united states district court northern district of california
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UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF CALIFORNIA---- ---- --- --- ---- ----- ----- -- ---- ---- --- -- ------ ---- - ---- -- --- )(
ANITA HUNTER, et aI.,
Plaintiffs, Case No. 09-CV -02079-JW
-v-
CITIBANK, N.A., et aI.,
Defendants.---- ------------------------------ ------- ------------- ---- -- --- )(UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK- --- -------------- ---------- -- ---- ---- ------ ------------------- )(In re: Chapter 11
THE 1031 TA)( GROUP, LLC, et aI.,
Debtors.------- - --- --- ------- ------------- ------- ------------------- --- )(GERARD A. McHALE, Jr., P.A., as LiquidationTrustee for the 1031 Debtors Liquidation Trust
Case No. 07-11448 (MG)Substantively Consolidated
Plaintiff,
-v- Adv. Pro. No. 09-01129 (MG)
BOULDER CAPITAL LLC, BOULDERCOLUMBUS LLC, BOULDER WEST OAKSLLC, BOULDER HOLDINGS VI, LLC,BOULDER HOLDINGS )(, LLC, and ROYS. MACDOWELL, JR.,
Defendants.---- ------- --- ------- ----------------- ------ ------- --- ---- - - --- )(
STIPULATION AND AGREEMENT OF SETTLEMENTWITH BOULDER CAPITALLLC, BOULDER COLUMBUS LLC, BOULDER WEST OAKS LLC, BOULDER
HOLDINGS VI, LLC, BOULDER HOLDINGS X, LLC, ROY S. MACDOWELL, JR.,BAYS TONE FUND I GP, LLC, BAYSTONE RESIDUAL, LLC, VIRGINIA
MACDOWELL, AND BAYSTONE INVESTOR, LLC
Putative class representatives Anita Hunter, Johna Bozzo (also known as Johna
Bozza), Celltex Site Services, Ltd., Grande Investment, LLC, Quirk Infiniti, Inc., Michael
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Whitton, and Sadi Suhweil (collectively, the "Class Representatives"), on behalf of themselves
and the putative Class in the action captioned Hunter, et aI. v. Citban, N.A., et aI., No. 09-CV-
02079-JW (N.D. CaL), Gerard A. McHale, Jr., P.A., not individually but in its capacity as
Liquidation Trustee for the 1031 Debtors Liquidation Trust (the "1031 Trust"), as successor to
The 1031 Tax Group, LLC, et aI. (the "1031 Debtors"), (and including the capacities listed in
footnote 2 herein and any and all of Gerard A. McHale, Jr., P.A.'s successors and assigns (the
"Trustee")), the 1031 Trust, the Defendants, Boulder Capital LLC, Boulder Columbus LLC,
Boulder West Oaks LLC, Boulder VI, LLC, Boulder Holdings)(, LLC, and Roy S. MacDowell,
Jr. (collectively, the "Boulder Paries"), and non-Defendants Virginia MacDowell, Baystone
Investor, LLC, Baystone Residual, LLC, and Baystone Fund I GP, LLC (collectively
"MacDowell Paries," and together with the putative Class Representatives, the Trustee, the 1031
Trust, and the Boulder Paries, collectively, the "Paries"), enter into this stipulation and
agreement of settlement (the "Agreement" or "Settlement Agreement"). This Agreement is
intended by the Paries hereto to resolve and settle the Released Claims (as defined herein),
subject to the terms and conditions set forth below and final approval by the Class Action Cour
(as defined herein):
WHEREAS:
A. In May 2009, the Class Representatives fied Hunter, et aI. v. Citbank, N.A., et
aI., No. 09-CV -02079 (the "2009 Class Litigation") in the United States District Court for the
Northern District of California (the "Class Action Cour") against the Boulder Parties, among
other defendants. The 2009 Class Litigation is related to two other putative class actions that
certain of the Class Representatives filed in May 2007 and November 2008 that do not name the
Boulder Paries as defendants: Hunter, et aI. v. Okun, et aI., No. 07-CV-02795 (N.D. CaL.) and
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Quirk Infiniti, Inc. v. Wachovia Ban, N.A., No. 08-CV-12060 (D. Mass.)(together with the
2009 Class Litigation, the "Class Litigation"). The Class Representatives are seeking to proceed
as a Class (as defined below) on behalf ofthemselves and all others similarly situated, including
approximately 330 people located in various states each of whom allegedly lost substantial
money (allegedly over $150,000,000 combined) entrusted to certain intermediaries to facilitate
their respective Internal Revenue Code Section 1031 exchanges.
B. On May 14, 2007, all of the 1031 Debtors, except one, fied with the Banuptcy
Court for the Southern District of New Yark (the "Banptcy Cour") voluntar petitions for
relief under chapter 11 of the Bankptcy Code. By Order of the Bankptcy Court dated
October 22, 2007, the 1031 Debtors' cases are being jointly administered as In re The 1031 Tax
Group, LLC, et aI., No. 07-11448 (MG) (Bank. S.D.N.Y.) (the "Banptcy Case").
C. On or about October 11, 2007, Okun and Simone Bolani entered into the Transfer
Agreement pursuant to which they transferred, with the exception of certain vehicles and
residences, all of their property and assets (collectively, the "Transferred Assets"), including,
but not limited to, all claims and choses in action, to the 1031 Debtors. On October 26, 2007, the
Cour entered an order approving the Transfer Agreement.
D. On October 25,2007, the Bankptcy Court entered an Order appointing Gerard
A. McHale Jr. as Chapter 11 Trustee (the "Chapter 11 Trustee") for the 1031 Debtors.
E. On or about January 20,2009, the Trustee and the Class Representatives entered
into an agreement concerning the prosecution of claims by the Trustee and by the Class
Representatives (as later amended, the "Class-Trustee Agreement").
F. On March 20,2009, the Chapter 11 Trustee fied a complaint in the Bankuptcy
Cour commencing the adversary proceeding captioned McHale v. Boulder Capital LLC et aI.,
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09-AP-01129, against the Boulder Paries other than Roy S. MacDowell, Jr. seeking to recover
damages in an amount no less than $40 millon under fraudulent conveyance and other theories,
as well as equitable relief. On April 22, 2009, the Chapter 11 Trustee filed an amended
complaint against the Boulder Paries, including Roy S. MacDowell, Jr., and asserting an
additional claim for aiding and abetting breach of fiduciary duty seeking damages in an amount
not less than $150 milion (the "Banptcy Litigation"). The Boulder Paries fied their answer
to the amended complaint on June 12,2009.
G. On October 7, 2009, the Bankptcy Cour entered an Order which confirmed a
Plan of Reorganization for the 1031 Debtors (the "Plan"), creating the 1031 Trust, which took
title to all of the assets of the estates of the 1031 Debtors, and appointed Gerard A. McHale, Jr.,
P.A. as the Liquidation Trustee. The Plan provides that, among other things, as of the Plan's
effective date (as defined therein), the Trustee shall have the power and authority, without
necessity of Banptcy Cour approval, to take all actions including the power to "compromise,
collect, settle and/or otherwise administer" claims and causes of action in consultation with the
Liquidation Trust Oversight Board (the "LTOB") (as defined in the Plan).
H. On December 2,2009, the Chapter 11 Trustee, the Trustee and the 1031 Debtors
entered into a Liquidation Trust Agreement (the" 1 031 Trust Agreement") that, among other
things, discharged the Chapter 11 Trustee, and appointed the Trustee. The Trustee represents
that he is duly qualified and is authorized to enter into this Agreement, subject to any necessar
approval( s) discussed herein.
i. In the Banptcy Litigation, on August 27,2010, the Banptcy Court entered
its memorandum opinion and order granting trustee's motion for partial summar judgment (the
"Summar Judgment Opinion") on the fraudulent conveyance claim of the Trustee against all
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Boulder Paries other than Roy S. MacDowell, Jr., which was supplemented by the Bankptcy
Cour's opinions each dated as of November 1,2010 (together with the Summar Judgment
Opinion, collectively, the "Banptcy Cour Opinion"). On November 15,2010, the
Banptcy Court entered judgment against all Boulder Paries other than Roy S. MacDowell,
Jr., which was amended by the Banptcy Cour's judgment dated December 14,2010 (as
amended, the "Judgment," and together, with the Banptcy Court Opinion, collectively, the
"Banptcy Cour Opinion and Judgment"). All remaining claims asserted against the Boulder
Paries in the Banptcy Litigation are defined herein as the "Remaining Bankptcy Claims."
J. The Boulder Paries appealed the Banptcy Court Opinion and Judgment (the
"Boulder Appeal").
K. The Boulder Paries deny any wrongdoing, fault, liability, negligence,
malpractice, or damage to the Trustee, the 1031 Trust, the Class Representatives, the Class, or
any member of the Class, deny that they engaged in any wrongdoing, deny that they committed
any violation oflaw, and deny that they acted improperly in any way. The Boulder Parties
further contend that they believe that (i) they acted properly at all times, and (ii) the claims
asserted against them in the 2009 Class Litigation and the Banptcy Litigation against them
(collectively, the "Litigation Claims") and any other Released Claims are without merit. The
Boulder Parties further state that the Banptcy Cour Opinion and Judgment were entered in
error and should be reversed on appeaL. Furthermore, the Boulder Paries contend that they do
not have assets sufficient to satisfy the Judgment and have provided the Trustee information
which they contend supports that position. The Boulder Paries, by entering into this Settlement,
do not concede the merit of any claims or the lack of merit of any defense to liability.
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L. The Class Representatives and the Trustee, by their respective counsel, have
conducted discussions and an ar's-length negotiation with the Boulder Paries and in an
attempt to settle the Litigation Claims and achieve the best relief possible consistent with the
interests of the Class and the 1031 Trust. This Agreement is the product of ar's-length
negotiations conducted in good faith. The Paries have voluntarily agreed to settle the Litigation
Claims and any other Released Claims after consultation with competent legal counseL. The
Boulder Paries, having taken into account the risk and expense of litigation and potential
litigation, are satisfied that the terms and conditions ofthis Agreement are fair, reasonable,
adequate, and in the best interests of the Boulder Paries. Class Representatives and the Trustee,
and their counsel, have concluded that the terms and conditions of this Agreement are fair,
reasonable, and adequate to the Class and the 1031 Trust, and in their best interests. The Trustee
and Class Counsel have reviewed the financial disclosures produced by the Boulder Paries and,
based thereon, have concluded that the ability of the Boulder Paries or any of them to satisfy the
Judgment or any further judgment is the subject of considerable doubt.
Class Counsel and the Trustee's Counsel state that they have conducted an investigation
relating to the Litigation Claims and the underlying events and transactions alleged in the 2009
Class Litigation and the Banptcy Court Litigation and have researched the applicable law
with respect to the claims and potential claims against the Boulder Paries and the potential
defenses thereto; and that their investigation included, among other things, reviewing and
analyzing relevant documents. Subject to the provisions herein, Class Representatives, the 1031
Trust, and the Trustee each agree to this Settlement under the terms and provisions of this
Agreement, after considering (a) the substantial benefits that Class Representatives, the Class,
and the 1031 Trust wil receive from the Settlement, (b) the attendant risks of litigation in both
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the 2009 Class Litigation and any Bankptcy Litigation, and (c) the desirabilty of permitting
the Settlement to be consummated as provided by the terms of this Agreement.
NOW THEREFORE, in consideration of the foregoing, the mutual promises contained
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is hereby STIPULATED AND AGREED, by and among the Paries,
subject to (1) the approval of the LTOB or an Order of the Banptcy Cour overrling any
objection to the Settlement asserted by the LTOB and (2) the approval of the Class Action Cour,
as follows:
1. Rules of Construction and Definitions. As used in this Agreement, the
following rules of construction and definitions apply to this Agreement, including the Exhibits to
this Agreement:
1.1 The definitions contained in this Agreement apply to capitalized terms
wherever those terms appear in this Agreement, including the prefatory paragraphs and recitals
above, the sections below, and the Exhibits hereto. Capitalized terms in the prefatory paragraphs
and recitals above, the sections below, and the Exhibits hereto have the meanings ascribed to
them therein to the extent they are not otherwise defined in this Section. Each defined term
stated in the singular shall include the plural and each defined term stated in the plural shall
include the singular. Any pronoun stated in the masculine, feminine, or neutral gender shall
include all genders. The word "including" when used in this Agreement means "including but
not limited to," and the words "include," "includes," and "included" shall be similarly construed.
The words "herein," "hereof," "hereunder," and any other words of similar import, when used in
this Agreement refer to the entirety of the Agreement, including the Exhibits hereto.
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1.2 "Banptcy Code" means Title 11 of the United States Code, II U.S.C.
§§ 101 et seq., as amended from time to time.
1.3 "Boulder's Counsel" or "Boulder Paries' Counsel" or the "MacDowell
Paries' Counsel" means The Gordon Law Firm LLP.
1.4 "Class" means, for purposes of the Settlement only, all Persons who were
customers of 1031 Advance 132 LLC, 1031 Advance, Inc., 1031 TG Oak Harbor, LLC, AEC
Exchange Company, LLC, Atlantic Exchange Company, Inc., Atlantic Exchange Company,
LLC, Investment Exchange Group, LLC, National Exchange Accommodators LLC (also known
as National Exchange Accommodations, LLC), National Exchange Services QI, Ltd., NRC 1031
LLC, Real Estate Exchange Services, Inc., Rutherford Investment, LLC, Security 1031 Services,
LLC, Shamock Holdings Group, LLC, and/or The 1031 Tax Group, LLC, including any
subsidiaries or affiliates of any of those entities engaged in business as Qualified Intermediaries
pursuant to 26 U.S.C. § 1031, as well as such Persons' assignees and successors, and who
suffered loss or damages or allegedly suffered loss or damages in any way, directly or indirectly,
related to or arising out of (a) the failure of any of the entities listed above, including their
subsidiaries or affiiates, (b) any of the events, acts or conduct alleged in the Complaint, the First
Amended Complaint, or any subsequent pleading or amended complaint in the Action entitled
Anita Hunter, et aL. v. Edward Okun, et at., United States District Cour for the Northern District
of California, Case No. 07-CV-02795 JW, (c) any of the events, acts or conduct alleged in the
Complaint or any subsequent pleading or amended complaint in the Action entitled Quirk
Infniti, Inc. v. Wachovia Bank, NA., United States District Cour for the District of
Massachusetts, Case No. 1:08-CV-12060; or (d) any of the events, acts or conduct alleged in the
Complaint, the Amended Complaint, the Second Amended Complaint, the Third Amended
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Complaint, or any subsequent pleading or amended complaint in the Action entitled Anita
Hunter, et at. v. eWbank, NA., et at., United States District Cour for the Northern District of
California, Case No. 09-CV -02079 JW. "Class" includes, but is not limited to, any Person who
was a member of the Wave I Settlement Class or the Wave II Settlement Class.
l.5 "Class Action Approval Order" means one or more orders and/or
judgments finally approving the Settlement entered pursuant to Federal Rule of Civil Procedure
23 by the Class Action Cour after a Fairness Hearing, which include(s) provisions (i) releasing
the Released Paries from all liabilty to the Class Representatives and Class members, (ii)
barring and enjoining all Class Representatives and Class members from prosecuting any of the
Released Claims against the Released Paries, (iii) barng and enjoining certain claims as
described in Exhibit 2, (iv) establishing a Settlement Fund (as defined below), (v) dismissing
claims against the Boulder Paries as described in Exhibit 2, and (vi) certifying the Class for
puroses of Settlement only as described in Exhibit 2. The Class Action Approval Order shall be
substantially similar to the form of Exhibit 2 hereto, including any non-material modifications
thereto, or other language agreed to by the Paries or required by the Class Action Cour.
