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Case 06-00191-JH11

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David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

David Sean Dufek, Esq. SBN 193723 Law Office of David Sean Dufek 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

Attorney for Debtor, WS-TH, Inc.

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF CALIFORNIA

In Re:

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) ) WS-TH, Inc., a California Corporation, ) ) Debtor. ) ____________________________________ ) WS-TH, Inc., a California Corporation, ) ) Moving Party ) ____________________________________ ) Pacific Horizon Financial, Inc. and Pacific ) Horizon Mortgage Investors, I LLC ) ) Respondents. ) ___________________________________ )

Bankruptcy No: 06-00191-JH-11 RS NO. DSD-1 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO VACATE DISMISSAL AND REOPEN CHAPTER 11 CASE

Debtor, WS-TH, Inc. Moves this Court for an Order vacating the dismissal of the Chapter 11 and reopening chapter 11 case based on the following:

Federal Rules of Bankruptcy Procedure, Rule 5010 states: A case may be reopened on motion of the debtor or other party in interest pursuant to 350(b) of the Code...... Bankruptcy Code 350(b) states: A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.

1 In re: WS-TH, Inc. Memorandum of points and authorities in Support of Motion to Vacate Dismissal BK. No. 06-00191-JH-11

Case 06-00191-JH11

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David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

Rule 60(b) of the Federal Rules of Civil Procedure allow a party relief from an order in certain instances: (B) On motion and up-on such terms as are just, the court may relieve a party or a partys legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect....The motion shall be made within a reasonable time, and for reason (1), (2) and (3) not more than one year after the judgment, order, or proceeding was entered or take. Pursuant to Rule 62, the Court in its discretion may and on such terms conditions for the party for the security of the adverse party as are proper, may stay the execution of any proceedings to enforce a judgment pending the disposition of a motion.....for relief from a judgment or order made pursuant to rule 60. Dated: 5/4/06 By: /s/ David Sean Dufek David Sean Dufek

14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In re: WS-TH, Inc. 2 Memorandum of points and authorities in Support of Motion to Vacate Dismissal BK. No. 06-00191-JH-11

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David Sean Dufek, Esq. SBN 193723 Law Office of David Sean Dufek 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

Attorney for Debtor, WS-TH, Inc.

UNITED STATES BANKRUPTCY COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 In Re: 11 12 13


David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

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) ) WS-TH, Inc., a California Corporation, ) ) Debtor. ) ____________________________________ ) WS-TH, Inc., a California Corporation, ) ) Moving Party ) ____________________________________ ) Pacific Horizon Financial, Inc. and Pacific ) Horizon Mortgage Investors, I LLC ) ) Respondents. ) ___________________________________ ) I, David Sean Dufek, declare as follows:

Bankruptcy No: 06-00191-JH-11 RS NO. DSD-1 DECLARATION OF DAVID SEAN DUFEK IN SUPPORT OF MOTION TO VACATE DISMISSAL AND REOPEN CHAPTER 11

19 1. 20 serve as counsel for Debtor, WS-TH, Inc. although I have not been appointed, I am waiting 21 for the Statement of Position from the United States Trustees office. I have personal 22 knowledge of the facts stated herein, except as to those matters stated to be based upon 23 information and belief, and as to those matters, I believe them to be true, and would and 24 could competently testify thereto if called as a witness. 25 2. 26 court to set aside the foreclosure sale of real property located at Warm Springs town homes 27 (16 units) on Torrey Pines Road in Murrieta, California and legally described as LOT 47 OF 28 1 In re WS-TH, Inc. Declaration of David Sean Dufek BK. NO. 06-00191-JH-11 On or about April 27, 2006, I was retained by principal for Debtor, to seek an order from this I am an attorney licensed to practice law in the State of California. I have been retained to

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David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

TACT NO. 28674, AS SHOWN BY MAP ON FILE IN BOOK 284, PAGES 85 THROUGH 88, OF MAPS, RECORDS OF RIVERSIDE COUNTY, CALIFORNIA. I began preparation of the application to be appointed counsel for debtor, and having determined that there was a noticed motion set for May 12, 2006, I believed that debtor had sufficient time to move this court for an order setting aside the foreclosure sale, on the grounds that creditor Creditor Pacific Horizon Financial Inc. & Pacific Horizon Mortgage Investors, 1 LLC had improperly relied on their relief from stay order to conduct the sale. The Stay appears to be based on an allegation that there was no insurance on the property and that the State Court litigation should be allowed to go forward. The order granting relief from stay allowed the litigation to go forward but ordered there shall not be enforcement actions against the property without further order of the court. 3. On April 28, 2006, I determined from an examination of the online filings that the court had filed an order dismissing the chapter 11, and that the hearing set for May 12, 2006 was taken off calendar. 4. I believe that the sale was held in violation of the automatic stay and in violation of the Order for Relief from Stay. 5. I was in the process of filing to be appointed as counsel for the debtor and bringing a motion to set aside the sale when creditor Ronald A. Bedell withdrew the motion for hearing and opposition to dismissal of the chapter 11, thus frustrating my effort to assist the debtor in setting aside the foreclosure sale and requiring this motion to reopen. 6. I am informed and believe that unless the Court reopens the case, sets aside the foreclosure sale held in violation of the Courts Order for relief, Debtor will lose all interest in the property, by way of a subsequent sale to a BFP, and such loss will be irreparable. I declare under penalty of perjury, under the laws of the United States of America, that the foregoing is true and correct. Executed this 4th day of May 2006 at San Diego, California. /s/ David Sean Dufek David Sean Dufek

