Case 05-15409-JM7

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Name, Address, Telephone No. & I.D. No.

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Jeffry A. Davis (103299) Mintz Levin Cohn Ferris Glovsky and Popeo, P.C. 3580 Carmel Mountain Road, Suite 300 San Diego, CA 92130 858-314-1500 858-314-1501 UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF CALIFORNIA 325 West F Street, San Diego, California 92101-6991

In Re

UC LOFTS ON 4TH, LLC

CONSOLIDATED BANKRUPTCY NO. 05-15409-JM7

/S.S.#:XXX-XXDebtor.

Tax I.D.(EIN)#:

NOTICE OF HEARING AND MOTION TO THE HONORABLE JAMES W. MEYERS, THE OFFICE OF THE UNITED STATES TRUSTEE, ALL CREDITORS AND OTHER PARTIES IN INTEREST: YOU ARE HEREBY NOTIFIED that on August 19, 2011 , at 10:00 a .m., in Department 5, Room 318, of the Jacob Weinberger United States Courthouse, located at 325 West F Street, San Diego, California 92101-6991, there will be a hearing regarding the Motion of Leslie T. Gladstone, Chapter 7 Trustee for [check the appropriate box]: [ [ [ ] ] ] Dismissal of a chapter 7, 11 or 12 case; Conversion of a chapter 7, 11 or 12 case by a party other than the debtor; Allowance of [interim] [final] compensation or reimbursement of expenses of professionals as provided in Exhibit A [information required by Federal Rule of Bankruptcy Procedure 2002(c)(2)]; Appointment of a trustee in a chapter 11 case; or Other [specify the nature of the matter]:

[X]

The Trustee seeks authority to enter into a compromise of her claims against Charles McHaffie, a defendant in Gladstone v. McHaffie, et al., adversary proceeding no. 07-90139-JM. The Trustee asserts claims against McHaffie for avoidance and recovery of fraudulent transfers, breach of fiduciary duty, alter ego and conversion . The proposed compromise requires McHaffie to agree to entry of a judgment in favor of the Trustee in the amount of $375,000 and to assign certain assets to the Trustee and assist her efforts to obtain value for these assets. McHaffie and the Trustee will enter into mutual releases.
If not required to be attached, a set of the moving papers will be provided, upon request, by the undersigned or may be inspected at the office of the Clerk. Any opposition or other response to the motion must be served upon the undersigned and the original and one copy of such papers with proof of service must be filed with the Clerk of the U.S. Bankruptcy Court at 325 West F St., 1 San Diego, California 92101-6991, NOT LATER THAN FOURTEEN (14) DAYS FROM THE DATE OF SERVICE. DATED: July 15, 2011 /s/ Jeffry A. Davis [Attorney for] Moving Party Leslie T. Gladstone, chapter 7 trustee
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If you were served electronically or by mail, you have three (3) additional days to take the above-stated actions.
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CERTIFICATE OF SERVICE I, the undersigned whose address appears below, certify: That I am, and at all times hereinafter mentioned was, more than 18 years of age; That on 15th day of July, 2011 , I served a true copy of the within NOTICE OF HEARING AND MOTION and MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION by [describe here mode of service] FIRST-CLASS MAIL

on the following persons [set forth name and address of each person served] and/or as checked below: [ ] Attorney for Debtor (if required): SEE ATTACHED SERVICE LIST

[X ]

For Chpt. 7, 11, & 12 cases: UNITED STATES TRUSTEE Department of Justice 402 West Broadway, Suite 600 San Diego, CA 92101

For ODD numbered Chapter 13 cases: THOMAS H. BILLINGSLEA, JR., TRUSTEE 530 B Street, Suite. 1500 San Diego, CA 92101

For EVEN numbered Chapter 13 cases: DAVID L. SKELTON, TRUSTEE 525 B Street, Suite 1430 San Diego, CA 92101 - 4507

I certify under penalty of perjury that the foregoing is true and correct. Executed on July 15, 2011 (Date) /s/ Diane Johnson (Typed Name and Signature) Mintz Levin Cohn Ferris Glovsky and Popeo, P.C. 3580 Carmel Mountain Road, Suite 300 (Address) San Diego, CA 92130 (City, State, ZIP Code)
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SERVICE LIST UC Lofts on 4th, LLC, and UC Lofts on 5th, LLC

Case No. 0515409JM7

Attorney for UC Lofts Don E. Bokovoy PO Box 2099 El Cajon, CA 92021 Office of the U.S. Trustee David A. Ortiz, Esq. 402 W. Broadway, Suite 600 San Diego, CA 92101 Chapter 7 Trustee Leslie T. Gladstone 5580 La Jolla Boulevard, Suite 613 La Jolla, CA 92037-7651 Attorneys for Halifax Investment; John Scafani Robert D. Rowlett, Esq. Rowlett Law Group 26933 Camino De Estrella, 2nd Floor Dana Point, CA 92624 Frank Schaefer Construction Co.; Frank Schaefer Construction Inc. Pension Plan; Frank Schaefer 1028 Bewicks Court Carlsbad, CA 92011

