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Full title: Adversary case 21-03026. 31 (Approval of sale of property of estate and of a co-owner - 363(h)), 91 (Declaratory judgment) Complaint by PROFESSIONAL FINANCIAL INVESTORS, INC. against Gregory Mahrer, Alan Ziff. Fee Amount $350. (Attachments: # 1 AP Cover Sheet) (Marum, J.) (Entered: 07/16/2021)

Document posted on Jul 15, 2021 in the bankruptcy, 14 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

This is an adversary proceeding for (1) the approval of the sale of co-owners’ 11 interests in property held as tenants in common with PFI pursuant to 11 U.S.C. § 363(h), and (2) 12 determination and declaration pursuant to Rule 7001(9) of the Federal Rules of Bankruptcy 13 Procedure (the “Bankruptcy Rules”) of the co-owners’ respective ownership interests in such 14 property and entitlement to a distribution from the net proceeds from a sale of said property based15 on such ownership interests according to 11 U.S.C. § 363(j).On the Petition Date, PFI and the Defendants were co-owners as tenants in 4 common of certain real estate located in Sonoma County, California commonly known as the Oak5 Tree Apartments, which is located at 16914 Sonoma Highway, Sonoma, California 95476 (the 6 “Property”).Pursuant to 11 U.S.C. § 363(h), a trustee or debtor in possession may sell both the 6 estate’s interest and the interest of any co-owner in property in which the debtor had, at the time o7 the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenan8 by the entirety, if: (i) partition in kind of such property among the estate and such co-owners is 9 impracticable; (ii) sale of the estate’s undivided interest in such property would realize 10 significantly less for the estate than sale of such property free of the interests of such co-owners; 11 (iii) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs12 the detriment, if any, to such co-owners; and (iv) such property is not used in the production, 13 transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, 14 light, or power.(Declaratory Relief Pursuant to Bankruptcy Rule 7001(9) and 11 U.S.C. § 363(j) 14 Determining Co-Owners’ Ownership Interests in Property and Directing Debtors to Distribute Net Proceeds from Sale of Property Pursuant to Such Ownership Interests) 15 (Against All Defendants) Pursuant to 11 U.S.C. § 363(j), after a sale of property to which 11 U.S.C. § 363(h19 applies, a trustee or debtor in possession shall distribute to the co-owners of such property and to 20 the estate, the proceeds of such sale, less the costs and expenses, not including any compensation 21 to the trustee or debtor in possession, of such sale, according to the interests of such co-owners 22 and of the estate.

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1 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP A Limited Liability Partnership 2 Including Professional Corporations ORI KATZ, Cal. Bar No. 209561 3 J. BARRETT MARUM, Cal. Bar No. 228628 JEANNIE KIM, Cal. Bar No. 270713 4 MATT KLINGER, Cal. Bar No. 307362 GIANNA SEGRETTI, Cal. Bar No. 323645 5 Four Embarcadero Center, 17th Floor San Francisco, California 94111-4109 6 Telephone: 415.434.9100 Facsimile: 415.434.3947 7 E mail okatz@sheppardmullin.com bmarum@sheppardmullin.com 8 jekim@sheppardmullin.com mklinger@sheppardmullin.com 9 gsegretti@sheppardmullin.com 10 Counsel for the Debtors 11 UNITED STATES BANKRUPTCY COURT 12 NORTHERN DISTRICT OF CALIFORNIA, SAN FRANCISCO DIVISION 13 In re Case No. 20-30604 14 (Jointly Administered) PROFESSIONAL FINANCIAL 15 INVESTORS, INC., et al.,1 Chapter 11 16 Debtors. Adv No. 17 COMPLAINT FOR SALE OF CO- PROFESSIONAL FINANCIAL OWNERS’ INTERESTS IN PROPERTY 18 INVESTORS, INC., PURSUANT TO 11 U.S.C. § 363(h) 19 Plaintiff, The Hon. Hannah L. Blumenstiel 20 v. 21 GREGORY MAHRER, TRUSTEE OF THE YEAR 2001 GREGORY MAHRER 22 REVOCABLE TRUST DATED JULY 20, 2001, AS AMENDED AND RESTATED 23 JANUARY 6, 2006, CA and ALAN ZIFF REVOCABLE INTERVIVOS TRUST, 24 Defendants. 25 26 1 A complete list of the Debtors and their respective chapter 11 case numbers may be found at 27 www.donlinrecano.com/Clients/pfi/index. The federal tax identification numbers of each of the Debtors is also available in the bankruptcy petitions of each Debtor, also available at the Donlin

