The children of bankrupt developer Clem Carinalli have agreed to relinquish claims to millions of dollars in order to settle a lawsuit filed by their father's creditors.
The four adult children will forgo collecting between $3.4 million and $7.3 million potentially owed to them under their father's bankruptcy plan approved in November, and they agreed to transfer $1.39 million into his bankrupt estate to be split among his other creditors, according to the settlement filed in U.S. Bankruptcy Court on Tuesday.
Carinalli filed Sonoma County's largest-ever personal bankruptcy case in 2009, and since December a trustee has been working on behalf of his creditors to liquidate his more than 200 properties in order to partially repay his $194 million in debts.
The settlement brings an end to one of the inquiries launched by creditors to identify Carinalli's remaining assets and recoup as much as possible from the man who once was Sonoma County's largest individual land owner.
Carinalli claimed to have $466 million in assets in 2008, but by the time of his bankruptcy filing less than two years later he claimed his assets had dropped to $196 million, according to court records.
Last July, creditors alleged Carinalli's sons Kevin and Keith Carinalli and daughters Kelly Suacci and Kerri Olhiser received millions of dollars in assets from fraudulent and improper real estate deals with their father in 2007 and 2008.
Carinalli and his children denied the allegations at the time, and continue to deny any wrongdoing, according to court documents filed as part of the settlement on Tuesday.
But for the first time, court documents have detailed just how entwined Carinalli's financial dealings had become with his children's and suggested that he might have been insolvent as far back as 2007.
Efforts to reach Carinalli and his children late Tuesday were unsuccessful.
Between 2007 and 2008, Carinalli transferred about 30 homes to his children and received about 30 percent less than the purchase price — meaning his children might still have owed him as much as $7 million when he filed bankruptcy in 2009, according to the court documents filed by Andrea Wirum, the trustee of Carinalli's bankrupt estate.
Carinalli allegedly sold those properties to his children "in order to take advantage of their credit" and refinance the existing debt, according to the documents filed by Wirum. But the loans to the children covered only about 70 percent of the purchase price owed to their father, and they allegedly never paid him the remaining 30 percent.
"As a result, the trustee believes that (Carinalli's) children owe the estate for the remaining unpaid purchase price, either by way of a fraudulent transfer or breach of contract claim," according to Wirum's filing on Tuesday.
Between May and October of last year, lenders foreclosed on 32 properties owned by Carinalli's children because of unpaid debts of about $10.1 million, according to county land records.
As part of the settlement announced Tuesday, the children agreed to forgo their portion of the money owed to Carinalli's creditors as his real estate holdings are sold by Wirum during the next five years. Carinalli's primary residence on Wallace Road in northeast Santa Rosa was transferred to Wirum's control in December and sold in March for $1.52 million, according to county land records.
Other unsecured creditors are expected to receive from 26 percent to 56 percent of what they're owed depending on how much Wirum recoups by selling Carinalli's former real estate empire, according to Carinalli's bankruptcy plan.