July 20, 2011 6:08pm PT by Alex Ben Block
David Bergstein Wins a Round in Ongoing Bankruptcy Proceeding
Controversial film financier David Bergstein has won at least a temporary court victory in his battle against the trustee overseeing five companies he ran, including Capitol and ThinkFilm, that have been put into involuntary bankruptcy.
Federal bankruptcy court Judge Barry Russell on Tuesday reversed a decision by court appointed trustee Ronald Durkin to move a civil lawsuit involving Bergstein’s former attorney Susan Tregub from a California state court to make it part of the larger federal bankruptcy case.
Russell sent it back to state court and ordered the trustee’s attorney, Leonard Gumport, to pay $5,000 in legal fees to the attorneys working with Bergstein, as a penalty for making the entire Tregub case part of the federal involuntary action instead of just bringing to the bankruptcy court his protest against subpoenas served on him and the trustee in the Tregub matter. Those subpoenas demanded that Durkin and Gumport give depositions at a time they had already scheduled other activities in the bankruptcy case.
The trustee has argued that he should not be drawn into that case, and that subpoenas were an effort to impede work on the bankruptcy.
Bergstein, in an email Wednesday to The Hollywood Reporter, says the trustee was trying to hide his wrong-doing: “Mr. Gumport tried to pull the Tregub case into [bankruptcy] court because we uncovered email logs showing that he was improperly communicating with Tregub prior to the time he has a right to do so. We then noticed his deposition. He was concerned that we would get hold of the underlying emails and he removed the case to [bankruptcy] court.”
Gumport says there was no improper communication, and cited an email sent in April 2010 by David Weinstein, then an attorney for Bergstein’s side, that complimented his efforts to get information from Tregub. In another communication days later, Gumport wrote to Weinstein and another of Bergstein’s attorneys: “This email confirms that Mr. Bergstein, on behalf of himself & his affiliates, has consented to my firm and the Interim Trustee's debriefing Ms. Tregub and obtaining any information (including files) she may have, notwithstanding any claim of privilege that might otherwise exist. “
Now, says Gumport, Bergstein is saying the trustee’s approach to get that info from Tregub was inappropriate.
It may be moot. Bergstein supplied THR a copy of a memo from Tregub in which she tells an attorney in the case that she won’t turn over any documents in any case.
Bergstein adds that Gumport has been alleging that his civil suit against Tregub was his way of interfering with the federal bankruptcy case. Bergsten, who was not in court yesterday, interprets the judge’s comments Tuesday as an indication Russell agrees with him that deflecting the bankruptcy case is not the purpose of the Tregub suit.
“He thought he could distract the judge with more of the same nonsense he has been peddling,” writes Bergstein. “Of course, he never had any right to remove the case to [bankruptcy] court and the judge transferred it back to State court.”
In an email to THR on Wednesday, Gumport responded that moving the Tregub case to federal court was done because they had served those improper subpoenas as a ploy to delay the work of the trustee.
“The Court moved the case back to state court after Bergstein and his lawyers withdrew their subpoenas, which is what had triggered the removal in the first place,” writes Gumport. “The Court decided that only the part of the lawsuit relating to the subpoenas should have been removed, and that, once the subpoenas were withdrawn, it should have gone back, notwithstanding the pending dispute between the Trustee and Mr. Bergstein concerning who is entitled to control the bankruptcy estates' subsidiaries. The Court made it quite clear that it felt that only the subpoenas should have been removed and did fault me (not my client) for that decision.”
Gumport added that he will file, on behalf of the trustee, a motion to reconsider “the limited issue of whether the removal decision was reasonable, not whether the Bankruptcy Court incorrectly decided this matter.”
Bergstein also writes that, “Judge Russell took offense at [the request to move the Tregub case out of state court], chastising Mr. Gumport for among other things disparaging the state court judges. Judge Russell told the Trustee and his lawyer that they were not above the law.”
Bergstein adds, “The judge clearly stated that we have the right to depose the trustee and his lawyer and that is what the judge was referring to when he said that they were not above the law.”
Gumport says it is true that in theory he and Durkin can be deposed, but adds they have the right to file a motion in state court to stop that from happening, and may elect to do so.
As for comments about the state courts, Gumport takes offence, writing to THR: “I respect the state courts. In addition to being a practicing lawyer, I am a state court mediator, where I do volunteer work. I do feel that the matters involving the Trustee's taking control of the subsidiaries and deciding what litigation they should or should not file should be in Bankruptcy Court.“
All of this could be changed depending on whether the trustee gets a favorable ruling at a scheduled federal court hearing in Los Angeles on September 7, when Russell will consider Durkin’s request to consolidate into involuntary bankruptcy a number of additional corporate entities that are believed to be subsidiaries of companies which Bergstein ran.
Some of those companies are the parties who filed the suit against Tregub along with Bergstein. It was originally filed in federal court, but Russell previously moved it to state court, as he did again this week.
If the judge agrees in September on that consolidation, then Durkin will be in charge of the companies that brought the suit, and would have a say in whether the case against Tregub would proceed. Since Bergstein is also a party, he will also continue to have his say in whether it proceeds.
The state suit charges that Tregub violated her duty as an attorney to the companies run by Bergstein, and to Bergstein as her client, by cooperating with the creditors who brought the involuntary bankruptcy action; and in other ways. Tregub, who did legal work for the creditors after ending her long professional relationship with Bergstein, has denied any wrongdoing.
On Tuesday, the judge also unsealed the legal papers the trustee filed opposing Bergstein’s motion to move the Tregub case without any opposition.
The next hearing in the case is August 1, when Russell is expected to rule on the trustee’s request to relieve him of the attorney-client obligation as it relates to the bankrupt companies (which the trustee inherited when he got oversight). If Russell agrees, Durkin could introduce into evidence and make available to creditors and the public, numerous emails and communications between Bergstein and his lawyers, and other internal legal documents in the case.