Mastro bankruptcy case has a strange new twist
In Washington's biggest bankruptcy case ever, Michael R. Mastro's lawyer and his guardian say they have different agendas because the incapacitated developer's past instructions may conflict with his current best interests.
Seattle Times business reporter
Here's a bizarre new twist in Michael R. Mastro's long-running bankruptcy case, Washington's largest ever:
The guardian appointed last month to look out for the interests of the now-incapacitated former real-estate magnate in court says she can't use the lawyer who has represented Mastro since the proceedings began nearly two years ago — because they represent different things.
Guardian Faith Ireland said in a court filing this week that, while she is charged with representing Mastro's best interests, attorney Thomas Bucknell is obligated to follow Mastro's past instructions.
Even if they aren't in his best interests.
So Ireland, a former state Supreme Court justice, has retained her own lawyer. What's more, she wants his fees, and hers, paid out of funds administered by Mastro's chief adversary, court-appointed trustee James Rigby.
If that doesn't happen, Ireland wrote, she'll have to quit.
In court papers, Mark Walters, Ireland's Bellevue attorney, described the situation as "rare," "extraordinary," and "highly unique." He also said there's apparently no legal precedent.
University of Washington law professor Rafael Pardo, who specializes in bankruptcy law, agreed. Even the appointment of a guardian in bankruptcy proceedings is rare, he said, and the latest developments "just put this in an even more bizarre light."
Ireland and Walters would be paid from the same pot of money from which Mastro's many creditors might one day recover at least a fraction of their losses. But Walters said in a prepared statement that Ireland is working to reduce litigation costs so more is left for creditors.
Mastro, 85, a prolific developer and lender for 40 years, was brought low by the real-estate crash and pushed into bankruptcy in July 2009.
He filed papers showing debts of more than $570 million, including about $100 million to about 200 mostly individual creditors he called his "Friends & Family" investors.
Mastro suffered a severe head injury in a fall two months ago at his Palm Springs home. While he reportedly is improving, he remains unable to manage his affairs.
His injury came weeks before the scheduled start of a big trial in which Rigby is attempting to recover millions from Mastro and others. U.S. Bankruptcy Judge Marc Barreca named Ireland as guardian to represent Mastro's interests in the case.
But this week Ireland told the court Bucknell can't represent her because there's a conflict between Mastro's best interests and his instructions to Bucknell before his injury.
Bucknell seconded Ireland's reasoning in a supporting filing. "In some instances, Mr. Mastro's instructions on issues relevant to this proceeding may not be in his best interests," he wrote.
Ireland also wrote that Mastro can't pay her from assets outside the bankruptcy case, as the judge had ordered.
His wife, Linda, is concerned about paying next month's rent, Ireland wrote. The couple's accountant doesn't know of any more sources of money. And Mastro already owes Bucknell $120,000.
So Ireland asked that $100,000 be set aside for now for her and Walters from the funds accumulated by Rigby to pay creditors.
Pardo said Bucknell's reported conflict of interest, while perhaps unprecedented, "makes perfect sense."
But Ireland may have trouble getting the court to order Rigby to pay her legal expenses, he added, because no provision in bankruptcy law clearly allows it.
However, Pardo added, if Ireland quits, "then it is a conundrum, because the litigation would have to stop."
A hearing is scheduled April 15 before Barreca.
Rigby declined to comment on Ireland's and Bucknell's filings, but repeated his long-held contention that Mastro has hidden assets that rightfully should go to creditors.
In a separate filing this week, Ireland asked Barreca to order the parties into mediation in hopes of settling and averting the upcoming trial, scheduled to start April 18.
"Avoiding a trial will save... tens if not hundreds of thousands of dollars on legal fees and costs, and this money can be better spent paying off creditors," Walters said in a prepared statement Wednesday.
In her filing, Ireland said Mastro "is beginning to recognize people and speak with some coherence." But he remains very weak and spends most of his day sleeping, she added.
Eric Pryne: 206-464-2231 or email@example.com