MEMORANDUM OF DECISION FINDING THAT PLAINTIFF IS ENTITLED TO JUDGMENT AGAINST DEFENDANTS IN THE AMOUNT OF $74,140,695.29

ERNEST M. ROBLES, Bankruptcy Judge.

I. Introduction

The Plaintiff in this matter is the Official Committee of Unsecured Creditors for Chapter 11 Debtor Liberty Asset Management Corporation.1 On August 10, 2016, the Court approved a stipulation between Liberty Asset Management Corporation ("Liberty") and Plaintiff which granted Plaintiff derivative standing to pursue this action on behalf of Liberty's estate. Bankr. Doc. No. 177.2 Based on an assertion that Lucy Gao and Benjamin Kirk (collectively, the "Defendants") breached their fiduciary duties to Liberty by failing to account for the assets of Liberty that were under their control, Plaintiff seeks a judgment against Ms. Gao and Mr. Kirk, jointly and severally, in the amount of $74.3 million. For the reasons set forth below, the Court finds that Defendants breached their fiduciary duties to Liberty and have failed to account for Liberty's assets. In connection with these breaches and this failure to account, Liberty has been damaged in the amount of $74,140,695.29. The Court will enter judgment against the Defendants, jointly and severally, in the amount of $74,140,695.29.

II. Procedural History

On January 25, 2017, the Court entered "Findings of Fact and Conclusions of Law Regarding Motion by the Official Committee of Unsecured Creditors for Summary Adjudication of Defendants' Liability for Breach of Fiduciary Duties and Accounting" (the "Jan. 25 Findings"). Adv. Doc. No. 57. As set forth in greater detail below, the Court found that Defendants breached their fiduciary duties to Liberty by failing to account for Liberty's assets; that Defendants lacked the ability to account for Liberty's assets; and that Liberty's available books and records were insufficient to permit a proper accounting.

On August 2, 2017, the Court conducted a trial to determine the amount of damages suffered by Liberty as a result of Defendants' failure to account. Plaintiff filed a Motion In Limine seeking to preclude Ms. Gao from introducing any exhibits into evidence or offering any testimony with respect to the proposed exhibits. Adv. Doc. No. 113. Prior to the trial, the Court made available to the parties its tentative ruling, which was to grant Plaintiff's Motion In Limine. At the beginning of the trial, the Court gave Ms. Gao's counsel an opportunity to present any arguments in opposition to the Court's tentative ruling. Ms. Gao's counsel rested on the papers filed in opposition to the Motion in Limine and made no oral presentation in opposition to the Court's tentative ruling. The Court adopted the tentative ruling as its final ruling and found that Ms. Gao was precluded from offering any evidence or testimony at trial. The Court's ruling is attached hereto as Exhibit A and is incorporated herein by reference.

The Court ordered the parties to file closing briefs by no later than October 31, 2017. Plaintiff and Ms. Gao submitted closing briefs by the October 31 deadline, Adv. Doc. Nos. 138-39; Mr. Kirk filed an untimely closing brief on November 15, 2017, Adv. Doc. No. 140. Although Mr. Kirk's closing brief was not filed timely, the Court will still consider the arguments presented therein.

Subsequent to the August 2 trial on damages, Plaintiff advised the Court that it did not intend to pursue any of the claims that were not adjudicated in connection with the Jan. 25 Findings or the August 2 trial (such claims, the "Remaining Claims"). On August 16, 2017, the Court entered an order advising Defendants that it intended to dismiss the Remaining Claims without prejudice unless Defendants objected. Adv. Doc. No. 131. On September 14, 2017, having received no objection from Defendants, the Court entered an order dismissing the Remaining Claims without prejudice. Adv. Doc. No. 136.

