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Bankruptcy Trustee Rips Into Rabbit Ridge Owner In Contempt Of Court Battle

July 27, 2022 | Filed under Featured Articles | Posted by

The complete 111-page court document from which this article was prepared can be accessed by Wine Executive News premium subscribers.

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Screen Shot 2022-07-27 at 10.28.20 AMThe following text is the beginning summary of Court Document ECF352 -Trustee Reply To Codding Opposition To Contempt.  (Premium content)

 

This filing is in response to: Rabbit Ridge New Owner Responds To Trustee’s Contempt of Court Filing.

 

WII Editor’s Note: WII Editor’s Note: Text below are all direct quotes excerpted from the court filing.

 

Text has been broken into additional paragraphs to increase readability.

 

Subheads and any other text not included in the original document appear in a dark red italic typeface.

 

Opening paragraph

Richard A. Marshack, in his capacity as Chapter 7 Trustee (“Trustee”) of the Bankruptcy Estate (“Estate”) of Northern Holding, LLC (“Debtor”), files this reply to the opposition filed by Leroy Codding (“Codding”) on July 1, 2022, as Docket No. 350 (“Opposition”) to the motion filed by Trustee on April 1, 2022, as Docket No. 304 (“Motion”), seeking issuance of an order to show cause re: civil contempt against Codding.

 

Summary of Reply

 

The order of the Court requires that “[t]he proceeds of all sales of agricultural products (‘Crop’) grown on :

  1. 2380 Live Oak Road, Paso Robles, CA;
  2. 1172 San Marcos Road, Paso Robles, CA; and
  3. APN 027-145-022 (collectively, the ‘Properties’)

shall be paid directly to the Estate…”

 

Codding admits that he or his entities, unbeknownst to Trustee and “under the table,” received over $140,000 in grape sale proceeds which constituted property of the Estate.

 

Codding, however, argues that his refusal to comply with the Order was justified, and that this is merely an “accounting” issue between Trustee and Codding. Two primary responses:

 

  1. this is not an accounting issue, this is an issue of non-compliance with a direct and clear order of the Court; and
  2. the farm operator agreement specifically provides that Trustee must approve and sign each grape purchase contract and must be the direct payee on every contract.

Undisclosed contracts “theft of property”

Trustee did not know of the existence of undisclosed contracts and this was and is a theft of property of the Estate discovered after-the-fact by Trustee.

 

While this may have been an issue that could have been resolved if Codding had in fact produced an accounting supported with evidence of his alleged expenditures, he has failed to do so despite Trustee agreeing to multiple continuances of the present motion for this exact reason.

No documentation from Codding despite being “asked, cajoled, and begged”

For over six months, Trustee and his professionals have asked, cajoled, and begged Codding for canceled checks or any other form of documentation showing proof of payments made with and the disposition of the misappropriated estate property.

 

But, Codding has neither provided such proof to this Court or Trustee. <WII editor’s note: This is an incomplete sentence and is included exactly as it appears in the document.>

No canceled checks to indicate expenditures

To be abundantly clear, nowhere in the hundreds of pages of pleadings filed by the parties will this Court locate a canceled check evidencing the disposition of the estate’s funds to any vendor that provided services to the Estate or that Codding made such payment with his own funds entitling him to reimbursement from the Estate.

 

Hence, there can be no reimbursements without disbursements. At this point, all evidence indicates that Codding knowingly violated this Court’s Order and misappropriated Estate funds for his own benefit.

 

Trustee respectfully requests that the Court enter an Order to Show Cause why Codding should not be adjudicated in contempt and be ordered to purge his contempt by returning the $140,000 of Estate funds to Trustee.

 

Background Facts

 

On October 28, 2020, Debtor filed a voluntary petition for bankruptcy under Chapter 11 of Title 11 of the United States Code, initiating the above-captioned bankruptcy case. On the petition  date, Debtor’s managing member was Codding.

 

On June 15, 2021, as Dk. No. 116, the Court entered an order converting the case to Chapter7. Richard A. Marshack is the duly-appointed and acting Chapter 7 trustee.

 

Upon the conversion of the case, there were three real properties in the Estate:

 

(1) 2380 Live Oak Road, Paso Robles, CA (“Live Oak Property”);

(2) 1172 San Marcos Road, Paso Robles, CA (“San Marcos Property”); and

(3) agricultural property adjoining the San Marcos Property commonly referred to as the “Texas Road Property” (collectively, “Properties”).

 

The Properties included hundreds of acres of fruit-bearing grape vines.

 

In order to assist with completing the harvest of hundreds of acres of cultivated agricultural goods on Estate properties, Trustee needed an experienced farm operator. Trustee negotiated a farm operator agreement with Codding where Codding would advance the costs of operations and later seek reimbursement from the Estate.

 

On August 9, 2021, as Dk. No. 186, Trustee filed a motion (“Operate Motion”) to approve the farm operator agreement (“Operate Agreement”) and to authorize limited operations under 11 U.S.C. § 721 solely for the purpose of completing the cultivation, harvest, and sale of crops on the properties.

 

On September 7, 2021, as Dk. No. 211, the Court entered an order granting the Operate

Motion, as modified on the record (“Operate Order”).

 

As detailed in the Motion, Trustee would later discover that Codding failed to comply with the Operate Order and had in fact misappropriated over $140,000 in grape proceeds which constituted property of the Estate.

 

Trustee demanded, starting in November 2021, that Codding produce a full accounting of the Estate’s funds including proof of any expenditures allegedly made on behalf of the Estate.

Codding’s “[S]elf-generated spreadsheets uncorroborated by receipts or canceled checks”

The extent of documents produced by Codding include only self-generated spreadsheets uncorroborated by receipts or canceled checks, and only a few months’ worth of bank statements which failed to cover the entire period in question.

“[Z]ero documentation”

Trustee notes that zero documentation of Codding’s alleged expenses is attached to the Opposition.

The court document text continues on page 6 of the 111-page court filing: ECF352 -Trustee Reply To Codding Opposition To Contempt.

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