Premier Cru Master Complaint Thread (MERGED)

[Neal.Mollen]

Tenth Circuit decision today, upholding Colorado USDC adverse ruling against wine purchaser. Attached.

This seems right to me. Did anyone actually think that Amex had a statutory (as opposed to a contractual) obligation to refund for wines not delivered?

[Al Osterheld]

Yeah, seemed pretty open and shut. The same customer filed some interesting requests in the bankruptcy court, among other things that he was entitled to receive any wine he ordered that was in the warehouse, even if there were earlier purchasers who had been told the wine was theirs.

-Al

[Jonathan Loesberg]

Tenth Circuit decision today, upholding Colorado USDC adverse ruling against wine purchaser. Attached.

This seems right to me. Did anyone actually think that Amex had a statutory (as opposed to a contractual) obligation to refund for wines not delivered?

Forgive this question from legal ignorance, but don't statutes protect contracts? I should say that I haven't read my credit card contract that far into the weeds, but I don't remember its acting as a guarantee of all payments made no matter how long ago in the past.

[Neal.Mollen]

Yeah, seemed pretty open and shut. The same customer filed some interesting requests in the bankruptcy court, among other things that he was entitled to receive any wine he ordered that was in the warehouse, even if there were earlier purchasers who had been told the wine was theirs.

-Al

Can I also say . . . one million dollars in purchases from PC? That has to be for resale, no?

[Neal.Mollen]

Tenth Circuit decision today, upholding Colorado USDC adverse ruling against wine purchaser. Attached.

This seems right to me. Did anyone actually think that Amex had a statutory (as opposed to a contractual) obligation to refund for wines not delivered?

Forgive this question from legal ignorance, but don't statutes protect contracts? I should say that I haven't read my credit card contract that far into the weeds, but I don't remember its acting as a guarantee of all payments made no matter how long ago in the past.

That's sort of a difficult question to answer in the abstract. Most of the law of contracts is "common law," decisional law from centuries of decided cases. The Uniform Commercial Code, the bankruptcy laws, the laws cited in the decision are examples of statutes that can have a direct impact on the enforceability of contracts though.

[Al Osterheld]

Yeah, seemed pretty open and shut. The same customer filed some interesting requests in the bankruptcy court, among other things that he was entitled to receive any wine he ordered that was in the warehouse, even if there were earlier purchasers who had been told the wine was theirs.

-Al

Can I also say . . . one million dollars in purchases from PC? That has to be for resale, no?

I'm guessing he was going for very high value wine. Still impressive.

-Al

[Al Osterheld]

My recollection is that his filings in the bankruptcy court were done without the help of an attorney, wonder if this was the same. Seems unusual with $1M at stake.

-Al

[Neal.Mollen]

Maybe he is a BK atty. He was represented in the 10th Cir

[Al Osterheld]

He's apparently a prominent MD who made a lot of money in private practice, then started an HMO that grew and acquired or merged with other HMOs. Apparently, he ordered $1.7M of wine, nearly 2500 bottles, and did not receive it.

He's also sued the insurance company who covered his home collection. They claim they're not liable because he never received the wine.

-Al

[Don Cornwell]

Tenth Circuit decision today, upholding Colorado USDC adverse ruling against wine purchaser. Attached.

Wow. This is no small thing. Seems to lead one to conclude that, if you pay your bills on time and don't carry balances, you have no recourse against credit card companies for goods set for future delivery and that are never delivered. CC companies must be doing a happy dance.

Barry

Don't read too much into this decision. I'm not sure why the only claim discussed in the decision is the one based on the Fair Credit Billing Act. I wasn't even aware that there might be a section of that Act that would be potentially applicable to non-delivered goods.

Most of the major credit card companies have customer service agreements which provide for some type of buyer protection plan. Those buyer protection plans, which are contracts, basically promise your money back if the merchant doesn't deliver the goods (and in some cases there are some warranty type protections too.) If the credit card company fails to honor the terms fot its buyer protection program, they can be sued for breach of contract. However, some of the buyer protection programs have a maximum length of time after the purchase (or after payment of the statement) that the card holder can make a claim. I know in the case of Chase, they had a written policy limiting refunds for non-delivery to 540 days. Some people filed claims related to Premier Cru after 540 days and Chase told them no.

