Aug. 24, 2008 — Jeffrey Prosser, former CEO and owner of Innovative Telephone, received three court setbacks on Aug. 22 just prior to four days of bankruptcy hearings on St. Thomas starting Monday, Aug. 25.
The principal subject of the forthcoming hearings, and of one of the court decisions, is who (under law) really owns the three Prosser mansions, on St. Croix, in Florida, and on Lake Placid, New York? To what extent do these residences – which have a gross value in the neighborhood of $20 million – now belong to the creditors?
Prosser's creditors and the court-appointed trustees had wanted to see a written agreement between Jeffrey and Dawn Prosser on the ownership of these properties. Prosser's lawyers objected and a hearing was held in U.S. Bankruptcy Judge Judith Fitzgerald's home courtroom in Pittsburgh on July 19.
On Aug. 22 the judge decided against Prosser, and gave him two days to provide the text of the agreement to the other parties in the case. The wording of the agreement has not been issued, but the text of the decision has. The document in question, dated January 18, 2006, bears the legal designation of Bates Nos. JP(SF) 28893-28908.
The judge said that the Bates document could no longer be regarded as privileged (i.e., secret) since both the Prossers had discussed the ownership issues in court proceedings.
She also said that neither party can claim the privilege "if the judge finds that sufficient evidence aside from the communication has been introduced to warrant a finding that the communication was made….to aid anyone to commit a tort. The Trustees have brought fraudulent conveyance actions and allege actual fraud against the Prossers, which, if proven, would be a tort. At this time…. the Court has insufficient evidence before it upon which to make a finding that the exception applies. The Trustees may raise the issue again as and when it may be appropriate."
There are about half a dozen different scenarios under debate regarding the ownership of the residences.
If one or more of them belong to ICC, Prosser's former holding company, the creditors get all the money from the sale.
If one or more of them are totally owned by Jeffrey Prosser, most of the funds would go to the creditors.
If Dawn Prosser, who is not a bankrupt, owns all of them, then the creditors would get nothing.
If she owns part of one or more of them, the creditors would get less money.
If – and this is a separate issue – the financial institutions holding the mortgages were allowed to foreclose, then both the Prossers and the creditors would lose out.
And, finally, as long as the ownerships are clouded by lawsuits, as they have been for more than two years, the properties stand idle and/or remain occupied by the Prossers.
There were two other rulings by the judge on Aug. 22. In one she denied Dawn Prosser's attempt to delay hearings on the so-called turnover proceedings; these involve the trustees' efforts to get her to turn over valuables that they argue belong to the creditors.
In the second decision she ordered that Prosser's new lawyer, Norman Ahood, not proceed with a planned deposition of Arthur Selzer, a former employee of Prosser who has offered evidence about Prosser's financial transaction. According to an Aug. 22 filing by lawyers for Stan Springel, the chapter 11 trustee in the case:
"At a hearing on August 19, 2008 the Court quashed a subpoena to Mr. Stelzer… and unequivocally ruled that Jeff Prosser could not take another deposition of Mr. Stelzer absent consent of the parties or leave of court. Nevertheless, without such consent or leave, less than twenty-four hours later…. Mr. Ahood expressed his intention to serve a subpoena on Mr. Stelzer regardless of the parties's opposition and the Court's ruling."
Later that same day Judge Fitzgerald again ruled against the subpoena for Stelzer; earlier in the week the judge had overruled Springel's objections to Prosser's hiring Ahood, a Toledo, Ohio attorney. Springel had argued that Prosser did not need another lawyer, and that Ahood had spent time in a federal penitentiary for failure over several years to pay federal income taxes.
On Monday at the federal court house in Charlotte Amalie, Judge Fitzgerald will begin four days of hearings on various aspects of the Prosser case. First, on the 12-page agenda, is "Prosser Exemption Matters," a hearing on who owns the residential properties in question. If the court finishes this matter the next item, called the Turnover Adversary, deals with whether or not certain valuables, now in the possession of Prosser family members, should be turned over to the trustees for sale.
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