A sales auction of the debt-ridden RightStar group of cemetery and funeral home companies did not produce a single qualified bid, but the companies' financial health is improving and they will be re-auctioned, a state judge was told yesterday.

All 50,000 customers holding funeral and/or burial service contracts with the companies will have their contracts honored, various attorneys involved in the RightStar foreclosure case told Circuit Judge Sabrina McKenna in a briefing on the status of the case.

RightStar, a start-up company incorporated in Nevada, purchased Valley of the Temples Memorial Park on O'ahu, Homelani and Kona Memorial Parks on the Big Island and Maui Memorial Park in 2001.

The previous owner was in bankruptcy proceedings in Delaware.

RightStar also purchased numerous Hawai'i pre-need funeral plan providers, including 50th State Funeral Plan.

Las Vegas-based Vestin Mortgage, RightStar's principal lender, filed a mortgage foreclosure suit here in 2004, alleging it was owed more than $36 million. McKenna appointed Guido Giacometti as receiver to run the companies while the foreclosure suit is pending.

Giacometti's attorney, Diane Hastert, yesterday balked at briefing McKenna in open court about the results of the RightStar auction and asked to submit the information to the judge under seal.

McKenna, however, ordered some information to be placed on the record, saying, "I do consider this a public matter and the public needs to be informed about what's going on."

Hastert then told the judge that two "non-conforming bids" from qualified buyers were received by the Feb. 29 auction deadline.

It's believed that the bids were less than the $25 million minimum price set last year by the state attorney general's office and Vestin.

Deputy Attorney General C. Bryan Fitzgerald told McKenna that a third bid was also received but it was "unacceptable."

He indicated that the third bidder offered more money but could not have received a state license to operate a funeral home or cemetery.

"The amount was correct but the bidder was not license-able," Fitzgerald said.

A new sales auction may be scheduled or sales conditions may be amended, McKenna was told.

Fitzgerald said that Giacometti has "dramatically improved" the financial condition of RightStar.

"I'm not discouraged," McKenna told various attorneys involved in the long-running case.

She said she was pleased to hear that an "interim business management team" is being brought in to "improve the market value" of the companies.

The state is pursuing other litigation against the former owners of RightStar, alleging that they fraudulently removed some $20 million the company held in trust for the benefit of RightStar customers.

That suit alleges that four trustees responsible for protecting the funds, including former Gov. John Waihee, should have stopped the improper removal of funds.

The former RightStar owners and former trustees have denied wrongdoing.

Former RightStar executive John Dooley was indicted on a theft charge in December 2006, but authorities have been unable to locate him.

Reach Jim Dooley at jdooley@honoluluadvertiser.com.