1.6 "Class Counsel" means Hollster & Brace; Foley, Bezek, Behle & Curis,
LLP; and Zelle McDonough & Cohen LLP.
1 .7 "Effective Date" means the date by which all the following have
occurred: (i) entry of the Preliminar Approval Order (as defined below) in all material respects;
(ii) the Class Action Approval Order becoming Final or, if the Cour enters an order and final
judgment in form materially different than the Class Action Approval Order (the "Alternative
Judgment") and none of the Paries hereto elect to terminate this Settlement, the Alternative
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Judgment becoming Final; and (iii) approval of the Settlement pursuant to Section 7.18 of the
Plan and the 1 03 1 Trust Agreement.
1.8 "Estate" means the estate of one or more of the 1031 Debtors created
pursuant to Section 54 1 of the Banptcy Code.
1.9 "Execution Date" means the first date by which all of the Paries have
executed and delivered this Agreement. This Agreement shall be deemed delivered when the
last Pary sends an executed copy of this Agreement by electronic mail or overnight delivery in
accordance with Section 11 hereof.
1.10 "Fairness Hearing" means the hearing held by the Class Action Cour to
consider final approval of the Settlement pursuant to Rule 23( e) of the Federal Rules of Civil
Procedure.
1.11 "Final" means the latest of: (i) the expiration of the time to appeal,
petition for certiorari, move for reargument or rehearing or otherwise seek any review of the
relevant order or judgment and as to which no appeal, petition for certiorari, or other proceedings
for reargument, rehearing, or review shall then be pending; (ii) the final affirmance of the
relevant order or judgment on an appeal or after reconsideration or other review; or (ii) the date
on which all rights to appeal, petition for certiorari, or move for reargument or rehearing as to the
relevant order or judgment shall have been waived in writing. Any proceeding or order, or any
appeal or petition for a review of a proceeding or order, pertaining solely to any application for,
or award of attorneys' fees and/or expenses shall not in any way delay or preclude the Class
Action Approval Order or the Alternative Judgment from becoming FinaL.
1.12 "Final Payment Date" means the date upon which the Trustee receives all
payments required by and in accordance with Section 6 of the Agreement
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1.13 "Non-Settling Defendant" means any party (i) who has been or will be
sued by any of the putative Class Representatives, any member of the putative Class, the putative
Class, the Trustee, the 1031 Trust, or any 1031 Debtor, in the 2009 Class Litigation, in Hunter,
et at. v. Okun, et at., No. 07-CV-02795 (N.D. CaL), in Quirk Infniti, Inc. v. Wachovia Bank,
NA, No. 08-CV-12060-JLT (D. Mass.), or in any other action based on, in connection with,
arising out of, pertaining to, concerning, or in any way related to the Released Claims or any
Okun Entity, (ii) but who has not settled and who wil not have settled on or before the date that
the Class Action Cour enters the Class Action Approval Order with any of the putative Class
Representatives, any member of the putative Class, the putative Class, the Trustee, the 1031
Trust, or any 103l Debtor, in the 2009 Class Litigation, in Hunter, et at. v. Okun, et at., No. 07-
CV-02795 (N.D. CaL), in Quirk Infiniti, Inc. v. Wachovia Bank, NA, No. 08-CV-12060-JLT (D.
Mass.), or in any other action based on, in connection with, arising out of, pertaining to,
concerning, or in any way related to any of the Released Claims or any Okun Entity. The term
"Non-Settling Defendant" includes, but is not limited to, United Western Ban (f/ka Matrix
Capital Ban), Cordell Funding, LLLP, Cordell Consultants Inc. Money Purchase Plan, Cordell
Consultants New York, LLC, Robin Rodriguez, Silicon Valley Law Group, Edward H. Okun,
Lara D. Coleman, and Robert D. Field. The term "Non-Settling Defendant" does not include the
Boulder Paries.
1.14 "Notice" means the Summar Notice of Pendency of Class Action and
Wave III Settlements, substantially in the form attached as Exhibit 3 hereto.
1.15 "Okun Entities" means the 1 031 Debtors; Investment Properties of
America ("IPofA"); any entity that was directly or indirectly owned, controlled, or managed, in
whole or in par, by Okun or Simone Bolani; and any and all present or former subsidiaries,
524812.8 11
parents, successors, predecessors, representatives, affliates, members, related companies, or
assigns of any 1031 Debtor, IPofA, or any entity that was directly or indirectly owned,
controlled, or managed, in whole or in par, by Okun or Simone Bolani.
1.16 "Preliminar Approval Order" means the order of the Class Action Cour
preliminarily approving the Settlement and directing notice thereof to the Class substantially in
the form attached as Exhibit 1 hereto.
1.17 "Plaintiffs" means all Class Representatives and every member of the
Class.
1.18 "Released Claims" means any past, present, or future claim, demand,
right, action, litigation, arbitration, charge, complaint, obligation, cross-claim, counter-claim,
lawsuit, administrative proceeding, claim for fraud, notice of liability or potential liability, cause
of action, suit, or liability of any kind, nature, or description whatsoever, that has been, could
have been, may be, could be, or wil be asserted against the Boulder Parties, whether seeking
damages (including compensatory, punitive or exemplary damages) or equitable, mandatory,
injunctive, or any other type of relief, including costs, attorneys' fees, losses, and expenses of
any nature whatsoever, whether at law or in equity, whether known or Unknown (as defined
below), asserted or unasserted, anticipated or unanticipated, foreseen or unforeseen, suspected or
unsuspected, accrued or unaccrued, fixed or non-contingent or contingent, direct or derivative or
indirect, held at any point from the beginning of time to the Execution Date, belonging to the
Class, any of the Class Representatives, any of the Estates of the 1031 Debtors, the Trustee, or
the 1031 Trust, arising out of, based on, in connection with, pertaining to, concerning, or directly
or indirectly related in any way to (i) the subject matters of the Litigation Claims, including,
without limitation, any claims that have been or could have been asserted by any Class member
524812.8 12
in the 2009 Class Litigation or by the Trustee, the 1031 Trust, or any of the 1031 Debtors in the
Banptcy Case against the Released Paries (as defined below); (ii) Okun; (iii) any of the 1031
Debtors, including their parents, subsidiaries, or affiliates; (iv) IPofA; (v) any Okun Entity; (vi)
any entity that is or was related to any Okun Entity or Okun; (vii) anything related to or arising
under the events, allegations, facts, acts, omissions, advice, occurences, conduct, or transactions
stated or referred to in the Complaint, the First Amended Complaint, the Second Amended
Complaint, the Third Amended Complaint, or any subsequent pleading or amended complaint in
Hunter, et al. v. eitbank, NA., et aI., No. 09-CV-02079-JW (N.D. CaL); (viii) anything related
to or arising under the events, allegations, facts, acts, omissions, advice, occurrences, conduct, or
transactions stated or referred to in the Complaint, the First Amended Complaint, or any
subsequent pleading or amended complaint in Hunter, et at. v. Okun, et at., No. 07-02795-JW
(N.D. CaL); (ix) anything related to or arising under the events, allegations, facts, acts,
omissions, advice, occurences, conduct, or transactions stated or referred to in the existing or
subsequent pleadings, complaints, or amended complaints in Quirk Infiniti, Inc. v. Wachovia
Bank, NA., No. 08-CV-12060-JLT (D. Mass.); and (x) anything related to or arising under the
events, allegations, facts, acts, omissions, advice, occurrences, conduct, or transactions stated or
referred to in the Complaint, the First Amended Complaint, or any subsequent pleading or
amended complaint in the Banptcy Litigation against the Boulder Paries; provided, however,
Released Claims shall not include any claim arising out of the violation, nonperformance, or
breach of this Agreement or any claim against Non-Settling Defendants in the 2009 Class
Litigation.
1.19 "Released Parties" means the Boulder Paries (as defined above).
"Released Parties" does not include any Non-Settling Defendants in the 2009 Class Litigation.
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1.20 "Settled Defense Claims" means any past, present, or future claim,
demand, action, cause of action, suit, or liabilty of any kind or nature whatsoever, whether at
law or in equity, whether known or Unkown (as defined below), asserted or unasserted,
anticipated or unanticipated, accrued or unaccrued, fixed or contingent, held at any point from
the beginning of time to the date of this Agreement, arising out of, connected with, or in any way
relating, directly or indirectly, to the subject matters of the Litigation Claims, that have been or
could have been asserted by the Boulder Paries or any of them individually, or the successors
and assigns of any of them against any of the Class Representatives, the Trustee, the 1031 Trust,
or the 1031 Debtors and their legal representatives, heirs, successors or assigns, and/or their
attorneys; provided, however, Settled Defense Claims shall not include any claim arising out of
the violation or breach of this Agreement.
1.21 "Settlement" means the terms of the settlement embodied in this
Settlement Agreement.
1.22 "Settlement Fund" means the qualified settlement fund that the Class
Action Court shall establish pursuant to 26 C.F.R. § 1468B et seq. into which the Boulder Paries
and Virginia MacDowell shall deposit the Settlement Amount on the Payment Dates set forth in
Section 6 hereof.
1.23 "Trustee's Counsel" means Golenbock Eiseman Assor Bell & Peskoe
LLP.
1.24 "Unkown Claims" means any and all (i) Released Claims which any
Class Representative, Class member, the Trustee, or any of the 1031 Debtors does not know or
suspect to exist in his, her, or its favor at the time of the release of the Released Paries, and any
and all (ii) Settled Defense Claims which anyone or more of the Boulder Paries does not know
524812.8 14
or suspect to exist in its or his favor at the time of the release of the Settled Defense Claims,
which, in each case of (i) and (ii), if known by him, her, or it might have affected his, her, or its
decision( s) with respect to the Settlement. With respect to any and all Released Claims and
Settled Defense Claims, the Paries stipulate and agree that upon the Final Payment Date, the
Class Representatives, the Trustee, the 1031 Trust, and the Boulder Paries shall expressly waive
and relinquish to the fullest extent permitted by law, and each Class member and the 1031
Debtors shall be deemed to have waived and relinquished (and by operation of the Class Action
Approval Order, each Class member shall have expressly waived and relinquished), any and all
provisions, rights and benefits conferred by California Civil Code § 1542 and any federal law,
any law of any state or territory of the United States, or any principle of common law, which is
similar, comparable, or equivalent to California Civil Code § 1542. California Civil Code §
1542 provides:
A GENERAL RELEASE DOES NOT E)(TEND TO CLAIMSWHICH THE CREDITOR DOES NOT KNOW OR SUSPECTTO E)(IST IN HIS OR HER FAVOR AT THE TIME OFE)(ECUTING THE RELEASE, WHICH IF KNOWN BY HIMOR HER MUST HAVE MATERIALLY AFFECTED HIS ORHER SETTLEMENT WITH THE DEBTOR.
It is the intention of the Paries that, notwithstanding the provisions of Section 1542 or any
similar provisions, rights and benefits conferred by law, and notwithstanding the possibility that
the Class Representatives, the Trustee, the 1031 Trust, the Boulder Paries, or their counsel may
discover or gain a more complete understanding of the facts, events or law that, if presently
known or fully understood, would have affected the decision to enter into this Agreement, any
and all Released Claims and Settled Defense Claims, including Unkown Claims, shall be fully,
finally, and forever settled. In fuherance of this Agreement, the Parties expressly waive any
and all rights they may have under any contract, statute, code, regulation, ordinance, or the
524812.8 15
common law, which may limit or restrict the effect of a general release as to claims that they do
not know or suspect to exist in their favor at the time of the execution of this Agreement. The
Class Representatives, the Trustee, the 1031 Trust, and the Boulder Paries acknowledge, and
Class members and the 1031 Debtors by operation of law shall be deemed to have
acknowledged, that the inclusion of "Unkown Claims" in the definitions of Released Claims
and Settled Defense Claims was separately bargained for and was a key element of the
Settlement.
2. Scope and Effect of Settlement
2.1 Subject to Section 2.2 of this Agreement, the obligations incured under
this Agreement shall be in full and final resolution and disposition of the Litigation Claims and
any and all Released Claims against all Released Parties and all Settled Defense Claims.
2.2 Upon the Final Payment Date, the Class Representatives, the Class
members, the Trustee, and the 1031 Trust, on behalf of themselves and each of their past or
present officers, directors, employees, agents, representatives, general or limited partners,
managers, members, affiiates, parents, subsidiaries, heirs, executors, administrators, successors
and assigns, shall, to the fullest extent of their authority to do so, with respect to each and every
Released Claim, fully, finally, completely, and unconditionally release, acquit, forever discharge,
dismiss with prejudice, compromise, resolve, settle, and waive any Released Claim against any
Released Party.
2.3 Upon the Final Payment Date, each of the Released Paries shall release
and forever discharge each and everyone of the Settled Defense Claims, and shall forever be
enjoined from prosecuting the Settled Defense Claims.
524812.8 16
2.4 The Paries acknowledge and agree that the Settlement Amount hereunder
represents a compromise of all alleged or possible damages including but not limited to lost
exchange fuds, tax liabilities, attorneys' fees, costs, and any other consequential, emotional
distress, and/or punitive damages.
2.5 Nothing in this Section 2 is intended to, or shall be construed to, affect the
Paries' ability to enforce this Agreement.
2.6 Nothing in this Agreement shall constitute a release, waiver, or assignment
of any of the 1031 Trust's, the 1031 Debtors', or the Class's rights against any person or entity
other than the Boulder Parties.
3. Bar Order
3.1 To the extent permitted by applicable law, the Class Action Approval
Order shall contain provisions enjoining and baring all Class members, Non-Settling
Defendants, and Settling Defendants from commencing any action or asserting any claim against
the Boulder Paries substantially similar in form and effect to paragraphs 7-8 and paragraph 10 of
Exhibit 2 hereto, including non-material modifications thereto, or other language agreed to by
the Paries or required by the Class Action Court.
