Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 1 of 24

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION

In re:

MERENDON MINING (Nevada), INC. Case No. 09-11958-AJC

a/k/a Milowe Brost,
Chapter 7
Debtor.
__________________________________/

MARCIA DUNN, AS CHAPTER 7 TRUSTEE, THE ESTATE OF HAROLD

CALDWELL (THROUGH ITS PERSONAL REPRESENTATIVE, DAWN CALDWELL
FEDRIGON), AND DAWN AND MICHAEL FEDRIGON’S JOINT RESPONSE TO
PAUL GARFINKLE’S OBJECTION [D.E. #269] TO THE TRUSTEE'S MOTION,
PURSUANT TO RULE 9019, TO APPROVE A SETTLEMENT WITH THE ESTATE OF
HAROLD CALDWELL [D.E. #262]

Marcia Dunn, as Chapter 7 Trustee of the substantively consolidated Debtors’ Chapter 7

Bankruptcy Estate (the “Trustee”), and the Estate of Harold Caldwell (through its Personal

Representative, Dawn Caldwell Fedrigon)(the “Caldwell Estate”), and Dawn and Michael

Fedrigon, (“Fedrigon”) (the Caldwell Estate and Fedrigon will jointly be referred to as the

“Settling Parties”) hereby files this their joint response to the Objection filed by Paul Garfinkle1

(“Garfinkle”) [D.E. #269] to the Trustee’s Motion to Approve Settlement with the Settling

Parties [D.E. #262], and in support thereof states as follows:

Overview

1. As a threshold matter, Garfinkle lacks standing to object to the settlement because

he is not a creditor of the estate. Although Garfinkle asserts in his Objection that he has an

equitable interest in the Glory Hole Assets (See Garfinkle’s Objection at ¶10), and that he has

been given a Power of Attorney to sign and file Proofs of Claim by approximately twenty

defrauded creditors of Merendon (¶13), Garfinkle has in fact filed only a single Proof of Claim—

a claim filed on behalf of the late Harold Caldwell under a Power of Attorney that was allegedly

given to Garfinkle. This Proof of Claim was designated as Claim #482-1 (the “Claim”) and

signed by “PAUL GARFINKLE UNDER POA FROM HOWARD CALDWELL.” As described

 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 2 of 24

in further detail below, not only was this Power of Attorney explicitly revoked by Howard

Caldwell in a letter dated August 12, 2006, but this Power of Attorney automatically terminated

upon the death of Caldwell.2 Accordingly, Garfinkle lacks standing to raise this Objection.

2. In his Objection, Garfinkle asserts that the proposed settlement does not provide

any economic benefit to the estate because the sum of $600,000 “is a mere pittance of the true

value of the property,” without providing any support for that assertion. However, this statement

does not account for the important fact that the Trustee would first be required to expend

significant resources and fees in order to litigate the contentious issue of the actual ownership of

Glory Hole before it could recover anything or make any distributions to creditors, and to date

this settlement offer is still higher and better then any offer the Trustee has received for just the

Glory Hole. Even worse, the bankruptcy estate could potentially lose the issue of ownership

altogether and be required to turn over all of the sales proceeds on top of any litigation expenses

already incurred.

3. This settlement will provide $600,000 to the Estate without further cost, and will

resolve all claims between the Trustee and the Settling Parties. The Trustee submits that based on

the specific facts of this case, the proposed settlement is reasonable and in the best interest of the

estate.

PROCEDURAL BACKGROUND

Debtor’s Bankruptcy

4. On February 4, 2009 (the “Petition Date”), Petitioning Creditors Eileen McCabe,

Jane L. Otto, and Diane Kaplan-Berk (the “Petitioning Creditors”) filed a Chapter 7 Involuntary

Petition in this Bankruptcy Court for the Southern District of Florida (“this Court”) against the

Debtor, Merendon Mining (Nevada), Inc., a Nevada corporation (“Debtor” or “Merendon”),

1
Garfinkle’s Objection is the only one that has been filed against the proposed settlement.
2
A Power of Attorney would no longer have any legal effect after the death of Harold Caldwell. Hunt v.
Rousmanier's Adm'rs, 21 U.S. 174, 5 L.Ed. 589, 8 Wheat. 174 (U.S.1823)(A power of attorney, even if irrevocable
during the life of the grantor, becomes extinct by his death); Hunt v. Rhodes, 26 U.S. 1, 1 Pet. 1, 7 L.Ed. 27 (U.S.
1828); Bush v. Flynt, 257 Fed.Appx. 241, 243-44 (11th Cir. 2007).
2
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 3 of 24

whose principal place of business was in Miami-Dade County [D.E. #1].

5. On June 9, 2009 (the “Relief Date”), this Court entered an Order for Relief [D.E.

#29], and on June 10, 2009, Marcia Dunn was appointed as the Chapter 7 Trustee over Debtor’s

Chapter 7 Estate [D.E. #30].

The Sub Con Case

6. On December 15, 2009, the Trustee commenced Adversary Proceeding No. 09-

02518 (the “SubCon Case”) against the Alter Ego Defendants/Non-Debtor Entities, which

included, but were no limited to the Debtor’s affiliates located in the United States: (a) Merendon

Mining (Colorado), Inc., a Colorado corporation; (b) Merendon Mining (Arizona), Inc., a

Nevada corporation; (c) Merendon Mining (California), Inc., a Nevada corporation; (d) True

North Productions, LLC, a Nevada corporation, and (e) Sentinel (collectively, the “U.S.

Merendon Mining Entities”) seeking, inter alia, to pierce the corporate veil of the U.S.

