CDA: Go ahead with Pacific Gardenia receivership

Court appointment of a receiver for Pacific Gardenia Hotel can proceed despite the recent filing of bankruptcy by its owners, according to the Commonwealth Development Authority.

CDA legal counsel F. Matthew Smith said in a brief filed in the Superior Court Friday that only the assets of defendant’s Sy’s Corporation (dba Pacific Gardenia Hotel) are protected or covered by the bankruptcy automatic stay.

As a general rule, he cited that an automatic stay issued under 28 U.S.C. section 362 “does not protect non-debtor parties or their property.”

In the Ninth Circuit, in particular, co-defendants cannot successfully argue that an automatic stay reaches their actions and property if they are not also debtor parties in bankruptcy proceedings, Smith further said.

Accordingly, Smith said that the court retains jurisdiction to proceed with CDA’s action against defendants, couple Ronald D. Sablan and Maria Ana T. Sablan, “and to appoint a receiver to preserve and protect their individual assets.”

CDA said that individual assets that are known and that should be preserved by a receiver include their mortgaged interests in Lot No. 008 H 37; and their individual shares in defendant Sy’s Corp.

“There are certain to be others as well, and only a receiver can gather, preserve, and inform this court as to the exact assets available,” Smith said.

Further, Smith said that the corporate shares held by the Sablan couple are not subject to any automatic stay and are not considered property of the bankrupt’s debtor’s estate.

As for the mortgaged property, CDA said that it can foreclose individual interests and seek appointment of a receiver “because there are superior and independent interests that were never consolidated with any corporate loan or interest of defendant Sy’s Corp.”

CDA further said that it can foreclose on these first and superior mortgages because it can do so without needing to receive a judgment or litigate against the corporation.

Smith said this was verified by the Sablan couple themselves when they executed a quitclaim deed of the lot.

By virtue of their quitclaim deed, they recognized that their quitclaim transfer to Sy’s Corp. was subject to the previously recorded and independent mortgages held by CDA, Smith said.

Accordingly, CDA is not stayed from foreclosing the individual mortgages of Ron Sablan, Maria Sablan, or any other co-defendant, he said.

In the unlikely event that sale proceeds exceed the debt owed by these individuals, CDA would deposit the same with the bankruptcy trustee for distribution, in accordance with bankruptcy laws.

Pacific Gardenia president Ronald Sablan had filed a petition seeking relief under chapter 7 of the U.S. Bankruptcy code and chapter 11 Small Business (as defined in the U.S. Code).

CDA asked the court last July to appoint a trustee to manage and collect the profits of the corporation until the case against its owners is resolved.

CDA said that the Sablan couple owe CDA over $2.4 million, and are more than five years delinquent in their payment.

CDA said that its rights and interests would be irreparably injured unless a receiver is appointed to take charge of the business affairs of Sy’s Corporation and to take possession of its property until a final decision or order from the court is issued following foreclosure.