Appointment of Padrick as Trustee

Shortly after the presentation with Padrick, he was appointed Trustee

By Summit 1031 Bankruptcy

May 2009

As you can see, Kevin Padrick did not really present anything. This was 2 hours that consisted of the principals asking questions about what Padrick had been up to this whole time, why he wasn’t helping to get property liquidated, and who sent told him to give a presentation to the Creditors’ Committee. Padrick said he was being told by someone (who, we never found out) to “stop and go”. Someone (we never got an answer here either) told him to make a presentation to the Creditors’ Committee. He said he’d been doing everything to get things moving. It seemed the delay and inaction was just about everyone’s fault except his. Padrick primarily directed the blame at Sussman Shank. Padrick said there was no one more frustrated than him. My dad replied with, “You want a bet?” Why hadn’t he done anything to help sell some of the assets if he was so concerned?

I gave Padrick the benefit of the doubt because if the Judge, the US Trustee, and the Creditor’s Committee wanted to appoint him as trustee, then he must know what to do to get this thing moving along, right? “Click here to see the email I sent to Vivienne Popperl, the US Trustee’s attorney reporting the results from the presentation with Obsidian, our concerns, and our suggestions.” [ http://www.summit1031bkjustice.com/wp-content/uploads/2009/05/ustrusteeemail13.pdf ]

One of the big concerns was in regards to the innocent parties involved in many of the real estate investments in which the Summit principals were involved. My dad was just as concerned about those folks as the exchangers were. He wanted to make sure that those folks wouldn’t be affected negatively. After all, they had put their hard earned money in these investments. There were also some problems with doing a carte blanche transfer of the principals’ interests in these investments. One operating agreement provision stated that if anyone transferred an interest that the member transferring the interest automatically lost his/her interest. Another LLC operating agreement stated that if any interest was transferred due to bankruptcy, the loan was automatically put in default and the seller could take back the property. The carte blanche transfer would seriously reduce the value of Summit 1031’s estate, thereby decreasing the money available to be returned to the exchangers. Padrick said he knew all about those problems and his team was addressing those issues at that very moment. He said that he would be able to work with those other parties and be sensitive to them. He said he would find solutions to take care of all the transferring issues.

The presentation the principals had hoped to see (the one shown to the Creditor’s Committee) was never made during that first session with Padrick. Padrick and his team were asked to come back for a second attempt to go through the presentation. Padrick came again, but could only stay for a short time as he had to fly back to Portland in his personal jet. Padrick’s employees, Ewan Rose & Ryan Norwood, stayed behind and discussed some of their ideas on the properties. They had had the information for two months, but didn’t have much of an idea of what any of the property values were. In fact, it appeared they had done little other than make some changes to the schedule Tim Larkin had originally given them. They said they discovered that there were missing properties. Those missing properties were the principals’ personal residences. I don’t know what research they had to do to find those residences. Oh wait, you could just look in the phone book or on the county website in about 15 minutes. I wonder how much time at a $400/hour rate this investigative work cost the exchangers. Obsidian wrote on the spreadsheet that these residences were discovered because of “Obsidian’s due diligence process”. These are the “experts” who are in charge of your money?

The principals were concerned that Padrick would be difficult to work with since the first meeting since hiring Obsidian had been so contentious. Some attorneys told the principals that Padrick was a fair man and that they thought he could work with us in the future, even though the relationship was rocky. In contrast, my dad’s attorney said that Padrick is not our friend and we should not trust him.

The personal BK attorneys for the principals all felt like the judge would appoint Padrick and they didn’t have much choice anyway. The judge usually does what the creditors want. The principals heard that phrase repeatedly as the case progressed. It was implied, “No one trusts those principals. They are up to no good. They shouldn’t have any say in anything. They are bad!!!” I guess this is typical in these cases, but these men are not bad. They are actually men of high integrity. They have been beaten up by all of this. They feel powerless and that they cannot make a difference. It is up to Padrick now. The difference I see between the Summit principals and Padrick is that when the Summit principals say they are going to do something, they do it. Everything Padrick said he was going to do in this case have not shown up in his actions. I would rather work with people whose action matches their talk. Talk is cheap! In Padrick’s case, talk is very profitable.

