@Vantage.com, LLC

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
@VANTAGE.COM, No. 07-10331
Debtor(s).
______________________________________/
Memorandum After Hearing
_________________
Debtor @Vantage.com, LLC, is a grower of organic vegetables. It filed its Chapter 12 petition on
March 26, 2007. Its plan of reorganization is now before the court. Objections to the plan were filed by
creditors Leaf Funding, Inc., the U.S. Farm Service Agency, and Pinnacle Capital, LLC. Leaf Funding has
also filed a motion for dismissal, conversion, or removal of the debtor as debtor in possession.
The debtor made two very significant false statements in its statement of affairs. First, in answer to
question #15, the debtor failed to mention its occupation, during the three years before bankruptcy, of the real
property located at 1645 South Wright Road, Santa Rosa California. Second, in answer to question #23, it
represented that their were no withdrawals, distributions, or compensation of any kind to any insider in the
year prior to bankruptcy. Both these representations were materially false, and lead the court to the firm
conclusion that the plan has been proposed in bad faith and cannot be confirmed pursuant to § 1225(a)(3) of
the Bankruptcy Code.
The Wright Road property was acquired by the debtor pursuant to a lease with an option to purchase
in late 2004. On January 11, 2005, the debtor’s manager, Robert Vaughan, aka Robert Vaughn, aka
Entered on Docket
September 13, 2007
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 07-10331 Doc# 103 Filed: 09/13/07 Entered: 09/13/07 11:55:28 Page 1 of
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1Vaughan attempted to explain the situation by testifying that AmeriTrust had “sub-leased” the Wright
Road property to the debtor and the debtor had defaulted so that AmeriTrust had taken the property back,
and that the reason AmeriTrust was not listed as a creditor was that the debt was “forgiven.” The court does
not believe a word of this nonsense from one of the least credible witnesses ever to appear in this court. The
court bases its disbelief of Vaughan on his demeanor on the stand, his evasiveness and pat explanations, his
clear lies on the statement of affairs and apparent false statements in the loan applications. His credibility is
not helped by his role as manager of the debtor, trustee of AmeriTrust and managing member of Planet
Organic.
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Charles Vaughn, wrote to the attorney for the lessor, on the debtor’s letterhead, directing that the lease was to
be held in the name of AmeriTrust Holdings, a trust of which he was a trustee. The debtor made most or all
of the payments on the lease, and occupied the premises. On September 1, 2006, the debtor listed the
Wright Road property as an asset and listed the lessor as a creditor on a loan application to the U.S.
Department of Agriculture.
On March 2, 2007, just three weeks before the debtor’s bankruptcy filing, Vaughan, as trustee of
AmeriTrust Holdings, entered into an agreement with himself as managing member of Planet Organic, LLC, to
sell the Wright Road property for $1,950,000.00. On April 3, 2007, deeds to the property were recorded
first from the lessor to AmeriTrust and then from AmeriTrust to Planet Organic. No mention whatsoever was
made about the property in the debtor’s statement of affairs, signed by Vaughan just a week later on April 10,
2007.1
Ruth Alison Stellwagon, according to her testimony and the statement of affairs, owns 95% of the
debtor. She admits that in lieu of a salary she took numerous draws from the debtor’s bank accounts for her
personal expenses. The evidence showed that during the year before bankruptcy these draws totaled at least
$100,000.00, and more likely around $200,000.00. These draws were falsely omitted from the statement of
affairs, and are almost certainly recoverable by the bankruptcy estate as fraudulent transfers or preferences.
The debtor bears the burden of proof to show all of the elements necessary for plan confirmation
pursuant to § 1225(a) of the Code. In this case, the debtor has not met its burden as to § 1225(a)(4), in
that it appears more likely than not that the creditors would receive more in Chapter 7 because of recoverable
interests in the Wright Road property and the undisclosed draws made by Stellwagon.
Case: 07-10331 Doc# 103 Filed: 09/13/07 Entered: 09/13/07 11:55:28 Page 2 of
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Moreover, the court finds that the petition and the plan were filed in bad faith due to the false answers
in the statement of affairs. Misrepresentation of facts in a petition or plan justify a finding of bad faith. In re
Leavitt, 171 F.3d 1219, 1224 (9th Cir. 1999). While a finding of bad faith does not require a finding of
fraudulent intent (Id., at 1224-25), the court finds that in this case the false statements were intentionally meant
to conceal valuable assets of the estate for the benefit of insiders. Accordingly, no plan cannot be confirmed
pursuant to § 1225(a)(3).
The same findings mandate a conversion of the case to Chapter 7. The creditors’ best chance for a
meaningful recovery is if an independent trustee is appointed to investigate the conduct of the debtor’s
principals and pursue avoidable transfers. Conversion is permitted, due to the above findings of fraud, by §
1208(d) of the Code.
For the foregoing reasons, confirmation of the plan will be denied and the motion to convert the case
will be granted. This memorandum constitutes the court’s findings and conclusions pursuant to FRCP 52(a)
and FRBP 7052. A separate order will be entered.
Dated: September 13, 2007
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 07-10331 Doc# 103 Filed: 09/13/07 Entered: 09/13/07 11:55:28 Page 3 of
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