Stokes fighting push for asset liquidation

KGEZ radio station owner John Stokes is contesting a federal attempt to force him to liquidate his assets to pay debts.

His attorney, Gregory Duncan of Helena, filed paperwork May 1 in U.S. Bankruptcy Court for Montana to argue that the Office of the U.S. Trustee should not be able to force Stokes to undergo Chapter 7 bankruptcy.

Stokes filed for Chapter 11 bankruptcy protection on March 4 after a Flathead County jury ordered him in late 2008 to pay $3.8 million to businessmen Davar and Todd Gardner for defaming them on his radio show.

If the federal motion is successful, Stokes would be required to liquidate his assets to pay creditors, instead of obtaining protection while reorganizing his finances.

U.S. Bankruptcy Court Judge Ralph Kirscher has scheduled a 9 a.m. hearing on July 16 in Missoula.

Stokes declined to comment. He said he has not seen any documents filed in the bankruptcy case other than the initial paperwork.

In his filing, Duncan argued that the U.S. Trustee's office knew prior to an April 10 trustee's hearing on the Chapter 11 request that Stokes' financial statements were incomplete and needed fixing - but the office went ahead with the hearing despite that.

Those incomplete records prompted the trustee's office to file an April 22 request to convert Stokes' Chapter 11 application to a Chapter 7 liquidation -calling Stokes' financial statements "atrocious' in leaving out numerous assets and debts.

Duncan argued that the U.S. Trustee's office doesn't have a good grasp of Stokes' estate, and he argued that Chapter 7 bankruptcy would hurt Stokes' creditors in that only a few would be paid under such an action.

In response, U.S. Trustee attorney Neal Jensen filed paperwork arguing that Stokes had more than a month to prepare his records for the April 10 hearing and that presenting substandard information with a "cavalier attitude" should not be an excuse to avoid a Chapter 7 ruling.

"If this works, then surely other debtors can be expected to rely on this defense in the future. Rather than see punishment for filing garbage, debtors will expect to be rewarded for their lack of diligence," Jensen wrote.

Two major creditors of Stokes filed court documents on May 4 and May 5 to support the federal government seeking a Chapter 7 liquidation. They were the Gardners, whom Stokes owes $3.8 million as a result of the court judgment, and another group whom Stokes owes $1.123 million as of April 29.

That group - which was not listed on his March 4 Chapter 11 application - consists of the Boone Karlberg Employees Profit Sharing Trust, the Quality Supply Profit Sharing Plan & Trust, the P.C. Employees Pension Plan and six individuals.

The group assumed control of an unpaid loan from Questa Resources Inc.

Stokes borrowed $665,000 from Questa Resources in 2000 to buy KGEZ a few years after he moved to the Flathead area from Washington state. He missed a mortgage payment in 2003, prompting Questa to file a lawsuit against Stokes. That litigation was settled in 2006 with Stokes agreeing to pay $825,583 through monthly payments to Questa by April 2009, court records said.

With interest and penalties, that unpaid loan's total apparently has grown to $1.123 million.

In their filings, attorneys for both creditors argued that the only way they expect to get some of their money is through a Chapter 7 liquidation -'since Stokes testified at the April 10 hearing that his station does not make money.

Since 2000, Stokes has owned the KGEZ radio station and has hosted a daily talk show. He has been involved in several lawsuits - mostly over property and financial issues - and usually has lost the lawsuits. He frequently represents himself in court and has accused his last two attorneys of misconduct.

The April 22 federal filing also alleged that Stokes:

n Did not list the $3.8 million legal judgment against him, even though that prompted the bankruptcy action.

n Did not list KGEZ's station and property at 2995 U.S. 93 South.

n Did not list the easement on which two broadcast towers sit.

n Has not filed Montana income tax returns for numerous years.

n Has not filed federal income tax returns since 1985.

n Owes $31,000 in real property taxes.

n Did not list numerous personal assets and undervalued much of what he did list.

Reporter John Stang may be reached at 758-4429 or by e-mail at jstang@dailyinterlake.com