Mortuary’s Bankruptcy Clouds Settlement

A Costa Mesa mortuary’s unexpected bankruptcy has threatened a tentative settlement that would have distributed $14 million to hundreds of Southland residents, lawyers familiar with the case said.

Harbor Lawn Memorial Park Inc. filed for bankruptcy July 15, triggering a freeze on all other court proceedings involving the firm.

The action cast doubt on the tentative deal that would have ended the mortuary’s role in massive, complex litigation filed by more than 400 people who alleged that the remains of relatives were illegally cremated and, in some cases, lost.

The settlement, provided principally by three of the mortuary’s insurers, is in “limbo,” according to Cherie L. Lieurance, Harbor Lawn’s bankruptcy attorney.

“I can’t tell you what’s going to happen,” Lieurance said. “We believe the insurance policies are assets of the Harbor Lawn bankruptcy estate.”

Hundreds of complaints, consolidated by the state Supreme Court, were filed by customers of Harbor Lawn in 1978-85. Other defendants include a dozen funeral homes and mortuaries that contracted with the Harbor Lawn Crematory, plus the Neptune Society of Orange County, which arranges cremations and burials at sea.

The terms of the $14-million partial settlement with Harbor Lawn, announced in March, took more than a year to work out. Several other defendants and lawyers for some plaintiffs indicated they would oppose the settlement. A judicial order is required for the settlement to take effect.

The bankruptcy petition, filed July 2, lists the mortuary’s major creditors as Honorine T. Flanagan of Covina, $333,755, and the Federal Deposit Insurance Corp., $294,000. Another $223,000 is owed to unsecured creditors, according to the bankruptcy petition.

The two largest stockholders are listed as Max Candiotty of Los Angeles, who owns 25% of the outstanding stock, and the Halmo Investment Co. of La Canada-Flintridge, owner of 55%.

Flanagan, also a defendant in the Orange County Superior Court action, was a key factor in reaching the March settlement. Her lawyer, Harvey R. Gerber, said he will ask a bankruptcy judge to permit hearings on the settlement.

“The bankruptcy judge has a lot of latitude,” Gerber said. “They’re going to do what they think is best for the bankrupt. The settlement itself may be in the best interests of the bankrupt.”

Denies ‘Subversion’

Harbor Lawn did not file bankruptcy “to subvert the settlement,” said Theresa M. Marchlewski, who represents the firm in the cremation cases.

“The bankruptcy filing is something everyone is going to have to adjust to and live with,” Marchlewski said. “It doesn’t necessarily end the settlement. I would assume, now that we have another court involved, there may be some changes in the settlement.”

Marchlewski declined to specify what might be altered. She noted that $3.5 million remains in escrow as the first installment of the settlement by Harbor Lawn insurers.

For Christopher R. Garcia, lawyer for a codefendant, the Peek Family Colonial Funeral Home, “it’s become a big mess.”

Garcia said he was prepared for a July 10 hearing when word of the bankruptcy surfaced. His client is a small funeral home that contracted with Harbor Lawn for crematory services.

Garcia suggested that Harbor Lawn may be trying to “avoid all liability” by filing for bankruptcy.

“This definitely puts a crimp into all of this,” Garcia said. “We are going to oppose the settlement because we don’t want to be left here holding the bag for Harbor Lawn’s wrongdoing.”