Taking Care of Business:
The Randy Previs Files
A four-part Island Times investigative series
By LIAM MORIARTY
Part Three: "Oh, what a tangled web we weave Ö"
Between 1980 and 1985 -- while he was in the midst of federal bankruptcy proceedings -- developer Randy Previs obligated himself for additional 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.
After Previs' Chapter 11 reorganization bankruptcy was changed to a Chapter 7 liquidation, he was in danger of losing his ownership in the Lake Washington property. He tried to buy it from his own bankruptcy estate in 1982, but the judge -- at the trustee's recommendation -- turned him down as a bad credit risk.
On Aug. 12, 1983, the property was sold to First Washington Development Inc.for $500,000 cash. First Washington Development was represented at the bidding by realtor Michael Neagle. Apparently, neither Judge Steiner nor trustee Warren Erickson was aware that FWD was a freshly-minted corporate entity owned and operated by Randy and Katie Previs.
How did a man in a liquidation bankruptcy raise half a million dollars cash to buy real estate? A wave of lawsuits that followed alleged that he did it by borrowing money and then failing to pay it back.
The 16 Percent Solution
For much of 1993, Previs -- along with a corporation called First Washington Financial, in which he also had an interest -- had been circulating an offering, soliciting investment in the Marina East project.
Just days before he bought the Lake Washington property back from his bankruptcy estate, Previs -- as First Washington Developers and as Previs Equipment Company -- received a loan of $675,000 from a group of investors. Several months later, another group of investors loaned Previs an additional $150,000.
The loans were secured by deeds of trust on the Lake Washington property, which the offering valued at $1.1 million. The investors were supposed to get 16 percent interest payments for a year, after which the principal of the loan was to be repaid in full.
But according to court records, Previs quickly defaulted on the loans. It was then that the lenders discovered the deed of trust that secured their investment didn't include all of the property the investment circular had promised. This, they said, lowered the value of the property, making it worth less than the amount of the loan they had made to Previs.
Both sets of investors sued; they had to get in line.
In fact, legal action-wise, 1984 through 1986 was a very busy period for Randy and Katie Previs and their various enterprises. Randy was still working through his 1980 bankruptcy and Katie started her own in 1986. Thanks to a clot of lawsuits from creditors large and small, the Previses had ample opportunity to familiarize themselves with the inside of a number of courtrooms.
And while the creditors prevailed in nearly all these cases, few, in any, ever collected from the Previses.
- Cascade Savings and Loan loaned $348,000 to Previs Equipment Company and Valley View Ranch Inc. (both Previs corporations) in 1982. When the note wasn't repaid, the bank filed suit in Kittitas County Superior Court. In June 1985, Cascade was awarded a judgement of over $311,000. The Previs' counterclaims against the bank and against a third party were thrown out of court. The judgement was discharged both in Katie's 1986Chapter 7 bankruptcy and in Randy's 1990 Chapter 7. Cascade Savings and Loan never got paid.
- MacDonald McLaren Hammond, Inc. sued to collect $12,000 in professional fees. According to an affidavit by D. Bruce McLaren, his firm did engineering work for Marina East in late 1983. When Previs didn't pay, McLaren testified, he put a lien on the Lake Washington property and told Previs he wouldn't release the engineering drawings unless Previs signed a promissory note for the balance due. Previs signed the note, got the drawings then defaulted on the note. McLaren was awarded summary judgement, meaning the judge ruled the facts of the case were so clear that a trial was unnecessary. But, Bruce McLaren told The Island Times recently, "We never got paid Ö Not a nickel."
- The George Sollitt Corporation was one of the eight businesses and individuals that lent Previs $675,000 for Marina East, secured by a deed of trust on the Lake Washington property where the condominium project was supposed to be built. When Previs defaulted on the note, the investors discovered their collateral was worth a good deal less than the $1.1 million Previs had represented it to be. In Sept. 1986, they sued Randy, Katie, their corporations, their business associates and anyone else with a claim on the property, 25 defendants in all. The suit alleged fraud, negligent misrepresentation and violations of both the Securities Act and the Consumer Protection Act. After three years of wrangling, the suit was finally settled out of court. According to Sollittís attorney Garth Schlemlien, his clients were able to foreclose on their deed of trust and sell the Lake Washington property. "I think we got out pretty close to what we put into it," he told The Island Times. "I know that whatever we didnít get (from the sale of the property), we werenít going to get out of Randy."
- Edward Bennett, Grand Secretary of the Washington Mason's Lodge, was among the second group of investors who loaned money to First Washington Developments, secured by a deed of trust on the Lake Washington Property. Court papers indicate the $139,500 Bennett invested was on behalf of the lodgeís Widows and Orphan's Fund. When Previs failed to make any payments on the promissory note, Bennett sued and was granted summary judgement against Previs. While this group also held a deed of trust against the Lake Washington property, the Sollitt group of investors got there first and were able to sell the parcel to recoup their investment. Bennett wasnít so fortunate; the court file on the case ends with an affidavit from Kittitas County Sheriff Thomas Young, saying he could find no assets belonging to Randy or Katie Previs to seize to satisfy the judgement.
- Earth Consultants Inc. was another of the Marina East investors. They put $10,000 from their pension fund into the project. When Previs defaulted on the promissory note; they sued and asked for summary judgement. In a Feb. 7, 1985 affidavit, Previs argued that he should be protected from the suit by virtue of being in Chapter 7 bankruptcy. The case was sent to arbitration and on Aug. 7, the arbitrator granted full default judgement to Earth Consultants when Previs failed to show for a hearing. Previs appealed, protesting that he hadn't received notification of the hearing, but a judge confirmed the award on Sept. 20. The next day, the judge ordered Previs to appear in court with his financial records, but Previs never showed up. Six months later, the judge issued a bench warrant for Previs' arrest for failure to appear. There's no record the warrant was ever served on Previs. The debt to Earth Consultants was discharged in the Previsí 1986 and 1990 bankruptcies; the pension fund was never repaid.
