AN EYE OPENING LOOK AT THE BANKRUPTCY OF IN RE WALLDESIGN
AN EYE OPENING LOOK AT THE BANKRUPTCY OF IN RE WALLDESIGN
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AN EYE OPENING LOOK AT THE BANKRUPTCY OF IN RE WALLDESIGN

| Jan 30, 2019 | Firm News

Below is the post-confirmation status report by the Liquidation Trustee in the matter of In re Walldesign, a California corporation, U.S. Bankruptcy Court, Central District of California Case No. 8:12-bk-10105 CB.

My client, A-Z Cellular World, Inc. sued this corporation in the California State Court in Contra Costa County.  Walldesign moved for chapter 11 bankruptcy in January of 2012 and have been there ever since.  I filed a proof of claim for my clients and appeared on the debtor’s Omnibus Motion to dismiss unsecured claims and defended the motions in favor of A-Z Cellular World, Inc.  They are owing my client approximately $79,000.00 of which they have paid approximately $9,000.00 to date.

The status report below details the litigation that can occur in a bankruptcy, including appeals and petitions for writs of certiorari to the U.S. Supreme Court.

With all the concern regarding PG&E’s filing for chapter 11 bankruptcy, this is eye opening.  Some of the litigants went bankrupt themselves.  This is a potential for the PG&E litigation and a lot more:

TO THE HONORABLE CATHERINE E. BAUER, UNITED STATES BANKRUPTCY JUDGE, THE UNITED STATES TRUSTEE, AND POST-EFFECTIVE DATE NOTICE PARTIES:

Brian S. Weiss, the Liquidation Trustee (the “Trustee”) of the Walldesign Liquidation Trust (the “Trust”), successor in interest to Walldesign, Inc., chapter 11 debtor (the “Debtor”), hereby submits this post-confirmation status report prior to the status conference set for January 23, 2019 at 10:00 a.m. 

I STATUS OF PROSECUTION OF AND RECOVERY FROM AVOIDANCE ACTIONS

A. Prosecution of Avoidance Actions

In December 2013, the Official Committee of Unsecured Creditors, for which the Trust is a successor in interest, filed ninety-five adversary proceedings seeking to recover fraudulent and/or preferential transfers made to the defendants by the Debtor, during the period beginning five years prior to the Debtor’s bankruptcy (the “Avoidance Actions”). The Avoidance Actions have been resolved, except as set forth hereinbelow.

Six of the Avoidance Actions were appealed, two of which are currently pending before the Ninth Circuit Court of Appeals (“Ninth Circuit”), as described hereinbelow. On August 15, 2017, the Ninth Circuit entered its order in Committee v. Abreu, 8:13-ap-01419-CB, dismissing that appeal for lack of jurisdiction, as the District Court for the Central District of California (“District Court”) had remanded the case to this Court for further fact-finding. On February 26, 2018, this Court entered an amended judgment in this case, which was then appealed to District Court on March 2, 2018. The defendants/appellants in this case have moved for entry of an order certifying this case for direct appeal to the Ninth Circuit. Briefing on the pending appeal in the District Court has been stayed pending the resolution of the certification request.

On November 15, 2017, the Ninth Circuit entered its order in Committee v. Jordan, 8:13-ap-01415-CB, dismissing that appeal of the initial judgment entered in the adversary proceeding for lack of jurisdiction. On February 2, 2018, the Trustee and one of the defendants in the case, Ehren Jordan Wine Cellars, LLC, entered into a stipulation to amend the judgment in the case, bywhich Ehren Jordan Wine Cellars, LLC retained the right to appeal the judgment. The stipulation was approved by order of this Court on February 20, 2018. On March 2, 2018, the defendants appealed to the District Court the amended judgment, the order approving the stipulation, and the findings of facts and conclusions of law entered by this Court with regard to the defendants’ motion for summary judgment in the case. The defendants in this case have also moved for entry of an order certifying this case for direct appeal to the Ninth Circuit. Briefing on the pending appeal in the District Court has been stayed pending the resolution of the certification request.

Two of the other appeals (Committee v. Buresh, 8:13-ap-01420-CB; and Committee v. Henry, 8:13-ap-01414-CB) stemmed from rulings this Court made granting motions for summary judgment filed by defendants Donald Buresh, Sharon Phillips, and Lisa Henry. Those rulings were appealed and reversed by the District Court. These defendants then appealed the District Court’s rulings to the Ninth Circuit. On October 2, 2017, the Ninth Circuit issued its ruling on these appeals, affirming the judgments of the District Court and remanding both cases to this Court for further proceedings. Subsequently, these defendants filed a request for en banc rehearing, which was denied by the Ninth Circuit on November 9, 2017. On February 28, 2018, these defendants filed a request for writ of certiorari to the Supreme Court of the United States.