III. Findings of Fact and Conclusions of Law Previously Entered by the Court3

The following findings of fact and conclusions of law have been previously entered by the Court by way of the Jan. 25 Findings and the "Order on Joint Pretrial Stipulation" [Adv. Doc. No. 107]:

Liberty was a real estate investment company that bought and sold real property using a combination of its own cash, cash from investors, and bank loans. Joint Pretrial Stipulation (the "Pretrial Stip.") [Adv. Doc. No. 104] at ¶A.5. Real property acquired by Liberty was not titled in the name of Liberty or its investors, but instead was purchased in the name of various limited liability companies. Id. At all times since its formation, Benjamin Kirk was Liberty's President, CEO, CFO, and sole shareholder. Id. at ¶A.6. Mr. Kirk's primary role was soliciting investors for Liberty and identifying real properties for purchase and sale. Id. at ¶A.7.

Lucy Gao has held an equitable interest in Liberty since its inception. Jan. 25 Findings at ¶II.2. Ms. Gao's equitable interest is based upon Mr. Kirk's oral promises that Ms. Gao would receive a 20-50% profit share from Liberty's investments. Id. at ¶II.3. Ms. Gao met Mr. Kirk in 2000 and they share a child, Joyce Kirk, who was born on April 22, 2004. Pretrial Stip. at ¶A.4. Ms. Gao and Mr. Kirk terminated their personal relationship by at least May 2014. Id. Ms. Gao was in charge of overseeing Liberty's accounting functions; ensuring that timely tax returns were prepared; maintaining records pertaining to the purchase, sale, and financing of assets; maintaining records pertaining to the flow of funds from investors; and maintaining Quickbooks records. Jan. 25 Findings at ¶II.7.

In connection with contemplated real estate transactions, Liberty typically entered into a contract with an investor (each, an "Investment Contract") to purchase a specific parcel of real estate. Pretrial Stip. at ¶A.8. The investor would then wire money to a designated escrow account. Id. Pursuant to the Investment Contract, the investor was obligated to wire a sum of money and Liberty was obligated to purchase the designated real property. Id. If Liberty could not complete the purchase of the designated real property, Liberty and the investor would cancel the Investment Contract by way of a Cancellation Agreement, and Liberty would agree to either (1) refund the investor's deposit or (2) maintain the investor's funds on deposit as a credit for future investments by the investor. Id. at ¶A.10.

In the course of its business, Liberty formed limited liability companies (the "Investment Entities") to acquire and hold assets, including real properties, for the benefit of Liberty and/or its investors. Id. at ¶A.15. The membership interests in certain of the Investment Entities were vested in Ms. Gao's name, purportedly so that Ms. Gao could qualify for loans sought in connection with contemplated investments based upon her "good credit." Id. at ¶A.16. Ms. Gao was the sole and/or managing member of the following Investment Entities at various times prior to Liberty's bankruptcy:

Id. at ¶A.17.

With the exception of property held by Bridgestream Management LLC ("Bridgestream") and East Heights LLC ("East Heights"), all of the property held by each of the Investment Entities is actually owned by Liberty. Jan. 25 Findings at ¶II.16. Ms. Gao was a signatory on the Investment Entities' accounts, typically without Mr. Kirk. Id. at ¶II.19. Both Ms. Gao and Mr. Kirk had signing authority on Liberty's accounts. Id. at ¶II.13.

Ms. Gao knew that the funds provided by Mr. Kirk for the purchase of real estate belonged to Liberty, because she handled the transfer of those funds. Id. at ¶II.18. Ms. Gao executed certain personal financial statements, under penalty of perjury, in which she represented that certain of the assets of the Investment Entities belonged to her. Pretrial Stip. at ¶A.18.

In the course of its business, Liberty formed certain escrow companies so that Liberty could handle the closing of certain transactions. Liberty's internal escrow companies include the following:

Id. at ¶A.20. Liberty also used the services of a single outside escrow company, Sincere Escrow. Id. at ¶A.21. Sincere Escrow is owned by Margaret Chiu. Id.

A. Liberty's Investment Losses

1. Forfeited Deposits

In an attempt to acquire real properties, Liberty made nonrefundable deposits to escrow accounts, typically in consideration for an extension of time to close the real estate transaction. Id. at ¶¶A.23-27. At the end of 2011, Liberty forfeited approximately $7 million that it had deposited in an attempt to purchase property located at 10 United Nations Plaza, San Francisco, CA (the "U.N. Plaza Property"). Liberty did not succeed in purchasing the U.N. Plaza Property. Id. at ¶A.26.