Merendon Mining Entities, and declare that the assets of the U.S. Merendon Mining Entities are

property of the Debtor’s estate, including the Glory Hole Mining Properties (the ”Glory Hole”).

7. On January 27, 2010 this Court substantively consolidated a great number of the

Debtor’s related entities with Debtor, including the U.S. Merendon Mining Entities, into the

main bankruptcy case, and the Debtor’s estate [D.E. #84], nunc pro tunc, to the Petition Date

(the “SubCon Order”), as amended by the Court’s Agreed Order entered February 26, 2010,

which included Sentinel [D.E. #84; D.E. #20 in the Sub Con Case].

8. On March 11, 2010, this Court granted Partial Summary Judgment (the “ Sub Con

Judgment”) [D.E. #62 in the Sub Con Case] in favor of the Trustee—in relevant part—piercing

the corporate veil of the U.S. Merendon Mining Entities, determining that property owned by the

U.S. Merendon Mining Entities, including the Glory Hole, are property of the Debtor’s estate,

substantively consolidating those properties into the Debtor’s estate, extending the automatic

stay over those properties, and providing that all persons or entities claiming an interest, by way
3
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 4 of 24

of ownership or lien, in any of those properties, may file a claim in the Bankruptcy Case.

9. The SubCon Order and the Sub Con Judgment were recorded in Gilpin County,

Colorado on March 17, 2010 (No. 141130) and on April 26, 2010 (No. 141349), respectively.

The Attempted Sale of the Glory Hole Property

10. Thereafter, on September 29, 2010, the Trustee commenced Adversary

Proceeding No. 10-03623 (the “363 Adversary”) to determine the validity, extent, and priority of

any liens, claims, encumbrances, and interests, including any competing interests in, inter alia,

the Colorado Mining Properties, including the Glory Hole, pursuant to 11 U.S.C. §363 and Fed.

R. Bankr. P. 7001(2), in order to facilitate the sale, by 363 motion, of the three Colorado mining

properties, which included the Glory Hole, for a total of $2.25 million to a third party buyer (the

“1st Buyer”) that had been located, subject to higher and better offers at a bankruptcy court

supervised auction (the “Sale Motion”)[D.E. #167, dated September 3, 2010].

11. It is the Trustee’s position that Paul Garfinkle subsequently interfered with the

sale and Sale Motion and that his conduct caused the proposed 1st Buyer to walk away from the

transaction.3. Before and during this bankruptcy, Mr. Garfinkle has long expressed to the Trustee

and her professionals his desire to acquire the Glory Hole mining property for his own benefit.

Rather than making any written offer to the Trustee and providing earnest money to buy the

Glory Hole or any other mining property from the Trustee, Mr. Garfinkle has chosen to

disrespect the bankruptcy process, and rather has tried to sabotage any sale that does not result in

his acquisition of the Glory Hole mine.

12. Fortunately, a subsequent third party buyer was found for the Glory Hole, and on

June 9, 2011, the Sale Motion was revised to just sell the Glory Hole, but not the other Colorado

properties to this new third party buyer (the “2d Buyer”), for $495,000, also subject to higher and

3
Upon filing the Sale Motion, Garfinkle then sent a letter to the 1st Buyer which the 1st Buyer, through her
representatives, has advised the Trustee’s undersigned counsel, was the basis of her withdrawing her offer.
4
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 5 of 24

better offers at a bankruptcy court supervised auction (the “Amended Sale Motion”)[D.E. #245].

13. However, while several superior offers4 subsequently came in for the Glory Hole

that led the Trustee and her professionals to believe that substantial competitive bidding would

occur, because the Glory Hole was subject to two competing ownership claims5 by the Settling

Parties and Clearwater Mining Company (“Clearwater”)(as differentiated from lien claimants),

and because this Court at the hearing on the Amended Sale Motion indicated that it would also

not consider bids for the Glory Hole that contained nonmonetary elements, such as settlement of

these competing ownership claims, this Court refused to allow the sale of the Glory Hole until

such time as those ownership issues were resolved by litigation or settlement [D.E. #252, Order

denying the Amended Sale Motion without prejudice, dated July 26, 2011].

14. Notwithstanding the denial without prejudice of the sale of the Glory Hole by this

Court, fortunately, the Trustee was able to persuade the 2d Buyer to agree to purchase the other

two non Glory Hole Colorado mining properties for the same purchase price and to apply its

pending earnest money deposit toward that purchase, which again is also subject to higher and

better offers at a bankruptcy court supervised auction (the “Non Glory Hole Sale” or the “2d

Amended Sale Motion”)[D.E. #256, dated August 3, 2011]6. The hearing to consider approval of

the Sale Procedures for the sale of the Non Glory Hole Colorado Properties pursuant to the 2d

Amended Sale Motion is set to be heard on September 27, 2011 [D.E. #260, Order dated August

8, 2011].

