Taking Care of Business:
The Randy Previs Files
A four-part Island Times investigative series
By LIAM MORIARTY
Part Two: The Bankruptcy from Hell
Developer Randy Previs' 1980 bankruptcy was extraordinarily long, contentious and expensive. It ground on for nearly eight years and the official file is a brick of paper that stands more than two feet high. Eleven years after it ended, lawyers involved in the case remember it as The Bankruptcy from Hell.
And in a Sept. 1983 hearing, Judge Samuel Steiner placed the lion's share of the blame for the legal nightmare on Randy Previs.
"Beyond that, it seems to me like you have been one of the major problems in this case, right from the start," the judge told Previs. "A great deal of work and effort that has gone into this by the trustee and his attorney has been as a result of your activities. One could infer from what's gone on here that you've attempted to thwart the trustee and the creditors at almost every step in this case."
The road to Previs' first bankruptcy leads through Ellensburg, a small town in Kittitas County, over the Cascades in Central Washington. In a Dec. 1978 deposition given in a lawsuit against him, Previs said that during the mid-to-late '70s, he earned a living in a variety of ways. He testified he was involved in an insurance partnership, owned Serv-U Custom Meats in Ellensburg, bought and sold heavy equipment, owned an oyster business and was partners with his wife in the Totem Lake Shopping Center. Previs also said he had owned a string of expensive cars, including Mercedes, Porsches and a Lamborghini.
But the outstanding project from that period was Valley View Ranch. According to testimony he gave before the U.S. Bankruptcy Court in Seattle, Previs bought the parcel near Ellensburg in 1974 with his first wife Lisa. In court documents, Previs said he raised and sold race horses on the ranch.
In the course of several unsuccessful land deals over the next few years, Previs ended up with some big debts to several firms and individuals. Among them were a $60,000 defaulted loan from Rainier National Bank, $76,000 in unpaid repair bills for heavy equipment to NC Machinery, a $27,000 judgement for real estate commissions to Grubb and Ellis Co., a $75,000 judgement to Paul DeYong of DeYong Management Company, a $18,000 judgement to Seattle-First National Bank in Seattle and another $3,800 defaulted loan from Sea-First in Duvall, Wa.
At one point, Previs testified he made a deal with Paul DeYong that Previs would default on his payments on the ranch and let it go into foreclosure. This, he said, would get rid of a number of liens against the property.
The plan was for DeYong to buy the ranch on the cheap at the Sheriff's auction, then he and Previs would fix the place up and sell it. Previs would pay off DeYong out of his share of the profits. Records indicate DeYong did in fact buy Valley View Ranch at a foreclosure sale for $135,000, a fraction of the $400,000 Previs estimated the property was worth.
But DeYong's arrangement with Previs went sour and in court papers, Previs later blames DeYong for causing his bankruptcy by failing to come through with promised financing for a condominium/marina project Previs was planning on Lake Washington in Kirkland.
The Lake Washington property was to play a central role not only in Previs' 1980 bankruptcy, but his 1990 one, and his wife Katie's bankruptcy in 1986, as well.
Hidden assets, fraudulent conveyances
Besieged by creditors in the fall and winter of 1979, Previs filed Chapter 11 on Feb. 25, 1980. In his filing papers, he claimed $1.16 million in assets against $731,000 in liabilities. He sought Chapter 11 protection, he said in an April 18 affidavit, to reorganize and pay off his creditors.
But early on, Previs made several moves that got him off on the wrong foot with Bankruptcy Court Judge Samuel J. Steiner and poisoned the atmosphere for the remainder of the proceedings.
For instance, on Sept. 6, 1979, Randy Previs signed over to his father, John Previs, the deed to a parcel of waterfront property on Dabob Bay near Hood Canal. In later documents, Previs valued the property at more than $390,000. But the record of the Sept. 6 transaction lists "love and affection" as the only consideration exchanged for the property.
That same day Randy also "sold" to his father a 53-foot motor yacht known as "The Brute." The bill of sale noted the transaction was for collateral only (Previs owed his father $63,000 in unpaid loans). On Feb. 20 -- just five days before Randy filed Chapter 11 -- John Previs gave "The Brute" back to Randy, who immediately sold it for $273,000, then spent most of the money before it could become part of his bankruptcy estate. When he filed the required listings of debts and assets, Previs stated he had no cash on hand.
Previs spent most of the proceeds from the sale of "The Brute" on living expenses and clearing up debts. In a meticulous three-page accounting he later gave the bankruptcy court, Previs lists expenditures ranging from $180,593.93 (to Rainier Bank, to repay a loan on the boat) to $4.20 (to Arco, for gasoline for his truck). He also paid $13,300 to Katie Propst, his girlfriend, for caretaking services. Katie would soon after become Randy's wife and business partner.
