IN THE DISTRICT COURT OF SHAWNEE COUNTY, KANSAS
DIVISION TWELVE
STATE OF KANSAS EX REL
ATTORNEY GENERAL
Plaintiff,
v. Case No. 00 C 1394
MICHAEL C COOPER et al.
Defendants.
ORDER TERMINATING RECEIVERSHIP
AND DISTRIBUTING PROPERTY
HELD BY RECEIVER
This case came before the Court on the 20th day of December, 2004, for a final hearing regarding the winding up of the Receivership and on the final distribution of the property being held by the Receiver. Prior to the hearing, a deadline for the filing of written claims by any persons or entities seeking to participate in the distribution of Receivership property was set by the Court for December 13, 2004. The following creditors filed claims in a timely manner: the State of Kansas; the United States of America; Robert L. Baer; Grandmother’s Inc.; EBSCO Industries Inc.; Tandem Productions, Inc.; Luis H. Vigo; Terrance Crane; Mary Bies; Designed Business Interiors, Inc.; Edward L. Cooper; Sheryl A. Samm; Power Services Incorporated; and, Breakthrough Productions.
At the final hearing, the State of Kansas appeared by Bryan Brown, Joe Molina and Kevin Schumaker, its attorneys; Michael Cooper appeared by Jerry Berger, his attorney; Ed Cooper appeared by Kevin Shepherd, his attorney; the Receiver, Robert Baer, appeared in person and by Charles Engel his attorney; Grandmother’s Inc. appeared by Vern Jarboe, its attorney; and, EBSCO Industries, Inc. appeared by Carrie Josserand, its attorney. In addition to hearing the oral arguments presented at the final hearing, the Court heard the testimony of Bob Zibell, the President of Grandmother’s Inc., and the testimony of Robert L. Baer, the court-appointed Receiver. At the conclusion of the hearing, the Court granted the parties and claimants leave to file written submissions, by January 20, 2005, regarding their respective positions on how the Receivership property should be equitably distributed.
Subsequent to the final hearing, the Court received the Receiver’s Combined: 1) Inventory, 2) Accounting, and 3) Motion for Approval; the Receiver’s Notice of Compliance; Grandmother’s Inc.’s Memorandum in Support of Priority of its Claim; the State of Kansas’ Recommendation for Distribution of Funds Held in Receivership; the Receivers Suggestions for Concluding Administration and Distributing the Estate; a Memorandum in Support of Claim of EBSCO Industries, Inc.; and, the Receiver’s Response to Grandmother’s Inc.’s Memorandum. Thus, since the remaining issues have been fully heard, argued and briefed, the Court deems this case to be submitted for decision.
SUMMARY OF CASE.
Since the parties and claimants are familiar with the lengthy history of this case, the Court will not repeat it in this Order. However, the Court will briefly summarize the course of events which have occurred since this action was originally filed on October 19, 2000. At the outset, it should be noted that this case was initially assigned to Division 1. On October 25, 2000, the Honorable Jan W. Leuenberger entered a Temporary Restraining Order against the Defendants.
This case was reassigned to Division 2 on November 1, 2000. The Honorable Richard D. Anderson presided over this matter for the next 44 months. On May 15, 2001, Judge Anderson issued a Memorandum Decision and Order of Temporary Injunction against the Defendants arising out of deceptive acts and practices committed in violation of the Kansas Consumer Protection Act, K.S.A. 50-623 et seq.
In Judge Anderson’s 56 page Memorandum Decision and Order of Temporary Injunction, he ordered that the Defendants “shall cease and desist” conducting any business in Kansas as of May 15, 2001. Moreover, Judge Anderson froze all of the bank accounts “owned or maintained” by the Defendants. He also found that a Receiver should be appointed “to receive and take into [his] possession all the property [of the Defendants] and to hold and preserve such property under the direction of the Court.”
On June 28, 2001, Judge Anderson named Robert L. Baer to serve as the court-appointed Receiver in this case pursuant to K.S.A. 50-632(c)(4) of the Kansas Consumer Protection Act. As Receiver, Mr. Baer was granted the powers set forth in K.S.A. 50-637 and in K.S.A. 60-1301 et seq. On the day of his appointment as Receiver, Mr. Baer filed the required Oath. The record reflects that since that time, Mr. Baer has faithfully carried out his duties as Receiver in this case.