The Pending Settlement with the Settling Parties

15. At the same time, the Trustee was also fortunately able to successfully settle the

ownership dispute with the Settling Parties through the payment by Fedrigon of $600,000 to the

4
Including one offer received from the Settling Parties, which is virtually identical to the Settlement Agreement
which is the subject of the pending settlement motion.
5
Each of these competing ownership claims emanating from Mr. Garfinkle’s relationship with the late Harold
Caldwell. See Exhibit A hereto.
6
Those two other Colorado properties, as compared to the Glory Hole, are fortunately not subject to competing
ownership claims.
5
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 6 of 24

bankruptcy estate in exchange for releasing any interest the bankruptcy estate has in the Glory

Hole, resulting in the Trustee on August 19, 2011, filing her Motion to Approve the Settlement

with the Settling Parties (the “Settlement Motion”) [D.E. #262], which Settlement Motion is set

to be heard on September 27, 2011 at 3 p.m. [D.E. #’s 263 & 264, dated August 19, 2011], and

was also served to all parties via the “negative notice” provision of the Local Rules, and stated as

follows:

“Any interested party who fails to file and serve a written response to this motion
within 21 days after the date of service stated in this motion shall, pursuant to Local
Rule 9013-1(D), be deemed to have consented to the entry of an order in the form
attached to this motion. Any scheduled hearing may then be canceled.”

16. On August 25, 2011, Garfinkle timely filed his Objection to the Settlement

Motion (the “Objection”) [D.E. #269]. No other written responses to the Settlement Motion were

filed by the Negative Notice deadline, nor subsequent to the same, and as such all other parties

have therefore consented to the Settlement Motion.

17. It is not surprising that the only objector to the Rule 9019 Settlement Motion is

Mr. Garfinkle, who despite the fact that this Court made itself clear that it would not approve a

sale of the Glory Hole absent resolution of the ownership issues, Mr. Garfinkle nonetheless

wants to force the Trustee to sell the Glory Hole to him, or persons or entities affiliated with him,

notwithstanding the fact that he has not made a single written offer or provided any deposit

money to the estate over the course of this bankruptcy.

18. Notwithstanding Mr. Garfinkle’s protestations to the contrary, and his

besmirching of the reputation of The Trustee and her Court approved professionals7, the result of

this settlement with the Settling Parties over the Glory Hole will lead to a substantial benefit to

the Estate, as compared with a sale of the Glory Hole, in that (1) the proceeds of the settlement

7
This Court should be mindful that this attack from Mr. Garfinkle is coming from a twice convicted criminal, and
disbarred attorney, who twice served time in Federal prison on conspiracy, fraud, tax fraud and money laundering
charges (See, Garfinkle’s own Affidavit, D.E. #1-1 in the Sub Con Case, pg. 3, ¶¶11-13).
6
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 7 of 24

would go directly to the estate for the benefit of injured victim investors, rather than potentially

being lost through litigation, during which the Trustee would have to rely upon the testimony of

Mr. Garfinkle, a convicted felon, to support its case, (2) the costs of litigation may overwhelm

the recovery that may be received through sale, and (3) the proceeds of any such sale would have

to be delayed until after ownership issues were resolved through litigation or settlement that may

result in sharing those proceeds with competing claimants, or (4) even worse the bankruptcy

estate could potentially lose the issue of ownership outright and have to turn all of the sale

proceeds over to a competing claimant, such as the Settling Parties or Clearwater.

19. Notwithstanding the Settling Parties’ position, as articulated in Exhibit A hereto,

the Trustee nonetheless believes that ultimately she would have prevailed on both the law and

the facts of this unique case, primarily on the basis that notwithstanding what occurred between

the decedent Caldwell and Mr. Barnes in Texas and Colorado, the sale to the Debtor by Barnes,

with Debtor’s creditor investors funds, was made pursuant to a valid non stayed execution sale in

Colorado, and that as a result Debtor was a bona fide purchaser for value of the Glory Hole mine.

Notwithstanding the same, the fact that these issues had been tied up in state court litigation for

more than a decade in Texas and Colorado before even this case was filed, coupled with the risks

described above, led the Trustee to exercise her business judgment and determine that settlement

with the Settling Parties is in the best interests of the estate and its creditors.

Garfinkle Lacks Standing to Object to this Settlement

20. On January 14, 2010, Garfinkle purportedly filed a Proof of Claim which was

designated as Claim #482-1(the “Claim”) in this case. A review of the Claim reveals that

Garfinkle was not acting on his own behalf, rather the Claim was allegedly filed on behalf of

Harold Caldwell, under a Power of Attorney allegedly given to Garfinkle (see the “signature

line” at the bottom of the page).

21. However, at the time this Claim was filed, Harold Caldwell had died and with his

7
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 8 of 24

death, any claimed Power of Attorney also expired. Second, even if Harold Caldwell was still

alive, it is the Caldwell Estate’s position that he revoked the purported Power of Attorney and

received acknowledgment of the revocation by Garfinkle (See Exhibit A hereto). Third, the

Claim was not signed as directed by the form instructions. Finally, the Claim did not have the

alleged Power of Attorney attached as directed by the Claim form.

22. On September 12, 2011, the Caldwell Estate through its counsel filed a Notice of

Withdrawal of Proof of Claim 482-1 (the Claim) [D.E. #272]. Also on September 12, 2011, for

the same reasons as espoused by the Caldwell Estate (except on the basis that Harold Caldwell

while alive revoked the Power of Attorney) the Trustee filed an Objection to Claim No. 482

citing Garfinkle’s lack of standing to assert this claim [D.E. #273] (the “Trustee’s Objection”).

The Trustee’s Objection also reflects that Proof of Claim No. 482 does not contain any

paperwork to document the basis of the Claim and also supports the Claimant’s position that any

Power of Attorney held by Garfinkle for Harold Caldwell, terminated upon the death of Mr.

Caldwell.8 It is the Settling Parties’ position that when Garfinkle filed the Claim, he knew that

the alleged Power of Attorney from Harold Caldwell was not only revoked, but that Mr.

