Posh Developments Mired in Complicated Bankruptcy Dispute : Chatsworth: A court-appointed trustee’s preliminary report criticizes the management and record-keeping of Indian Wells Estates’ owner.
In 1976, industrialist Eugene Kilmer purchased the Open Diamond Bar Ranch in the rugged, mountainous area of Chatsworth north of the Simi Valley Freeway. He formed Indian Wells Estates Inc. and, over the following 15 years, he set out to realize his vision of creating an enclave of more than 100 luxury homes, marketed by realtors as the “Bel-Air of the San Fernando Valley.”
Today, Kilmer’s two adjacent Indian Wells Estates developments off Iverson Road--called Indian Springs Estates and Indian Falls Estates--remain only partially completed. Huge Tudor, Gothic and English manor-style mansions stand next to empty lots. Much of the landscaping still remains to be completed. And for the past year, Indian Wells Estates has been stuck in Chapter 11 bankruptcy proceedings that might take years to resolve.
Meanwhile, a court-appointed trustee who took control of Indian Wells Estates in October recently filed a preliminary report sharply criticizing Kilmer’s management.
The report, written by John J. Bingham Jr., the attorney for bankruptcy trustee David A. Gill, said that the accounting records for Indian Wells Estates and related companies were disorganized and possibly inaccurate, that a confusing array of unexplained property transfers were made between various companies owned by Kilmer, and that Kilmer’s businesses might have made improper payments after entering bankruptcy.
Bingham’s report also accused Kilmer of trying to sell property without the trustee’s consent and said he might have been “less than candid” about the ownership of certain companies.
Bingham stressed that the report is only preliminary, and that Kilmer has not yet had a chance to respond. “It’s more than a sketch, but it’s not a complete picture,” he said.
Kilmer, the father of actor Val (“The Doors”) Kilmer, was unavailable for an interview. But Allan L. Levine, an attorney who represents Indian Wells Estates, said that there was never any attempt by Kilmer at wrongdoing and that the developer has always intended to repay his creditors. “It’s a much more innocent thing than the trustee” suggests, he said.
The value of the assets and debts held by Indian Wells Estates and affiliated companies owned by Kilmer that are also part of the bankruptcy case is also a matter of dispute.
According to documents filed by Indian Wells Estates shortly after the bankruptcy filing, the assets were worth a total of $48 million. Total debts were listed at $25.7 million, including $16.1 million owed to secured creditors.
But a reorganization plan recently filed by a committee of unsecured creditors says that because of the slumping real estate market, the Indian Wells Estates properties are now worth considerably less than the original estimates.
Levine said the disputes with Gill stem largely from the sheer complexity of the bankruptcy and confusion regarding transactions that were “in a state of flux” at the time of the filing. Other disagreements involve which of Kilmer’s many companies should be included in the Indian Wells Estates bankruptcy and who has legal control over certain companies, he said.
Indian Wells Estates and Kilmer’s related firms sell one- to four-acre lots to developers and individuals, who then build houses ranging in size from 5,000 to 15,000 square feet. The houses are being marketed for $300,000 to about $3 million.
In hindsight, said Levine--who did not represent Indian Wells Estates at the time of the bankruptcy filing--the decision to enter bankruptcy was a mistake because the developments were reasonably healthy and the lots continued to sell despite the real estate downturn.
The bankruptcy filing was made, Levine said, because a 905,200-square-foot industrial building in South Gate that is also owned by Indian Wells Estates was experiencing recession-related troubles and the lenders had moved to foreclose. To protect the Chatsworth developments, he said, a total of 11 companies, including Indian Wells Estates and affiliated firms owned by Kilmer, sought bankruptcy court protection between January and April of last year.
In a Chapter 11 bankruptcy case, companies are typically shielded from creditors and allowed to continue to operate while a reorganization plan is formulated.
During the past several months, some of the companies have been dismissed from bankruptcy and four others have been consolidated into the Indian Wells Estates case.
Nonetheless, both Levine and Michael S. Kogan, an attorney representing the unsecured creditors committee, said there should be plenty of money to repay all creditors. Kogan estimated that the remaining 50 lots would sell for $350,000 to more than $1 million each.
Kogan, who blames the bankruptcy on mismanagement, said the creditors committee had pressed the court to appoint the trustee.
In the trustee’s preliminary report, Gill was said to have found the accounting records of Indian Wells Estates and its affiliated companies “in a very disorganized state.” Gill has “no confidence in the accuracy” of the books, the report said. Various lots were transferred back and forth among companies controlled by Kilmer “for no readily apparent reason.”
Levine said the transfers were made for accounting reasons. For example, he said, if one of Kilmer’s companies owed another money, property might be transferred to balance the accounts. However, the bankruptcy filing was made before several of these transactions were finalized, leading to conflicting views over which company is the true owner of various pieces of land, he said.
The trustee’s report also stated that some of Kilmer’s companies made possibly improper payments after the bankruptcy filing, including housekeeping expenses and legal fees. And Kilmer’s country club dues and other personal expenses were paid by one of his companies in the three months prior to the bankruptcy filing, it said. Other funds were used to make mortgage payments on a condominium in Palm Springs, the report said.
Kilmer and his wife, Senga, live in a Chatsworth house that was formerly owned by Roy Rogers and Dale Evans. The house is not in either of the Indian Wells Estates developments, but is owned by one of Kilmer’s companies. The trustee’s report also notes that Kilmer’s son, Mark Kilmer, lives rent-free in an Indian Springs house.
Levine said Kilmer, as the owner of the companies, may have paid certain expenses with funds from one of his companies prior to the bankruptcy filing and might have continued to make certain payments afterward. But, he added, Kilmer never drew a salary, and his application to the court for compensation hasn’t been approved. If personal payments were made, Levine said, they could be deducted from any salary Kilmer later receives.
The trustee’s report also criticized Kilmer for attempting to sell lots held by companies affiliated with Indian Wells Estates without Gill’s approval.
Levine acknowledged that there is an ongoing dispute over which pieces of property belong in bankruptcy and which do not. There’s also disagreement, he said, over whether the trustee has authority over all of the properties owned by Kilmer’s various companies--even those that might ultimately be determined to be outside the bankruptcy case.
Meanwhile, Gill has proposed continuing to try to sell the remaining lots in the two developments, along with some other undeveloped land owned by Indian Wells Estates and its affiliated companies. Since Gill’s appointment, the report said, three lots have been sold and are now in escrow.
Because of continued problems at the industrial building in South Gate, including possible hazardous materials contamination, it might be best for Indian Wells Estates to abandon its interest in that property, the report said.
But Levine said what otherwise promises to be a lengthy bankruptcy reorganization might be cut short if he can find an investor willing to bring additional equity into Indian Wells Estates. “If that happens,” he said, “the bankruptcy is over on the spot.”