4. Class Certifcation
4.1 For puroses of this Settlement only, the Parties stipulate to the
certification of the 2009 Class Litigation as a class action pursuant to Federal Rules of Civil
Procedure 23(a) and 23(b)(3), on behalf of the Class as defined herein. Class Representatives
shall also be certified as the representatives of the Class. Such certification shall be conditioned
on the approval and effectiveness of this Settlement, and it is expressly understood and agreed
that the Boulder Paries do not waive any of their rights to contest certification in the event the
524812.8 17
Settlement is not consummated, becomes null and void pursuant to any provision of this
Agreement, or is terminated.
5. Court and Board Approval(s)
5.1 As soon as practicable, following the Execution Date, the Trustee shall
seek all approval( s) of the Settlement required under Section 7.18 of the Plan and the 1031 Trust
Agreement.
5.2 As soon as practicable the Class Representatives and the Boulder Paries
shall jointly apply to the Class Action Cour for entry of a Preliminary Approval Order,
substantially in the form attached as Exhibit 1, and Class Counsel shall move for certification of
the Class solely for purposes of this Settlement and shall provide Notice to the Class as
prescribed by the Preliminary Approval Order, pursuant to Federal Rule of Civil Procedure 23.
In addition, as soon as practicable, the Class Representatives (on behalf of themselves and the
Class) and the Boulder Paries shall jointly apply to the Class Action Cour for entry of the Class
Action Approval Order, substantially in the form attached as Exhibit 2. The Boulder Parties, the
Class Representatives, the 1031 Trust, and the Trustee wil reasonably cooperate to obtain entry
of the foregoing as expeditiously as practicable.
6. Payment of the Settlement Amount
6.1 Payment of the Settlement Amount. In consideration for the agreements
and covenants of the Trustee, the 1031 Trust, and the Class Representatives set forth in this
Agreement, Roy S. MacDowell, Jr. and Virginia MacDowell shall pay, or cause to be paid, to the
Settlement Fund, to be held as a settlement fund for the benefit of the 1031 Trust and the Class,
and as shared pursuant to the Class-Trustee Agreement and the orders of the Class Action Cour,
524812.8 18
the amounts set forth in Sections 6.2 and 6.3 below (such amounts collectively, the "Settlement
Amount") in accordance with the terms set forth herein.
6.2 Roy S. MacDowell, Jr. wil pay to the Settlement Fund, to be held as a
settlement fund for the benefit of the 1031 Trust and the Class, and as shared pursuant to the
Class-Trustee Agreement and the orders of the Class Action Cour the following amounts (such
amounts collectively, the "Time-Based Payments"), in each case in immediately-available fuds
as and when such payments are made, as follows:
(a) An initial payment in the amount of $25,000 (the "Initial Payment") to be
paid to the MacDowell Paries' Counsel fourteen (14) days prior to the Fairness Hearing to be
held in escrow and to be released from escrow and delivered to the Trustee within one business
day of the Effective Date;
(b) $50,000 on the one-year aniversary of the Effective Date;
(c) $75,000 on the two-year aniversary of the Effective Date;
(d) $75,000 on the three-year anniversary of the Effective Date; and
(e) $75,000 on the four-year anniversary of the Effective Date.
The Time-Based Payments wil be evidenced by a promissory note, substantially in the form set
forth as Exhibit 4 attached hereto.
6.3 (a) Virginia MacDowell wil cause Baystone Residual LLC, a
Massachusetts limited liability company ("Baystone Residual") to, and Roy S. MacDowell, Jr.
shall pay (with respect to any amounts set forth in Section 6.3(a)(iv) below) to the Settlement
Fund, to be held as a settlement fud for the benefit of the 1031 Trust and the Class, and as
shared pursuant to the Class-Trustee Agreement and the orders of the Class Action Cour, the
lesser of (a) $1,700,000 or (b) the sum of the following amounts (such amounts collectively, the
524812.8 19
"Distributed Payments"), in each case in immediately-available fuds as and when such
Distributed Payments as described below are made to any MacDowell Pary or any MacDowell
Affliate (as defined below), as applicable, that are set forth in (i) that certain Amended and
Restated Limited Parnership Agreement (the "Fund Agreement") of Baystone Fund I, L.P. (the
"Fund") to be entered into following the date hereof, by and among Baystone Fund I GP, LLC
(the "General Parner") and the limited parners parties thereto, and substantially in the form and
substance provided to the Trustee by Roy S. MacDowell, Jr. pursuant to an affidavit dated as of
the date hereof, (ii) that certain Limited Liabilty Company Agreement (the "GP Agreement") of
the General Parner, to be entered into following the date hereof, by and among Baystone
Residual, Baystone Investor LLC, a Massachusetts limited liability company ("Baystone
Investor"), and the other paries thereto, and substantially in the form and substance provided to
the Trustee by Roy S. MacDowell, Jr. pursuant to an affidavit dated as of the date hereof, (iii)
that certain Limited Liabilty Company Agreement (the "Baystone Investor LLC Agreement") of
Baystone Investor, to be entered into following the date hereof, and substantially in the form and
substance provided to the Trustee by Roy S. MacDowell, Jr. pursuant to an affdavit dated as of
the date hereof, and (iv) that certain Limited Liabilty Company Agreement (the "Baystone
Residual LLC Agreement") of Baystone Residual, to be entered into following the date hereof,
and substantially in the form and substance provided to the Trustee by Roy S. MacDowell, Jr.
pursuant to an affidavit dated as of the date hereof:
(i) an amount equal to 80% of20% of all Cared Interest Distributions
(as defined in the Fund Agreement) that are distrbuted to Baystone Residual from time to time
pursuant to the GP Agreement (such amounts collectively, the "Car Distributions"), as and when
524812.8 20
such Car Distributions are distributed by Baystone Residual in accordance with the Fund
Agreement, the GP Agreement and the Baystone Residual LLC Agreement;
(ii) an amount equal to 80% of 20% of all fees or other amounts
payable to any MacDowell Par or any MacDowell Affiliate pursuant to Sections 6. 1 (b) (xxi)
and 6.7(d)(ii) of the Fund Agreement or otherwise that are paid to Roy S. MacDowell, Jr.,
Virginia MacDowell, any Affiiate (as defined in the Fund Agreement) or family member
thereof, or any Affliate of such family member (each, a "MacDowell Affliate") from time to
time pursuant to the Fund Agreement, the GP Agreement, the Baystone Investor LLC Agreement
and/or Baystone Residual LLC Agreement, as applicable (such amounts, collectively, the
"Service Fee Payments"), as and when such Service Fee Payments are paid to such MacDowell
Pary or MacDowell Affiiate, including, but not limited to: (A) such portion of any property
management fee in excess of3% of the gross revenues generated by the applicable property (it
being understood that 80% of 20% of any portion of a property management fee in excess of 3 %
of gross revenues shall be paid to the Settlement Fund) and (B) such portion of any construction
management fee in excess of (x) 5% of the cost of any construction project with an aggregate
cost ofless than $10,000,000 and (y) 4% of the cost of any construction project with an
aggregate cost in excess of $1 0,000,000 (it being understood that 80% of 20% of any portion of a
construction management fee in excess of 5% or 4%, as applicable, shall be paid to the
Settlement Fund), provided, however, that Service Fee Payments shall not include (W)
Management Fees (as defined in that certain Management Agreement, to be entered into
following the date hereof, by and among Baystone Investor, the Fund and the General Parner,
and substantially in the form provided to the Trustee by Roy S. MacDowell, Jr. pursuant to an
affdavit dated as of the date hereof, ()() any amounts distributed to Baystone Investor in respect
524812.8 21
of Capital Contributions (as defined in the Fund Agreement) made by it pursuant to the Fund
Agreement, (Y) such portion of any property management fee that does not exceed 3% of the
gross revenues generated by the applicable property or (Z) such portion of any construction
management fee that does not exceed (x) 5% of the cost of any construction project with an
aggregate cost of less than $10,000,000 and (y) 4% of the cost of any construction project with
an aggregate cost in excess of $1 0,000,000;
(iii) an amount equal to 80% of 20% of all fees, distributions or other
amounts payable to any MacDowell Pary or any MacDowell Affliate by any Vehicle,
Alternative Investment Vehicle, Parallel Fund, Co-Investment Vehicle or Feeder Fund (each as
defined in the Fund Agreement), or with respect to proceeds realized from (A) any Investment
(as defined in the Fund Agreement) in an asset that fits the Fund's investment objectives and
criteria (including Investments that are prohibited pursuant to Section 8.1 of the Fund Agreement
or described in Section 13.3(c) of the Fund Agreement) and (B) any pooled, multiple investment
fund with investment criteria similar to that of the Fund, in each case that are paid or distributed
to any MacDowell Pary or any MacDowell Affliate from time to time pursuant to the Fund
Agreement, the GP Agreement, the Baystone Investor LLC Agreement, the Baystone Residual
LLC Agreement, or such other agreement or arangement providing for such payment or
distribution, as applicable (such amounts collectively, the "Other Payments"), as and when such
Other Payments are paid to such MacDowell Pary or MacDowell Affiiate, including, but not
limited to: (1) such portion of any property management fee in excess of 3 % of the gross
revenues generated by the applicable property (it being understood that 80% of 20% of any
portion of a property management fee in excess of 3% of gross revenues shall be paid to the
Settlement Fund) and (2) such portion of any construction management fee in excess of (x) 5%
524812.8 22
of the cost of any construction project with an aggregate cost of less than $10,000,000 and (y)
4% of the cost of any construction project with an aggregate cost in excess of $1 0,000,000 (it
being understood that 80% of 20% of any portion of a construction management fee in excess of
5% or 4%, as applicable, shall be paid to the Settlement Fund), provided, however, that Other
Payments shall not include ()() any amounts distributed to Baystone Investor in respect of
Capital Contributions made by it pursuant to such Vehicle, Alternative Investment Vehicle,
Parallel Fund, Co-Investment Vehicle or Feeder Fund, (Y) such portion of any property
management fee that does not exceed 3% of the gross revenues generated by the applicable
property or (Z) such portion of any construction management fee that does not exceed (x) 5% of
the cost of any construction project with an aggregate cost of less than $10,000,000 and (y) 4%
of the cost of any construction project with an aggregate cost in excess of $10,000,000; and
(iv) an amount of 80% of all compensation or other amounts (other
than reimbursement for reasonable out-of-pocket expenses) payable to Roy S. MacDowell, Jr. by
any MacDowell Party or MacDowell Affiliate (other than with respect to compensation or other
amounts that relate to any business activity that is not an Investment or is an Investment made
prior to the date hereof).
(b) Prior to the dissolution of the Fund in accordance with Section 14. 1 of the
Fund Agreement or payment in full of $1,700,000 pursuant to Section 6.3(a) above, without the
prior written consent of the Trustee, on behalf of the 1031 Trust, the General Parner, the
Principal (as defined in the Fund Agreement), Baystone Investor and any General
ParnerlManager Affiiate (as defined in the Fund Agreement), as applicable, shall devote such
of its business-related time and attention as is necessary to conduct the business and affairs of the
Fund, any Vehicle, Alternative Investment Vehicle, Parallel Fund, Co-Investment Vehicle or
524812.8 23
Feeder Fund, or other entity through which the General Parner, the Principal, Baystone Investor
or any General Partner/Manager Affiliate, as applicable, has made an Investment.
(c) Notwithstanding Section 14.2 of the Fund Agreement, in no event shall
any amount paid to the 1031 Trust pursuant to this Agreement be subject to Section 14.2 of the
Fund Agreement, or be deemed an Over-Distribution (as defined in the Fund Agreement) for any
purose under the Fund Agreement or otherwise.
(d) The General Parner shall deliver to the Trustee, on behalf of the 1031
Trust, true and correct copies of each report, financial statement and other documents delivered
to the Fund's Limited Parners (as defined in the Fund Agreement), as and when such reports,
financial statements and other documents are delivered to the Limited Partners, and such other
information as may be requested by the Trustee from time to time. In addition to the foregoing,
the General Partner shall (i) grant to the Trustee access to the books and records of the Fund, and
permit the Trustee to inspect and make copies of such books and records, in each case at the
Trustee's cost and expense, and (ii) provide written notice to the Trustee not less than ten (10)
business days prior to entering into any agreement that waives a portion of or otherwise reduces
the Carried Interest Distributions that would otherwise be payable to the General Partner by the
Fund in respect of a Limited Parner (as defined in the Fund Agreement).
(e) (i) As collateral security for all of the Virginia MacDowell's
obligations hereunder, Virginia MacDowell hereby grants, conveys and pledges to the Trustee,
for the benefit of the 1031 Trust, the Class, and the Settlement Fund, a first priority continuing
security interest in all of its right, title and interest in and to the limited liability company interest
of Baystone Residual owned by her (the "Pledged Interest"), and the certificates, if any,
representing the Pledged Interest, together with all cash and non-cash proceeds of the foregoing,
524812.8 24
and all substitutions, renewals and replacements thereof, and all rights of payment, dividends,
distributions, (whether paid in cash or otherwise), subscriptions, splits, warants and any other
rights accruing to any of them by reason of their interest therein, regardless of the form or
character thereof, and all other rights appurtenant to the foregoing (collectively, the "Pledged
Collateral"). Virginia MacDowell shall cooperate with the Trustee with respect to the execution
and filing of Uniform Commercial Code financing statement in connection with the grant of the
security interest hereunder.
(ii) Upon the occurrence of a default in the timely payment of any
amount payable by or on behalf of Virginia MacDowell hereunder, the Trustee shall have all the
rights of a secured party under the Massachusetts Uniform Commercial Code, as amended or
revised from time to time (the "Code"), all rights now or hereafter existing under all applicable
laws, and all the rights set forth in this Settlement Agreement. Without limiting the foregoing,
upon the occurrence of such default, the Trustee may, at the Trustee's election, without
diligence, presentment, demand, protest or other notice of any kind, all of which are hereby
expressly waived, do anyone or more of the following:
(iii) make such payments and do such acts as the Holder considers
necessary or reasonable to protect its interest in all or any portion of any of the Pledged
Collateral;
(iv) notify the manager of Baystone Residual that (A) any distribution
or other payment that would otherwise be made or payable to Virginia MacDowell shall be made
to the Trustee until further notice from the Trustee to such manager, and (B) the Trustee is
entitled to exercise all rights with respect to the Pledged Collateral, including, without limitation,
524812.8 25
all such rights that are set forth in the Baystone Residual LLC Agreement, until fuher notice
from the Trustee to such manager;
(v) ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, lease, license or other disposition, and advertise for sale, lease, license or other disposition,
all or any portion of any of the Pledged Collateral; and/or
(vi) sell, lease, license or otherwise dispose of all or any portion of any
of the Pledged Collateral at either a public or private proceeding, or both, by way of one or more
contracts or transactions, for cash or on terms, in such maner and at such places as the Trustee
determines is commercially reasonable, it being agreed that it is not necessary that the Pledged
Collateral be present at any such sale, lease, license or other disposition.
