NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Tuesday, March 19th, 2019

State of Washington moves to convert Tim Eyman’s bankruptcy into a Chapter 7 case

The State of Wash­ing­ton has object­ed to Tim Eyman’s recent motion to dis­miss his Novem­ber 2018 bank­rupt­cy fil­ing, con­tend­ing that the dis­graced ini­tia­tive pro­moter’s Chap­ter 11 peti­tion should instead be con­vert­ed into a Chap­ter 7 case.

“Based upon the past behav­ior of Mr. Eyman, it is in the best inter­est of the cred­i­tors and the estate to deny the motion to dis­miss and to con­vert this case to Chap­ter 7, espe­cial­ly since Debtor’s estate con­tin­ues to be deplet­ed and his coun­sel infers that he plans to refile bank­rupt­cy once the state actions are com­plet­ed,” state attor­neys Susan Edi­son, Dina Yunker Frank, and Eric New­man wrote in a brief filed with the U.S. Bank­rupt­cy Court on behalf of Attor­ney Gen­er­al Bob Fer­gu­son.

When Eyman filed for bank­rupt­cy in Novem­ber of 2018, he sought relief from what he char­ac­ter­ized as mas­sive legal bills and court costs through Chap­ter 11 of the Unit­ed States Bank­rupt­cy Code. Chap­ter 11 per­mits an indi­vid­ual or enti­ty to pro­pose a plan of reor­ga­ni­za­tion to sat­is­fy their cred­i­tors (and, in the case of a busi­ness, remain a going con­cern), which involves a pay­ment plan.

Chap­ter 11 is some­times called the “reor­ga­ni­za­tion bank­rupt­cy” option because it is an alter­na­tive to Chap­ter 7, the “straight bank­rupt­cy” option. In a Chap­ter 7 case, a debtor’s non-exempt prop­er­ty is liq­ui­dat­ed and pro­ceeds dis­trib­uted to cred­i­tors.

“A chap­ter 7 bank­rupt­cy case does not involve the fil­ing of a plan of repay­ment as in chap­ter 13,” explains the Unit­ed States Court’s “Bank­rupt­cy Basics” page.

“Instead, the bank­rupt­cy trustee gath­ers and sells the debtor’s nonex­empt assets and uses the pro­ceeds of such assets to pay hold­ers of claims (cred­i­tors) in accor­dance with the pro­vi­sions of the Bank­rupt­cy Code.”

“Part of the debtor’s prop­er­ty may be sub­ject to liens and mort­gages that pledge the prop­er­ty to oth­er cred­i­tors. In addi­tion, the Bank­rupt­cy Code will allow the debtor to keep cer­tain ‘exempt’ prop­er­ty; but a trustee will liq­ui­date the debtor’s remain­ing assets. Accord­ing­ly, poten­tial debtors should real­ize that the fil­ing of a peti­tion under chap­ter 7 may result in the loss of prop­er­ty.”

Eyman’s Chap­ter 11 peti­tion cit­ed assets of about $2.1 mil­lion and lia­bil­i­ties of over $3 mil­lion, with the major­i­ty of the lia­bil­i­ties con­sist­ing of a sin­gle mul­ti-mil­lion dol­lar penal­ty sought by Attor­ney Gen­er­al Bob Fer­gu­son that has yet to be award­ed in one of four suits filed against Eyman and his asso­ciates in Thurston Coun­ty Supe­ri­or Court (three of which were sub­se­quent­ly con­sol­i­dat­ed).

You might won­der why Eyman would file for bank­rupt­cy if he was­n’t actu­al­ly bank­rupt yet, as his lawyer Lar­ry Fein­stein basi­cal­ly con­ced­ed in Eyman’s recent Motion to Dis­miss. The appar­ent answer is that Eyman hoped to delay Fer­gu­son’s main cam­paign finance enforce­ment action against him.

Eyman’s Chap­ter 11 fil­ing did have the effect of paus­ing State of Wash­ing­ton v. Tim Eyman… but only for a few weeks. The State prompt­ly asked for and got a Com­fort Order from U.S. Bank­rupt­cy Judge Marc Bar­reca giv­ing it a green light to pro­ceed with its case in Thurston Coun­ty Supe­ri­or Court under the the “police and reg­u­la­to­ry pow­er” exemp­tion defined in 11 U.S. Code § 362 (Auto­mat­ic Stay).

With the com­fort order in hand in ear­ly Jan­u­ary, Ferguson’s office was back in busi­ness and State of Wash­ing­ton v. Tim Eyman picked up where mat­ters had been left off… but this time with Eyman still in bank­rupt­cy and required to file month­ly reports with the court detail­ing his finan­cial posi­tion, which any­one can read.

These reports show that Eyman is liv­ing an extreme­ly afflu­ent lifestyle, as we first report­ed here on the Cas­ca­dia Advo­cate last month, and as the State argues in its Motion to Con­vert filed today, with over $450,000 in three check­ing accounts plus addi­tion­al amounts in sav­ings and retire­ments accounts.

As the State puts it:

Debtor’s actions since fil­ing bank­rupt­cy 

Based upon the month­ly finan­cial reports sub­mit­ted by Debtor Eyman as part of the bank­rupt­cy, Mr. Eyman spent $32,404.40 dur­ing Novem­ber 28-Decem­ber 31, 2018 and $17,842 dur­ing Jan­u­ary, 2019, almost all for per­son­al expens­es. See Dkt. 44 and 63. Dur­ing Decem­ber, Mr. Eyman had restau­rant pur­chas­es 20 of the 33 days, movie pur­chas­es on 12 days, and hotel lodg­ing pur­chas­es on 3 days.