The Trust retained Jones Day as legal counsel in this matter, who agreed to accept retention on a pro bono basis, except for direct out of pocket expenses. On May 31, 2018, the Supreme Court of the United States denied the writ of certiorari. As a result of this ruling, the Trustee is aggressively pursuing judgment against these defendants, and will then pursue collection on any such judgments that the Trustee may obtain. To that end, on August 8, 2018, the Trustee filed in each of these cases motions for orders for the right to attach property of the respective defendants for the purpose of satisfying any future judgment entered against the defendants in these cases. The respective motions were each set for hearing before this Court on and granted by orders entered on August 31, 2018.

In September 2018, upon obtaining and levying a writ of attachment against assets owned by Buresh and Phillips, the Trust prepared and filed a motion for summary judgment against them, which is set to be heard on January 23, 2019. These defendants then filed a chapter 13 bankruptcy petition. When Buresh and Phillips refused to agree that the Trust had an undisputed and allowable claim against them, the Trust filed a motion for relief from the automatic stay to enable the Trustee to pursue the summary judgment action. The defendants have now agreed that the Trust’s clam is allowable in their bankruptcy case. Accordingly, the Trustee will continue to prosecute the Trust’s claim of approximately $360,000 in their bankruptcy case to ensure that the Trust receives the maximum amount recoverable under the Bankruptcy Code.

After the litigation against Ms. Henry was remanded to the Bankruptcy Court, she sought through her counsel to negotiate a discounted settlement of the Trust’s claim against her. Those efforts were not fruitful. Accordingly, in October 2018, the Trust obtained and levied a writ of attachment against her assets, and also prepared and filed a motion for summary judgment against Ms. Henry to recover approximately $390,000, which is set to be heard on January 23, 2019.

The two appeals that were previously before the Ninth Circuit (Committee v. Grassi Construction, 8:13-ap-01466 and Committee v. Bella Casa, 8:13-ap-01424-CB) stem from rulings this Court made granting motions for summary judgment filed by the Trustee, which were affirmed in whole or in part by the District Court and appealed to the Ninth Circuit in May of 2017. Grassi Construction has since been settled for $250,000 of the approximately $304,000 owed. Bella Casa recently lost their appeal before the Ninth Circuit and did not seek en banc review or pursue a petition for writ of certiorari; Bella Casa paid out their $120,000 judgment to the Trust in 2015.

On July 18, 2017, the District Court entered an order dismissing the defendant’s appeal of Committee v. Taransaud; 8:13-ap-01434, pursuant to a stipulation to that effect between the Trust and the defendant.

An additional Avoidance Action, which had been appealed to the District Court, has been remanded in part and is currently pending before this Court (Committee v. Pott, 8:13-ap-01413-CB). The defendants in this Avoidance Action have filed a motion to withdraw the reference to the District Court. However, the District Court has denied the request. The order approving the amended joint pre-trial stipulation was entered on September 25, 2018. This case is now ready for trial and will be tried by the District Court.  On March 21, 2017, the Trust initiated an adversary proceeding (Weiss v. Mark Grassi et al., 8:17-ap-01043-CB) seeking to recover fraudulent transfers resulting from the entry of a judgment against a defendant in the original Avoidance Actions (Committee v. Grassi Construction). The status hearing that was previously continued to October 10, 2018 has since been taken off calendar, in light of the Trustee’s stipulation to dismiss this adversary proceeding.

On July 28, 2017, the Trust initiated two adversary proceedings (Weiss v. KCG, Inc. et al., 8:17-ap-01123-CB; Weiss v. KCG, Inc. et al., 8:17-ap-01137-CB) seeking injunctive relief against KCG, Inc. to remove KCG, Inc.’s purported judgment lien on the real property known as 608 ½ Begonia Ave., Corona Del Mar, CA 92625 and on the proceeds of the sale of 8424 St. Helena Highway, Napa, CA. The Trustee has subsequently dismissed both of these cases due the resolution of the underlying issues.

B. Recovery from Avoidance Actions

To date, the Trust has realized gross proceeds of approximately $11.1 million from the Avoidance Actions, less approximately $1.1 million in direct costs, approximately $600,000 in deferred professional fee claims per the confirmed plan in this case, and approximately $5.3 million in legal contingencies to Landau, Gottfried & Berger, pursuant to their court approved employment application.

