Creditors Seek ‘Global Settlement’ : S.D. Hearing to Tie Up Loose Ends of DeLorean’s Debts
Indicted car maker John Z. DeLorean, his lawyers, and attorneys for the investors and creditors of the failed DeLorean Motor Co. will assemble before a federal district judge in San Diego Wednesday morning in an attempt to reach agreement on DeLorean’s debt to the company he founded.
Attorneys say the unusual proceedings--far from the Detroit and East Coast courtrooms where they have been battling for nearly four years over the collapsed remains of DeLorean’s car-building dreams--stem from a consensus that, with $1 million in legal fees billed and the clock running, it is time to begin wrapping up DeLorean Motor Co.’s business.
One by one, DeLorean and the lawyers will shuttle into the chambers of U.S. District Judge J. Lawrence Irving of San Diego, who has been urging settlement talks since early this year.
That is when, after a long trial, Irving ruled that DeLorean was within his rights to transfer $2.5 million worth of North San Diego County real estate to Santa Monica attorney Howard Weitzman as payment of Weitzman’s fee for successfully defending him in 1984 on criminal charges of cocaine trafficking.
The trustee of DeLorean Motor Co., which in 1982 filed for protection from its creditors under Chapter 11 of the federal bankruptcy law, had wanted the property turned over to the defunct firm’s estate, for eventual distribution to creditors who have filed more than $700 million in claims.
The dispute over the Pauma Valley property--the first to come to trial in the DeLorean bankruptcy--was only a fragment of the litigation over the car company’s demise, most of which is pending in other courts. But instead of trying to bring another judge up to speed on the complex litigation, the attorneys heeded Irving’s recommendations and agreed to return to San Diego to take a shot at resolving all the claims against DeLorean.
“If he pulls this off, he’s done a helluva job,” said Mayer Morganroth, the Detroit lawyer who represents DeLorean in civil matters. Other judges presiding in cases related to the bankruptcy will have to approve any settlement reached in San Diego.
DeLorean himself is the focus of the San Diego conference because lawyers for the defunct company believe he is the single best source of funds to meet the firm’s debts.
The trustee has filed lawsuits that contend DeLorean and other company officials diverted more than $26 million from the company, founded to build the gull-winged, stainless steel sports car long dreamed of by the former General Motors executive. The suits seek to take possession of property DeLorean allegedly bought for himself with DeLorean Motor Co.’s money--a co-op apartment in New York, for instance, and a Logan, Utah, company that manufactures off-road vehicles.
Reportedly, trustee David Allard Jr. has realistic hopes of collecting $10 million to $20 million for pro rata distribution to the car company’s creditors, led by the government of Northern Ireland, which is seeking $80 million for its losses when the firm’s manufacturing operations near Belfast shut down in 1982.
Overall, about $100 million of the creditors’ $700 million in claims are considered valid, according to Sheldon Toll, the Detroit lawyer representing Allard. Though the suits against DeLorean seek that amount and more, Toll said he has no expectations of collecting the bulk of the debt from DeLorean.
“It is our opinion Mr. DeLorean does not have anything like that in terms of his assets,” Toll said. “No matter how right we are, we can only acquire from him what he has.”
Toll would not say Monday what assets he expects DeLorean to turn over to the bankruptcy estate--though, like the other parties to Wednesday’s conference, he has privately told Irving how much he would consider a reasonable settlement.
“We are structuring it solely in terms of cash,” Toll said. “If we can agree on a cash figure of X dollars, it will be up to him to choose which of his assets he’ll either mortgage or sell for cash.”
Allegations that DeLorean diverted assets from DeLorean Motor Co. are also the focus of a federal criminal indictment in Detroit that charges DeLorean with bilking investors in the company of $8.9 million through fraud and racketeering. Irving’s negotiations will not affect the criminal case.
Attorneys involved in the civil litigation said Irving set out only to tie up the loose ends of the Pauma Valley case, hoping to resolve without trial such matters as a related dispute over DeLorean’s transfer of an interest in the New York co-op to Weitzman.
But they realized that what Weitzman described as a “global settlement” of issues regarding DeLorean’s personal obligations to the failed company was the only way any of the individual cases would get resolved--short of a series of costly trials that threatened to drain the assets of the estate. Toll’s firm, which has collected $2.5 million for the estate, already has billed it more than $1 million in legal and expert witness fees.
“Every judge’s primary concern is not just having a case tried. The primary concern is an equitable resolution of the proceeding,” Morganroth said. “If you can resolve it prior to everybody eating up their assets, a good settlement is always better than a lawsuit.”
