case. The company performed demolition and construction work on the property to prepare for the installation of water-bottling lines. It said it was owed about $3 million.

“We’ll continue going after the personal judgment,” he said of the order the company secured against Whetstone to repay the debt.

Ownership of the former brewery property has been transferred to Well B Ng LLC, led by Ng. He is attempting to sell the property, but his broker, like Hitt, has had no success. Ng said “sensitive negotiations” are occurring, and the conclusion of the trustee’s lawsuit could help close a sale.

Lacey, Olympia and Tumwater now own the former brewery’s water rights after the state Department of Ecology approved the transfer in late September. The cities paid $5.3 million to compensate Ng for the water and some land for a new wellfield.

Christian Hill: 360-754-5427

chill@theolympian.com