Attorneys for Frank Schaefer Construction James Jay Stoffel, Esq. Beberman, Stoffel & Beberman 7676 Hazard Center Drive, Suite 500 San Diego, CA 92108

Attorneys for James Warner Charles R. Grebing, Esq. Wingert Grebing Brubaker & Goodwin LLP 600 W. Broadway, 7th Floor San Diego, CA 92101-3370

Attorneys for Nicole Glass Max Craig Cassing, Esq. 468 N. Camden Drive, Suite 200 Beverly Hills, CA 90210

Attorneys for First National Bank Everett G. Barry, Esq. Mulvaney, Kahan &Barry 401 West A Street, 17th Floor San Diego, CA 92101-7994 Attorneys for Ron Bedell Katherine M. Windler, Esq. Bryan Cave 120 Broadway, Suite 300 Santa Monica, CA 90401-2386 Special Notice Attorneys for Broadsmore Capital, LLC; Centaur Construction; Matthew Gordon; Peter Kostopoulos Michael Y. MacKinnon, Esq. Pyle Sims Duncan & Stevenson 401 B Street, Suite 1500 San Diego, CA 92101 Special Notice Attorneys for Mark Whillock Fred C. James, Esq. Guevara, Phippard & James 1420 Kettner Boulevard, Suite 600 San Diego, CA 92101-2433 Christian Wheeler Engineering 4925 Mercury Street San Diego, CA 92111-1703 Attorney for Sheila Lamire Daniel I. Singer, Esq. 3694 Midway Drive, Suite B San Diego, CA 92110

Special Notice Attorneys for Leighton & Associates, Inc. Martin B. Greenbaum, Esq. Greenbaum and Katz 840 Newport Center Drive, Suite 720 Newport Beach, CA 92660

Special Notice Attorneys for Western Foundations & Shoring Teresa L. Polk, Esq. Miltner Law Group APC 402 W. Broadway, Suite 810 San Diego, CA 92101 Hawkins & Hawkins Architects, Inc. c/o Frederick C. Phillips 701 B Street, Suite 1190 San Diego, CA 92101
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CSD 1181 (Page 2) [10/17/05] Sheila Lemire 1820 Avenida Del Mundo, Unit 128 Coronado, CA 92118

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S.D. Land Surveying & Engineering 9619 Chesapeake Drive, Suite 204 San Diego, CA 92123

Sharnee Family Trust c/o James Warner, Trustee 3233 South Third San Diego, CA 92103 Goold Patterson Ales & Day 4496 S. Pecos Rd. Los Vegas, NV 89121

Coastline Enterprises P.O. Box 1647 La Jolla, CA 92038-1647

Arise Waco 676 Moss Street Chula Vista, CA 91911

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Jeffry A. Davis (SBN 103299) MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO, P.C. 3580 Carmel Mountain Road, Suite 300 San Diego, CA 92130 Tel: 858-314-1500 Fax: 858-314-1501 Attorneys for Leslie T. Gladstone, Chapter 7 Trustee

UNITED STATES BANKRUPTCY COURT Southern District of California

In re UC LOFTS ON 4TH, LLC and UC LOFTS ON 5TH, LLC, Debtors.

Consolidated Case No. 0515409JM7 Chapter 7 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR ORDER APPROVING SETTLEMENT WITH CHARLES MCHAFFIE PURSUANT TO FEDERAL RULE OF BANKRUPTCY PROCEDURE 9019 Date: Time: Dept: Judge: August 19, 2011 10:00 a.m. 5 James W. Meyers

Leslie T. Gladstone, the chapter 7 trustee (the Trustee) of UC Lofts on 4th, LLC and UC Lofts on 5th, LLC (the Debtors or UC Lofts), files this Memorandum of Points and Authorities in Support of her Motion for Order Approving Settlement with Charles McHaffie Pursuant to Federal Rule of Bankruptcy Procedure 9019 (the Motion). In support of the Motion, the Trustee states as follows:

