UNITED STATES BANKRUPTCY COURT
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This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
NORTHERN DISTRICT OF CALIFORNIA
WILLIAM A. SAKS, No. 99-13419
Memorandum on Motion for Trustee
Debtor William Saks is a real estate developer. He filed the Chapter 11 petition commencing
this case on November 9, 1999. He also filed a Chapter 11 petition for his wholly-owned corporation,
Kinsak, at the same time.
Movant Kristin Merrill-Saks is William Saks' former spouse. Her motions for appointment of a
trustee pursuant to § 1104(a) of the Bankruptcy Code in both cases are now before the court. She
alleges that a trustee is in the best interests of the estate, and that Saks has been dishonest in pre-bankruptcy activities.
Section 1104(a)(1) of the Bankruptcy Code requires the court to appoint a trustee if the debtor
has been guilty of fraud, dishonesty or gross mismanagement. There is some evidence of such conduct.
Before bankruptcy, Saks borrowed money from a partnership in which he was a general partner,
although he subsequently repaid the loan. He also lost $400,000.00 in an ill-advised investment. If the
court were looking for cause to appoint a trustee, these actions could justify one.
Section 1104(a)(2) provides independent grounds for appointment of a trustee if it would be in
the best interest of the creditors. It is here that the motion is sadly lacking, to the point that the court is
very suspicious of Merrill-Saks' motives. The only possible reorganization for both cases would be the
successful completion of a real estate development owned by Kinsak. Saks has the expertise, the desire
and the motivation to complete the project. Contrary to Merrill-Saks' argument, the most likely action
of a trustee would be to sell the project to another developer. Even if a trustee had the expertise and
desire to complete the project, the extra layer of administrative expense would make it unlikely that a
satisfactory dividend would be returned to creditors. The court is very concerned that Merrill-Saks is
not a representative creditor, that her interests are not what is best for the estate, and that she has
misrepresented the effect of a trustee appointment in order to obtain her cookie-cutter "joinders."
Appointment of a trustee in a Chapter 11 case is an extraordinary remedy. There is a strong
presumption that the debtor should remain in possession. In re Cajun Elec. Power Coop
, 69 F.3d 746,
Cir.1995). The decision to appoint a trustee must be made on a case-by-case basis. In re
Sharon Steel Corp.
, 871 F.2d 1217 (3d Cir. 1989). Although the word "shall" in § 1104(a)
circumscribes the court's discretion, it does not eliminate it; the degree of dishonesty or mismanagement
may be taken into consideration, along with other factors unique to the case. In re General Oil
, 42 B.R. 402, 409 (Bkrtcy.E.D.N.Y. 1984).
In this case, appointment of a trustee is clearly not in the best interests of the estate. While
Merrill-Saks has produced some evidence of prepetition dishonesty and mismanagement by Saks, she
has not shown that such conduct rises to the level which mandates a trustee.(1)
As the court in General
[M]ismanagement and even fraud all cover a wide spectrum of conduct. While under §
1104(a)(1) the court is not directly called upon to weigh the costs and benefits of
appointing a trustee, it nevertheless cannot ignore competing benefit and harm
such an appointment may place upon the estate. [cite]. Implicit in a finding of
incompetence, dishonesty, etc., for purposes of §1104(a)(1), is whether the conduct
shown rises to a level sufficient to warrant the appointment of a trustee. Under
[movant's] view, the court can not consider factors such as improvement in the
competence of management and other kinds of reformed conduct, and the costs that
the appointment of a trustee would bestow upon the estate. [Movant's] view would
mandate appointment of a trustee for a single act of pre-petition incompetence or
dishonesty. As one court observed, "one would expect to find some degree of
incompetence or mismanagement in most businesses which have been forced to seek
the protections of chapter 11." (Emphasis in the original).
For the foregoing reasons, Merrill-Saks' motion will be denied, without prejudice to motions
made by other parties. Counsel for each debtor shall submit an appropriate form of order.
Dated: December 20, 1999 ____________________________
United States Bankruptcy Judge
1. The court has placed controls on the liquid assets of the estate sufficient to insure that estate
funds are not misused. Those controls will remain in