(vii) Upon the occurrence and continuation of a default of Virginia
MacDowell's obligations hereunder, Virginia MacDowell hereby irrevocably appoints the
Trustee as her attorney-in-fact, with full authority in the place and stead of Virginia MacDowell
and in the name of Virginia MacDowell, the Trustee or otherwise, to take any action and to
execute any instrument which the Trustee, in its sole discretion, may deem necessary or
advisable to enforce the Trustee's rights and remedies hereunder and to accomplish the purposes
of the pledge of the Pledged CollateraL.
(viii) Notwithstanding anything to the contrary contained herein, upon
the occurence and continuation ofa default of Virginia MacDowell's obligations hereunder, the
Trustee shall be entitled to retain the Pledged Collateral in parial satisfaction of the amounts
payable hereunder, and shall be entitled to the receipt of all proceeds and amounts payable
therefrom, until such time as all amounts payable hereunder have been repaid in fulL.
524812.8 26
(f) In the event of any breach or violation of this Settlement Agreement by
Virginia MacDowell or any Affiiate thereof, either threatened or actual, the Trustee's rights
shall include, in addition to any and all other rights available to the Trustee at law or in equity,
the right to seek and obtain any and all injunctive relief or restraining orders available to it in
cours of proper jurisdiction, so as to prohibit, bar, and restrain any and all such breaches or
violations by Virginia MacDowell. Each of the paries hereto further agrees that no bond need
be filed in connection with any request by the Trustee for a temporary restraining order or for
temporary or preliminary injunctive relief.
(g) Notwithstanding (a) Section 11.2 of the Fund Agreement, the General
Parner shall not Transfer (as defined in the Fund Agreement) all or any portion of its Interest (as
defined in the Fund Agreement), and (b) Baystone Residual shall not Transfer all or any portion
of its Interest (as defined in the Baystone Residual LLC Agreement), in either case to any
MacDowell Affliate, without the prior written consent of the Trustee (which consent shall not be
unreasonably withheld, conditioned or delayed).
(h) In no event shall the General Partner, Baystone Residual or Baystone
Investor amend, modify or otherwise waive any provision of the Fund Agreement, the GP
Agreement or the Baystone Residual LLC Agreement, in each case without the prior written
consent of the Trustee, except for such amendments, modifications or waivers that do not affect
the rights of the Trustee hereunder or otherwise frustrate, hinder or delay the prompt payment in
full of all amounts due hereunder (it being understood that if the General Parner waives a
portion of or otherwise reduces the Carried Interest Distributions that would otherwise be
payable to the General Partner by the Fund in respect of a Limited Parner, such waiver shall not
require the consent of the Trustee).
524812.8 27
(i) The General Parner shall not issue additional interests in the General
Parner to any MacDowell Affiiate that affects the Paricipation Percentage (as defined in the
GP Agreement) of Baystone Residual (it being recognized that the General Parner may issue
such additional interests in the General Parner to third paries that provide services to the
General Parner, the Fund or their respective Affiliates that wil reduce the Paricipation
Percentage of Baystone Residual by the Paricipation Percentage granted to such third pary).
G) Other than the Management Fee and the property management fees and
construction management fees described in Sections 6.3(a)(ii) and 6.3(a)(iii), neither the Fund,
nor any Vehicle, Alternative Investment Vehicle, Parallel Fund, Co-Investment Vehicle or
Feeder Fund shall payor cause to be paid to any MacDowell Pary or any MacDowell Affliate
all or any portion of any fee or other amount (except for reimbursement of reasonable out-of-
pocket expenses, Caried Interest Distributions and amounts distributed in respect of Capital
Contributions made by such MacDowell Pary or MacDowell Affiliate) with respect to any
Investment or otherwise.
(k) In addition to all other amounts payable hereunder, Virginia MacDowell
hereby agrees to pay (a) interest on any Distributed Payment that is not promptly paid to the
Trustee in accordance with this Agreement, at a rate of 12% per annum, compounding montWy,
and (b) on demand, all costs and expenses (including, without limitation, all reasonable fees and
other reasonable charges of counsel to the Trustee) incurred by the Trustee in connection with
the enforcement of the Trustee's rights, and the collection of all amounts due, hereunder.
6.4 Class members shall look solely to the Settlement Fund for settlement and
satisfaction of any and all Released Claims against any and all of the Released Paries. None of
the Released Paries shall be responsible for any fees and expenses of Class Counsel, Trustee's
524812.8 28
Counsel, experts, consultants, and agents, or any administrative or other approval expenses of the
Settlement, including Taxes, if any. None of the Released Paries shall be responsible for any
administration expenses, including but not limited to costs and expenses of providing notice to
members of the putative Class, costs and expenses associated with the administration of the
Settlement Fund, escrow fees, taxes, and custodial fees. None of the Released Paries shall have
any liability with respect to any taxes, expenses and/or costs incured in connection with the
taxation of the Settlement Fund or the payment or withholding of taxes, or the preparation or
filing of any returs.
6.5 The Boulder Paries and/or Virginia MacDowell shall not seek
reimbursement directly or indirectly from the Trustee, the 1031 Debtors, the Class
Representatives or any non-pary insurers of the 1031 Debtors (in such insurers' capacity as
insurers to the 1031 Debtors), for any payment the Boulder Paries and/or Virginia MacDowell
are required to make under this Agreement, whether by way of a claim for contribution,
indemnification, subrogation, retrospective premium, deductible, or otherwise.
7. Rights of Exclusion or Objection
7.1 Any prospective Class member may seek to be excluded from the Class
and the Settlement provided for by this Agreement by submitting a written request for exclusion
in conformity with the requirements stated in the Notice. Any Class member so excluded shall
not be bound by any Class Action Approval Order and Final Judgment and/or other Order or
judgment of the Class Action or Banptcy Court entered pursuant to this Agreement.
7.2 Any Class member who does not exclude himself, herself, or itself from
the Class and Settlement shall have the right to submit written objections concerning the
Settlement, which objections shall state all of the reasons for the objections (e.g., a mere
524812.8 29
statement that "I object" shall not be deemed sufficient). All entities desiring to send a
representative to attend the Fairness Hearing and be heard as objectors must have fied written
objections as provided herein as a condition of appearing and being heard at such hearing.
7.3 To retract or withdraw a request for exclusion, a Class member must file a
written notice with Class Counsel (and Class Counsel must provide such notice to the Boulder
Paries' Counsel) within thirty (30) calendar days of Class Counsel's receipt of the Termination
Notice (unless such time is extended by written agreement) stating the member's desire to retract
or withdraw his, her, or its request for exclusion and that member's desire to be bound by any
judgment or settlement in this action; provided, however, that the fiing of such written notice
may be effected by Class Counsel or Trustee's CounseL. Class Counsel or Trustee's Counsel
shall promptly notify the Boulder Paries' Counsel of any retraction or withdrawal of a request
for exclusion.
7.4 Class Counsel shall provide any submitted requests for exclusion to the
Boulder Paries' Counsel bye-mail within five (5) business days after receipt. The Boulder
Paries shall have the right to terminate the Settlement as to all Paries if any prospective member
or members of the Class timely and validly request exclusion from the Class in accordance with
the Notice. If the Boulder Paries exercise the termination right under this paragraph, (i) the
Agreement shall become null and void and of no further force and effect as among all Paries, (ii)
all Parties shall revert to their respective litigation positions as to each other as of the day before
the Execution Date, (iii) the Parties' obligations to each other under the Settlement shall become
null and void and of no further force and effect, (iv) the Settlement Amount shall be returned to
the Boulder Paries within five (5) business days, and (v) the fact and terms of the Settlement
524812.8 30
shall not be offered or construed or deemed as evidence against any of the Paries, in accordance
with the terms of the Agreement.
7.5 The Boulder Paries shall notify Class Counsel and Trustee's Counsel in
writing of their decision to terminate the Settlement under Section 7.4 above within ten (10)
business days (unless such time is extended by written agreement) of the Boulder Paries'
Counsel's receipt of any submitted requests for exclusion (the "Termination Notice"). If the
Boulder Paries provide the Termination Notice to Class Counsel, Class Counsel shall have thirty
(30) calendar days (unless such time is extended by written agreement) after receipt of the
Termination Notice to cause any prospective Class members to retract their requests for
exclusion. If all prospective Class members who timely and validly request exclusion retract
their requests for exclusion, then the Termination Notice shall become null and void and of no
fuher force or effect.
7.6 Any Class member who does not paricipate in the Settlement Fund's
distribution, but who does not request exclusion from the Class, shall not be considered excluded
for the puroses of the Agreement.
8. Representations and Warranties ofthe Parties
8.1 Each of the Parties separately represents and warants that it has the
requisite power and authority to enter into this Agreement and to perform the obligations
imposed on it by this Agreement, subject in the Class Representatives' case to the Class Action
Court approving this Agreement and subject in the case of the Trustee and the 1031 Trust to any
approval(s) required by the Plan (by the 1031 Debtors Liquidation Trust Oversight Board, or if
not so approved, in the alternative, by the Banptcy Court).
524812.8 31
8.2 Each ofthe Parties separately represents and warants that the execution
and delivery of, and the performance of the obligations contemplated by this Agreement has been
approved by duly authorized representatives of the Pary, subject in the Class Representatives' case
to the Class Action Court approving this Agreement and subject in the case of the Trustee and the
1031 Trust to any approval(s) required by the Plan (by the 1031 Debtors Liquidation Trust
Oversight Board, or if not so approved, in the alternative, by the Banptcy Cour).
8.3 Each of the Parties separately represents and warants that the Pary has
expressly authorized its undersigned representative to execute this Agreement on the Pary's
behalf as its duly authorized agent and that the Party has carefully read the Agreement, knows
and understands the contents hereof, and is freely executing the Agreement.
8.4 Without limiting the foregoing, the Trustee represents that it has not sold
or assigned any potential claims or claims of the Debtors, Okun, or the Okun Entities against the
Boulder Paries.
8.5 Each of the Parties separately represents and warants that this Agreement
has been thoroughly negotiated and analyzed by its counsel and has been executed and delivered
in good faith, pursuant to ars' length negotiations, and for good and valuable consideration.
9. Entire Agreement
9.1 This Agreement and its Exhibits, constitute a single integrated written
contract that expresses the entire agreement and understanding between and among the Paries
with respect to matters that are the subject of this Agreement. If any material provision hereof is
deemed unenforceable by a cour of competent jurisdiction, then the Agreement as a whole shall
be deemed terminated and null and void by written notice, and the rights and obligations of the
Paries shall be the same as if the Agreement were terminated and became null and void by
524812.8 32
written notice. Except as otherwise expressly provided herein, this Agreement supersedes all
prior communications, discussions, negotiations, agreements, settlements, and understandings
between the Parties and their representatives regarding the matters addressed by this Agreement,
whether oral or written, all of which are merged herein. Except as explicitly set forth in this
Agreement, there are no representations, waranties, promises, statements, or inducements,
whether oral, written, expressed, or implied, that in any way affect or condition the validity of
this Agreement or alter or supplement its terms. Any representations, warranties, promises,
statements, or inducements, whether made by any Pary or any agents of any Pary, that are not
contained in this Agreement shall not be valid or binding. If the facts or law related to the
subject matter of this Agreement are found hereafter to be other than is now believed by any of
the Paries, then each of them expressly accepts and assumes the risk of such possible difference
of fact or law, and agrees that this Agreement nonetheless shall be and remain effective
according to its terms.
10. No Admissions by Parties
10.1 This Agreement, whether or not consummated, and any act performed or
document executed pursuant to or in fuherance of the Agreement, the Settlement, or any
negotiation, discussion or proceedings in connection with this Agreement or the Settlement:
(a) does not constitute and shall not be offered against any or all Released
Paries for any reason including, without limitation, as evidence of or construed as or deemed to
be evidence of any presumption, concession, or admission by any or all Released Parties with
respect to the truth of any fact alleged by Class Representatives or the Trustee, or the validity or
merit of any claim that has been, was, could be, or could have been asserted in the 2009 Class
Litigation or the Banptcy Litigation, or the deficiency, lack of merit, or infirmity of any
524812.8 33
defense that has been, was, could be, or could have been asserted in the 2009 Class Litigation or
the Banptcy Litigation, or of any liabilty, negligence, fault, damage, or wrongdoing of any or
all Released Paries;
(b) does not constitute and shall not be offered against any or all Released
Paries as evidence of or construed as or deemed evidence of a presumption, concession or
admission of any fault, misrepresentation or omission with respect to any statement or written
document approved or made by any or all Released Paries, or against any or all putative Class
Representatives, the Class, or the Trustee as evidence of any infirmity in the Litigation Claims;
(c) does not constitute and shall not be offered against any or all Released
Paries as evidence of or construed as or deemed evidence of a presumption, concession or
admission with respect to any liability, negligence, fault, damage, or wrongdoing, or in any way
used or referred to for any other reason as against any of the Paries to this Agreement, in any
other civil, criminal or administrative action or proceeding (including, but not limited to, any
formal or informal investigation or inquiry by any state or federal governental or regulatory
agency), other than such proceedings as may be necessary to effectuate the provisions of this
Agreement;
(d) does not constitute and shall not be offered or construed against any or all
Released Paries as an admission or concession that the consideration to be given hereunder
represents the amount that could be or would have been recovered after trial; and
(e) does not constitute and shall not be offered or construed as an admission,
concession or presumption against Class Representatives, the Class, the Trustee, or the 1031
Debtors, that any of their claims are without merit. Notwithstanding any other provision of this
Agreement, any or all Released Paries may file the Agreement, the Class Action Approval
524812.8 34
Order, and/or any other document fied with or by the Class Action Cour in any other action or
proceeding that may be brought against any or all of them in support of a defense, counterclaim,
or argument based on principles of res judicata, collateral estoppel, law of the case, release, good
faith settlement, judgment, bar or reduction, or any theory of claim preclusion or issue preclusion
or similar defense or counterclaim, or any other liabilty protection granted them hereunder.
(f) shall not be offered in evidence or otherwse used by any Party to this
Agreement in these or any other actions or proceedings, whether civil, criminal, or
administrative, except (i) as required to enforce this Agreement, the Class Action Approval
Order, or any provision contained in this Agreement, or (ii) in any other action or proceeding that
may be brought against any or all of Released Paries in support of a defense, counterclaim, or
argument based on principles of res judicata, collateral estoppel, law of the case, release, good
faith settlement, judgment, bar or reduction, or any theory of claim preclusion or issue preclusion
or similar defense or counterclaim, or any other liability protection granted them hereunder.
1 l. Notice
11.1 Any and all statements, communications, or notices to be provided
pursuant to this Agreement shall be in writing and shall be deemed to have been given when sent
by electronic mail or overnight delivery service, in each case to the appropriate address or
electronic mail address set forth below. Such notices shall be sent to the individuals listed
below, or to such other individuals as the respective Party may designate in writing by notice to
the other Paries from time to time.