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1 Professional Financial Investors, Inc. (“PFI,” and collectively with the other debtors in the2 above-captioned jointly administered bankruptcy cases, the “Debtors”) in this Complaint for Sale 3 of Co-Owners’ Interests in Property Pursuant to 11 U.S.C. § 363(h) (the “Complaint”) against 4 Gregory Mahrer, Trustee of the Year 2001 Gregory Mahrer Revocable Trust dated July 20, 2001, 5 as amended and restated January 6, 2006 (“Mahrer”) and the Alan Ziff Revocable Intervivos Trus6 (the “Alan Ziff Trust,” and together with Mahrer, the “Defendants”) hereby alleges and states as 7 follows: 8 I. 9 JURISDICTION AND VENUE 10 1. This is an adversary proceeding for (1) the approval of the sale of co-owners’ 11 interests in property held as tenants in common with PFI pursuant to 11 U.S.C. § 363(h), and (2) 12 determination and declaration pursuant to Rule 7001(9) of the Federal Rules of Bankruptcy 13 Procedure (the “Bankruptcy Rules”) of the co-owners’ respective ownership interests in such 14 property and entitlement to a distribution from the net proceeds from a sale of said property based15 on such ownership interests according to 11 U.S.C. § 363(j). This Court has jurisdiction over this16 adversary proceeding and its subject matter pursuant to 28 U.S.C. §§ 157 and 1334, 11 U.S.C. §§ 17 363(f), (h) and (j), and Bankruptcy Rules 7001(3) and (9). 18 2. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). 19 3. Venue in this district is proper pursuant to 28 U.S.C. §§ 1408 and 1409. 20 4. PFI consents, to the extent such consent is necessary, to the entry of final orders 21 and judgments by this Court in this proceeding. 22 II. 23 FACTUAL ALLEGATIONS 24 5. Kenneth Casey founded PFI and related entity, Professional Investors Security 25 Fund, Inc. (“PISF”), as real estate investment and management firms specializing in multi-unit 26 residential and commercial properties in Northern California, and ran them, along with several 27 other PFI affiliated entities (together with PFI and PISF, the “PFI Enterprise”), up until his death

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1 6. In total, the Debtors own, either directly or indirectly, approximately 70 real 2 properties in Northern California (Marin and Sonoma Counties), consisting mostly of apartment 3 buildings and office buildings. 4 7. Following Mr. Casey’s death, it was uncovered that the PFI Enterprise was in 5 actuality a Ponzi scheme, and on July 16, 2020, certain asserted creditors of PISF, commenced an6 involuntary chapter 11 bankruptcy action against PISF, Case No. 20-30579 (the “PISF Case”). O7 July 26, 2020, PISF filed a consent to the entry of an order for relief in the PISF Case, which the 8 Court entered on July 27, 2020. 9 8. On July 26, 2020 (the “Petition Date”), PFI commenced its bankruptcy case by 10 filing a voluntary chapter 11 petition. Subsequently PFI commenced involuntary petitions against11 all but two of its affiliated limited liability companies (the “LLCs”) and limited partnerships (the 12 “LPs”), as follows: 13 a. On November 20, 2020, under authority granted by the Bankruptcy Court, 14 PFI commenced involuntary petitions against twenty-nine LLCs and LPs (together, the 15 “LLC/LP Debtors”), and on December 11, 2020, PFI consented to such involuntary 16 petitions and the Court entered orders for relief. 17 b. On February 3, 2021, and February 4, 2021, PFI commenced involuntary 18 petitions against ten additional LLC affiliates of PFI (together, the “New Debtors”). On 19 February 17, 2021, PFI consented to the ten additional involuntary petitions, and on 20 February 18, 2021, the Court entered orders for relief. 21 9. The Debtors’ chapter 11 cases are jointly administered under Case No. 20-30604. 22 10. The Debtors, including PFI, continue to operate as debtors in possession pursuant 23 to sections 1101(a), 1107(a) and 1108 of the Bankruptcy Code. 24 11. On August 19, 2020, the Office of the United States Trustee appointed the Official25 Committee of Unsecured Creditors (the “OCUC”). Meanwhile, certain parties with membership 26 interests in the LLCs formed and controlled by PFI formed an ad hoc committee of LLC member27 (the “Ad Hoc Committee of LLC Members”), and certain lenders to the Debtors who are secured