In 2013, Liberty forfeited $2 million that it had deposited in an attempt to purchase an office building located at 540-550 Montgomery Street, San Francisco, CA (the "Montgomery Street Property"). Id. at ¶A.27. Liberty did not succeed in purchasing the Montgomery Street Property. Id.

2. Hedge Fund Investment

On June 21, 2013, Liberty invested $5 million to purchase an 11% interest in the hedge fund Foundation Managing Member LLC ("Foundation"). Id. at ¶A.28. Liberty made the investment through Strong Water. Id. The $5 million that Liberty invested in Foundation was wired from an escrow account maintained at Sincere Escrow (Account No. 013778-MC) at the direction of Ms. Gao. Id. at ¶A.30. The funds on deposit in Escrow No. 013778-MC came from Anson Well International Ltd. ("Anson Well"), an investor, and had been earmarked for the purchase of the Montgomery Street Property. Id. at ¶A.32. Foundation subsequently failed and Liberty lost its entire investment. Id. at ¶A.34.

3. Payments to Ms. Gao from the Sale of 166 Geary

HK Grace held title to real property located at 166 Geary Street, San Francisco, CA (the "Geary Property"). Id. at ¶A.41. Under the terms of an Operating Agreement dated November 2011, Ms. Gao was the sole manager and member of HK Grace. Id. On November 17, 2014, HK Grace sold the Geary Property for $60 million. Id. at ¶A.43. Net proceeds of approximately $26 million from the sale were deposited in an account in HK Grace's name (the "HK Grace Account"). Id. On November 17, 2014, Ms. Gao caused Huntington Giant Capital Corporation ("Huntington Capital") to submit an invoice for payment of $1.8 million to HK Grace, which was paid from the sale proceeds of the Geary Property to an account in Huntington Capital's name. Id. at ¶A.44. On November 18, 2014, one day after the sale of the Geary Property, Ms. Gao paid a check to herself in the amount of $8.5 million from the HK Grace Account. Id. at ¶A.45.

B. Mr. Kirk and Ms. Gao Breached Their Fiduciary Duties to Liberty

As the sole officer and director of Liberty, at all relevant times Mr. Kirk owed a fiduciary duty of care, loyalty, and good faith to Liberty. Jan. 25 Findings at ¶III.2. As a fiduciary of Liberty, Mr. Kirk bears the burden of accounting for funds entrusted to Liberty. Id. at ¶III.3.

While she may not have been formally designated as an officer of Liberty, by, among other things, exercising dominion and control over Liberty's assets as both an agent of Liberty and trustee of its assets, Ms. Gao assumed a fiduciary obligation to Liberty to account for those assets. Id. at ¶III.6.

Mr. Kirk breached his fiduciary duties to Liberty by, among other things, failing to supervise Ms. Gao, failing to establish controls to prevent Ms. Gao's diversion of assets, failing to disclose the diversion of assets, and failing to account for Liberty's assets. Id. at ¶III.12. Ms. Gao breached her fiduciary duties to Liberty by, among other things, diverting Liberty's assets to herself and entities under her control, and failing to account for Liberty's assets. Id. at ¶III.13.

Mr. Kirk and Ms. Gao each bear the burden of proof to account to Liberty. Id. at ¶III.14. Mr. Kirk and Ms. Gao must demonstrate that all monies entrusted to Liberty through them were properly managed by rendering an account of all receipts and disbursements, showing when, to who, and for what purpose payments were made. Id.

Mr. Kirk and Ms. Gao can neither account for Liberty's funds that were controlled by them, nor have they demonstrated that any such accounting is possible. Id. at ¶III.15. All of Liberty's books and records have been turned over to Liberty's Chief Restructuring Officer (the "CRO"). Id. at ¶II.24. The records that have been turned over are incomplete and insufficient to permit a proper accounting for funds that Liberty received and disbursed over the last four years. Id. at ¶II.25.

