La Casa de la Raza Disagrees

An Update to the Bankruptcy Court's Decision

Earlier this year, La Casa’s Michael Gonzalez (left) and Mark Martinez said the nonprofit wants to sell. A bankruptcy judge recently ruled against that option.
Paul Wellman (file)

On Tuesday, July 17, a U.S. Bankruptcy Court judge dismissed La Casa de la Raza’s case from bankruptcy proceedings. The judge rendered her decision based on procedural accountings without considering La Casa’s practices for the past 30-plus years. We disagree with her decision.

The issue at hand is whether the Board of Directors that made the difficult decision to enter Chapter 11 bankruptcy proceedings was validly seated. One issue is that a minority of the Board members remained beyond the two terms stated in the By-Laws. Yet, for decades, long-term Board membership was a regular practice.

The other issue is that La Casa’s By-Laws state that the organization is a membership organization. But La Casa has not operated as a membership organization for over 30 years. No one pays dues. There is no current membership roster. To the contrary, every Board member was fully vetted and underwent the procedures for becoming a Board member, including submitting a letter of intent and resume, being interviewed by Board member(s), and voted on by the Board.

In other words, the Board is legitimate and authorized to make decisions on behalf of La Casa de la Raza. And yet, the judge ruled that the sitting Board wasn’t authorized in February 2016 to file for Chapter 11 bankruptcy. If this were true, then the same logic would invalidate all of the Board decisions going back over 30 years.

It is curious that the issue of membership had not been raised in the nearly two and a half years of the Chapter 11 proceedings. Tomas Costelo and his lawyer Tony Fisher introduced the issue in what appears to be a strategic manipulation to undermine the legitimate authority of the Board — an effort dismissed by the former bankruptcy judge, who has since retired, but upheld by the bankruptcy judge on July 17. If the desire of Costelo and his company MLG are to continue litigating and to continue racking up attorney’s fees and costs, then they are clearly achieving their goal. One would have hoped that a near $10,000 sanction and an order of contempt by the court against them would have marked an ethical turn by MLG and its attorney, but unfortunately it did not.

This latest move is part of Costelo’s ongoing efforts to gain control of La Casa’s building and the nonprofit organization. In late 2015, he purchased a loan of $525,000 covering La Casa’s debt, without gaining the consent or authorization of La Casa’s Board and without disclosing any paperwork to the Board. He has been charging interest of 14.5 percent to La Casa. This means that Costelo is making in interest alone $228 per day or approximately $6,840 every month. Costelo’s predatory loan has driven La Casa into an unsustainable financial situation. Costelo, as La Casa’s major lender, is working to seize a landmark historic institution in our community for a fraction of its selling price. This is how communities become displaced, a terrible side effect of gentrification.

The Bankruptcy judge’s decision on July 17 means that La Casa no longer benefits from the protections guaranteed under bankruptcy law’s Chapter 11 financial restructuring. We do not want La Casa to go into foreclosure and be sold at well below market value. We, as the Board of Directors, have a fiduciary responsibility to obtain a fair-market value for La Casa’s building, which at 26,000 square feet retains a robust selling price. Unless a financial partner emerges, the Board has no other choice but to sell the building. Following La Casa’s Articles of Incorporation, after covering debts and obligation, “all assets shall be distributed to a nonprofit fund, foundation or corporation that is organized and operated exclusively for charitable purposes.” We intend to continue La Casa’s services.

On Monday, July 30 at 7-8 p.m., join us for a vigil in support of La Casa de la Raza; see facebook.com/lacasadelaraza. Funds are urgently needed to support La Casa’s ongoing programming. We continue to seek qualified buyers for the property and are making plans for La Casa to continue, whether as a partner or leaser in the current building or in another form. So that we can move through this transition with as few losses as possible, the Board welcomes opportunities to work with foundations and financial donors and partners. We seek the community’s financial support and its vital energy, ideas, and concrete help to organize fundraising events.

Instead of fighting predatory financial loans and legal attacks, we ought to be able to spend our time providing the kinds of crucial services, programs, and space to the working poor, the backbone of this economy. La Casa remains open to all. We can’t do this without you.

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