Gavel

A month after Ed Stolz sought chapter 11 protection to block the sale of his three FMs, the Royce International Broadcasting founder is asking a federal bankruptcy court in Nevada to force receiver Larry Patrick to turn control of the stations back over to him. Citing federal law, Stolz says any custodian with knowledge of the case cannot take any action – including selling the stations – and must transfer the property back to the debtholder’s control.

“The property of the debtor in a receiver’s possession is considered property of the state under [federal law] and is to be turned over by any custodian,” Stolz argues in a motion filed in Reno. “A receiver who continues to exercise post-petition control over property of the estate without the bankruptcy court’s authority does so unlawfully,” the filing added.

Judge August Landis has not yet ruled on the request and Patrick’s attorney has made it clear they have no immediate plans to turn the stations back over to Stolz. Attorney Rory Miller told Stolz’s legal team that doing so would violate their obligation to act in the best fiduciary responsibilities.

“We will not do so absent a direct court order,” Miller said in an email to Stolz’s attorneys. In a separate email, Miller purportedly said that Stolz is “singularly unfit to have anything to do with the properties, whether within or without the bankruptcy protection process.” He goes on to say that there is “no clearer example” of where the interests of the creditors would be best served by keeping Patrick in place as the custodian of the stations. The emails were shared with the Federal Communications Commission.

The near-term impact may be at the FCC, where Stolz has alerted the agency of his bankruptcy filing and questions about whether Patrick has the legal authority to go forward with the pending $6 million acquisition by VCY America of the former CHRs “92.7 The Revolution” KREV San Francisco, “104.3 Now” KFRH Las Vegas, and “Hot Hits 97.7” KRCK-FM Palm Springs, CA.

Stolz’s legal team tells the FCC that Patrick “no longer has the authority to sell the radio stations” and that he must turn the keys back over to their owner. “In defiance of federal law, Patrick has refused to turn over the radio station assets or even to initiate the process of seeking FCC consent to the return of the station licenses to the bankruptcy estates,” they added.

The FCC is likely to leave the decision on whether Patrick can remain the receiver to the federal courts. But any approval of VCY America’s nearly year-old deal to buy the FMs is not expected until there is a resolution. While it waits, VCY America has already put its religious format on the FMs under a local marketing agreement.

Stolz has been fighting the potential sale of his stations for months and his maneuver in bankruptcy court came on the heels of an update provided by Patrick to Judge Jesus Bernal who has been overseeing the case that stemmed out of a copyright infringement suit brought by several music companies against the Stolz-owned stations. Stolz has paid the $1.3 million that was due to the copyright holders whose case trigger the two-year battle. But Patrick told the court in October that since Bernal ordered Stolz on Aug. 26 to pay $642,190 in fees and costs to cover the receivership and $340,040 to the Bellaire Towers Homeowners Association, nothing had been paid.