FHI creditors appeal court dismissal of the $21 million case for alleged financial fraud

FHI unsecured creditors not sitting silent on a court dismissal of their eight-month-old case that charged the retail operator with alleged financial fraud. What is their next step, and what do they expect?

The unsecured creditors committee that charged Fitness Holdings International, several executives and its primary bank with various charges of alleged financial fraud appealed on Jan. 27, 2010, a court dismissal of their case that asked for $21 million.

Insiders, who declined to speak on the record, have indicated to SNEWS® that the committee is disappointed with the final ruling that came down Jan. 15, 2010, in their case that was originally filed May 21, 2009. But the committee’s attorneys seemed confident enough in another outcome, we were told, to take the case under appeal to the Ninth Circuit, Bankruptcy Appellate Panel.

The original action was filed against FHI owner Hancock Park, FHI bank Pacific Western and executives Kenton Van Harten and Michael Fourticq and charged defendants with a litany of pre-bankruptcy fraudulent transfers, breach of fiduciary duties, and aiding and abetting breach of fiduciary duties. FHI’s bank, Pacific Western, filed on July 31, 2009, a motion to dismiss the complaint. In that motion for dismissal, the bank’s representatives claim a failure by the creditors to state any viable claims. The committee’s claims are “fatally defective,” the 35-page document from PWB stated, “and should be dismissed” with prejudice.

The U.S. Bankruptcy Court, Central District of California, dismissed the case against Pacific Western on Oct. 23, 2009, and the amended complaints against the others on Jan. 14 and 15, 2010.

The court has also scheduled a status hearing on March 10 for Busy Body-parent FHI’s Ch. 11 reorganization bankruptcy case, originally filed on Oct. 20, 2008. Meanwhile, all former 114 FHI-operated retail Busy Body and Omni stores were closed with assets auctioned on Aug. 11, 2009. Click here to read that story, “The Gym Store LLC highest bidder for FHI/Busy Body assets, plans 8-10 SoCal stores.” 

To read our May 22, 2009, story about the case filed by the unsecured creditors’ committee against FHI, “FHI creditors sue owner Hancock Park et al claiming fraudulence prior to bankruptcy, seek $21 million,” click here.

–Therese Iknoian