Trustee's pursuit of Mastro assets has cost $3.6M so far

By Eric Pryne

Seattle Times business reporter

The team of lawyers, accountants and other professionals battling bankrupt Seattle real-estate magnate Michael R. Mastro in court has run up unpaid bills totaling more than $3.6 million so far, recently filed documents show.
That money will come out of Mastro's estate before his numerous unsecured creditors are reimbursed. But the team's leader, court-appointed trustee James Rigby, said Monday those creditors stand a better chance of recovering something eventually because of the team's efforts.
"There was zero money in the pot when this [bankruptcy case] got filed," he said.
James Frush, one of Mastro's lawyers, said the documents underscore an argument he's been making for months — that Rigby and his lawyers are pursuing a "scorched-earth" campaign against Mastro only to enrich themselves.
"Never has so much been spent to obtain so little," Frush said.
Rigby's job is to find Mastro's assets, liquidate them and distribute the proceeds to creditors. Under bankruptcy law, the trustee collects a percentage of whatever he recovers, and his legal and other administrative expenses are paid off the top.
Rigby's team, which includes lawyers from four Seattle firms, has not been paid anything yet, more than a year after most started working on the complex case.
They moved to rectify that last week, submitting their bills through Oct. 31 and asking U.S. Bankruptcy Judge Marc Barreca to compensate them in part by awarding them prorated shares of $930,000 Rigby has recovered so far.
A hearing on those requests is Dec. 10.
Mastro, a prolific real-estate developer and lender for 40 years, was pushed into what probably is Washington's largest bankruptcy in July 2009.
He has listed debts totaling more than $570 million, and Frush has said there's no money left to reimburse creditors whose debts weren't secured by real estate or other collateral.
But Rigby contends Mastro, anticipating bankruptcy, schemed to hide some assets and put others out of most creditors' reach. The trustee has filed several suits to undo those deals.
One lawsuit, to determine who's entitled to proceeds from the pending sale of Mastro's Medina mansion and sale of another house in Clyde Hill, is scheduled for trial in March.
Rigby said Monday his bills wouldn't be so high if Mastro hadn't fought him at every turn. Legal wrangling over the Medina house alone has cost more than $1 million, he said.
Rigby said he understands Mastro's creditors, including about 200 individual "Friends & Family" investors, might be upset if his team gets some money soon while they get nothing. But "if the creditors got paid first, no professionals would take on work like this," he said.
And if their lawsuits against Mastro fail, he added, he and the lawyers and accountants will get little or nothing for their work.
But Frush said Rigby should have worked with Mastro instead of taking such an adversarial stance from the start.
"It's a real tragedy for the unsecured creditors. If this had been handled right, there might have been something left for them."