In re Count Liberty, LLC, RS 04-19353 PC.

• Decision Date: 04 May 2007
• Docket Number: No. RS 04-19355 PC.,No. RS 04-19353 PC.,RS 04-19353 PC.,RS 04-19355 PC.
• Citation: 370 B.R. 259
• Parties: In re COUNT LIBERTY, LLC, and West-All Properties, LLC, Debtors.
• Court: U.S. Bankruptcy Court — Central District of California

370 B.R. 259

In re COUNT LIBERTY, LLC, and West-All Properties, LLC, Debtors.

No. RS 04-19353 PC.

No. RS 04-19355 PC.

United States Bankruptcy Court, C.D. California, Riverside Division.

May 4, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Dennis Winters, Esq., Winters Law Firm, Santa Ana, CA, for Count Liberty, LLC & West-All Properties, LLC.

James J. Stoffel, Esq., Beberman, Stoffel & Beberman, San Diego, CA, Arturo M. Cisneros, Esq., Malcolm Cisneros, Irvine, CA, for Christopher R. Barclay, Chapter 7 Trustee.

Jan Kalicki, San Marcos, CA, pro se.

Rosalind J. Kalicki, San Marcos, CA, pro se.

MEMORANDUM DECISION

PETER H. CARROLL, Bankruptcy Judge.

On May 2, 2007, the court conducted an evidentiary hearing pursuant to its Amended Order Directing Jan A. Kalicki, Rosalind J. Kalicki, and Dennis Winters, Esq., to Appear and to Show Cause Why They Should not Account for Missing Funds and be Sanctioned and/or Ordered to Disgorge Fees for Violation of this Court's Order Entered on February 9, 2005 ("Amended OSC"). Jan A. Kalicki and Rosalind J. Kalicki appeared pro se, Dennis Winters appeared on behalf of Debtors, Count Liberty, LLC and West-All Properties, LLC, and James Jay Stoffel appeared for Daniel L. Muhe and Financial Freedom Loans, Inc. (collectively, "Muhe"). The court, having `considered its Amended OSC and the responses thereto, the evidentiary record, and arguments of counsel, makes the following findings of fact and conclusions of law¹ pursuant to Fed.R.Civ.P. 52, as incorporated into Fed. R. Bankr.P. 7052 and made applicable to contested matters by Fed. R. Bankr.P. 9014(c).

I. STATEMENT OF FACTS

A. Commencement of Chapter 11 Cases.

On August 11, 2004, Count Liberty, LLC ("Count Liberty") and West-All Properties, LLC ("West-All") filed separate voluntary petitions for reorganization under chapter 11 of the Code.² Jan A. Kalicki ("Kalicki") is the president of both Count Liberty and West-All. Rosalind J. Kalicki is a secretary-treasurer of each corporation. On October 5, 2004, an Order Authorizing Employment of Counsel was entered authorizing West-All to employ Dennis Winters ("Winters") as general counsel for West-All, as debtor in possession. A similar order was entered in the Count Liberty case on October 19, 2004. On October 26, 2004, the court ordered that the bankruptcy estates of West-All and Count Liberty be jointly administered under Case No. RS 04-19353-PC.

B. Stile of Carlsbad Property.

On December 21, 2004, Count Liberty and West-All filed a motion seeking authority to sell the real property and improvements at 2782 Arland Road, Carlsbad, California ("Carlsbad Property"), free and clear of liens, to Robert and Amie Destremps for the sum of $1,225,000 pursuant to § 363(b)(1) and § 363(f). Winters signed and filed the motion as attorney for Count Liberty and West-All. Because Muhe asserted a lien against the Carlsbad Property that was disputed by West-All, Winters represented in the motion that "[t]he Debtor will segregate the proceeds after payment of closing costs and taxes, and will hold the balance pending further Order of the Court."³ Winters further stated that "[w]hile the sale would be free and clear on [sic] liens, the net proceeds after closing costs, taxes and broker's commissions would be placed in a segregated account with the liens to attach in the priority provided by law. A subsequent proceeding will be filed to determine the distribution of the proceeds."⁴

On January 25, 2005, Count Liberty and West-All filed a Supplemental Reply in Support of Motion to Sell Property Free and Clear of Liens and Pay Administrative Expenses of Real Estate Brokers. Winters signed and filed the supplemental reply as attorney for Count Liberty and West-All. In the supplemental reply, Winters stated that "... the money will be held in' an interest bearing trust account until the amount of Financial Freedom's claim is determined."⁵ At a hearing on February 1, 2005, the court granted the motion of Count Liberty and West-All to sell the Carlsbad property based on findings of fact and conclusions of law made on the record.⁶

On February 8, 2005, the court signed an Order Approving Motion To Sell Property Free and Clear of Liens authorizing the sale of the Carlsbad Property to Robert and Amie Destremps for the sum of $1,225,000. The order specifically provided, in pertinent part, that:

"... all remaining proceeds are to be placed in a Debtor-in-Possession, interest bearing, blocked account; the liens and trust deed shall attach to the remaining net sale proceeds in such account in the order, and priority provided by law; the funds in said account shall not be used or distributed without further Order from this Court ..."⁷

The order, which was prepared by Winters and approved, by Muhe's counsel, was entered on February 9, 2005 (the "February 9th order").

