Trustee Seeks Records from Erika Girardi in Embezzlement, Chapter 7 Case

“It’s expensive to be me / Being so beautiful doesn’t come for free. “
—Erika Jayne, “XXpen $ ive”

Real Housewives of Beverly Hills actress Erika Girardi, better known as Erika Jayne, is the latest example of the power (and cost) of involuntary bankruptcy proceedings.

In December 2020, six claimant creditors initiated Chapter 7 involuntary proceedings under Section 303 of the Bankruptcy Code against Tom Girardi, the lawyer who had represented Erin Brockovich (yes, that Erin Brockovich) against Pacific Gas and Electric Company in the 90s, and its law firm, Girardi & Keese. These unintentional petitions came amid allegations that Mr. Girardi had embezzled millions of dollars from his customers and business partners.

Shortly after the involuntary petitions were filed, the United States Bankruptcy Court for the Central District of California issued reorganization orders and appointed Chapter 7 administrators in both cases. To date, neither Mr. Girardi nor his cabinet have appeared in the proceedings.

Although Ms Girardi filed for divorce just a month before the bankruptcies, that was not enough to distance herself from allegations of embezzlement or to shield her from the reach of the Chapter 7 trustee. In June, the trustee, by through special legal counsel, filed petitions under the 2004 Federal Bankruptcy Procedure Rule requesting production of documents and records from Ms. Girardi’s owner, family lawyers and accountant .

Recently, the trustee filed adversarial proceedings against Ms Girardi and her business entities to avoid and recover $ 25 million in transfers (including jewelry, luxury items and lottery payments). The trustee maintains that Ms Girardi conspired with her husband and his law firm to conceal assets intended for victims of Mr Girardi’s ongoing cases, concluding that “Erika used her glamor and notoriety to continue to help and to encourage fictitious transactions that have taken place. with regard to significant asset transfers ”from Girardi & Keese.

The adversarial proceedings were filed a week after the bankruptcy judge issued an order lifting the automatic stay of Article 362 (a) of the Bankruptcy Code, under certain conditions, to allow Mr. Girardi’s former client pursue collection efforts against Ms. Girardi in courts other than bankruptcy. Prior to the bankruptcies, one particular client obtained an $ 11 million judgment against Mr. Girardi for non-payment of the proceeds of the settlement. The bankruptcy judge’s order authorizes the client to sue Ms. Girardi to recover on the judgment.

As the trustee continues to dig into Ms Girardi’s assets, it is possible that more adversarial proceedings will be brought against her to avoid and recover other transfers which the trustee says are part of the estate of the bankruptcy of the company and are therefore subject to the cancellation powers of the trustee. Ms Girardi illustrates how powerful an involuntary bankruptcy proceeding can be, in particular as regards its scope with regard to natural and legal persons auxiliary to debtors.

(Although there are potential pitfalls in filing an involuntary complaint, a topic that will be covered in a future Nelson Mullins blog post).

Copyright © 2021 Nelson Mullins Riley & Scarborough LLPRevue nationale de droit, volume XI, number 201

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