Judge sends companies back to Chapter 11.

Problems mount for mansion developer Eugene Kilmer

Four real estate companies involved in developing Indian Wells Estates, the exclusive "Bel-Air of the Valley" residential enclave in Chatsworth, were sent back into Chapter 11 bankruptcy on Jan. 23 by a U.S. Bankruptcy Court.

The four companies, along with seven others controlled by residential mega-developer Eugene Kilmer, were all put into bankruptcy by Kilmer early last year.

About six months later, however, at the request of Kilmer's attorneys, a bankruptcy court judge agreed to dismiss four of those 11 companies from bankruptcy.

The court ruled Jan. 23 that those dismissals were based on erroneous information, so the companies were remanded to bankruptcy immediately.

Kilmer, the father of movie star Val Kilmer, and his attorney, Edward S. Coleman, both refused to answer inquiries from the Business Journal last week.

Coleman said they would not comment because a Jan. 6 Business Journal article on Kilmer's problems was "extremely inappropriate."

"The (court) record is clear enough," Coleman said. "Let people who want to know about this go to court and see for themselves."

Kilmer, over the past 22 years, has acquired more than 1,000 acres of undeveloped property in Chatsworth. He subdivided some 150 acres of that land in the early 1980s and began developing palatial mansions there, dubbing the project Indian Wells Estates.

He has bisected the property into a super-exclusive section, called Indian Springs Estates, and a slightly less impressive section, called Indian Falls Estates.

Two-acre-plus lots there go for about $1 million each, and mansions go for as much as $5 million, or more.

Indian Wells was successful for awhile, but turned sour with the recession, which led to Kilmer's bankruptcy filing last year.

The bankruptcy court dismissed four of those companies last October. But the dismissals were based on the court's belief that the four were wholly owned subsidiaries of KEM Inc., Kilmer's main holding company, and on the belief that none of them had any assets or liabilities, said sources familiar with the case.

The four companies are Blue Water Corp., Labeled Files Inc., Hidden Hills West Inc. and Bonita Tierra Inc.

After they were dismissed, an attorney representing Kilmer's unsecured creditors discovered that the companies actually owned millions of dollars worth of assets.

The attorney -- Michael Kogan of the law firm Arter, Hadden, Lawler, Felix & Hall -- also discovered that Kilmer was selling off those dismissed companies' assets and pocketing the proceeds.

"The court was led to believe there were no assets in these companies," Kogan asserted last week. "Then Kilmer's attorneys tried to pull a fast one by saying Kilmer directly owned the companies, so any proceeds from asset sales would go directly in his pocket" rather than creditors'.

Contents of a report filed on Dec. 24, 1991 by U.S. Bankruptcy Court Trustee John J. Bingham Jr. support Kogan's assertions.

The report first describes questionable activities by Kilmer and his attorneys with regard to selling assets of Blue Water and Labeled Files.

"Shortly prior to the dismissal of these cases, a sale of property owned by Blue Water closed and it received close to $400,000," the report stated. "(Right after the dismissal) these funds were delivered into the control of Kilmer."

The trustee, upon learning of the sale, told Kilmer "not to dispose of, encumber, or otherwise transfer any property of Blue Water or Labeled Files, or enter into contract that would create liabilities for such corporations," the trustee's report continued.

Kilmer's attorneys at first verbally agreed to that stipulation, according to the report. But when the trustee asked for the agreement in writing, Kilmer's attorneys refused and claimed that "KEM was not the shareholder of Blue Water and Labeled Files, but, rather, the shareholder was Kilmer or other persons unknown."

The trustee's report next chronicled questionable actions by Kilmer and his attorneys regarding the sale of assets of Hidden Hills West and Bonita Tierra.

Kilmer and his attorneys had also led the court to believe these companies had no assets, stated Kogan and the trustee's report. But the trustee discovered the companies actually co-owned 10 residential lots in Indian Falls Estates.

"The trustee pointed this out to Kilmer and his counsel," the trustee states in his report. "Within a few days thereafter Kilmer was observed attempting to market and sell those lots. The trustee was thus required to and did exercise his rights and ousted Kilmer as an officer and director of Hidden Hills and Bonita Tierra, together with all other officers and directors."

U.S. Bankruptcy Judge Vincent P. Zurzolo was expected last week to appoint a trustee to oversee Kilmer's four remanded companies. But information regarding that appointment was unavailable at press time.

The judge is expected to rule March 11 on whether to accept a reorganization plan submitted by Kilmer's unsecured creditors. That plan essentially calls for the liquidation of all assets owned by Kilmer's 11 bankrupt companies, and dissemination of the proceeds to his creditors.