Dur­ing Jan­u­ary, Mr. Eyman had restau­rant pur­chas­es 19 of the 31 days, movie pur­chas­es on 5 days, and hotel lodg­ing pur­chas­es on 2 days. There are also mul­ti­ple with­drawals total­ing $18,217 in Decem­ber and Jan­u­ary from Eyman’s accounts for unknown pur­pos­es.

Since the state’s Motion to Con­vert was draft­ed, Eyman has filed yet anoth­er month­ly finan­cial report with the court, this time for the month of Feb­ru­ary 2019, which shows that he took an expen­sive fam­i­ly vaca­tion to cen­tral Flori­da with his fam­i­ly over Pres­i­dents Day week­end, only hours after tak­ing a Bren­ton Stu­dios May­hart chair from the Lacey Office Depot on Sleater-Kin­ney Road.

Eyman’s Feb­ru­ary spend­ing, by his account­ing, totaled $14,910.48.

In an appar­ent attempt to explain this high month­ly spend rate, Eyman scrawled a note in the mar­gin of this mon­th’s Sum­ma­ry of Dis­burse­ments page stat­ing: “Com­bined per­son­al and fam­i­ly (two res­i­dences, Muk­il­teo and Belle­vue), busi­ness, legal expens­es, and fundrais­ing costs for legal defense fund.”

Why Eyman (an unreg­is­tered, full time lob­by­ist and pur­vey­or of destruc­tive ini­tia­tives) choos­es to inter­min­gle his per­son­al and “busi­ness” expens­es to the extent that he does is a choice I’ve nev­er under­stood. It vio­lates the prin­ci­ples of good account­ing and is a recipe for a record-keep­ing night­mare.

Then again, slop­pi­ness is a defin­ing Eyman char­ac­ter­is­tic. It is a hall­mark of pret­ty much every­thing he does, from spon­sor­ing ini­tia­tives to keep­ing records. And it is con­sis­tent with Eyman’s well doc­u­ment­ed track record of reg­u­lar­ly lying to the pub­lic, deceiv­ing his donors, and refus­ing to com­ply with our pub­lic dis­clo­sure laws.

Attor­ney Gen­er­al Bob Fer­gu­son and his staff are fed up with Eyman’s lying and end­less stonewalling to evade account­abil­i­ty for his wrong­do­ing. So they’re mov­ing to con­vert Eyman’s bank­rupt­cy into a Chap­ter 7 case, point­ing out that Eyman does not have a reli­able source of income or a reg­u­lar job.

From the State’s Motion to Con­vert:

Based upon the past behav­ior of Mr. Eyman, it is in the best inter­est of the cred­i­tors and the estate to deny the motion to dis­miss and to con­vert this case to Chap­ter 7 espe­cial­ly since Debtor’s estate con­tin­ues to be deplet­ed and his coun­sel infers that he plans to refile bank­rupt­cy once the state actions are com­plet­ed.

Dur­ing the state court actions, the Court found Mr. Eyman in con­tempt and assessed sanc­tions for fail­ure to com­ply with dis­cov­ery.

On March 4, 2019, the Court rein­stat­ed con­tempt based upon Debtor’s con­tin­u­ing fail­ure to answer dis­cov­ery. This dis­cov­ery con­cerned Mr. Eyman’s finances includ­ing fail­ure to iden­ti­fy Eyman’s sources of income, pay­ments and ver­bal agree­ments Mr. Eyman, his fam­i­ly or busi­ness had with Roy Ruffi­no, Edward Agazarm, Cit­i­zens Solu­tions and Cit­i­zens in Charge. There­fore, Mr. Eyman is still not being forth­com­ing about his finan­cial sit­u­a­tion. Addi­tion­al­ly, since the state cas­es involve alle­ga­tions of cam­paign finance vio­la­tions, the mis­use of funds and mis­lead­ing and inac­cu­rate report­ing by Mr. Eyman, the very nature of the under­ly­ing state actions call into ques­tion Mr. Eyman’s finan­cial judg­ment and his abil­i­ty to pro­tect his assets.

The State is legit­i­mate­ly con­cerned about what might hap­pen to Mr. Eyman’s assets fol­low­ing dis­missal of the bank­rupt­cy while his spend­ing is not being mon­i­tored by the bank­rupt­cy court.

These con­cerns are mul­ti­plied when eval­u­at­ing the month­ly state­ments filed by Debtor Eyman. It is clear he does not com­port him­self with good faith in the inter­est of the bank­rupt­cy estate.

The estate may soon be out of mon­ey if the bank­rupt­cy is allowed to lapse, espe­cial­ly since Mr. Eyman does not have a reg­u­lar job, nor a con­sis­tent source of income.

Of par­tic­u­lar con­cern is Mr. Eyman’s with­draw­al of thou­sands of dol­lars from his accounts with­out expla­na­tion.

Empha­sis is mine.

Since his attempt to stall Fer­gu­son’s case with the Chap­ter 11 bank­rupt­cy peti­tion did­n’t work, Eyman has resort­ed to once again sim­ply fail­ing to com­ply with dis­cov­ery orders, which has land­ed him back in con­tempt of court. Eyman’s stonewalling has now gone on for over half a decade and there’s no end in sight.

It is time for the ham­mer to fall on Eyman’s ini­tia­tive fac­to­ry. Eyman’s law­break­ing must stop, and his day of reck­on­ing must come. This Motion to Con­vert seeks to turn what was ini­tial­ly an Eyman stalling maneu­ver into a mech­a­nism for hold­ing Eyman account­able. It’s a smart move by the State of Wash­ing­ton.

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One Comment

  1. Awe­some report. Keep scoop­ing the rest of the media.

    # by Sherry Bockwinkel :: March 20th, 2019 at 7:56 AM