Pioneer Case to Remain in Chapter 11 Court

In a strongly worded decision, U.S. District Court Judge John S. Rhoades Sr. on Wednesday declined to transfer any part of the increasingly complex Pioneer Mortgage case out of U.S. Bankruptcy Court and into his own courtroom.

The decision came as a setback for Tim Cohelan, one of three attorneys who had pressed Rhoades to incorporate the bankruptcy proceedings into a civil suit filed on behalf of about 100 investors who allege fraudulent activity by Pioneer owner Gary Naiman and several companies that did business with Pioneer.

Financially troubled Pioneer, a long-standing, La Mesa-based mortgage brokerage firm, arranged $250 million in loans before filing for Chapter 11 bankruptcy protection Jan. 9. That filing prompted a flurry of lawsuits in district court, bankruptcy court and state Superior Court in San Diego.

In an unusual move prompted by the growing number of Pioneer-related lawsuits, Rhoades invited U.S. Magistrate Barry Ted Moskowitz and state Superior Court Judge Joseph Anthony to attend Wednesday’s hearing in order to “eliminate confusion . . . and keep the lines of communication open” as the complex series of cases moves through the state and federal legal systems.

In another setback for Cohelan, Rhoades on Wednesday ruled that any decision to replace current Pioneer President Dennis Schmucker with a court-appointed trustee would have to be made by U.S. Bankruptcy Court Judge James Meyers.

Meyers, who earlier this year ruled against a trustee, instead appointed an examiner with expanded powers. In March the examiner issued a preliminary report that linked Pioneer’s financial demise to bad business practices and possible fraud.

Attorneys for a recently formed creditors’ committee welcomed Rhoades’ Wednesday decisions, as did Schmucker, who has opposed the appointment of a trustee and argued in favor of keeping Pioneer’s Chapter 11 reorganization in Bankruptcy Court. Cohelan and his associates “are about 0 for 12 with motions in this case,” Schmucker said after Wednesday’s hearing.

But Cohelan said that Rhoades’ decisions “mean that we still don’t have any controls in place” over Naiman, the company’s former president and primary owner. Cohelan said that he would ask Meyers to reconsider appointing a trustee because he fears that Schmucker, who was appointed to his job by Naiman, hasn’t remained independent.

Rhoades noted that the court-appointed examiner “found nothing to indicate any affiliation between . . . (Schmucker) and Mr. Naiman or any partiality by (Schmucker) toward Mr. Naiman. There is nothing in the report that suggests that (Schmucker) is in any way acting in a manner inconsistent with his responsibilities.”

Although Rhoades said he has taken no position on whether a trustee should be appointed, he noted that, according to federal statutes, Schmucker “has the same responsibilities as a trustee. . . . There are absolutely no differences in their responsibilities.”