Umpqua settles Summit 1031 suit

Umpqua settles Summit 1031 suit

Terms not available involving bank, bankruptcy trustee in Bend case

October 19, 2010

Umpqua Bank has settled a lawsuit with the trustee and creditors of Bend-based Summit 1031 Exchange, which had accused Umpqua of aiding and abetting Summit in what the suit called a Ponzi scheme.

The suit had sought $30 million.

The parties involved would only say Monday that a settlement was reached, adding that a final document had not yet been signed. Terms were not available Monday. The case was dismissed at the end of September.

Both Kevin Padrick, the court-appointed trustee for Summit’s 2008 U.S. Bankruptcy Court filing, and Michael Simon, the attorney for some of Summit’s creditors, said they were barred from discussing the settlement. Umpqua Bank’s general counsel, Steve Philpott, also declined to comment.

The 16-month-old lawsuit was initially filed by Padrick, who is in charge of liquidating Summit’s assets, such as real estate, in the bankruptcy proceedings for the creditors.

In the suit, Padrick accused Umpqua Bank of continuing to solicit bank deposits from Summit and promote Summit, even after the suit says Umpqua learned of what Padrick alleged was a Ponzi scheme.

As a 1031 exchange, named after section 1031 of the U.S. Tax Code, Summit would help real estate investors avoid the capital gains tax on the sale of a property. Investors can avoid the tax by purchasing another property of equal or greater value within 180 days, if the sale is handled by a third-party administrator like Summit.

Summit eventually ran into liquidity problems, stating on its website that it was short $14.2 million. It later filed for bankruptcy in December 2008 because the money was tied up in real estate, in which Summit clients’ money had been invested, rather than in liquid bank accounts, according to previous articles in The Bulletin citing court documents. In the complaint against Umpqua, Padrick alleges that the principals of Summit had embezzled money for years by loaning Summit’s funds to another business they controlled.

The suit said Summit could only pay back former clients by finding new ones and alleged “the principals engaged in a classic Ponzi scheme.”

Umpqua always denied wrongdoing in the case it settled with Padrick and the creditors.

While Padrick had first filed a suit in June 2009, the creditors filed a suit of their own later that year. Eventually, the two suits were combined in Multnomah County Circuit Court.

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

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