For the Boulder Parties and/or the MacDowell Parties:
Stephen F. Gordon, Esq.The Gordon Law Firm LLP101 Federal Street, 17th FloorBoston, Massachusetts 02110(617) 261-0100
524812.8 35
sgordon(igordonfirm.com
For the Trust and Trustee:
Jonathan L. Flaxer, Esq.Michael S. Devorkin, Esq.Golenbock Eiseman Assor Bell & Peskoe LLP437 Madison AvenueNew York, NY 10022(212) 907-7300j flaxer(igolenbock.commdevorkin(igolenbock.com
For the Class:
Robert L. Brace, Esq.Michael Denver, Esq.Hollster & Brace1126 Santa Barbara StreetSanta Barbara, CA 93101(805) 963-6711rlbrace(ihbsb.commpdenver(ihbsb.com
12. Attorneys' Fees and Expenses
12.1 Class Counsel wil apply to the Class Action Court for an award of
attorneys' fees in an amount as the Class Action Court may approve. Such attorneys' fees,
expenses, and interest as the Class Action Cour awards, including any fees and expenses related
to administration of the Settlement, shall be paid exclusively from the Settlement Fund to Class
Counsel immediately upon award, notwithstanding the existence of any timely fied objections
thereto, or potential for appeal therefrom, or collateral attack on the Settlement or any part
thereof. Class Counsel unconditionally guarantees to refund or repay to the Settlement Fund up
to the entire amount of such attorneys' fees and expenses award, plus accrued interest at the
same net rate earned by the Settlement Fund, if and when the attorneys' fees and expenses award
is reduced or reversed. Any decision by the Class Action Cour or any other court concerning
the amount of any fee award shall not affect the validity or finality of the Settlement, this
524812.8 36
Agreement, or the Class Action Approval Order. Class Counsel hereby agrees that it wil be
subject to the continuing jurisdiction of the Class Action Cour in connection with the award of
any attorneys' fees and/or the reimbursement of expenses. The Boulder Paries take no position
on Class Counsel's application for attorneys' fees and reimbursement of expenses. The Boulder
Paries shall have no responsibilty for or liabilty relating to (i) the award or allocation of
attorneys' fees and/or (ii) the reimbursement of expenses to or among Class Counsel and/or
Trustee's Counsel.
12.2 The Class Action Cour's granting any application by Class Counsel for
attorneys' fees and reimbursement of expenses is not a condition of the Settlement. Class
Counsel's request for attorneys' fees and reimbursement of expenses is to be considered
separately from the Cour's consideration of whether the Settlement is fair, reasonable, adequate
and in the Class's best interests. Any order or proceedings related to any request for attorneys'
fees or reimbursement of expenses, or any appeal from any order or proceedings related thereto,
shall not affect or delay the Effective Date and the finality of the Class Action Approval Order.
13. Dispute Resolution
13.1 The Paries agree that before resorting to litigation they wil attempt to
resolve informally any disputes arising under this Agreement through good faith negotiations for
a period of thirty (30) days after written notification of such dispute unless, in any Party's good
faith belief, more immediate judicial relief is required.
13.2 In the event that such mediation is not successful, the Parties agree to
submit disputes relating to this Agreement to the Class Action Court except for disputes
specifically involving the 1031 Trust that must be resolved by the Banptcy Court. If the
524812.8 37
Banptcy Cour refuses to exercise jurisdiction over any such dispute, the Paries may submit
such dispute to any cour of competent jurisdiction.
14. Other Termination Rights
14.1 In addition to the termination rights in Section 7, the Class
Representatives, the Trustee, or the Boulder Paries shall have the right to terminate the
Settlement and this Agreement by providing written notice of such election to the signatories
hereto within thirty (30) calendar days of:
(a) the Class Action Court's refusal to enter the Preliminary Approval Order
in any material respect;
(b) the Class Action Cour's refusal to approve the Agreement or any material
par of it;
(c) the Class Action Court's refusal to enter the Class Action Approval Order
in any material respect, other than with respect to the allocation of the Settlement Amount to the
Class or award of attorneys' fees and/or the reimbursement of expenses to or among Class
Counsel and/or Trustee's Counsel;
(d) the date on which the Class Action Approval Order is modified or
reversed in any material respect (other than with respect to the allocation of the Settlement
Amount to the Class or award of attorneys' fees and/or the reimbursement of expenses to or
among Class Counsel and/or Trustee's Counsel) by the Class Action Court or on appeal from the
Class Action Cour;
(e) the date on which an Alternative Judgment with respect to which none of
the Paries hereto elected to terminate this Settlement is modified or reversed in any material
respect (other than with respect to the allocation of the Settlement Amount to the Class or award
524812.8 38
of attorneys' fees and/or the reimbursement of expenses to or among Class Counsel and/or
Trustee's Counsel) by any court of competent jurisdiction;
(f) the Trustee's failure to obtain any necessary approval(s) under Section
7.18 of the Plan or the 1031 Trust Agreement within ninety (90) days after the Execution Date,
which deadline may be extended upon written agreement among the Paries.
For the avoidance of doubt a decision by the Class Action Court to award attorneys' fees
and expenses in an amount less than the amounts applied for by Class Counsel shall not create a
right to terminate the Settlement.
14.2 If this Agreement becomes null and void pursuant to any provision ofthis
Agreement, including but not limited to Sections 7 or 14 hereof, or is terminated for any other
reason by Final order or Final judgment of the Class Action Cour or the Banptcy Cour, then
(a) the Paries shall have all of the rights, defenses, and obligations that they would have had
absent this Agreement; and (b) any and all otherwise applicable statutes of limitations or repose,
or other time-related deadlines or limitations, shall be deemed to have been tolled by virtue of
this Agreement for the period from the Execution Date through the date that is thirty (30) days
after this Agreement becomes null and void.
14.3 If any Pary to this Agreement fails to honor any of the material
provisions, covenants, or representations contained in this Agreement, any other Party to this
Agreement may elect to terminate this Agreement.
15. Miscellaneous
15.1 Each Pary agrees to take such steps and to execute any documents as may
be reasonably necessary or proper to effectuate the purpose and intent of this Agreement and to
preserve its validity and enforceabilty. In the event that any action or proceeding of any type
524812.8 39
whatsoever is commenced or prosecuted by any Entity not a Pary hereto to invalidate, interpret,
or prevent the validity, enforcement, or carrying out of all or any of the provisions of this
Agreement, the Parties mutually agree, represent, warant, and covenant to cooperate fully in
opposing such action or proceeding.
15.2 The Paries have already engaged in extensive discovery, and have had
ample time to investigate all relevant factual issues. In consideration of payment of the
Settlement Amount, the Trustee, the 1031 Trust, and the Class Representatives (on behalf of
themselves and the putative Class) hereby agree that to the extent that they seek additional
discovery from any Boulder Pary, they wil cooperate with the Boulder Paries to ensure that the
discovery is reasonable and is not unduly burdensome.
15.3 None of the Paries shall be considered the drafter of this Agreement. The
Paries agree that they negotiated this Agreement at ar's length and in good faith, with each
Pary receiving advice from independent legal counsel.
15.4 All of the exhibits attached hereto are hereby incorporated by reference as
if fully set forth herein.
15.5 Titles and captions contained in this Agreement are inserted only as a
matter of convenience and are for reference puroses only. Such titles and captions in no way
are intended to define, limit, expand or describe the scope of this Agreement, nor the intent of
any provision thereof.
15.6 Except as expressly set forth herein, all Paries shall bear their own costs
and expenses incurred in connection with the Litigation Claims and/or this Agreement.
524812.8 40
15.7 No breach of any provision hereof can be waived by any Party unless in
writing. The waiver by one Pary of any breach of this Agreement by any other Pary shall not
be deemed a waiver of any other prior or subsequent breach of this Agreement.
15.8 This Agreement canot be amended, altered or modified except by a
written agreement duly executed by each Pary to be charged or its heirs, successors, duly
authorized representative, or assigns.
15.9 The terms and conditions of this Agreement shall be binding on the Paries
hereto and their heirs, successors and assigns.
15.10 This Agreement may be executed in counterpart originals, all of which,
when so executed and taken together, shall be deemed an original and all of which shall
constitute one and the same instruent. Each counterpar may be delivered by email (as a pdf
attachment), and an emailed signatue shall have the same force and effect as an original signatue.
15.11 The Paries have not transferred or assigned any claims within the scope of
the releases in this Agreement.
15.12 This Settlement Agreement shall be binding upon and shall inure to the
benefit of the Parties and their respective successors, assignees, heirs, assigns, and personal
representatives.
15.13 None of the payments made under this Agreement represent fines, civil
money penalties, or similar charges.
15.14 Within twenty (20) days' of the Effective Date, the Trustee and the
Boulder Paries wil file a stipulation of dismissal without prejudice of the remaining claims in
the Banptcy Litigation, and any and all otherwise applicable statutes of limitations or repose,
or other time-related deadlines or limitations, shall be deemed to have been tolled by virtue of
524812.8 41
this Agreement for the period from the Execution Date through the date that is thirty (30) days
after the Final Payment Date. The Boulder Paries waive any defense of statue of limitations or
repose, estoppel, laches, or other time-related deadlines or limitations.
15.15 Within twenty (20) days' of the Effective Date, the Boulder Paries wil
fie a stipulation withdrawing the Banptcy Appeal from active consideration without
prejudice, with leave to reactivate.
15.16 Within twenty (20) days' of the Final Payment Date, the Trustee wil fie a
satisfaction of the Judgment with the Banptcy Cour.
15.17 This Agreement shall bind all ofthe Trustee's successors and assigns. It
shall also surive the termination, discharge, or dissolution of the 1031 Trust.
Signatures Are On This Page and the Following Pages
IN WITNESS WHEREOF, the Paries have executed this Agreement on the date(s)
indicated below.
GERARD A. MCHALE, JR., P.A., INITS CAPACITY AS LIQUIDATIONTRUSTEE FOR THE 1031 DEBTORSLIQUIDATION TRUST AND IN ALLOTHER CAPACITIES REFERRD TOIN THIS AGREEMENT
By:Name:Date:
ANITA HUNTER
Date:
JOHNNA BOZZO (ALSO KNOWN ASJOHNNA BOZZA)
524812.8 42
'."';t.
5248/2.8
,,~,
44
BOULDER CAPIT
.i J\ ~""
Name: 7i'1S.11Date: .2- z.J"- 1/
BOULDER WEST OAK
Name: ?4 .r . AiDate: ~ . 2 .:~- /(
Name: ~¥ oS . UADate: ;i -2.C'-I(
BOULDER HOLDINGS
Name: ?!"1 J! lDate: '2 - a.. (¡
Date:
524812.8 45
BAYSTONE FUND I GP, LLC~~~Name: ~ ~. "'~.¿~~Date: Z/2-S/::\\
BA YSTONE RESIDUAL, LLCc~=Date: 21 :?Sl.2\\
VIRGINIA MACDOWELL
~(~~~ (i fI
BAYSTONE INVESTOR, LLC
BY~~--_Na os. ~~~\ ::--Date: 2-/2..5/ :2"
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E)(HIBIT 1
UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF CALIFORNIA---- ---- --- --- ---- --- --- ---- -- - --- ---- --- --- --------- J(
ANITA HUNTER, et at.,
Plaintiffs, Case No. 09-CV -02079-JW
-v-
CITIBANK, N.A., et at.,
Defendants.---- - --- --- --- ------- --------- ------ ---------- -- ----- )(
PRELIMINARY APPROVAL ORDER
WHEREAS, Class Representatives, on behalf of themselves and the Settlement Class (as
defined below) and Gerard A. McHale, Jr., P.A., the Liquidation Trustee for the 1031 Debtors
Liquidation Trust (the "Trustee") pursuant to the plan of reorganization confirmed in the chapter
11 bankptcy cases for the 1031 Tax Group, LLC, et aL. (collectively, the" 1 031 Debtors"),l and
the 1 031 Debtors Liquidation Trust (the "1031 Trust"), have entered into a Stipulation and
Agreement of Settlement (the "Settlement") with Boulder Capital LLC, Boulder Columbus LLC,
Boulder West Oaks LLC, Boulder Holdings VI, LLC, Boulder Holdings)(, LLC, and Roy S.
MacDowell, Jr. (collectively, the "Boulder Defendants") and Virginia MacDowell, Baystone
Investor, LLC, Baystone Residual, LLC, and Baystone Fund I GP, LLC, (collectively, the
"MacDowell Parties");
WHEREAS, the Settlement is intended, among other things, to settle and release any
claims that the Class Representatives, the Settlement Class, the 1031 Trust and the Trustee in the
1 The 1031 Debtors in the related bankruptcy proceedings pending in the United States Bankruptcy Court
for the Southern District of New York entitled In Re: The 1031 Tax Group, LLC, et al., Case No. 07 -B-11448 (MG) are: The 1031 Tax Group, LLC; 1031 Advance 132 LLC; 1031 Advance, Inc.; 1031 TG OakHarbor, LLC; Atlantic Exchange Company, Inc.; Atlantic Exchange Company, LLC; InvestmentExchange Group, LLC; National Exchange Accommodators, LLC (also known as National ExchangeAccommodations, LLC); National Exchange Services QI, Ltd.; NRC 1031, LLC; Real Estate ExchangeServices, Inc.; Rutherford Investment, LLC; Security 1031 Services, LLC; Shamrock Holdings Group,LLC; and AEC Exchange Company, LLC.
524647.4
1 related banruptcy proceeding have against the Boulder Defendants;
2 WHEREAS, the settlement is subject to review and Court approval under Rule 23 of the
3 Federal Rules of Civil Procedure;
4 WHEREAS, the paries to the Settlement have consented to the entry of this Order; and
5 WHEREAS, the Cour having read and considered the Settlement, the Memorandum in
6 Support of the Motion for Preliminar Approval and supporting Declaration,
7 NOW, THEREFORE, IT is HEREBY ORDERED, THAT:
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1. Plaintiffs' Motion for Preliminar Approval is GRANTED. Pursuant to Rules
23(a) and (b)(3) of the Federal Rules of Civil Procedure, and for the purposes of the Settlement
only, this action is hereby certified as a class action with class members making up the Settlement
Class, defined as follows:
All Persons2 who were customers of 1031 Advance 132 LLC, 1031 Advance,Inc., 1031 TG Oak Harbor, LLC, AEC Exchange Company, LLC, AtlanticExchange Company, Inc., Atlantic Exchange Company, LLC, InvestmentExchange Group, LLC, National Exchange Accommodators LLC (also knownas National Exchange Accommodations, LLC), National Exchange ServicesQI, Ltd., NRC 1031 LLC, Real Estate Exchange Services, Inc., RutherfordInvestment, LLC, Security 1031 Services, LLC, Shamrock Holdings Group,LLC, and/or The 1031 Tax Group, LLC, including any subsidiaries oraffiliates of any of those entities engaged in business as QualifiedIntermediaries pursuant to 26 U.S.C. § 1031, as well as such Persons'
assignees and successors, and who suffered loss or damages or allegedlysuffered loss or damages in any way, directly or indirectly, related to orarising out of (a) the failure of any of the entities or persons listed above,including their subsidiaries, affiiates or agents, (b) any of the events, acts orconduct alleged in the Complaint, the First Amended Complaint, or anysubsequent pleading or amended complaint in the Action entitled AnitaHunter, et aI. v. Edward Okun, et aI., United States District Court for theNorthern District of California, Case No. 07-CV-02795 JW, (c) any of theevents, acts or conduct alleged in the Complaint or any subsequent pleading oramended complaint in the Action entitled Quirk InfinitI, Inc. v. WachoviaBan, N.A., United States District Cour for the District of Massachusetts,Case NO.1 :08-CV-12060, (d) any of the events, acts or conduct alleged in theComplaint, the Amended Complaint, the Second Amended Complaint, theThird Amended Complaint, or any subsequent pleading or amended complaintin the Action entitled Anita Hunter, et aI. v. Citibank, N.A., et aI., UnitedStates District Court for the Northern District of California, Case No. 09-CV-02079 JW, or (e) any of the events, acts or conduct alleged in the Complaint,
2 "Person" means an individual, a corporation, a parership, a joint venture, an association, a joint stock company, a
limited liabilty company, a limited liabilty partership, an estate, an unincorporated organization, a trst, a class orgroup of individuals, or any other entity or organization, including any federal, state, or local governental or quasi-governental body or political subdivision, departent, agency, instrmentality thereof or any other legal entity thatcould sue or be sued.
