In an ex-parte motion requesting instruction from the court, the Redwood Receiver has accused Jason Cardiff of inappropriate conduct.

The inappropriate conduct pertains to the Receiver believing that Cardiff and VPL Medical are ‘seeking to use their fee application positions to incentivize the Receiver to act improperly for their benefit.’

“Fee application positions” pertains to Cardiff and VPL objecting to Receivership fee payments, based on a yet to be decided Supreme Court case.

A day and a half later that opposition was filed, Cardiff approached the Receiver about transferring out $1800 in COVID-19 relief funds.

According to the Receiver, the Cardiffs’ fee objection

rehash(es) their arguments previously made for their failed attempts to date to shut down the receivership, and to “end run” the multiple rulings by this Court and the Ninth Circuit Court of Appeals rejecting their prior attempts to do so.

At the heart of these objections is the Receivership’s continued operation of VPL Medical.

The Receiver still believes that VPL operations may be conducted profitably and legally, but such is slow going based on a variety of VPL management, facilities, and equipment continuing issues and VPL’s continuing difficulties in keeping the equipment running, all as more particularly stated in the concurrently filed Receiver’s report as to VPL operations.

But, legal and profitable operations require an intent to pay for the expenses of such operations, and not the ambiguous restrictions sought by Cardiff and VPL and not-so-veiled threats of not doing so.

Legal and profitable operations also require a dedication from those involved not to seek financially improper and under-the-table advantages in the operation of the receivership estate, or to seek to have the Receiver breach fiduciary duties of disclosure to the Court.

That leads to the second key event of the last week.

On January 17th Jason Cardiff

asked the Receiver to turn over to Cardiff the $1,800 in Covid-19 relief funds electronically deposited by the IRS to one of his receivership blocked accounts.

More concerning, Cardiff specifically asked at first that the Receiver not to tell anyone else about his request or the turnover of the $1,800, and not to involve any of the lawyers in this case.

The Receiver of course declined to turn over those funds. Only then did Cardiff admit notice was needed.

The Receiver alleges the timing of Cardiff’s “inappropriate request”

may be viewed as attempting to have the Receiver …  wrongfully bend the Receiver’s decisions to favor Cardiff, and to cover that up.

Coordinated messaging? Mere coincidence? The Receiver does not know, but also in general does not believe in coincidences.

The instructions the Receiver is requesting pertains to continued operation of VPL Medical.

The concurrently filed next Receiver report on VPL operations shows a company that still cannot operate, but which is making progress in that direction, albeit very slowly.

Seven months after VPL was put into receivership, and five months or so after the Court approved the VPL operating plans, VPL’s hired executives Jason Cardiff and Bobby Bedi still have not been able to make the manufacturing machines consistently function, and have not generated any sales or orders.

Apparently what few masks VPL has been able to produce “have now been certified by a testing service as compliant”.

The Receiver is neutral on the question of continued VPL operations.

The Receiver remains cautiously optimistic that profitable and legal operations can result in cash flows for the estate. But, significant funds have been expended to date on such operations without a return to the estate so far.

Personally I think VPL has been a lark since Cardiff lost control of it to the Receiver. It certainly doesn’t sound like a business being run seriously at this point.

What should not occur, however, is continued VPL operations without a concomitant express commitment to pay for the same, in the Receiver’s view, or VPL operations without receivership oversight, with Cardiff and Bedi controlling the assets including bank accounts.

Those assets would likely be dissipated. That would not be in the best interests of creditors.

What also should not occur, and cannot be allowed, in the Receiver’s view, is for Cardiff to feel emboldened by litigation positions to try to gain improper advantages from the Receiver.

The two options presented by the Receiver are either continuing to run VPL or shutting it down.

In his response to the Receiver’s ex-parte motion, Cardiff frames the filing as

an extortionate threat by the Receiver and his lawyer designed to force VPL’s owners to drop their objections to the Receiver’s Fifth Fee Request.

“Pay me or shut the business down.” This is a false choice.

As a counter-proposal, Cardiff puts forth the Receiver’s fees be deferred. Presumably pending the outcome of the AGM Supreme Court case.

Deferring a ruling for three or four months is prudent and reasonable under all the circumstances.

With respect to his alleged “inappropriate conduct”, Cardiff states the Receiver’s claims are

not supported by the actual email correspondence but is the product of either exaggeration or embellishment.

The parties have been communicating with each other informally for some time.

The Receiver is also Jason’s employer as well as receiver and communications between the two must be viewed in that light.

Until the Receiver felt threatened by VPL’s opposition to his fees, he has never questioned the integrity of how Jason has handled VPL’s business activities.

From his request for living expenses, there is no question that Jason is way behind on paying debts.

Jason wanted to conserve legal resources because he knows his lawyers are not getting paid, that making requests through lawyers would be expensive so he decided to directly ask the Receiver for guidance as to how his request should be handled.

There is nothing in this email asking the email be kept “secret” or which states Mr. Cardiff asked the Receiver “not to tell anyone.”

The question “Can you release the hold” and stating “there should be a way to not make a big deal and simply release those funds with ease[.]” is a legitimate question by a non-lawyer asking a Receiver for guidance.

The Receiver’s attempt to cast this as a sinister plot by Jason Cardiff is a misguided effort.

A hearing on the Receiver’s ex-parte motion has been scheduled for February 5th. Stay tuned…

 

Update 6th February 2021 – On February 3rd the Receiver filed a statement, informing the court that discussions between the parties had failed to resolve “outstanding disputes”.

As per the case docket the hearing on the 5th took place. There hasn’t however been any updates to the docket to reflect the outcome of the hearing.

I’ll check back for an update mid next week.