A federal bankruptcy judge has accused a former judge of cover-up, deceit and dereliction of duty in the Bonneville Pacific case.
U.S. Bankruptcy Judge John H. Allen issued a 40-page ruling this week that repeatedly condemns former Judge Ralph E. Mabey for the way he represented the unsecured creditors committee as a private attorney in the Bonneville Pacific bankruptcy."The court is convinced that Ralph R. Mabey and David E. Leta walked in tandem down the ugly road of cover-up and deceit, completely ignoring their statutory duties to protect creditors even at the expense of principals and insiders," Allen wrote.
Allen says Mabey, Leta and former bankruptcy trustee Alan Funk conspired to keep Bonneville Pacific insiders in control of the company months after it had declared bankruptcy and while it was hemorrhaging millions of dollars.
Mabey's activities, and those of his law firm - LeBoeuf, Lamb, Leiby & MacRae - came to light in a February 1993 hearing on Leta's own conduct, Allen wrote. "What has emerged illustrates the dangerous snowball effect of der-elic-tion of duty."
Mabey was stunned by the comments. "I feel ambushed," he said. "I've worked hard over my lifetime to build a reputation for competence and integrity. All of our actions (in the Bonneville Pacific case) were consistent with the highest level of competence and integrity."
From 1979 to 1983, Mabey served as a U.S. bankruptcy judge in Utah's bankruptcy court, sitting where Allen sits today. He left the bench to assume the post of senior bankruptcy partner for the New York-based LeBoeuf firm. Allenwas appointed as Mabey's successor.
Allen criticized Funk for improperly providing information and services to Mabey and Leta when Funk should have been investigating Bonneville Pacific on behalf of the court.
Funk's interaction with Mabey prompted Funk to poorly advise the court that no trustee was needed in the bankruptcy case, Allen wrote. Allen ignored that advice, appointing Roger Segal as trustee.
The criticism of Funk is surprising since Funk's six-week investigation of Bonneville Pacific and his voluminous report to Allen broke open the scandal in June 1992.
Allen earlier praised Funk's work on the case, writing that if ever an examiner deserved a bonus for his efforts, Funk did.
"I have the highest respect for Ralph Mabey. I did not cooperate with him except as I was directed to by U.S. Trustee John Straley," Funk said.
Allen accuses Mabey of working harder to protect Bonneville Pacific insiders than he worked to protect the interests of the unsecured creditors. Mabey and his colleagues "were in close, intimate contact with the officers and directors of Bonneville Pacific and at times, according to the testimony, `seemed to be running the show.' They vigorously participated in and supported many of the efforts to protect the insiders that had the potential to inflict real harm on the estate," he wrote.
Salt Lake Mayor Deedee Cor-radini's husband, Yan Ross, was a partner in Mabey's firm and worked on the Bonneville Pacific case.
Allen's remarks are part of a final ruling denying Leta's request that Allen reconsider his 1992 decision requiring Leta to disgorge fees he received in the Bonneville Pacific case and denying additional payments Leta had requested.
The fees in question amount to nearly $500,000. The Phoenix-based Snell & Wilmer firm where Leta now works may appeal Allen's decision to the U.S. District Court, firm spokesman Gina Aramo said.
Allen first denied Leta's fees in December 1992, condemning Leta for not discovering insiders' fraud and deceit.
Leta asked Allen to reconsider. In February 1993 Leta presented almost 10 days of evidence and testimony defending his management of the case.
Allen took Leta's request for reconsideration under ad-vise-ment.
For three years.
This week, he reiterated his condemnation of Leta, saying again that if Leta had had his way, the Bonneville Pacific scandal would never have come to light.
Aramo said the firm "is concerned that the ruling has unnecessarily and unfairly touched upon the reputations of several prominent members of our community," including Leta and Mabey. The firm may appeal Allen's decision, she said.
Allen has not previously questioned Mabey's performance. But testimony at Leta's hearing showed that Mabey, too, was trying to protect insiders, Allen wrote.
The Bonneville Pacific estate paid Mabey $209,000 for his work on behalf of creditors.
Mabey resigned as the creditors' attorney in June 1992 when he learned that Ross had not fully disclosed his involvement or his wife's involvement with Bonneville Pacific.
Allen issued his ruling the day after he approved a $30 million settlement between the Chicago law firm of Mayer, Brown & Platt and Segal. The timing is not accidental. The Mayer firm brought Leta into the case as its local counsel. The Chicago firm started out as general counsel for Bonneville Pacific in the bankruptcy case.
Allen threw the Chicago lawyers off the case after he learned that partners in the firm helped Bonneville Pacific insiders structure and operate the scam company.
The Mayer firm and Leta appealed. U.S. District Judge Dee Benson upheld Allen's decision. Leta appealed to the 10th Circuit Court of Appeals and lost a third time.
Months later, Bonneville Pacific trustee Segal filed a complaint against the Mayer firm accusing it of knowingly participating in the Bonneville Pacific scam. Senior partners in the law firm were investors in one of the company's shady projects.
The Mayer firm this week has agreed to pay Segal $30 million by June 30 in exchange for Segal's dismissal of the claims against it.
Allen sharply condemned the Mayer firm as well as Leta. Leta has admitted knowing that senior Mayer partners were investors in Bonneville Pacific, but he testified in 1992 that it was the partners' responsibility, not his, to admit that conflict. The partners didn't do that.