It could be that the reason that there wasn't any discussion about claims for breach of contract in the case is that the refund claims were asserted by Ms. Hassan after the expiration of the time provided in the contract (e.g. after 540 days.) We know that millions was paid out by the credit card companies to refund customers for undelivered wine. I suspect that the lawyer in the reported case got creative and went looking for a statutory remedy after his client was told no on his claims for $1 million in payments to Premier Cru.

[Al Osterheld]

My recollection is that his filings in the bankruptcy court were done without the help of an attorney, wonder if this was the same. Seems unusual with $1M at stake.

I looked back through the docket, and I was mistaken. He was represented by counsel in his filings in the BK court.

-Al

[Corey N.]

Does a 2 year statute of limitations apply for the trustee to file a lawsuit?

Asking for a friend.

[Don Cornwell]

Does a 2 year statute of limitations apply for the trustee to file a lawsuit?

Asking for a friend.

Your question is too general to be able to easily respond. Different types of claims have different statutes of limitation.

But if you are asking about 90-day preference claims, the statute of limitations in this case was two years from the date of the filing of the Petition, so the statute of limitations for those claims expired on January 8, 2018.

The statute of limitations for fraudulent conveyance claims under Federal Law (Bankruptcy Code Section 548) also expired at the same time.

The statute of limitations for fraudulent conveyance claims asserted under California law has technically not expired. However, the Federal two-year tolling period for the filing of a claim under state law by virtue of the Bankruptcy Petition also expired on January 8, 2018. So at this point, any fraudulent conveyance claim that might be asserted would have to be based upon transactions occurring a maximum of seven years prior to the date that the complaint is filed (i.e. for a complaint that is filed today, the transaction date cutoff would be January 30, 2011).

[SteveC]

If the statute of limitations expired on the 2-year statute on 1/8/18, but they filed a complaint on 12/15/17, would that trump the statute of limitations expiration?

[John Morris]

If the statute of limitations expired on the 2-year statute on 1/8/18, but they filed a complaint on 12/15/17, would that trump the statute of limitations expiration?

"Trump" the statute of limitation? The SOL is a deadline, so if the complaint was filed before the deadline, there's no problem.

[John Morris]

Tenth Circuit decision today, upholding Colorado USDC adverse ruling against wine purchaser. Attached.

This seems right to me. Did anyone actually think that Amex had a statutory (as opposed to a contractual) obligation to refund for wines not delivered?

Forgive this question from legal ignorance, but don't statutes protect contracts? I should say that I haven't read my credit card contract that far into the weeds, but I don't remember its acting as a guarantee of all payments made no matter how long ago in the past.

You may be thinking of the contracts clause in the Constitution, which bars states from passing laws that "impair the obligation of contracts." But that doesn't mandate any particularly contract/agreement terms. It's just a protection against laws that override the terms the parties agreed to (and it's far from absolute, as interpreted over the years). So it all comes down to what the contract says.

What Neal is saying is that it seems unlikely that there's a statute that imposes an obligation on credit card companies to make refunds for undelivered wines if the contract doesn't do that.

[J a y H a c k]

. . . What Neal is saying is that it seems unlikely that there's a statute that imposes an obligation on credit card companies to make refunds for undelivered wines if the contract doesn't do that.

And Neal would be right, but I'm not allowed to say that in this thread because the snowflakes don't like that opinion, so I have stayed out for a long time. Just dropped in to catch up because we were discussing retrieval and fraud claims in bankruptcy.

[John Morris]

FYI, The Wine Spectator just published an update on the clawbacks by Peter Heller.

[K John Joseph]

Does a 2 year statute of limitations apply for the trustee to file a lawsuit?

Asking for a friend.

Your question is too general to be able to easily respond. Different types of claims have different statutes of limitation.

But if you are asking about 90-day preference claims, the statute of limitations in this case was two years from the date of the filing of the Petition, so the statute of limitations for those claims expired on January 8, 2018.

The statute of limitations for fraudulent conveyance claims under Federal Law (Bankruptcy Code Section 548) also expired at the same time.

