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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