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Full title: Adversary case 21-03031. 31 (Approval of sale of property of estate and of a co-owner - 363(h)), 91 (Declaratory judgment) Complaint by PROFESSIONAL FINANCIAL INVESTORS, INC., Professional Investors 48, LLC against Peter A and Anne M.H Bagatelos, Karen Christine Bagatelos, Michael A Bagatelos, Magnolia LLC. Fee Amount $350. (Attachments: # 1 AP Cover Sheet) (Marum, J.) (Entered: 07/16/2021)

Document posted on Jul 15, 2021 in the bankruptcy, 17 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

Professional Financial Investors, Inc. (“PFI”) and Professional Investors 48, LLC (“LLC 5 48,” and together with PFI, the “Plaintiffs,” and collectively with PFI and the other debtors in the 6 above-captioned jointly administered bankruptcy cases, the “Debtors”) in this Complaint for Sale 7 of Co-Owners’ Interests in Property Pursuant to 11 U.S.C. § 363(h) (the “Complaint”) against 8 Peter A. Bagatelos and Anne M.H. Bagatelos, Trustees of the Peter A. Bagatelos and Anne M.H. 9 This is an adversary proceeding for (1) the approval of the sale of co-owners’ 19 interests in property held as tenants in common with PFI and LLC 48 pursuant to 11 U.S.C. § 20 363(h), and (2) a determination and declaration pursuant to Rule 7001(9) of the Federal Rules of 21 Bankruptcy Procedure (the “Bankruptcy Rules”) of the co-owners’ respective ownership interests22 in such property and entitlement to a distribution from the net proceeds from a sale of said 23 property based on such ownership interests according to 11 U.S.C. § 363(j).Pursuant to 11 U.S.C. § 363(h), a trustee or debtor in possession may sell both the 21 estate’s interest and the interest of any co-owner in property in which the debtor had, at the time o22 the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenan23 by the entirety, if: (i) partition in kind of such property among the estate and such co-owners is 24 impracticable; (ii) sale of the estate’s undivided interest in such property would realize 25 significantly less for the estate than sale of such property free of the interests of such co-owners; 26 (iii) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs27 the detriment, if any, to such co-owners; and (iv) such property is not used in the production, 1 transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, 2 light, or power.(Declaratory Relief Pursuant to Bankruptcy Rule 7001(9) and 11 U.S.C. § 363(j) 2 Determining Co-Owners’ Ownership Interests in Property and Directing Debtors to Distribute Net Proceeds from Sale of Property Pursuant to Such Ownership Interests) 3 (All Plaintiffs Against All Defendants) Pursuant to 11 U.S.C. § 363(j), after a sale of property to which 11 U.S.C. § 363(h7 applies, a trustee or debtor in possession shall distribute to the co-owners of such property and to 8 the estate, the proceeds of such sale, less the costs and expenses, not including any compensation 9 to the trustee or debtor in possession, of such sale, according to the interests of such co-owners 10 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 (Jointly Administered) 14 PROFESSIONAL FINANCIAL INVESTORS, INC., et al.,1 Chapter 11 15 Debtors. Adv No. 16 COMPLAINT FOR SALE OF CO- PROFESSIONAL FINANCIAL INVESTORS, 17 OWNERS’ INTERESTS IN PROPERTY INC. and PROFESSIONAL INVESTORS 48, PURSUANT TO 11 U.S.C. § 363(h) LLC, 18 Plaintiffs, 19 The Hon. Hannah L. Blumenstiel v. 20 PETER A. BAGATELOS AND ANNE M.H. 21 BAGATELOS, TRUSTEES OF THE PETER A. BAGATELOS AND ANNE M.H. 22 BAGATELOS REVOCABLE TRUST, UDT DATED OCTOBER 24, 2017; KAREN 23 CHRISTINE BAGATELOS, AN INDIVIDUAL; MICHAEL A. BAGATELOS, 24 TRUSTEE OF THE MICHAEL A. BAGATELOS REVOCABLE TRUST UDT 25 DATED FEBRUARY 7, 2019 AND AS 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 AMENDED MARCH 13, 2019; AND 1320 MAGNOLIA LLC, 2 Defendants. 3 4 Professional Financial Investors, Inc. (“PFI”) and Professional Investors 48, LLC (“LLC 5 48,” and together with PFI, the “Plaintiffs,” and collectively with PFI and the other debtors in the 6 above-captioned jointly administered bankruptcy cases, the “Debtors”) in this Complaint for Sale 7 of Co-Owners’ Interests in Property Pursuant to 11 U.S.C. § 363(h) (the “Complaint”) against 8 Peter A. Bagatelos and Anne M.H. Bagatelos, Trustees of the Peter A. Bagatelos and Anne M.H. 9 Bagatelos Revocable Trust, U/D/T Dated October 24, 2017 (the “Peter & Anne Bagatelos Trust”)10 Karen Christine Bagatelos, an individual (“Karen Bagatelos”); Michael A. Bagatelos, Trustee of 11 the Michael A. Bagatelos Revocable Trust U/D/T Dated February 7, 2019 and as Amended Marc12 13, 2019 (the “Michael Bagatelos Trust”); and 1320 Magnolia LLC aka The Michaels Family 13 Trust (“1320 Magnolia,” and together with the Peter & Anne Bagatelos Trust, Karen Bagatelos, 14 and the Michael Bagatelos Trust, collectively, the “Defendants”) hereby allege and state as 15 follows: 16 I. 17 JURISDICTION AND VENUE 18 1. This is an adversary proceeding for (1) the approval of the sale of co-owners’ 19 interests in property held as tenants in common with PFI and LLC 48 pursuant to 11 U.S.C. § 20 363(h), and (2) a determination and declaration pursuant to Rule 7001(9) of the Federal Rules of 21 Bankruptcy Procedure (the “Bankruptcy Rules”) of the co-owners’ respective ownership interests22 in such property and entitlement to a distribution from the net proceeds from a sale of said 23 property based on such ownership interests according to 11 U.S.C. § 363(j). This Court has 24 jurisdiction over this adversary proceeding and its subject matter pursuant to 28 U.S.C. §§ 157 an25 1334, 11 U.S.C. §§ 363(f), (h) and (j), and Bankruptcy Rules 7001(3) and (9). 26 2. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). 27 3. Venue in this district is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