Bankruptcy Judge Steiner took a very dim view of these maneuverings. He saw them as an effort by Previs to put assets out of the reach of his creditors.
"In my opinion," he said in an April 18, 1980 ruling, "both the transactions, that is, the land and the boat, are highly suspect. I feel the payment (to Katie) on the eve of filing is highly suspect from the point of view of fraudulent conveyance."
Judge Steiner was also unhappy when he became aware that Previs had neglected to list several of his assets on the original bankruptcy forms, including a safe deposit box containing "precious stones and gems." Previs filed amended lists, but as creditors found still other valuables Previs had failed to disclose, the judge lowered the boom.
"It's not up to the creditors and it's not up to the court to extract a proper statement of schedules from the debtor," Judge Steiner wrote in that same April 18 ruling. "When the debtor offers to amend every time a creditor brings up something new, one cannot get over the idea that either the debtor is hiding something or that his affairs are in total disarray."
The amended schedules Previs submitted in April valued his assets at $336,000 more than his initial filing had.
Previs' pre-bankruptcy dealings with Rainier Bank also rankled the judge. Previs had borrowed $60,000 from the bank the previous May. According to an affidavit submitted by Rainier assistant vice president Tedd Reamer, Previs didn't apply the funds to the investment the loan was supposed to be for. Instead, he spent the money paying other creditors, then gave the collateral that guaranteed the loan -- the Dabob Bay waterfront property on Hood Canal -- to his father. A King County Superior Court granted summary judgement to the bank, but by that time Previs had filed Chapter 11 bankruptcy.
Judge Steiner saw the incident as one more indication that Previs' was a high-risk bankruptcy case.
"In my opinion," he wrote, "when a person goes to a bank and asks to borrow money for a specific purpose and then he gets the money and uses it for another purpose, that person has been dishonest with the bank."
Several of Previs' creditors, citing this sleight-of-hand, petitioned the court to appoint a trustee to oversee his affairs during the bankruptcy and make sure the creditors were forthrightly dealt with.
Enter the Trustee
Previs objected, saying his failure to file accurate statements of his assets was a misunderstanding. He said the initial listings were incomplete because his affairs were so convoluted there wasn't enough room on the forms to adequately describe them. He intended, he said, to clarify those statements in a meeting with the judge.
"I did not intentionally mischaracterize or deliberately attempt to mislead anyone," he said in a sworn affidavit, filed in an effort to persuade the judge that a trustee wasn't necessary.
The transfer of the Dabob Bay property to his father was merely to serve as collateral for the $63,000 he had borrowed from him months before, Previs explained, not an attempt to hide assets from creditors.
As for the loan from Rainier Bank, Previs said, he had told bank v.p. Reamer that the deal he had borrowed the money for had gone south and that he had re-directed the funds. He said Reamer had voiced no objection. Previs said he was "baffled" as to why Reamer would file a sworn affidavit full of "grossly untrue statements."
But Judge Steiner concluded it wasn't in the best interest of Previs' creditors that he remain in control of his own bankruptcy dealings. Calling the decision "drastic," he issued an order on April 18 to appoint a trustee, finding that "the debtor has failed to meet his obligations to disclose all the information the law requires" and "the debtor has entered into a number of questionable transactions "
Seattle attorney Warren L. Erickson was appointed to shepherd Randy Previs' affairs through the bankruptcy and to make sure the interests of the creditors were protected.
He was in for a wild ride.
Stripped to its basics, the major asset in Previs' bankruptcy estate was his two-thirds interest in the Lake Washington property in Kirkland. He had planned to build Marina East, a 22-unit luxury condominium complex with a marina on the lake. If he could just get financing for the condo project, he told the court, he could make enough money to pay all his creditors in full and make a profit, as well.
In April of 1981, after Previs had been unsuccessful in putting together a deal for Marina East, trustee Erickson asked Judge Steiner for permission to sell the property for $650,000. He noted the property was heavily encumbered -- by one count, there were 48 separate liens on the parcel -- and he told the judge the creditors would be best served by a quick sale.
Previs quickly objected. For one thing, he said, the property was worth far more than $650,000. He presented a pair of appraisals, one for $753,000, another valuing the property at $1.1 million. Previs also said he was still trying to re-organize and develop the parcel, which would produce even more money. To sell the property now, he said, would force him into Chapter 7, or total liquidation bankruptcy.
On May 13, Previs said he had a pending development deal with Swanson-Dean Corporation of Bellevue. He asked the court for time to put the deal together. Soon after, Judge Steiner granted Previs 120 days to do that. If Previs couldnt make it happen by then, the judge warned, he would authorize the trustee to sell the parcel for whatever he could get.
Three months later, a King County Superior Court judge ruled that the Shorehouse Condominium complex across the street from the Lake Washington property had a valid parking easement on the parcel. That lowered the value of the property and decreased the number of condo units that Previs could build on it.
