Umpqua Bank targeted in new complaints in Summit 1031 case

By David Holley
The Bulletin

March 27, 2010

New wrinkles have been added to the lawsuits filed last year against Umpqua Bank by the court-appointed trustee of Summit 1031 Exchange, and creditors and clients of Summit.

The amended complaints, which allege that Umpqua Bank aided and abetted Summit in operating what the suit calls a Ponzi scheme, were filed in Multnomah County Circuit Court March 18 by Bend-based Kevin Padrick, Summit’s trustee, and dozens of clients and creditors of Summit, known as the Miller Plaintiffs. The Miller Plaintiffs’ amended complaint added additional claims, such as an allegation that Umpqua promoted Summit’s 1031 exchange business internally and to the public in order to reel in new customers for Summit.

The complaint also alleges that Dave Edson, Umpqua’s commercial banking president, and others in upper management “directly instructed Umpqua employees to work closely with the Summit Group to promote the Summit 1031 exchange business, openly describing the relationship between Umpqua and Summit as an ‘alliance.’”

When reached Friday afternoon, an attorney for Umpqua Bank, John Spencer Stewart, of Stewart Sokol & Gray LLC in Portland, said he could not comment at this time. Umpqua has previously denied any wrongdoing.

Additionally, the Miller Plaintiffs’ complaint alleges that Umpqua Bank gave names to Summit as potential referral sources and prospects. It also adds allegations that Umpqua let Summit hold seminars inside the bank’s branches meant to introduce Summit to Umpqua employees.

The complaint says those employees were promoting Summit’s 1031 exchange business.

Padrick was appointed as trustee of Summit to sell the company’s assets in order to pay back creditors who had invested money in Summit as a 1031 exchange.

A 1031 exchange allows real estate investors to avoid capital gains taxes on the sale of a property.

In Padrick’s original complaint, he alleges that Ray Davis, the president and CEO of Portland-based Umpqua Holdings Corp., the bank’s parent company, and Edson learned Summit was operating a Ponzi scheme during a series of personal meetings and telephone conversations with Summit’s principals beginning in March 2007, according to past Bulletin articles.

The complaint says the Umpqua officials did not stop Summit from depositing its clients’ money in Umpqua Bank.

The Miller Plaintiffs’ amended complaint claims that despite Umpqua’s knowledge, it continued to assist Summit.

The suit alleges that Umpqua “actively encouraged the Summit Group to continue to use Umpqua’s bank accounts to facilitate millions of dollars in new transactions throughout 2007 and 2008.” It claims that Umpqua earned fees because of Summit’s deposit base, which allegedly also increased Umpqua’s deposit market share.

At the beginning of March, Summit’s four principals agreed to pay a total of $16.8 million in damages as a part of a settlement in a lawsuit Padrick filed in 2009 in U.S. Bankruptcy Court.

Summit filed for bankruptcy in 2008, after the principals could not repay creditors who had invested in the company because the principals’ money was tied up in real estate investments that could not quickly be sold.

David Holley can be reached at 541-383-0323 or at dholley@bendbulletin.com.

Copyright 2010