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1 4. PFI and LLC 48 consent, to the extent such consent is necessary, to the entry of 2 final orders and judgments by this Court in this proceeding. 3 II. 4 FACTUAL ALLEGATIONS 5 5. Kenneth Casey founded PFI and related entity, Professional Investors Security 6 Fund, Inc. (“PISF”), as real estate investment and management firms specializing in multi-unit 7 residential and commercial properties in Northern California, and ran them, along with several 8 other PFI affiliated entities (together with PFI and PISF, the “PFI Enterprise”), up until his death 9 on May 6, 2020. 10 6. In total, the Debtors own, either directly or indirectly, approximately 70 real 11 properties in Northern California (Marin and Sonoma Counties), consisting mostly of apartment 12 buildings and office buildings. 13 7. Following Mr. Casey’s death, it was uncovered that the PFI Enterprise was in 14 actuality a Ponzi scheme, and on July 16, 2020, certain asserted creditors of PISF, commenced an15 involuntary chapter 11 bankruptcy action against PISF, Case No. 20-30579 (the “PISF Case”). O16 July 26, 2020, PISF filed a consent to the entry of an order for relief in the PISF Case, which the 17 Court entered on July 27, 2020. 18 8. On July 26, 2020 (the “Petition Date”), PFI commenced its bankruptcy case by 19 filing a voluntary chapter 11 petition. Subsequently PFI commenced involuntary petitions against20 all but two of its affiliated limited liability companies (the “LLCs”) and limited partnerships (the 21 “LPs”), as follows: 22 a. On November 20, 2020, under authority granted by the Bankruptcy Court, 23 PFI commenced involuntary petitions against twenty-nine LLCs and LPs (collectively, the24 “LLC/LP Debtors”), and on December 11, 2020, PFI consented to such involuntary 25 petitions and the Court entered orders for relief. 26 b. On February 3, 2021, and February 4, 2021, PFI commenced involuntary 27 petitions against ten additional LLC affiliates of PFI (including LLC 48 and collectively,

