Document text
Plan OK'd for troubled funeral firm Father pays for son's misdeeds By CHRIS BRISTOL A federal bankruptcy judge has approved a proposal that protects thousands of Southern Oregonians who paid in advance for their own funerals. In a ruling that became public Thursday, Judge Frank Alley formally endorsed the Chapter 11 reorganization plan for Kern Family Services and ended months of uncertainty for jittery creditors and customers. Alley's ruling also solved some of the mystery about the disappearance of $5.1 million from Kern trust accounts -- and revealed evidence that could figure in a state criminal investigation. Dan Isard, president of an Arizona-based management firm that oversaw Kern's reorganization, hailed the plan as a "winner" for Kern's customers in Medford and Grants Pass. "Rest assured, those parties that have prearrangements can expect that 100 percent of those services will be provided in perpetuity," Isard said. "No consumer will lose a penny." Doug Schultz, a Eugene attorney who represented some 3,600 pre-paid customers, offered a more guarded assessment. "The plan sounded as good as we were going to get under the circumstances," he said, adding that he had not seen Alley's ruling yet. The ruling came close on the heels of a daylong hearing last Friday at U.S. District Court in Medford, where hordes of attorneys vied with spectators and Kern clients for seats in the gallery. In the end, the various parties accepted a bailout from Charles Kern, a millionaire mortician from Southern California who pledged his personal fortune as collateral to repay trusts accounts plundered by his son, David Kern. Kern Family Services operates Perl Funeral Homes and Siskiyou Memorial Park in Medford as well as three related Grants Pass businesses: Hull and Hull Funeral Homes, Hawthorne Memorial Gardens and the Southern Oregon Cremation Society. Under the plan, the Grants Pass properties will be sold to a company called SCI for $4.4 million. The Medford businesses, including Serenity Pet Cremation Service, will be held in trust to be managed by a federally approved trustee in Portland. Kern's court-approved managers expect the sale of Perl and the rest of the company's assets within two years, as the funeral services market improves. Kern filed for bankruptcy last fall after state investigators began asking questions about the way David Kern was doing business and what happened to an estimated $5.1 million trust account. According to Alley's ruling, David Kern used customers' pre-paid trust funds from the Medford businesses to buy the Grants Pass properties. "This use of trust funds was unlawful," Alley wrote, "and the beginning of the collapse of the Kern family's enterprise in Oregon." Alley did not specify a sum for the Grants Pass purchases. Wilson Muhlheim, a Eugene attorney representing the Kern company in the bankruptcy proceedings, put the figure at $1.5 million. Muhlheim also told the Mail Tribune that David Kern used $400,000 to remodel his home on Yale Drive in east Medford and bought an undeveloped homesite for an unspecified amount. Kern also used $700,000 in trust funds -- Muhlheim called it "misappropriation" -- to renovate Hafer House, a former mortuary owned by Perl in downtown Medford. State officials are investigating. A spokeswoman with the Department of Justice could not be reached for comment Thursday. One issue that has yet to be worked out is a peculiar matter involving the "sale" of Siskiyou Memorial Park. In his ruling, Alley explained that David Kern thought he had bought the cemetery property when he acquired the nonprofit Siskiyou corporation from Perl, and Kern used that property as collateral to secure a $1.2 million loan from a bank. One problem: the cemetery wasn't legally available for sale. Kern bought only control of Siskiyou's board of directors. The issue is now being litigated. Mail Tribune Copyright � The Mail Tribune 1999, Medford, Oregon USA