IV. Findings of Fact Based on Testimony and Evidence Presented at the August 2 Trial

The findings of fact set forth in this section are based upon the testimony and evidence presented at the August 2 trial.4

A. Liberty's Failure to Use Investor Funds in Accordance with Investment Contracts

Based upon the testimony offered by Mr. Kirk, the Court finds that although the funds contributed to Liberty by investors were earmarked for investments in specific properties, Liberty did not use the funds in accordance with the Investment Contracts to purchase the properties for which the funds had been earmarked. Rather than segregating the funds contributed by each investor to insure that such funds were used for their intended purpose, Liberty treated all investor funds as a single capital pool. Liberty used this capital pool to attempt to acquire whatever property it was pursuing at the time, regardless of whether that property was the one specified by the investor.

Mr. Kirk initially denied that Liberty's funds were used in this manner. However, Mr. Kirk's deposition testimony, which the Plaintiff introduced at trial, clearly established that Liberty frequently did not use investor funds for their intended purpose. The relevant deposition testimony is as follows:

Trial Transcript ("Tr.") [Adv. Doc. No. 127] at 24:4-19 (quoting Mr. Kirk's May 25, 2017 deposition testimony).5

When confronted with this deposition testimony, Mr. Kirk had no explanation or clarification to support his initial contention that Liberty's funds were used for the purposes for which they had been earmarked. Instead, Mr. Kirk acknowledged that the funds were not spent as the investors had intended:

Tr. at 25:15-25.

Consistent with the pattern set forth above, when asked whether Liberty's business of acquiring commercial properties remained profitable subsequent to 2012, Mr. Kirk initially offered testimony at trial inconsistent with his deposition testimony. Tr. at 26:5-17. Once again, when presented with the inconsistent deposition testimony, Mr. Kirk lacked any plausible explanation for the inconsistencies. With respect to Liberty's profitability, the Court finds that Mr. Kirk's trial testimony lacks credibility, to the extent that it is inconsistent with his deposition testimony. Based upon Mr. Kirk's deposition testimony, the Court finds that the profit margin in connection with Liberty's sale of commercial properties disappeared in 2012. Tr. at 26:11-15 (deposition testimony of Mr. Kirk).

Based upon Mr. Kirk's testimony, the Court finds that Liberty received approximately $36.26 million for the purchase of specified real properties from various investors, but failed to purchase any of the properties in question and failed to return any of the investors' funds. Mr. Kirk was the primary contact with investors on Liberty's behalf and was the most knowledgeable person regarding the identity of investors. Tr. at 49:15-20 (testimony of Mr. Kirk).6 Liberty's bankruptcy schedules (the "Schedules") reflect that Liberty owed investors at least $36.26 million on account of deposits made for the purchase of real properties where the transaction did not close and the investors' funds were not returned. Mr. Kirk prepared Liberty's Schedules based upon his review of the Investment Contracts that Liberty entered into with each investor. Tr. at 48:21-49:1. This review enabled Mr. Kirk to determine how much money Liberty had received from each investor as well as how much money Liberty had failed to return to each investor. Tr. at 49:1-14. Aside from the Investment Contracts, Mr. Kirk did not have any other documents from which to prepare the Schedules. Tr. at 49:21-24. When Mr. Kirk prepared the Schedules, he did not indicate that any of the amounts owed to the investors were disputed. Tr. at 50:3-6. In failing to so indicate, Mr. Kirk understood that he was acknowledging that Liberty owed each investor the amounts that were scheduled. Tr. at 50:7-9.

Based upon his recollection as refreshed by a review of the Schedules, Mr. Kirk testified that Liberty owed the following investors the amounts set forth in the table below as of the date of the petition.7 The debts arose on account of investor deposits earmarked for the purchase of specific real properties. In each case, Liberty failed to purchase the specified property as required by the Investment Contract, and failed to return the investors' money as required by the Cancellation Contract:

B. Liberty's Loss of Investor Funds

Liberty lost the investor funds discussed above, as well as funds contributed by other investors, in a variety of ways, as set forth below.

