PrintPrintLess than a week after a judge approved the sale of Daufuskie Island Property’s resort, creditors have filed objections to and a lawsuit against the plan to disburse proceeds from the sale. The major concern outlined in one lawsuit is how the property was identified and valued in the trustee’s disclosure statement.
By Andy Owens
aowens@scbiznews.com
Published Jan. 4, 2010
Less than a week after a judge approved the sale of Daufuskie Island Property’s resort, creditors have filed objections to and a lawsuit against the plan to disburse proceeds from the sale.
The $49.5 million sale, which a bankruptcy judge approved after a hearing Wednesday in Beaufort, would transfer Daufuskie Island Resort & Breathe Spa property to Montauk Resorts LLC of North Carolina, according to bankruptcy court documents.
Montauk is owned by former NFL defensive back Mike Bass, who lives in Gainesville, Fla. Bass, reached at his home last week, asked not to be quoted because details were still being worked out. Court documents show that the sale is set to close Jan. 15.
How that money will be distributed is still in contention, as creditors filed motions over the weekend disputing their classification as secured or unsecured creditors, the trustee’s identification of liens and the process by which the trustee performed appraisals of the property.
The timing of the motions was coincidental and somewhat procedural. The motions were not filed in response to the approval of the sale but were in response to a liquidation plan submitted Nov. 20 by the trustee of the property, Robert C. Onorato.
“The sale will be approved as soon as the judge signs the order,” said attorney Barbara Barton. Barton is representing Carolina Shores LLC in a lawsuit filed Jan. 3 against the trustee.
The major concern outlined in that lawsuit is how the property was identified and valued in the trustee’s disclosure statement, she said. The suit said there was no information offered on actual market value of the property or the method of appraisal. The suit said the disclosure statement doesn’t offer enough information for Carolina Shores or other creditors to determine whether they’re being treated fairly and getting an accurate appraisal for the property on which they’re owed money.
“The problem that you have here is you have lots of different pieces of property and lots of different mortgages on lots of different pieces of property,” Barton said. “Everyone wants their piece of property to be the most valuable.”
The Chapter 11 plan Onorato filed with the bankruptcy court shows that Carolina Shores is owed more than $27.7 million on various parcels owned by Daufuskie Island Properties.
The trustee said that he views some of that debt as unsecured and that what the company will be paid depends on what it brings at sale after other senior lienholders are paid. Barton has asked the court to force Onorato to clearly disclose which properties have liens from specific creditors, as well as his method of appraisal.
Other claimants taking issue with the disclosure agreement are the property’s former owners, William R. Dixon Jr. and Gayle Dixon. The Dixons took ownership and operation of the Daufuskie Island Properties resort, development property and related assets in 2002.
The couple claims it is owed more than $93 million under an operating agreement signed with Daufuskie Island Property LLC on May 13, 2002, which indemnifies the couple and agrees to pay any claim or judgment against the Dixons unless the loss was from “gross negligence.”
The Dixons’ claim includes the $27.7 million owed to Carolina Shores, a $35 million lawsuit against them by the trustee, a $1.5 million loan from William Dixon’s mother, Ruth Dixon, several mortgages on different properties and nearly $100,000 in legal fees.
“The Daufuskie Island operating agreement has an indemnity for any losses incurred,” said their attorney, Lindsey Cooper. “Over the course of time, when they bought it in 2002, they guaranteed certain obligations.”
He said that now that the sale has been approved by the court everyone is teeing up and hoping to get a bigger piece of the pie. He said the Dixons did not object to the sale of the land during the hearing last week, though others did.
“Now, if the sale goes through, $49.5 million is going to come into the estate,” he said.
Like the Carolina Shores claim, the trustee has determined that some of the Dixon’s claims are for unsecured debt, he said.
“We believe we are secured,” Cooper said.
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