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1 holders (the “Ad Hoc Committee of DOT Holders,” and collectively with the OCUC and the Ad 2 Hoc Committee of LLC Members, the “Committees”). 3 12. On the Petition Date, PFI and the Defendants were co-owners as tenants in 4 common of certain real estate located in Sonoma County, California commonly known as the Oak5 Tree Apartments, which is located at 16914 Sonoma Highway, Sonoma, California 95476 (the 6 “Property”). 7 13. The legal description of the Property is as follows: 8 Lot 2, as shown upon that certain Parcel Map entitled “Parcel Map No. 8022”, filed for record May 23, 1986 in Book 371 of Parcel 9 Maps, at Page(s) 12, Sonoma County Records. 10 14. Pursuant to that certain Oak Tree Apartments Tenancy in Common Agreement 11 dated July 15, 2017 (the “TIC Agreement”), PFI owns an aggregate 50.21% interest in the 12 Property, Mahrer owns an undivided 31.48% interest in the Property (“Mahrer’s Interest”), and th13 Alan Ziff Trust owns an undivided 18.31% interest in the Property (the “Alan Ziff Trust’s 14 Interest,” and together with Mahrer’s interest, the “Defendants’ Interests”). A true and correct 15 copy of the TIC Agreement is attached hereto as Exhibit A. 16 15. An outstanding debt is secured by the Property as a whole. 17 16. On July 9, 2021, the Court entered an order approving and confirming the Second 18 Amended Joint Chapter 11 Plan of Professional Financial Investors, Inc. and Its Affiliated 19 Debtors Proposed by the Debtors and Official Committee of Unsecured Creditors and Supported 20 by the Ad Hoc LLC Members and the Ad Hoc DOT Noteholders Committee (Dated May 20, 202121 (the “Plan”). The Plan has yet to go effective. 22 17. In the meantime, the Debtors’ have engaged in the marketing of their portfolio of 23 assets and real property to potential interested purchasers, which has resulted in an offer by 24 Hamilton Zanze & Company (the “Stalking Horse Bidder”) for the purchase of approximately 60 25 real properties owned in whole or in part by the Debtors (collectively, the “Portfolio”), including 26 the Property held as tenants in common by PFI and the Defendants. 27 18. To effectuate the proposed sale of the Property, PFI therefore now seeks authority

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1 FIRST CLAIM FOR RELIEF (Authority to Sell Co-Owners’ Interests in Property Pursuant to 11 U.S.C. § 363(h)) 2 (Against All Defendants) 3 19. PFI hereby restates, realleges, and incorporates by reference paragraphs 1 through 4 18 of the Complaint in their entirety. 5 20. Pursuant to 11 U.S.C. § 363(h), a trustee or debtor in possession may sell both the 6 estate’s interest and the interest of any co-owner in property in which the debtor had, at the time o7 the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenan8 by the entirety, if: (i) partition in kind of such property among the estate and such co-owners is 9 impracticable; (ii) sale of the estate’s undivided interest in such property would realize 10 significantly less for the estate than sale of such property free of the interests of such co-owners; 11 (iii) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs12 the detriment, if any, to such co-owners; and (iv) such property is not used in the production, 13 transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, 14 light, or power. 15 21. Partition in kind of the Property between PFI and the Defendants is impracticable 16 because the Property is considered one continuous unit and because PFI and the Defendants are 17 each liable on a debt secured by the entire Property. As such, it would be particularly 18 impracticable to partition the Property between PFI and the Defendants. 19 22. The sale of only PFI’s undivided interest in the Property would realize significantl20 less for the Debtors’ bankruptcy estates (collectively, the “Bankruptcy Estate”) than a sale of the 21 Property free and clear of the Defendants’ Interests. Indeed, the Stalking Horse Bidder has offere22 to purchase the Portfolio at a purchase price that reflects that multiple properties are to be include23 in the proposed sale in their entirety. However, pursuant to the Stalking Horse Asset Purchase 24 Agreement entered into between the Stalking Horse Bidder and the Debtors, there will be a 25 reduction in the proposed purchase price for the Portfolio sale should PFI be authorized to sell 26 only its tenant in common interest in the Property rather than the Property as a whole, free and 27 clear of the Defendants’ Interests. Moreover, the Stalking Horse Bidder could elect to forego