1. Loss of Nonrefundable Deposits

Liberty lost approximately $21 million by making non-refundable deposits in connection with failed property acquisitions. Tr. at 29:18-22 (testimony of Mr. Kirk).8 Liberty lost $7 million in connection with its failed attempt to purchase the U.N. Plaza Property in San Francisco; lost $2 million in its failed attempt to purchase 39 Stockton Street in San Francisco; lost $2.5 million in its failed attempt to purchase 540-550 Montgomery Street in San Francisco; and lost $6 million in its failed attempt to purchase 600 Wilshire Boulevard in Los Angeles. Tr. at 27:1-25.

2. Loss of the Sales Proceeds of the Geary Property

On November 17, 2014, one of Liberty's Investment Entities sold real property located at 166 Geary Street, San Francisco, CA (the "Geary Property") for $60 million, generating net sales proceeds of approximately $26 million. Pretrial Stip. at ¶¶41 and 43. Liberty did not receive any of the net sales proceeds of the Geary Property. Tr. at 82:22-83:6. Instead, Ms. Gao took control of the net sales proceeds. Jan. 25 Findings at ¶I.23. J.D. Brothers, an entity which had invested in the Geary Property, did not receive any of the sales proceeds. Tr. at 54:24-55:1.

3. Loss of the Proceeds of a Loan from Huesing Holdings LLC

After Liberty began pursuing larger investments in commercial properties, it borrowed approximately $6 million from Huesing Holdings LLC ("Huesing"). Tr. at 30:2-7. Mr. Kirk expected that Liberty would repay the initial Huesing loan from the sales proceeds of a condominium jointly owed by Huesing and Liberty. However, the sales proceeds from the condominium building were not sufficient to repay Huesing's indebtedness. Tr. at 32:25-33:9. As a result, Liberty obtained multiple short term loans from Huesing, which were repeatedly extended and never fully repaid, as follows:

The short term loans from Huesing each bear interest at the rate of 15% for the specified loan period, such that in some instances the annualized rate of interest was in excess of 150%. Ex. 6, Tr. at 38:1-20. As discussed previously, Mr. Kirk's deposition testimony established that Liberty's operations were not profitable subsequent to 2012. Accordingly, the Court finds that at the time Liberty obtained the initial $6 million loan from Huesing and at the time Liberty obtained the additional short term loans, Mr. Kirk lacked any reasonable expectation that those loans could be repaid, except from additional investor deposits. The Court finds that Mr. Kirk's belief that the original $6 million Huesing loan could be repaid from the condominium sale was not reasonable.

Mr. Kirk personally guaranteed Liberty's obligations to Huesing pursuant to a final agreement that was entered into on October 9, 2014 (the "Oct. 9 Agreement"). Ex. 6, Tr. at 40:4-9. Huesing's principal did not ask Mr. Kirk for a personal financial statement in connection with Mr. Kirk's personal guarantee, and did not ask for a financial statement from Liberty. Tr. at 41:11-16. Pursuant to the Oct. 9 Agreement, Liberty owed Huesing $10,710,477.02 as of October 9, 2014. Ex. 6 (final page) and Tr. at 42:10-25. Mr. Kirk does not know how much of the $10.7 million is attributable to principal and how much is attributable to interest, and has no way of calculating such amounts because the relevant documents no longer exist. Tr. at 44:19-45:8.

4. Equity Payments from the Bankruptcies of Investment Entities

David Golubchik testified regarding the bankruptcies of two of Liberty's Investment Entities, Diamond Waterfalls LLC ("Diamond") and Coastline Investments LLC ("Coastline"). Mr. Golubchik was the principal attorney representing Diamond and Coastline in their bankruptcy proceedings. Tr. at 7:2-3.9 Diamond and Coastline's principal assets were two hotels which were adjacent to each other. Tr. at 6:13-17. During Diamond and Coastline's bankruptcies, the two hotels were sold to a single buyer for $19.5 million, generating net proceeds of approximately $3.25 million. Tr. at 6:18-22 and 7:17-8:5.

