A federal bankruptcy judge has approved an agreement forged — if somewhat begrudgingly — between landlords Floyd and Betty Squires and the city of Eureka that will essentially remove the couple from their property rental business, at least for the time being.

Long story short, an “examiner with special powers” will be appointed to oversee the Squireses’ estate but the agreement stops short of the city’s initial bid to wrest complete control away from the couple, who will retain a “collaborative” role until a plan goes into place to pay off their estimated $2.6 million in debt.

While details are still being ironed out, the basic proposal is for Real Property Management to take over day-to-day operations while the examiner works to determine the value of the Squireses’ assets and how to best maintain those properties.

That includes dealing with health and safety issues that have been the subject of extensive litigation and disagreement between the city and the Squireses.
In handing down his decision, Judge William Lafferty acknowledged the contentious relationship between the city, the Squireses and their main creditor Mark Adams, who ultimately forced the couple’s hand. (See “Squireses File for Bankruptcy as Auction Looms,” Nov. 10, 2017).


“This is an unusual case in that the tempers have been quite hot and heavy on both sides and there is a lot of dispute about the history, how we got here and there is some dispute about the condition of the properties ... but there is ultimately an agreement that the intelligent thing to do here is to liquidate some of the properties,” he said during Wednesday’s hearing.

There are already twin $1 million sale offers on the table, according to court documents. One is for the site where the Blue Heron Lodge once stood before it was razed by the city last year. The other offer is for two properties: the problematic and boarded up apartment building at 833 H St. and the notorious (and also condemned) apartment building on Third Street that became known as the “Heroin Hilton.”

Those are slated to go before Lafferty for approval April 25.

Considering that just a few weeks earlier the city and the Squireses were preparing to face off in what was expected to be a particularly bitter trial over Eureka’s request to have control of the couple’s estate taken over by a bankruptcy trustee, the agreement was a major shift in strategy for both sides.

While the agreement’s terms initially required the city and the Squireses to “take action” to have an eight-year-long Superior Court case dismissed, along with dropping any other claims against one another, Lafferty directed the parties to instead state their intent to do so and he would entertain that aspect of the agreement as a separate motion. (See “Suing Squires,” Sept. 1, 2016).

One of the other features that makes the Squireses’ bankruptcy so unusual, Lafferty noted, is that it appears the couple will be able to settle their creditors’ claims by selling off a core group of properties, meaning those left remaining will more than likely belong to them once the Chapter 11 case is settled.

How that will square with the proposal to drop the superior court case — which includes 26 properties — is not exactly clear, but in the agreement each side also promises to essentially play nice by entering into a “mutual non-disparagement agreement.”

At Wednesday’s hearing, Lafferty also approved a spending plan for the month of April that includes a $9,000 budget for the Squireses — which will be their ongoing allotment while their properties are under the supervision of the examiner. But the allotment comes with the caveat that the estates’ bills get paid first.

Jared Day, representing the Office of the U.S. Trustee, part of the Department of Justice, which essentially acts as a watchdog for the proceedings, raised concerns that there simply was not enough money to go around this month — especially with property taxes coming due.

“I don’t see any way there is going to be anywhere near close to $9,000 a month without a sale,” he told the judge.

The Squireses’ attorney David Chandler acknowledged the couple might have to do some “belt tightening” but if the sales before court go through on a 20-day escrow, things will be on much more stable financial ground in the coming weeks.

Lafferty made clear he’s looking for Squireses and the city to work collaboratively “to get everyone behind a plan” that can bring this case to a close in the upcoming months while also praising “everyone’s professionalism.”

He noted that if the trustee trial had take place there were risks for both sides and added the Squireses have acknowledged “they fought this fight long enough that they're happy to vacate the field.”

“My goal here is to get you guys to the finish line as expeditiously as we can,” Lafferty said.