The statute of limitations for fraudulent conveyance claims asserted under California law has technically not expired. However, the Federal two-year tolling period for the filing of a claim under state law by virtue of the Bankruptcy Petition also expired on January 8, 2018. So at this point, any fraudulent conveyance claim that might be asserted would have to be based upon transactions occurring a maximum of seven years prior to the date that the complaint is filed (i.e. for a complaint that is filed today, the transaction date cutoff would be January 30, 2011).

Commercial bankruptcy lawyer here.

Don's assessment of limitations is accurate. Section 544 of the Bankruptcy Code allows a Trustee to pursue state law fraudulent conveyance actions of recipients of transfers from the Debtor. Most states incorporate the Uniform Fraudulent Transfer Act, which has a 4 year reach back. Most states have a little wrinkle that can actually go back a little further in certain circumstances where a conveyance was concealed. But generally speaking, Don is on the money. In almost every instance here, I'm guessing folks will be arguing a defense of reasonably equivalent value in an effort to mitigate potential liability. I've not dived into this case, but has there been a ruling in which the Judge determined the Premiere Cru scheme was, as a matter of law, a Ponzi scheme? That can significantly change the parties' respective burdens of proof.

[K John Joseph]

This is a fascinating thread and I can't believe I'm just wading into this. Let me give a little info on this process, as I've represented a number of Trustees and have asserted quite a few suits for fraudulent conveyances and preference suits, including in the Steak & Ale and Bennigans case a few years back.

The Trustee does, as Neal pointed out, have a fiduciary duty to maximize the estate. The Trustee's goal is to get as much as possible in, and then to distribute as much as possible out. That is in part because teh Trustee is paid on a statutory sliding scale that rewards massive distributions. The Trustee's attorneys are often paid on a contingency fee basis for Chapter 5 causes of action (preference suits and fraudulent transfer suits), so they want more in too. Sometimes they are hourly, and so more suits means more work means more pay.

In some cases, pursuing chapter 5 causes of action hurts unsecured creditors. If there are not egregious transfers and everyone got hurt a bit, you're clawing money back, reducing it by 40%, then redistributing it. We call that "rearranging the deck chairs on the titanic." In other situations, it does make a material difference on how much general unsecured creditors actually recover. Everyone gets the same pro-rata distribution rate whereas without these clawback actions some folks get a 100% recovery while most get nothing. The result is inequity no matter what, but this is what Congress decided was most equitable.

Quick note on pre-petition wages. Pre-petition wages are prioritized over general unsecured claims, up to a statutory cap of about $12.5K. Those claims will get resolved during the case. If someone had a massive salary, they'd have a GUC for the amount in excess of the statutory limit. In some cases where expertise is critical to maximizing the estate, a Trustee may retain the services of an employee or third party in order to preserve value. That's all approved by a court after motion and opportunity to object, though, so there can't be too much grousing if that's taken place.

Some of these clawback suits can go back pretty damn far depending on how the Trustee is pushing its suits. I've not read any of these, but some causes of action under the UFTA have a hypothetical creditor and a discovery rule issue. We saw this in the Stanford case in which the Trustee used those avenues to pursue transfers that took place more than 4 years prior to the petition date. As a result, if PC was committing fraud way back then, but it was not discovered and could not reasonably have been discovered until relatively recently (think 4 years before the petition date), then the Trustee could arguably go back even further. Those are tough cases to successfully prove up and will most likely settle if a motion to dismiss is unsuccessful. Others may be focused on when the wine actually shipped, not when the wine was purchased. The transfer in question is from the Debtor to the buyer, not vice versa. So when you paid PC money doesn't move the needle. One can make a counter argument that the "transfer" should really be considered at the time the deal was cut, as that is when the parties were bound to their obligations and that's tradition in this market. Most courts at least on first glance look to when the "transfer' took place. That is typically because fraudulent conveyances include a contemporaneous give and take, or at least reasonably contemporaneous give and take. You don't look back and say, $1MM for that house was a bad deal because it's now worth $5MM. You say $1MM was reasonably equivalent value because, at the time, $1MM was the FMV for that house.

The delayed delivery issues and potential increase in value for these products is likely to create some confusion on how to proceed, and I'd wager that most of these will settle.

[John Morris]

Does a 2 year statute of limitations apply for the trustee to file a lawsuit?

Asking for a friend.

Your question is too general to be able to easily respond. Different types of claims have different statutes of limitation.