Caldwell had died (See Exhibit A hereto). 9

23. Garfinkle has filed no other proofs of claim in this bankruptcy case, and the

claims bar deadline has long since passed. Given the withdrawal of the Claim, and Harold

Caldwell’s pre-petition death, any alleged standing by Garfinkle was terminated and Garfinkle

now stands in the shoes of an intermeddling bystander without any standing in this matter.

STANDARD FOR APPROVAL OF THE SETTLEMENT

24. The Settlement Motion is subject to final approval by the Bankruptcy Court and

8
See fn. 2 above.
9
Despite this known fact, Garfinkle filed the Claim in violation of 18 U.SC. §152(4). It is the Settling Parties’, but
not the Trustee’s, position that the Claim filed by Garfinkle should be referred to the United States Attorney for
further investigation.

8
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 9 of 24

was filed pursuant to Fed. R. Bankr. P. 9019(a). Approval of a settlement in bankruptcy

proceedings is within the sound discretion of this Court and will not be disturbed or modified on

appeal unless approval or disapproval is an abuse of discretion. See, In re Arrow, Inc., 85 B.R.

886, 891 (Bankr. S.D. Fla. 1988). In determining the reasonableness of a settlement, the test is

whether the proposed settlement “falls below the lowest point in the range of reasonableness.”

Id. at 891.

25. The legal standard for approval of settlements in the Eleventh Circuit is set forth

in In re Justice Oaks, II, Ltd., 898 F.2d 1544, 1549 (11th Cir.), which requires that the Court

consider: (1) the probability of success in litigation; (2) the complexity of the litigation involved

and the expense, inconvenience and delay necessarily attending it; and (3) the paramount interest

of the creditors and a proper deference to their reasonable views in the premises. Id.

26. The Trustee and the Settling Parties submit that the Settlement should be

approved because the status of the pending litigation would require the Estate to expend

significant administrative counsel fees on claims that would be zealously contested without any

certainty as to result.

27. Accordingly, the Trustee and the Settling Parties recognize that instead of

needlessly spending money to litigate the ownership of the Glory Hole, assume the risks

attendant with trial, and risk the likelihood that the Settling Parties and/or the Trustee might

prevail, the creditors of the Estate are better served by settling with the Settling Parties that

portion of the Adversary Proceeding dealing with the Glory Hole10 for a sum that enhances the

Estate and at the same time minimizes administrative expenses. That is exactly what the Trustee

will achieve by means of the Settlement Motion. Based on the foregoing, the Trustee and the

Settling Parties believe that the Trustee has demonstrated that the likelihood that the Settling

10
The 363 Adversary will not be dismissed in its entirety because of the proposed sale of the other Colorado
properties. However, because the Glory Hole was the most litigious piece of this litigation, the settlement of this
claim will result in a substantial simplification of the 363 Adversary, and a dismissal of a large number of parties
and claims from that action.
9
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 10 of 24

Parties might prevail on the litigation11 and that the attendant delay and doubtful nature of

realizing any value from the Glory Hole satisfies the first two Justice Oaks factors.

28. What is most central to the present Settlement Motion is that the Trustee

recognizes the difficulty of prosecuting the 363 Adversary due to the competing Settling Parties

and Clearwater ownership claims to the Glory Hole. The cost of litigating the ownership issues

of the Glory Hole, and the risk of losing on this issue at trial weighs heavily in favor of the

settlement with the Settling Parties12, and on such terms as are contained in the Settlement

Motion. The Estate is currently administratively insolvent, and settling the dispute will inject into

the Estate much needed liquidity and leave a residue for the investor creditors, who would

otherwise be looking at complex litigation that bears the very real risk of being unsuccessful13. If

the Trustee pursued the litigation path, she may, and most likely would, run up tremendous

administrative expenses that may never be paid, and the creditors would receive nothing. The

structure of the Settlement Motion will moot much, if not all of the pending litigation over the

Glory Hole mine, or at least the Estate’s further involvement in the same. Accordingly, the

Trustee and the Settling Parties believe that the third Justice Oaks factor is satisfied.

11
See Exhibit A.
12
The Trustee has learned that one or more of the Settling Parties, settled the 20 year old litigation pending in Texas
and settled most of the litigation pending in Colorado. Ironically, the Claimants have a pending cause of action
against Garfinkle. The fact that the litigation was settled after so many years and the fact that one or more of the
Settling Parties are receiving a benefit from that Settlement seems to weigh heavily in favor of the Claimants being
able to prove that the underlying Judgment obtained by Barnes against Caldwell was obtained without proper
service upon Caldwell and the Trustee believes that the Claimants could possibly demonstrate the improper service
upon Caldwell in the Bankruptcy Court. Given this and the fact that the Settling Parties were willing to litigate this
matter to conclusion leads the Trustee to believe that prevailing in this matter would, at the very least have been
expensive, and could possibly end in a victory for one or more of the Claimants. In that event, not only would the
Bankruptcy Estate possibly be entitled to NOTHING, but the cost associated with receiving nothing could be in the
hundreds of thousands of dollars due to the fact that many of the potential deponents are outside of Florida.
13
Garfinkle claims that the estate has done nothing to pursue estate assets in South and Central America. As this
Court has often noted that just because the Trustee might be successful in getting a judgment or order here in a US
Bankruptcy Court doesn’t mean the Trustee will be successful in getting any such judgment or order enforced in
South and Central America. Because of legal hurdles in those countries, it is impossible for the Trustee without an
infusion of funds into the Estate to pursue such international assets and claims. Garfinkle has repeatedly told the
Trustee and her professionals that he could bring those much needed funds to the Estate through creditor financing,
but no such funding has ever materialized. However, this settlement coupled with the proposed sale of the other
Colorado Properties would provide such needed funds. If this Court were to approve both the Sale of the non Glory
Hole Colorado properties and this settlement, the Estate would receive close to $1.1 million (and possibly quite
more if the non Glory Hole auction proves to be successful). At that point, the Trustee will again have to exercise
her business discretion to decide whether to use those funds to pursue those claims or to just make a distribution of
net proceeds to make a distribution to creditors.
10
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 11 of 24

