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A federal bankruptcy court judge in Los Angeles on Wednesday unsealed the explosive report from the trustee overseeing five companies associated with embattled film executive David Bergstein, including Capitol and ThinkFilm.
Judge Barry Russell also cleared the way for the court-appointed trustee, Ronald Durkin (who was present in court), to distribute copies of 21 volumes of exhibits in the case to creditors who have signed a confidentiality agreement. He is still keeping the exhibits from the public until there is another hearing on what should be kept confidential.
The Bergstein companies were forced into an involuntary bankruptcy in February. The status of that bankruptcy case and contents of the report — which raises serious allegations about the behavior of Bergstein and his business partner Ronald Tutor — were never addressed. The entire hourlong hearing was spent debating what was and was not confidential among the findings of the trustee and other evidence.
Russell did say that it was clear to him after reading the trustee’s report that it appears Bergstein has been “stonewalling,” but conceded that there may be another side to the story he has not heard. He also noted that the trustee has made a number of requests about consolidating Bergstein’s many companies with the five in bankruptcy, but that will require future motions, and he will rule on them at a later time.
As a lawyer for the creditors pointed out, the contents of the April 5 trustee’s report had already been made public last week after Russell briefly lifted his order that kept the trustee’s research and other matters in the case confidential. The judge two days later put it all under seal again at the request of Bergstein, his wife and one of his other companies, Graybox Llc. But not before The Hollywood Reporter and other outlets reported extensively on the contents of the report.
The judge gave an attorney for Bergstein, Jennifer Chang, until the end of this week to work out with the lawyers for the creditors and the trustee what Bergstein could claim should remain confidential. Chang has until next Wednesday to file a motion — which will not be confidential — listing what Russell indicated would be no more than about half a dozen items that Bergstein wants to remain under seal.
Bergstein filed a motion Monday in which he apparently argued that certain information has nothing to do with the involuntary bankruptcy case. That includes documents that show how much Bergstein paid to casinos and American Express out of company accounts, as well as the banking records of Graybox, which is not one of the five bankrupt companies.
David Neale, an attorney for lead creditor Aramid Entertainment Fund, and other lawyers for creditors, argued that all of those files were relevant because, as is detailed in the trustee’s report, corporate money was used to pay off gambling and other personal debts.
Russell expressed shock that the trustee’s report and exhibits had been withheld from the creditors until he briefly unsealed them. He said that he didn’t expect the creditors to “fight a battle without all the information.” The judge said that he had read the entire report of almost 400 pages and called it “amazing.”
The creditors’ reps asked for an expedited hearing on any confidentiality order, in part because there are two trials set in state court next month in which the evidence uncovered by the trustee could be vital. Russell said they should have done their own legal discovery to learn the same information. Neale replied that when they asked those questions, Bergstein and Tutor said they couldn’t talk because of the bankruptcy court confidentiality order.
Russell was unsympathetic and said they should have told Bergstein and Tutor that was not relevant. The judge said that he would not be rushed because of their mistake.
The judge said after he receives the motion from Chang next week, he will set a hearing to determine what, if anything, is to remain confidential. Attorneys in the case said after the hearing they estimate that will take at least another month. One of the lawyers for the trustees said it was unlikely they would file additional motions until the confidential issues are determined.
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