But if you are asking about 90-day preference claims, the statute of limitations in this case was two years from the date of the filing of the Petition, so the statute of limitations for those claims expired on January 8, 2018.

The statute of limitations for fraudulent conveyance claims under Federal Law (Bankruptcy Code Section 548) also expired at the same time.

The statute of limitations for fraudulent conveyance claims asserted under California law has technically not expired. However, the Federal two-year tolling period for the filing of a claim under state law by virtue of the Bankruptcy Petition also expired on January 8, 2018. So at this point, any fraudulent conveyance claim that might be asserted would have to be based upon transactions occurring a maximum of seven years prior to the date that the complaint is filed (i.e. for a complaint that is filed today, the transaction date cutoff would be January 30, 2011).

Commercial bankruptcy lawyer here.

Don's assessment of limitations is accurate. Section 544 of the Bankruptcy Code allows a Trustee to pursue state law fraudulent conveyance actions of recipients of transfers from the Debtor. Most states incorporate the Uniform Fraudulent Transfer Act, which has a 4 year reach back. Most states have a little wrinkle that can actually go back a little further in certain circumstances where a conveyance was concealed. But generally speaking, Don is on the money. In almost every instance here, I'm guessing folks will be arguing a defense of reasonably equivalent value in an effort to mitigate potential liability. I've not dived into this case, but has there been a ruling in which the Judge determined the Premiere Cru scheme was, as a matter of law, a Ponzi scheme? That can significantly change the parties' respective burdens of proof.

I don't know if the bankruptcy court has entered any such finding, but in his plea agreement Fox admitted that, from at least 2010, "a significant part" of PC's business consisted of sales of "phantom wines" that had never been ordered, and that he had begun creating false purchase orders as early as 1993 or 1994. He said PC sold $20 million of such wines between 2010 and 2015 (Plea Agreement, pp. 4, 6). I posted on those clauses someplace pages back that I can't find now.

I would add one thing: Reading this thread a few weeks ago and talking to Peter Heller when he was working on his story, I think some customers are confused about what the relevant date is here. It sometimes seems that they think the statute of limitations applies to their purchase date, which might be five or ten years ago -- or at least that it's unfair to go after them over purchases they paid for a long, long time ago. It appears that some people don't understand that the SOL for the clawbacks runs from the time the customers received something from the store -- partial or full delivery of the order, a refund or a substitution. Those are the preferential distributions of assets the trustee is trying to reverse.

[J a y H a c k]

John:

Under the UFTA, why doesn't a PC purchaser always give reasonably equivalent value when the commentary states that the satisfaction of an antecedent debt constitutes value, unless the argument is that PC sold for much less than FMV.

[Mike Maguire]

Thanks to all the attorneys for their thoughts, fascinating read.

[K John Joseph]

John:

Under the UFTA, why doesn't a PC purchaser always give reasonably equivalent value when the commentary states that the satisfaction of an antecedent debt constitutes value, unless the argument is that PC sold for much less than FMV.

Jay,

The lawyers representing defendants have to make that argument. I referenced the Stanford case above. UFTA was spotlighted in that case when the 5th Circuit issued a preposterously appalling ruling on fraudulent conveyances in ponzi cases. The case was eventually submitted to the Texas Supreme Court for further clarification, and I think they got it right. The situation is a little different, but the case ruling should be quoted because it really underscores the elements of the reasonably equivalent value defense under the UFTA. Also note that in a Ponzi scheme there is a presumption of actual fraud, which triggers some claims under UFTA not typically available. Proving up a defense to an actual fraud case involves more elements than in a 'constructive fraud' case. I haven't looked into the PC Trustee's suits much, but he probably has a chance at actual fraud claims given the Ponzie-sounding nature of this case. Constructive fraud eliminates the need for the defendant to prove up the good faith/arms length part.