29. Based upon his prior conduct both before and after this bankruptcy as it has

related to his desire to acquire the Glory Hole property, the Trustee fully expected Garfinkle to

object to the Settlement Motion, but the proper deference to his view is to give it no deference at

all. The Estate is greatly enhanced by the Settlement Motion in that the Estate will finally now

have the resources to pursue the perpetrators of the underlying fraud in this case, or alternatively

make a distribution. Accordingly, the Settlement Motion, as proposed, represents a figure well

above the lowest point in the range of reasonableness and satisfies the Justice Oaks standard.

Clearly, it is in the best interest of the Estate and its creditors. The Settlement Motion should be

granted.

WHEREFORE, the Trustee and the Settling Parties request this Court enter an Order (1)

granting the pending Settlement Motion, (2) denying that Garfinkle has standing to object to the

same, and overruling Garfinkle’s Objection, and grant such further relief as this Court deems just

and proper.

Gray Robinson, P.A. Moffa & Bonacquisti, P.A.

Attorneys for the Chapter 7 Trustee Attorneys for the Settling Parties
401 East Las Olas, Blvd. Suite 1850 1776 North Pine Island Road #222
Fort Lauderdale, FL 33301 Plantation, FL 33322
Telephone: 954-761-7508 Telephone: 954-634-4733
Facsimile: 954-761-8112 Facsimile: 954-337-0637
Email: Ivan.Reich@Gray-Robinson.com Email: John@TrusteeLawFirm.com

By: /s/ Ivan J. Reich By: /s/ John A. Moffa14

Ivan J. Reich John A. Moffa
Fla. Bar No. 778011 Fla. Bar No. 0932760

CERTIFICATE OF SERVICE

We HEREBY CERTIFY that a true and correct copy of the foregoing was furnished this

22nd day of September, 2011 to those who received this via the Court's CM/ECF system and to

Paul Garfinkle via U.S. Mail at 5629 American Circle, Delray Beach, FL 33484, and via email at

garfinkle100@aol.com, and in accordance with the Court’s Order of December 30, 2009 [D.E. #

74 in the Main Case], the Order shall be posted to: http://www.gray-

14
Permission has been given by Attorney Moffa for Attorney Reich to file on his behalf.
11
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 12 of 24

robinson.com/news.php?ACTION= view&CAT=1&ID=1475 set up for the purpose of providing

case information.

Gray Robinson, P.A. Moffa & Bonacquisti, P.A.

Attorneys for the Chapter 7 Trustee Attorneys for the Settling Parties
401 East Las Olas, Blvd. Suite 1850 1776 North Pine Island Road #222
Fort Lauderdale, FL 33301 Plantation, FL 33322
Telephone: 954-761-7508 Telephone: 954-634-4733
Facsimile: 954-761-8112 Facsimile: 954-337-0637
Email: Ivan.Reich@Gray-Robinson.com Email: John@TrusteeLawFirm.com

By: /s/ Ivan J. Reich By: /s/ John A. Moffa

Ivan J. Reich John A. Moffa
Fla. Bar No. 778011 Fla. Bar No. 0932760

12
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 13 of 24

EXHIBIT A

THE SETTLING PARTIES’ PARTIAL STATEMENT OF ITS CLAIM

Garfinkle’s Crime

1. In early 1997, Harold Caldwell (“Caldwell”) met Garfinkle and retained him to

act as his attorney with regard to a specific business deal. Unbeknownst to Caldwell, Garfinkle

had pled guilty in 1996 to one count of money laundering, 18 U.S.C. §1956(a)(3), and one count

of conspiracy to commit fraud, 18 U.S.C. §371. He was sentenced by the U.S. District Court for

the District of Colorado to five years’ probation and a $50,000 fine. Four months after his

sentencing, Garfinkle was further charged with eight violations of his probation conditions.

Among his violations were: [1] failure to follow the instructions of his probation officer; [2]

failure to answer truthfully inquiries made by his probation officer; and [3] associating with

convicted felons. As a result of these violations, Garfinkle’s probation was revoked, and he was

sentenced to 24 months’ imprisonment and 36 months’ supervised release. Garfinkle continued

his pattern of deceit and fraud in his future business dealings with Caldwell.

The Garfinkle Power of Attorney (1997)

2. At the time Caldwell retained Garfinkle to act as his attorney, Garfinkle resided in

Delray Beach Florida, and Caldwell resided in Fort Lauderdale, Florida. Garfinkle did not

disclose to Caldwell his history of dishonesty, fraud, association with criminals, and commission

of financial crimes. His failure to do so was a breach of his fiduciary duty to Caldwell, a likely

violation of his probationary terms, and contrary to Caldwell’s best interests.

3. On May 14, 1997, as part of his purported representation of Caldwell’s interests,

Garfinkle induced Caldwell to execute a Power of Attorney.