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2 In re WS-TH, Inc. Declaration of David Sean Dufek BK. NO. 06-00191-JH-11

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David Sean Dufek, Esq. SBN 193723 Law Office of David Sean Dufek 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

Attorney for Debtor, WS-TH, Inc.

UNITED STATES BANKRUPTCY COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 In Re: 11 12 13


David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

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) ) WS-TH, Inc., a California Corporation, ) ) Debtor. ) ____________________________________ ) WS-TH, Inc., a California Corporation, ) ) Moving Party ) ____________________________________ ) Pacific Horizon Financial, Inc. and Pacific ) Horizon Mortgage Investors, I LLC ) ) Respondents. ) ___________________________________ ) I, Charles McHaffie , declare as follows:

Bankruptcy No: 06-00191-JH-11 RS NO. DSD-1 DECLARATION OF CHARLES MCHAFFIE IN SUPPORT OF MOTION TO VACATE DISMISSAL AND REOPEN CHAPTER 11 BANKRUPTCY PETITION

19 1. 20 the facts stated herein, except as to those matters stated to be based upon information and 21 belief, and as to those matters, I believe them to be true, and would and could competently 22 testify thereto if called as a witness. 23 2. 24 Pacific Law Center. I met with an attorney there and gave them a retainer of $10,000.00. 25 Pacific Law center never filed an application to be employed as counsel and although they 26 were given the motions for relief from stay filed by Pacific Horizon Financial and Dixieline 27 Lumber Company, no response was ever filed and an order on noncontested motion was 28 1 In re WS-TH, Inc. Declaration of Charles McHaffie BK. NO. 06-00191-JH-11 Acting on behalf of the debtor I attempted to retain counsel for the debtor by hiring the I am an officer and principal of the debtor herein, WS-TH, Inc. I have personal knowledge of

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David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

entered. 3. It is my belief that the foreclosure sale was held in violation of the automatic stay and the violation was wilful. I further believe that the foreclosing lender inflated the amounts due on its loan in a effort to chill any bidding at the foreclosure sale. The property reverted to the beneficiary at the sale held April 18, 21006 at 10: a.m. 4. But for the last minute nature of the notice provided to Mr. Warner regarding the foreclosure, I believe that the debtor could have taken steps to cure the arrears and avoid the sale. 5. I was negotiating with David Dufek to be appointed counsel for the debtor and file a motion to set aside the foreclosure sale when the chapter 11 was dismissed. If the case is not reopened, the dismissal vacated, and the sale set aside, irreparable damage will occur. I declare under penalty of perjury, under the laws of the United States of America, that the foregoing is true and correct. Executed this 4th day of May, 2006 at San Diego, California.

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/s/ Charles McHaffie Charles McHaffie

2 In re WS-TH, Inc. Declaration of Charles McHaffie BK. NO. 06-00191-JH-11

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David Sean Dufek, Esq. SBN 193723 Law Office of David Sean Dufek 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

Attorney for Debtor, WS-TH, Inc.

UNITED STATES BANKRUPTCY COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 In Re: 11 12 13


David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

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) ) WS-TH, Inc., a California Corporation, ) ) Debtor. ) ____________________________________ ) WS-TH, Inc., a California Corporation, ) ) Moving Party ) ____________________________________ ) Pacific Horizon Financial, Inc. and Pacific ) Horizon Mortgage Investors, I LLC ) ) Respondents. ) ___________________________________ ) I, James Warner, declare as follows:

Bankruptcy No: 06-00191-JH-11 RS NO. DSD-1 DECLARATION OF JAMES WARNER IN SUPPORT OF MOTION TO VACATE DISMISSAL OF CASE NUNC PRO TUNC AND REOPEN CHAPTER 11 BANKRUPTCY

19 20 1. 21 WS-TH, Inc. although I do not represent them in connection with the instant Bankruptcy 22 Case. I have personal knowledge of the facts stated herein, except as to those matters stated 23 to be based upon information and belief, and as to those matters, I believe them to be true, 24 and would and could competently testify thereto if called as a witness. 25 2. 26 Financial Inc. & Pacific Horizon Mortgage Investors, 1 LLC for relief from stay. The Stay 27 appears to be based on an allegation that there was no insurance on the property and that the 28 1 In re WS-TH, Inc. Declaration of James Warner BK. NO. 06-00191-JH-11 On or about April 7, 2006, I received a copy of an order issued on Creditor Pacific Horizon I am an attorney licensed to practice law in the State of California. I am counsel for Debtor,