In November, trustee Warren Erickson informed Judge Steiner that Previs had been unable to find financing for Marina East, and said that, in view of the easement, the $650,000 he proposed selling the Lake Washington property for was reasonable. Previs objected, but on March 12, 1982, the judge gave Erickson the go-ahead to sell the parcel.
"If the subject property is, in fact, such a valuable item," Judge Steiner said in his written order, "it is hard for me to understand why the debtor didn't put something together long ago so the value he contends is there could have been realized (He has) had the opportunity to accomplish something with the property and he (has) failed."
In a letter to Judge Steiner, Previs later blames others for that failure. He tells the judge that trustee Erickson hasn't worked hard enough to find a buyer who'll pay what Previs insists the Lake Washington property is worth. He also blames Paul DeYong, his creditor and former business partner, for failing to come through with promised financing. He accused DeYong of using his access to Previs' inside project information to sabotage Marina East.
But at least one creditor placed the blame elsewhere. In a May 6 filing, Gene Caraker, president of Financial Northwest Corporation, says the project never got off the ground because "banks would have nothing to do with Previs as a joint venture partner due to his lack of an occupation and his financial condition."
Out of the frying pan
On March 11, 1982, Warren Erickson petitioned the court to convert the Chapter 11 reorganization into a Chapter 7 liquidation. He said that two years after filing Chapter 11, Previs had failed to re-organize and begin paying the creditors. He also accused Previs of trying to use assets that belong to the bankruptcy estate as collateral in his efforts to raise the money to develop the Lake Washington property.
As an avalanche of lawsuits would later show, Previs had been signing contracts for design work, engineering and financing for the Marina East project, obligating himself for additional hundreds of thousands of dollars.
Erickson told the court Previs had obstructed his efforts throughout the bankruptcy proceedings. Previs had routinely challenged nearly every decision the trustee made and had just as routinely been overruled by the judge nearly every time. At one point, Previs refused to turn over the keys to the Dabob Bay cabin until a court order was issued. The effect, Erickson told Judge Steiner, was to delay the proceedings and make the process unnecessarily difficult.
"This case is no longer a legitimate Chapter 11 proceeding," Erickson said, "but has turned into a charade whereby the debtor is further abusing the rights of his creditors to be paid legitimate sums due and owing which can be accomplished under a Chapter 7 liquidation."
Over Previs' strenuous objections, Judge Steiner ordered the conversion to Chapter 7 on March 26.
"Not a good credit risk"
By mid-summer, Erickson was trying to sell the Lake Washington property again, after two previous attempts hadn't gelled, at least in part because of objections filed by Previs and some creditors who feared the sale wouldn't generate enough money to fully pay them.
One of Previs' corporate entities, Previs Equipment Company, wanted to buy the property, but Erickson told Judge Steiner he didn't want to sell to PEC because he didn't want to extend credit to Previs.
In a July 12 brief, Erickson notes that PEC had recently borrowed money to buy the yacht "Pegasus" and pocketed an $85,000 profit on the subsequent sale, but had made no provisions to pay taxes or repay the loan. He quotes Katie Previs as testifying under oath that PEC owed money but had no funds or assets to made good on the debts.
"All of Previs Equipment Company's assets have been expended on or for the benefit of Randy and Katie Previs," Erickson tells Judge Steiner. "As a practical matter, this entire bankruptcy proceeding reflects the fact that Randy Previs and any business in which he is involved is not a good credit risk."
Four days later, the judge dismissed all objections to the sale of the Lake Washington property and ordered Erickson to proceed.
"Half-truths, false accusations "
By the spring of 1983, Erickson had not yet been able to sell the Lake Washington property, and in March, Previs Equipment Company was back, trying to buy it again, offering $450,000. Previs -- on PEC stationery -- notes that Westside Federal Savings and Loan is ready to lend PEC that much to get Marina East underway. An upbeat Randy Previs writes to his lawyer with a timetable that projects breaking ground in August and completing construction in May, 1985.
But Judge Steiner torpedoed the PEC sale, prompting Previs to write a bitter, six-page letter to the judge on June 5. Written on PEC letterhead, Previs says he has been the victim of a smear campaign by Erickson and some of the creditors, and that the judge apparently believes some of the "many half-truths, negative comments and unsubstantiated false accusations" aimed at Previs. Selling the Lake Washington property to PEC, Previs continues, would have paid all the creditors in full and cleared up the bankruptcy completely.
In the letter, Previs also accuses Erickson of mismanaging his estate, costing him over $1 million. (Previs soon after sued the trustee, claiming malfeasance. The case was dismissed when Previs failed to appear for a pre-trial conference. His appeal of the dismissal was denied).