On July 14, 2003, Judge Anderson entered a Journal Entry of Final Judgment. A judgment was entered in favor of the State of Kansas in the amount of $13,621,500 for consumer damages; $13,220,000 in civil penalties under the Kansas Consumer Protection Act; $2,000,000 in damages arising out of the sale of property in Mexico; and, $278,059.73 for attorney fees, investigative expenses and costs. As such, a total judgment in the amount of $29,119,559 plus interest was entered against the Defendants on behalf of Kansas consumers. In the Journal Entry of Final Judgment, Judge Anderson affirmed “the findings of fact and conclusions of law in the Temporary Injunction entered on May 15, 2001” and they were made the “permanent” order of the Court. Moreover, Judge Anderson retained jurisdiction over the winding up of the Receivership.
On August 1, 2003, the Defendants filed a Notice of Appeal. For the next year, while the case was on appeal, the Receiver continued to carry out his duties of holding and preserving the Receivership property. On June 21, 2004, this case was reassigned from Division 2 to Division 12. A Mandate was entered by the Clerk of the Kansas Supreme Court on September 22, 2004, dismissing the Defendants’ appeal; denying the Defendants’ Petition for Review; and, affirming the Journal Entry of Final Judgment issued by Judge Anderson. Since receiving the Mandate, this Court has established deadlines in an attempt to wind up the Receivership and in an attempt to bring this case to a conclusion.
ANALYSIS AND CONCLUSIONS OF LAW.
At this point in time, the Receiver is holding approximately $1,437,600 plus certain real and personal property as more fully set forth in the Inventory filed with the Court on January 7, 2005. As the parties and claimants are aware, there is simply not sufficient property being held by the Receiver to pay all of the claims which have been submitted in this case. As such, nothing in this Order should be deemed to prohibit or restrict the parties or claimants from taking any other legal action which may be appropriate against the Defendants in an attempt to collect the indebtedness which remains unpaid after the distribution of the Receivership property. The primary purpose of this Order is to distribute the property being held by the Receiver in a just and equitable manner, based on the evidence which has been presented.
As indicated above, the Receiver was appointed by the Honorable Richard D. Anderson pursuant to the terms of K.S.A. 50-632(c)(4). This section provides, in part, as follows:
(c) In any action brought by the attorney general . . . the court may, without requiring bond of the attorney general . . .
(4) appoint a master or receiver or order sequestration of property whenever it shall appear that the supplier threatens or is about to remove, conceal or dispose of property to the damage of consumers to whom restoration would be made under this subsection or whenever it shall appear that the property was derived or is commingled with other property derived from transactions involving violations of the act, the court shall assess the expenses of a master or receiver against the supplier. . . .
K.S.A. 50-637 provides “the mechanics of a receivership in connection with a court action for violation of the [Kansas Consumer Protection] act.” (Kansas Comment to K.S.A. 50-637.) In addition to setting forth the powers of the Receiver, K.S.A. 50-637(a) provides:
Any person who has suffered damages as a result of the use or employment of any practice declared to be a violation of this act and submits proof to the satisfaction of the court, that the person has in fact been damaged, may participate in distribution of the assets.
The Kansas Consumer Protection Act must “be liberally construed” in order “to protect consumers” from deception or misrepresentation by suppliers. See K.S.A. 50-623(b). The term “Consumer” is defined in the Act as “an individual or sole proprietor who seeks or acquires property or services for personal, family, household, business or agricultural purposes.” K.S.A. 50-624(b). As such, corporations are not consumers under the Kansas Consumer Protection Act. Thus, in making an equitable distribution of the property held by the Receiver in this case, the Court must be mindful that this Receivership was created by Judge Anderson primarily to protect the interests of individual consumers who had been the victims of deceptive acts and practices by the Defendants.
It is also important to recognize that Judge Anderson did not appoint the Receiver in this case to operate an ongoing business. Rather, Judge Anderson specifically ordered that the Defendants “cease and desist” doing business as of May 15, 2001, when he entered the Temporary Injunction which was ultimately incorporated into the Journal Entry of Final Judgment. As such, the Receiver’s responsibility since his appointment has been to secure and protect the property of the Defendants at the direction of the Court for the benefit of Kansas consumers pursuant to K.S.A. 50-632(c)(4).
Moreover, it should be recognized that the Receivership in this case is not the equivalent of an insolvency action, a bankruptcy action or any other action which may be brought for the general benefit of creditors. As indicated above, even after all the property held by the Receiver is distributed and this action is finally brought to conclusion, creditors will continue to have a right to pursue any legal remedies which they may otherwise have against the Defendants. In fact, several creditors of the Defendants have already taken the opportunity to file separate lawsuits against the Defendants during the pendency of this action.
DISTRIBUTION.