The $3.25 million in net sales proceeds were transferred to the client trust account of Mr. Golubchik's law firm, Levene Neale Bender Yoo & Brill LLP ("LNBYB"). Tr. at 8:2-8. LNBYB issued a wire transfer, pursuant to which $2.6 million of the sales proceeds were transferred to an account at Mega Bank in Ms. Gao's name. Tr. at 12:11-21. By way of another wire transfer, LNBYB transferred an additional $150,000 of the sales proceeds to an account at Mega Bank in Ms. Gao's name. Tr. at 13:2-18.

The foregoing testimony of Mr. Golubchick was based upon his recollection, as refreshed by two documents reflecting wire transfers, a document reflecting wiring instructions, and the final closing statement issue in connection with the sale of the hotels. Ms. Gao contends that Mr. Golubchick's testimony is inadmissible, on the grounds that Plaintiff failed to demonstrate that Mr. Golubchick was testifying based upon his refreshed recollection, as opposed to testifying based upon the contents of the documents.10 Ms. Gao's evidentiary objection is overruled. Mr. Golubchick testified that he was the principal attorney at LNBYB who worked on the Diamond and Coastline bankruptcies. Tr. at 7:2-7. He further testified that he was familiar with the facts and the circumstances surrounding the sale of the hotels in those bankruptcies. Id. The Court finds that Mr. Golubchick's testimony was based upon his personal recollection, as refreshed by a review of the documents.

In 2014, Mr. Kirk caused Atherton Financial Building LLC ("Atherton") to commence bankruptcy proceedings. Pretrial Stip. at ¶A.50. Atherton was another of Liberty's Investment Entities, and Ms. Gao was its sole and/or managing member. Id. at ¶A.17. In or after May 2015, $1.5 million in net proceeds from the sale of real property in Atherton's bankruptcy was wired to Bank SinoPac. Id. at ¶A.53. The purpose of the $1.5 million wire was to satisfy a judgment that Bank SinoPac held against Ms. Gao personally. Tr. at 85:17-20 (testimony of Mr. Kirk).

On June 12, 2015, counsel wired $1,623,756.29 in remaining net proceeds from the sale in Atherton's bankruptcy to an account in Liberty's name maintained at Cathay Bank. Pretrial Stip. at ¶A.54. Ms. Gao controlled the account at Cathay Bank to which the funds were wired. Tr. at 85:24-25 (testimony of Mr. Kirk). Mr. Kirk has no knowledge of what happened to the funds after they were wired into the Cathay Bank account. Tr. at 86:1-3 (testimony of Mr. Kirk).

V. Conclusions of Law Based on Testimony and Evidence Presented at the August 2 Trial

The Court has previously determined that the Defendants breached their fiduciary duties to Liberty by failing to properly account for its assets. As fiduciaries of Liberty, Defendants are "under an obligation to render to [Liberty's] beneficiaries a full account of all [their] dealings with [Liberty's] property, and where there has been a negligent failure to keep true accounts all presumptions are against" them. Blackmon v. Hale, 1 Cal.3d 548, 560, 463 P.2d 418, 425 (1970). As the Ninth Circuit has explained:

Otto v. Niles (In re Niles), 106 F.3d 1456, 1461 n.4 (9th Cir. 1997).

Damages arising from a breach of fiduciary duty are assessed based on the damages proximately flowing from the breach. Hasso v. Hapke, 227 Cal.App.4th 107, 140, 173 Cal.Rptr.3d 356, 383 (2014). Where the breach of fiduciary duty involves a failure to account, the damages consist of the amount of funds or assets that the fiduciary received and failed to properly safeguard. In Niles, the Ninth Circuit held that a fiduciary is obligated to fully account for all funds entrusted to her. Niles, 106 F.3d at 1462. The Niles court reasoned that this accounting obligation arose from "[b]asic principles of the law of fiduciaries," as well as the policy considerations given that the "evidence of what funds were received by the fiduciary and how they were applied is likely to be more accessible to the fiduciary than to the principal." Id. The court concluded that if the fiduciary had engaged in transactions inconsistent with her fiduciary duties, she would be liable for funds lost in connection with those transactions. Id.

