In re Angeles Corp.
| Decision Date | 24 February 1995 |
| Docket Number | LA 94-13411-KM,LA-94-15091-KM and LA 94-15093-KM.,Bankruptcy No. LA 93-25603-KM |
| Parties | In re ANGELES CORPORATION, a California corporation; Angeles Funding Corporation, a California corporation; Angeles Real Estate Corporation, a California corporation; Angeles Leasing Corporation, a California corporation, Debtors. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California |
Stutman, Treister & Glatt, Los Angeles, CA, for debtors.
Buchalter, Nemer, Fields & Younger, Los Angeles, CA, for Creditors' Committee.
OPINION ON MOTIONS OBJECTING TO CLAIMS FILED BY 6,977 LIMITED PARTNERS OF NONDEBTOR PARTNERSHIPS AND OPINION ON MOTION TO SUBORDINATE 6,977 CLAIMS FILED BY LIMITED PARTNERS
On May 3, 1993, Angeles Corporation (hereinafter "Debtor Angeles"), a publicly traded company, filed a Chapter 11 bankruptcy case in this District. Debtor Angeles' is a holding company. Subsequently, three of Debtor Angeles wholly owned subsidiaries filed bankruptcy. These three additional debtors are Angeles Funding Corporation, Angeles Real Estate Corporation and Angeles Leasing Corporation. The four bankruptcy cases are jointly administered, but not substantively consolidated.
The first 32 motions on calendar for today, which are on calendar for continued hearing, are the motions brought by the Official Committee of Creditors holding Unsecured Claims (hereinafter "Creditors' Committee") of Debtor Angeles. These 32 motions object to 6,977 claims filed in the Angeles Corporation bankruptcy case by limited partners of some 16 partnerships. The 16 partnerships in issue are listed on Exhibit 1 to this Opinion. None of these 16 partnerships is a debtor in any of these four administratively consolidated bankruptcy cases. These 32 motions are brought in the Angeles Corporation bankruptcy case only, because the 6,977 of the claims being objected to are all filed in the Angeles Corporation bankruptcy case.
The Creditors' Committee objects to the 6,977 claims on the grounds that any claims by the limited partners of the 16 partnerships would lie only against entities other than Debtor Angeles. The objections argue that any claim by the limited partners of the 16 partnerships would lie only against the 16 partnerships themselves, or would lie against the general partners of the 16 partnerships. None of the 16 partnerships is a debtor in this case, and none of the general partners of the partnerships is a debtor in this case. In essence the objection to the 6,977 claims filed by limited partners is that the facts alleged in the claims cannot give rise to any claims against Debtor Angeles, but are limited to claims against the 16 partnerships (none of which is Debtor Angeles) or the general partners of those 16 partnerships (none of which is Debtor Angeles).
The Creditors' Committee also argues that the limited partners lack standing to make claims for damage against the general partners, or on behalf of the partnerships, for damages arising from the mismanagement of the partnerships and other torts; that any right to recover for mismanagement or other torts would run only to the partnerships themselves, not to individual partners. This argument is discussed at Section I.E.9 infra of this Opinion.
The Court overrules the Creditors' Committee's objection to 34 of the 6,977 claims filed by the limited partners; and sustains the objection as to the remaining 6,943 claims filed by the limited partners here objected to, as follows:
E. ANALYSIS
34 of the 6,977 claims filed by limited partners allege various kinds of mismanagement, misconduct, fraud, breach of fiduciary duty and other wrongful acts by Debtor Angeles in relation to the 16 partnerships, damaging the limited partners of those partnerships. These 34 claims are the first 34 claims listed in Exhibit 2 to this Opinion.
Pursuant to Federal Rules of Bankruptcy Procedure Rule 3001(f), claims which are properly executed and filed in accordance with the Rules are prima facie evidence of the validity and amount of the claim. Bankruptcy Rule 3001(f): Thus, the claims filed by the limited partners alleging mismanagement and other wrongdoing by Debtor Angeles in relation to the 16 partnerships constituted prima facie evidence that such wrongdoing had occurred.