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1 the “New Debtors”). On February 17, 2021, PFI consented to the ten additional 2 involuntary petitions, and on February 18, 2021, the Court entered orders for relief. 3 9. The Debtors’ chapter 11 cases are jointly administered under Case No. 20-30604. 4 10. The Debtors, including PFI and LLC 48, continue to operate as debtors in 5 possession pursuant to sections 1101(a), 1107(a) and 1108 of the Bankruptcy Code. 6 11. On August 19, 2020, the Office of the United States Trustee appointed the Official7 Committee of Unsecured Creditors (the “OCUC”). Meanwhile, certain parties with membership 8 interests in the LLCs formed and controlled by PFI formed an ad hoc committee of LLC member9 (the “Ad Hoc Committee of LLC Members”), and certain lenders to the Debtors who are secured 10 by deeds of trust on property owned by the Debtors formed into an ad hoc committee of DOT 11 holders (the “Ad Hoc Committee of DOT Holders,” and collectively with the OCUC and the Ad 12 Hoc Committee of LLC Members, the “Committees”). 13 12. On the Petition Date, PFI, LLC 48, and the Defendants were co-owners as tenants 14 in common of certain real estate located in Marin County, California commonly known as the Par15 Marin Apartments, which is located at 1441 Casa Buena Drive, Corte Madera, California 94925 16 (the “Property”). 17 13. The legal description of the Property is as follows: 18 Escrow No.: 0500819 19 PARCEL ONE: Beginning at the Northwesterly corner of the lands described in the 20 Deed from John A. Balzarini, et ux, to State of California, recorded June 6, 1955 in Book 946 of Official Records, at Page 651, Marin 21 County Records; running thence from said point of beginning along the Northerly line of the lands described in Deed from John A. 22 Balzarini, to John A, Balzarini, et ux, recorded May 21, 1947 in 23 Book 544 of Official Records, at page 287, Marin County Records; South 89° 07' 30" West 177.72 feet; thence leaving said last named 24 line, South 35° 30' West 146.30 feet; thence South 21° 03' 30" East 92.65 feet; thence North 56° 00' East 37.93 feet; thence South 7° 14' 25 30” East 158.76 feet to a point in the Southerly line of said lands so described in Deed recorded in Book 544 of Official Records at page 26 287, last said point being distant thereon South 82° 45' 30" West 27 149.66 feet from the Southwesterly comer of said lands described in Book 946 of Official Records, at page 651, Marin County Records;

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1 to John A. Balzarini, et ux. (544/287), South 82° 45’ 30” West 108.50 feet to an angle point therein; thence South 73° 12' West 2 218.19 feet, North 77° 23' West 20.82 feet, North 18° 42' East 433.91 feet and North 89° 07' 30" East 198.00 feet to the point of 3 beginning. 4 PARCEL TWO: 5 Beginning at the Northwesterly comer of the lands described in the Deed from John A. Balzarini, et ux, to. State of California, recorded 6 June 6, 1955 in Book 946 of Official Records, at page 651, Marin County Records; running thence from said point of beginning along 7 the Northerly line of the lands described in Deed from John A. 8 Balzarini, to John A. Balzarini, et ux, recorded May 21, 1947 in Book 544 of Official Records, at page 287, Marin County Records, 9 South 89° 07' 30': West 177.72 feet; thence leaving said last named line South 35° 30' West 146.30' feet; thence South 21° 03' 30" East 10 92.65 feet; thence North 56° 00' East 37.93 feet; thence South 7° 14' 30" East 158.76 feet to a point in the Southerly line of the lands so 11 described in the Deed recorded in Book 544 of Official Records, at 12 page 287, last said point being distant thereon South 82° 45' 30" West 149.66 feet from the Southwesterly comer of lands described 13 in said Deed recorded in Book 946 of Official Records, at page 651, Marin County Records; thence North 82° 45'30" East along said 14 Southerly line 149.66 feet to said Southwesterly comer; thence Northerly along the Westerly line of lands described in last said 15 Deed (946 OR 651) 327.24 feet to the point of beginning. 16 APN: 033-011-56 17 14. Pursuant to that certain Parc Marin Apartments Tenancy in Common Agreement 18 dated November 1, 2019 (the “TIC Agreement”), PFI owns an undivided 30% interest in the 19 Property, LLC 48 owns an undivided 51.624% interest in the Property, the Peter & Anne 20 Bagatelos Trust owns an undivided 4.842% interest in the Property (the “Peter & Anne Bagatelos21 Trust Interest”), Karen Bagatelos own an undivided 4.842% interest in the Property (the “Karen 22 Bagatelos Interest”), the Michael Bagatelos Trust owns an undivided 4.842% interest in the 23 Property (the “Michael Bagatelos Trust Interest”), and 1320 Magnolia owns an undivided 3.850%24 interest in the Property (“1320 Magnolia Interest,” and together with the Peter & Anne Bagatelos 25 Trust Interest, the Karen Bagatelos Interest, and the Michael Bagatelos Trust Interest, collectively26 the “Defendants’ Interests”). A true and correct copy of the TIC Agreement signed by the trustee27