524647.4
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the First Amended Complaint or any subsequent pleading in the Actionentitled Gerard A. McHale v. Boulder Capital LLC, et aI., United StatesBanptcy Cour for the Southern District of New York, Adv. Pro. No. 09-01129 (MG). "Class" includes, but is not limited to, any Person who was amember of the Wave I Settlement Class or the Wave II Settlement Class.
The Cour finds, for the puroses of this Settlement only, that the prerequisites of2.
5 Rules 23(a) and (b)(3) of the Federal Rules of Civil Procedure have been satisfied in that: (a) the
6 number of Settlement Class members is so numerous that joinder of all members thereof is
7 impracticable; (b) there are questions of law and fact common to the Settlement Class; (c) the
8 claims of the named representatives are typical of the claims of the Settlement Class they seek to
9 represent; (d) the Class Representatives wil fairly and adequately represent the interests of the
10 Settlement Class; (e) questions of law and fact common to the Settlement Class members
11 predominate over any questions affecting only individual Settlement Class members; and (f) a
12 class action is superior to other available methods for the fair and effcient adjudication of the
13 controversy.
14 3. Pursuant to Rule 23 of the Federal Rules of Civil Procedure, and for the purposes
15 ofthe Settlement only, Anita Hunter, Johna Bozzo (also known as Johna Bozza), Celltex Site
16 Services, Ltd., Grande Investment, LLC, Quirk Infiniti, Inc., Michael Whitton, and Sadi Suhweil
17 are certified as Class Representatives.
18 4. A hearing (the "Fairness Hearing") pursuant to Rule 23(e) ofthe Federal Rules of
19 Civil Procedure is hereby scheduled to be held before the Cour on ,2011
20 at , for the following puroses:
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(a) to finally determine whether this action satisfies the applicable
prerequisites for class action treatment for settlement puroses only under Rules 23(a) and (b)(3)
of the Federal Rules of Civil Procedure;
(b) to determine whether the Settlement is fair, reasonable, and adequate, and
26 should be approved by the Cour;
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28(c) to determine whether the Order Approving Settlement and Final Judgment
524647.4
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should be entered, dismissing the action as against the Boulder Defendants, who are to be
released by the Class Representatives, the Settlement Class, the 1031 Trust, and the Trustee
pursuant to the terms of the Settlement, on the merits and with prejudice;
(d) to determine whether the Bar Orders should be issued in favor of the
Boulder Defendants, who are to be released by the Class Representatives, the Settlement Class,
the 1031 Trust, and the Trustee pursuant to the terms of the Settlement; and
(e) to rule upon such other matters as the Cour may deem appropriate.
5. The Cour reserves the right to approve the Settlement with or without fuher
notice of any kind and, subject to the consent of the paries to the Settlement, with or without
modification.
6. The Cour further reserves the right to enter Judgments and dismiss the action as
against the Boulder Defendants, who are to be released by the Class Representatives, the
Settlement Class, the 1031 Trust, and the Trustee pursuant to the terms of the Settlement, on the
merits and with prejudice regardless of whether it has approved any distribution of the Settlement
funds to Class members or applications for attorneys' fees and expenses.
7. The Cour approves as sufficient notice to Settlement Class members pursuant to
Rule 23(c)(2)(B) of the Federal Rules of Civil Procedure, the Sumary Notice of Pendency of
Class Action and Wave III Settlements (the "Notice") attched hereto as Exhibit 1 and this Order
(collectively, the "Notice Documents").
8. The Cour finds that the mailing and distribution of the Notice Documents and
publishing of the Notice substantially in the maner and form set forth in this Order meets the
requirements of Fed. R. Civ. P. 23 and due process, and is the best notice practicable under the
circumstances and shall constitute due and sufficient notice to all Persons entitled thereto.
9. The Court deems the Settlement to have been "fied," within the meaning of28
U.S.c. § 1715(b), on the date of this Order.
10. The Court sets the following schedule:
524647.4
1 (a) The deadline for mailng the Notice Documents and any notices required to
2 be given pursuant to the Class Action Fairness Act of2005, 28 U.S.c. § 1332(d) et seq., shall be
3 ten (10) days from the date of this Order, or ,2011.
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(b) The deadline for requesting exclusion from the Settlement Class and the
deadline for filing objections to the Settlement, including any objections to the proposed bar
orders in favor of the Boulder Defendants, shall be _,2011 (30 days after
the deadline for mailng in paragraph 10(a) above). Settlement Class members shall be bound by
the Settlement unless such persons timely and validly request exclusion from the Settlement Class
by that date. Requests for exclusion and objections to the Settlement must be served upon counsel
for Plaintiffs at the addresses set forth in the Notice Documents. Objections to the Settlement
shall also be filed with the Cour.
11. Pending final determination of whether the Settlement should be approved,
persons releasing claims pursuant to the Settlement, including Settlement Class members who
have not requested exclusion from the Settlement Class, and each of them, and anyone who acts
or purorts to act on their behalf, shall not institute, commence, pursue, assert or prosecute any of
the claims to be released against any of the paries to be released.
12. If pursuant to the Settlement terms, the Settlement is terminated, then this Order
shall be null and void and of no fuher force or effect, and may not be introduced as evidence or
referred to in any actions or proceedings (including the related actions) by any person or entity,
and each party to the terminated Settlement shall be restored to his, her or its respective position
as existed prior to execution of the terminated Settlement. Without limiting the foregoing, if the
Settlement is terminated, the Settlement Class certification shall automatically be vacated.
,2011DATED:
HONORABLE JAMES WAREUNITED STATES DISTRICT JUDGE
524647.4
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E)(HIBIT 2
UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF CALIFORNIA-------- --- ------------- ------ ---- ---- --- ------- --- -- )(ANITA HUNTER, et aI.,
Plaintiffs, Case No. 09-CV -02079-JW
-v-
CITIBANK, N.A., et aI.,
Defendants.-------- ---- -- ---- --- --- ---- ---------- --- --- ------- -- )(
ORDER APPROVING SETTLEMENT AND FINAL JUDGMENT
Curently before the Court is the Plaintiffs' Motion for Final Approval of the Stipulation
and Agreement of Settlement (the "Settlement" or "Settlement Agreement" or "Agreement") with
the Boulder Parties (as defined in the Settlement Agreement), the MacDowell Paries (as defined
in the Settlement Agreement), the Trustee (as defined in the Settlement Agreement), and the 1031
Trust (as defined in the Settlement Agreement).! On _' 2011, the Cour conducted a
hearing. A copy of the Settlement has been filed with the Cour. (Docket No. _). The
Settlement was preliminarily approved on ,2011 (the "Preliminary Approval Order").
(Docket No. _). The Court-approved Notice Documents (as defined in the Preliminary
Approval Order), were distributed to potential Settlement Class members as required before
_,2011. There are no opt outs from the Settlement Class, as defined below.
The ,2011 hearing was held before the Cour to determine: (1) whether the
terms and conditions of the Settlement between the Settlement Class, the Trustee, the 1031 Trust,
the Boulder Paries, and the MacDowell Paries are a good faith settlement within the meaning of
California Code of Civil Procedure §§ 877 and 877.6 and are fair, reasonable and adequate for the
settlement of all claims released by the Settlement by all releasing persons against all released
persons and should be approved; and (2) whether the Order Approving Settlement and Final
28 ! Unless otherwise noted, capitalized terms in this document are defined as stated in the Settlement Agreement.
524650.2
1 Judgment should be entered, dismissing the above-entitled action as against the Boulder Parties,
2 who are to be released by the Class, the 1031 Trust, and the Trustee pursuant to the terms of the
3 Settlement, on the merits and with prejudice, and entering bar orders in favor of the Boulder
4 Paries. The Settlement is incorporated herein by reference.
5 The Cour considered all matters submitted to it at the hearing and otherwise, and
6 determined that a notice of the hearing substantially in the form approved by the Cour was timely
7 mailed to all members of the Settlement Class.
8 NOW, THEREFORE, IT is HEREBY ORDERED ADJUDGED AND DECREED
9 THAT:
10 1. This Cour has jurisdiction over the subject matter of this dispute, all members of
11 the Settlement Class, and the Boulder Parties.
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2. This Cour finds that for purposes of settlement only the prerequisites for a class
action under the Federal Rules of Civil Procedure 23(a) and (b )(3) have been satisfied and hereby
certifies the Settlement Class as follows:
All Persons2 who were customers of 1031 Advance 132 LLC, 1031 Advance, Inc.,1031 TG Oak Harbor, LLC, AEC Exchange Company, LLC, Atlantic ExchangeCompany, Inc., Atlantic Exchange Company, LLC, Investment Exchange Group,LLC, National Exchange Accommodators LLC (also known as National ExchangeAccomodations, LLC), National Exchange Services QI, Ltd., NRC 1031 LLC, RealEstate Exchange Services, Inc., Rutherford Investment, LLC, Security 1031 Services,LLC, Shamrock Holdings Group, LLC, and/or The 1031 Tax Group, LLC, includingany subsidiaries or affiiates of any of those entities engaged in business as QualifiedIntermediaries pursuant to 26 U.S.c. § 1031, as well as such Persons' assignees and
successors, and who suffered loss or damages or allegedly suffered loss or damages inany way, directly or indirectly, related to or arising out of (a) the failure of any of theentities listed above, including their subsidiaries or affiiates, (b) any of the events,acts or conduct alleged in the Complaint, the First Amended Complaint, or anysubsequent pleading or amended complaint in the Action entitled Anita Hunter, et at.v. Edward Okun, et at., United States District Cour for the Northern District ofCalifornia, Case No. 07-CV-02795 JW, (c) any of the events, acts or conduct allegedin the Complaint in the Action entitled Quirk Infiniti, Inc. v. Wachovia Bank, NA.,United States District Court for the District of Massachusetts, Case No. 1 :08-CV-
12060; or (d) any of the events, acts or conduct alleged in the Complaint, the
Amended Complaint, the Second Amended Complaint, the Third AmendedComplaint, or any subsequent pleading or amended complaint in the Action entitled
2 "Person" means an individual, a corporation, a partership, a joint venture, an association, a joint stock company, a
limited liabilty company, a limited liabilty partership, an estate, an unincorporated organization, a trst, a class orgroup of individuals, or any other entity or organization, including any federal, state, or local governental or quasi-governental body or political subdivision, departent, agency, instrmentality thereof or any other legal entity thatcould sue or be sued.
524650.2 2
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Anita Hunter, et at. v. eitbank, NA., et aI., United States District Cour for theNorthern District of California, Case No. 09-CV-02079 JW. "Class" includes, but isnot limited to, any Person who was a member of the Wave I Settlement Class or theWave II Settlement Class.
3. Notice of the Settlement was given in a timely manner to all members of the
5 Settlement Class who could be identified with reasonable effort. The form and method of
6 notifying the members of the Settlement Class of the terms and conditions of the Settlement met
7 the requirements of Rule 23 of the Federal Rules of Civil Procedure, due process, and any other
8 applicable law, constituted the best notice practicable under the circumstances, and constituted
9 due and suffcient notice to all persons and entities entitled thereto.
10 4. The Settlement was the product of serious, informed, non-collusive and non-
11 fraudulent negotiations conducted at arm's length by the settling Paries. The Court has
12 considered the extent of the claimed damages, the Boulder Parties' potential liabilty, the
l3 settlement amount, the financial condition of the Boulder Parties, potential insurance coverage
14 limits, and the benefits of settlement proceeds to the Plaintiffs. Accordingly, in lieu of trial, the
15 Court concludes the resolution of this case with respect to the Boulder Paries by way of
16 settlement is proper, and the Agreement was entered into in good faith within the meaning of
17 California Code of Civil Procedure §§ 877 and 877.6 and Tech-Bitt. Inc. v. Woodward-etyde &
18 Assocs., 38 CaL. 3d 488,499-500 (CaL. 1985).
19 5. The Settlement is approved as fair, reasonable, and adequate, and the members of
20 the Settlement Class and the Boulder Parties are directed to consumate the Settlement in
21 accordance with its terms and provisions.
22 6. The above-entitled action is hereby dismissed on the merits and with prejudice as
23 against the Boulder Paries. Each pary shall bear its own fees and costs.
24 7. To the fullest extent permitted by law, all members ofthe Settlement Class and all
25 persons providing a release to the Boulder Parties in the Settlement (which is incorporated herein
26 by reference) are hereby permanently barred and enjoined from instituting, commencing,
27 pursuing, asserting, or prosecuting any and all Released Claims, or interests of any kind, as set
28 forth in the Settlement, against the Boulder Parties, or either of them, and the Released Claims
524650.2 3
1 hereby are irrevocably compromised, settled, released, discharged and dismissed on the merits
2 and with prejudice by virtue of the proceedings herein.
