Plant cleanup part of Pustilnikov-AES dispute
by Garth Meyer
AES site majority owner Leo Pustilnikov’s bankruptcy filing is partially tied to a question about who will pay for an environmental clean-up of the 69-year-old power plant.
In court records filed since the Feb. 21 bankruptcy – the day before a scheduled public auction of
the site – representatives for each side argue the other is responsible.
“AES is obligated to fund these costs as the Third Amendment to the purchase and sale agreement makes clear,” wrote Pustilnikov attorney Victor Sahn, to Ernest M. Robles, United States Bankruptcy judge. “It is surprising to have its Chief Executive Officer say otherwise.”
On March 6, Judge Robles granted an extension until March 21 for 9300 Wilshire, the name of Pustilnikov’s investment corporation, to submit financial and ownership documents to the court.
In doing so, Robles overruled an AES motion objecting to the added time. The Virginia-based company’s attorney, Craig Wolf, of Costa Mesa, filed an 11-page objection supported by a 14-page declaration from AES President and CEO Mark Miller.
“The Objection raises many arguments not relevant to the (9300 Wilshire extension request),” Judge Robles ruled. “Such as the allegation that the Debtor’s proposal to redevelop its most valuable asset ‘is speculative at best’ and ‘must overcome multiple compound hurdles.’”
The judge continued: “The (AES) objection appears to be an attempt to cast the Debtor in a negative light before substantive litigation in this case has even begun,” he wrote. “Further, the Court finds AES’ accusation that the… application is ‘a continuation of longstanding delay tactics employed by the Debtor,’ to be entirely without merit.”
“… It is eminently appropriate to provide counsel a brief extension of time to file case commencement documents in this complex case,” concluded the judge.
Partners
Of the 12 partners who own the AES site, Pustilnikov’s 9300 Wilshire holds 21.4 percent, 19.85 percent is owned by Ed Flores, and 18.45 percent by 1112 Investment Co., LLC (Ely Dromy).
AES attorney Wolf suggests that Pustilnikov’s bankruptcy filing aids the other owners, too, because it relates to the group’s plans to redevelop the site into 2,700 residential units and adjoining commercial space.
“The Debtor owns only a fractional minority interest in the AES Property (and) presumably the efforts to seek the redevelopment approval (from the City of Redondo Beach, Coastal Commission) are being made not only by the Debtor, but by the other Purchasers as well,” wrote Wolf. “This proposal is speculative at best. The success of the proposal hinges on the highly contested rezoning of the AES Property and various governmental approvals… apart from (the owners environmental) remediation obligations…”
AES CEO Miller stated that $28 million was owed in deferred payments at the time of the sale’s closing in March 2020.
AES has not received “a single dollar” of it, he wrote to the judge. The balance, due to interest and fees, is now $38 million.
9300 Wilshire attorney Sahn was undeterred.
“In what might charitably be called a massive overplaying of their hand or an egregious overreach,” Sahn wrote in a court filing. “AES has filed the Objection (to the time extension), which is devoid of facts supporting any assertion of bad faith by the Debtor or prejudice to AES, and, in fact, says little to nothing about the Application itself. Instead, AES’s Objection to the routinely-requested and granted Application is transparently nothing more than a pretext to castigate the Debtor and attempt to ‘poison the well.’”
Sahn asserts Pustilknikov had worked to resolve the disputes with AES well before it filed its foreclosure notice last October.
“(Pustilnikov) has been stunned to see AES not negotiate in good faith, and never believed that (9300 Wilshire) would have to take this step,” wrote Sahn, referring to filing for bankruptcy.
Court filings also disclose more information about the original sale.
Sahn stated the land’s “carrying value” was $24 million, leading to a pre-tax gain on the sale of $41 million – reported in Other Income on the Consolidated Statement of Operations for the declaration of bankruptcy.
Miller stated that Pustilnikov and partners bought the AES site for $41 million, plus an additional $9 million for adjacent properties and $15 million subject to contingencies.
Once the 51-acre site was sold, AES would lease it back from the new owners for the remainder of time that the State of California kept the plant in use.
Finances
The 9300 Wilshire bankruptcy filing also required financing disclosures about the limited liability corporation, for which Pustilnikov reported $190,762,000 in real property, and $47,041 in total personal property.
Liabilities; creditors with claims secured by property totaled $48,600,000.
Debtor’s Own Estimate of the AES site is stated as $120 million (potential value).
9300 Wilshire’s gross revenue for 2022 was $216,895.
The AES creditor claim is listed at $28 million.
Pending
The bankruptcy filing establishes that it was done “on an emergency basis” to “stop the… foreclosure sale” of the AES land and to preserve “the significant equity in the AES property.”
Wolf, also in his request to deny the extra time, wrote that Pustilnikov “has unfairly stayed the entire foreclosure proceeding without any explanation.
“Even worse,” Wolf continued. “The filing of a bankruptcy petition for only one of the overall 12 jointly… on the deed of trust has effectively allowed the other purchasers to improperly receive the benefit of the automatic stay without similarly filing for bankruptcy relief…”
Sahn maintains that Pustilnikov has consistently submitted proposals to resolve the differences with AES.
“AES never responded to them and has still not responded to them,” wrote Sahn.
The U.S. Bankruptcy Court confirmed Tuesday that Pustilnikov filed the required documents in time to meet the March 21 deadline.ER
City “intervenes” in Pustilnikov bankruptcy
Redondo Beach City Manager Mike Witzansky announced March 14, following a closed city council session, that the council “unanimously authorized the city attorney to intervene in the bankruptcy matter.”
The case involves a Chapter 11 bankruptcy filing by Leo Pustilnikov’s investment operation, 9300 Wilshire, which owns 21 percent of the AES property.
The land was set to go up for Public Auction Feb. 22 because of $38 million in unpaid payments (interest included).
The auction was granted a “stay” due to 9300 Wilshire’s bankruptcy filing the day before the scheduled auction. Pustilnikov and 11 other entities partnered to buy the power plant site in 2020.
The city and the Coastal Commission were named as interested parties in the bankruptcy filings, because of Pustilnikov’s proposed One Redondo project – a plan to redevelop the AES site into 2,700 residential units, commercial space and open space – and the city’s stake in having the industrial property first cleaned up.
“9300 Wilshire has recognized that the city is an interested party and will participate in the bankruptcy proceedings as such,” Redondo City Attorney Mike Webb said.
AES has acknowledged the significance of the city in the matter as well.
“Given the location of the AES Property – adjacent to the marina waterfront in this popular coastal residential, and tourist area with a high population density, replete with restaurants and hotels nearby,” wrote Craig Wolf, AES attorney, in court papers in March. “And the operation of the power plant for over 115 years to date, the safe and appropriate remediation of the AES Property is of concern and focus to the entire community.” ER