A federal bankruptcy judge has ordered influential lobbyist Frank G. Michelena of Costa Mesa to pay $1,000 and one of his clients, Charles C. Seven of Corona del Mar, to pay $5,000 for misusing federal bankruptcy laws.
It was far less than the $160,000 that creditors had sought in connection with the bankruptcy of Seven’s company, Tallmantz Aviation Inc.
The biggest creditor, Guardian Savings & Loan Assn. of Huntington Beach, said it will appeal.
U.S. Bankruptcy Judge James N. Barr in Santa Ana found in a decision filed last month that Michelena had schemed with Seven to put Tallmantz into bankruptcy last year.
Although the judge found that Seven was the “mastermind behind the scheme,” he also said he didn’t believe Michelena’s version of the bankruptcy. Seven wanted the company under the protection of the bankruptcy court to prevent it from being dismantled and sold by the creditors group, Barr said in the opinion issued last month.
The case started in February, 1989, when Tallmantz Aviation filed a bankruptcy petition to protect itself from creditors. Tallmantz sells fuel and maintains private airplanes at John Wayne Airport.
Barr threw the case out of bankruptcy court last year, ruling that Tallmantz’s few remaining assets should be sold because the company was so heavily in debt that it was unlikely to survive as a going concern.
Seven wanted to keep the company going, the creditors alleged in court, so he could continue to pay himself hefty consulting fees while Tallmantz was losing hundreds of thousands of dollars.
In Barr’s decision, filed July 17, the judge said Seven schemed with Michelena--one of the company’s creditors--to throw Tallmantz into an involuntary bankruptcy and return it to the shelter of the bankruptcy court, Barr said.
Barr said the evidence presented by the creditors led him to conclude that the second bankruptcy “was a collusive filing with Seven the mastermind behind the scheme.”
The judge also said he didn’t believe that Michelena filed the second bankruptcy simply to collect consulting fees that the company owed him. The reason he suspected an ulterior motive, the judge said, was that Michelena had never pressured Seven to repay debts before. “Interestingly, though,” the judge wrote, "(Michelena) did join as a petitioning creditor to put Seven’s business into bankruptcy.”
“This evidence strongly indicates that the petition was filed simply to delay . . . foreclosure” and the selling of the company’s assets to satisfy its debts, the judge wrote.
Michelena wouldn’t comment except to say: “We answered their charges, and we hope to get our money back.”
Michelena is a longtime friend of Seven’s. One of Michelena’s newest clients is a commission overseeing plans for a high-speed train between Anaheim and Las Vegas, which awarded the lobbyist a $5,000-a-month, no-bid consulting contract this year. He has been questioned by authorities several times in political corruption cases but has never been charged with a crime. He was hired by Seven to lobby Orange County government, Tallmantz’s landlord at John Wayne Airport, with whom Tallmantz was negotiating a new lease.
Seven could not be reached for comment.
Tallmantz owed the county hundreds of thousands of dollars in rents and other payments when it filed for bankruptcy. The county has spent an estimated $107,000 in legal fees to recover the money it is owed.
Nevertheless, county supervisors voted in March to accept a $1,000 settlement from Michelena, even though they already knew the judge would order Michelena to pay a penalty for his role in the case. (They didn’t know then how much the penalty would be.) The supervisors settled for $1,000 on the advice of their lawyers, who said the judge was unlikely to assess the lobbyist more than $1,000 anyway, which turned out to be an accurate guess.
At the same time, the county also settled for $1,000 with two other creditors who--with Michelena--filed the improper bankruptcy petition: Paul Motenko, a Newport Beach accountant, and Russell F. Padia, a Costa Mesa real estate consultant.
The judge said that it was Michelena who brought the three together and that Motenko and Padia were merely negligent in not taking the time to find out whether filing the bankruptcy was proper. Nevertheless, the judge ordered Motenko and Padia to pay Guardian the same amount Michelena was sanctioned--$1,000. Padia could not be reached for comment.
But Motenko, who says Tallmantz still owes his accounting firm $10,000, said “the judge saw through (Guardian’s) rhetoric and realized we three had very little to do with the whole thing. . . . We didn’t understand the bankruptcy system well enough to know that what we did was not an appropriate thing to do.”
The county, however, didn’t settle with Seven. In the July 17 decision, the judge ordered Seven to pay $2,500 to the county and $2,500 to Guardian. The S&L; had loaned Seven $3 million in 1985 to buy Tallmantz.
Guardian hopes to recover what it is owed by selling Tallmantz’s lease for county land at the airport. So far, Guardian has yet to find a buyer.
Meanwhile, the county says it won’t appeal the judge’s ruling on Seven. “We don’t see the sense in spending any more money on it,” said Robert L. Austin, a deputy county counsel.
“Besides,” Austin said, “we wouldn’t get any money anyway from Seven,” who also has filed for personal bankruptcy.
But a Guardian lawyer says the thrift’s fight with both Seven and Michelena is not yet over. Guardian still wants the judge to order the two men to pay the thrift more than $55,000 in legal costs incurred during the bankruptcy case. Barr has declined Guardian’s request to reconsider his decision.
Now, Guardian says, it will appeal to another federal court, probably U.S. District Court.
“The judge concluded these people did things in bad faith, which is an imposition on the court,” said Ronald Rus, a lawyer for Guardian. “We think it’s a more serious matter than a thousand dollars’ worth.”