The principals still didn’t trust Padrick’s motives, but they thought that maybe he could move fast and get things done. The whole BK had been going nowhere. M. Vivienne Popperl, the attorney for the US Trustee, said she thought the delay was due to a “Law Firm in Possession”. I believe she was referring to Sussman Shank. The bankruptcy had been stuck for two months under Sussman’s guidance. The most common response from Susan Ford at Sussman was that they understood the issues and were researching them. It seemed the research rarely got answers or accomplished much of anything. Sussman seemed paralyzed. They patted themselves on the back about handling the bankruptcy for the Catholic Diocese of Portland when they sold themselves to Summit 1031 for the bankruptcy contract, and yet they didn’t seem to know what to do with Summit’s bankruptcy!

The principals decided not to oppose Padrick’s appointment as Trustee if the Judge and the creditors wanted that. My dad and I also made it known that Terry Vance had done a very good job and thought Vance could finish the job. However, the Creditors’ Committee didn’t trust Vance. Why, I don’t know. I know that instead of selling himself to the Creditors’ Committee, he was busy working on repaying exchangers. Maybe the Creditors’ Committee thought Vance would not get money to the exchangers if he was working with the principals. I think the principals would have been an asset in clarifying transactions and providing guidance on where to go to get answers. This was their business after all, not that of attorneys. Why would those principals volunteer to help solve the problem that they created? I would hope anyone would work for free to make up for a mistake he or she made. Wouldn’t you?

Once again, there has been little to no communication with the principals since Padrick was appointed trustee. Vance was told he was finished and the principals were told that Sussman Shank was out. Obsidian swept into the Summit offices. Shortly thereafter, they packed up all the information and took it to Portland. The files were all filed in file cabinets at the Summit offices in a relatively small amount of space. After the files were moved, Obsidian reported there was so much information it filled up a 2,000 square foot room!!!! Eeek! How much rent does that cost in Portland? Is it really 2,000 square feet? Don’t worry. Obsidian seems to think there is a whole pile of exchange money to pay for that.

The principals’ biggest worry was having someone competent in place to do the exchanges. Padrick had told them from the beginning that this was something Obsidian could handle. The principals wanted the exchanges processed quickly. They believed Padrick would put the exchange process in motion.

In those first few weeks of the Obsidian administration, Padrick said that he didn’t really have the people at Obsidian to deal with the exchanges, at least not with the knowledge to finish transactions. He confessed that his people just knew the basics of exchanges and weren’t really experts. That was news! When he contracted the job he made it clear that his company knew lots about exchanges and that they could handle the job. Padrick then told the principals that Obsidian was retaining Sussman to finish the exchanges. I thought they weren’t getting this done correctly and they were the ones that told Padrick to stop processing exchanges on day 1 or 2 according to Padrick’s claims at his presentation with us.

The principals were concerned with this development. They had gotten complaints from others professionals that Sussman didn’t understand exchanges. Lane Lyons had worked tirelessly (at no charge) to walk Sussman through the exchanges. Sussman moved glacially and didn’t seem to have full knowledge of how to complete exchanges. Despite these concerns, Padrick stuck with the decision to have Sussman continue. They moved so slowly, damages continued to mount up from uncompleted exchanges. Why would Padrick be interested in the exchanges not being completed? Hmm… Maybe the answer lies in the success fee he later proposed for Obsidian. The more the claims grew over the principal claims, the better the chance was that Obsidian and the attorneys would get a good chunk of that success fee. The success fee was supposed to be a motivation to get all the money back, but maybe it was a motivation to find ways to increase claims way above the Summit’s claims of the creditors. More opportunity for Obsidian profits?? Just a crazy thought to ponder!

“Click here for more answers to your questions” [ http://www.summit1031bkjustice.com/?page_id=939 ]