Lohrey Enterprises, Inc.

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
LOHREY ENTERPRISES, INC., 	No. 08-12206
Debtor(s).
______________________________________/
Memorandum on Motion for Retroactive Employment
_________________
On December 9, 2008, Chapter 7 trustee Richard Schwalbe applied to the court for leave to
employ Kenneth L. Foster as a professional pursuant to § 327(a) of the Bankruptcy Code. Foster’s
declaration in support of the application, required by Rule 2014(a) of the Federal Rules of Bankruptcy
Procedure, was materially false in two respects.
First, the declaration started out “I, KENNETH L. FOSTER, CPA, declare:” 	The court
thought that Schwalbe was hiring an accountant, routine matter in Chapter 7 cases. However, it turns
out that Foster was not a CPA.
Second, Foster’s declaration stated that “I have no connection with . . .Richard Schwalbe, the
Chapter 7 trustee herein . . . .” This statement was patently false. Foster and Schwalbe had known
each other for some time, had worked together at the same business, and had even gone so far as to
explore a partnership and put up a joint website. Due to these lapses, the court thought it was
authorizing the employment of an independent CPA when in fact it was authorizing employment of a
business associate of the trustee who was not a CPA.
When these matters were brought to the court’s attention by motion of the U.S. Trustee, the
Entered on Docket
October 25, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-12206 Doc# 383 Filed: 10/24/10 Entered: 10/25/10 08:48:30 Page 1 of
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court vacated the employment order as having been based on false information. The order, filed June
22, 2010, was without prejudice to an application for retroactive employment. That application is now
before the court.
After reviewing Foster’s attempt to explain his false declaration, the court finds no redeeming
circumstances. The court was seriously mislead by the declaration. Since Schwalbe is not a usual
trustee here - the court had never heard of him before his employment in this case - the court would
have taken a long, hard look at the application and quite probably not approved it if disclosure had
been proper. The court was denied that opportunity due to Foster’s patently false declaration.
The court finds no extraordinary circumstances such as to warrant retroactive employment.
Foster had one chance to tell the court everything the court needed to know in order to properly
consider his employment and failed to properly disclose his connections with Schwalbe. He also
misrepresented his status as a CPA. Even negligent omissions can result in forfeiture; Foster’s failure
to disclose was more than merely negligent. He knowingly failed to make a full, candid and complete
disclosure. See In re Plaza Hotel Corp., 111 B.R. 882, 883, aff'd, 123 B.R. 466 (9th Cir.B.A.P.1990).
For the foregoing reasons, Foster’s application for retroactive employment will be denied.
Counsel for the U.S. Trustee shall submit an appropriate form of order.
Dated: October 24, 2010
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 08-12206 Doc# 383 Filed: 10/24/10 Entered: 10/25/10 08:48:30 Page 2 of
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