“Reasonably equivalent value” as a defense to a fraudulent transfer suit “can be satisfied with evidence that the transferee (1) fully performed under a lawful, arm’s-length contract for fair market value, (2) provided consideration that had objective value at the time of the transaction, and (3) made the exchange in the ordinary course of the transferee’s business,” held the Supreme Court of Texas on April 1, 2016, in response to a certified question from the U.S. Court of Appeals for the Fifth Circuit. Janvey v. Golf Channel, ___ S.W.3d ___, 2016 WL 1268188, at *2 (Tex. April 1, 2016), responding to Janvey v. Golf Channel Inc., 792 F.3d 539, 547 (5th Cir. 2015) (“Golf Channel II”). The Fifth Circuit, on March 11, 2015, had initially held an advertising firm in an SEC receiver’s Texas fraudulent transfer suit liable for $5.9 million it had received in good faith from a Ponzi scheme debtor. Janvey v. Golf Channel Inc., 780 F.3d 641, 646-47 (5th Cir. 2015) (“Golf Channel I”) (advertising services had “no value” to Ponzi scheme creditors although services might be “quite valuable” to creditors of a legitimate business).

This is from a nice article which you can find here. https://www.lexology.com/library/detail ... 6645dc8fd0. Our firm addressed this in a CLE presentation at the big annual Jay Westbrook Bankruptcy Conference held at the University of Texas. I can probably find some of those materials as well, but the quote above covers the meat.

I'd use this case quote to hammer one key issue: It's about the time of the transaction, not necessarily the time of the transfer. In the case cited above, Stanford bought advertising from the Golf Channel. Stanford was a Ponzi scheme. The Trustee, Janvey, tried to claw back millions paid by Stanford to The Golf Channel for ad time, arguing that there was no reasonably equivalent value because advertising for a Ponzi scheme is worthless and likely cost investors money. Here you have a Debtor pre-pay and the ad time later. The script is flipped, but the case quote holds weight. The consideration at the time of the transaction should be whether the transferee, the buyer, fully performed. Here, you pre-paid. Consideration is objective, hard money, on the market for futures.

The Trustee's attack has to be that the value of the wines that PC had in its possession and that it shipped out years after the purchase price had increased in value to the point that they were disproportionately more valuable than the amount of money paid for the wines. So think about the equities at play here from the Trustee's perspective. You spend $10,000 and you receive wine with a value of $15,000 2 years later. With just one case it doesn't seem that bad. But let's extrapolate that out, which is what the Trustee will do since the Trustee is looking at all possible cases. Debtor receives $50,000,000 and shells out wine worth $75,000,000. Even if you claw back only the difference, you now have $25,000,000 in funds to reallocate to unsecured creditors who received nothing. Downside to the recipient of the wine? They paid then-market prices for the wines that they bought. Sure, the recipients lose the benefit of their bargain (why else buy futures unless you want to secure an allocation and lock in what you expect will be a very favorable price v. market). But the Trustee has his fiduciary duty and his goal is to distribute cash and plead "equities."

The issue with this type of litigation is that, on its face, the Trustee can present a legitimate claim. The transferee, then, has the burden of proving up its defense. So that guarantees that the defendant is going to spend money. The issue becomes how much. Trustees get tremendous leverage simply because litigating these suits is so damned expensive for defendants. That will enable the Trustee to sue and settle, sue and settle, build a war chest, then take one or two home run shots as late as possible, once cash is already in the door and there is no "law of the case" to devalue his/her big claims.

As an aside, I might argue that the time value of money must be considered, and $10,000 with compounding interest at a reasonable rate of return for a few years would narrow the gap in value. I'd also be considering getting a large group of defendants together and hiring a valuation service as a consulting expert to mark the delivered wines to market. It would reduce costs per defendant if you could swing it, and since it's a consulting expert only you'd not have disclosure obligations if the results weren't ideal (though I'd probably confirm that before going in that direction ).

[SteveC]

Thanks to all the attorneys for their thoughts, fascinating read.

Not so fascinating when you are in the middle of it

[Steven Miller]

The name isn't so tarnished that others aren't afraid to carry the flag.

https://www.premiercru.hk/

[Arv R]

So since the sorry tale has been dredged up again, what is the status of all the clawback suits?

[Don Cornwell]

So since the sorry tale has been dredged up again, what is the status of all the clawback suits?

Arv:

A few have been settled and many are still pending and going through discovery.

[Dave Nerland]

I find it interesting that no one went after Premier Cru's credit card processing bank. My understanding is the statue of limitations is up and they were sweating bullets about being sued. One of their employees was terminated in regards to one of the release of a lien. Or so I have been told.

[Victor Hong]

Would a non-California resident have needed to file civil suit in California?