A significant portion of the proceeds were derived from the sale of real property owned by Michael Bello (“Bello”) pursuant to the terms of the settlement agreement entered into with Mr. Bello (“Bello Settlement”): the “Wine Store,” which was sold for $3.2 million, “Platinum Drive,” which was sold for $284,000, and the “Vineyard” located in Saint Helena, California, which was sold on July 21, 2017 for $1.573 million.1

Pursuant to the terms of the Bello Settlement, however, the Trust was entitled to receive the first $4,000,000 of unencumbered proceeds upon the closing of the sale(s) of these properties and if the unencumbered sale proceeds were less than $4,000,000, the shortfall was to be paid by the Bello family to the Trust from other sources. The net proceeds from the sale of the properties were approximately $85,000 short of the minimum owed to the Trust but the Bello family had not made this payment to the Trust.

In March 2018, the Trustee formally notified the Bello family members that they were in default under the terms of the Bello Settlement as of March 31, 2018 for the non-payment of $2,615,296. In April 2018, the Trustee entered into a forbearance agreement with the Bello family members whereby a $500,000 payment was made to the Trust by Bello from funds he received from his sister. In addition, beginning on May 31, 2018 and for a period of thirty (30) months, Bello is required to make monthly payments of $30,000 at which time the remaining unpaid principle and interest (7%) will be due. Moreover, the Bello family agreed to list for sale two real properties owned by, respectively, MB Investment Group, LLC and Christopher Bello with the proceeds to be used to partially repay the outstanding settlement amount. These properties were sold during the second and third quarters of 2018 resulting in gross proceeds of approximately $1.5 million to the Trust. Bello is also current with the $30,000 monthly payment obligation.

As of December 31, 2018, the Trust has received approximately $6.1 million due under the settlement agreement with a remaining amount due of $1.2 million.

II CASH ON HAND

The Trustee has been, and is continuing to monetize the above assets for the benefit of creditors of the Debtor’s estate. Currently, the Trust holds approximately $400,000 in unrestricted cash. This cash balance factors in the Trustee having paid in full all allowed administrative claims and priority claims.

III GENERAL UNSECURED CREDITOR DISTRIBUTION

All claim objections have been resolved. In September 2017, the Trustee made the first interim creditor distribution in the amount of $1,999,670. In October 2018, the Trustee made its second interim distribution of $1,200,000. The Trustee projects to make additional interim creditor distributions, depending on the status of the sale of certain real estate and the collection of judgment as described herein.

 IV CONCLUSION

Full consummation of the Plan is contingent upon the Trustee’s resolution of the outstanding litigation and appeals described above. Based on the foregoing progress and disclosure thereof, the Trustee respectfully requests that the Court continue the post-confirmation status conference in this case for approximately 120 days, or to May 23, 2019.

DATED: January 10, 2019                                          WINTHROP COUCHOT

GOLUBOW HOLLANDER, LLP

By: /s/ Alastair M. Gesmundo

Garrick A. Hollander

Alastair M. Gesmundo

General Insolvency Counsel for the Brian S. Weiss, Liquidation Trustee of the Walldesign, Inc. Liquidation Trust

1 The Trustee also initiated a nondischargeability action pursuant to 11 U.S.C. § 523 against Michael Bello and Nancy Bello (Weiss v. Bello, 8:17-ap-01005-CB) in the related bankruptcy case of In re Nancy Ann Bello, 8:16-bk-14186-CB (“Nancy Bello Bankruptcy Proceeding”). Default has been entered by the Clerk against defendants. The Trustee filed a motion for default judgment and on April 23, 2018, this Court entered an order granting the Trustee’s motion for default judgment. On August 9, 2018, the Court closed this case.

Robert Rodriguez has represented both debtors and creditors in dozens of bankruptcy proceedings under chapters 7, 13, and 11.

Robert Rodriguez has litigated well over 100 family law cases and civil litigation matters including personal injury motor vehicle cases, dog bite and slip & fall cases, breach of contract, defamation & invasion of privacy, fraud, unfair business practice, malicious prosecution, workplace and employment matters including sexual harassment, wrongful termination, wage & hour violations, discrimination pursuant to the FEHA, Gov’t Code §§ 12940 et seq., violations of the FMLA & Pregnancy Leave, Civil Rights  discrimination pursuant to 42 U.S.C. § 1983 and Title VII of the 1964 Civil Rights Act in the State of California and California federal district courts.

* Disclaimer – Robert Rodriguez is licensed to practice only in the State of California & this analysis is applied only under State of California law.  Robert D. Rodriguez is also admitted to practice in the U.S. District Courts, Central, Northern & Eastern Districts of California.  Robert Rodriguez has practiced in the State of California Court of Appeal.

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