At the time of the bankruptcy filing of the Santa Barbara News-Press, many wondered how the company, owned by billionaire Wendy McCaw, could have only $50,000 in assets. Required to do more than wonder are bankruptcy trustee Jerry Namba of Santa Maria and his attorney, Michael D’Alba of Danning Gill in Los Angeles, who filed a lawsuit against McCaw — through her company Ampersand Publishing LLC dba Santa Barbara News-Press — on December 26 alleging she fraudulently transferred ownership of the flagship building on De la Guerra Plaza and its printing plant in Goleta from her publishing company to herself — through two other limited liability companies she owned. The two properties are worth an estimated $26 million. The liabilities in the bankruptcy are said to be approximately $10 million, including a $3.6 million judgment in favor of McCaw’s employees who had formed a union that their boss never negotiated with in good faith.
A number of those employees are also owed back wages, and it’s the taxes on those wages and the judgment that the Complaint argues provide an avenue to claw back the two buildings.
The two buildings’ ownership were simple transfers of title in 2014, with no payment of a transfer tax. This fact leads the Complaint to allege that “Debtor received no consideration in exchange for the Office Building Transfer.” In other words, money did not change hands between publishing company and two new LLCs for the two properties.
According to the pleading, this occurred at a time when McCaw knew the judgment in favor of the union could be levied against her real property. A couple of years earlier, another attorney had done just that. McCaw had owed former News-Press editor in chief Jerry Roberts nearly $1 million from a separate lawsuit that concluded in 2012. To get payment, the Complaint states, Roberts’s attorney placed a levy on the historic building in downtown Santa Barbara in the summer of 2012. By October, the Complaint alleges, “the risk that the Office Building could be lost to collection procedures is what caused the payment to Roberts of the amounts that the Debtor owed.”
While Trustee Namba was reviewing records at the printing plant, he found a notice from the IRS stating that taxes were outstanding on the $134,387.19 owed on priority wage claims in the bankruptcy. Further, the Complaint alleges McCaw is liable for the IRS wage withholdings owed as part of the union judgment.
The Trustee “may stand in the shoes of the IRS,” the Complaint asserts, “and exercise what rights the IRS might have to avoid and recover the Subject Transfers under applicable law.” That would include the IRS’s ability to void “transfer and fraudulent conveyances of property” by those who owe money to the IRS. The statute for fraudulent conveyances against IRS interests is 10 years.
The Complaint goes on to claim that McCaw continued to operate from both buildings, “suggesting that the Subject Transfers were a sham,” that the company operated as if no transfer had occurred, with an intention “solely to change how the Debtor appeared ‘on paper.’” As well, the pleading alleges that because the Debtor received less than reasonable value for the properties, the company “became insolvent as a result of the Subject Transfers” in an attempt to appear that “Debtor had fewer assets than it actually had.” One of the Trustee’s final requests to the Bankruptcy Court is for access to the buildings, as he claims that McCaw will not give him keys or security passcodes.
Attempts to reach McCaw’s attorneys for comment were not returned on Friday afternoon.
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