Trustee to Oversee Heritage Reorganization, Judge Rules

A bankruptcy judge on Wednesday accepted neither of the people who claim to be president and owner of Heritage Holding Inc. Instead, he ordered that the court appoint a trustee to oversee the Newport Beach real estate company’s bankruptcy reorganization.

Judge John Wilson ruled that neither Laurie Frost nor Kumiko Kato should be at the helm, given the ownership dispute. During bankruptcy proceedings last month, the court appointed Kato as president of the company. She then removed Frost, who maintains in a court filing that he still is the rightful president and owner.

Both sides said Wednesday that they hope the appointment of a neutral trustee will clarify the ownership issue.

“I would have preferred to have been found the debtor in possession,” said Frost, adding that he is confident that the trustee’s review will show him to be the rightful president.

Kato said after the hearing: “I feel relieved right now because I no longer have the responsibilities of being president.” She added that she expects to be involved with the company, however, as it reorganizes under Chapter 11 of the U.S. Bankruptcy Code.

Heritage has been embroiled in controversy since filing a suit in 1991 against Northrop Corp. The suit alleges that the defense contractor failed to disclose chemical contamination on 53 acres of property in Anaheim that Heritage, formerly known as Taiyo Development USA Inc., had agreed to buy. Heritage’s Horizon Development Inc. subsidiary had planned to build a 1,341-unit condominium complex on the site.

The fate of that suit, which is on hold, depends on the reorganization of Heritage. Last month Frost petitioned the court to liquidate Heritage under Chapter 7 of the bankruptcy code. If that had happened, the lawsuit would have been dropped.

Frost said Wednesday that he does not know what will happen now that the company is being reorganized under Chapter 11.

Heritage said in its bankruptcy filing that it owes about $23.5 million to CSI Finance USA Inc. in Santa Monica and about $1.5 million to other creditors.