C. Motion to Appoint Chapter 11 Trustee.

On April 5, 2005, Muhe filed a Motion to Appoint an Independent Chapter 11 Trustee alleging, in pertinent part, that Count Liberty and West-All, through their counsel, Winters, had failed to provide requested information concerning "the segregated bank account in which the one million plus dollars was deposited" following the sale of the Carlsbad Property and had railed to file a February 2005 monthly operating report.⁸ On April 12, 2005, Count Liberty and West-All filed an Opposition to Motion for Appointment of Chapter 11 Trustee ("Trustee Opposition"). Winters signed and filed the Trustee Opposition as attorney for Count Liberty and West-All. In the Trustee Opposition, Winters represents that "[t]he Debtors are holding the proceeds of the sale of the Arland property in a blocked account, in excess of $1,100,000.00."⁹ In a declaration filed in support of the Trustee Opposition, Kalicki stated under penalty of perjury that:

"When the proceeds of the Arland property sale were received, I had the proceeds deposited into a Debtor-in-Possession, interest bearing, blocked account, as detailed in the Court's order. Union Bank Account # 2180042493. All the funds remain in the account."¹⁰

Winters and Kalicki made similar representations in other responsive pleadings filed with the court.

On April 12, 2005, Count, Liberty and West-All filed an Opposition to Motion for Relief from Stay filed by Muhe ("Stay Opposition # 1"). Winters signed and filed Stay Opposition # 1 as attorney for Count Liberty and West-All. In Stay Opposition # 1, Winters again represented that "[t]he Debtors are holding the proceeds of the sale of the Arland property in a blocked account, in excess of $1,100,000.00."¹¹

On April 12, 2005, Count Liberty and West-All also filed an Opposition to Motion for Turnover of Proceeds of Sale ("Turnover Opposition"). Winters signed and filed the Turnover Opposition as attorney for Count Liberty and West-All. In the Turnover Opposition, Winters again represented that "[t]he Debtors are holding the proceeds of the sale of the Arland property in a blocked account, in excess of $1,100,000.00."¹² Winters further represents in the Turnover Opposition that "the money is being held in an interest bearing trust account until the amount of Financial Freedom's claim is determined."¹³ In a declaration filed in support of the Turnover Opposition, Kalicki stated under penalty of perjury that "[t]he Debtors are holding the proceeds of the sale of the Arland property in a blocked account, in excess of $1,100,000.00."¹⁴

On April 13, 2005, Count Liberty and West-All filed an Opposition to Motion for Relief from Stay filed by State Street Bank & Trust (Washington Mutual) ("Stay Opposition # 2"). Winters signed and filed Stay Opposition # 2 as attorney for Count Liberty and West-All. In Stay Opposition # 2, Winters again represented that "[t]he Debtors are holding the proceeds of the sale of the Arland property in a blocked account, in excess of $1,100,000.00."¹⁵

D. Operating Reports for February & March 2005

On April 25, 2005, Winters signed and filed the February 2005 operating report for Count Liberty and West-All. The report included an interim statement signed by Kalicki under penalty of perjury disclosing Account # 2180042493 as a "Blocked Account"¹⁶ with a balance as of February 28, 2005, of $1,116,000.¹⁷ The following day, Winters signed and filed the March 2005 operating report for Count Liberty and West-All. In the interim statement attached to the report, Kalicki again referred to Account # 2180042493 as a "Blocked Account"¹⁸ and declared under penalty of perjury that the balance as of March 31, 2005, was $1,116,000.¹⁹

E. April 26th Hearing

On April 26, 2005, the court conducted a hearing on Muhe's Motion to Appoint an Independent Chapter 11 Trustee. Despite the representations in the operating reports and pleadings filed with the court, Winters was unable to confirm whether Account # 2180042493 had, in fact, been restricted as required by the court's February 9th order nor the amount of cash actually deposited into the account following the sale of the Carlsbad Property.²⁰

PAGE CONTAINED FOOTNOTES

At the conclusion of the hearing, the court continued the hearing on Muhe's motion stating:

Again, the evidence that concerns the Court the most is this issue concerning the blocked account. I agree with Mr. Stoffel that the Debtor doesn't need a couple of weeks to come up with the documentation. In fact, the Court is going to give the Debtor ... six days... to Monday, May 2nd, at 9:30. That is the motion to appoint a Chapter 11 Trustee in this case. At that time the Debtor is to — or at or before the hearing — continued hearing date, the Debtor is to provide a copy of the disbursement statement from the close of escrow on the sale of the property showing the amount of funds, the net — the net proceeds from the sale of the property that were to be wired into the Debtor in Possession blocked account, a copy of the wire transfer, and a copy of the signature card on the Union Bank...