Bergstein, Tutor ordered to give depositions
Judge: "I expected full cooperation and it hasn't happened"David Bergstein and Ronald Tutor will have to start talking, a federal bankruptcy court judge ruled Tuesday.
Judge Barry Russell swept aside objections to the way his court-appointed trustee is proceeding in the involuntary bankruptcy case against five companies controlled by Bergstein, granting almost all of the requests to force depositions and presentation of evidence in the case.
Bergstein, his assistant/bookkeeper and his sometime partner Tutor were all ordered to give depositions under oath, and provide the interim trustee, Ronald Durkin, the documents he has requested, and make their personal and business computers available to be copied and examined.
"There's been an incredible lack of understanding about what I did when I appointed (the interim trustee to oversee the companies involved)," said Judge Russell early in a two-hour hearing in federal court in downtown Los Angeles. "I'm disappointed....I indicated I expected full cooperation and it hasn't happened. The positions taken are disappointing."
In an exclusive interview with THR earlier this month, Tutor discussed his "strained" relationship with Bergstein.
Bergstein and Pangea Media Group's computers and files that Durkin wanted to examine and copy were apparently moved without the permission of the court, prompting a demand by an attorney for the trustee for information on where they are now located.
The judge repeatedly made clear that Durkin has all the authority of any court-appointed bankruptcy trustee, even though he is hired on an interim basis and there has not yet been a ruling to force the five companies into actual bankruptcy. The only exception, the judge noted, is that Durkin does not have the power to overrule attorney-client privilege.
Durkin attended the hearing, but left the talking on his behalf to his attorney, Leonard Gumport. Bergstein and Tutor did not attend but were represented by three attorneys, although none represented Bergstein personally, which the judge found surprising.
The 16th floor courtroom was also crowded with about 50 other people, most of them attorneys for the creditors who brought the involuntary bankruptcy action on March 17. As he did then, Judge Russell noted how unusual it is for him to grant an involuntary bankruptcy petition.
Expressing his annoyance at the response, the Judge said he was "astounded" that there are objections to the trustee doing his job, which is to determine what is going on with these entities, their assets and where money related to them is or has been moved.
"So far there has been non-compliance," said the judge. "I will not tolerate that...If compliance is not forthcoming, I will exercise my contempt power."
In one of many rulings, the judge made it official that the "responsible party" in charge of the debtor companies is Bergstein and that he must give the trustee all information requested.
When objections were raised by an attorney for the debtor companies to setting a date for Bergstein to be deposed, the judge sharply replied that he would set the date of August 3, and he didn't need Bergstein to agree.
He did issue a warning: "I cant make anybody do anything but I can make you very sorry if you don't."
Judge Russell added that he sees this case as outside the norm of negotiating a date because "there has been a lot of stonewalling."
Judge Russell also ordered Bergstein's longtime assistant, Frymi Biedak, who was referred to by the trustee's attorney as the company bookkeeper, to be deposed under oath on July 30, and to make her computer available for the trustee to copy all relevant records.
Unlike Bergstein, Tutor also had his own attorney, Jeff Garfinkle, who said his client had transferred all ownership interest in the companies in the case, and did not have any useful knowledge, so should not be deposed. He also said the scope of what is being asked is much too wide and needs to be made more narrow before there is a deposition.
The trustee's attorney noted that Tutor did transfer certain assets that he co-owned with Bergstein, supposedly in January 2009 (although he had doubts that it really happened then), that had been guaranteed for over $50 million for a consideration of $10.
He called that bill of sale "weird," and said the trustee is confident Tutor has a lot of important knowledge relating to the case.
Gumport said that Tutor has taken the "position 'I know nothing. I know nothing.' That is his defense. I don't think that serves him well. Mr. Tutor is not Sergeant Schultz. He does know something. He is very sophisticated."
The judge chuckled and noted you needed to be a certain age to understand the Sgt. Schultz reference. Schultz was a fictional character on a World War II sitcom, "Hogan's Heroes," who famously would say, "I know nothing!"
"It is inconceivable that Mr. Tutor doesn't know a whole lot about the financial affairs of these debtors," added Gumport.
The Judge ordered Tutor to be deposed July 30, adding: "I want to get this thing moving."
Judge Russell did agree that the depositions shall be held privately and that lawyers for the creditors would not be able to attend, and that all information was confidential until he ruled otherwise.
Judge Russell also issued court orders to allow the trustee to examine the bank records at the Bank of America in Newbury Park, where much of the money controlled by Bergstein is kept or passed through. He noted that there is no objection to this by the Bank of America.
In addition, the judge ruled that Comerica Bank must also provide all of its records relating to Bergstein's businesses on August. 3. Tutor's attorney objected that again it was too broad and that it would include information about companies that are not part of the involuntary case. The judge swept his concerns aside and said it was the job of the trustee to investigate and then figure out what is relevant.
An attorney for Fortress Investments, which inherited the problem of collecting more than $70 million loaned to Bergstein and Tutor companies, objected at first to giving information to the trustee until it was clarified that while they might be the collector, they are not D.B. Zwirn and don't speak or them or have their records. The trustee and judge agreed, and after fixing the language in the order, Fortress agreed to cooperate.
The trustee's lawyer said Bergstein and his companies had not provided any tax returns or documents showing they paid taxes. The judge ordered them to turn all tax documents over to the trustee, and noted it was the trustees job to pay any taxes on the companies under the involuntary according to the law.
In the battle over Susan Tregub, who was Bergstein's lawyer for a decade but now works with the creditors, Judge Russell ruled that she must appear and give a deposition, although he did not waive any attorney-client privilege. An attorney for the debtors confirmed they did not wish her to use attorney client privilege on their behalf in any case.
The trustee also asked the judge to force all the law firms involved on behalf of Tutor and Bergstein, including Mitchell Silberberg, Knupp which is handling a case against D.B. Zwirn, to explain in writing who is paying their legal bills. He said it is important to know because the money may be coming out of the debtor companies, which are supposed to be protected by the trustee.
After much argument, the judge agreed and granted that order. "I expect there is an economic reason somebody is paying to represent the debtors," said the Judge. "It's a legitimate question."