1
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 14 of 24

4. At the time that he signed the Power of Attorney, Caldwell believed that it

pertained solely to the one specific business deal for which he had retained Garfinkle. Caldwell

would not have signed the Power of Attorney if he had known Garfinkle’s criminal history and

associations, and/or Garfinkle’s intent to use the Power of Attorney in a manner that: (a) could

affect Caldwell’s right, title, and interest in other matters, including his litigation and property

interests in Texas and Colorado; (b) was plainly contrary to Caldwell’s best interests; and/or (c)

was solely in the best interests of Garfinkle and/or Barnes (a litigant against Caldwell in Texas

and Colorado).

The Glory Hole Mining Agreement (2005)

5. Merendon was formed as a corporate entity in November 2003. By late 2005,

Garfinkle and/or others had introduced Caldwell to Merendon, for which Milo Brost (“Brost”)

served as its CEO and Garfinkle served as its agent and/or attorney. Throughout the course of

Garfinkle’s dealings with Caldwell concerning Merendon (and later Sentinel), Garfinkle had a

non-waivable conflict of interest by virtue of his: (a) position as an agent, associate, attorney,

and/or other representative for Merendon and Sentinel; (b) his attorney-client relationship with

Caldwell; and (c) his possession of the May 14, 1997 Power of Attorney.

6. In December 2005, Garfinkle and Brost induced Caldwell to execute various

agreements with Merendon for the development of Caldwell’s patented mining claims and other

interests located in the Glory Hole Area near Central City in Gilpin County.

7. In December 2005, Merendon and Caldwell (and certain companies, including

Clearwater Mining Corporation, Inc., Colorado Chain O’ Mines, Inc., and Chain O’ Mines

Consortium) executed a Glory Hole Mining Agreement that was back-dated to August 15, 2002.

2
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 15 of 24

Merendon told Caldwell that they needed to back-date the agreement to 2002 for tax credit

purposes.

8. Under the terms of the Glory Hole Mining Agreement, Merendon was obligated,

inter alia, to:

a. make periodic good faith payments, periodic bonus payments, and royalty payments

to Caldwell and the companies;

b. actively engage in the continuous development and production of the Glory Hole

mining claims consistent with acceptable mining and milling professional industry

standards;

c. purchase and deploy equipment sufficient in quantity and type to put in place a

research and development production line by January/February 2006; and

d. refurbish and recondition useable equipment and components of the existing ore line

by June 30, 2006.

9. Among the provisions of the Glory Hole Mining Agreement was a “safekeeping

provision” whereby title and ownership to Caldwell’s mining claims was to be held in

“safekeeping” by a “top tier financial institution,” and was to be transferred by the institution to

Merendon on or before December 31, 2005.

10. Merendon and Caldwell also executed another Agreement to ensure that, if

Merendon failed to perform its commitment to produce obligations owed under the Glory Hole

Mining Agreement, then Caldwell could remove Merendon from the mining claims and recover

ownership of title to the claims. This additional Agreement was also back-dated to August 15,

2002. In particular, this additional Agreement provided that Merendon was to execute an

3
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 16 of 24

assignment of title back to Caldwell and his companies, and that the assignment would be held in

“safekeeping.” If Merendon was removed from the mining claims pursuant to the Glory Hole

Mining Agreement and the additional Agreement, then the assignment of title would be released

back to Caldwell and/or his companies.

11. In December 2005, Merendon and Caldwell also executed a Safekeeping

Agreement which confirmed that the financial institution into which the parties’ respective deeds

and assignments to the Glory Hole mining claims would be deposited was US Bank in

Broomfield, Colorado.

Merendon’s Purported Default (2006)

12. On June 15, 2006, Merendon defaulted on its third good faith payment obligation

in the amount of $450,000 that was due to Caldwell under the Glory Hole Mining Agreement.

13. By the end of June 2006, Merendon had also defaulted, inter alia, on its

obligations to: (a) purchase and deploy equipment necessary to put in place a research and

development production line by January/February 2006; and (b) refurbish and recondition

useable equipment and components of the existing ore line by June 30, 2006.

14. On July 14, 2006, Caldwell and the companies sent a notice of default and a

demand for payment of the third good faith payment that was necessary in order to avoid

cancellation of the Glory Hole Mining Agreement. They also requested a detailed update

regarding Merendon’s production obligations due under the agreement.

15. Despite demand, Merendon failed to meet its obligations under the Glory Hole

Mining Agreement. Thus, the Glory Hole Mining Agreement was cancelled.

4
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 17 of 24

The Revocation of the Power of Attorney (2006)

16. On August 12, 2006, Caldwell and two companies (Korth Corporation and

Clearwater Mining Corp.) signed and sent letters to Garfinkle which clearly and expressly

revoked the May 14, 1997 Power of Attorney and any other powers of attorney that may have

existed.

17. The revocation letter provided clear and express notice to Garfinkle that Garfinkle

and Merendon did not have authority to [1] negotiate any settlements or agreements on behalf of

Caldwell or his companies, including any settlements or negotiations pertaining to any cases

involving Barnes and Caldwell; [2] Garfinkle and Merendon did not have any power of attorney

for Caldwell and/or various companies and family members (including Colorado Chain

O’Mines, Erika Kisthard, Clearwater Mining Corporation, M. Fedrigon, or Korth Corporation);

and [3] any prior power of attorneys which may have ever existed were null and void.

18. On August 13, 2006, Garfinkle responded in writing to the August 12, 2006

revocation of the Power of Attorney. In his response, Garfinkle stated that: [1] he would refuse

to abide by the revocation of the Power of Attorney; [2] he had previously executed agreements

on Caldwell’s behalf with Merendon and others; [3] he had intervened in the Barnes v. Caldwell

litigation in Hidalgo County District Court; [4] he intended to negotiate a settlement on

Caldwell’s behalf with Barnes; and [5] he intended to sign a settlement agreement with Barnes

and present it to the Court for approval.