"Had only a fraction of common sense been used this proceeding would have been over 18 months ago and everyone paid," Previs concludes in his letter to the judge. "I'm very sorry you feel as you do about me and I hope at some point I will have the opportunity to speak with you about this."
But less than two months later, Previs ended up with the property anyway. On Aug. 25, 1983, the Lake Washington property was sold to First Washington Developers for $500,000 cash. First Washington Developers was represented in its bid to the bankruptcy court by realtor Michael Neagle. But as subsequent lawsuits would reveal, the officers and principals of FWD were none other than Randy and Katie Previs. And the money to buy the Lake Washington property was raised by borrowing from several groups of investors, then defaulting on promissory notes.
Wrapping it up
By the summer of 1983, Warren Erickson was starting to spend a lot of his time fending off creditors that Previs had obligated himself to after he entered bankruptcy. The architectural firm of Kinderfather, Chaffos and Dunn, the engineering firm of MacDonald McLaren Hammond and Financial Northwest Corp. were among a number of companies looking to get compensated out of Previs' bankruptcy estate after he had hired their services for Marina East, then didn't pay.
Previs' attorneys, with whom he had racked up over $100,000 in legal fees, also sought to get a slice of the rapidly-shrinking bankruptcy pie.
Erickson refused to pay all those claims and a number of others, maintaining that those debts were incurred after the bankruptcy was filed, and the companies weren't legally allowed to lay claim to the current pot of money that Erickson was doling out to the original creditors. After many lawsuits and challenges -- during which the firms testified that Previs hadn't told them he was in bankruptcy proceedings when he contracted for their services -- Judge Steiner upheld Erickson and told the new crop of creditors they'd have to seek satisfaction from Previs directly. The judge did OK a settlement with Previs' lawyers in which they were paid about half of their claim.
Picking the bones
In his effort to squeeze money out of Previs' estate, Warren Erickson tried to liquidate all of Previs' assets he could lay his hands on. He succeeded in getting Previs' father to return the Dabob Bay property and it was sold. A Caterpillar D-9 bulldozer was also sold; most of the proceeds went to pay the bank that had a lien on the machinery.
A lot of the rest turned out to not have much value to the estate. It took a court order to get Previs to turn over to Erickson the jewelry from the safe deposit box and an old oil painting that Previs said he believed was by the Spanish Renaissance master El Greco. The painting was later determined to be nothing of the sort and was sold -- along with the "precious stones and gems" -- for less than $1,000 at auction.
Much of the rest of Previs' property and valuables were already spoken for by creditors with a previous claim on them, or were determined to be so encumbered by liens that the cost of clearing title to them would exceed their value to the bankruptcy estate.
The outstanding example of this was a parcel of real estate near the original Dabob Bay property. When Previs sold "The Brute" five days before he filed Chapter 11 in 1980, he gave $25,000 of the proceeds to his father to buy the waterfront property for him. Within days, Previs had subdivided, mortgaged and re-sold the parcels. In Sept. 1984, Erickson abandoned the estate's interest in the properties as being too burdensome to make them worthwhile.
During 1986 to 1988, The Bankruptcy from Hell wore down into squabbling over the crumbs, before finally being discharged in early 1988. The legal ordeal seemed to take a heavy toll on all involved. In interviews with The Island Times, one attorney said, "It was a very difficult case Seven years is an exceptional time for a bankruptcy case, even one with assets." Another described it as "a horrible, horrible, horrible experience." Both attorneys asked not to be named in this article.
The Previs proceedings also created case law regarding fraudulent conveyance. DeYong Management, unable to collect their judgement from Previs, went after his parents who had helped him keep the Dabob Bay property away from creditors. Although a trial court ruled against DeYong, the Washington Court of Appeals found that Previs' parents were liable for their part in the fraudulent conveyance of the property. They were ordered to pay over $51,000 to DeYong.
And the loose ends trailing from Randy Previs' 1980 bankruptcy continued to entangle Randy and Katie, as dozens of creditors large and small pressed claims against the couple that had not been resolved in the first proceeding.
Coming Feb. 23
Part Three: "Oh, what a tangled web we weave "
Between 1980 and 1985, Previs legally obligated himself for hundreds of thousands of dollars in loans and professional services in an effort to salvage his investment in a property on the shores of Lake Washington in Kirkland. His efforts to build Marina East, a 22-unit luxury condominium complex and marina, collapsed in a tangle of liens, foreclosures and lawsuits that led directly to his wife Katie Previs filing another bankruptcy in 1986, and Randy taking Chapter 7 protection again in 1990. When the dust finally cleared, creditors were left holding the bag for over $2 million.
Coming March 2
Part Four: More of the same
More lawsuits, the Anacortes story and a curious land deal or two.
|This article is copyright 1999 The Island Times. Reposted here with permission.|