Once again, CQ's resident legal analyst Eric Costello, Esq reviews the latest developments on the Air America story -- this time, the question of the ownership change. In an e-mail to CQ, Eric points out a number of legal issues raised in the transfer of assets from Progress to Piquant:

As usual, the latest installment of the l'affaire Air America has been read with great interest. Here's my reactions (for public use as you see fit):

(1) The term of art that is implicated here, I believe, is what is known as a "fraudulent conveyance," a legal term that goes back a long way. A legal dictionary definition (rather simplifying the concept, of course) of this term is "a conveyance of property without any consideration of value, for the purpose of delaying or bindering creditors. Such a transfer will, when proven to the satisfaction of judge or jury, be declared void. Although such conveyance is void as regards the purchaser and creditors [read: Gloria Wise], it is valid as between the parties and usually valid as to subsequent innocent purchasers. For example, one company may transfer a house to a related company to avoid giving the house to a 3rd party. However, subsequent innocent purchases/transfers of the house will often be valid."

What does this mean? Assuming that either Gloria Wise, or the NYS Attorney General's Office (pursuant to its role as the guardian of charities) brought action, a judge or jury would have to look at the asset purchase transaction between Progress Media/Radio Free America on the one hand and Piquant on the other. They would look at the reasons for the transaction. Hence, my interest in the comment noted in the Tribune that you cited, which was that the purpose was to "restructur[e] the company [i.e., Air America] to free it of any obligations incurred by ousted chairman and founding investor Evan Cohen." This implies that a major purpose of the transaction was to have an effect on creditors. (I use understatement here -- fill in your own non-legal term, if you so desire!) A judge or jury would then have to focus on the consideration given by Piquant to Progress/RFA to see if there was any value or not. If the judge or jury finds that there was no value, then they could void the transaction "as regards the purchaser and creditors." Put another way, the debt owed by Progress/RFA to Gloria Wise would be applied to Piquant, the asset purchase agreement notwithstanding. I expect that this will be one avenue that will be explored with great interest by the NYAG. Note that the sale itself of Air America's assets would not be questioned, just the "freeing of the obligations incurred by ousted chairman and founding investor Evan Cohen."

I speculate: Piquant's sudden turnaround *might* be the result of someone on their legal team pointing out the vulnerability of Piquant to a fraudulent conveyance action. By reimbursing Gloria Wise, Piquant would hope, perhaps, to deflect such an action. (The question of the original terms of the loan from Wise, including interest and personal/corporate guarantees, and their applicability to Piquant's repayment, would still be open.)

(2) More than ever, this means that a key document (for our review, and for the NYAG) is going to be this asset purchase agreement, including all schedules attached to the agreement, which would spell out the assets that Piquant acquired, or did not acquire, and the liabilities that Piquant assumed, or did not assume. More to the point, the asset purchase agreement would spell out precisely (we hope) the consideration paid by Piquant for the assets, an essential element in any fraudulent conveyance analysis (including any defences Piquant might have). Absent some involvement by Gloria Wise (possible, but unlikely), which would have NYAG compliance issues, this document is private as far as I know. At least until the NYAG gets a hold of it, which I bet they will.

(3) Query: was Gloria Wise apprised of this *2004* transaction in any way, and did they discuss at a board meeting the impact of this transfer, which would, in all likelihood, have rendered the note from the Cohen-Progress group worthless, or at least of greatly diminished value? This would have had a major impact on Gloria Wise's financials, as a key asset would have been grossly impaired. It also implicates the guarantee issue, as discussed above and previously, as to whether Wise pursued any extant guarantees.

(4) I find it curious that a pre-packaged bankruptcy was not used for this transaction, which would have allowed the debts to be shed perfectly legally. One suspects the burden of the PR angle that would be required in the disclosure (i.e., Wise as a creditor), plus the PR angle of Progress/RFA going bust within weeks, was not palatable. Bankruptcy proceedings and filings (including the plan of reorganization, which would include the asset purchase agreement) are public; the asset purchase agreement here was a totally private transaction. It certainly raises anew points discussed via Michelle Malkin as to whether or not Progress/RFA is still an extant entity, or has filed for bankruptcy (or should).

(5) There needs to be a firmer grasp of the exact timeline regarding Piquant's roster of shareholders. I am assuming, based on what I see, that Piquant forced out Cohen/Sorenson and *then* had the asset purchase agreement transaction, between two sets of parties that had substantially common rosters of owners. This would have an impact on the fraudulent conveyance argument, in that one could argue this was, so to speak, merely shifting one's wallet of assets from one trouser pocket to another.

As always, I await further revelations via CQ.

One would assume that attorneys would have rechecked this transfer a number of times to ensure technical compliance with applicable laws. However, that may not have been the case, and I think Eric makes some excellent points in his presentation. Even if legal, it shoots Mack Truck-sized holes in the argument that Piquant's ownership has no responsibility for Progress Media's obligations.

Stay tuned -- more will come ...

UPDATE: Professor Bainbridge detailed some of the legal issues at the time of the transfer. Ironman at Political Calculations supplied that link and has more here.

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Tracked on August 10, 2005 10:52 AM