Free Supplement/Amendment - District Court of Colorado - Colorado

Case 1:03-cv-00569-JLK-EEB

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge John L. Kane Civil Action No. 03-K-569 In re UNIVERSAL COMMUNICATION NETWORKS, INC., Debtor.

JEFFERY L. HILL, Chapter 7 Trustee, Plaintiff, v. MICHAEL PAYNE and LAURA PAYNE-WRIGHT, Defendants.

DEFENDANTS' CASE LAW CITATIONS CONCERNING EQUITABLE RECHARACTERIZATION CLAIM Defendants Michael Payne and Laura Payne-Wright submit these Case Law Citations Concerning Plaintiffs' Equitable Recharacterization Claim: Dairy Queen, Inc. v. Wood, 369 U.S. 469, 478-79 (1962) (equitable claim denied where claimant had adequate remedy at law). Sender v. The Bronze Group, Ltd. (In re Hedged-Invs. Assocs., Inc.), 380 F.3d 1292, 1298-99 (10th Cir. 2004) (elements of equitable recharacterization). Edwards v. Commissioner, 415 F.2d 578, 583 (10th Cir. 1969) ("When applicable statutory laws do not prevent a shareholder of a given corporation from also becoming a creditor of that corporation and where the transaction creating the debtor-creditor relationship is not a sham or subterfuge, the terms of the transaction must be honored by the court."). United States v. Colorado Invesco, Inc., 902 F.Supp. 1339, 1342 (D. Colo. 1995):

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Case 1:03-cv-00569-JLK-EEB

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(1) Capitalization is inadequate if, in the opinion of a skilled financial analyst, it would definitely be insufficient to support a business of the size and nature of the bankrupt in light of the circumstances existing at the time the bankrupt was capitalized. (2) Capitalization is inadequate if, at the time the advances were made, the bankrupt could not have borrowed a similar amount of money from an informed outside source. Estes v. Cranshaw (In re N&D Props., Inc.), 54 B.R. 590, 601 (N.D. Ga. 1985) (recharacterization cannot be supported without, at a minimum, proof of undercapitalization; regardless of priority, payment of a claim is reasonably equivalent value as a matter of law), aff'd in part, rev'd on other grounds, sub nom. Estes v. N&D Props., Inc. (In re N&D Props., Inc.), 799 F.2d 726 (11th Cir. 1986). Salisbury v. Texas Commerce Bank-Houston, N.A. (In re WCC Hold. Corp.), 171 B.R. 972, 985 (Bankr. N.D. Tex. 1994) (undercapitalization analysis looks at whether debtor had sufficient cash flow to sustain its operations, based upon reasonable projections at the time of the alleged fraudulent transfer). Respectfully submitted this 21st day of June, 2005. BROWNSTEIN HYATT & FARBER, P.C.

By:

/s/ Daniel J. Garfield Michael J. Pankow, #21212 Daniel J. Garfield, #26054 Janet Stansberry Drake, #27697 410 Seventeenth Street, 22nd Floor Denver, CO 80202 Ph: 303.223.1100 Fax: 303.223.1111 Email: [email protected] [email protected] [email protected] ATTORNEYS FOR DEFENDANTS

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CERTIFICATE OF SERVICE I hereby certify that on this 21st day of June, 2005, a true and correct copy of the foregoing DEFENDANTS' CASE LAW CITATIONS CONCERNING EQUITABLE RECHARACTERIZATION CLAIM was served via U.S. mail, upon the following: Patrick D. Frye John C. Smiley Lindquist & Vennum, P.L.L.P. 600 17th St., Suite 1800-S Denver, CO 80202 /s/ Kris Rees

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