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.