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1 of the Peter & Anne Bagatelos Trust and the Michael Bagatelos Trust, Karen Bagatelos, and 13202 Magnolia, respectively, is attached hereto as Exhibit A. 3 15. An outstanding debt is secured by the Property as a whole. 4 16. On July 9, 2021, the Court entered an order approving and confirming the Second 5 Amended Joint Chapter 11 Plan of Professional Financial Investors, Inc. and Its Affiliated 6 Debtors Proposed by the Debtors and Official Committee of Unsecured Creditors and Supported 7 by the Ad Hoc LLC Members and the Ad Hoc DOT Noteholders Committee (Dated May 20, 20218 (the “Plan”). The Plan has yet to go effective. 9 17. In the meantime, the Debtors’ have engaged in the marketing of their portfolio of 10 assets and real property to potential interested purchasers, which has resulted in an offer by 11 Hamilton Zanze & Company (the “Stalking Horse Bidder”) for the purchase of approximately 60 12 real properties owned in whole or in part by the Debtors (collectively, the “Portfolio”), including 13 the Property held as tenants in common by PFI and LLC 48 with the Defendants. 14 18. To effectuate the proposed sale of the Property, PFI and LLC 48 therefore now 15 seek authority to sell it free and clear of the Defendants’ Interests. 16 FIRST CLAIM FOR RELIEF (Authority to Sell Co-Owners’ Interest in Property Pursuant to 11 U.S.C. § 363(h)) 17 (All Plaintiffs Against All Defendants) 18 19. PFI and LLC 48 hereby restate, reallege, and incorporate by reference paragraphs 19 through 18 of the Complaint in their entirety. 20 20. Pursuant to 11 U.S.C. § 363(h), a trustee or debtor in possession may sell both the 21 estate’s interest and the interest of any co-owner in property in which the debtor had, at the time o22 the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenan23 by the entirety, if: (i) partition in kind of such property among the estate and such co-owners is 24 impracticable; (ii) sale of the estate’s undivided interest in such property would realize 25 significantly less for the estate than sale of such property free of the interests of such co-owners; 26 (iii) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs27 the detriment, if any, to such co-owners; and (iv) such property is not used in the production,

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1 transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, 2 light, or power. 3 21. Partition in kind of the Property between the Plaintiffs and the Defendants is 4 impracticable because the Property is considered one continuous unit and because PFI, LLC 48, 5 and the Defendants are each liable on a debt secured by the entire Property. As such, it would be 6 particularly impracticable to partition the Property between the Plaintiffs and the Defendants. 7 22. The sale of only the Plaintiffs’ undivided interests in the Property would realize 8 significantly less for the Debtors’ bankruptcy estates (collectively, the “Bankruptcy Estate”) than 9 sale of the Property free and clear of the Defendants’ Interests. Indeed, the Stalking Horse Bidder10 has offered to purchase the Portfolio at a purchase price that reflects that multiple properties are t11 be included in the proposed sale in their entirety. However, pursuant to the Stalking Horse Asset 12 Purchase Agreement entered into between the Stalking Horse Bidder and the Debtors, there will 13 be a reduction in the proposed purchase price for the Portfolio sale should PFI and LLC 48 be 14 authorized to sell only their tenants in common interests in the Property rather than the Property a15 a whole, free and clear of the Defendants’ Interests. Moreover, the Stalking Horse Bidder could 16 elect to forego purchasing Plaintiffs’ tenants in common interests in the Property, which, in turn, 17 would further reduce the proposed purchase price for the Portfolio to the detriment of the 18 Bankruptcy Estate. 19 23. The benefit to the Bankruptcy Estate of a sale of the Property free of the 20 Defendants’ Interests outweighs the detriment, if any, to the Defendants. Indeed, the Defendants 21 merely hold their interest in the Property as an investment and will receive their proportionate 22 share from the net proceeds of its sale. Thus, because the Property is held by PFI, LLC 48, and 23 the Defendants as an investment property, the proposed sale of the Property, should it close, 24 should be a net benefit to the Defendants rather than a detriment. 25 24. The Property is not used in the production, transmission, or distribution, for sale, o26 electric energy or of natural or synthetic gas for heat, light, or power. 27 25. Accordingly, Plaintiffs seek authority pursuant to 11 U.S.C. § 363(h) to sell the

