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FDIC v. CAFRITZ

April 26, 1991

FEDERAL DEPOSIT INSURANCE CORP., as Receiver for the National Bank of Washington, Plaintiff,
v.
CONRAD CAFRITZ, PEGGY COOPER CAFRITZ, JOHN DOE, as Trustee Under an Escrow in the District of Columbia, Defendants



The opinion of the court was delivered by: RICHEY

 CHARLES R. RICHEY, UNITED STATES DISTRICT JUDGE

 I. INTRODUCTION

 Pursuant to the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990, *fn1" 12 U.S.C. § 1821(d) (1989 & Supp. 1991) (hereinafter "the Taxpayer Recovery Act"), the Federal Deposit Insurance Corporation ("FDIC"), in its capacity as receiver of the National Bank of Washington ("NBW"), seeks an order placing certain assets of Conrad and Peggy Cooper Cafritz under the Court's control during the pendency of this litigation in order to ensure that the FDIC can recover approximately $ 18 million which Mr. Cafritz owes to NBW/FDIC pursuant to certain loan agreements. The FDIC also requests the Court to appoint a trustee to manage the assets in question. Upon consideration of the FDIC's motion, the response of defendants Conrad Cafritz and Peggy Cooper Cafritz, and the applicable law, the Court hereby grants the FDIC's motion for temporary restraining order and the request for appointment of a trustee. *fn2"

 II. BACKGROUND

 Beginning in April of 1990, Mr. Cafritz experienced difficulty in making repayment on loans issued by the NBW. Plaintiff's Complaint para. 1(d). The precarious commercial real estate market in the Washington area apparently took its toll on Mr. Cafritz, and throughout 1990, he defaulted on other loans from the NBW. See FDIC Complaint paras. 11-17. *fn3" Under the terms of these various loan agreements, Mr. Cafritz is obligated to the FDIC for $ 16,738,352.05 for the outstanding aggregate principal balances of the delinquent loans, as well as for $ 1,871,062.68, in accrued but unpaid interest as of April 22, 1991. Mr. Cafritz is also liable to the FDIC for unspecified late payment premiums. See Plaintiff's Complaint paras. 19-21. None of the parties have disputed Mr. Cafritz's liability under these loan agreements.

 On or about April 12, 1990, Mr. Cafritz requested that the NBW postpone exercising any legal remedies on the loan agreements for four to six weeks. See Plaintiff's Complaint at para. 23-25; Opposition of Conrad Cafritz, April 23, 1991 Affidavit of Stephen Twohig at para. 3. Although the parties do not dispute the fact that Mr. Cafritz requested forbearance on April 12, 1990, Mr. Cafritz does argue that his inability to repay the loans was due to a "liquidity problem" and that there was no real threat of insolvency. See Affidavit of Stephen Twohig, supra ("We indicated that we felt strongly that the total asset value of the portfolio of Conrad Cafritz exceeded the total liabilities.") Peggy Cooper Cafritz also claims that she never feared that her husband was insolvent. See April 23, 1991 Affidavit of Peggy Cooper Cafritz at para. 2.

 According to the FDIC, the recently-enacted Taxpayer Recovery Act empowers the agency to avoid two fraudulent transfers made by Mr. Cafritz with the intent to hinder, delay or defraud the FDIC in obtaining repayment of certain monies owed to the FDIC in its capacity as receiver of the NBW. As to the first transaction, the FDIC argues that, only 2 weeks after seeking forbearance from NBW, Mr. Cafritz transferred to his wife, Peggy Cooper Cafritz, for no consideration, $ 760,000 in cash and an 8 1/3% interest in Marital Deduction Trust Assets, which has an annual income of $ 240,000 and is estimated to be worth approximately $ 7 million. Plaintiff's Complaint at para. 26-27. The Cafritzes vehemently deny that this transaction was made without valid consideration, and explain that the transaction satisfied certain preexisting and future debts between husband and wife. According to Peggy Cooper Cafritz, some of these debts were incurred by Mr. Cafritz under a prenuptial agreement, and other debts relate to loans made by Mrs. Cafritz to her husband independently of the prenuptial agreement. See, e.g., Exhibit H and Exhibit A appended thereto, April 23, 1991 Affidavit of Peggy Cooper Cafritz (listing wife's claims against husband).

 The FDIC also challenges a second transaction in which Mr. Cafritz transferred $ 1.5 million to a John Doe as a retainer fee for future legal services should Mr. Cafritz enter bankruptcy. Plaintiff's Complaint at para. 33-37. The FDIC again alleges that this money was transferred without valid consideration and was an attempt to hinder, delay or defraud the FDIC. Mr. Cafritz acknowledges that this transfer occurred in January of 1991, and claims that this money is in the general retainer fund at the law firm of Weil, Gotshal & Manges. Opposition of Conrad Cafritz at 6, n. 9. A representative of Weil, Gotshal apparently told Mr. Cafritz that the firm required this type of retainer as a matter of standard practice in order to ensure payment of legal fees in "such a case." Id. Attachment B, Letter to Conrad Cafritz from Alan J. Pomerantz of Weil, Gotshal & Manges, dated April 23, 1991.

 Mr. Cafritz presently is negotiating with some of his creditors, which formed a Creditors Committee, to work out his financial difficulties outside of the formal bankruptcy process. This Creditors Committee negotiated a tolling agreement with the Cafritzes on April 22, 1991 as to their Spousal Assets, extending the time within which the creditors may file an involuntary bankruptcy petition or an action to set aside any fraudulent transfers. See Attachment C to the Opposition of Conrad Cafritz. (hereinafter, "tolling agreement"). As part of this tolling agreement, Mrs. Cafritz agreed not to encumber or dissipate in any way the 8 1/3% vested remainder interest transferred by her husband in April of 1990. Id. The tolling agreement does not cover any part of the $ 760,000 cash transfer. Id. The FDIC is not part of the Creditors' Committee, and did not sign the tolling agreement. See Plaintiff's Reply at 10, n. 7.

 III. BECAUSE OF THE SUBSTANTIAL LIKELIHOOD THAT THE FDIC COULD PREVAIL ON THE MERITS, THE STRONG PUBLIC INTEREST IN RECOUPING THE TAXPAYERS' LOSSES RESULTING FROM BANK FAILURES, AND THE ABSENCE OF ANY IRREPARABLE INJURY TO OTHER PARTIES AS A RESULT OF THIS ORDER, THE COURT GRANTS THE TEMPORARY RESTRAINING ORDER.

 As a general matter, a court can issue a temporary restraining order only if the moving party establishes: (1) that the party will suffer irreparable injury if the relief is not granted; (2) that there exists a substantial likelihood of success on the merits; (3) that issuing the temporary restraining order would serve the public interest; and (4) that other interested parties will not suffer substantial harm if the temporary restraining order is granted. See Sea Containers Ltd. v. Stena AB, 281 U.S. App. D.C. 400, 890 F.2d 1205, 1208 (D.C. Cir. 1989). See generally Fed. R. Civ. P. 65.

 The Taxpayers Recovery Act expressly amends the traditional Rule 65 requirements, though. The Act permits any court of competent jurisdiction, at the request of the Corporation in its capacity as a receiver for any insured federal depository institution, to exercise its equitable powers to

 
issue an order in accordance with Rule 65 of the Federal Rules of Civil Procedure, including an order placing the assets of any person designated by the Corporation or such conservator under the control of the court and appointing a trustee to hold such assets.

 12 U.S.C. § 1821(d)(18). In seeking a restraining order, however, the FDIC does not have to show that it will suffer immediate and irreparable harm if the ...


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