A federal bankruptcy judge ordered the appointment of a trustee for Bonneville Pacific Thursday to stop the "bleeding" of assets from the bankrupt company and suggested the trustee should sue former officers in the company to retrieve assets - including bonuses and severance pay - they took from the company.
Bonneville Pacific is hemorrhaging assets so fast that a trustee will be appointed by Friday afternoon to protect the company, said assistant U.S. trustee John Straley. The company is losing more than $10 million a month.Salt Lake Mayor Deedee Corradini and her husband, Yan Ross, should be investigated to determine what their relationship with Bonneville Pacific was before Ross' firm can be paid for legal work it did related to the bankruptcy, U.S. Bankruptcy Judge John H. Allen said in his 20-minute ruling late Thursday.
"According to the examiner's report, there appears to be no question that Deedee Corradini was one of the original owners of the Bonneville Pacific, has had influence on the management of Bonneville Pacific and companies that made transfers to Bonneville Pacific and has received benefits from sales made to Bonneville Pacific," Allen said.
The FBI began investigating Bonneville Pacific and its principals almost a year ago. U.S. Attorney David Jordan said Justice Department policy forbids him to confirm or deny rumors of an investigation. Straley has turned the question of any additional criminal investigations over to Jordan. Jordan declined to comment on his discussions with Straley.
Allen's ruling Thursday goes against the advice of Bankruptcy Examiner Allen V. Funk, who filed a report last week alleging possible fraud on the part of Bonneville Pacific's past principals. Funk told Allen it was too early to appoint a trustee, who would have to experience a "huge learning curve" and rely on current company management to make important decisions. Funk was unavailable for comment Friday.
Allen's ruling also came as a shock to the half-dozen attorneys gathered in the courtroom for a routine hearing on fees sought by a consultant to Bonneville Pacific.
Allen spent all day listening to testimony about the request for payment by a Chicago crisis management team that helped Bonneville Pacific craft a reorganization plan. Once a company files for bankruptcy, the court must approve all fees paid by the company.
But when Allen began to rule shortly before 4 p.m., he also condemned Bonneville Pacific's present management for not trying to recover the company's assets.
He criticized the company for filing a reorganization plan that was "woefully inadequate" in light of Funk's report.
The plan was so inadequate, Allen said, that it made him wonder if Bonneville Pacific's attorneys were even capable of getting information about the company from its officers to prepare a solid plan.
The company's present officers do not even understand Bonneville Pacific's assets, liabilities or the circumstances of its bankruptcy, he said.
Bonneville Pacific President Clark Mower and his executives haven't even tried to find out if the company has legal grounds for going after affiliates, clients, former officers or others who may have improperly taken money out of the company, Allen said.
The company may have grounds to sue "officers and directors for return of excess compensation or seek damages for taking advantage of the corporate opportunity," Allen said.
Those who could be sued for taking excessively high signing and termination bonuses, he said, "may include (Robert) Wood, (Wynn) Johnson, (Stephen) Nadauld and others."
Bonneville Pacific should also consider suing former officers who personally profited by selling Bonneville Pacific assets. Those officers would include "Wood, (Jack T.) Dunlop, (Raymond) Hixson, Corradini and others," Allen said.
The judge also accused Mower of lying to the court when he testified on May 14 that former Bonneville Pacific officers, now tainted by scandal, did not influence the present management.
Wood still talks regularly with two Bonneville Pacific officers: attorney Mark E. Rhinehart and accounting vice president Gerald Monson, Allen said. "That suggests he is getting and receiving information."
Rhinehart improperly showed Wood a confidential memo about the company, and allowed Wood to "carry it off," Allen said. Former management clearly influences present management, he said.
Further, Allen said Bonneville Pacific has done nothing to recover money that may have been fraudulently paid to local law firms and banks in the weeks and months before Bonneville Pacific filed for bankruptcy.
Funk's report revealed that the company paid more bills in the day before it filed bankruptcy than it had in the full month previous. The payments - many of them to local law firms - likely violated federal bankruptcy laws, he reported.
In Thursday's ruling, Allen said a court-appointed trustee would do a better job of recovering company assets for creditors than Bonneville Pacific's current management.
The attorneys, representing Bonneville Pacific and its creditors, sat stunned through much of Allen's ruling. When it became apparent that Allen was going to order the appointment of a trustee, Bonneville Pacific attorney David Leta jumped up and begged the judge to stop.
He urged Allen not to make his ruling until Leta could speak out against it. Allen stopped midway through his discourse and allowed Leta to take the podium.
Bonneville Pacific executives vehemently oppose the appointment of a trustee, Leta told Allen.
He chastised the judge for ordering the appointment of a trustee without giving notice of that intention and holding a hearing, the "minimum due process" to which Bonneville Pacific and its creditors have a right.
Allen does not have the legal authority to appoint a trustee without the hearing, Leta said.
Leta accused Allen of reacting emotionally to the bankruptcy. "The court should not commit error even though it has strong feelings in this case," he said. Instead, Allen should display the "objectivity and neutrality" expected of the "blind woman of justice."
Allen listened silently while Leta defended Bonneville Pacific's current management and attacked Funk's report. The report is nothing more than a "carbon copy" of Bonneville Pacific's own investigation of itself, Leta told Allen. Bonneville Pacific appointed two employees to investigate the company. Funk simply took their report and "embellished it slightly," Leta said.
Leta then attacked the credibility of Funk's report. He called it "a unilateral statement made by one person looking at limited facts under a limited time constraint."
The report could not even qualify as evidence under federal law and it would be inappropriate for Allen to rely on the report in appointing a trustee, Leta said.
Speaking rapidly, Leta challenged Allen's claim that Bonneville Pacific was doing nothing to retrieve missing assets and would not be willing to sue local law firms and banks.
The company is not fearful of suing anyone who illegally benefited from Bonneville Pacific at the expense of its creditors, he said. That fearlessness extends to law firms and banks, he stressed.
"The company has not been sitting back on its haunches waiting for the bankruptcy examiner to finish his report." Rather, Bonneville Pacific deliberately delayed suing former officers, clients and others because the suits may have prevented those people from cooperating with Funk's investigation.
Leta noted that Dunlop refused to give a deposition to Funk because he feared legal action for alleged misuse of funds. Others would have followed Dunlop's lead if Bonneville Pacific had sued them before Funk concluded his investigation, Leta said.
By law, Bonneville Pacific has two years to sue those who reaped more than they deserved from the company. But the company may only have "days or weeks" to stop current losses and save corporate assets, Leta said.
Finally, Leta told Allen he couldn't order the appointment of a trustee because no one has filed a motion seeking a trustee. The judge can't rule on a motion he doesn't have, he said.
But after Leta finished speaking, Straley stood up and announced to the court that he had filed a motion earlier that day seeking the appointment of the trustee.
Lawyers seemed amazed at Straley's announcement.
Straley then urged Allen to proceed with the appointment of a trustee. From Dec. 5, 1991 - when Bonneville Pacific filed for Chapter 11 bankruptcy - to April 30, the company reported a loss of $54 million that should have gone to creditors, he said, a loss of more than $10 million a month.
If Allen decides to hold a hearing on the appointment of a trustee, "make it fast," Straley urged.
Allen then turned to Leta and chided him for arguing with a judge. "I don't suppose any attorney ever wins one of those arguments," he said.
He assured Leta he had deliberated carefully over the appointment of a trustee and concluded "it's something that has to be done to stop the bleeding."
He ordered Straley to prepare a court order authorizing the appointment of the trustee.