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I. 1 BACKGROUND 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 On February 12, 2004, defendant Charles McHaffie acquired Urban Coast, LLC (Urban Coast), the sole owner and managing member of the Debtors. UC Lofts owned contiguous real property between 4th and 5th Avenues in San Diego, California, where UC Lofts intended to develop a mixed-use facility known as Atmosphere. In order to pay for the membership interests in Urban Coast, McHaffie caused UC Lofts to borrow $5,750,000. The loan was secured by a deed of trust on the UC Lofts property. After McHaffie used a portion of the proceeds of the loan to pay for the membership interests in Urban Coast, he placed the remainder of the proceeds from the loan in a fund control maintained by defendants Frank Schaefer Construction, Inc., Frank Schaefer Construction Pension Plan and Frank Schaefer (collective, Schaefer). UC Lofts, under the direction of McHaffie and with the consent and support of Schaefer, used funds from the fund control to pay for matters wholly unrelated to UC Lofts and without any attendant benefit to UC Lofts. Subsequently, UC Lofts borrowed $500,000 from the Frank Schaefer Construction Pension Plan. Like the proceeds from the previous loan, these funds were deposited in a fund control with Schaefer. McHaffie caused UC Lofts to use the loan proceeds to make payments to entities affiliated with McHaffie for purposes wholly unrelated and without benefit to UC Lofts. On or about October 25, 2005, involuntary petitions under chapter 11 of title 11 of the United States Code were filed against the Debtors. The Court entered orders for relief in both cases on January 11, 2006. On or about April 17, 2006, Leslie T. Gladstone was appointed as chapter 11 trustee of the Debtors bankruptcy cases. The cases were subsequently converted to chapter 7 cases on or about October 30, 2006 and Leslie T. Gladstone was appointed as the chapter 7 trustee of both cases. On August 2, 2007, the Trustee commenced adversary proceeding number 07-90139 (the Adversary Proceeding) against a number of defendants, including McHaffie, concerning the Atmosphere project. In the Adversary Proceeding, the Trustee asserts claims against McHaffie for avoidance and recovery of fraudulent transfers, breach of fiduciary duty, alter ego and conversion 2
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(the Claims). The Trustee seeks to recover $3,237,997 on account of the fraudulent transfer claims, $5,000,000 plus punitive damages on account of the breach of fiduciary duty claims, a determination that McHaffie was an alter ego of UC Lofts and is responsible for all of the Debtors obligations, and a judgment in an amount equal to the value of the property converted. II. THE PROPOSED SETTLEMENT McHaffie and the Trustee have agreed to settle the Claims asserted against McHaffie in the Adversary Proceeding. Pursuant to the terms of the settlement agreement, McHaffie will agree to entry of a consent judgment in favor of the Trustee in the amount of $375,000, and will assign certain assets (including his interests in CEC Industries, Inc. and Temecula India, LLC, and any amounts due from Carrizo Gorge Railway, Inc.) to the Trustee. In addition, McHaffie will assist the Trustee in her efforts to obtain value for these assets. McHaffie and the Trustee will execute mutual releases. III. ARGUMENT A. Legal Standard Bankruptcy Rule 9019(a) provides that [o]n motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement. Fed. R. Bankr. P. 9019(a). Before approving a settlement, the court must determine that it is fair, reasonable and adequate. In re A & C Props., 784 F.2d 1377, 1381 (9th Cir. 1986). To make this determination, the court must generally consider: (a) the probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the expense, inconvenience and delay necessarily attending to it; and (d) the paramount interest of creditors and a proper deference to their reasonable views. Id. B. The Settlement Is in the Best Interest of the Estate Although the Trustee has reached a settlement with McHaffie, she continues to litigate against other defendants.1 Due to this ongoing litigation, the Trustee cannot fully divulge the
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The Trustee has also entered into settlements with James Warner and the Law Offices of James Warner (collectively, Warner), Broadsmore Capital, LLC, Centaur Construction, Matthew Gordon and Peter Kostopoulos (collectively, Broadsmore). The Court approved the settlement with Warner on March 23, 2011 (docket no. 286). The Trustee has

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rationale for the compromise because full disclosure would require her to reveal confidential strategy and assessments of the facts and merits of the case. However, even without discussing these confidential considerations, the settlement clearly satisfies the A&C Properties factors. Although the Trustee remains confident that she would succeed in her claims against McHaffie in the Adversary Proceeding, witnesses have given differing accounts of the facts related to the Claims. These conflicting statements make the outcome of the Adversary Proceeding less certain. In addition, it is unclear whether McHaffie has sufficient assets to satisfy a larger judgment against him. As a result, it is likely that the estate will incur significant costs in litigating to judgment without any possibility of additional recovery from McHaffie. The settlement resolves these uncertainties by requiring McHaffie to consent to a judgment in the amount of $375,000 and to assign assets to the Trustee and assist her efforts to obtain value from them. As a result, the Trustee believes that the settlement with McHaffie is in the best interest of the Debtors estates and should be approved. IV. CONCLUSION WHEREFORE, the Debtor respectfully requests that the Court enter an order approving the settlement with McHaffie, which settlement will be binding on the estate and all parties in interest, and finding that the settlement is fair, reasonable and adequate, and therefore is in the best interest of the estates. Dated: July 15, 2011 /s/ Jeffry A. Davis Jeffry A. Davis MINTZ LEVIN COHN FERRIS GLOVSKY AND POPEO P.C. Attorneys for Leslie T. Gladstone, Chapter 7 Trustee

filed a notice of intended action concerning the settlement with Broadsmore (docket no. 289). Objections to this notice of intended action must be filed on or before July 15, 2011.

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