Trustee to Replace Baldwins in Company

SANTA BARBARA —  Brothers James and Alfred Baldwin lost control of their Baldwin Co. residential development firm Thursday as creditors of the financially crippled business won a Bankruptcy Court order installing a trustee to oversee the company.

The move clears the way for a new $8-million operating loan for the Newport Beach-based company, which has been without funds for several months.

The prospective lender, an arm of the giant Merrill Lynch & Co. brokerage, had refused to extend the company additional credit unless the Baldwin brothers were removed from active management.

Los Angeles lawyer David Gould is expected to be approved as trustee today by federal Bankruptcy Judge Robin Riblet, who has been hearing the Chapter 11 case in her Santa Barbara courtroom since it was filed there in July.

Gould will then hire a professional manager--expected to be longtime Southern California building industry executive James Johnson--to run Baldwin Co., said the creditors’ attorney, David Frauman. Johnson is president of Lusk Co., another privately owned Newport Beach home builder.

A Thursday hearing has been scheduled to approve terms of the new loan and Johnson’s appointment as manager, Frauman said.

Neither Baldwin brother was in court Thursday to witness the end of their effort to maintain control of the company their father founded 39 years ago.

Frauman said the Baldwins’ ouster was necessary to preserve company assets to help repay the unsecured creditors--a group of bond investors and building trades suppliers and subcontractors collectively owed more than $170 million by the company.

Additionally, Baldwin Co. owes $85 million to its lenders, a group that includes the Merrill Lynch subsidiary.

Baldwin Co. has housing developments on about 5,000 acres in Orange, Los Angeles, San Diego and Ventura counties. Work on most of projects has been stopped for months because the company has not had sufficient cash to pay subcontractors.

Thursday’s hourlong hearing capped a month in which the Baldwins were accused of self-dealing by a Merrill Lynch executive after reportedly attempting to cut a private deal that would have put the building company into foreclosure and deprived creditors of repayment while benefiting the brothers.

The Baldwins could not be reached for comment Thursday. They did not contest their removal but have filed court papers claiming that Merrill Lynch has misrepresented their intent.

In a sworn deposition, Karen G. Morely, a Merrill Lynch Asset Management Co. executive, said that in several conversations in early April, James Baldwin tried to persuade her to let the Baldwin Co. go into foreclosure so that either Merrill Lynch or he and his brother, backed by another Wall Street investment firm, could purchase the company’s assets at bargain-basement prices.

The brothers still control more than 16,000 acres of Southern California residential land through Village Development, a separate company not involved in the bankruptcy.