- Previs contracted with the architectural firm of Chaffos and Dunn to provide $135,000 worth of design services for Marina East. According to court papers, architect Lou Chaffos alleges Previs made two payments totaling $35,000, but defaulted on the balance. Like other similarly-situated firms such as MacDonald McLaren Hammond, Chaffos first sought payment from Previs' bankruptcy estate. But they were rebuffed by the bankruptcy court, which ruled Previs had incurred his debts to them after he filed for bankruptcy, which made them ineligible to get money from that bankruptcy estate. Chaffos filed a lien on the Lake Washington property and was dismayed to discover that numerous other claims had already been made on the parcel. Chaffos then sued Previs, who signed a Feb. 1985 settlement agreement acknowledging he owed Chaffos and Dunn nearly $53,000. Previs agreed in writing to pay the architect within 90 days; he didnít. When Chaffos hauled him back into court, Previs argued that he and Katie had signed the architectural services contract as officers of First Washington Development and shouldnít be held personally liable for the debt. He also claimed he and Katie were protected from lawsuits because they were both in bankruptcy proceedings. The judge didnít buy either argument and entered a default judgement in Chaffos and Dunnís favor. The architects received a $17,000 settlement from Previsí bankruptcy estate; the rest of the debt was discharged in the 1990 bankruptcy. Once lawyers and fees were paid, Lou Chaffos told the Island Times, "We didnít get a dime of that."
- Construction and Development Services, Inc. claimed in a 1986 lawsuit that they performed work for Previs on Marina East, as well as a development in the upscale Innis Arden neighborhood of Seattle. When they didnít get paid, they filed a lien against the already heavily-encumbered Lake Washington property, then sued for foreclosure of their lien. Previs disputed that the work had been done. He also once again claimed the corporate shield, saying he was merely an officer of First Washington Development and Innis Arden Country Club Estates and couldnít be sued for the failures of the corporations. Kevin Weare, president of Construction and Development Services, testified that, as far as he could tell, Previs was playing an elaborate shell game. "Based upon the manner in which Mr. Previs manipulates various corporations," he said, "it would appear that his corporate entities are fictitious, used to protect him from liability on his personal dealings." Previs, appearing without an attorney, subsequently ignored court orders to answer written questions from the plaintiff. Threatened with contempt of court, Previs got a lawyer who claimed Previs never received notification of the court order. The judge threatened a default judgement against Previs if he didnít cooperate with pre-trial questioning by the plaintiff. Nearly three years later, Construction and Development Services, Inc. released its liens against Previs when the Lake Washington property was sold by the Sollitt group of creditors, who had a legally-superior claim to the parcel.
Short and Sweet
Compared to Randyís 1980 bankruptcy nightmare, Katieís 1986 Chapter 7 and Randyís 1990 Chapter 7 bankruptcies were straightforward affairs, short and sweet. The official record of each runs less than 50 pages; the 1980 case nearly fills two cardboard storage boxes. The bankruptcies cleared up the loose ends left over from Randyís first case, as well as the fallout from the collapse of Marina East, not to mention a number of credit card, utility and telephone debts.
But while the later bankruptcies were simple, uncontested cases, they raise some questions of their own.
For instance, on the form where the bankruptcy debtor has to answer questions about his or her income and finances, Previs listed his 1989 income as $7,855. He stated that Katie brought in $13,000 during the same year.
But five months earlier, Previs stated in a sworn deposition in an unrelated lawsuit in San Juan County Superior Court that his 1989 income was $79,402.24
In another section of the bankruptcy filing, Previs stated that he had not been a party to any lawsuits that were still pending when he filed for bankruptcy. But Previs was, in fact, involved in a lawsuit in San Juan County at that time. Earlier that year, Previs had filed, as A&P Construction Company, against Oakley sunglass magnate Jim Jannard, claiming Jannard hadnít paid him fully for a road Previs built up to Jannardís Orcas Island home. The suit was filed on April 2, 1990 (more than seven months before Previsí Nov. 20 bankruptcy filing), and was dismissed by Judge Alan Hancock on Jan. 7, 1991 (six weeks after his Chapter 7 filing).
Previs claimed in another section of his filing papers that he was employed as a general manager and equipment operator by PED Investments (probably a typographical error; Previs most likely meant PEC Investments, another of his corporate entities). Previs listed PECís address as 19305 Olympic View Drive in Edmonds, his own home address. He also stated he hadnít been involved in any partnerships or engaged in any business in the previous six years, although court records show that Previs and several of his corporations had been active during that time.
Previsí pattern, as demonstrated in numerous court documents, has been to use various corporations that consist solely of him and Katie to act as cover for their business activities and personal finances. In a 1982 Bankruptcy Court examination, Randy conceded that Valley View Ranch Inc., Previs Equipment Company Inc. and he and Katie all shared a single bank account, with no delineation between their personal finances and those of the corporations.
Bankruptcy trustee Warren Erickson concluded at that time that, "All of Previs Equipment Companyís assets have been expended for the benefit of Randy and Katie Previs Ö"
Randy Previsí use of his corporate veils has gotten somewhat more sophisticated in the ensuing years. Itís often hard to tell where the Previses stop and their corporations begin. While corporate officers are legitimately protected from the liabilities of their companies, the Previsesí liberally-interpreted use of this legal doctrine does raise questions about whether they are misusing their corporations for their personal use.
Coming next week, March 2 Ö
Part Four: More of the same
More lawsuits, the Anacortes story and a curious land deal or two.
article is copyright 1999 The Island Times. Reposted here with permission.