19. Garfinkle took his position despite the fact that the May 14, 1997 Power of

Attorney did not contain statutorily required language necessary to make it a durable or

irrevocable power of attorney. In addition, Garfinkle knew that his sole intention was to use the

5
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 18 of 24

Power of Attorney in a manner that was contrary to Caldwell’s best interests, and solely in the

best of interests of the Garfinkle Defendants and the Barnes Defendants.

Mining Agreement (June 2006)

20. In early 2006, Garfinkle drafted a document entitled Merendon Mining

Agreement in which he sought to create a new contract between Merendon and Caldwell. The

Merendon Mining Agreement was signed by Brost as CEO of Merendon, but was never signed

by Caldwell.

21. Despite his role and position as an agent, associate, attorney, and/or other

representative or Merendon, Garfinkle signed the Merendon Mining Agreement as the purported

attorney-in-fact for Caldwell.

22. Caldwell did not know about, authorize, or consent to the execution of the

Merendon Mining Agreement which contained several recitals which set forth false, adverse

allegations concerning Caldwell, including the false and inaccurate recitation that the Glory Hole

Mining Agreement was “in serious jeopardy of a Caldwell default” in the absence of a settlement

between Caldwell and Barnes.

23. In addition, the actual terms of the Merendon Mining Agreement worked solely in

the best interests of Merendon, and wholly against the best interests of Caldwell. Among other

things, the Merendon Mining Agreement provided that Garfinkle, acting pursuant to the May 14,

1997 Power of Attorney, thereby granted, sold, transferred, and assigned to Merendon all

properties, mining rights, lands, improvements, personalty, hereditaments, choses in action, or

any other property then or formerly standing in Caldwell’s name in either Colorado or Texas,

6
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 19 of 24

including those that were the subject of Barnes v. Caldwell, Case No. C-2251-93-D in Hidalgo

County District Court in Texas.

24. The only purported consideration given to Caldwell for these broad transfers to

Merendon was the payments that were already due to Caldwell under the Glory Hole Mining

Agreement. No new consideration was given to Caldwell for the transfers.

25. Moreover, the consideration to which Caldwell was already entitled under the

Glory Hole Mining Agreement was suspended and/or substantially reduced by the Merendon

Mining Agreement drafted and executed by Garfinkle. For example: [1] the payments that were

already due and in default, and all future payments, were to be suspended until 90 days following

the successful conclusion of the Barnes litigation; [2] Merendon’s obligations and restrictions set

forth in ¶¶ 13-18 of Glory Hole Mining Agreement were stricken, including, inter alia,

Merendon’s obligations to pay Caldwell’s legal fees and court costs in the Barnes litigation, and

restrictions against Merendon’s further transfers of title to the Glory Hole mining claims; and [3]

all consideration to be received by Caldwell and his companies under the Glory Hole Mining

Agreement would thereafter be divided equally between Caldwell (50%) and Garfinkle and/or

his assigns (50%).

26. Thus, the only consideration received by Caldwell for the purported transfer of all

of Caldwell’s Colorado and Texas properties to Merendon – who had no real mining operations

or capabilities – was the significant and substantial reduction of the consideration to which he

was already entitled under the Glory Hole Mining Agreement.

7
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 20 of 24

The Barnes Defendants’ Quit-Claim Deeds to Sentinel (October 2006)

27. On September 6, 2006, Caldwell filed a motion for summary judgment against

Barnes in Case No. C-2251-93-D in Hidalgo County District Court. The motion set forth the

undisputed facts developed through discovery showing that Caldwell had never been served in a

prior Texas state court action commenced by Robert F Barnes (“Barnes”) and that the Texas

state court judgment obtained by Barnes against Caldwell was therefore invalid.

28. Subsequent thereto, Barnes and Garfinkle embarked upon new fraudulent

schemes that were designed to retain unlawful title to Caldwell’s properties.

29. On September 26, 2006, Merendon formed a company Sentinel Mining

Corporation (“Sentinel”), which is also a co-debtor herein, as a Colorado corporation. On

October 6, 2006, four Texas corporations owned by Barnes conveyed the Glory Hole Mining

properties to Sentinel.

30. Caldwell did not know about, authorize, or consent to any of the transfers. The

transfers were contrary to his best interests.

Garfinkle’s Release of Lis Pendens (October 2006)

31. On October 11, 2006, Garfinkle executed, filed, and recorded a Release of Lis

Pendens in Case No. C-2251-93-D, by which he purported to remove and release, on behalf of

Caldwell, any and all Lis Pendenses which Caldwell had filed in Gilpin County or elsewhere in

connection with the Glory Hole Mining properties.

32. Caldwell did not know about, authorize, or consent to any release of any lis

pendens that he had previously recorded in Gilpin County concerning any of his litigation in

Colorado or Texas.

8
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 21 of 24

Garfinkle’s Quitclaim Deeds to the Barnes’ Defendants (October 2006)

33. On October 11 and 12, 2006, Garfinkle executed and recorded a quitclaim deed to

one of Barnes’ corporations, by which Garfinkle purported to convey Caldwell’s interest in Lots

4 through 13 and the West 37 feet of Lot 14 of Central City and a portion of the Harlem 700

patented mining claim to Colorado Cielo Vista Inc. (“Cielo Vista”).

34. Caldwell did not know about, authorize, or consent to the execution, delivery, or

recordation by Garfinkle of any deed to any properties to Cielo Vista. The above transfer was

contrary to his best interests.

