Bankruptcy Court judge
sends Marn case to state
A fierce and protracted legal fight among members of the Marn family, owners of McCully Shopping Center and other properties, belongs in state Circuit Court, not federal bankruptcy court, a federal judge ruled yesterday.
The arguments that have been fought in the state court for five years "can be solved under the power of the state court," Judge Robert J. Faris said in the Hawaii district of the U.S. Bankruptcy Court after hearing more than an hour of arguments.
The majority of Marn family members had argued that Thomas E. Hayes, the receiver appointed by the Circuit Court in November to take over the partnership and its money, along with accountants and other professionals he appointed, were draining money from the business in expenses that were almost automatically approved by the Circuit Court.
Alexander Marn, his brother Eric Marn and other family members had argued that bankruptcy was the best way to bring the expenses under close supervision.
Attorneys for that side of the family argued that nearly $800,000 in such expenses had been drained since Hayes was appointed to replace directors and management of McCully Associates ousted by the court.
However, Hayes and one brother, James Marn, argued that the company was in fact solvent, that money was being spent properly and that bankruptcy would only serve to make the business miss certain crucial dates, such as a $200,000 payment due to Bank of Hawaii on June 1.
Louise Ing, attorney for Hayes, quoted letters from Alexander Marn to others in the case, saying among other things that the business was "financially strong and healthy," and she said the real reason for the bankruptcy filing was to prevent Hayes from pursuing money misappropriated by Alexander and Eric Marn.
Bank of Hawaii agreed. The bankruptcy filing was intended to "fabricate financial distress" in a pattern of "make believe," said Jeffrey C. Krause, an attorney who represented Bank of Hawaii by telephone from Los Angeles.
As the biggest creditor of the McCully business, Bank of Hawaii supports letting the state court continue to handle the case, Krause said.
Jerrold Guben, representing Alexander and Eric Marn and the majority of McCully Associates, said open and detailed supervision by the bankruptcy court is needed to deal with what is "virtually a family feud that has spun out of control."
He denied James Marn's arguments that the bankruptcy case was filed to sidestep state rulings and said it was filed in good faith to stop money being drained out for professional services related to the receiver's work. That money is needed to run McCully Associates, which kept its expenses at a reasonable level for 11 years before Hayes stepped in and raised them, Guben said.
The federal court is a safer place for the money dispute than the "wild wild west" of Circuit Court, Guben said.
Acknowledging the intensity of the family dispute, the fighting over expenses and the disputes over Circuit Court decisions, Faris said he nevertheless didn't see enough reason to shift the case into bankruptcy.
"I'm not here to second-guess those decisions," he said. He said the current and future problems of the businesses "can be solved under the power of the state court."
Faris said he specifically was not ruling on Hayes' argument that Hayes alone, as court-appointed receiver, had the right to bring the businesses into bankruptcy. He also did not rule on Eric Marn's argument, in support of Hayes, that a McCully Associates board meeting approving last month's bankruptcy filing was illegal.
The case, which has now run to at least 25 cartons of court files in Circuit Court, was launched in 1998 when James Marn sued Alexander Marn and three other Marn brothers over alleged misappropriation of funds from the family business.
He alleged that country club memberships and other personal perks should not have come out of the funds of the business.