Attorneys still on Blue Bear’s case

Even as Pelican Financial Services Inc. ends its attempts to land new factoring accounts, the company continues to be party to several legal actions under its former name Blue Bear Funding LLC.

Risa Wolf Smith, attorney for the unsecured creditors/shareholders, stressed that the legal team will continue to be aggressive about collecting outstanding accounts and pursuing litigation against people considered “culpable and liable” for Blue Bear’s failure.

In addition to the actual bankruptcy filing, there are currently two open cases in U.S. Bankruptcy Court related to Blue Bear, one an adversary proceeding over an asset, and the other an attempt to fix liability for the company’s failure.

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In the adversary proceeding, Wyoming-based Silver Mountain Financial claimed that Blue Bear was collecting on an account with oil well operator Star Ryder Energy LLC in which Silver Mountain held an interest. Star Ryder and Blue Bear are both named as defendants in the suit.

A document filed in relation to Blue Bear’s reorganization plan values Silver Mountain’s claim to the Star Ryder account at just over $600,000. Blue Bear’s filings indicate that the account was one of several Blue Bear assets stripped by company insiders.

In a recent status report on the case, Silver Mountain indicated that it is reviewing settlement alternatives with Star Ryder. Although “direct negotiations” with representatives of Blue Bear had not begun as of the filing last year, Silver Mountain’s counsel anticipated that they would commence after the start of the year.

Blue Bear is also the plaintiff in an ever-growing suit seeking to find the company’s founders and former owners liable for its demise.

Named as defendants are Blue Bear’s pre-bankruptcy owners: Donald and Kristine Donahoo and their companies D & K LLC and DKD Connections LLC; Gerald and Peggy Makey and their company Key Connections LLC; David Karst and his company DK Corp.; and Russell Disberger and Steven Short, owners of Blue Bear Financial Inc., which held an ownership interest in the company. The suit accuses all of the former owners of misrepresentation, breach of fiduciary duty, deepening insolvency and civil conspiracy.

The suit claims that, through either purposeful transfers, extraordinary payments or negligence, the former owners sunk Blue Bear into bankruptcy and misled investors.

Responses filed

The Donahoos and the Makeys filed a response to the Blue Bear suit describing in detail their account of the formation and operation of Blue Bear.

“There is a significant amount of inaccurate information in the complaint filed by (Blue Bear),” the filing stated. “The Donahoos and the Makeys strongly refute the allegations made against us in this complaint. We always acted in the best interest of the investors and never conspired to misrepresent any part of this investment to any potential or existing investor.”

Karst also filed a response to the case, denying Blue Bear’s claims against him. His filing claims that his responsibility to Blue Bear was as an expert in commercial factoring, “not an issuer, underwriter, salesman, broker or promoter,” thus limiting his legal liability.

Disberger, who has already returned about $250,000 to the company on behalf of Blue Bear Financial, and Short also responded to the suit, separately, both denying that they are liable for Blue Bear’s failure. Both have also filed a cross claim against Karst and his DK Corp. and KFG Corp.

The cross claims point to Karst, in his capacity as executive director, as fully responsible for the failure of Blue Bear.  The claims accuse Karst of intentionally and negligently misrepresenting Blue Bear’s operations, debts and revenues.

Legal fees mount

Along with ongoing litigation comes mounting legal fees.

“From what I’ve been told the continued burden of the copious legal fees plus the inability to get financing were the major reasons they decided to close,” Karst said of the pending Pelican Financial liquidation. (see related story, page 3)

Karst has been the focus of not only the suit including other Blue Bear founders, but was also included in the Star Ryder suit in a cross claim filed by the company.

“The legal fees and time spent on Blue Bear legal matters have been a huge burden on myself and the other parties to the litigation,” Karst said. “Numerous legal cases have been filed regardless of ability to substantiate fact, and the Blue Bear legal team has created a legal web that is complex, time-consuming and expensive for all parties involved.”

In fact, the U.S. Trustee who has been working on the Blue Bear bankruptcy has filed objections to the applications for payment by the law firms Jessop and Co., which has been responsible for Blue Bear’s bankruptcy proceedings, and Holland and Hart, which has represented the interests of the unsecured creditors.

Jessop and Co.’s final application seeks total compensation of just over $832,000 for services as Chapter 11 counsel from Aug. 22, 2005 through Aug. 4, 2006. To date, the firm has received about $339,000, leaving around $493,000 to be paid. Holland and Hart’s application requested $185,000 as of Sept. 19 for fees and services.

The court has set an evidentiary hearing for May 22 to review the fee applications of both firms.