The Court finds that Defendants are liable to Liberty, jointly and severally, in the amount of $74,140,695.29, for breaching their fiduciary duties to Liberty and for failing to account for Liberty's assets. To fulfill their obligation to account for Liberty's assets, Defendants have the burden of showing that they safeguarded the funds entrusted to them consistent with their fiduciary obligations. Niles, 106 F.3d at 1461 n.4. Defendants have failed to meet that burden.

Ms. Gao cannot satisfy her duty to account because her conduct prior to the trial required the Court to preclude her from introducing any evidence at trial. In connection with Plaintiff's Motion In Limine, the Court found that Ms. Gao could not present testimony pertaining to matters as to which she had previously invoked the Fifth Amendment:

See Bankruptcy Doc. No. 152 at 65-69.

The Court reiterates its finding, made in connection with the Committee's [Plaintiff's] motion for partial summary adjudication, that Ms. Gao is precluded from offering testimony pertaining to the subjects as to which she previously invoked the Fifth Amendment. As the Ninth Circuit has explained:

Nationwide Life Ins. Co. v. Richards, 541 F.3d 903, 909-11 (9th Cir. 2008) (internal citations omitted).

Here, Ms. Gao invoked the Fifth Amendment at a hearing intended to elicit information regarding (1) the location and content of Liberty's books and records and (2) Ms. Gao's role in creating, maintaining, and preserving those books and records. This refusal to testify occurred at a critical juncture in the case, as it is possible that at the time of the hearing certain of Liberty's key records might not yet have been destroyed. Now that a complete set of records no longer exists, the Committee [Plaintiff] cannot secure the benefits of any information that may have been contained in those records. Having invoked the Fifth Amendment as a shield at a time when her testimony may have elucidated relevant information and may have assisted the Committee's [Plaintiff's] efforts to preserve Liberty's records, Ms. Gao cannot now decide to testify as to the same subjects now that most of the corresponding records, which would either corroborate or disprove her testimony, are no longer available.

Final Ruling Granting Plaintiff's Motion In Limine at 12-13.

The Court refused to permit Ms. Gao to introduce into evidence or to offer any testimony with respect to the few remaining books and records that had not disappeared, because the piecemeal selection of exhibits that Ms. Gao sought to introduce presented an incomplete and misleading picture of Liberty's finances:

Final Ruling Granting Plaintiff's Motion In Limine at 10-11.

In addition, the Court found that Ms. Gao's proposed exhibits were not admissible because she had failed to timely produce them:

Final Ruling Granting Plaintiff's Motion In Limine at 11.

Mr. Kirk did not meet his burden of accounting for the funds entrusted to Liberty. Mr. Kirk asserts that he has accounted for a portion of the funds—specifically, the funds that Liberty lost by making nonrefundable deposits in connection with its failed attempts to purchase various real properties.11 Mr. Kirk's theory is that he has satisfied his duty to account by explaining what happened to the funds. Mr. Kirk's theory misconceives the obligations encompassed in the duty to account. As the Ninth Circuit explained in Niles, a fiduciary satisfies his burden to account "by persuading the trier of fact that [he] complied with [his] fiduciary duties with respect to all questioned transactions." Niles, 106 F.3d 1462. Here, Mr. Kirk has not shown compliance with his fiduciary obligations. When Liberty received investor funds earmarked for the purchase of specific properties, Mr. Kirk had a fiduciary obligation to ensure that Liberty used those funds to purchase the specified properties, in accordance with the terms of the Investment Contract and Cancellation Agreement. Mr. Kirk's testimony established that the investor funds were not used to purchase the properties for which the funds were earmarked, but were instead used in connection with whatever acquisition Liberty happened to be pursuing at the time. Worse, approximately $21 million of the funds were squandered on nonrefundable deposits made in connection with acquisitions that Liberty lacked the ability to complete. In another instance, $5 million of the funds earmarked for the purchase of the Montgomery Street Property were lost because Liberty invested the money in Foundation, a hedge fund that failed.