[ybarselah]

got this email to an old account this morning... ghosts or mounting a come back?

[Randy Bowman]

Probably a con job. No telling where the links will really take you. The original Premiere Cru web site no longer exists. There are several companies that have similar names like Premiere Cru Wine in NYC. There is no www.primiercru.net website.

[Victor Hong]

got this email to an old account this morning... ghosts or mounting a come back?

New Container on the way!

[J a y H a c k]

Probably a con job. No telling where the links will really take you. The original Premiere Cru web site no longer exists. There are several companies that have similar names like Premiere Cru Wine in NYC. There is no www.primiercru.net website.

Whois.com shows Premiercru.net to be a registered domain with John Fox as the administrative contact. They do not have to have a website. However, I would still bet 99% that it is a scam' maybe 99.99%. Spoofs and scams like this ordinarily involve diversions of what appear to be hot links. You click on the email address hot link to respond and instead of going to sales@premiercru.net, your email actually goes to Thief-in-Nigeria.com.

[ybarselah]

lol - it's not a scam. it's a real response from whatever server is still alive. it's my old shitty yahoo account that gets spoofed all the time and sends emails, so one of them was sent to james' old account and i got that auto-reply. interesting that some email service is still alive, and presumably being paid for.

you can test this too, just send an email to: james@premiercru.net and you'll get the same auto response.

jay - stay away from all betting.

[R@y.Tupp@+sch]

Maybe I'll still get my Mylar Bags.

[Al Osterheld]

FWIW, while I stopped following it a long time ago, the trustee is still unwinding the Premier Cru estate in bankruptcy court.

-Al

[patrick c albright]

james actually never retired.
he went to work in the warehouse.

[alan weinberg]

does he have my 2010 DRC RC?

[J a y H a c k]

lol - it's not a scam. it's a real response from whatever server is still alive. it's my old shitty yahoo account that gets spoofed all the time and sends emails, so one of them was sent to james' old account and i got that auto-reply. interesting that some email service is still alive, and presumably being paid for.

you can test this too, just send an email to: james@premiercru.net and you'll get the same auto response.

jay - stay away from all betting.

Well, then someone is wasting the bankrupt estate's money, because the maintenance of the email server is not free.

[Victor Hong]

james actually never retired.
he went to work in the warehouse.

Of the wines which actually arrived, he determined who received their paid-for orders and who was shorted.

[ybarselah]

james actually never retired.
he went to work in the warehouse.

you think he's still there? if so, can we track down Ray's mylar bags???

[ybarselah]

lol - it's not a scam. it's a real response from whatever server is still alive. it's my old shitty yahoo account that gets spoofed all the time and sends emails, so one of them was sent to james' old account and i got that auto-reply. interesting that some email service is still alive, and presumably being paid for.

you can test this too, just send an email to: james@premiercru.net and you'll get the same auto response.

jay - stay away from all betting.

Well, then someone is wasting the bankrupt estate's money, because the maintenance of the email server is not free.

the email server is on the water. check back late July, August at the absolute latest.

[Nowell Karten]

james actually never retired.
he went to work in the warehouse.

Can Robert Mueller ask James what he already knew about John Fox's "scheme," at the time of James's exile (chosen or otherwise)? As someone who did almost all his later-day Premier Cru buying through James's "Special List," I've been curious.

[Ken Kailin]

Any update on the Bankruptcy claims?

[Al Osterheld]

The Trustee continues to bring in revenue from settlements. They have about $4M at last report.

-Al

[Tom K.]

The Trustee continues to bring in revenue from settlements. They have about $4M at last report.

-Al

How so? From who? Are there court filings that can be found to detail this? Articles?

[Al Osterheld]

There have been court filings but need to have a pacer account. There have also been negotiated settlements. The revenue has come from clawbacks from customers, and also from businesses Fox had paid while considered insolvent (auto leases, I think private school tuition). There were also some small caches of wine that had been purchased by PC but not delivered (I think even some in a warehouse in Beaune).

Some info is made available through an online company at bmcgroup.com (Trustee pays for the service).

-Al

[Tom K.]

Thanks Al!

[CJ Beazley]

I just posted this about how successful the Madoff recovery/clawback has been, I was totally shocked-
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