3 8. To the fullest extent permitted by law, each of the non-settling defendants ("Non-
4 Settling Defendants") are hereby permanently barred, enjoined and restrained from instituting,
5 commencing, pursuing, prosecuting, or asserting any claim for indemnity or contribution
6 (whether or not delineated as a claim for indemnity or contribution) against the Boulder Parties,
7 or either of them, (or any other claim against the Boulder Parties, or either of them, where the
8 injury to the Non-Settling Defendant is the Non-Settling Defendant's liability to the Plaintiffs or
9 costs or fees in connection with asserted liabilty to the Plaintiffs), arising out of the claims,
10 events, or allegations asserted in Hunter v. eWbank, No. 09-CV-02079 JW (N.D. CaL), any
11 action related thereto, or any other allegations asserted by the Plaintiffs, whether arising under
12 state, federal or foreign law as claims, cross-claims, counterclaims, or third-pary claims, whether
13 in the Class Action,3 in this Court, in the Banptcy COur,4 in any federal or state court, or in
14 any other court, arbitration proceeding, administrative agency, or other forum in the United
15 States, Canada, or elsewhere to the extent the Cour has power or authority.
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9. To the fullest extent permitted by law, the Boulder Paries are hereby permanently
bared, enjoined and restrained from commencing, prosecuting, or asserting any claim for
indemnity or contribution against the Settling Defendants and Non-Settling Defendants arising
out of the claims, events, or allegations asserted in Hunter v. eWbank, No. 09-Cv-02079 JW
(N.D. CaL.), any action related thereto, or any other allegations asserted by the Plaintiffs, whether
arising under state, federal or foreign law as claims, cross-claims, counterclaims, or third-pary
claims, whether in the Class Action, in this Court, in the Banptcy Court, in any federal or state
court, or in any other court, arbitration proceeding, administrative agency, or other foru in the
United States, Canada or elsewhere to the extent the Cour has power or authority, except that, to
3 "Class Action" means Hunter, et al. v. CWbank, N.A., et al., No. 09-CV-02079-JW (N.D. CaL.), the related action
styled Hunter, et al. v. Okun, et al., Case No. 07-02795-JW, the action styled Quirk Infniti, Inc. v. Wachovia Bank,N.A., United States District Court for the District of Massachusetts, Case No. 1:08- 1 2060, or any other action fied onbehalf of the Class Representatives or the Class.4 The "Bankptcy Court" means the Court presiding over the related bankrptcy proceedings pending in the
Southern District of New York, including the action styled In Re The 1031 Tax Group, LLC, et al., Case No. 07-11448 (MG), and certain related adversary proceedings.
524650.2 4
1 the extent that any entity hereafter asserts any claim against any Boulder Pary, the Boulder
2 Paries may respond with any defenses, offsets, recoupments, cross-claims, third-pary claims or
3 counterclaims against that entity.
4 10. To the fullest extent permitted by law, the Settling Defendants are hereby
5 permanently barred, enjoined and restrained from commencing, prosecuting, or asserting any
6 claim for indemnity or contribution (whether or not delineated as a claim for indemnity or
7 contribution) against the Boulder Parties (or any other claim against the Boulder Paries where the
8 injur to the Settling Defendant is the Settling Defendant's liability to the Plaintiffs or costs or
9 fees in connection with asserted liability to the Plaintiffs) arising out of the claims, events, or
10 allegations asserted in Hunter v. eWbank, No. 09-Cv-02079 JW (N.D. CaL), any action related
11 thereto, or any other allegations asserted by the Plaintiffs, whether arising under state, federal or
12 foreign law as claims, cross-claims, counterclaims, or third-pary claims, in the Class Action, in
13 this Court, in the Banptcy Court, in any federal or state cour, or in any other cour, arbitration
14 proceeding, administrative agency, or other foru in the United States, Canada or elsewhere to
15 the extent the Cour has power or authority (collectively the "Bared Claims of Settling
16 Defendants"); provided that nothing herein shall preclude the Settling Defendants which are
17 insurance companies from seeking reimbursements of any amounts paid in settlement of such
18 claims or allegations by the Plaintiffs from their respective reinsurers, solely in their capacity as
19 such.
20 11. The recovery of the Plaintiffs, if any, on their respective asserted and assertable
21 claims against any Non-Settling Defendants shall be reduced by the amount of the Boulder
22 Paries' equitable and proportionate share of joint and several liabilty, as wil be determined later
23 by the Class Action Court in the allocation of recoverable damages or costs incurred by the
24 Plaintiffs.
25 12. A qualified settlement fund ("QSF") is hereby established pursuant to 26 C.F.R. §
26 1.46813 et. seq., into which, on the Payment Date (as defined in the Settlement), the Settlement
27 Amount (as defined in the Settlement), shall be deposited. Gerard A. McHale, Jr., the Trustee in
28 the related Banptcy proceedings, is hereby appointed as the Trustee of the QSF. The QSF
524650.2 5
1 Trustee shall distribute the fuds recovered in this class action and deposited into the QSF. The
2 QSF and the QSF Trustee shall remain under the jurisdiction of this Cour in connection with the
3 matters described in this paragraph. The QSF Trustee shall have no liability in connection with
4 his services as QSF Trustee except for gross negligence or wilful misconduct. Upon fuher
5 orders of the Court, the QSF Trustee shall pay approved fees, costs and other expenses, if any,
6 and distribute the remaining fuds to Settlement Class members on a pro rata basis, with each
7 Settlement Class member's pro rata share calculated as follows: (i) each Settlement Class
8 member's approved lost Exchange AmountS plus Exchange Agreement Contractual Interest,6 if
9 any, shall be divided by the total of all Settlement Class members' lost Exchange Amounts plus
10 Exchange Agreement Contractual Interest; and (ii) the resulting percentage shall be multiplied
11 with the total amount to be distributed to the Settlement Class to determine each Settlement Class
12 member's pro rata share.
13 13. Without affecting the finality of this Order Approving Settlement and Final
14 Judgment, this Cour shall retain continuing jurisdiction over the above-referenced action and the
15 Wave III Settling Defendants for purposes of supervising, administering, implementing, enforcing
16 and interpreting the Order Approving Settlement and Final Judgment, the claims process to be
17 established and the distribution of fuds to Settlement Class members, if any.
18 14. This Cour finds that, pursuant to Federal Rule of Civil Procedure 54(b), there is
19 no just reason for the delay in entering this Judgment and Judgment is hereby entered.
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IT IS SO ORDERED.
,2011Dated:
JAMES WARE
S Each Settlement Class member's "Exchange Amount" means the principal amount deposited by the Settlement
Class member with the applicable 1031 Debtor under the applicable Exchange Agreement which was lost due to theinsolvency of the applicable 1031 Debtor.
6 "Exchange Agreement Contractual Interest" means such stated interest, if any, as shall have accrued pursuant to the
terms of the applicable Exchange Agreement up to the Bankptcy Petition date of May 14,2007.
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524650.2
United States District Judge
7
EXHIBIT 3
UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF CALIFORNIA
IN RE: EDWARD H. OKUNINTERNAL REVENUE SERVICETAX DEFERRED EXCHANGELITIGATION
) MDL 5:09-md-02028 JW) Case No. 07-CV-2795-JW
))) Case No. 09-CV-2079-JWHunter, et al. v. Citibank, N.A., et al.
SUMMARY NOTICE OF PENDENCY OF CLASS ACTION AND WAVE III SETTLEMENTS
To: All Personsl who were customers of 1031 Advance 132 LLC, 1031 Advance,
Inc., 1031 TG Oak Harbor, LLC, AEC Exchange Company, LLC, AtlanticExchange Company, Inc., Atlantic Exchange Company, LLC, InvestmentExchange Group, LLC, National Exchange Accommodators LLC, NationalExchange Services QI, Ltd., NRC 1031 LLC, Real Estate Exchange Services,Inc., Rutherford Investment, LLC, Security 1031 Services, LLC, ShamrockHoldings Group, LLC, and/or The 1031 Tax Group, LLC, including anysubsidiaries or Affiiates of any of those entities engaged in business as QualifiedIntermediaries pursuant to 26 U.S.c. § 1031, as well as such customers'
assignees, and who suffered loss or damages or allegedly suffered loss ordamages in any way, directly or indirectly, related to or arising out of (a) thefailure of any of the entities listed above, including their subsidiaries or Affiliates;(b) any of the events, acts or conduct alleged in the First Amended Complaint inthe Action entitled Anita Hunter, et aL. v. Edward Okun, et at., United StatesDistrict Court for the Northern District of California, Case No. C 07-02795 JW;(c) any of the events, acts or conduct alleged in the Complaint in the Actionentitled Quirk Infiniti, Inc. v. Wachovia Bank, NA., United States District Courtfor the District of Massachusetts, Case No. 1:08-12060; (d) any of the events, actsor conduct alleged in the Second Amended Complaint in the Action entitled AnitaHunter, et at. v. eitibank, NA., et at., United States District Court for theNorthern District of California, Case No. C 09-02079 JW; or (e) any of theevents, acts or conduct alleged in the Amended Complaint in the Action entitledMcHale v. eitibank, NA., Adv. Pro. No. 09-01218 (MG) (Bank. S.D.N.Y.). 2
1 "Persons" means an individual, a corporation, a partnership, a joint venture, an association, a joint stock
company, a limited liability company, a limited liability partnership, an estate, an unincorporatedorganization, a trust, a class or group of individuals, or any other entity or organization, including anyfederal, state, or local governmental or quasi-governmental body or political subdivision, department,agency, instrumentality thereof or any other legal entity that could sue or be sued.2 The class definition set forth above is the class definition contained in the Citbank Settlement. The
class definition set forth in the other Wave III Settling Defendants' settlements uses language which isslightly different from that used in the Citibank Settlement, largely in order to tailor the definition to theparticular claims being settled. Counsel for Plaintiffs and the Class submits that while the claims being
YOU ARE HEREBY NOTIFIED, pursuant to Rule 23 of the Federal Rules of CivilProcedure and an Order of the Court, that, in the above-captioned actions, five (5)separate settlements (the "Wave III Settlements") have been preliminarily approved bythe Court and a Settlement Class (the "Class") has been certified with respect to theseSettlements. The Wave III Settlements bind the following parties:
1. Class members;
2. Gerard A. McHale, Jr., P.A., as Liquidation Trustee (the "Trustee") for the 1031Debtors Liquidation Trust (the "1031 Trust,,);3 and
3. The Defendants referred to as the "Wave III Settling Defendants" who are (i)Kutak Rock, LLP ("Kutak" as defined in the applicable Stipulation andAgreement of Settlement) and Joseph O. Kavan ("Kavan" as defined in theapplicable Stipulation and Agreement of Settlement) (Kutak and Kavancollectively referred to as the "Kutak Paries"), (ii) Citibank, N.A. ("Citibank"),(iii) Foley & Lardner, LLP and Steven Burr (collectively the "FoleyDefendants"), (iv) Roy S. MacDowell, Jr. and the Boulder Entity Defendants(collectively the "Boulder Defendants"), and (v) Jorden Burt, LLP and RichardSimring.
The Wave III Settlements wil total $21,975,000, with the Kutak Paries collectivelycontributing $8,975,000, Citibank contributing $5,900,000, the Foley Defendantscontributing $1,700,000, the Boulder Defendants contributing $2,000,000, and, JordenBurt and Richard Simring contributing $3,400,000. These settlements wil add to theWave I and Wave II Settlements of which you were previously notified. The Wave IIISettling Defendants deny any wrongdoing, fault, liability or damage to the Class or theTrustee and deny that they acted improperly in any way. In view, however, of theuncertainty and expense of litigation, the Wave III Settling Defendants have agreed topay these amounts in exchange for, among other things, a full, final and complete releaseof, among other claims, all asserted and unasserted claims against them and Rule 23 BarOrders (the "Order and Final Judgment") protecting them from any furher or potentialclaims.
settled by each agreement differ, the persons and/or entities encompassed by each settlement's SettlementClass definition are the same. The agreements' definitions of Settlement Class are set forth in each of theWave III Settlement agreements.
3 The 1031 Trust was established in related Bankuptcy proceedings in the Southern District of New York,
/n re The 103/ Tax Group, LLC, et at., No. 07-B-11448 (MG) (S.D.N.Y.) with respect to the "1031Debtors," which include: The 1031 Tax Group, LLC; 1031 Advance 132 LLC; 1031 Advance, Inc.; 1031TG Oak Harbor LLC; Atlantic Exchange Company, Inc.; Atlantic Exchange Company LLC; InvestmentExchange Group, LLC; National Exchange Accommodators, LLC; National Exchange Services QI, Ltd.;NRC 1031, LLC; Real Estate Exchange Services, Inc.; Rutherford Investment LLC; Security 1031Services, LLC; Shamrock Holdings Group, LLC; and ABC Exchange Company LLC.
2
A Hearing wil be held before United States District Judge James Ware, at the UnitedStates District Court for the Northern District of California, United States Courthouse,280 South First Street, San Jose, CA 95113, at _ _m. on , 2011 to determine,among other things, whether the Wave III Settlements should be approved by the Courtas fair, reasonable, and adequate.
IF YOU ARE A MEMBER OF THE CLASS DESCRIBED ABOVE, YOUR RIGHTSWILL BE AFFCTED AND YOU MAYBE ENTITLED TO SHARE IN THESETTLEMENTS.
This notice provides a brief description of the Wave III Settlements and may addresssome of your questions. The settlement agreements between the Class Representatives,the Trustee and the Wave III Settling Defendants (the "Wave III SettlementAgreements") set forth the settling parties' entire agreement, and are available for yourreview at www.hbsb.com. under the link for "Class Actions." The Court's Ordersgranting preliminary approval to each of the Wave III Settlements, which are includedherewith, set forth specific deadlines by which you must act and procedures for you tofollow should you not wish to participate in the Wave III Settlements or if you wish toraise objections to any of them. You should review all of the documents provided withthis notice and, if you have any questions that remain unanswered, you should contactcounsel for the Class at the address listed below for additional information.
11. Why did I get this notice package?
Records indicate that you may be a member of the Class described above and may havesuffered injury based on the events alleged in this lawsuit.
12.What is this lawsuit about?
This lawsuit arises from the failure of certain Exchange Entities and their failure tocomplete Internal Revenue Code Section 1031 exchange transactions.
13.What are the terms of the settlements?
The Trustee and Class Representatives have asserted and/or have been consideringwhether to assert various claims against the Wave III settling Defendants (the "LitigationClaims"). The Wave III Settling Defendants deny any wrongdoing, fault, liability ordamage to the Class Representatives, the Class or the Trustee, deny that they engaged inany wrongdoing or acted improperly in any way, and deny any liability arising out of anyof the conduct, statements, acts or omissions alleged, or that could have been alleged, inconnection with the Litigation Claims. But in an effort to avoid the uncertainty andexpense of litigation, the Kutak Parties have agreed to collectively contribute $8,975,000,Citiban has agreed to pay a total of $5,900,000, the Foley Defendants wil pay$1,700,000, the Boulder Defendants wil contribute $2,000,000, and, Jorden Burt and
3
Richard Simring wil pay $3,400,000, as provided for in the Wave III SettlementAgreements.