35. On October 11 and 12, 2006, Garfinkle executed and recorded another quitclaim

deed to another one of Barnes’ corporations, Colorado Viento Vista, Inc. (“Viento Vista”), by

which Garfinkel purported to convey Caldwell’s interest in a portion of the Old Rice 564

patented mining claim to Viento Vista.

36. Caldwell did not know about, authorize, or consent to the execution, delivery, or

recordation by Garfinkle of any deed to any properties to Viento Vista. The above transfer was

contrary to his best interests.

37. On October 11 and 12, 2006, Garfinkle executed and recorded a quitclaim deed to

another one of Barnes’ corporations, Glory Hole Mining Company (“Glory Hole”), by which

Garfinkle purported to convey the following patented mining claims, or portions thereof, to

Glory Hole: Argo 567 (E 1/2); Capital Prize 5679; Copper Bottom 766 (E 1/2); Esperanza 803;

Mountain & Summit 5612 (E 1/2); Colorado Star 907; Durango 673 (E 1/2); Ivanhoe 118; Tiger

881; and Helmer 148.

9
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 22 of 24

38. Caldwell did not know about, authorize, or consent to the execution, delivery, or

recordation by Garfinkle of any deed to any properties to Glory Hole. The above transfer was

contrary to his best interests.

39. On October 18, 2006, Barnes’ now deceased counsel, Tom Matlock, suddenly

advised the Hidalgo County District Court in Case No. 2251-93-D, by letter, that the case and all

related matters between Barnes and Caldwell had been settled, and thus the case had been

“nonsuited.” As evidence of the purported settlement, Barnes’ counsel submitted:

(a) an Agreed Mutual Nonsuit with Prejudice signed by Barnes’ counsel and by

Martin Werner, acting as the purported attorney for Garfinkle, acting in turn as the purported

attorney-in-fact for Caldwell;

(b) the May 14, 1997 Power of Attorney;

(c) an affidavit by Garfinkle concerning the purported “bona fides of the power of

attorney;”

(d) the 2006 Merendon Mining Agreement;

(e) the 2002 Glory Hole Mining Agreement;

(f) documents evidencing transfers of money to Caldwell’s purported assignees; and

(g) documents regarding Colorado proceedings involving various intervenors in the

Texas case.

40. The purported attorney for Garfinkle, Martin Werner, was President of one of

Brost’s companies (SGD/BRA) that was involved in the Merendon securities frauds. The

purported representation of Garfinkle by a Merendon-affiliated officer, while Garfinkle was

10
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 23 of 24

purportedly acting as an attorney-in-fact for Caldwell, clearly represented a non-waivable

conflict of interest.

41. Neither Caldwell nor his attorneys had any prior knowledge of the purported

settlement and neither Caldwell nor his attorneys authorized or consented to the negotiation,

execution, or filing of any settlement of Case No. 2251-93-D or any related matters. In fact, by

the terms of the August 12, 2006 revocation letter, Garfinkle was clearly and expressly notified

that he had no such power or authority to do so.

42. The first notice that Caldwell and his attorneys received that Barnes and Garfinkle

had executed and filed a settlement with the Court was their receipt of a copy of Matlock’s

October 18, 2006 letter to the Hidalgo County District Court. The first notice that Caldwell and

his attorneys received of the Merendon Mining Agreement, the quitclaim deeds to Sentinel, the

release of the lis pendens, and the quitclaim deeds to Barnes’ corporations did not occur until

much later.

43. As evidenced by the terms of the unauthorized agreements and unlawful transfers

described herein, the purported settlement was wholly against the best interests of Caldwell, and

designed solely to further the improper and unlawful objectives and interests of Barnes

Garfinkle.

44. On October 31, 2006 and December 19, 2006, Caldwell’s attorneys filed

pleadings which challenged the validity and effect of the settlement agreement, moved to set

aside the stipulated nonsuit, and requested that the court retain jurisdiction of the case.

45. On January 8, 2009, Garfinkle advised the Hidalgo County District Court in Case

No. 2251-93-D, by letter, that:

11
 Case 09-11958-AJC Doc 274 Filed 09/22/11 Page 24 of 24

(a) he did not believe that the “attempted revocation” of his Power of Attorney was

valid;

(b) he did not believe that the “attempted revocation” could be used to revoke his “50

percent ownership interest in all of the properties”;

(c) he had concerns, however, that the Texas Supreme Court may construe the Power

of Attorney as “having been revoked prior to (his) execution of the settlement agreements”; and

(d) he was therefore requesting that the case be “put … back procedurally to the point

it was at prior to (his) execution of the settlement agreements and allow it to proceed to trial and

resolution.”

46. As a result, the Agreed Mutual Nonsuit with Prejudice was revoked and/or

overturned.

47. Despite the revocation, Barnes and Garfinkle failed and refused to cancel any of

the unauthorized agreements or to reverse any of the unauthorized transfers which they executed

in furtherance of their purported settlement. Thus, each quitclaim deed from the Barnes

corporations to Sentinel executed on October 6, 2006 and each quitclaim deed executed by

Garfinkle to the Barnes corporation on October 11, 2006 remained of record.

48. At all relevant times, Garfinkle knew or was recklessly indifferent to the fact that

he:

(a) did not have valid authority under the Power of Attorney;

(b) was acting in a manner that was plainly contrary to Caldwell’s best interests;

(c) was acting in a manner that was plainly intended to serve his improper and
unlawful objectives.

# 1189051 v1 12