Consequently, the Creditors' Committee's objection to those claims could not properly be sustained against these claims unless the Creditors' Committee provided some admissible evidence to rebut the prima facie evidence of wrongdoing that the claims allege. As part of the original objection, the Creditors' Committee failed to present any evidence whatsoever to rebut such claims of wrongdoing. The Court continued the hearing on the objections to allow the Creditors' Committee an opportunity to present admissible evidence that Debtor Angeles had not committed wrongful acts in relation to the 16 partnerships alleged in the claims.
The Creditors' Committee responded to the Court's request for evidence by filing four declarations in support of the Creditors' Committee's objections, for today's continued hearing on the objections. These are the declarations of William Tuthill, Robert Goodman, Rachel Canon and Bruce Nii. These declarations are insufficient to disprove mismanagement and other wrong doing by Debtor Angeles in relation to the 16 partnerships at issue.
William Tuthill, President and Chief Executive Officer of Debtor Angeles, disclaims having done any "day-to-day" management of the limited partnerships in issue. (Tuthill Decl. paragraph 4) This begs the question, because people without day to day responsibility, but who are at the top of management and have decision making power can often mismanage much more successfully than subordinates who have day to day responsibility for management. Mr. Tuthill does not say in his declaration that he personally did not mismanage or commit the alleged bad acts. One inference to be drawn from this omission is that Mr. Tuthill didn't deny personal wrongdoing because he couldn't. Mr. Tuthill was also a director of Angeles. (Tuthill Decl. paragraph 3). Regarding his activities as a director, he states: (Tuthill Decl. paragraph 4). "Based upon the information regarding the Partnerships I reviewed as a director of Debtor Angeles, I do not believe that the Partnerships were mismanaged by Debtor Angeles (which did not manage the Partnerships) or by any of its subsidiaries. . . ." (Tuthill Decl. paragraph 5). These passages are a bit too artful. They do not say whether Mr. Tuthill ever came across evidence of mismanagement by Debtor Angeles while carrying out his other capacities as President and Chief Executive Officer of Debtor Angeles.
It should also be noted that the Creditors' Committee, which is working jointly with Debtor Angeles in this case, did not present any declarations by the people Mr. Tuthill refers to as the people with day to day responsibility for management of the partnerships, to claim firsthand that there was no mismanagement by Debtor Angeles. True, the Tuthill declaration states that these persons are no longer employed by Debtor Angeles. However, there is no claim that Movant could not have procured these persons' declarations or deposition testimony on the issue of mismanagement. The inference to be drawn is that this evidence was not presented because it would be contrary to the position Movant is taking. The people with "day to day responsibility" may have mismanaged. Mr. Tuthill states his personal opinion that "I have no reason to believe that any employee of Debtor Angeles or its subsidiaries engaged in any misrepresentation . . . or any other wrongful act . . .". (Tuthill Decl. paragraph 5). However, this is inadmissible as conclusion unsupported by a proper factual basis.
The three other declarations have similar deficiencies. Mr. Goodman, a newly hired financial adviser who has no firsthand knowledge of Debtor Angeles or the partnership whatsoever, merely declares that there was a recession. Mr. Nii, who has only been Vice President and Chief Financial Officer of the Debtor Angeles since April 1993 (the date bankruptcy was filed) does not claim lack of mismanagement in his declaration. Miss Cannon's declaration only addresses the marketing and sale of the limited partnership shares, not subsequent management of the partnerships.
Based on the financial information regarding the 16 partnerships submitted as part of the herein objections, it appears that approximately $250 million of money invested by limited partners was lost from inception of the partnerships to the present. Each of these partnerships purchased real estate, usually with 40% equity and with 60% debt. Mr. Tuthill's and Mr. Goodman's explanation that there has been a recession is not a sufficient explanation for a loss of...
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