In exchange for entering into the Wave III Settlements, the Wave III Settling Defendantswil each obtain, among other things, a full release from the Class Representatives, theClass, the 1031 Trust, and the Trustee of, among other things, all asserted and unassertedclaims and a bar order precluding furer claims, both known and unkown, against theWave III Settling Defendants arising out of, related to, or in any way connected to theLitigation Claims. In addition, each Class member, the Trustee, the 1031 Trust, and theWave III Settling Parties shall be deemed to have, and by operation of the Order andFinal Judgment shall have, expressly waived any and all provisions, rights and benefitsconferred by CaL. Civ. Code § 1542 and by any law, rule or regulation of any state orterritory of the United States or any other country, or principle of common or civil law,which is similar, comparable, or equivalent to CaL. Civ. Code § 1542, which provides:
A GENERAL RELEASE DOES NOT E)(TEND TOCLAIMS WHICH THE CREDITOR DOES NOT KNOWOR SUSPECT TO E)(IST IN HIS FAVOR AT THE TIMEOF E3CCUTING THE RELEASE, WHICH IF KNOWNBY HIM MUST HAVE MATERIALLY AFFECTED HISSETTLEMENT WITH THE DEBTOR.
It is the intention of the paries that, notwithstanding the provisions of CaL. Civ. Code §1542 or any similar provisions, rights or benefits conferred by law, and notwithstandingthe possibility that the Class Representatives, Class members, the Trustee, the Wave IIISettling Defendants or their counsel may discover or gain a more complete understandingof the facts, events or law that, if presently known or fully understood, would haveaffected the decision to enter into the Wave III Settlements, any and all released claims,including unkown claims, shall be fully, finally and forever settled.
The Wave III Settlements are conditioned on the occurrence of certain events describedin the Wave III Settlement Agreements, which are available for your review atwww.hbsb.com. Those events include, among others: (i) the Court's entry of the Orderand Final Judgment, and (ii) exhaustion of all rights to appeal from or alter or amend theOrder and Final Judgment, or expiration of the time to appeal from or alter or amend theOrder and Final Judgment. If, for any reason, anyone of the conditions described in theWave III Settlement Agreements is not met, the Wave III Settlements might beterminated and, if terminated, wil become null and void, and the paries to theagreements wil be restored to their respective pre-settlement litigation positions. Thefull terms of the Wave III Settlements are set forth in the Wave III SettlementAgreements, which are available for your review at www.hbsb.com. You should read theWave III Settlement Agreements in their entirety. They contain other important terms.
The Wave III Settlements wil not resolve claims against the other non-settlingdefendants and litigation wil continue against those defendants.
4
4. If I do not want to share in the $21,975,000, how do I exclude myself?
To exclude yourself, you must notify the Court through Plaintiffs' counsel at theaddresses identified below in writing no later than ,2011.
Your request for exclusion must contain: (1) the name of the lawsuits which are (i) IN RE:EDWARD H. OKUN INTERNAL REVENUE SERvieE TAX DEFERRED EXeHANGELITIGATION, MDL 5:09-md-02028 JW, Case No. 07-CV-2795-JW, and (ii) Hunter, et al. v.eWbank, N.A., et aI., Case No. 09-CV-2079-JW; (2) your full name and current address; (3)a clear statement of intention to exclude yourself such as "I wish to be excluded from theWave III Settlements"; (4) the addresses of your relinquished and replacement properties; (5)the amount of money you lost; and (6) your signature and the date you signed the request.Requests for exclusions must be postmarked 1st Class Mail no later than ,2011 andsent to:
United States District Court for the Northern District of CaliforniaRe: The 1031 Tax Group Litigation
c/o Hollster & Brace, P.O. Box 630, Santa Barbara, CA 93102
5. Can I object to the terms of the Wave III Settlements?
If you exclude yourself, or "opt-out" of the Wave III Settlements you are not entitled toobject. If you do not exclude yourself, or "opt-out," from the Wave III Settlements, youare entitled to object to the terms of the Wave III Settlements to explain to the Court whyone or more of them should not be approved. The Cour wil consider your views. Toobject, you must write a letter stating: (1) that you object to the Wave III Settlements inthe matters styled (i) IN RE: EDWARD H. OKUN INTERNAL REVENUE SERVICE TAXDEFERRED EXeHANGE LITIGATION, MDL 5:09-md-02028 JW, Case No. 07-CV-2795-JW, and (ii) Hunter, et at. v. eitibank, N.A., et aI., Case No. 09-CV-2079-JW; (2)your full name and current address; (3) a clear statement of why you object; (4) theaddresses of your relinquished and replacement properties; (5) the amount of money youlost; and (6) your signature and the date you signed the request.
Objections must be postmarked pt Class Mail no later than
to all of the below:, 2011 and mailed
Clerk of the CourtUnited States District Court for the Northern District of California,
United States Courthouse, 280 South First Street, San Jose, CA 95113
Robert L. BraceMichael P. DenverHollister & Brace
P.O. Box 630, Santa Barbara, CA 93102
5
6. If I participate in the partial settlements, must I participate in future settlements?
No. In the event that settlements are reached with additional defendants in the future,you wil have the opportunity to decide whether to participate in such settlements. Yourdecision to paricipate in these settlements shall not preclude you from electing to declineto paricipate in future settlements, if any, should you choose.
7. If I participate in the partial settlements, how much money wil I get?
If the Wave III Settlements receive final approval and go forward, payments totaling$21,975,000 wil be made in accordance with the Wave III Settlement Agreements.Pursuant to the terms of the agreement between the Class and the Trustee (the"Class/Trustee Agreement") which was approved in Wave I, the Wave III $21,975,000wil be allocated 50% ($10,987,500) to the Trustee, and 50% ($10,987,500) to the Class.The $10,987,500 allocated to the Trustee on behalf of the Estates wil have a de minimiseffect on the distributions made to the Class - whose claims constitute over ninety-ninepercent (99%) of the general, unsecured creditor body of the Estates. As to the$10,987,500 allocated to the Class, the Court wil be asked to approve a plan fordistribution. It is anticipated that the pIan wil provide for pro rata distribution of therecovery (minus any Court-approved fees or other expenses) to Class members basedupon the amount of money that Class members deposited with the Exchange Entities andlost when the Exchange Entities failed.
8. How do I know how much of the partial settlements might be allocated to fees orother expenses?
Pursuant to the terms of the Class/Trustee Agreement, $10,987,500 of the settlementamounts to be paid by the Wave III Settling Defendants are allocated to the class action,and Class Counsel has agreed that any claim for attorney's fees and reimbursement ofcosts wil be based upon that amount. Any payment of Class Counsels' incurred fees andexpenses must be approved by the Court. Class Counsel intends to seek an award ofWave III costs not to exceed $500,000, and, an award of attorneys' fees equal to 25% ofthe "net" amount allocated to the class. The "net" amount is the gross $10,987,500allocated to the class, less the claimed costs not to exceed $500,000, multiplied by .25.Thus, if Wave III costs total $500,000, the "net" 25% fee would be $10,987,500 less$500,000, multiplied by .25, or $2,621,875. You should be aware of the following factswith respect to this request. Pursuant to the terms of the Class/Trustee Agreement, ClassCounsel agreed to restrictions on the amount of attorneys' fees it would seek from theamount allocated to the class action, and the 25% fee figure set forth above meets thelimitations set forth in the Class/Trustee agreement. A copy of the Class/Trusteeagreement is available on Class Counsel website at the internet address listed in question9 below.
6
E)(HIBIT 4
PROMISSORY NOTE
$300,000 New York, New YorkFebruary 25, 2011
FOR VALUE RECEIVED, the undersigned, Roy S. MacDowell, Jr. (the "Maker"),having an address at 21 Center Street, Weston, MA 02493, hereby promises to pay to the order ofGerard A. McHale, Jr., P.A., not individually but in its capacity as Liquidation Trustee for the 1031Debtors Liquidation Trust (the "Holder") the aggregate principal amount of Three HundredThousand Dollars ($300,000) (the "Principal Amount") from time to time as set forth below, with thefinal payment due and payable on or prior to the date set forth in Section 1 (a)(v) below (the"Maturity Date").
This Promissory Note (this "Note") is being delivered in connection with that certainSettlement Agreement (the "Settlement Agreement"), dated as of the date hereof, among the Maker,the Holder, the putative class representatives in the action captioned Hunter, et at. v. eWbank, NA.,et at., No. 09-CV-02079-JW (N.D. CaL.) and the other parties named therein.
1. Principal and Interest.
(a) The Principal Amount shall be due and payable in full as follows:
(i) $25,000 on the Effective Date (as defined in the Settlement
Agreement;
(ii) $50,000 on the one-year anniversary ofthe Effective Date;
(iii) $75,000 on the two-year anniversary of the Effective Date;
(iv) $75,000 on the three-year anniversary of the Effective Date; and
(v) $75,000 on the four-year anniversary of the Effective Date.
(b) Interest shall accrue on any unpaid Principal Amount that is not paid in
accordance with Section 1 ( a) at a rate per annum equal to the lesser of (i) 15%, compoundingmonthly, or (ii) the maximum rate permitted by applicable law. All interest shall be computed on thebasis of a 360-day year for the actual number of days (including the first day but excluding the lastday) elapsed.
2. Prepayment
The Maker may, at its option and upon not less than three (3) Business Days' priorwritten notice to the Holder, prepay this Note, in whole at any time or in part from time to time,without penalty or premium, each such prepayment to be accompanied by the payment of anyaccrued interest to the date of each prepayment on the amount of the principal balance prepaid;provided, however, that each partial prepayment shall be in a principal amount equal to $10,000 or anintegral multiple thereof.
522029.7
4. Events of Default.
(a) The occurrence of anyone or more of the following events shall constitute an"Event of Default" hereunder:
(i) the Maker shall fail to pay any amount due under this Note, on the
date and in the manner provided hereunder or thereunder, and such default shall continueunremedied for a period of five (5) days after such due date;
(ii) the Maker, Virginia MacDowell, Baystone Residual, LLC, BaystoneInvestor, LLC or Baystone Fund I GP, LLC shall default in any other obligation, or in theperformance of any other agreement, term or condition contained in this Note or theSettlement Agreement, and such default shall continue unremedied for a 10 days followingthe receipt by the Maker of written notice from the Holder that such default has occurred andis continuing (unless such default is not capable of being cured, in which case such Event ofDefault shall be deemed to have occurred upon the receipt by the Maker of such notice);
(iii) any attachment, restraint or execution shall be levied or enforced
upon or against all or a substantial part of the tangible propert or assets of the Maker;
(iv) any final judgment rendered on or after the date hereof for thepayment of money in excess of $1 0,000 shall be rendered against the Maker and the sameshall be undischarged for a period of twenty (20) days unless execution shall be effectivelystayed by order of a court of competent jurisdiction;
(v) the Maker shall be generally not paying its debts as they become due
or shall admit in writing its inability to pay its debts generally, or shall make a generalassignment for the benefit of creditors; or any petition shall be fied by or against the Makerunder the federal bankruptcy laws, or any other proceeding shall be instituted by or againstthe Maker seeking to adjudicate the Maker a bankrpt or insolvent entity, or seekingliquidation, reorganization, arrangement, adjustment or composition of the Maker or thedebts thereof under any law relating to bankrptcy, insolvency or reorganization or relief ofdebtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee,custodian or other similar official for the Maker or for any substantial part of the propert ofthe Maker; or the Maker shall take any action to authorize or effect any of the actions setforth above in this sub-section (v);
(vi) (A) Baystone Fund I GP, LLC shall cease to serve as the generalpartner of Baystone Fund I, L.P. (the "Fund"), (B) Baystone Development, LLC shall ceaseto service as the manager of the Fund, or (C) the Fund shall cease to conduct any business; or
(vii) any provision of this Note shall at any time for any reason be declaredto be null and void by a court of competent jurisdiction, or the validity or enforceabilityhereof shall be contested by the Maker, or a proceeding shall be commenced by the Makerseeking to establish the invalidity or unenforceability hereof, or the Maker shall deny that ithas any liability or obligation hereunder.
(b ) Upon the occurrence of an Event of Default, the Holder may, at the
Holder's election, declare the outstanding Principal Amount, all accrued and unpaid interestthereon, and all other amounts due and payable immediately in full, and Maker shall
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immediately pay to Holder all such amounts (provided, however, that upon the occurrence ofan Event of Default under Section 4(a)(v) above, the outstanding Principal Amount, togetherwith all accrued but unpaid interest thereon, shall automatically be and become immediatelydue and payable, without notice or demand).
5. Miscellaneous
(a) The Maker agrees that all notices or other communications provided forhereunder shall be in writing (including telecommunications) and shall be mailed, telecopied, sent byovernight courier, telegraphed or delivered to the Maker at the address of the Maker set forth above,or at such other address as may hereafter be specified by the Maker to the Holder (at its address setforth in the Settlement Agreement) in writing. All notices and communications shall be effective(i) if mailed, when received or three (3) days after mailing, whichever is earlier, (ii) if telecopied,when transmitted, (iii) if sent by overnight courier, one (1) day after delivery to the overnight courier,(iv) if delivered, upon delivery, and (v) if e-mailed, upon confirmation of
receipt.
(b) No failure on the part of the Holder to exercise, and no delay in exercising,any right, power, privilege or remedy hereunder shall operate as a waiver thereof, nor shall any singleor partial exercise thereof by the Holder preclude any other or further exercise thereof or the exerciseof any other right, power, privilege or remedy of the Holder.
(c) In the event of any breach or violation of this Note by the Maker, either
threatened or actual, the Holder's rights shall include, in addition to any and all other rightsavailable to the Holder at law or in equity, the right to seek and obtain any and all injunctiverelief or restraining orders available to it in courts of proper jurisdiction, so as to prohibit, bar,and restrain any and all such breaches or violations by the Maker. Each of the paries heretofuher agrees that no bond need be fied in connection with any request by the Holder for a
temporary restraining order or for temporary or preliminar injunctive relief
(c) Any provision hereof which is prohibited or unenforceable in any jurisdictionshall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceabiltywithout invalidating the remaining provisions hereof or affecting the validit or enforceabilty of
such provision in any other jurisdiction.
(d) The Maker hereby agrees to pay on demand all costs and expenses (including,without limitation, all reasonable fees and other reasonable charges of counsel to the Holder)incurred by the Holder in connection with the enforcement of the Holder's rights, and the collectionof any and all amounts due, hereunder.
(e) No provision of this Note may be waived and this Note may not be changed,
modified or discharged orally, but only by an agreement in writing, signed by the part against whomenforcement of any waiver, change, modification or discharge is sought, with such agreement beingeffective and binding only upon its attchment hereto.
(f) This Note shall be binding on the Maker and its successors and assigns, shall
not be assigned or transferred by the Maker without the express prior written consent of the Holderbut shall be freely assignable and transferable by the Holder, and shall inure to the benefit of theHolder and its successors and assigns.
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(g) This Note shall be governed by, and construed in accordance with, the
internal laws of the State of New York, without regard to conflcts of laws principles. In any suitarising under or relating to this Note, each of the parties consents to the exclusive jurisdiction in anystate or federal court sitting in New York, New York, and further consents to service of process atsuch part's then current place of business by Federal Express or other overnight courier. Each parthereby irrevocable waives any objection, including without limitation any objection to the laying ofvenue or based on the grounds offorum non conveniens, which it may now or hereafter have to thebringing of any action or proceeding in such jurisdiction.
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