“It’s expensive to be me / Looking this good don’t come for free.”
—Erika Jayne, “XXpen$ive”

Real Housewives of Beverly Hills cast member Erika Girardi, more commonly known as Erika Jayne, is the latest example of just how powerful (and expensive) an involuntary bankruptcy proceeding can be.

In December 2020, six petitioning creditors commenced involuntary chapter 7 proceedings under section 303 of the Bankruptcy Code against Tom Girardi, the attorney who had represented Erin Brockovich (yes, that Erin Brockovich) against Pacific Gas and Electric Company in the 90s, and his law firm, Girardi & Keese. These involuntary petitions came amid allegations that Mr. Girardi had embezzled millions of dollars from his clients and business partners.

Shortly after the involuntary petitions were filed, the United States Bankruptcy Court for the Central District of California entered orders for relief and appointed chapter 7 trustees in both cases. To date, neither Mr. Girardi nor his firm have made an appearance in the proceedings.

Although Ms. Girardi filed for divorce just a month before the bankruptcies, that wasn’t enough to distance herself from embezzlement allegations or protect her from the reach of the chapter 7 trustee. In June, the trustee, through special litigation counsel, filed motions under Federal Rule of Bankruptcy Procedure 2004 seeking the production of documents and records from Ms. Girardi’s landlord, family law attorneys, and accountant.

Recently, the trustee filed an adversary proceeding against Ms. Girardi and her business entities to avoid and recover $25 million in transfers (including jewelry, luxury items, and lottery payments). The trustee contends that Ms. Girardi conspired with her husband and his law firm to hide assets meant for victims of Mr. Girardi’s ongoing cases, concluding that “Erika has used her glamor and notoriety to continue to aid and abet in sham transactions that have occurred with respect to large transfers of assets” from Girardi & Keese.

The adversary proceeding was filed a week after the bankruptcy judge entered an order lifting the automatic stay of section 362(a) of the Bankruptcy Code, subject to certain terms, to allow Mr. Girardi’s former client to continue collection efforts against Ms. Girardi in non-bankruptcy courts. Prior to the bankruptcies, one particular client obtained an $11 million judgment against Mr. Girardi for failure to pay over settlement proceeds. The bankruptcy judge’s order authorizes the client to go after Ms. Girardi to recover on the judgment.

As the trustee continues to dig into Ms. Girardi assets, it is possible that more adversary proceedings will be filed against her to avoid and recover other transfers the trustee believes are within the firm’s bankruptcy estate and therefore subject to the trustee’s avoidance powers. Ms. Girardi serves as an example of just how powerful an involuntary bankruptcy proceeding can be, particularly with respect to their reach as to individuals and entities ancillary to the debtors.

(Although there are potential pitfalls to the filing of an involuntary, a topic which will be addressed in a future Nelson Mullins’ blog post).