A California bankruptcy involving scores of prominent Utahns has once again focused on the Salt Lake law firm representing those Utahns.
U.S. Bankruptcy Judge James N. Barr is holding hearings this week in California Central Bankruptcy Court to decide whether the local firm of Jardine, Linebaugh, Brown and Dunn should be barred from representing any of the Utah defendants in the case. The judge will also consider whether further sanctions should be imposed against the firm.Barr imposed $5,000 in sanctions against the firm in March because James R. Brown, a senior partner with the firm, filed two motions Barr deemed frivolous. Brown had previously been warned against filing such motions and was on probation in Barr's court at the time sanctions were imposed.
The Jardine firm has paid the fine but is appealing Barr's ruling, Brown said.
The newest hearing on complaints against the Jardine firm is being held at the request of Sam Jonas, the court-appointed trustee for Comark, a California limited partnership that bought and sold securities.
The complaint says Barr put the Jardine firm on 120 days of probation in November because of the firm's misrepresentations and violations of rules. The complaint says "The Court also has instructed the trustee to be vigilant of any further misconduct on the part of the Jardine firm and to report them to the court."
The trustee has taken the admonition to heart. The latest complaint against the Jardine firm and supporting exhibits is nearly 400 pages long. In it, the trustee cites several misrepresentations it says the Jardine firm has made recently, claiming those misrepresentations amount to fraud on the court. It also claims Brown's firm has violated several federal and state bankruptcy laws.
Brown filed a lengthy response defending his firm's actions. Jonas then filed a response to Brown's response, claiming further misrepresentations were made in Brown's response.
The legal morass began nearly 15 years ago when dozens of Utahns and Utah companies invested heavily in Comark as a tax shelter. Most bought limited partnerships in the company. In addition to the money they invested, they also signed agreements promising to pay Comark further money should the company require it, said Daniel H. Willick, attorney for the trustee.
The Utah investors used those agreements to get bigger tax breaks than they would have been able to get without them, Willick said. The IRS has since deemed the company an abusive tax shelter and many investors were required to pay back taxes and fines.
The trustee is seeking $7 million from the Utah investors. The money would go to Comark creditors.