Trustee Raps Indian Wells Estates’ Management : Real estate: The bankruptcy court official says developer Eugene Kilmer’s operation had a lot of shortcomings.

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 during the following 15 years he embarked on 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--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. The streets are devoid of trees. And for the past year, Indian Wells Estates has been stuck in Chapter 11 bankruptcy court proceedings that may take years to resolve.

Meanwhile, a court-appointed trustee who took control of Indian Wells Estates in October recently filed a preliminary report criticizing Kilmer’s management.

The report, written by John J. Bingham Jr., the attorney for bankruptcy trustee David A. Gill, said the accounting records for Indian Wells Estates and related companies were disorganized and possibly inaccurate. It also said that a confusing array of unexplained property transfers were made among various companies owned by Kilmer and added that Kilmer’s businesses may have made improper payments after entering bankruptcy.

Bingham’s report also accuses Kilmer of trying to sell property without the trustee’s consent and says he might have been “less than candid” about the ownership of certain companies.

Bingham stressed that the report is preliminary and that Kilmer has not 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 Kilmer never intended to engage in wrongdoing. Levine added that the developer has always planned on repaying creditors. “It’s a much more innocent thing than the trustee” suggests, Levine said.

Also in dispute is the value of assets and debts held by Indian Wells Estates and affiliated companies owned by Kilmer that are part of the bankruptcy case. According to documents filed by Indian Wells Estates shortly after the bankruptcy filing, assets totaled $48 million. 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 worth considerably less than the original estimates.

Levine said disputes with the trustee Gill stem largely from the 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.

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, he said, because a 905,200-square-foot industrial building in South Gate that’s also owned by Indian Wells Estates was undergoing 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, companies are typically shielded from creditors and allowed to continue operating while a reorganization plan is formulated. During the past several months, some of the companies were dismissed from bankruptcy and four were consolidated into the Indian Wells Estates case.

Nonetheless, Levine and Michael Kogan, an attorney representing the unsecured creditors committee, said there should be plenty of money to repay creditors. Kogan estimated that the remaining 50 lots will sell for $350,000 to more than $1 million each.

In the preliminary report, the trustee was said to have found the accounting records of Indian Wells Estates and its affiliated companies “in a very disorganized state,” and Gill said he has “no confidence in the accuracy” of the books. Various lots were transferred back and forth among companies controlled by Kilmer “for no readily apparent reason,” the report said.

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 states 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 firms in the three months before the bankruptcy filing, it says. Other funds were used to make mortgage payments on a condominium in Palm Springs, it says.

Levine said Kilmer, as owner, 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.