After considering all of the evidence and arguments presented in this case light of the general guidance provided by Kansas law, the Court finds that the following distribution of property held by the Receiver is just and equitable under the unique circumstances presented in this case:
1. The Receiver shall pay the Internal Revenue Service of the United States of America the sum of $12,596.36 to satisfy the tax lien against property held by the Receivership;
2. Since wage claims are normally entitled to priority under Kansas law, the Receiver shall pay Sheryl Samm the sum of $2,682.24 and shall pay the sum of $3,378.20 to the Clerk of the Shawnee County District Court to be held pending further order of the Court in the case of State of Kansas, ex rel., Phill Kline, Attorney General v. Michael C. Cooper and Ed Cooper, Case No. 03-C-1187;
3. The Receiver shall be paid the sum of $11,000 which will constitute payment in full for the outstanding balance on the fees and expenses which he has incurred to date as well as the amount of fees and expenses which will be required to comply with the terms of this Order;
4. The Receiver shall pay Grandmother’s Inc. the sum of $43,661.54 for the remaining portion of rent which the Court finds to have benefitted the Receivership (The Court finds from the evidence presented that the lease was terminated on October 1, 2001, and notes that Grandmother’s Inc. was previously paid $25,000 from the Receivership in July of 2002.);
5. The Receiver shall pay EBSCO Industries Inc., the sum of $20,010.41 for services which the Court finds to have benefitted the Receivership;
6. The Receiver shall pay the balance of the funds remaining in the Receivership, after payment of the claims set forth in paragraphs 1-5, to the State of Kansas on behalf of all of the consumers who suffered damages as a result of the deceptive acts and practices of the Defendants (in the approximate amount of $1,344,400); and,
7. The Receiver shall pay $0 from the Receivership to the general unsecured creditors.
In addition to the above, the Court orders:
1. Grandmother’s Inc. is hereby awarded all right, title and interest in the personal property of the Defendants which is still on the premises formally leased from it by the Defendants;
2. All right, title and interest in any other personal property held by the Receivership is hereby awarded to the State of Kansas; and,
3. The Receiver shall transfer by Quit Claim Deed all right, title and interest in any real property held by the Receivership to the State of Kansas.
IT IS THEREFORE ORDERED that the Receiver shall have thirty (30) days from the date of this Order to distribute the real and personal property held by the Receivership as set forth above. Upon expiration of the thirty (30) days, the Receivership shall be terminated without further order of the Court. Nothing in this Order shall be deemed to prevent the parties and/or claimants from pursuing other legal remedies which may be appropriate to collect any amounts owed to them by the Defendants which remain unpaid after the distribution of the Receivership property.
IT IS SO ORDERED.
Entered on this day ______ day of February 2005.
David E. Bruns
District Court Judge
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on the day of , 2005, she served a true and correct copy of the above and foregoing pleading by United States mail, first class postage prepaid.
Bryan J. Brown
Office of the Attorney General
Memorial Hall, 4th Flr.
120 SW 10th Ave.
Topeka, KS 66612
Kevin P. Shepherd
Attorney at Law
1321 SW Topeka Blvd.
Topeka, KS 66612
Jerry Berger
Attorney at Law
525 Topeka Blvd.
Topeka, KS 66603
Annette B. Gurney
Assistant United States Attorney
United States Department of Justice
301 North Main - 1200 Epic Center
Wichita, KS 67202
Robert Baer
Attorney at Law
1100 Bank of America Tower
500 SW Kansas Ave.
Topeka, KS 66603
Carrie E. Josserand
Attorney at Law
Building 82, Ste. 1000
10851 Mastin Blvd.
Overland Park, KS 66210
Vernon Jarboe
Attorney at Law
534 Kansas Ave., Ste. 1000
Topeka, KS 66603
Phil McNamara
Power Services of NE Inc.
PO Box 687
Middleborough, MA 02346
Terrence E. Crane
7501 E. 109th Terr.
Kansas City, MO 64134-2918
Mary T Bies
1722 South 7th Ave.
Sioux Falls, SD 57105
Tandem Productions, Inc.
c/o Marcus McCloud
10579 W Bradford Ste. 104
Littleton, CO 80127
Sheryl A. Samm
4807 Northwest Fielding Place, #1
Topeka, KS 66618
Luis H. Vigo
4048 S Albany Ave., #1
Chicago, IL 60632
Breakthrough Productions
c/o Gregg Sanderson
410 Lorna Dr.
Nashville, TN 37214
Designed Business Interiors
107 W. 6th St.
Topeka, KS 66603-3825
Felicia M. Theel
Administrative Assistant