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1 purchasing PFI’s tenant in common interest in the Property, which, in turn, would further reduce 2 the proposed purchase price for the Portfolio to the detriment of the Bankruptcy Estate. 3 23. The benefit to the Bankruptcy Estate of a sale of the Property free of the 4 Defendants’ Interests outweighs the detriment, if any, to the Defendants. Indeed, the Defendants 5 merely hold their interest in the Property as an investment and will receive their proportionate 6 share from the net proceeds of its sale. Thus, because the Property is held by PFI and the 7 Defendants as an investment property, the proposed sale of the Property, should it close, should b8 a net benefit to the Defendants rather than a detriment. 9 24. The Property is not used in the production, transmission, or distribution, for sale, o10 electric energy or of natural or synthetic gas for heat, light, or power. 11 25. Accordingly, PFI seeks authority pursuant to 11 U.S.C. § 363(h) to sell the entirety12 of the Property free and clear of the Defendants’ Interests. 13 SECOND CLAIM FOR RELIEF (Declaratory Relief Pursuant to Bankruptcy Rule 7001(9) and 11 U.S.C. § 363(j) 14 Determining Co-Owners’ Ownership Interests in Property and Directing Debtors to Distribute Net Proceeds from Sale of Property Pursuant to Such Ownership Interests) 15 (Against All Defendants) 16 26. PFI hereby restates, realleges, and incorporates by reference paragraphs 1 through 17 25 of the Complaint in their entirety. 18 27. Pursuant to 11 U.S.C. § 363(j), after a sale of property to which 11 U.S.C. § 363(h19 applies, a trustee or debtor in possession shall distribute to the co-owners of such property and to 20 the estate, the proceeds of such sale, less the costs and expenses, not including any compensation 21 to the trustee or debtor in possession, of such sale, according to the interests of such co-owners 22 and of the estate. 23 28. According to that certain TIC Agreement attached hereto as Exhibit A, Mahrer 24 holds an undivided 31.48% ownership interest in the Property, and the Alan Ziff Trust owns an 25 undivided 18.31% ownership interest in the Property. 26 29. A judicial determination of the Defendants’ respective ownership interests in the 27 Property is necessary and appropriate to determine their respective entitlements to the net proceed

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1 30. Accordingly, the PFI seeks a declaration from the Court pursuant to Bankruptcy 2 Rule 7001(9) determining the Defendants’ respective ownership interests in the Property and 3 directing PFI to distribute the net proceeds from any such sale of the Property, less the costs and 4 expenses, according to those respective ownership interests pursuant to 11 U.S.C. § 363(j). 5 PRAYER FOR RELIEF 6 WHEREFORE, PFI respectfully requests that the Court enter judgment against the 7 Defendants pursuant to 11 U.S.C. §§ 363(h) and (j) and Bankruptcy Rule 7001: 8 1. Authorizing PFI to take sole possession of the Property; 9 2. Authorizing PFI to sell the entirety of the Property free of the Defendants’ 10 Interests; 11 3. Determining and declaring, pursuant to Bankruptcy Rule 7001(9), that the 12 Defendants’ respective ownership interests in the Property are as follows: 13 (a) Mahrer’s interest in the Property is 31.48%, and 14 (b) The Alan Ziff Trust’s interest in the Property is 18.31%; 15 4. Authorizing and directing PFI to, pursuant to 11 U.S.C. § 363(j), distribute a 16 proportionate share of the net proceeds from the sale of the Property to the Defendants equal to 17 their respective ownership interests in the Property; and 18 5. Providing for all other just and proper relief. 19 Dated: July 16, 2021 20 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 21 22 By /s/ J. Barrett Marum ORI KATZ 23 J. BARRETT MARUM 24 JEANNIE KIM MATT KLINGER 25 GIANNA SEGRETTI 26 Counsel for the Debtors 27

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