Martin List Files for Reorganization Under Chapter 11

Martin List, the one-time Newport Beach physician who made millions in Colorado real estate and bought an Orange County bank, has filed a petition in U.S. Bankruptcy Court in Santa Ana to reorganize personal debts totaling $129.7 million.

The Chapter 11 filing under federal bankruptcy law allows List to continue operating his business ventures, mostly in Colorado Springs where he has about 7,700 acres, while he and creditors work out a repayment scheme.

List’s assets were not detailed in the petition, but his attorney, Phra A. Blakely, said they totaled about $100 million.

Among List’s interests in Orange County are a 95% stake in List American Bank in Newport Beach and a Holiday Inn hotel he and a group of investors are building off the San Diego Freeway in Huntington Beach.

Blakely said List and one of List’s major companies, ML Properties Inc., which also filed a bankruptcy petition, expect to repay all their debts.

“It’s a cash-flow situation that needs some time to catch up,” Blakely said. List, who could not be reached for comment, and his creditors are dealing “in good faith” and “not in an atmosphere of bitter hatred,” the lawyer said. The largest creditor is owed about $15 million.

Most of List’s unsecured debts of $98 million are in the form of personal guarantees to back up secured loans taken out by ML Properties, Blakely said. As the company repays its debts, List’s debts will be reduced.

Neither the List petition nor the ML Properties filing affects List American Bank, said William Diethrich, president of the Newport Beach-based bank. The bank was called Orange City Bank before List bought it last year.

“Ironically, the bank is in the best shape it’s ever been in,” said Diethrich, noting that federal regulators completed a routine audit of the bank in December.

Concerned that news of List’s bankruptcy might cause a run on deposits, Diethrich pointed to the December audit to show the bank’s health. Loans criticized by regulators, for instance, fell last year to 3.8% of the total loans--about $1.6 million--from 9.6% the previous year and 23.9% in 1984.

The bank’s net income last year was $430,000, contrasted with successive annual losses as Orange City Bank of $649,000 in 1985 and $2.3 million in 1984. Its assets at the end of 1986 rose 24.4% to $70.4 million from $56.6 million a year earlier. Similarly, total deposits rose 23.4% to $65.7 million from $53.1 million, and the loan portfolio grew 21% to $43.2 million from $35.7 million.

“To my knowledge, few other small institutions enjoy the complete autonomy and freedom from ownership dictation that we at List American Bank do,” Diethrich said. “Nor will we be asked to make loans which benefit insiders.”

Raised Capital Base

List paid about $4 million for 95% of the bank, putting $600,000 down and issuing a promissory note for the rest. He also put $1 million into the bank’s capital base to raise it well above the level that regulators consider safe.

A bold and daring risk-taker, List had abandoned a profitable career as a cancer specialist in 1982 to concentrate on the potentially more lucrative real estate market.

His goal was to build his personal wealth to the point where he could fund his List Foundation, a philanthropic, educational institution established last year, with $1 billion of his own money.

The real estate market, however, slowed down.

The bankruptcy petitions were the result of “overall economic conditions in the land development business, mostly in Colorado,” Blakely said. “Two or three years ago, land values (there) were increasing. It was wonderful. But that’s changed.”

Lenders also have been refusing to refinance higher-interest loans taken out by major developers like List without prepayment penalties, he said.

Times staff writer John Spano contributed to this story.