Next, Mr. Kirk argues that his failure to account was not the proximate cause of any damages suffered by Liberty. Mr. Kirk contends that Liberty's damages resulted from Ms. Gao's intentional diversion of assets. This argument lacks merit. The Court has already found that Mr. Kirk breached his fiduciary duties to Liberty "by, among other matters, failing to supervise [Ms.] Gao or otherwise establish controls to prevent her diversion of assets. . . ." Jan. 25 Findings at ¶III.12. In view of this finding, Mr. Kirk cannot escape liability by attempting to place the blame upon Ms. Gao.

Along similar lines, Mr. Kirk argues that he cannot be held liable for the loss of the $26 million in net sales proceeds from the sale of the Geary Property, because those sales proceeds did not pass through Liberty's accounts but were instead deposited into an entity under Ms. Gao's control. Once again, this argument neglects the Court's prior finding that Mr. Kirk's liability derives in part from his failure to adequately supervise Ms. Gao.

With respect to the funds diverted in the bankruptcies of Diamond, Coastline, and Atherton, Mr. Kirk reasserts his contention that he cannot be held liable on the grounds that the funds were transferred to entities under Ms. Gao's control and did not pass through Liberty's accounts. The argument is unavailing.

Mr. Kirk contends that he has accounted for the approximately $10.7 million that Liberty owes Huesing. Without citing to the trial transcript, Mr. Kirk represents in his post-trial brief that he testified that the principal investment was returned to Huesing and that $10.7 million owed represents interest. Benjamin Kirk Post-Trial Brief [Doc. No. 140] at 5. Mr. Kirk argues that his trial testimony constitutes an accounting of the Huesing funds. However, Mr. Kirk's characterization of his trial testimony omits the full picture. On cross examination, Mr. Kirk testified that the $10.7 million owed to Huesing was interest. But when questioned about this testimony by Plaintiff's counsel, Mr. Kirk admitted that he did not know how much of the $10.7 million was for principal and how much was for interest. Tr. at 88:9-20.

As discussed previously, at the time Liberty borrowed funds from Huesing, Mr. Kirk lacked any reasonable expectation that the funds could be repaid, because Liberty's operations were not profitable. At trial, Mr. Kirk could not explain the disposition of the Huesing loan proceeds, and as discussed above, Mr. Kirk does not even know how much of the $10.7 million owed Huesing represents principal versus interest. The Court finds that Mr. Kirk has failed to account for the funds Liberty borrowed from Huesing.

Finally, Mr. Kirk argues that Plaintiff has fallen short in demonstrating that there was a failure in accounting, because Plaintiff did not introduce into evidence the remaining books and records of Liberty that are currently in the possession of Liberty's Chief Restructuring Officer (the "CRO"). According to Mr. Kirk, Plaintiff has strategically withheld such books and records. Mr. Kirk argues that Plaintiff should be required to introduce into evidence the remaining books and records if it wishes to obtain a judgment against him.

Mr. Kirk's argument disregards the findings previously made by the Court. In its Jan. 25 Findings, the Court stated that the books and records that have been turned over to Liberty's CRO are incomplete and insufficient to permit a proper accounting of the funds that Liberty received and disbursed over the previous four years. Jan. 25 Findings at ¶II.25.

VI. Conclusion

Based upon the foregoing, the Court finds that Ms. Gao and Mr. Kirk are jointly and severally liable to Liberty in the amount of $74,140,695.29 for breaching their fiduciary duties to Liberty and for failing to account for the funds entrusted to Liberty. The funds which Ms. Gao and Mr. Kirk have failed to account for are as follows:

The Court will enter judgment consistent with this Memorandum of Decision.

Exhibit A—Final Ruling Granting Plaintiff's Motion In Limine

United States Bankruptcy Court Central District of California Los Angeles Judge Ernest Robles, Presiding Courtroom 1568 Calendar

Id. at ¶ 17. With the exception of property held by Bridgestream Management LLC ("Bridgestream"), all of the property held by each of the Investment Entities is actually owned by Liberty. [Note 1] Jan. 25 Findings at ¶ II.16. Ms. Gao was a signatory on the Investment Entities' account, typically without Mr. Kirk. Id. at ¶ II.19. Both Ms. Gao and Mr. Kirk had signing authority on Liberty's accounts. Id. at ¶ II.13.

See Bankruptcy Doc. No. 152 at 65-69.