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David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

State Court litigation should be allowed to go forward. The order granting relief from stay allowed the litigation to go forward but ordered there shall not be enforcement actions against the property without further order of the court. 3. When I received the Order for relief from stay, I immediately faxed a copy of the proof of insurance to attorney Martin McGuinn (Exhibit 1). I had previously faxed a copy of the proof of insurance to Attorney McGuinn on February 25, 2006, one day after I received it from the insurance broker (Exhibit 2). When I received no response from Mr. McGuinn, I called him on Monday, April 10, 2006 at 8:30. He told me he had not received the fax of February 25, 2006 or April 7, 2006 in spite of the fact of the transmission verification report. He said the fax may have mistakenly gone to his junk mail repository. I refaxed the insurance notice (Exhibit 3). In addition to the February 25, 2006 fax, I had previously mailed and faxed on February 17, 2006 a letter to Mr. McGuinn stating that insurance was in place and would provide proof of same. 4. On April 10, 2006, I discussed this order with Mr. McGuinn. Mr. McGuinn and I specifically discussed the portion of the order which states that Movants shall not take enforcement actions against the debtor or debtors estate without further order of this court, and that the motion he filed was in error because he had previously received notice of proof of insurance. 5. Mr. McGuinn indicated to me that he felt that the wording of the order was ambiguous, and given that, the property would not be sold at foreclosure at that time. We agreed that the state court litigation would go forward based on the language contained in the order for relief from stay. (A true and correct copy of the Relief from stay order is attached hereto as Exhibit 4). 6. Based on this conversation, I advised my client that he had sufficient additional time to 1) continue to litigate the Riverside Civil Case, case #RIC430931, where the validity of creditors claims are being tested, and 2) secure bridge funding sufficient to moot the pending foreclosure sale.

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2 In re WS-TH, Inc. Declaration of James Warner BK. NO. 06-00191-JH-11

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David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

7.

On April 17, 2006, the insurance broker faxed to Mr. McGuinn the declarations page of the insurance policy, indicating that Mr. McGuinns client was listed as an additional named insured on the policy.

8.

On April 17, 2006, at 3:58 pm my office received a fax from Mr. McGuinn, indicating that Mr. McGuinn had decided that the foreclosure sale would go forward the next morning at 10:00 a.m. Unfortunately, at that time I was out of the office, and was not made aware of the contents of the fax until approximately 5:30 p.m. on April 17, 2006.

9.

I believe that the order issued by this court on April 6, 2006, provided relief from the automatic stay to Creditors Pacific Horizon Financial, Inc. and Pacific Horizon Mortgage Investors, 1 LLC of a limited nature, i.e., they had the right to litigate the claims in the Riverside Court, but not sell the property, or take other enforcement action against the property. Taking the property to foreclosure sale, and seeking to obtain a trustees deed upon sale is a violation of the express provisions of Judge Hargroves order, which otherwise would not make sense to allow a foreclosure of the debtors property but not allow execution on the state litigation without further Court order.

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The dismissal of the chapter 11 case: On March 16, 2006 the Court filed a notice of intent to dismiss involuntary chapter 11 petition. Thereafter a creditor, Ronald A Bedell filed a request and notice of Hearing of Intent to Dismiss Involuntary Chapter 11 petition. The notice scheduled a hearing for May 12, 2006. (Exhibit 5) As stated above, the foreclosure sale occurred on April 18, 2006. The subject property reverted to the foreclosing beneficiary. One day latter, Ronald A. Bedell withdrew the request and notice of hearing on Courts Notice of Intent to Dismiss Involuntary Chapter 11 Petition. (Exhibit 6). On April 24, 2006 the Court entered and Order Granting Dismissal of the Case signed that same day. (Exhibit 7). Notice of Dismissal was mailed April 27, 2006. (Exhibit 8). The dismissal of the Chapter 11 effectively validated the sale without allowing the debtor to oppose the sale and the dismissal. Debtor believed that the Order granting relief did not allow the sale to proceed without further Court Order, and that the debtor would have an

3 In re WS-TH, Inc. Declaration of James Warner BK. NO. 06-00191-JH-11

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David Sean Dufek, Esq. 2655 Camino Del Rio North Suite 203 San Diego, CA 92108 (619) 222-5886 Fax (619) 222-5486

opportunity to oppose the dismissal at the hearing scheduled April 12, 2006. I declare under penalty of perjury, under the laws of the United States of America, that the foregoing is true and correct. Executed this 4nd day of May, 2006 at San Diego, California.

/s/James Warner James Warner

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