Judge Indicates He’ll Name a New Manager for TMI Fund : Lawsuit: Trouble-shooter Dennis B. Schmucker would handle most of its real estate partnerships.

A Superior Court judge in Orange County indicated Tuesday that he is going to remove nearly all the real estate assets of a $1-billion teachers investment fund from the control of its current managers.

Judge Francisco F. Firmat said at a court hearing in Santa Ana that he will appoint a manager to take over more than three quarters of the real estate partnerships controlled by Newport Beach-based Teachers Management & Investment Corp.

Firmat said he intends to make the appointment today. Attorneys on both sides confirmed that the new manager will be Dennis B. Schmucker, a veteran Southern California real estate trouble-shooter.

The judge’s action came as part of a civil lawsuit filed in August filed by four investors who allege that TMI fraudulently lost $100 million of investment funds--most of it in money invested by teachers for their retirement.

The judge has cited evidence of conflict of interest and improper movement of funds by the investment company. Maurice B. Shuman and James R. Martin, who bought the company in 1987, have denied doing anything wrong or improper. Neither Martin nor Shuman would comment Tuesday.

Their attorney, David Grant, called Firmat’s proposal “a fair resolution for the investors. . . . We don’t agree with the complaints, but we’re willing to do what’s best for investors.”

Firmat said Tuesday that “an interim management agreement” is nearly completed “that I think will resolve the concerns of both sides and preserve the assets.”

Under its terms, Shuman and Martin would keep control of TMI itself and three limited partnerships. Schmucker would be appointed to manage 30 of the remaining limited partnerships, according to the proposal. Five other partnerships are in bankruptcy.

Schmucker would decide whether to restructure, reorganize or sell the company’s assets and report back to the court next month.

Schmucker has handled several high-profile bankruptcy reorganization cases in the past 10 years, including those of Pioneer Mortgage in San Diego and American Home Mortgage in Newport Beach.

Shuman and Martin have maintained that losses on the partnerships resulted from a depressed real estate market in California. TMI has raised about $1 billion from 60,000 California educators since 1968.

One of the plaintiffs in the suit, Kay Seibert of Anaheim, who was in the courtroom Tuesday, said she was generally pleased with the proposed plan. “If they are going to recover anything,” she said of court officials, “this is the way to do it. I feel a whole lot better.”

Another investor, Steve Gorelick of Northridge, said he too is pleased “because an outside person will have more insight.” He and his wife, Betty, a teacher, have all their retirement funds invested with TMI, he said.

Under the plan, Martin and Shuman would keep control of three partnerships: Columbia Square Ltd., which owns 154 acres of land in Santa Barbara County; the Parducci Winery, which owns a winery in Mendocino County, and Napa Airport Center, which owns 138 acres of land near the city of Napa.

But Schmucker would have the power to veto decisions made on those partnerships, said Ron Rus, attorney for the investors who filed the lawsuit.

TMI, which hired teachers to help sell its real estate partnerships to other teachers, is insolvent, according to the suit, which sought immediate appointment of a receiver to take over the management of the company and its assets.

The suit, filed Aug. 23, alleges that TMI commingled funds from several partnerships into a general account in violation of partnership agreements to “conceal the true financial condition of the most distressed of the TMI partnerships and . . . perpetuate a false sense of TMI prosperity.”

The suit also alleges a pattern of “self-dealing” that involved the “unauthorized siphoning of millions of dollars in partnership funds to affiliated entities” formed by TMI’s owners.

Though Judge Firmat stopped short of appointing a receiver to take over the company, he said during a court session Monday that he saw evidence “of commingling of funds and conflict of interest.” He did not elaborate.