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1 SECOND CLAIM FOR RELIEF (Declaratory Relief Pursuant to Bankruptcy Rule 7001(9) and 11 U.S.C. § 363(j) 2 Determining Co-Owners’ Ownership Interests in Property and Directing Debtors to Distribute Net Proceeds from Sale of Property Pursuant to Such Ownership Interests) 3 (All Plaintiffs Against All Defendants) 4 26. PFI and LLC 48 hereby restate, reallege, and incorporate by reference paragraphs 5 through 25 of the Complaint in their entirety. 6 27. Pursuant to 11 U.S.C. § 363(j), after a sale of property to which 11 U.S.C. § 363(h7 applies, a trustee or debtor in possession shall distribute to the co-owners of such property and to 8 the estate, the proceeds of such sale, less the costs and expenses, not including any compensation 9 to the trustee or debtor in possession, of such sale, according to the interests of such co-owners 10 and of the estate. 11 28. According to that certain TIC Agreement as executed by the trustees to the Peter 12 Anne Bagatelos Trust, Karen Bagatelos, the trustees to the Michael Bagatelos Trust, and 1320 13 Magnolia on January 3, 2020, and attached hereto as Exhibit A, the Peter & Anne Bagatelos Trust14 agreed to and holds an undivided 4.842% ownership interest in the Property, Karen Bagatelos 15 agreed to and holds an undivided 4.842% ownership interest in the Property, the Michael 16 Bagatelos Trust agreed to and holds an undivided 4.842% ownership interest in the Property, and 17 1320 Magnolia agreed to and holds an undivided 3.850% ownership interest in the Property. 18 29. A judicial determination of the Defendants’ respective ownership interests in the 19 Property is necessary and appropriate to determine their respective entitlements to the net proceed20 from any sale of the Property under 11 U.S.C. § 363(j). 21 30. Accordingly, the Plaintiffs seek a declaration from the Court pursuant to 22 Bankruptcy Rule 7001(9) determining the Defendants’ respective ownership interests in the 23 Property and directing the Plaintiffs to distribute the net proceeds from any such sale of the 24 Property, less the costs and expenses, according to those respective ownership interests pursuant t25 11 U.S.C. § 363(j). 26 PRAYER FOR RELIEF 27 WHEREFORE, PFI and LLC 48 respectfully request that the Court enter judgment agains

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1 1. Authorizing PFI and LLC 48 to take sole possession of the Property; 2 2. Authorizing PFI and LLC 48 to sell the entirety of the Property free of the 3 Defendants’ Interests; 4 3. Determining and declaring, pursuant to Bankruptcy Rule 7001(9), that the 5 Defendants’ respective ownership interests in the Property are as follows: 6 (a) The Peter & Anne Bagatelos Trust’s interest in the Property is 4.842%; 7 (b) Karen Bagatelos’s interest in the Property is 4.842%; 8 (c) The Michael Bagatelos Trust’s interest in the Property is 4.842%; and 9 (d) 1320 Magnolia’s interest in the Property is 3.850% 10 4. Authorizing and directing PFI and LLC 48 to, pursuant to 11 U.S.C. § 363(j), 11 distribute a proportionate share of the net proceeds from the sale of the Property to the Defendant12 equal to their respective ownership interests in the Property; and 13 5. Providing for all other just and proper relief. 14 Dated: July 16, 2021 15 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 16 17 By /s/ J. Barrett Marum ORI KATZ 18 J. BARRETT MARUM 19 JEANNIE KIM MATT KLINGER 20 GIANNA SEGRETTI 21 Counsel for the Debtors 22 23 24 25 26 27

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