A federal bankruptcy court trustee overseeing about 80 ongoing cases has committed "serious errors" in some of them, a judge said in court yesterday, but turned aside a motion to suspend the trustee from further involvement in bankruptcy cases.

Instead, Judge Robert Faris ordered trustee Ronald Kotoshirodo and Dawn Smith, a private attorney demanding Kotoshirodo's ouster from the trustee's job, to mediate their differences out of public view.

"It's the first time I've ever ordered parties to mediate," Faris said in court. "It's the first time I've had a case like this."

The ruling left three of Smith's clients puzzled and frustrated, as they have waited months and even years for Kotoshirodo to conclude their bankruptcy cases and distribute funds to them and their creditors.

One of them, Tracy Jean Haugen, said she was reduced to living in a van on the North Shore while she waited for Kotoshirodo to close her case and distribute proceeds from the sale of her Mililani condominium.

The home was sold in January 2005, and after the outstanding mortgage was paid, the balance to Haugen's bankrupt estate should have been around $90,000, according to paperwork filed by Smith for Haugen.

Haugen did receive some of that money, $22,000 in early 2005, and used it to buy a van, pay living expenses for her two children and back rent and utility bills, she said.

"This has been a terribly difficult time in my life," Haugen said in a prepared statement.

She said she repeatedly called Smith to ask when she would get more money from the sale of the home and was told that Kotoshirodo "was working on it."

"This went on and on and on," Haugen said.

"I was unable to acquire a decent occupation to get back my life, as I had no address or home."

Haugen did receive an additional $5,000 from Kotoshirodo in April of last year after she and Smith regularly called Kotoshirodo and the Office of the U.S. Trustee, which acts as the the federal government's watchdog over bankruptcy cases here.

Kotoshirodo is one of several trustees who administer bankruptcy cases for the Office of the Trustee.

Haugen said she's still waiting for the balance owed her. "I believe that there should be at least $35,000 due to me after all the debts are paid," she said.

Kotoshirodo filed reports in 2005 and 2006 stating that he had not collected or distributed any money in Haugen's case.

He has since filed court papers acknowledging errors in Haugen's case, stating that at one point he "misplaced" an escrow check for $42,706 and finally got the escrow company to reissue the check in April 2006.

He said he "accepts full and sole responsibility for this error by his staff and himself," and also argued that he had obtained a higher sales price for Haugen's home and also negotiated other agreements in her case that financially benefited her.

Kotoshirodo said in court papers that he had been "overwhelmed" by the responsibilities of operating one large bankrupt company while it completed financial reorganization while dealing with unspecified "serious personal problems."

Kotoshirodo blamed errors in financial reports on his July 2006 switchover to a new computer software program, which is supposed to automatically generate interim financial reports in bankruptcy cases.

"It appears the interim reports for approximately 12 cases were not generated," Kotoshirodo said in a court filing. "I do not know why."

In the hearing yesterday, Faris said he appreciated Kotoshirodo's candor in acknowledging "serious errors" that were "apparently widespread."

He said the trustee's admissions "make alarm bells ring in my head."

But the judge said that Smith's motion for suspension of Kotoshirodo contained "very little admissible" evidence and cited "no legal standards for removal."

And he warned her that her motion "could backfire" because "serious complaints" had been made against her in two other bankruptcy cases.

Both Kotoshirodo and Smith "face a risk of a really disastrous outcome" if they don't find a way to settle their differences through the mediation process, Faris said.

He told them that they are risking "your reputations and your livelihoods."

"Both of you have done a lot of good for a lot of people," Faris said.

"You're not going to have to like each other, but you both have to coexist."

After the hearing, Kotoshirodo referred questions to his lawyer, Bradley Tamm, who said it would be inappropriate to comment.

Tamm did say that Kotoshirodo is "an excellent trustee" with "absolutely no intentions" of stepping aside from bankruptcy work.

And Tamm noted that since Congress overhauled the bankruptcy court system in 2005, the workload for trustees has substantially increased while their compensation has not. As a result, Tam said, trustees nationwide "are leaving in droves." In Hawai'i, the four-member panel of trustees has shrunk to two and may soon be down to just one: Kotoshirodo, Tamm said.

Smith said after the hearing that she was puzzled by Faris' allusions to complaints made against her in other cases, saying they had nothing to do with her allegations about Kotoshirodo's work as a trustee.

"I have nothing against mediation," she said. "All I want is for my clients to get a fair shake."

If you know that a particular money trail will lead to boondoggle, excessive spending or white elephants, reach Jim Dooley at 535-2447 or jdooley@honoluluadvertiser.com